m Introduction

m Definition of MSME
m Macro economic situation of India.
m Indian SME Sector ± A Profile
m Contribution of SMEs
m % of SSI in total exports
m Institutional Support Structure
m Developing SMEs in India
m Government role
m —ey challenges of SMEs
m Finance difficulties
m Recognition of problem
m Technology
m Enhancing competitiveness of SMEs
m SIDBI¶s role
m Conclusion
m The Government of India passed in June 2006 an
act regarding the Micro , Small , and Medium
Enterprises . The Micro , Small and Medium Enterprise
Development Act ,2006 (MSMEDA )

m The Act accomplishes many long -standing goals of

the government and stakeholders in the MSME sector .
 The Act decisively defines the MSMEs by
the level of by Plant and Machinery (P&M )
investment.

 The categorization also makes allowances for

the inherently smaller investments of Service
enterprises.
m Medical Equipment and Ayurvedic Product
m Composite unit of Bacon Processing and Piggery
Farm
m Tobacco Processing
m Beedi/Cigarette manufacturing and other tobacco
Products
m Extraction of Agave Spirit from Agave juice ;
(imported medicinal plant ) extraction of Agave
m Manufacture of Bio-Fertilizer
* Piggery Farm without bacon processing as this
is a farming activity.
** The activity of ³Bee-—eeping´ being farming
allied activity.
m Economy has entered an era of distinct buoyancy.

m GDP growth rate ± 7.2% in current fiscal year6.7%

(2008-09)

m Major drivers :inflation , purchase power, easier

availability of credit & market potential.
m Small and Medium Enterprises play a vital role for the
growth of Indian economy.
m India has nearly three million SMEs, which account for
almost 50 percent of industrial output and 42 percent of
India¶s total exports.
m SMEs in India, which constitute more than 80% of total
number of industrial enterprises.
m Innovation has always been the hallmark of small and
medium enterprises.
country Share of total Share Share of Share of Criteria of
establishment of employment export recognition
output

India 95 40 45 35 Fixed asset

USA 98 n.a. 52 n.a. employment

Japan 99 52 73 13 employment

Taiwan 97 81 79 48 Paid up
capital, assets
Singapore 97 32 58 16 employment

—orea 97 33 53 40 Share capital

& employment
Malaysia 92 13 17 15 employment
Ôroduct % of SSI in total export

Sports goods 100

Ready made garments 90

Woolen garments 35

Processed food 65

Marine products 29

Leather products 80

Plastic goods 45

Cosmetics & pharmaceuticals products 55

Engineering goods 30
m Central Bank : Reserve Bank of India
m Separate Ministry at Central Govt. ± Ministry of SSI
m Office of DC(SSI) at the Centre : Small Industries Development
Organisation- SIDO
m Small Industries Service Institutes (SISIs) for technical/skill
development
m R&D institutions for technical help
m Financial Institutions and banks for financing at national and
regional levels
m Various support institutions for entrepreneurship development,
technical & marketing services and Govt. approvals
Government¶s development strategy for small business
enterprises in India has evolved around the following:-

m Protective discrimination e.g. Reservation, Priority

Sector Lending ,etc.

m Integration between large and small e.g. subcontracting

and vendor development.

m Institutional support through a network of testing

centres, tool rooms, entrepreneurship development
institutes etc.
m Access to formal finance
m Quality industrial infrastructure
m Marketing of products
m Lack of adequate working capital
m Technology up gradation and improvement in
quality of products
m Delayed payments to SMEs
m Sickness and NPA management.
 Government roleý
In the past«
Oocus only on ³Small Scale Industry´
GoI tried to address SME financing issues
through becoming itself a market player ±
established dedicated state-owned ³ SSI´
finance institutions
Disincentive for graduation to ³medium´&
reaping scale economies
Ôervasive state control and lack of
professional management, commercial
incentives=>deep inefficiencies in these
institutions, most of which now insolvent

Interest rate caps - subsidized credit to Credit rationing

SSIs
³Mandated´ lending quotas imposed on Banks subverted these quotas
banks

«Now, GoI Moving from SSI to SME focus; industry to services GoI & ÔOIs sought
WBG assistance to
& ÔOIs SAROAESI Act to facilitate recovery
support market
Liberalized interest rates based solutions
Seeking ³market-based´ solutions to address market GoI willing to
distortions borrow IBRD
Creation of Credit Information Bureau
m Lack of access to capital and money market.

m Lack of investment by investors.

m 16 % of credit by bank in this sector.

m High cost of credit.

m - Establishment of ISO 9000 certified specialized SSI
bank branches in districts/clusters.
m - Directive for working capital finance @ 20% of annual
normative turnover.
m - Waiver of collateral requirement upto Rs 0.5 million.
m - Setting up of a Credit Guarantee Trust to cover loans
upto Rs 2.5 million.
m - Composite loans from a single agency upto Rs 2.5
million.
m - A national Equity Fund for equity to SSI units at 5
percent service Charge.
m Small enterprises are often regarded for their labour
intensity

m Merger of small and large enterprises for technology up

gradation

m sourcing technology small businesses need to

concentrate on the following essential issues:-
(i) Information about Technology
(ii) Actual procurement of technology
(iii) Finance of technology up gradation
m Thrust on growth on infrastructure with private
participation.

m Strengthening of SME clusters.

m Setting up of Industrial Parks and Growth Centres.

m Liberalised financial and banking sector facilitating

assistance to SMEs on competitive terms.

m Minimum regulatory interventions in the affairs of the

enterprises.
m Small Industries Development Bank of India (SIDBI) :
apex development financial institution for SMEs in India
m Established under an Act of Indian Parliament
m Commencement of Operations : April 1990
m Objective : Promotion, financing & development of small
scale industries and co-ordinating functions of
institutions engaged in similar activities
m Structural Linkage: Ministry of Finance and Ministry of
SSI in Govt. of India
m Ownership : Public sector banks, financial
institutions and insurance companies owned or
controlled by Govt. of India
m Nodal agency: For execution of SME programmes
of Govt. of India
m Nodal Agency for Govt. Sponsored Programmes
˜echnology Up gradation
m Credit Linked Capital Subsidy Scheme
m Technology Up gradation Fund Scheme for Textiles
and Jute Industry
Equity-linked
m National Equity Fund Scheme
Micro Credit
m Portfolio Risk Fund
Infrastructure
m Integrated Infrastructure Development Scheme
Credit Guarantee Ound
m Credit Guarantee Scheme
m SMEs continue to be the thrust area for Government
policies
m The growing economy and the tremendous market
potential of the country augurs well for the sustained
growth of SMEs in the country
m Panacea for employment and decentralised
industrial development
m Latest policy package for SMEs envisages 20%
annual growth in credit to SME sector from FY
2005, to be doubled by 2010
m With the enactment of MSME Act, the sector is all
set to emerge as the most significant player in
national economy
m SIDBI as the apex institution will continue to play
its key role in facilitating timely and adequate
credit besides meeting the developmental needs
of the sector
m Wooden handicrafts are specialized skills passed on from
one generation to the next. The term 'wooden handicrafts'
refers to a wide range of wooden items carrying utilitarian
and artistic value that are made by hand, or with the use of
simple tools. Indian wooden handicrafts reflect unmatched
workmanship, fine designs, and subtle elegance. This
makes India one of the chief exporters of wooden
handicrafts in the world market.

According to the classification of Indian industries, a small

scale industry is defined as an industry that is:» Not
registered under the Factory Act
m » Investment in fixed assets does not exceed Rs.60
lakhs

m Small scale industries are classified into two

categories :» Modern small industries like powerlooms
etc.

m » Traditional industries like handlooms, sericulture,

khadi, coir, and handicrafts.

m Wooden handicrafts fall in the category of small scale

traditional industries.
m
The wooden handicrafts industry plays an important role in the Indian
economy. This industry requires low capital investment and other
resources. The wooden handicraft sector provides a high ratio of
value addition, and has emerged as one of the major sources
of foreign exchange earnings for India.
Indian wooden handicrafts are much sought after the world over, and
form an important export commodity of India. Although India's
handicraft exports show a consistent increase of sixteen per cent every
year, its share in the international market is not more than two per cent.
The Indian wooden handicraft sector is the second largest
employment provider (after agriculture). It employs about six million
artisans. Women constitute a large section of the handicrafts industry,
including people belonging to the weaker sections of society.
m The singular contribution of SMEs is on account of
their unique characteristics .Their role in economic
activity is manifest in both tangible and intangible
ways. If this contribution is to be sustained, then
their uniqueness needs to be nurtured in an overt
and explicit manner . The Indian experience has
shown that it is possible to design targeted
interventions, be they area specific like in clusters
or be they sector/Sub- sector or product specific.