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SMALL AND MEDIUM ENTERPRISES (SMEs) IN INDIA

1.1 SMEs IN INDIA With the advent of planned economy from 1951 and the subsequent industrial policy followed by Government of India, both planners and Government earmarked a special role for small-scale industries and medium scale industries in the Indian economy. Due protection was accorded to both sectors, and particularly for small scale industries from 1951 to 1991, till the nation adopted a policy of liberalization and globalization. Certain products were reserved for small-scale units for a long time, though this list of products is decreasing due to change in industrial policies and climate. SMEs always represented the model of socio-economic policies of Government of India which emphasized judicious use of foreign exchange for import of capital goods and inputs; labour intensive mode of production; employment generation; non concentration of diffusion of economic power in the hands of few (as in the case of big houses); discouraging monopolistic practices of production and marketing; and finally effective contribution to foreign exchange earning of the nation with low import-intensive operations. It was also coupled with the policy of de-concentration of industrial activities in few geographical centers. In the Indian context, micro, small and medium enterprises as per the MSME Development Act, 2006 are defined based on their investment in plant and machinery(for manufacturing enterprise) and on equipments for enterprises providing or rendering services. According to the Micro, Small and Medium Enterprises (MSME) Development Act of 2006, (India) a micro enterprise is where the investment in plant and machinery does not exceed twenty five lakh rupees. A medium enterprise is where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees. A small enterprise is where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees. In the case of the enterprises engaged in providing or rendering of services, as

a micro enterprise is where the investment in equipment does not exceed ten lakh

rupees.

(a)

(b)

a small enterprise is where the investment in equipment is more than ten lakh rupees

but does not exceed two crore rupees.

(c) a medium enterprise is where the investment in equipment is more than two crore

rupees but does not exceed five crore rupees.

According to the Ministry of Micro, Small and Medium Enterprises, recent ceilings on investment for enterprises to be classified as micro, small and medium enterprises are as follows:

1.2 Classification Manufacturing Enterprises* Service Enterprises**

Classification

Manufacturing Enterprises*

Service Enterprises**

 

Rs. 2.5 million/ Rs. 25 lakh (US$ 50,000)

Rs.

1

million/ Rs. 10 lakh

Micro

(US$ 20,000)

Small

Rs. 50 million/ Rs. 5 crore (US$ 1 million)

Rs. 20 million/ Rs. 2 crore (US$ 40,00,000)

Medium

Rs. 100 million/ Rs. 10 crore (US$ 2 million)

Rs. 50 million/ Rs. 5 crore (US$ 1 million)

* Investment limit in Plant & Machinery ** Investment limit in equipments *** Rs 50 = 1 USD

It can be observed that by and large, SMEs in India met the expectations of the Government in this respect. SMEs developed in a manner, which made it possible for them to achieve the following objectives:

(i)

High contribution to domestic production

(ii)

Significant export earnings

(iii)Low investment requirements (iv)Operational flexibility

(v) Location wise mobility

(vi)Low intensive imports

(vii)

Capacities to develop appropriate indigenous technology

(viii)

Import substitution

(ix)Contribution towards defense production

(x) Technology – oriented industries

(xi)Competitiveness in domestic and export markets

At the same time one has to understand the limitations of SMEs, which are:

(i)

Low Capital base

(ii)

Concentration of functions in one / two persons

(iii)Inadequate exposure to international environment (iv)Inability to face impact of WTO regime

(v) Inadequate contribution towards R & D

(vi)Lack of professionalism

In spite of these limitations, the SMEs have made significant contribution towards technological development and exports. SMEs have been established in almost all-major sectors in the Indian industry such as:

a. Food Processing

b. Agricultural Inputs

c. Chemicals & Pharmaceuticals

d. Engineering; Electricals; Electronics

e. Electro-medical equipment

f. Textiles and Garments

g. Leather and leather goods

h. Meat products

i. Bio-engineering

j. Sports goods

k. Plastics products

As a result of globalization and liberalization, coupled with WTO regime, Indian SMEs have been passing through a transitional period. With slowing down of economy in India and abroad, particularly USA and European Union and enhanced competition from China and a few low cost centers of production from abroad many units have been facing a tough time. Those SMEs who have strong technological base, international business outlook, competitive spirit and willingness

to restructure themselves shall withstand the present challenges and come out with shining colours to make their own contribution to the Indian economy. The role of micro, small and medium enterprises (MSMEs) in the economic and social development of the country is well established. The MSME sector is a nursery of entrepreneurship, often driven by individual creativity and innovation. This sector contributes 8 per cent of the country’s GDP, 45 per cent of the manufactured output and 40 per cent of its exports. The MSMEs provide employment to about 60 million persons through 26 million enterprises. The labour to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries. The geographic distribution of the MSMEs is also more even. Thus, MSMEs are important for the national objectives of growth with equity and inclusion.

2. The MSME sector in India is highly heterogeneous in terms of the size of the enterprises,

variety of products and services produced and the levels of technology employed. While one end of the MSME spectrum contains highly innovative and high growth enterprises, more than 94 per cent of MSMEs are unregistered, with a large number established in the informal or unorganized

sector. Besides the growth potential of the sector and its critical role in the manufacturing and value chains, the heterogeneity and the unorganised nature of the Indian MSMEs are important aspects that need to be factored into policy making and programme implementation.

3. The representatives of 19 prominent MSME Associations met the Hon’ble Prime Minister on

26th August 2009 to highlight their concerns and issues regarding MSMEs. The Prime Minister announced the setting up of a Task Force to reflect on the issues raised by the associations and formulate an agenda for action within a period of three months after discussions with all stakeholders. Accordingly, a Task Force under the chairmanship of the Principal Secretary to Prime Minister was constituted to address the issues of the MSME Sector. MSMEs in the country manufacture over 6,000 products. Some of the major subsectors in terms of manufacturing output are food products (18.97%), textiles and readymade garments (14.05%), basic metal (8.81%), chemical and chemical products (7.55%), metal products (7.52%), machinery and equipments (6.35%), transport equipments (4.5%), rubber and plastic products (3.9%), furniture (2.62%), paper and paper products (2.03%) and leather and leather products

(1.98%).

In view of the MSME sector’s role in the economic and social development of the country, the Government has emphasized on its growth and development. It has taken various measures/initiatives from time to time which have facilitated the sector’s ubiquitous growth. Some of the recent measures include enactment of the Micro, Small and Medium Enterprises Development Act, 2006, amendments to the Khadi and Village Industries Commission Act, announcement of a Package for Promotion of Micro and Small Enterprises (MSEs), launching of new/innovative schemes under National Manufacturing Competitiveness Programme Report of The Task Force on MSME (NMCP), launching of Prime Minister’s Employment Generation Programme (PMEGP) to generate employment opportunities, etc. The MSME sector in India is highly heterogeneous in terms of the size of the enterprises, variety of products and services produced the levels of technology employed, etc. These could be broadly grouped into the following three categories, based on the different sets of constraints faced and requirements of policy interventions:

(a) High Growth Enterprises

One end of the MSME spectrum contains highly innovative and high growth enterprises. These include MSMEs in sectors like textiles and garments, leather and leather products, auto components, drugs and pharmaceuticals, food processing, IT hardware and electronics, paper, chemicals and petrochemicals, telecom equipment, etc. Such enterprises not only have high potential for growth but could also contribute significantly in enhancing country’s exports. One of the major constraints in growth of such enterprises is access to equity capital. At present, there is almost negligible flow of equity capital into this sector despite the fact that overall such capital inflow has witnessed significant increase in the recent years. There is, therefore, a need to promote inflow of equity capital into this sector by providing suitable incentives to MSME- focused angel/venture capital funds as well as by setting up of SME Exchanges/platforms.

Another aspect that is critical for their growth is technology. Given their scale of operations, it is not only difficult for them to invest in research and development activities but even to acquire modern and latest technologies available in the market due to high costs. The Government has launched the National Manufacturing Competitiveness Programme with the objective of enhancing the competitiveness of MSMEs. The programme includes several new and innovative

schemes (viz., Lean Manufacturing, Design Clinics, Quality Management Standards and Quality Technology Tools, Incubators, etc.) for assisting the MSMEs in adoption of best international practices to enhance their competitiveness. Simultaneously, there is a need to make massive efforts for dissemination of information on the latest/modern technologies among the MSMEs and supporting them for undertaking technology upgradation, acquisition, adaptation and innovation. In addition, the Government also needs to encourage R&D in the engineering/technical institutions through suitable tax incentives and setting up of Business Incubators.

1.3 SMEs In Uttrakhand Since its inception in May 1999, (and even earlier as a part of ‘Uttar pradesh State’) Uttrakhand has been in the forefront of industrialization. The state has always followed progressive industrial policies and industry – friendly measures. Through a network of District Industries Centre (DICs), it offers maximum guidance and assistance to SMEs. Many SMEs promoted by local entrepreneurs as also by NRIs and foreigners have come up in Uttrakhand covering a broad spectrum of industrial activity. The quality of products of SMEs from Uttrakhand is high. Some of them have acquired technology from abroad. Adequate budget is provided for R & D operations. Many units are promoted by techno-entrepreneurs. In view of the objective of the study, it was considered necessary to undertake a survey of SMEs from major parts of Uttrakhand covering following sectors: Engineering; Electricals; Food Processing; Chemicals and Pharmaceuticals. The field survey consisted of visits to industries in the following cities / regions:

Table : 1.1

District-wise

Number

 

of

Capital

Investment

 

Small

Scale

Industries

(Less

than

ten

Lakh)

in

Uttarakhand

(2008-2010)

District

Target

Achievement (Upto july-2010)

 

%age Achievement

Nainital

175

71

41

Udham Singh Nagar

300

62

21

Almora

200

170

85

Pithoragarh

150

82

55

Bageshwar

50

23

46

Champawat

50

43

86

Dehradun

250

65

26

Pauri

200

119

60

Tehri

175

56

32

Chamoli

140

52

37

Uttarkashi

140

95

68

Rudraprayag

50

39

78

Haridwar

300

204

68

Uttarakhand

2180

1081

 

50

Source Table 1.1 : Industrial Development Department, Govt. of Uttarakhand

Table 1.2

District-wise Number of Capital Investment Small Scale Industries (More than Ten Lakh) in Uttarakhand

 

(2007-2010)

   

Achievement (Upto July-

% age

District

Target

2010)

Achievement

Nainital

60

50

83

Udham Singh

     

Nagar

100

85

85

Almora

40

36

90

Pithoragarh

40

36

90

Bageshwar

25

23

92

Champawat

25

23

92

Dehradun

95

80

84

Pauri

80

68

85

Tehri

60

50

83

Chamoli

40

33

83

Uttarkashi

40

34

85

Rudraprayag

30

29

97

Haridwar

100

83

83

Uttarakhand

735

630

86

Source Table 1.2 : Industrial Development Department, Govt. of Uttarakhand

Table 1.3

District-wise Number of Registered Small Scale Industries in Uttarakhand

 

(2000-2010)

 

District

No. of Total Unit

Working Unit in Consist

Closed Unit

Uttarkashi

2655

1839

816

Chamoli

1712

954

758

Rudraprayag

656

422

234

Tehri

2090

1158

932

Dehradun

4191

2527

1664

Pauri

3368

1776

1592

Haridwar

4241

2622

1619

Pithoragarh

1083

604

479

Bageshwar

665

403

262

Almora

1926

1016

910

Champawat

366

165

201

Nainital

1897

835

1062

Udham Singh Nagar

2535

961

1574

Uttarakhand

27385

15282

12103

Source Table 1.3 : Industrial Development Department, Govt. of Uttarakhand

A total of 40 units in various sectors were contacted and finally 23 units were shortlisted

for inclusion in the study report. While making a final choice of the units from target sectors, following factors were considered.

1. Set up of the unit and management

2. Technology status and product profile

3. Turnover & exports

4. Scientific manpower

5. Technology / Process / Product on offer

1.4 Review of Industrial sectors considered for SMEs in Uttrakhand The industries in Chemical, Engineering, Electrical, Food Processing and Pharmaceutical sector were contacted during the field survey. A broad outline of these industrial sectors and the list of industries, which were considered for detailed study, are presented in the following sections.