Source: E-mail dt. 6 July 2012
The Road ahead for the MSMEs
U. Punitha
Assistant Professor,
Department of Business
Administration,
SSM College of Arts and Science,
Komarapalayam
Overview
of the Indian MSMEs
The Micro, Small
and Medium Enterprises (MSMEs) are a vital part of the Indian economy
contributing to over 45% of industrial production and around 40% of the total
exports. There are about thirteen million MSMEs in India employing around 31
million people, easily the single largest contributor in terms employment
generation in the manufacturing sector. MSMEs are present as part of the value
chain in almost all distinguished industry sectors like automotive industry,
gems and jewellery, IT hardware industry, garments
and textile industry, leather industry and drug and pharmaceutical industry.
The sector has
recorded consistently good growth in terms of production and exports over the
years as can be seen in the following table:
Year |
Number of
Units (in lakh) |
Production (Rs. Crore) |
Employment (in lakh) |
Exports (Rs. Crore) |
2002-03 |
109.49 |
3,06,771 |
263.68 |
86,013 |
2003-04 |
113.95 |
3,36,344 |
275.30 |
97,644 |
2004-05 |
118.59 |
3,72,938 |
287.55 |
1,24,417 |
2005-06 |
123.42 |
4,18,884 |
299.85 |
1,50,242 |
2006-07 |
128.44 |
4,71,663 |
312.52 |
N.A. |
Source:
Office of the Development Commissioner (MSME)
The small and
medium enterprises (SMEs) have often been commonly been used to describe a wide
range of enterprises without clear definitions of the exact constituents in the
category. With the enactment of the Micro, Small and Medium Enterprises
Development Act, 2006 (MSMED Act), the definitions and coverage of the sector
have been broadened significantly.
As per MSMED Act, a
Micro enterprise engaged in the manufacture or production of goods will be the
one, where the investment in plant and machinery does not exceed Rs. 25 Lakhs, a Small enterprise engaged in manufacturing or
production will be the one, where the investment in plant and machinery is
greater than Rs. 25 Lakhs but does not exceed Rs. 5 Crores, while a medium enterprise will be one having plant
and machinery investments more than Rs.5 Crores but
not exceeding Rs. 10 Crores.
In case of service
industries, a Micro enterprise will be the one where plant and machinery does
not exceed Rs. 10 Lakh, a Small enterprise will be
the one where plant and machinery investment is more than Rs. 10 Lakh but does not exceed Rs. 2 Crores,
while a medium enterprise providing or rendering services will be the one,
where the investment is more than Rs. 2 Crores but
does not exceed Rs. 5Crores.
Realizing the
tremendous contribution of the MSMEs in industrial production, employment
generation and exports, the Government of India has introduced several policies
to increase business and promote growth among the MSMEs over the past few
decades. While the earlier policies were directed towards providing protection
in a controlled economy like reserving production of 873 items for SSIs,
introducing high tariff barriers to protect local units and having equity and
foreign investment restrictions, there has been a change of direction in policy
making in the post liberalized economy from protection to increase competitiveness.
Some of the major initiatives taken by the Government in the recent years
include:
• Implementation of
the Micro, Small and Medium Enterprises Development Act (MSMED Act), 2006.
• A “Package for
Promotion of Micro and Small Enterprises” was announced in February 2007. This includes
measures addressing concerns of credit, fiscal support, cluster-based
development, infrastructure, technology, and marketing. Capacity building of
MSME Associations and support to women entrepreneurs are the other important
features of this package.
• To make the
Credit Guarantee Scheme more attractive, the following modifications have been
made:
Ø
Enhancing
eligible loan limit from Rs. 25 lakh to Rs. 50 lakh
Ø
Raising
the extent of guarantee cover from 75 per cent to 80 per cent for micro
enterprises forloans up to Rs. 5 lakh,
MSEs operated or owned by women and all loans in the North-East Region and
Ø
Reducing
one-time guarantee fee from 1.5 per cent to 0.75 per cent for all loans in the
North-East Region.
• The phased deletion
of products from the list of items reserved for exclusive manufacture by micro
and small enterprises is being continued. 125 items were teraserver on March
13, 2007, reducing the number of items reserved for exclusive manufacture in
micro and small enterprise sector to 114. Further, 79 items were de-reserved
through a notification dated February 5, 2008.
How are the MSMEs coping with the changes? Some of the traditional strengths of the
MSMEs have been relatively low investment requirements, effective utilization
of resources of capital and skills, greater operational flexibility and
mobility, and higher innovativeness. At the same time, MSMEs are still
grappling with critical business challenges such as access to finance and
resources, access to markets along with operational and productivity
challenges. The situation can be improved by providing innovative financing
options like equity based financing and receivables financing e.g. factoring
besides the traditional debt based financing instruments, facilitating
technology upgrade which will improve the quality of products and increased
focus in human resource and skill development. MSMEs have to adhere to industry
best practices and harness the power of information and communication
technology (ICT). The future of the
MSMEs will depend
on overcoming the challenges thrown in a liberalized world and by enhancing
their competitive in an increasingly global economy.
Importance of
MSME sector for the growth of India
The SME sector plays
a vital role in the growth of the country. It contributes almost 40% of the
gross industrial value added in the Indian economy. It has been estimated that
a million Rs. of investment in fixed assets in the small scale sector
produces 4.62 million worth of goods or services with an approximate value
addition of ten percentage points.
By its less capital
intensive and high labour absorption nature, SME
sector has made significant contributions to employment generation and also to
rural industrialization. This sector is ideally suited to build on the
strengths of our traditional skills and knowledge, by infusion of technologies,
capital and innovative marketing practices.
Hurdles faced by
MSMEs & steps needed to be taken to overcome them
Apart from issues
such as timely & adequate availability of finance/credit, technological
innovation, trained manpower, the key challenges, are to ensure the 12 % rate
of growth in real terms and enhance its contribution to the national GDP.
Perhaps key steps needed to overcome these include ensuring of an enabling
policy environment for such sustained, high growth rate …. Promote measures to
accelerate the opening–up of SME sector to the globalised (WTO) environment….
changing role of the states in the development of a National policy for the
Small industry…. and to integrate economic development of the Indian Small
industry with the global economy in a truly multilateral trade regime.
How can Indian
MSME sector be more competitive?
Global competition
is the name of the game today. Across countries, across regions there is a
drive to enhance competitiveness. Competitiveness of nations,
industry sectors and individual units. The pressure of competition is
being felt with increasing intensity as the world opens up to trade and
commerce in the post WTO regime. No where is the
impact being felt as hard and as harsh as the SMEs sector. I reiterate that it
is imperative that in order to attain the desired growth rate of 12 %, and
increase the GDP contribution (to 7%+) of this sector to the national economy,
future focus has to be in areas of Cluster development, Finance, Technology, Operating Environment
& the implementation of the
Micro,
Small & Medium Enterprises Development (MSMED) Act 2006.
Exports
performance of SMEs
SME Sector plays a major role in India's
present export performance. 45%-
50% of the Indian
Exports is contributed by SSI Sector. Direct exports from the SSI Sector
account for nearly 35% of total exports. Besides direct exports, it is
estimated that small-scale industrial units contribute around 15% to exports
indirectly. This takes place through merchant exporters, trading houses and
export houses. They may also be in the form of export orders from large units
or the production of parts and components for use for finished exportable
goods. It would surprise many to know that non-traditional products account for
more than 95% of the SSI exports. The exports from SSI sector have been
clocking excellent growth rates in this decade. It has been mostly fuelled by
the performance of garments, leather and gems and jewellery
units from this sector. The product groups where the SSI sector dominates in
exports are sports goods, readymade garments, woollen
garments and knitwear, plastic products, processed food and leather products.
CII too has been proactive with the Ministry of SSI in fuelling the growth of
exports from this sector, by actively engaging with its overseas counterparts
by way of Enterprise series of Trade fairs, Buyer-Seller meets and overseas
delegations. To cap this all CII has institutionalized the India Global Summit
on MSMEs, that is due to be held during 30 –31 October
2007.
Steps need to be
taken to make MSMEs strong in terms of efficiency, quality and technology
The present era of
tough competition has necessciated two key tools –
ICT (Information and Communication Technology) & IPRs (Intellectual
Property Rights) – to be appropriately adapted and implemented. The role of
Venture capital is equally important in promoting their usage among the MSMEs.
While both ICT (Information and Communication Technology) & IPRs
(Intellectual Property Rights) are gradually beginning to capture the
imagination of global MSMEs, however, this image has to be made more endearing.
Specific steps with regards to the following may be
initiated:
What are the
possibilities for integration and the support needed from the Venture
capitalists? How do the Global SMEs move up the value chain without
compromising on cost? Are manufacturing outfits doing enough to adapt ICT &
IPRs, while leveraging their engineering capabilities? How can any entrepreneur
allocate budgetary resources for both ICT & IPRs and finally? What are the
ways in which systemic obstacles can be overcome to ensure deliveries on these
two fronts the ICT & the IPRs?
Benefits of
Cluster Approach
Industrial clusters
are very common in India and all over the world. They enjoy certain advantages
arising out of co-location and sponsorships by Government and Funding agencies.
Their focus has been to build a competitive advantage through clustering of
resources, providing common infrastructure such as tool rooms etc and also
cluster marketing. By its’character, a cluster is
designed to create a synergy for a purpose.
The probable benefits
that accrue as a result of Cluster interventions, include the addressal of issues such as Non- availability of low Cost
Finance, Delays in availability of Finance., Lack of Cost Competitiveness, Lack
of appropriate Technology, Worker skill enhancement, Product Quality, Quality
Management, Old equipment and machinery, Marketing Linkages, Marketing Tools,
Competition amongst the MSMEs', focus on preservation of narrow profit margins
and lack of a poor shared national vision.
The more recent
high growth in the manufacturing sector can be attributed to improvement
initiatives over the last five to six years. Today in some of the large, medium
and small sized industries there is a Quality consciousness and attitudinal
change in both management and unions, that boost the economic development in
general, and the MSME sector, in particular.
Future Scenario
While the
Manufacturing sector would continue to be the flag bearer of the SME growth,
however many of sunrise industries such as Information technology (IT),
Biotechnology (BT), Pharmaceuticals and Nanotechnologies along with IT enabled
services that are in the service sector will also play a significant role in
the growth and development of SMEs. Though the challenges
confronting them are quite different from those faced by traditional
manufacturing industries, however issues such as IPR protection and managing
rapid up scaling of operations would be equally important.
Some of the
recent policy reforms for the MSME sector in India are as Follows:
• A single
comprehensive legislation for the promotion, development and enhancement of the
competitiveness of the MSME sector - Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006 came into effect from October 2006.
• National
Manufacturing Competitiveness Council (NMCC) was set up to energise
and sustain the growth of the manufacturing industry. New Promotional Package
for MSMEs, and focus on accelerating development of clusters.
• Revised strategy
of lending and introduction of newer measures, such as the scheme to establish
Small Enterprises Financial Centres (SEFC) for
strategic alliance between branches of banks and SIDBI located in 388 clusters
identified by ministry of SSI.
• The National
Commission for Enterprises in the Unorganized Sector (NCEUS) has been set up as
an advisory body and a watchdog for the informal sector to bring about
improvement in the productivity of these enterprises for generation of large
scale employment opportunities on a sustainable basis, particularly in the
rural areas.
• Facilitation of
technology transfer through the Technology Bureau for Small Enterprises (TBSE)
• Accelerating
initiatives to address various developmental needs for MSMEs in the 11th Five
Year Plan.
• “Scheme of Fund
for Regeneration of Traditional Industries” [“SFURTI”]
• Guarantee
coverage under Credit Guarantee Fund for Small Enterprises expanded
substantially
• Credit Linked
Capital Subsidy Scheme for Technological Upgradation.
• New legislation
on Limited Liability Partnerships being worked on.
• Emphasis on bi-lateral/ multi-lateral
partnerships at multiple levels.
• Merger of the Ministry of SSI with the
Ministry of ARI.
Conclusion
India has over 3
million MSMEs producing a diverse range of products from very basic to highly
sophisticated products. Despite some of their inherent strengths in uniqueness
and cost competitiveness and MSMEs are facing tough challenges in the present
scenario of liberalization and globalization.
MSMEs have a
significant role in the Indian economy accounting for nearly 40 % of the total
GDP of India and around 35 % of the total exports. Hence it is imperative that
SMEs become globally competitive and usher Indian into double digit growth
figures.
The MSME sector should not be visualized in isolation as the wherewithal for individual enterprise growth but a meaningful, nationwide effort to sustain industrial development and economic growth with justice and equity in our country. Developing world class SMEs can materialize through thematic interventions in technology ICT interventions, cluster development, quality and product innovations, financing and human resource development. The future will depend on facilitating increased collaboration and networking throughout the industry value chain. It is important that we empower the entrepreneurship in the common man to reach the Goldman Sachs prognosis of the BRICS economic order of 2020.