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Small and medium enterprises are central to economic development, particularly in emerging markets.
They are the backbone of a country which wants to project itself as a fully developed nation with
equitable socio-economic growth. Interestingly, 95% of all registered firms across the world are
SMEs, and the number is as high as 99% for regions like Europe. SMEs therefore play an integral role
in fueling the progress of any country, especially in developing economies. In India, SMEs account
for a significant proportion of manufacturing and exports, creating around 1.3 million jobs per year
and employing about 60 million people. The SME sector's contribution equals 40% of Indias total
exports and 8% of Indias GDP. The fact that enterprises which are generally low capitalized and
which use localized resources can impact the employment scenario in such a significant manner, is
truly outstanding. The strongest differentiator for SMEs is the competitive business model, which
emphasizes the use of cost-effective and local resources, capital, processes and labor, ensuring an
effective ROI.
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic
sector of the Indian economy over the last five decades. MSMEs not only play crucial role in
providing large employment opportunities at comparatively lower capital cost than large industries
but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances,
assuring more equitable distribution of national income and wealth. MSMEs are complementary to
large industries as ancillary units and this sector contributes enormously to the socio-economic
development of the country.
MSMED Act 2006: According to Micro, Small and Medium Enterprises act the enterprises are
broadly classified in terms of activity such as enterprises engaged in the manufacturing/ production
and enterprises engaged in services. While the manufacturing enterprises were defined in terms of
investments in plant and machinery, the service enterprises are defined in terms of investment in
equipments. The Act has also defined medium scale enterprises for the first time. The enterprises are
further classified into Micro, Small and Medium categories. The investment limits of these enterprises
are shown in the Table given below.
I.
The value of the small business sector is recognized in economies world-wide, irrespective of
the economys developmental stage. The contribution towards growth, job creation and social
progress is valued highly and small business is regarded as an essential element in a
successful formula for achieving economic growth. The contribution of MSMEs in their
economy in selected countrys shown in the Table given below.
Country Name
Micro
Small
Medium
Per 1000
People
Employment
(% total)
Brazil
93.9
5.6
0.5
27.4
67.0
China
NA
NA
NA
6.3
78.0
India
94.0
3.3
0.3
66.9
Egypt
92.7
6.1
0.9
26.8
73.5
United Kingdom
95.4
3.9
0.7
73.8
39.6
Ghana
55.3
42.0
2.7
1.2
66.0
United States
78.8
19.7
1.5
20.0
50.9
South Africa
92.0
7.0
1.0
22.0
39.0
investment. Over the year investment in fixed assets by MSMEs are remarkable, which is
clear from above table. Productions of MSME sectors (in value) are going to increases over
the year. In 2001-2002 production of MSME was Rs. 2,82,270 Crore where in 2010-11 were
Rs.10,95,758 Crore, so increases in ten year are 288.19%. Percentage wise increase than the
previous year is also remarkable. MSMEss contribution towards employment generation is
remarkable comparing to any other sectors employment generation capacity. Average
employment generated by this sector in last ten years is 466.734 lakh. Growth rate in
employment
MSMES has definetly helped in growth of Indian Economy by creating oppurtunities for
Enterpreneurs and by creating a number of employment vacancies, as well as it has a very
powerful impact on Investments and Gross output also which is explained as below through
the statistics.
III.
Performance of MSMEs
Sl.
No.
Year
Total
Working
MSMEs
(Lakh
numbers)
Fixed
Employment
Investment Average
Average
Employment
Investment
(Lakh
(Rs. crore)
persons)
Production
(Current
Price)
Average
Production
(Rs. crore)
2001-02 105.21
249.33
2.37
154349
1467.44
282270
2682.92
2002-03 109.49
260.21
2.38
162317
1482.48
314850
2875.61
2003-04 113.95
271.42
2.38
170219
1493.80
364547
3199.18
2004-05 118.59
282.57
2.38
178699
1506.86
429796
3624.22
2005-06 123.42
294.91
2.39
188113
1524.17
497842
4033.72
2006-07 261.12
595.66
2.28
500758
1918.54
709398
2717.90
2007-08 272.79
626.34
2.30
558190
2046.23
790759
2898.78
2008-09 285.16
659.35
2.31
621753
2180.37
880805
3088.81
9*
2009-10 298.08
695.38
2.33
693835
2327.52
982919
3297.28
10#
2010-11 311.52
732.17
2.35
773487
2482.94
1095758
3517.46
2006-07
1198817.55
42.02
7.73
2007-08
1322960.41
41.98
7.81
2008-09
1375698.60
40.79
7.52
2009-10
1488390.23
39.63
7.49
2010-11
1655580.60
38.48
7.42
2011-12*
1790804.67
37.52
7.28
RESULTS:
The Fourth All India Census of MSME 2006-07 estimated the size of MSME sector for the
first time taking data from multiple sources. The size of the sector was estimated at 361.76
lakh and 105.21 lakh as compared to Third All India Census of Small Scale Industries (SSI),
2001-02 in terms of estimated number of enterprises. The estimated employment generated
in the sector is 805.24 lakh and 249.33 lakh as compared to Third All India Census of SSI.
The estimated size of number of MSMEs as 361.76 lakh and employment as 805.23 lakh
includes enterprises relevant to MSME sector for the activities pertaining to wholesale / retail
trade, legal, educational & social services, hotel & restaurants, transports and storage &
warehousing (except cold storage) which were excluded from the coverage of both Fourth
Census of MSMEs 2006-07 and Third Census of SSI, 2001-02. For these activities, estimates
were based on data extracted from Economic Census, 2005 conducted by CSO, MOSPI and
accounted for 147.38 lakh and 303.31 lakh in terms of number of MSMEs and employment
respectively. The summary results of the exercise are given below.
The sector as a whole recorded a growth rate of 28.02% and 26.42% in cases of
estimated number of enterprises and employment respectively during the period 2001-02
to 2006-07.
(b.) The growth recorded during the year 2001-02 to 2006-07 in manufacturing sector was
22.46% and 18.49% for estimated number of enterprises and employment respectively.
(c) For service sector, the growth rate in estimated number of enterprises and employment
recorded was 31.21% and 34.00% respectively, during the period of 2001-02 to 2006-07.
# - In view of the fact that the activities excluded in the coverage pertaining to service sector only, there is no
change in growth rate of manufacturing sector
* - Excluding growth on account of expansion of coverage.
# - In view of the fact that the activities excluded in the coverage pertaining to service sector only, there is no
change in growth rate of manufacturing sector.
*- Excluding growth on account of expansion of coverage
Additional activities brought under the coverage of MSME Sector in 2006-07 as compared to
SSI sector of 2001-02, namely wholesale / retail trade, legal, educational & social services,
hotel & restaurants, transport and storage & warehousing (except cold storage), accounted
for 12.72% and 11.40% points in the growth rate of estimated number of enterprises and
employment respectively.
GROWTH OF
REGISTERED SECTOR:
(a) The estimated number of enterprises grew at 3.76% annually in case of manufacturing
sector and 0.47% for services sector respectively in Registered Sector during 200102 to
2006-07, as per Fourth All India Census of MSME 2006-07, Registered Sector and Third All
India Census of SSI 2001-02, Registered Sector. The growth in the estimated number of
MSMEs was 2.61% for the period referred above, taking manufacturing and services
together.
(b) The employment increased at an annual MSME 2006-07, Registered Sector and Third
growth rate of 9.84% for manufacturing sector All India Census of SSI
(c) The employment in Registered Sector as a whole grew at 8.60 % per annum during
200102 to 2006-07 as per Fourth All India Census of MSME 2006-07, Registered Sector
and Third All India Census of SSI 2001-02, Registered Sector.
GROWTH
(a)
OF
UNREGISTERED SECTOR:
30.05% and 30.56% respectively during the period 2001-02 to 2006-07 considering the
extended coverage of the sector. The expansion in the coverage of MSME Sector followed
enactment of Micro, Small and Medium Enterprises Act,2006. Activities pertaining to
wholesale / retail trade, legal, educational & social services, hotel & restaurants, transport
and storage & warehousing (except cold storage) which were brought under the coverage of
MSME sector accounted for 147.38 lakh and 303.31 lakh in terms of estimated number of
enterprises and employment respectively , as per data extracted from Economic Census, 2005
conducted by CSO, MOSPI for MSME relevant enterprises. The annual growth rates
recorded, excluding these additional activities, were 16.79% and 16.85% in estimated
number of enterprises and employment respectively. The expansion in the coverage of
MSME Sector was limited to service sector only. Therefore, the growth rate for
manufacturing sector is not affected and the growth rate was recorded as 25.90% and 22.57%
for estimated number of enterprises and employment respectively, during the year 2001-02 to
200607.
(b)
For service sector, the growth rate of estimated number of enterprises and
employment recorded was 32.83% and 36.11% respectively, during the period of 2001-02 to
2006-07.
# - In view of the fact that the activities excluded in the coverage pertaining to service sector only, there is no
change in growth rate of manufacturing sector.
* - Excluding growth on account of expansion of coverage.
II
Size of Sector
(in Lakh)
Total Employment
(in Lakh)
Registered
Sector
Unregistered
Sector
EC-2005*
Total
III
IV
VI
15.64
198.74
147.38
361.76
7.07
(45.20%)
119.68
(60.22%)
73.43
(49.82%)
200.18
(55.34%)
2.15
(13.72%)
18.06
(9.09%)
6.40
(4.34%)
26.61
(7.36%)
93.09
408.84
303.31
805.24
5.95
2.06
2.06
2.23
9463960
0.48
10502461
6.72
19966421
10
44913840
24081646
28.72
1.21
70751027
36970259
68995486
107721286
Growth Rate of
MSME Sector (%)
2002-03
8.68
5.70
2003-04
9.64
6.90
2004-05
10.88
8.40
2005-06
12.32
8.00
2006-07
12.60
11.90
2007-08
13.00
8.70
2008-09
13.56
3.20
2009-10
NA
10.50
2010-11
NA
7.80
The data from Table show the growth rates of MSME sector to that of overall industrial
sector of India. 2001-02 is taken as base year. The table shows that during the year 2002-03,
the MSME sector growth rate was 8.68, where as the overall industrial growth rate was only
5.70. During 2005-06, the MSME sector growth rate increased to 12.32 while the growth rate
of overall industrial sector down by 0.40 i.e. to 8.00. Even after the merger of medium
enterprises, the MSME sector growth rate increased to 12.60. It is significant to note that
during this year the overall industrial growth rate is also considerable reaching to a maximum
of 11.90 during the 9 years period i.e. from 2002-03 to 2010-11. The overall industrial
growth rate reached to a ground level during 2008-09 due to recession. The above available
picture denotes that the growth rates of MSMEs are always ahead of overall industrial growth
of India.
Nature of Activity
31.79% of the enterprises in the MSME sector were engaged in manufacturing, whereas
68.21% of the enterprises were engaged in the services
Type of Organisation
Results show that 94.41% of the enterprises in the sector were proprietory enterprises. About
1.18% of the enterprises were run by partnerships and 0.14% of the enterprises were run by
private companies. The rest were owned by co-operatives/ trusts or others.
Nature of Activity
67.10% of the enterprises in the Registered MSME sector were engaged in manufacturing,
whereas 32.90% of the enterprises were engaged in the services activities.
Type of Organisation
90.08% of the enterprises in the Registered MSME sector were proprietary enterprises.
About 4.01% of the enterprises were run by partnerships and 2.78% of the enterprises were
run by private companies.
Nature of Activity
69.80% of the enterprises in the Unregistered MSME sector were engaged in services,
whereas 30.20% of the enterprises were engaged in the manufacturing activities.
Type of Organisation
94.61% of the enterprises in the Unregistered MSME sector were proprietory enterprises.
About 1.06% of the enterprises were run by partnerships and 0.02% of the enterprises were
run by private companies.
According to social group category, 7.84% of the enterprises were owned by Scheduled
Caste entrepreneurs, 5.89% by Scheduled Tribe entrepreneurs and 42.11% by entrepreneurs
of Other Backward Classes.
associated with the sector since long. Also, constraints such as high cost of credit, low access
to new technology, poor adaptability to changing trends, lack of access to international
markets, lack of skilled manpower, inadequate infrastructure facilities, including power,
water, roads, etc., and regulatory issues related to taxation (statecentral), labour laws,
environmental issues etc. are also linked with its growth process.
There is a need to develop potential strategies in order to improve linkages and coordination
between the Government, Industry and Academia. There is also a need to develop an
alternate delivery channels through capacity building of the MSME Associations and the
public-private partnerships in the institutional structure as also the schemes. Given the nature
of the enterprises, there is a need to facilitate start-ups and evolve a time-bound exit
mechanism.
At present, the sector is taking limited steps in formulating growth strategies and moving
along with pace of GDP. In addition, the sector also adopts a reactive strategy approach
where the sector reacts according the current economic situation of the country. The
productivity and growth becomes limited for the moment and growth falls back again.
Therefore, the sector needs to adopt a proactive strategy approach where the government
should prepare a medium to long term strategy to sustain themselves in the changing
economic scenario and progress beyond the current GDP growth.
Key challenges:
Access to finance:
The present domestic market conditions do not provide enough opportunities for the MSME
sector for raising low cost funds. To improve the flow of credit there is a need to provide low
cost finance to the MSME sector, which has limited working capital and is dependent
exclusively on finance from public sector banks. The cost of credit in the Indian MSME
sector is higher than its international peers. A transparent credit rating system,
simplification/reduction in documentation for accessing finance, providing interest rate
subvention to the MSME sector must be taken into consideration in order to maintain the
growth of the MSME sector.
The most important issue hindering the growth, however, is the timely and adequate
availability of finance to MSMEs. According to the Prime Ministers Task Force on MSME
report, although bank credit to the sector has significantly increased from Rs. 70,787 crore
(need conversion in US$) in March 2000 to Rs. 2,69,153 crore (need conversion) in March
2009, access to credit needs to further increase given the size of the MSME sector.
in
cr
or
ee
es
The share of credit to the MSME sector in Net Bank Credit (NBC) has declined from 22.3 per
cent to 15.9 per cent during the same period. The trend has been summarised in the graph
below: The Government is taking proactive steps to ensure better access to credit. Bank
lending to the sector will grow at a rate of 20 per cent on a year-on-year (y-o-y) basis, along
with 10 per cent annual growth in number of micro enterprise accounts, with 60 per cent of
the share of MSME credit directed towards micro enterprises. These and other such measures
will ensure that credit flow to the sector, especially micro and small enterprises, is adequate.
Despite such measures banks are reluctant to lend to MSMEs due to their higher risk profile
owing to zero collateral or their limited years of operations.
In a recent study published by the Indian School of Business (ISB), it was found that large
Indian firms (the firms above the MSME threshold by the official definition) obtained about
47 per cent of their total funding from internal sources, 19 per cent from banks and financial
institutions (FIs), and 5 per cent from capital markets. The remaining 29 per cent came from
alternative sources. In case of MSMEs, only 15 per cent of funding came from internal
sources, 25 per cent from banks and FIs, and 10 per cent from capital markets. Around 50 per
cent of the funding has been sourced through alternative funding sources including friends
and family, trade credit etc. Alternative sources are typically far more expensive and are
dependent on prevailing market conditions and are rarely a guaranteed source. This clearly
implies that MSMEs face very high interest cost due to the lack of availability of adequate
credit. This can be countered well through a methodical induction of equity capital. Over the
last decade, there have been private equity investments, of all types and across a myriad of
industries. We are just entering an era where increasing number of family business owners
will be looking to partially or fully divest their ownership in firms they or a family member
founded.
25
300
280
256
249
235
20
210
206
200
186
US 15
$
bn
10
250
200
158
150
125
117
105
20
17
100
15
12
5
11
11
10
7
50
0
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
Q4
2010
PE promotes entrepreneurship and brings domain expertise from their portfolio companies,
previous industry experience and their network. In addition to internal expertise, they can
bring in external knowledge of best demonstrated practices across industries. PE improves
corporate governance by driving independence of boards and help increase transparency and
reporting standards. It could also provide access to new customers through board access,
portfolio firms or networks. The graph below clearly shows that accessing PE funding has
become the preferred mode for budding entrepreneurs to raise capital at an attractive cost.
According to Grant Thorntons Deal Tracker (Annual Edition 2010), the first quarter of 2010
had seen the maximum value and volume of deals since Q1 2006 clocking US$ 20 billion in
total M&A and PE deal values this clearly indicates the trend of strong corporate growth
which is translating to more investments.
encourage private equity investments this not only unlocks value for the company but
also allows the company to better structure themselves for growing rapidly;
creation of a MSME exchange this shall be a big boon for the Indian economy
resulting in both direct and indirect benefits;
pro-active measures by the Associations this is extremely crucial since the associations
can play a pivotal role in facilitating finance through relevant forums; and
cluster finance these types of mechanisms would result in reduction of transaction
costs and access to timely finance and information
Findings
As expected, banks remain a dominant source of finance for MSMEs with over 70% of
respondents accessing finance from banks. However, banks also bring their own set of
problems. More than 40% of those surveyed complained that chief problems include banks
placing too much emphasis on collaterals and the large amount of paper work involved.
Further, 18% felt that project appraisal system is un-standardised and 35% felt that
procedures for sanctions are cumbersome, and even once approved there is a delay in
disbursement of funds (28%). Other hardships faced by MSMEs include a high rate of
interest, a lack of personalised service and often a lack of justification for denial of finance.
Apart from banks however, internal sources of funds remained the most popular source of
alternate finance for 37% of respondents, closely followed by family and friends for 15% of
those surveyed. In terms of institutional sources, 17.6% accessed NBFCs for finance and
13.7% looked at private placements for meeting their funding requirements. Private equity,
however, was a viable alternative for only 10% of those surveyed. Interestingly, there were 3
companies in our survey who had no other alternate source of finance apart from their
respective banks.
There is considerable debate on why companies do not look beyond bank financing. For
example, a closer look at the reasons for private equity not being a funding option for
businesses are quite remarkable. Over 65% of our respondents, in fact, admitted that there
was actually a lack of understanding on their part on the benefits of private equity! Another
21% were afraid that private equity would lead to a dilution of control, and the remainder felt
that they felt no real need to access private equity at this point in time.
Another indicator of the lack of information in the market was our question on the extent to
which respondents felt that the governments Credit Guarantee Scheme had helped their unit
access collateral free credit from Banks. Only 18% of those surveyed felt that the scheme had
been of some help to them while around 40% of those surveyed were not even aware of the
scheme!
1.
2.
3.
4.
5.
6.
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is an initiative
by the Government of India (GOI) and Small Industries Development Bank of India (SIDBI)
where the main objective is that the lender should give importance to project viability and
secure the credit facility purely on the primary security of the assets financed. These results
are, in fact, in line with the results of an earlier survey conducted by FICCI on MSMEs in
Maharashtra where it was found that 41% of our respondents found it very difficult to
access information on the scheme, and the overall experience for over 32% with respect to
this scheme was in fact negative.
Recognizing the importance of the SME sector, RBI has issued the following guidelines
Ensuring credit to the MSME sector as part of the priority sector lending by banks
Earmarking credit for micro enterprises within overall lending to micro and small
enterprises.
Opening specialized SME branches
Enhancing the limit for computation of the aggregate working capital requirements on the
basis of minimum 20% of the projected annual turnover.
Adopting a cluster-based approach for SME financing by banks.
Reviewing the progress in achieving at least 20% YoY growth in credit to SMEs by the
boards of banks.
MSME credit also allows banks to build a granular diversified portfolio, which helps in risk
mitigation and de-bulking.
1.
2.
3.
4.
The credit facilities, which are eligible to be covered under the scheme, are both term
loans and working capital facility, extended by banks up to Rs.100 lakh per borrowing
unit, without any collateral security or third party guarantee, to new or existing micro
and small enterprises, and guaranteed by the Trust up to 75%.
b. Credit Linked Capital Subsidy Scheme: 15% Back End Capital Subsidy, capped at
Rs.100 crores for technology upgradation.
The government also offers support to the MSMEs engaged in foreign trade through the
Export Credit Guarantee Corporation. It provides services which offer risk cover and
guarantees, to protect exporters and banks from inherent risks associated with the sale of
goods and services to foreign buyers.
TAX SOPS
1.
2.
3.
In addition to revising the guidelines for banks and announcing tax incentives, the Central
Government has introduced other promotion schemes to nurture budding entrepreneurs.
Performance and Credit Rating Scheme: 75% of Credit Rating Agency fee is provided by
the government. MSE Cluster Development Program: improved credit delivery and
marketing support, capacity building skills development. National Manufacturing
Competitiveness Program:
Scheme for
Entrepreneurship Development
Quality Management Standards: subsidies for being ISO certified
Lean Manufacturing Scheme and setting up of Mini Tool Rooms
Tax Benefits
bracket as large corporates often leads to SMEs under-reporting profits to save tax, which in
turn affects their ability to avail finance. Collateral requirement of banks would reduce with
better reporting, and bridging the information asymmetry. It would also mean faster
turnaround time for SME loans, as the requirements are seasonal and erratic.
Decrease in number of taxes: SMEs today have the same number of taxes as large
corporates which include Sales Tax, VAT, MAT, Excise and Income Tax. Since SMEs'
operations are run mainly by promoters themselves with little professional help, tax
planning as a business activity takes most of the time.
Credit Guarantees
CGTMSE/ECGC, routed through
SIDBI and other nodal agencies, with an 18-month cooling period, makes it impossible
for banks to finance the scheme (as banks according to RBI norms have to declare their
NPAs in 90 days). Reduction in the cooling period could incentivize banks to lend more.
Along the same lines, easing claim formalities could also lead to more lending.
Credit Rating Subsidy is again routed through NSIC which makes it cumbersome for
SMEs to claim. The same could be routed through banks which could make the subsidy
much more meaningful.
Access to markets:
Enhancing market access for MSMEs
Need for marketing wide network
To withstand the onslaught of competition from large enterprises within and outside,
MSMEs need to respond promptly to the evolving marketing needs and innovations. The
sector needs to be provided better market access facilities in order to sustain and further
enhance its contribution towards output, employment generation and exports.
MSMEs contribution should be seen not only in terms of output, employment, income,
investment or exports but also in terms of qualitative indicators such as the synergies they
promote with large industries, their contribution towards balanced regional growth,
participation in nurturing entrepreneurial spirit, innovation and in providing a nation-wide
pool of skilled and trained manpower. Even today, most small businesses in India are set up
by first generation entrepreneurs. They often have a product or service idea and some fervor
to work hard. However, the limited market access namely capital access, brand promotion
solutions, marketing support, logistics and sales support, and information and
communication technology (ICT) support stalls the fervor to take the enterprise to next
level.
A recent study reveals that MSMEs in India are broadly unaware of technology solutions and
tools available to cater their marketing needs. According to the study, less than 6 per cent of
Indian MSMEs with access to personal computers advertise online and a majority of these
enterprises use traditional media.
Many Indian MSMEs are also unaware of the effectiveness, measurability and predictability
of using online advertising to reach the target audience.
The study highlighted that a huge opportunity exists for SMBs to reach their desired
financial goals by optimising their web presence and capabilities. It additionally pointed
out that since the majority of Indias MSMEs, especially the small businesses, generate
a large proportion of their revenue from the local market, they still rely on traditional
media like telephone directories and newspapers to reach their customer base.
Therefore, there arises a need for the sector to build capacities to develop ICT and other
tools in order to cater the growing marketing needs. An understanding of the market,
competitors, technology, marketing tools and business environment are determinants of
success of the MSME sector.
Some of the evolved marketing strategies like niche marketing, database marketing, cluster
specific marketing, guerilla marketing and relationship marketing are vital for flourishing the
business without any significant hit to the bottomline. These marketing strategies, if
implemented, can give the MSMEs a platform to go beyond the generic marketing
applications, create greater acceptance, strengthen the brand, devise a focused approach and
compete globally. Brands like Nirma, Moov, Hi-Design and Fevicol started off as MSMEs in
the recent past and have successfully reaped the benefits of strategic marketing to enter,
compete and gain market share from the likes of Unilever, GSK and P&G. In 1959, a small
time glue manufacturer thought of marketing his products to the masses and taking his
business to the next level. With successful product strategies, marketing efforts and
operational efficiencies, the brand has today created a strong foothold in the market. The
company's most successful brand Fevicol and its sub-brands such as Feviwik, Fevibond,
Fevigum, Fevistick and Fevicryl have consistently commanded over 70 per cent of the total
market share. The company has also been able to stay ahead of its competitors in both the
organised and unorganised segments. MSMEs can also use proven traditional STP marketing
strategies viz. segmentation, positioning and targeting for B2C and B2B ecosystems.
Technology tools like SMS, digital newsletter and electronic direct mail can be used
efficiently to target segmented population. Broadly classified as push marketing, these
media tools are cost efficient and easily accessible. To add to this, websites, yellow pages,
directory listings help pull the prospective buyer with rational efforts.
Trade fairs form another important platform for MSMEs to venture into new territories and
develop businesses. The sector is required to look beyond India and innovate to market their
products internationally. MSMEs possess enormous potential required to expand to
international market. To acquire a competitive edge, MSMEs must tap opportunities in the
international arena in the fields of technology and research and development and engage
themselves in international trade. .International trade fairs are an important source of market
intelligence, technological advancements and innovations. Every year, industry specific trade
fairs are held in the US, Canada, UK, Singapore and Dubai to create a meeting ground for
sellers and buyers.
Therefore, it is imperative for MSMEs to ensure that their business offerings are in sync with
the cultural, political, economic and environmental dynamics. This can be achieved by
creating an in-depth study of product feasibility and viability along with competition
mapping and facilitates MSMEs to re-engineer their products and services accordingly.
Therefore the company adopted a cohesive global strategy which enabled successful
completion of numerous diversification projects into Africa, Europe and South East Asia.
Government initiatives
The Ministry has taken several initiatives to facilitate MSMEs to enhance their market
access both within and outside the country. Various organisations under the Ministry of
MSME organise exhibitions/ fairs and buyer-seller meets across the country, providing
MSMEs with an opportunity to display their products and capabilities.
The Marketing Assistance and Technology Up-gradation Scheme for Micro Small and
Medium Enterprises, a program of MSME Ministry, envisages that some clusters of
MSMEs, which have quality production and export potential, shall be identified and
encouraged and assisted through the scheme to achieve competitiveness in the national and
international markets. The program aims at improving the marketing competitiveness of the
sector. The activities planned under the scheme include technology upgradation in
packaging, skills upgradation/ development for modern marketing techniques, competition
studies of threatened products, identification of new markets through state and district
levels, local exhibitions, trade fairs, corporate governance practices, marketing hubs and
reimbursement to ISO certification.
Under the MSE Marketing Development Assistance (MDA) Scheme, assistance is extended
to individuals for participation in overseas fairs/ exhibitions/ study tours. The Ministry of
MSME has also formulated two schemes under the National Manufacturing
Competitiveness Program (NMCP) to smoothen the marketing of MSME products. The
activities supported under these components include assistance for adoption of bar code,
technology upgradation in packaging and skill upgradation/ development for modern
marketing techniques.
Further, the National Small Industries Corporation (NSIC) has launched a B2B web portal
and established a Marketing Intelligence Cell for providing domestic and global market
information to the MSMEs. Various industry associations play a pivotal role by
undertaking sector specific market studies and also by initiating/ contesting anti-dumping
cases.
The Ministry has also formulated a public procurement policy for MSMEs, which will
provide them support in marketing their products and developing long-term relationships
in production/ service value chains with the public sector.
Case Study: 73 per cent of MSMEs in India have their own websites
According to a survey jointly conducted by Internet and Mobile Association of India
(IAMAI) and eStatsIndia, 73 per cent of MSMEs in India have their own websites, while
99 per cent of MSMEs use online B2B (business to business) marketplaces to generate business.
The survey found that in the domestic market last year, the surveyed companies generated 4,842 orders and business
worth Rs 50.9 crore through B2B emarketplaces, while in the international market the companies recorded business
worth Rs 15.9 crore generated from 1,428 orders through e-marketplaces.
It was also found that maximum marketing spends of the surveyed companies are made on Internet. According to the survey
report, 45 per cent of the total annual marketing budget of the MSME companies in India is spent online. Print media accounts
for 32 per cent of the total annual marketing budget of the surveyed companies.
Case Study: Router launch through Social Media saves company US$ 1,00,000
As early as 2008, networking giant company was well along in its social media evolution. For its Aggregated Services Router (ASR) launch,
the company aimed to execute entirely online leveraging social media, and in doing so, engage network engineers in a more interactive, fun
way. The company met its audience where they were in online venues and the gaming world. With this single project, the company shaved
six figures off its launch expenses and set a new precedent for future product launches. It was classified as one of the top five launches in
company history.
Second Life The Company built a stage with big-screen monitors, chairs for the audience and palm trees for its flagship launch
event entirely in a Second Life environment. It then piped in videos of executives presenting the ASR. To generate pre-launch buzz, the
team held a concert in Second Life featuring eight bands over seven hours. The new ASR was presented in a live Second Life event.
Video conferencing The companys next-generation video conferencing technology brought customers together at local offices
around the globe.
Executives back in San Jose could see the audiences facial expressions and vice versa.
Facebook Network engineers created a companys group/ community and connected to the Internet users. The company also
assembled videos, collateral and images in a widget format and embedded it into social media news releases and launch pages. Bloggers
and others could spread the information easily with the embedded code.
Online forum The Company seeded its Networking Professionals Technology Community Forum with launch-related discussion
topics and gave customers an Ask the Expert function. The whole campaign spanned a period of three months with the launch in the
middle. During prelaunch, launch and post-launch, the company kept the audience engaged by encouraging discussions with its audience.
As compared to traditional launches of the past, the ASR launch witnessed more than 9,000 people (90 times more than past launches) from
128 countries attending virtual launch events. Without travel, the launch saved an estimated 42,000 gallons of gas. Plus, top executives spent
only about an hour recording the video presentation. Print ads were largely replaced with media coverage, including nearly three times as many
press articles as a comparable traditional launch, more than 1,000 blog posts and 40 million online impressions. The whole launch cost one-sixth
of a similar launch that used traditional outreach methods.
trying to sell more products in current markets, through the adoption of a big-bang advertising strategy
to drive the brand message through. The company is also focusing to grow its market to the untapped
potential of rural India while strengthening its presence in urban India through latest product offerings.
the company is riding on two enduring Indian obsessionssports and filmsto build its brand. After its
association with the popular Twenty20 cricket Indian Premier League (IPL), the firm has become the
title sponsor of almost all tournaments and series of which India is a part. Moreover, to push its
association with films, the firm has signed Bollywood celebrities as their brand ambassadors and also
sponsoring major film award functions.
the brand is now expanding itself into international markets where the company has already set up
shops in Nepal, Sri Lanka and Bangladesh, and is looking forward to launch operations in the MiddleEast. The company had received funding through the PE route in early 2010.
The company has indeed developed a short-term competitive advantage exhibiting a rare example of
brilliant innovation combined with common sense, making it the third-largest domestic handset company
in India.
The new wave of advertising and marketing is contextual and intertwines with the personal
and professional lives of the target audience. Targeted advertising through social networking
and blogging sites have provided the right platform for a number of companies to reach out to
its prospective customer base more cost effectively. One can create a community page One
can create a community page pertaining to the company, products and services and regularly
update it with fresh content to engage the clients and visitors continuously. Further virtual
reality platforms such a second life and the Indian version, Gojiyo.com, are examples of how
traditional products and services are test marketed to gauge reactions over these platforms.
Mobile marketing is another useful mode for SMEs to connect with their intended audience
in an effective manner
So, today, as Indian MSMEs move up the global value chain, the importance of market
access can hardly be overstated. In conclusion,
access to markets can be achieved by building and coordinating the efforts of various
institutions at state, regional and cluster levels and also by involving MSME Associations in
the country to undertake various marketing functions
new and innovative means of marketing should be utilised effectively to reduce overall
costs while still having a significant impact
market access needs to be clearly strategised with new and innovative ways explored to tap
the market as well as reach out to different countries to understand the market opportunity
the government should proactively look at strengthening its schemes like Consortia
Formation, Brand Building, E-marketing through specialised MSME portals, Assistance
in product designing & packaging, Assistance in publicity of MSME products and holding
of more domestic and international exhibitions in order to provide increased marketing
support to the micro, small and medium enterprises in the country the Ministry of MSME
could also enlarge its existing schemes relating to product designing, packaging, and setting
up of marketing hubs, etc. in order to expand their reach and coverage of larger number of
MSME units
strengthening of National Small Industries Corporation (NSIC) as an apex organisation for
coordination of marketing support programmes could be explored to ensure expansion and
sustainable growth of MSMEs
Blogs: 22 external, 475,000 views/quarter
Twitter: 108 feeds with 2 million followers
Facebook: 79 groups with 100,000 fans
YouTube: 300+ channels, 2,000+ videos, 4 million views
Second Life: 150,000 visitors, 50+ events
Flickr: 300+ photos
Access to infrastructure:
Introduction
Industries form the backbone for national development and are one of the important
components for the growth of national economy and growth of the MSME sector at a
healthy rate is crucial for the overall growth of the industry. However, lack of proper
infrastructural facilities can cause serious damages to an enterprise's value chain process,
like production, consumption and distribution of the products, Besides, lack of finance,
inadequate marketing facilities, technological obsolescence, etc that are being already
faced by MSMEs.
Hence, there is a need of infrastructural development of the industries in general and
MSMEs in particular which should include all types of infrastructural facilities like
railways, waterways, roadways and airways, proper channels of telecommunication,
adequate supply of power and other supporting facilities like Tool Rooms, Testing Labs,
Design Centers, etc.
1. Need for Proper Infrastructure
There is a need for common infrastructure projects for MSMEs. MSMEs,
through coming together and sharing the costs of infrastructure, which are
otherwise prohibitive for individual MSMEs, could benefited from economies
(b)
Work Space: There is lack of ample work space for industrial clusters to compete in
international markets. In order to get better economies of scale without disturbing
prevailing industrial structure the Govt. should introduce programs for integrated
work space with objective of establishing new MSME clusters and up-gradation of
existing ones. There is a need for setting-up of industrial clusters (or up-gradation of
existing one) through various SPVs formed by group of entrepreneurs in PPP mode
with facilities such as power plants, CETPs, laboratories, training centers, raw
material, banks, common marketing facilities, warehouses, administrative blocks,
warping and sizing units and processing units, etc.
Power: After introduction of Electricity Act 2003, many MSMES
individually not capable to make substantial investments, hence they joined hands and
formed SPV to set up captive power plant to meet their power requirements. In
addition many industrial clusters also set up Group Captive Power Plant to provide
quality power to their member units.
Though Electricity Act 2003 was introduced to encourage setting up of captive power
plant to ease the power supply position as well as to make them eligible for resultant
incentives, it has been working negatively unless amendment are prepared in the larger
interest of power supply position.
Challenges:
The Group Captive Power Plants are facing following challenges:
Selection of technology, supplier and deciding number of different capacity Engines
suitable to its requirements.
Financing of investment in Power Plant by SPV as it has no past experience in running such
plant
Constant increase in Fuel cost i.e. gas, coal
Ending up paying heavy O & M charges especially to supplier of plant as it has no technical
capability
Payment of fixed charges for standby arrangement
Litigations on account of wrong interpretations
(b) Water Supply: Every manufactured product uses water during some part of the production
process. Industrial water use includes water used for such purposes as fabricating, processing,
washing, diluting, cooling, or transporting a product; incorporating water into a product; or
for sanitation needs within the manufacturing facility. Some industries that use large amounts
of water produce such commodities as food, paper, chemicals, refined petroleum, or primary
metals. Therefore ample water supply is essential for industrial clusters. Public at large
considers water is either available free from natural sources or government should provide it
at very low prices. But, In case of some industries (like paint, dyeing, etc.) use of water is a
key activity in entire value chain of theindustry. Hence, good quality water is backbone of
entire value chain for that
industry.
Water supply situation in several industrial areas is seriously affected due to contamination of
natural resources as well as ground water due to discharge of untreated effluent over decades.
Issue of proper water supply also prevails due to very scanty rainfall. Due to this water
available some industrial clusters is rendered unusable by the industry.
Now, the common practice is to fetch water by tanker from huge distances. This
transportation of water by tanker not only increases the cost of water but also results into
unwanted incidents like accidents in the nearby villages.
(c) Waste Management: The general problem of industrial waste is rapidly becoming serious
and it is important for industries to reduce their cost of environmental compliance. In this
respect, the concept of Common Effluent Treatment Plant (CETP) is an excellent example for
MSMEs in collaborating with
each other to manage the effluent and water waste.
In prevailing practice, polluting industries having similar effluent characteristics come
together to establish a Special Purpose Vehicle (SPV) company to act as an Implementing
Agency (IA). Since technically it is preferable to have effluent of similar nature, this concept
works best in industrial cluster where similar industries operate in small geographic location.
Benefits of CETP
The primary benefit of a CETP is the compliance with environmental norms which helps the
MSMEs in operations and marketing Environmental compliance obligation is externalised
and therefore industry can work free of repeated disturbance of enforcement agencies Since
in CETP, scale is larger due to collective treatment, economy of scale could be achieved to
reduce cost of treatment per cubic meter of effluent Common Problems of CETP Projects
1. Recovery of dues from member units is always an issue for majority of CETPs. Innovative
practices have been used by few SPVs. Since SPVs do not have powers for penal action
against member units, CETP SPVs tie up with State Industrial Development Corporations
(IDC) such as MIDC or GIDC for billing. In this, State IDC charges nominal collection fees
and include CETP user fees to the bill raised for other charges of IDC. Thus, by making the
user charges statutory in nature, adequate deterrent is built in against defaults.
2. Understatement of effluent volume by member units is a common tendency as contribution
towards capital as well as O&M cost is based on the volume of effluent. In realty, member
units discharge much more effluent than that declared by them thereby disturbing entire
treatment system. In order to
reduce this risk, good practices CETPs have adopted member contribution on the basis of
installed capacity of the machines. Common argument from members is that though the
installed capacity is high, actual production and hence effluent volume is not that high. In
Surat common practice is to levy
charges on the basis of number of Stenter frames. Irrespective of production, members has to
pay in proportion to the number of frames. In several clusters such as textile processing,
metal electroplating, food processing industry, effluent treatment charges are based on the
maximum
installed capacity of the plant.
3. Design and operation of CETP for chemicals and drugs industry is very difficult. This is
due to variation in effluent characteristics. It happens every season when pharmaceutical
units change their product under manufacturing.
Sometimes unexpectedly a solvent or a chemical gets mixed with the effluent and disturbs
CETP operation. In order to overcome this problem, individual units are asked to carry out
pre/ primary treatment of the effluent before it is discharged in common effluent collection
system.
ii. Supporting Infrastructure/ Common Facilities: There is a need of facilitating the MSMEs
through imparting sophisticated skills for personnel drawn from Industries, Development
organisations, Technical Institutions and the Jobseekers. Apart from basic infrastructure
MSMEs should be provided with training in Hi-Tech areas like Information Technology,
Electronics, VLSI, Management and Behavioral Science.
The training should be focused on attainment of competencies and skills to empower the
trainee to perform efficiently & better and improve the employability of job seekers. Experts
who act as facilitator have essentially worked in industry and have undergone industrial
training not only in India
but even overseas, and are well versed with the current trends and technologies.
Availability of general physical infrastructure like power, water, roads, transportation and
communication is an essential factor of production having direct impact on output, cost and
productivity. However, the contribution of cluster specific common infrastructure is more
significant than the generic infrastructure. Cluster specific common infrastructure could be
classified as physical infrastructure including Common Effluent Treatment Plants,
Environment Management Infrastructure, Inland Container Depots, Industrial Zones, etc.
and knowledge infrastructure like testing laboratories, skill development centres, R & D
facilities, technology transfer centres, product and design development common facilities,
Marketing Infrastructure, etc.
Availability of cluster parks with state of the art physical infrastructure including power,
water, effluent treatment, testing, training, etc designed as per the needs of the cluster units
which will establish manufacturing facilities in the park has benefited many clusters in terms
of capacity expansion, modernisation and export augmentation.
The Knitwear facility in Ludhiana and Central Institute for Hand Tools cluster in
Jalandhar were responsible for introducing computerised knitting and forging
technologies in respective clusters. The leather tannery units depend on specialised
infrastructure in the form of Effluent treatment and hazardous solid waste disposal
facility to meet compliance norms.
These schemes are focusing more on clusters and seeking greater ownership and
participation of the cluster units. Some of the salient features of these schemes are
public-private partnership approach to establish infrastructure facility; limited funding as
grant by the government; contribution by the user private sector towards capital cost;
implementation operations and management by a Special Purpose Vehicle (SPV)
promoted by group of cluster enterprises; and meeting of operations expenses through
revenue from user charges.
On the electricity front, the Electricity Act 2003 allowed license free environment for
generation of electricity encouraging the industry to set up captive power plants to
bridge the huge gap in demand and supply of power. The Act has removed the
requirement of a license for establishing a generating station.
A Captive Generating Plant is defined as a power plant set up by any person to generate
electricity primarily for his own use and includes a power plant set up by any cooperative society or association of persons for generating electricity primarily for use of
members of such co-operative society or association. After introduction of E A 2003,
many MSMES individually not capable to make substantial investments, joined hands
and formed SPV to set up captive power plant to meet their power requirements. In
addition, many industrial clusters also set up Group Captive Power Plant to provide
quality power to their member units.
1.2 Environment Protection Infrastructure
Pollution related problem is the down side of industrial and technological progress.
There is a growing negative impact of industrialisation on the environment due to
increasing pollution levels. Untreated or improperly treated waste becomes pollution,
increasing not only private costs but also social costs. Environmental degradation often
tends to become irreversible and imposes damaging costs on the economy.
Industrialisation is on the increase, which of course is necessary but, so is the
environmental pollution due to emissions and waste generated from these industries.
There is growing concern and awareness about the downside of industrialisation. The
industrial pollution due to its nature has the potential to cause irreversible loss to the
environment and hence is being closely monitored. The tolerance levels are becoming
stringent by the day and as a result many industries especially, MSMEs which do not
have means to control or treat waste are on the brink of closure.
The Ministry of Environment and Forests has undertaken a Centrally Sponsored
Scheme for enabling the Small Scale Industries (SSI) in clusters to set-up Common Effluent
Treatment Plants in the country for installation of pollution control equipment for treatment
of effluents Common. Under the scheme, Central assistance up to 25% of the total cost of
the CETP would be provided as a grant to the Common Effluent Treatment Plant(s) on the
condition that a matching grant is sanctioned and released by the State Government. The
CETP Company should meet the remaining cost by equity contribution by the industries and
loans from financial institutions.
Assistance for establishing environment protection infrastructure is also available from the
Department of Industrial Policy and Promotion to the leather sector and SITP and Mega
Food Park scheme also have similar provisions.
1.3 Knowledge Infrastructure Common Facilities
As discussed above, the role of knowledge infrastructure is most central for sustaining
competitiveness of MSME clusters. Country is full of examples where clusters have
dramatically benefited from availability of knowledge infrastructure or have perished for
want of these facilities. The Sports Good Foundation of India (operating in Jalandhar,
Punjab) established a common facility for mechanisation of soccer ball stitching under
UNIDO assisted cluster development programme. The facility perfected the technology
for machine stitching and later served as a skill development and technology transfer
facility for the member firms. As a result, the cluster got a product competitive to China
and almost 40% of soccerball exports from the cluster are of machine stitched balls. At
the same time the Aligarh lock cluster and Moradabad handicrafts clusters have
plummeted significantly due to want of technology infusion.
Another classic example is the Hand Tools cluster of Jalandhar which benefited immensely
from the establishment of Central Institute of Hand Tools Institute (CIHT). CIHT was
established in 1983 with assistance from UNDP, Government of India and Government of
Punjab and was instrumental in transferring drop forging technology in Punjab. The institute
got it from its first set of technocrats who had worked with a large scale manufacturer having
imported forging hammers through its German collaboration. However, that was in the 80s,
now the cluster needs another infusion of technology. To remain globally competitive it
needs to adopt cold forging and pres forging technologies. These technologies are not
available at the institute. The MSME cluster firms have come together and formed a SPV to
import these technologies with partial assistance from GoI. The project is under
implementation.
Most of the MSME clusters need knowledge infrastructure in one form or the other.
Government is awake to the importance of knowledge infrastructure for MSMEs. There are
two major centrally sponsored schemes Micro and Small Enterprise Cluster Development
Programme (MSE-CDP) of Ministry of MSME and Industrial Infrastructure Upgradation
Scheme of DIPP. Under MSE-CDP, the assistance for establishing common facilities is upto
70% (90% in NE and Hill states) for a project cost of Rs 15 crores. Under IIUS, the
assistance is upto 75% (90% for NE and Hill states) with maximum grant limited to Rs 60
crores. More than 40 clusters are being assisted under IIUS having total sanctioned cost of
more than 2500 crores. The MSE-CDP is assisting about 60 clusters with sanctioned cost of
about Rs 160 crores.
Local bodies may be encouraged to set aside substantial part of the collections derived
from industrial estates, to upgrade infrastructure such as roads, drainage, sewage, power
distribution, water supply distribution, etc. for the existing industrial estates.
Alternatively, industrial estates could be notified as separate local bodies as envisaged in
the Constitution and entrusted with municipal functions that shall include levy of taxes,
responsibility to maintain the infrastructure within the Industrial Estate, etc.
2.
3.
Expand the scope of the existing Integrated Infrastructural Development (IID) scheme of
Ministry of MSME to cover the private sector
4.
Flatted Factory Complexes may be set up, particularly in and around large cities for MSEs
on PPP mode. On similar lines, dormitories for industrial workers in industrial estates
may be set up
7.
Funding for common captive power generation in Industrial Estates would be encouraged
through subsidies given to the SPV managing such facilities; Also, in case of power plant
set up by registered co-operative society, the conditions like capacity commitment and
equity participations should be allowed to be satisfied collectively by the members of the
co-operative society
8.
The State Governments should formulate policy for incentivising private sector for setting
up of new Industrial Estates
9.
Following best practices should be made a standard for schemes for MSME/ industrial
infrastructure development :
a.
f.
IV.
Access to people:
The Indian economy is now the second fastest growing economy of the world. In such a
visible growth environment, tremendous efforts are being made by SMEs (Small and
Medium Enterprises) to make their presence felt and to convert their growth plans into
reality. In essence, last few years have seen the exponential growth of SMEs. While big
players enjoy economies of scale to control prices, SMEs enjoy agility in bringing the
product faster to the market.
However, we still find many SMEs struggling to achieve expected growth and grappling
with inherent challenges of culture and scale. The promoters and entrepreneurs are exploring
ways to minimise this inertia and increasingly realising that HR and its different facets play
an important role to address the growth issues that SMEs face.
Human Resource is one of the most essential growth indicators for organisations today.
Large firms who are targeting high growth rates scour the market for talent and MSMEs can
never outplay large companies in terms of salary. The other challenge faced by MSMEs is to
preserve the horizontal structure that was prevalent when they were young. As the
organisation grows, the cohesiveness present at the start slowly starts to fade away.
People Challenges in MSMEs
MSMEs will need to ensure that they undertake effective HR planning and ensure that the
plan supports a growth aspiration, be geared to increasing the firm's flexibility and
responsiveness and help the company develop its change management capabilities. However,
there are certain challenges faced by MSMEs in achieving the above mentioned HR plan
objectives
The biggest constraint for MSMEs in talent attraction is the lack of ability to pay competitive
compensation packages and nonadequate employer branding. The SMEs often lose out to
MNCs in attracting best talent ,which typically invest substantially in their recruitment and
retention strategies.
Another key concern for MSMEs is to find talent with leadership qualities. As per Grant
Thornton India Market Attrition and Retention Study, organisations are finding it difficult
to find talent with leadership qualities across all sectors.
Talent Retention
Often MSMEs lose talent as they are unable to communicate the goal/ vision of the
organisation and fail to present a clear career path to employees. This leaves employees
directionless and disengaged. Sound induction and orientation processes and constant
dissemination of the organisations short term and long term goals is the solution to this
problem. Lack of job rotation is another key reason for attrition in MSMEs. Employees begin
to find their roles mundane after a period of time and are devoured of job rotation options
within the company which leads them to exiting from the enterprise.
Competency and Skill Development
MSMEs generally lack the understanding and ability to determine the competencies that are
required by an employee to fulfill his role and gain competencies and skills. These skill gaps
exist at various levels.
MSMEs need to be able to distinguish themselves, create their niche brand and use it to
attract talent.
Organisations need to highlight to the potential hires that MSMEs are growing organisations
and provide platform to the new incumbents to grow with the organisation. It is imperative
for MSMEs to make potential employees aware of the fact that the exposure and the level of
responsibility in a small firm is much larger than that in a big firm.
The future will see the growth of MSMEs and SMEs as a result of the growing economy. If
these small fledging businesses need to survive alongside the big giants they will need to
retain their key people and ensure that they are shown a clear vision, goal and career prospect
in order to keep contributing to the organisation for a long time. MSMEs will continue to
prefer to hire senior management candidates from large established companies. There is a
cultural problem that starts developing in the organisations. In this light, change and diversity
management are important aspects that will need to form a part of the culture of many of
these MSMEs who want to grow and want to hire the best minds in the business to do so. It
is becoming clear to business leaders/ entrepreneurs that an effective HR strategy is critical
for its long-term survival. MSMEs will need to ensure that they align the HR role in a
manner that it directly contributes to the organisations bottom line in their area of business.
If MSMEs want to ensure that the issues of talent attraction, talent retention and competency
and skill development never arise in the life cycle of the organisation, they will need to
undertake effective HR planning and institutionalise effective systems and processes.
Access to technology:Technology plays a vital role in an economy, particularly in its development phase. In this
era of globalisation, the MSME sector needs to compete not just at the local or the national
level but also at the global level. Access to modern technology is acting as a serious threat to
the growth of the sector.
The technology transfer issues pertaining to MSMEs in developing nations are very different
from those being faced in the developed countries like the US and UK. The absence of an
enabling ecosystem which is much required for facilitating an active interaction in the
technology transfer process is a major inhibitor for the sector. Other issues such as limited
interaction between technology providers and technology seekers, minimal knowledge
about upcoming technologies, and the cultural and the regional differences in the developing
nations adversely affect the productivity of the MSME sector.
The competitiveness of any economy depends on how efficiently all the resources in the
process of production are utilised and how efficiently these are marketed, hence the entire
chain of production has to be efficient. This means that the process of production has to be
cost efficient and meets quality needs of the consumers. This improvement can come
through the use of latest technology.
Though India has a vast pool of technical talent with a well developed intellectual
infrastructure, the country still scores low in the matter of developing and adapting new
technologies in the MSME sector. The MSME sector today needs an effective information
system to support and deliver information to different users. Such information systems will
be used to provide effective interface between users and computer technology and will also
provide information for managers on the day-today operations of the enterprises
Information is very a vital aspect of decision making at all levels of management in
enterprises, especially in competitive business environment where managers utilise
information as a resource to plan, organise, administer staff and control activities in ways that
achieve the enterprises objectives. The ability of MSMEs to realise their goals depends on
how well the technology is used to deliver information to the key decision makers of the
organisation.
the Government of India has taken several measures to help small enterprises to become
globally competitive. These include schemes/ programmes for technology upgradation,
development of clusters of such industries, making collateral free bank credit available up
to US$ 1,25,000, creating awareness among these industries regarding export-related
issues, etc. The Ministry of Micro, Small & Medium Enterprises in India is also
conducting workshops on various aspects of WTO, anti-dumping seminars, IPR, etc. to
sensitise entrepreneurs and other stakeholders about the likely impact of liberalisation and
globalisation.
Small Industries Service Institute (SISI) provides technology development services to the
MSMEs
National Small Industries Corporation Ltd (NSIC) was established 1955 by the
Government of India to promote, aid and foster the growth of small scale industries in
India. It offers a number of technical services to SMEs through its Technical Services
Centres, Extension Centres, Software Technology Parks and Technology Transfer Centres
besides these, Technology Business Incubation (TBI) is one of the most recent service,
that NSIC has initiated. TBI enables technical entrepreneurs to conduct their R&D
programmes in a professional, friendly and supportive environment, while receiving the
guidance and hand holding they need in the initial phase. This facility is being offered in
Information Technology, Product
Design, Energy and Environment auditing, Bio-Technology Electronics and
Communications
Recommendations
initiatives to stimulate the markets and the target segments in order to educate and promote
awareness of the existing products and techniques alongside the environmental hazard
aspect. Also, attempts to initiate local support groups and NGOs for the dissemination of
information to the enterprises across geographies could play a valuable role in overcoming
these barriers
Secondly, acute shortage of funding for MSMEs further deteriorate the situation since
acquiring the environment-friendly technologies becomes a financially non-feasible
endeavor. Further, the shortage of funds does not promote the enterprise to take part in
further research and development activities. The government, alongside commercial banks
and lending institutions, has begun programmes that provide financial services and lending
programmes to MSMEs, thereby reducing costs and risk exposure faced by these enterprises
as well the lending institutions through commercial mechanisms. Also, various R&D
programmes conducted and managed by reputed R&D organisations, along with industrial
partners dedicated to specific or general needs, would further aid the enterprises. Bringing in
consulting services would also help these organisations to acquire knowledge of systematic
operating procedures, problem identification and problem solving.
Lack of resources, namely time and human resources, has been seen as a constant hurdle by
MSMEs in order to accept and implement environment-friendly techniques and initiatives. In
order to overcome this obstacle, industrial clustering and networking is seen as a promising
measure. Partnerships and institutional arrangements for waste treatment facility and waste
exchange centres are crucial as supporting instruments that contribute to the success of the
implementation of policy while providing advantages to MSMEs in terms of cost-sharing
and supply chain management. Also, applying partnerships for inter-city technical
cooperation and through initiatives by the existing industrial associations would not only
mobilise the resources needed for the MSMEs environmental performance but create
opportunities for eco-businesses.
Another barrier faced by enterprises is the resistance to change in terms of perception and
ambiguity towards the adoption and implementation of new techniques and environmental
initiatives. Thus, a policy has been constituted by the government regarding the
implementation of the Environmental Management Systems (EMS) tool by enterprises
across. This would lay down the regulatory framework regarding environmental safety
practices and techniques wherein government agencies play the leading role in the
implementation while private consultants and NGOs, as collaborators, play an active part in
working closely with MSMEs to systematically develop the EMS in their firms.
With increased participation by various organisations contributing to the implementation of
the various strategies and initiatives discussed above, the MSME segment would soon be
able to overcome the hurdles and barriers in the course of making its operations greener and
environment friendly.
Unregistered Sector
Sample
EC 2005*
Employment (Lakh)
Total
Registered
Sector
Unregistered Sector
Sample
EC 2005*
Total
0.15
1.18
1.68
3.01
0.90
2.17
2.68
5.75
Himachal Pradesh
0.12
1.60
1.16
2.87
0.65
2.27
1.76
4.68
Punjab
0.48
9.66
4.32
14.46
4.16
14.16
8.48
26.79
Chandigarh
0.01
0.28
0.20
0.49
0.12
0.58
0.53
1.23
Uttarakhand
0.24
2.00
1.51
3.74
0.80
3.62
2.54
6.96
Haryana
0.33
4.87
3.46
8.66
3.82
8.41
6.61
18.84
Delhi
0.04
1.75
3.74
5.52
0.58
5.94
13.29
19.81
Rajasthan
0.55
9.14
6.96
16.64
3.42
15.00
12.37
30.79
Uttar Pradesh
1.88
22.34
19.82
44.03
7.55
51.76
33.06
92.36
10 Bihar
0.50
7.48
6.72
14.70
1.48
15.97
10.81
28.26
11 Sikkim
0.00
0.06
0.10
0.17
0.01
0.56
0.22
0.79
12 Arunachal Pradesh
0.00
0.25
0.15
0.41
0.05
0.82
0.31
1.19
13 Nagaland
0.01
0.16
0.21
0.39
0.16
1.00
0.54
1.71
14 Manipur
0.04
0.44
0.43
0.91
0.20
1.38
0.78
2.36
15 Mizoram
0.04
0.10
0.16
0.29
0.26
0.30
0.25
0.81
16 Tripura
0.01
0.26
0.70
0.98
0.23
0.53
0.99
1.75
17 Meghalaya
0.03
0.47
0.38
0.88
0.13
1.04
0.75
1.92
18 Assam
0.20
2.14
4.28
6.62
2.11
4.48
7.66
14.25
19 West Bengal
0.43
20.80
13.41
34.64
3.60
54.93
27.24
85.78
20 Jharkhand
0.18
4.25
2.32
6.75
0.75
8.24
3.92
12.91
21 Odisha
0.20
9.77
5.76
15.73
1.73
21.94
9.57
33.24
22 Chhattisgarh
0.23
2.78
2.19
5.20
0.75
4.68
4.09
9.52
23 Madhya Pradesh
1.07
11.50
6.76
19.33
2.98
17.32
13.36
33.66
24 Gujarat
2.30
13.03
6.46
21.78
12.45
21.97
13.31
47.73
0.01
0.01
0.04
0.06
0.26
0.03
0.09
0.37
0.02
0.04
0.03
0.09
0.26
0.07
0.07
0.41
27 Maharashtra
0.87
14.45
15.31
30.63
10.89
24.72
34.43
70.04
28 Andhra Pradesh
0.46
14.90
10.60
25.96
3.83
35.15
31.71
70.69
29 Karnataka
1.36
11.12
7.70
20.19
7.89
22.58
16.24
46.72
30 Goa
0.03
0.56
0.27
0.86
0.33
0.87
0.68
1.88
31 Lakshadweep
0.00
0.01
0.01
0.02
0.00
0.05
0.02
0.06
32 Kerala
1.50
12.94
7.69
22.13
6.21
26.98
16.42
49.62
33 Tamil Nadu
2.34
18.21
12.58
33.13
14.26
38.89
27.82
80.98
34 Puducherry
0.01
0.13
0.21
0.35
0.21
0.25
0.55
1.01
0.01
0.07
0.07
0.14
0.06
0.18
0.15
0.38
All India
15.64
198.74
147.38
361.76
93.09
408.84
303.31
805.24
- For activities under wholesale/retail trade, legal, education & social services, hotel & restaurants,
transport and storage & warehousing (except cold storage) excluded from the Sample survey of
Fourth All India Census of MSME Unregistered Sector, data were extracted from Economic Census
2005 (EC, 2005), conducted by Central Statistics office of Ministry of Statistics & Programme
Implementation.
STATE/UT
SECTOR
Sl.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
State/UT
Jammu and Kashmir
Himachal Pradesh
Punjab
Chandigarh
Uttarakhand
Haryana
Delhi
Rajasthan
Uttar Pradesh
Bihar
Sikkim
Arunachal Pradesh
Nagaland
Manipur
Mizoram
Tripura
Meghalaya
Assam
West Bengal
Jharkhand
Odisha
Chhattisgarh
Madhya Pradesh
Gujarat
Daman & Diu
Dadra & Nagar Haveli
Maharashtra
Andhra Pradesh
Karnataka
Goa
Lakshadweep
Kerala
Tamil Nadu
Puducherry
Andaman & Nicobar Islands.
All India
Enterprises
Employment
(in Lakh)
1.33
1.72
10.14
0.29
2.23
5.20
1.78
9.68
24.21
7.98
0.07
0.25
0.18
0.49
0.13
0.28
0.50
2.34
21.23
4.43
9.97
3.01
12.57
15.32
0.02
0.06
15.32
15.36
12.49
0.59
0.01
14.44
20.55
0.14
(in Lakh)
3.07
2.92
18.31
0.70
4.42
12.23
6.52
18.42
59.30
17.45
0.57
0.88
1.17
1.58
0.56
0.76
1.17
6.58
58.53
8.99
23.67
5.43
20.30
34.42
0.28
0.34
35.61
38.98
30.48
1.20
0.05
33.20
53.16
0.46
0.07
0.23
214.38
501.93
Market Value of
Fixed Assets
(Rs. in Crore)
8475.28
5599.25
37126.69
607.05
6014.98
25998.80
10164.54
25452.90
56161.03
8405.45
72.16
937.48
1273.67
646.03
403.14
661.73
468.55
6941.15
39433.22
5020.72
12284.89
3303.41
10530.40
166753.68
1881.53
229.58
67941.24
32757.63
27161.11
3820.19
17.30
44353.53
77824.34
1135.29
96.95
689954.86
The 10 leading states in terms of number of MSMEs in FY 2011-12 were Uttar Pradesh, West Bengal,
Tamil Nadu, Maharashtra, Andhra Pradesh, Kerala, Gujarat, Karnataka, Madhya Pradesh and
Rajasthan. We have covered eight of them in our study while excluding Karnataka and Rajasthan.
As observed from Table below, there is a direct relationship between the number of MSMEs and
employment generated. However, there is a significant gap in terms of the gross output.
Maharashtra produced the maximum output despite standing at 4th position in terms of number of
MSMEs. On the similar lines, Punjab was 4th best in terms of output despite having lowest number
of MSMEs among the sample states and West Bengal stood at 5th position in terms of output in
spite of 2nd position in MSME unit count.
East
South
West
Uttar Pradesh
West Bengal
Tamil Nadu
Maharashtra
1.87
1.35
1.98
3.56
Punjab
Odisha
Kerala
Gujarat
4.46
1.23
2.25
1.61
As evident from above, Punjab fares far better in terms of productivity while Odisha has the worst
productivity. Now merely on the productivity front, we cannot jump on the conclusion that
Punjab is the best and Odisha is the worst for investment/ manufacturing setup.
Punjab, primarily an agricultural state, has various sets of problems like power shortage,
high land prices and high amount of drug/liquor usage among the youth which makes them
relatively under-productive. On the other hand, Odisha has emerged as one of the hottest
investment destination for new projects as per the data released by the Reserve Bank of India. The
states such as Maharashtra, Kerala and Tamil Nadu have a large pool of skilled workforce which is
primarily engaged in the knowledge-based industries like information technology and related
sectors. Further, the states located near the sea like Gujarat, Maharashtra, Tamil Nadu and Kerala
are major hubs of sea trade which also spur the growth of MSMEs in these regions.
States
Uttar Pradesh
West Bengal
Tamil Nadu
Maharashtra
Punjab
Odisha
Kerala
Gujarat
In order to analyse the anomaly in the MSME productivity in the sample states, we have studied the
different policies/ schemes in place in these states and divided such policies/ schemes under the
below-mentioned five categories which are imperative for sustainable growth and development of
any SME.
1. Infrastructure development
2. Business growth
3. Cluster development
4. Quality and Technological upgradation.
5. Market development
East
South
West
Uttar Pradesh
West Bengal
Tamil Nadu
Maharashtra
Refund of CST
Punjab
Reimbursement for
modernization
Odisha
Reservation of Industrial
estates
Kerala
Gujarat
North region
Uttar Pradesh government offers exemption from Electricity duty for 10 years to all new units and
exemption from stamp duty ranging from 50 to 100% depending upon the location of the unit. In
Punjab, VAT and CST incentive (50% VAT+75% CST with maximum cumulative quantum of 50% of
fixed capital investment) shall be available to new SMEs, having fixed capital investment from Rs.1
crore to Rs.10 crore, which have obtained term loan from a Financial Institution/Bank. The
incentive shall be available only to units setup in Industrial Focal Points, Industrial Estates
and approved Industrial Parks for a maximum period of 7 years from the Date of Approval. Also,
the state government shall reimburse 50% cost for modernization of facilities.
East region
The government of West Bengal has divided the state into four zones. Depending on the zone
location, an eligible micro/ small unit will be entitled to capital Investment subsidy in the
range of 15% to 40%, subject to a ceiling of Rs.50 lakh for small enterprise, along with additional
subsidy of 20% for all enterprises wholly owned by women, SC/ST and minority community. Further,
an eligible MSME shall be given VAT refund in the range of 80-90%, for its approved project for 8
years or 75% of fixed Capital Investment whichever reached earlier as well as total refund of CST for
3 years from the date of commencement of commercial production. Also, MSMEs will be entitled to
a refund of stamp duty and registration fee paid by it for the purpose of registration of documents
within the State relating to the purchase of land and buildings for setting up of the approved project
ranging from 25% to 100%. The government will also provide reimbursement of Entry Tax on plant
and machinery available after beginning of commercial production by the unit as well as
reimbursement of entry tax on procurement of raw materials for the initial 3 years to the MSMEs.
The Odisha government has also reserved 20% of area in all industrial estates for MSMEs. Further,
Common Facility Centres (CFCs) set up by SPVs of MSME clusters shall be entitled for allotment of
land on free-of-cost basis at locations earmarked for the purpose by Odisha Industrial Infrastructure
Corporation (IDCO).
West region
Maharashtra government entitles MSMEs for 100% stamp duty exemption within the investment
period for acquiring land and for term loan purpose. Further, the electricity duty exemption is
offered to 100% EOU and IT/BT units for seven years and a capital subsidy of 20% on fixed capital
investment in IT park, subject to ceiling of Rs.20 lakh, to be available to first 10 approved SME units
in the notified IT Parks. The Government of Gujarat offers interest subsidy of upto 7% for micro
enterprises and @ 5% for small and medium enterprises. Further, 1% additional interest subsidy
shall be provided to youth having less than 35 years of age in case of the first project with a
maximum limit of Rs.25 lakh per annum, for five years. Woman entrepreneurs will be accorded
priority.
South region
Tamil Nadu government funds 20% of cost of approved infrastructure items with a maximum limit
of Rs.1 crore and offers 50% rebate on stamp duty and registration charges for privately
developed industrial estate. Further, 30% of the area shall be reserved for Micro Enterprises in
Tamil Nadu Small Industries Development Corporation Limited (TANSIDCO) Industrial Estates and
20% of the area for Micro Enterprises in State Industries Promotion Corporation of Tamil Nadu
Limited (SIPCOT) Industrial Estates. Kerala government provides 15% of fixed capital investment
upto a limit of Rs.20 lakh and 20% of fixed capital investment upto Rs.30 lakh for women, SC/ST,
young entrepreneurs.
Entrepreneurs Memorandum
Further, in order to encourage the unorganized units to register, the Ministry of MSME has
simplified the registration process (replacing the earlier two-stage registration process with a onestep filing of memorandum).
MSMEs has shown consistent growth in terms of number of Entrepreneurs Memorandum [EM-II]
filed every year. Number of EM-II filed during 2007-08 in the District Industries Centres (DICs) across
the country was 1.74 lakh which increased to 1.93, 2.14, 2.37 and 2.82 lakh during 2008-09, 200910, 2010-11 and 2011-12 respectively.
As can be witnessed above, both the states placed in extreme in terms of productivity
(Punjab and Odisha) fared lowest among the group in terms of number of EM-II filed in FY 201112. This indicates that very less number of entrepreneurs/ industrialists are interested in setting up
their business in these states. Furthermore, even on comparing the existing number of SMEs
operating in these states, Punjab and Odisha fared at the lowest rank in the group. However, as per
the report published by RBI in September 2013, in terms of the new investment proposals which got
sanctioned by banks and financial institutions during FY 2012-13, Odisha has emerged as the top
preferred destination. Odisha managed to get investors to commit to around Rs.53,000 crore
investment, a 27% share of all-India investments which was a sharp rise from just over 6% in FY
2011-12.
Not only during FY 2011-12, Tamil Nadu has received the maximum number of EM-II in the last five
years as it is one of the most industrialized state of India. It has a long coastline and is well
connected to the major trade centres. However, in terms of the annual growth rate, Gujarat is far
better wherein the number of EM-II filed has grown at a Compounded Annual Growth Rate (CAGR)
of 41% during FY 2007-08 to FY 2011-12 as against 27% in Tamil Nadu. This high growth rate has also
bridged the gap between the number of EM-II from less than half of Tamil Nadu in FY 2007-08 to
almost threefourth of Tamil Nadu and also the second best in FY 2011-12. The primary reason
behind the high entrepreneurs interest in Gujarat is the pro-active administrative set up, relatively
transparent procedure of investment, efficient power sector and diversified industrial set-up.
Though Uttar Pradesh is well placed at third position in terms of EM-II filed, its position has actually
worsened from the top state in FY 2007-08 as the growth in number of EM-II filed has remained
stagnant.
2. Business growth support
For decades, the most dominant constraint facing the MSMEs has remained access to adequate and
timely loan finance. This becomes more crucial during the growth stage of business where the
financing needs of the enterprise rises. For the purpose, the state governments offer various
incentives and funding support depending on the focus areas and industries to encourage growth of
Business.
The schemes for business growth offered by various state governments have been tabulated belowBusiness Growth Support
North
East
South
West
Uttar Pradesh
West Bengal
Tamil Nadu
Maharashtra
expansion
Interest subsidy
Power subsidy
Workforce welfare assistance
Punjab
Design clinic scheme for
SMEs
Electricity duty exemption
Odisha
Capital investment subsidy
with additional subsidy for
women, SC/ST etc.
Kerala
Gujarat
North region
Uttar Pradesh government provides funding for purchase of Plant & machinery for enhancement of
capacity and quality improvement @ 50% subject to a maximum of Rs.2 lakh and interest subsidy @
50% subject to a maximum of Rs.0.50 lakh. Also, grant of interest-free loan shall be provided to new
units having made fixed capital investment of Rs.5 crore or more in Food Processing Sector (Rs.10
crore or more in Eastern U.P. and Bundelkhand and Rs.25 crore or more in other districts) for 10
years under Nivesh Protsahan Yojna, which is repayable after 7 years. The amount of loan shall not
exceed 10% of turnover or sum of the trade tax/ vat and central sales tax paid by the units. Further,
it shall also offer scheme under which amount incurred for consultancy worldwide competition@
50% is being provided by the government, subject to a maximum of Rs.0.50 lakh.
Government of Punjab is offering a scheme focused for students wherein the Design Clinic Scheme
supports design work by reimbursing 75% of expenses incurred subject to maximum of Rs.1.5 lakh
for final year student projects done for SMEs under the supervision of parent design Institutions.
Further, 100% exemption from payment of Electricity Duty on Power, including Captive Power
consumed by the same unit or exported to Punjab State Power Corporation, shall be available to
new units for a maximum period of 7 years from the date of Approval within approved Industrial
Focal Points, Industrial Estates and Industrial Parks.
East region
The Government of West Bengal will provide an interest subsidy in the range of 6% to 7.5% to SMEs
and interest subsidy of 25% for medium enterprises (subject to a ceiling of Rs.175 lakh/year) for 5 to
7 years depending on the location of the units.
Further, an eligible micro, small or medium unit will be entitled to a waiver of electricity
duty on the electricity consumed ranging from 50% to 100% (subject to maximum of Rs.25 Lakh
per year for medium enterprise) for 5 years from the date of commencement of operation
depending on the location, with 100% waiver for units owned by women, SC/ST and minority
community. Further, Government has decided to provide a power subsidy of Rs.1.00 / Kwh for units
in Zone A & B and subsidy of Rs.1.50 / Kwh for units in Zone C & D for 5 years subject to a ceiling of
Rs.20 lakh per annum for small enterprises and Rs.30 lakh for medium enterprises. Also for
workforce welfare assisstance, MSMEs will be entitled to a reimbursement of 100% in 1st year &
75% in next remaining years of expenditure incurred by it towards Employees State Insurance (ESI)
and Employees Provident Fund (EPF). The reimbursement for Zones B will be for 5 years, Zone C for
7 years and Zone D for 9 years.
As per the policy of Odisha government, New Industrial Units belonging to MSME sector shall be
entitled to capital investment subsidy of 10% of fixed capital investment subject to an upper limit of
Rs.8 lakh only. SC, ST, PH, Women and Technical (Degree / Diploma holding) entrepreneurs shall be
entitled to capital investment subsidy of 12% of fixed capital investment subject to an upper limit
of Rs.10 lakh.
South region
Tamil Nadu Government provides subsidy to the extent of 3% of the interest on term loan obtained
for Technology upgradation/modernization scheme. Further, 15% capital subsidy is offered on the
value of eligible plant and machinery subject to a maximum of Rs.3.75 lakh and 5% of Plant &
Machinery cost as employment generation subsidy. Additional capital subsidy of 5% of Plant &
Machinery cost shall be provided to women, SC/ST and differently-abled entrepreneurs. Also, 20%
on power consumption charges for 36 months from date of new power connection shall be borne
by the government. 25% of Plant & Machinery to promote cleaner environment and 25% on the
generator sets upto 125 KVA capacity is being offered. As per the policy of Kerala Government,
certain priority industries shall get additional 10% upto Rs.10 lakh.
West region
As per Maharashtra government policy, it shall offer
i)
ii)
iii)
iv)
Incentive equal to VAT on local sales + CST payable + 20% to 100% of ITC on eligible finished
products.
Power tariff subsidy of Rs.0.50 to Rs.1 per unit shall be granted (depending upon location)
for 3 years from the date of commencement of commercial production.
Interest subsidy shall be offered of maximum @5% upto the value of electricity consumed.
In Food processing sector, eligible units would be granted additional 10% incentives.
The Government of Gujarat offers interest subsidy of upto 7% for micro enterprises and @ 5% for
small and medium enterprises. Further, 1% additional interest subsidy shall be provided to
youth having less than 35 years of age in case of first project with a maximum limit of Rs.25 lakh
per annum, for 5 years. Woman entrepreneurs will be accorded priority.
As evident from above, the leading state in terms of employment in MSMEs is Uttar Pradesh
whereas Punjab stands at last among these sample states.
Odisha
2.53
Uttar Pradesh
5.60
West Bengal
1.51
Tamil Nadu
12.82
Maharashtra
26.48
Gujarat
5.23
Kerala
3.82
Punjab
3.97
Total
61.96
These eight states comprised almost 62% of the lending extended to the MSME sector by the
commercial banks. Maharashtra and Tamil Nadu were the major beneficiaries in terms of the
lending from the banks for the MSME sector.
3. Cluster development
Cluster-based approach is increasingly being recognized as sustainable, cost-effective and an
inclusive strategy to ensure competitiveness and improvement of MSMEs. As per the study 2010,
Clusters in India undertaken by Foundation for MSME clusters (FMC), It is estimated that there are
around 6,400 clusters in India. A total number of 4,259 clusters have been mapped in its study.
These clusters have been classified under the following typology:
(i)
(ii)
(iii)
Gujarat
Ship breaking, tile, pharma, dyes, plastic products, oil mills, diamond processing, textile processing
Kerala
Maharashtra
Odisha
Punjab
Tamil Nadu
Uttar Pradesh
West Bengal
Considering the importance of MSMEs, the state governments have come up with schemes to
enable development of clusters and providing necessary assistance.
Cluster
Development
North
East
South
West
Uttar Pradesh
West Bengal
Tamil Nadu
Maharashtra
Odisha
Kerala
No specific scheme
No specific scheme
Gujarat
Financial assistance for cluster
development
North region
In Uttar Pradesh, 22 clusters are selected to provide infrastructural support and technological
support under GOIs cluster development scheme which provides
i)
Diagnostic Study - Maximum cost Rs. 2.50 lakh
ii)
Soft interventions - Maximum cost of project Rs.25 lakh, with GoI contribution of 75% (90%
for Special Category States and for clusters with more than 50%
women/micro/village/SC/ST units).
iii)
Hard interventions i.e. setting up of CFCs maximum eligible project cost of Rs.15 crore
with GoI contribution of 70% (90% for Special Category States and for clusters with more
than 50% women/ micro/village/SC/ST units).
Out of 22 clusters, five are Common Facility Centre (hard intervention) at Varanasi (Glass beads),
Bhadohi (Carpet), Khurja (Pottery), Gorakhpur (Leather), and Meerut (Scissors).
In Punjab, there is no specific scheme floated by the state government to support the cluster
development and follows the GOIs cluster development scheme.
East region
As per West Bengals Policy, the State Government will provide financial assistance of up to Rs. 5
crore to establish common infrastructure facilities in industrial clusters such as road, power etc for
each micro and small industrial cluster in Zone B and C and in Zone D, i.e. the backward areas ,this
support will be upto Rs.10 crore.
In Odisha, a Cluster Development Cell is set up for the cluster development in the state. To promote
SPVs in MSME clusters, the SPVs shall be given the status of new small-scale industrial units for the
purpose of availing fiscal and nonfiscal incentives.
South region
In Tamil Nadu, mini Tool Room of 25% project cost upto Rs.1 crore shall be provided.
West region
In Gujarat, assistance of upto 80% of project cost (including assistance from GoI, with a ceiling of
Rs.10 crore shall be provided per cluster for a period of 3 to 5 years. If the assistance for
cluster development is obtained under the Cluster Development Scheme of GoI, the total
benefit under both the scheme shall not exceed 80% of the project cost.
East
South
West
Uttar Pradesh
West Bengal
Tamil Nadu
Maharashtra
Financial assistance
ISO/ISI certification
Financial assistance
for obtaining patents
Punjab
Financial assistance
quality certification
Odisha
for Reimbursement of technical
knowhow cost
Clean development
mechanism
Kerala
Financial assistance for
technology upgradation
Gujarat
Grant for technology acquisition
Support for quality certification & patent
registration
North region
Uttar Pradesh government provides 50% (subject to a maximum of Rs.75,000) of amount incurred
for obtaining ISO/ISI certification.
Punjab government provides 75% of expenses incurred on quality certification measures upto a
maximum of Rs.75,000.
East region
In West Bengal, a further assistance of 50% of cost upto a maximum of Rs.5 lakh will be provided for
Standard quality compliance e.g. obtaining certification/accreditation like ISO-9000, ISO-14000, ISO18000, Social Accountability Standards etc. Also, the State Government will provide consultancy and
facilitation services for identification and registration of Geographical Indicators (GI) of items
alongwith reimbursement of 50% of expenditure for obtaining patent registration subject to a
maximum of Rs.5 lakh.
In Odisha, new MSMEs are eligible for reimbursement of 50% of cost of purchase of technical knowhow up to Rs.1 lakh in case of indigenous technology and up to Rs.5 lakh in case of imported
technology. The state government shall endeavour to promote adoption of Clean Development
Mechanism (CDM) and related technologies by the MSMEs. The government subsidized consultancy
services for adoption of CDM by the MSME to the extent of 50% of the charges or Rs.25,000/whichever is less.
South region
In Tamil Nadu,
i)
ii)
Financial Assistance of upto 50% of expenditure is being provided for obtaining patents,
subject to maximum of Rs.2 lakh
Assistance is given upto 50% of expenditure incurred for obtaining trademark
subject to maximum of Rs.25,000.
In Kerala, 10% of fixed capital investment (upto Rs.10 lakh) is being provided for technology
upgradation purposes.
West region
In Maharashtra,
i)
ii)
iii)
iv)
In Gujarat,
i)
ii)
iii)
50% of cost of quality certificate shall be provided by the government, within overall ceiling
of Rs.6 lakh in 5 years, with maximum of three certificates in the Scheme
Grant at the rate of 50% of cost of technology acquisition shall be offered, including royalty
payments for the first two years, subject to maximum of Rs.1 crore per technology.
Financial assistance shall be provided of upto 50% of expenditure incurred for
obtaining patents, subject to maximum of Rs.10 lakh for obtaining domestic patents
and Rs.25 lakh for obtaining international patents. Maximum five patents per unit over a 5
years period will be eligible.
of them. Thus, the government provides special schemes wherein SMEs are specially provided
assistance solely for their marketing activities.
Some of the schemes provided by the governments of various states are listed belowMarket Development Support
North
East
South
West
Uttar Pradesh
West Bengal
Tamil Nadu
Maharashtra
No specific scheme
No specific scheme
Waiver on Earnest
Money Deposit
No specific scheme
Reimbursement of hall
rent for conducting
exhibition by MSME
Association
Punjab
Odisha
Kerala
No specific scheme
Gujarat
Assistance to MSME units & industries for
participation in international fairs
North region
In Uttar Pradesh,
i)
ii)
iii)
iv)
60% of Stall charges shall be paid by government, upto maximum of Rs.1 lakh for one
fair/exhibition,
In Air Fare, 50% by economy class maximum upto Rs.50,000/- per fair for one person shall
be reimbursed.
75% of total expenses shall be reimbursed on air-freight courier for sending samples max.
assistance up to Rs.50,000/- per year.
Also, Subsidy shall be offered on freight charges.
In Punjab,
i)
ii)
iii)
dedicated annualized fund of Rs.150 crore will be created for the purpose of creation & upgradation of Industrial Infrastructure, to make contributions as a State share for the Central
Government Schemes like Cluster Development, Common Facility Centers, R & D, Marketing, etc
50% of the expenses in case of National level Associations, subject to a ceiling of Rs.2 lakh would be
met by GOIs assistance
25% of the cost would be borne by the concerned State/Regional/ Local Level Association. The
remaining 75%, subject to a ceiling of Rs.1 lakh would be met by GOIs assistance.
East region
In Odisha, Odisha Small Industries Corporation Ltd. (OSIC) will act as nodal procurement agency of
the State Government Departments and Agencies under their control. Bulk orders for procurement
of goods and services shall be routed through OSIC. While acting as a consortium leader of local
MSMEs, OSIC shall be entitled to service charges not exceeding 1% of the order value from the
concerned units. ii) The local MSEs registered with respective DICs, Khadi, Village, Cottage &
Handicraft Industries, OSIC and NSIC shall be exempted from payment of earnest money and shall
pay 25% of the prescribed security deposit while participating in tenders of Government
Departments and Agencies under its control.
South region
In Tamil Nadu,
i)
ii)
West region
In Gujarat,
i)
ii)
Financial assistance shall be provided to MSME units for participation in International Trade
Fair outside India @ 50% of total rent of Stall or Space paid to organizer and cost of product
literature, catalogue and display material, with maximum of Rs.2 lakh.
Assistance to Industries Association for participation in international trade fair shall
also be provided as Gujarat Pavilion outside India @ 50% of total rent, with maximum of
Rs.10 lakh.
V.
Conclusion:
The factors such as the level of industrialisation, infrastructure setup and the availability of
natural resources, are the few major determinants of the type of industries in the region. The
central government as well as the state government have various schemes for promoting the
MSME sector, which is crucial to the growth of any country. However, it is difficult to determine the
effectiveness of these schemes as many SMEs are even not aware about many government policies
and even it is very difficult to get the guidelines of many government policies. Also small
entrepreneurs do not have much of expertise in various company laws and taxation policies
and also do not want to go to the legal experts or CA because of the high cost involved. Hence,
there is a need to minimize the paper work in order to pass on the benefit to the larger set of SMEs.
Further, due to lack of transparency and appropriate mechanism, it is difficult to determine the
efficiency of these states in terms of benefits being availed by MSMEs under the offered schemes.
Though each state is different from the other in terms of its employable workforce, regional
diversity, key resources etc, we observe that there is lack of focused schemes for promotion of
particular industries or schemes promoting utilization of key resources available in the state. Hence,
the state governments should concentrate on promoting the growth of MSMEs through focused
approach and assess the status and requirement of their SMEs, and offer such schemes, which
would encourage setting up more number of MSMEs and would further, help them to grow.
Further, they should strive to bring in more transparency in availability of data pertaining to
the MSMEs which would also help them as well as other policy makers in monitoring the
effectiveness of these schemes.
a significant change with gigantic high-rise residential complexes equipped with state-of-the-art
facilities, a robust infrastructure network, and retail centers that cater to global lifestyle needs. The
catalyst for this transformation is the 360 degree change in the lifestyle choices made by the
modern Indian consumer. In totality, these signs of prosperity mark Indias sustained economic
growth over the past decade.
The major contributor to this economic revolution has been the services sector which has had an
enormous impact on the depth and dimensions of the Indian economy. In 2011, services accounted
for more than 55% of the countrys GDP.1 Indias performance in the sector is not only above that of
other emerging developing economies, but also very close to that of the top developed countries.
Among the top 12 countries with the highest overall GDP in 2010, India ranked 11 in services GDP.2
In 2011-12, the services sector is expected to grow by 9.1%.3
While the global economic climate remains volatile with major concerns that the sovereign debt
crisis in Europe socio-economic changes, the Indian services sector remains confident and
buoyant.
Contributing to the Bigger Picture SMEs as Partners and Supply Chain
Links for Larger Service Providers The growth in the Indian services sector is spread across multiple
areas. Small and medium enterprises (SMEs) play a key role as part of the supply chain for larger
businesses in the sector. The fastest growing segments, with maximum involvement from large
corporates, are business services, communication and banking. Other rapidly growing services
include hospitality, education, healthcare, transport and IT. Better technology services indicate the
broader direction in which the Indian services sector is moving. However, the common factor across
these industries is that they are increasingly being supported by SMEs, either by strategic
outsourcing partners or indispensable supply chain component providers.
The IT/ITES and BPO Industry The IT/ITES and BPO industry has been one of the major driving
forces behind the growth of the Indian economy. In revenues of $88.1 billion and generated direct
employment for over 2.5 million people.4 In FY 2012, the IT-BPO revenue is expected to cross $100
billion, and by 2015, it is expected to touch $130 billion.5
At the forefront of this remarkable growth are large IT stalwarts like Infosys, Wipro, and Genpact. All
three companies were named among the top 15 global outsourcing service providers in 2011.6
However theirs is just one part of the growth story. Thousands of Micro, Small and Medium (MSME)
IT firms have grown in almost all parts of India, providing niche services for Indian as well as foreign
clients. API (Application Programming Interfacing) and software development, mobile application
development, web and cloud computing services, gaming and consulting -- the Indian IT SME has a
lot to offer.
As IT outsourcing matures, large customers are looking beyond the first wave of cost-saving and
demanding higher efficiency and effectiveness, says the CEO of Nagarro Software, a medium size
firm specializing in collaborative, cloud computing, and mobile development projects for enterprise
customers. The immense entrepreneurial energy of Indian SMEs, coupled with the fact that the
Indian IT sector has not been largely affected by the current economic uncertainty, are factors
critical to this success.
The Indian IT sector, especially software services, will do well to sustain the growth momentum as
demand for its offerings in export and domestic markets continue to be favorable despite
uncertainty, arising mainly out of the Euro crisis, says a top industry representative.7
The Healthcare Industry
In India, healthcare is one of the largest service sectors with estimated revenues of around $30
billion, constituting 5% of the GDP.8 In terms of jobs created, healthcare was among the top three
sectors in 2011, and in 2012; it is expected to add 273,571 jobs.9 Meanwhile, the expenditure on
healthcare infrastructure is projected to grow by 5.8% p.a., taking the total expenditure in 2013 to
$14.2
billion.10
The country is witnessing a surge in diagnostic centers with widespread availability of modern and
advanced equipment, previously unavailable in India. Also increasingly common are single specialty
hospitals such as eye care hospitals, heart treatment and maternity clinics, well-stocked
international and varied pharmacy brands, and daycare surgery centers with sophisticated facilities.
With the advent of decentralized healthcare delivery models which have lower initial investment
requirements, shorter payback periods, wider geographic reach, and lower business risk, firms in
the healthcare industry can easily acquire capital and financial support from private equity firms and
banks, thereby contributing to the growth of the healthcare industry.
This growth is driven by factors such as committed government initiatives for improved medical
infrastructure, focus on Public Private Partnership (PPP) models, and sharper awareness of ailments
and health amongst the urban population. This awareness has, in turn, led to increased spending on
lifestyle and health. It has also created a rising market for health insurance. Moreover, with cuttingedge treatments that offer 99.99% cure and speedy recovery, consumers feel a strong sense of
costvalidation which boosts the demand and need for common procedures such as non-invasive
day-care surgeries, dentistry, and ophthalmology treatment.
India has rapidly become a medical hub that boasts of experienced and knowledgeable doctors and
specialists offering treatments at substantiated costs. This has made the country a key attraction for
a number of medical tourists from across the world. According to a recent study conducted by the
Associated Chambers of Commerce and Industry of India (ASSOCHAM), titled Emerging Trends in
Domestic Medical Tourism Sector, The inflow of medical tourists in India is growing at a
compounded annual growth rate (CAGR) of 40% since last 3 years."7
The Travel and Hospitality Industry Indias travel, tourism and hospitality industry is one of the
fastest growing service industries in the country thanks to a burgeoning middle class, increasing
purchasing power, a rising inflow of foreign tourists, and successful government campaigns
promoting
Incredible India'. In 2011 alone, travel and tourism contributed to 6.4% of the GDP, and is forecast
to rise by 7.3% in 2012.8 In terms of employment, travel and tourism directly supported 24,975,000
jobs (5% of employment) in 2011, and is expected to rise by 3% in 2012.9 Foreign Exchange Earnings
(FEE) from tourism in 2011 were $16,564 million with a growth of 16.7% over
2010.10
Clearly, India is fast becoming a popular tourist destination world over. Between April 2000 and
December 2011, the hotel and tourism sector generated a total of $3,195.70 billion in Foreign Direct
Investment (FDI).11 In 2011 alone, the country welcomed 6.29 million foreign tourists, compared to
5.78 million in 2010.12 By 2022, international tourist arrivals are forecast to total 11,276,000,
generating an expenditure of `1,382.6
billion.13
In 2010-11, the travel and hospitality industry faced the challenge of a significant decline in
corporate travel due to serious cost cutting by global corporate houses, as well as the fear of
terrorism, and a lack of a sense of safety post the 2008 Mumbai terror attacks. However, the
hospitality sector has shown resilience, improving its security management and performance.
With the growth of budget hotels along with low cost airlines, online travel bookings, and group
travel, SMEs in the travel and tourism sector have shown rapid progress. They have been targeting
niche markets specializing in corporate travel, leisure travel, and even hitherto unheard services like
wedding travel and planning.
IATA statistics show that today, maximum business is generated in Asia. Asia and particularly India
now have a major role to play in shaping this sector while also enjoying maximum share. However,
with more disposable income, Indians prefer to travel overseas rather than within the country. We
have over 14 million Indians traveling overseas, but the figure for inbound tourism stands at a
dismal 6 million - this can definitely increase if we begin to seriously promote India as a destination
to be explored and discovered., says Vivek Dadhich, Managing Director of Noidabased Bluemoon
Travels, a new age travel company offering leisure travel and MICE - travel planning services for
Meetings, Incentives, Conventions, and Exhibitions.
The logistics and transport industry The Indian logistics market recorded revenues of about
$82.10 billion in 2010, witnessing a growth of about 9.2% over the previous year. The main drivers
fueling this growth include rapidly rising fortunes of the countrys manufacturing and retail sectors,
rising international trade, and ongoing infrastructure development initiatives by the Government of
India, such as dedicated freight corridors project, port development, building of logistics hubs and
warehouses, and technology upgrades.14
There has been a steady inflow of private equity investments in the logistics industry. The
development of basic infrastructure such as roads, airports, ports, and railways by large Indian
infrastructure companies has helped SMEs capitalize on the many opportunities that have opened
up. Today there is no dearth of courier companies, logistics solution providers, and transporters in
the SME space. Innovation and differentiation are the keys to success. SMEs in this industry are
focusing on providing logistics solutions to specific customers such as e-commerce, oil, construction
and mining companies.
Conclusion
While the global economic climate remains volatile, timely utilization of opportunities will ensure
that Indian SMEs continue on their growth trajectory in the services sector. Intelligent strategizing, a
progressive outlook, and adequate support from the government and financial institutions will prove
to be critical in helping the services sector overcome these tumultuous economic times, and pave
the way for a promising and rewarding future.