Micro Small and Medium Enterprises (MSMEs)

Project Report

Submitted To:
Prof. Rakesh Gupta

Submitted By:
Section A

Group Members Name:

Amrita Paramanik
Antara Mukherjee
Naina Kamra
Radhika Bhardwaj
Sabyasachi Panda
Vishal Goyal
MICRO-ENTERPRISE
A micro-enterprise is a type of small business, often unregistered, having five or fewer
employees. Micro enterprises is an enterprise where the investment in equipment does not
exceed Rs 10 lakh. They account for a substantial share of total employment and gross domestic
product and they contribute significantly to poverty reduction. USAID defines “microenterprise”
as a firm of 10 or fewer employees, including unpaid workers, which is owned and operated by
someone who is poor.

MEDIUM ENTERPRISE

A medium-sized enterprise is defined as an enterprise which employs fewer than 250 persons.
Medium enterprise is that where the investment in equipment is more than Rs 2 crore but does
not exceed Rs 10 crore.

SMALL ENTERPRISE

A small enterprise is defined as an enterprise which employs fewer than 50 persons. Small
enterprise is one where the investment in equipment is more than Rs 10 lakh but does not
exceed Rs 5 crore.

The limit for investment in plant and machinery / equipment for manufacturing / service
enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under:

Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not
exceed five crore rupees
Medium Enterprises More than five crore rupees but does not
exceed ten crore rupees
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed
two crore rupees
Medium Enterprises More than two crore rupees but does not
exceed five core rupees

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IMPORTANCE AND CONTRIBUTION OF MSME
The Micro Scale and Medium Enterprises (MSMEs) play an important role in the economic
development of any country. MSME enterprises can be rightly called as the backbone of the
GDP of India. The MSME sector in India is growing at an exceptionally fast rate due to which it
is proving to be beneficial to the Indian Economy. However, there are some important points that
need to be considered for further development of the MSME sector.

MSME contributes in the following:

Rural industrialization
Rural development and decentralization of industries
Creation of employment opportunities and more equitable income distribution
Use of indigenous resources; earning of foreign exchange (FOREXs) resources
Creation of backward and forward linkages with existing industries
Entrepreneurial development

The development of MSMEs is one of the sustainable ways of reducing the level of poverty and
improving the quality of life in household through job and wealth creation. According to the
United Nation Development program (UNDP), MSMEs have the highest capital, employment
ratio and are a source of income for a lot of people World over. The most important thing is that
MSMEs also act as safeguard in times of economic recessions.

The MSMEs constitute over 90% of total enterprises in most of the economies and are credited
with generating the highest rates of employment growth and account for a major share of
industrial production and exports. In India too, the MSMEs play a pivotal role in the overall
industrial economy of the country. In recent years the MSME sector has consistently registered
higher growth rate compared to the overall industrial sector. With its agility and dynamism, the
sector has shown admirable innovativeness and adaptability to survive the recent economic
downturn and recession.

As per available statistics (4th Census of MSME Sector), this sector employs an estimated 59.7
million persons spread over 26.1 million enterprises. It is estimated that in terms of value,
MSME sector accounts for about 45% of the manufacturing output and around 40% of the total
export of the country.

This sector contributes 8% of the country’s GDP and employs around 60 million people, through
26 million enterprises. MSMEs in the country manufacture over 6,000 products.

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Let us analyze the factors that have contributed to the growth of the MSME sector in India.

MSME units in India are being funded by foreign and local fund providers.

The advancement in technology has also contributed highly to the MSME sector. There are
numerous business directories and trade portals available online that contains a rich database of
manufacturers, sellers and buyers

To start and maintain these units, minimal investment is required.

These MSME units are now being funded by many government and private banks.

The MSME sector is one of the greatest contributors of domestic production as well as the export
earnings· Many major mergers have taken place recently.

Strengths:
The MSME sector is often driven by individual creativity.

It’s potential for greater innovation both in terms of products and processes.

Enterprises can be set up with very small amounts of investments.

Location flexibility to be located anywhere in the country. There is a well-spread network

at the national, state and the local level for providing a comprehensive range of support
services under marketing, technology, finance, and infrastructure and skill development.

Maximum potential for employment generation.

Lowest Administrative cost & risk is lesser.

Assist decentralization of power.

Induce growth of industrially backward regions ensuring balanced regional development.

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Weakness:
Small and Medium Enterprises (MSME), have inadequate access to finance due to lack of
financial information and non-formal business practices.

MSME’s also lack access to private equity and venture capital and have a very limited
access to secondary market instruments.

MSME’s face fragmented markets in respect of their inputs as well as products are also
vulnerable to market fluctuations.

MSME’s lack easy access to inter-state and international markets. There is lack of
awareness of global best practices.

The access of MSME’s to technology and product innovations is also limited.

MSME’s face considerable delays in the settlement of dues/payment of bills by the large
scale buyers. With the deregulation of the financial sector, the ability of the banks to
service the credit requirements of the MSME sector depends on the underlying
transaction costs, efficient recovery processes and available security. There is an
immediate need for the banking sector to focus on credit and finance requirements of
MSME’s.

suffering from low technology base resulting in low productivity and poor quality

Major weakness another weakness is absence of marketing channels and brand building
capacity f products.

The lack of reliable and updated data base is another area of concern as it inhibits
monitoring of development initiatives.

There is a lack of coordination among the various organizations involved in the

promotion of MSMEs, including organizations of the State Governments and also there
are poor linkages with the institutional stakeholders in the private sector.

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Challenges Faced by the MSME Sector
The challenges being faced by the small and medium scale sector may be briefly set out as
follows-

Small and Medium Enterprises (MSME), particularly the tiny segment of the small
enterprises have inadequate access to finance due to lack of financial information and
non-formal business practices. MSME’s also lack access to private equity and venture
capital and have a very limited access to secondary market instruments.

MSME's have to face the increased cost of raw materials.

MSME’s face fragmented markets in respect of their inputs as well as products and are
vulnerable to market fluctuations.

MSME’s lack easy access to inter-state and international markets. There is lack of
awareness of global best practices.

The access of MSME’s to technology and product innovations is also limited.

In the competitive market, MSMEs need protection against market manipulation and
need to be given institutional support

MSME’s face considerable delays in the settlement of dues/payment of bills by the large
scale buyers. With the deregulation of the financial sector, the ability of the banks to
service the credit requirements of the MSME sector depends on the underlying
transaction costs, efficient recovery processes and available security. There is an
immediate need for the banking sector to focus on credit and finance requirements of
MSME’s.

There is need of high level research and development required to develop these sectors in
both the urban and rural areas

The MSME units are functioning efficiently and effectively, but even now there is lack of
information regarding the inputs of these industries, like the raw materials, skills, machinery and
equipment.
Though the MSME industries are spread all over the urban areas, proper infrastructure needs to
be developed in the rural areas to establish these industries there.

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Latest Updates on MSME

Budget Impact on MSME

Raj Kumar Malhotra, Chairman, Export Promotion Council for Handicrafts (EPCH) lauded the
Union Budget 2011-12 and termed it as a growth oriented budget for the handicraft sector. He
added that the handicrafts sector has been given recognition in the Union Budget with a number
of initiatives including reduction in basic customs duty on bamboo for agarbatti from 30 per cent
to 10 per cent, which according to him, an important incentive for the agarbatti exporters since
this would reduce the input costs. The development of a handicraft mega cluster would help
increase the production and exports of wooden handicrafts and other allied products from the
region. (Latest updated news dated 1 march 2011)

MSME ministry out to help young entrepreneurs

The government is very keen to support first generation entrepreneurs and so there are schemes
under Rajiv Gandhi Udyami Mitra Yojana (RGUMY), says Minister of State (Independent
Charge) for Micro, Small and Medium Enterprises, Virbhadra Singh in a written reply to a
question in the Lok Sabha on Thursday.

He also informed that the government imparts training to persons desirous of setting up of micro-
enterprises including agro-industries, under Prime Minister’s Employment Generation
Programme (PMEGP). PMEGP is a credit-linked subsidy scheme of the Government,
implemented from 2008-09 through Khadi and Village Industries Commission (KVIC), a
statutory organization under this Ministry ( www.futureindia.com news updated on 25 Feb.
2011)

New initiatives for MSME

New initiatives for Micro, Small and Medium Enterprise (MSME) sector will be launched
shortly based on the report of the Task Force on MSME, said President Pratibha Patil.
She said that the MSME sector continues to hold its dynamism in terms of production,
employment generation and contribution to exports.

The MSME sector contributes 8 percent of the country's GDP, 45 percent of the manufactured
output and 40 percent of its exports.

The task force on the MSME sector headed by T K A Nair, Principal Secretary to Prime
Minister, Manmohan Singh, had submitted its report containing several recommendations last
month. The suggestions covered areas like easy and affordable credit, government procurement
from MSMEs and simplification of labour laws. The task force also suggested setting up of a
exchange for the SMEs.

On the Khadi sector, which employees over one crore people, she said, "The khadi sector is a
very large employer, with khadi and village units giving employment to over one crore persons.
A comprehensive Khadi Reform Programme has been launched."

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STRATEGIES PROPOSED FOR MSME’S
When we observe the general imbroglios associated with these segments of industries the
following strategies can be proposed:

NICHE MARKET STRATEGY:

Launching a product into a niche market is far cheaper than launching a mass-market product.
Potential customers are easier to identify and to target. Niche markets often develop as a subset
of mass markets and mass marketed manufacturers choose to launch niche products as well. So
in the context of creating awareness about their product and also create a better platform to sale
their products, niche market strategy would be an appropriate plan.

FINANCIAL STRATEGY (CREATING SNAPSHORT OF COST, MARGIN,

OPERATING CAPITAL)

All small businesses need to have absolute certainty and clarity about their fixed costs and their
variable costs into the near-to medium term future and have mechanisms in place to review this
on a regular basis. Cash flow management is a basic and essential business requirement.
If they need to borrow money as an overdraft or a factoring arrangement or even off friends and
family, it should be ensured that they are getting the best terms and the maximum flexibility
possible. They need to be allowed about eight weeks to arrange credit and plan accordingly.
Negotiations with the financial institution must include the flexibility to get out of the
arrangements as their cash reserves improve.

It should be decided priory whether they are going to pay individual commissions, team bonuses
and special privileges. Are the special deals you are offering to employees sustainable in the
longer term? All these factors must be considered.

COMPETITIVE STRATEGY:

Every organization faces competition and it is up to the organization to decide whether it uses
price or effective distribution to position in front of the customers when there is a concern
regarding the products. Here several factors like understanding customer behavior and supply
chain are important.

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ESTABLISHING A INFORMATION MAPPING STRATEGY:

After going through the gamut of issues regarding SMSE s it has been found that there is a lack
of proper information flow among various departments particularly the workflow so a cross
function application such as ERP could be implemented which would act as a storehouse of
information and help the managers to take efficient decisions in future.

PROCESS STRATEGY:

There are indeed many options open to the SME regarding executing change. This could be
started from standardizing the primary functions of the organization like as mentioned below:

Finance – (billing, invoicing)

HR – (staff information, retention, training, incentives)

• Operations – (planning, scheduling, information sharing, inventory, forecasting)

Delivery & logistics – (fulfillment, customer deliveries)

• Supply chain – (information sharing, access to production planning data, inventory

replenishment, order tracking, forecasting)

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Bibliography
http://msme.gov.in/msme_

http://news.franchiseindia.com/smallbusiness/MSME-contributes-over-45-in-India-s-
manufacturing-sector-2353/

http://zambiachambers.org/index.php?option=com_content&view=article&id=737:msmes-
policy-opportune-initiative&catid=1:latest-news&Itemid=57

http://www.business-standard.com

http://www.thomex.com/trade-events/india-msme-summit-2009/index.html

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