The poverty reduction by an average of one percent over the decade was made possible largely because of the contribution of sectors like small industries, services and construction. The UNDP report calls for 'Bangladesh's intervention in the missing middle' so as 'to support small and medium enterprises (SMEs) for consolidating its recent gains in poverty reduction, or risk losing the track in development efforts.'

The key to poverty reduction in the 1990s was the demand-driven pattern of growth fostered by the success of SMEs. We agree with Prof Mahmud that rural industries can create semi-urban type of demands in addition to the purely rural demands. If we are to achieve the growth rate of Thailand we must create semi-urban demands, said he. Interestingly, the number of semi-urban centres has increased rapidly over the years but the size of market demand has not grown commensurately. It is still mostly a supply-driven rural economy.

The development of small and medium enterprises (SMEs) is hamstrung by lack of access to funds, both in the micro-credit and formal banking sector.

This touches on the wider issue of deficit management versus expansionary policy. It is not surprising that Finance and Planning Minister M Saifur Rahman and UNDP Resident Representative Jorgen Lissner have identical views on this question. Rahman calls the exhortation of the World Bank and IMF to contain the budget deficit to a 4.5 percent band 'an undesired pressure'. The UNDP Resident Representative waxed critical of the developed nations' pressure on the poorer countries to limit the budget deficit while the EU and the US had continued deficit financing for over a decade. With such a track-record, they had better not sermonised the developing countries to reduce deficits. We reckon, this is double standard on top of conditionalities.

The UNDP report rightly advises against an unduly conservative attitude to aggregate demand management. Although budget deficit and inflation must be contained within safe limits, 'occasional blips in deficits should not be allowed to be an excuse for clamping down with a contractionary policy', the report rightly suggests. Basically, we endorse the idea that macroeconomic stabilisation should be maintained in a manner that does not generate extreme poverty; instead, it helps job-creation. The emphasis on reforming the financial sector should not come in the way of addressing the task of mainstreaming 'the missing poor.'

Without good governance in place, the thought of promoting small and medium enterprises should not be even entertained. Whatever credit access is available to the small entrepreneurs is tainted by corruption. Every step of the way, they have to do the palm-greasing, which in effect, raises the cost of setting up industries, let alone that of business. The premium definitely gets reflected on the prices of their products. As if all these were not enough, the incidence of illegal toll collection in the SMEs is the highest in the country.

In the ultimate analysis, it's the growth of effective local self-government institutions providing for a participatory process in terms of decision-making, credit garnering and project formulation at the grassroots that can give the desired push to the development of small and medium industries. Devolution of powers is highly imperative for setting up rural growth centres complete with road, electricity and other infrastructural networks.

The recent revelation that the micro, small and medium industries contribute 25 percent to the GDP, outstripping the contribution of public and private sector industries put together, bears ample testimony to the rich potential the SMEs have to further accelerate national development thereby significantly reducing poverty.