CHAPTER 1

Emerging SME sector in India & their future prospects

INTRODUCTION TO SME
Small and Medium Enterprises (SMEs) have played a significant role world over in the economic development of various countries. Over a period of time, it has been proved that SMEs are dynamic, innovative and most importantly, the employer of first resort to millions of people in the country. The sector is a breeding ground for entrepreneurship. The importance of SME sector is wellrecognized world over owing to its significant contribution in achieving various socio-economic objectives, such as employment generation, contribution to national output and exports, fostering new entrepreneurship and to provide depth to the industrial base of the economy. Small and medium-sized enterprises (SMEs) are the backbone of all economies and are a key source of economic growth, dynamism and flexibility in advanced industrialized countries, as well as in emerging and developing economies. SMEs constitute the dominant form of business organization, accounting for over 95% and up to 99% of enterprises depending on the country. They are responsible for between 60-70% net job creations in Developing countries. Small businesses are particularly important for bringing innovative products or techniques to the market. Microsoft may be a software giant today, but it started off in typical SME fashion, as a dream developed by a young student with the help of family and friends. Only when Bill Gates and his colleagues had a saleable product were they able to take it to the marketplace and look for investment from more traditional sources. SMEs are vital for economic growth and development in both industrialized and developing countries, by playing a key role in creating new jobs. Financing is necessary to help them set up and expand their operations, develop new products, and invest in new staff or production facilities. Many small businesses start out as an idea from one or two people, who invest their own money and probably turn to family and friends for financial help in return for a share in the business. But if they are successful, there comes a time for all developing SMEs when they need new investment to expand or innovate further. That is where they often run into problems, because they find it much harder than larger businesses to obtain financing from banks, capital markets or other suppliers of credit.

Various ways of financing sme

Venture capitalist Government

Small and Medium Enterprises (SMEs) play a vital role for the growth of Indian economy by contributing 45% of industrial output, 40% of exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. SME's Contribution towards GDP in 2011 was 17% which is expected to increase to 22% by 2012. There are approximately 30 million MSME Units in India and 12 million persons are expected to join the workforce in the next 3 years. SMEs are the fountain head of several innovations in manufacturing and service sectors, the major link in the supply chain to corporate and the PSUs. By promoting SMEs, the rural areas of India will be developed. SMEs are now exposed to greater opportunities than ever for expansion and diversification across the sectors. Indian market is growing rapidly and Indian entrepreneurs are making remarkable progress in various Industries like Manufacturing, Precision

Engineering Design, Food Processing, Pharmaceutical, Textile&Garments, Retail, IT and ITES, Agro and Service sector Policy framed by government for sme are as below given

LEASING SECTOR IN INDIA

Leasing of equipments and real assets is a prominent source of private capital formation and contributor to GDP in many developed and developing economies across the world with equipment Leasing (excluding real estate and consumer asset financing) as a % of private capital formation estimated at 16.4% for US, 16.2% for Germany, 23.8% for Brazil, 20.6% for UK and 2.2% for China in 2008. In contrast, leasing penetration in India is abysmally low and is estimated at 1.5% of private capital formation in FY10 which roughly translates into Rs 20,000 crore of annual leasing volumes. Financial Leasing: Financial leasing is the most common form of leasing. Through financial leasing businesses can finance the eventual ownership of equipment, unless they have not fulfilled all payment of the contract period. During the leasing period, the lessee should make periodical payments of the contact period. During the leasing period, the lessee should make periodical payments, which consists of the principle amount plus interest representing the return on investment. The amount and structure of the payments are tailored between the lessee and the leasing company to reach a pattern that is compatible to both. The payments over the fixed time frame, eventual should cover the cost of asset itself, and at the end of contact the lessee can purchase the asset for a nominal value. Unlike the case with commercial banks, lessors place less emphasis on the security beyond the leased asset itself; in other words, leasing doesnt require tedious financial records or collateral provisions. Leasing finances fixed assets for a business and deletes the probability of funds diversions, rather than working capital that would be sold off by the business. Therefore, it ensures long term use. Operating Lease: In the case of operating lease (also called leasehold), the lessee doesnt finance equipment purchase, but pays for a terminal use and maintenance of the asset again by installment amounts ( not adding it to the balance sheets), and since

these are short term leases, the lessor will seek to, successively, loan out his/her asset. In other words, the lessee makes leasing payments over the whole leasing period against the rights to use the leasing asset. Upon expiry of the leasing period, the leasing asset is returned back to the leasing company or, if the parties agree on the price, it may purchased by the lessee. The tenor of the operating lease contract is designed as such to be terminated prior to the full depreciation of the asset. Hire Purchase: Hire Purchase, sometimes called Lease Purchase, is very similar to a financial lease in terms of operation. Payments are made at an agreed rate for an agreed duration, but the important differences are that ownership of the asset gradually passes to the customer with each lease payment. This method of leasing also entails handling over the ownership of the asset in question, yet the ownership is directly transferred at the end of the agreed upon payment period. For the slightly higher risk to the hirer, the costs are somewhat higher. This type of leasing is most commonly found in the retail sector with smaller scale assets. In the tax context, the customer, once the lease is started, is the owner, who can claim capital allowance. Leverage Leasing: Leverage leasing has almost the same set up as the previous types of leasing. However, it entails three parties where the lessor arranges to borrow part of the required funds (third party lender), generally giving the lender the first mortgage on the asset. The lesser still receives the full amount on the investment tax credit. Sale and Lease Back: A sale and lease back takes place when a company sells an asset it owns to another firm and immediately leases it back. The advantage of this type of leasing is that the lessees receives cash from the sale of the asset and the lessee makes periodic payments, thereby retaining use of the asset.

EVOLUTION AND GROWTH DRIVERS

Leasing in India registered unprecedented growth in the late 80s and early 90s as a widely used financial services product by non banking finance companies

(NBFCs) as a means to claim the benefits of depreciation and consequent tax benefits. The performance of the sector was adversely affected by changes in the accounting requirements and regulatory changes such as linking the extent of deposits to credit rating, in late 90s, as a result of which the leasing transactions came under stringent regulatory scrutiny of the underlying intent (financing vs. true lease) and became subject of taxation and legal uncertainties. Further the deterioration in the credit quality during that period also impacted the NBFCs. These uncertainties drove the leasing sector to a period of relative inactivity which lasted over the period 1997-2004. : The sector has again shown signs of revival since 2005, this time around fuelled by strong economic growth with the following characteristics: a high capital investment in several industries, an increase in the presence of MNCs which operate on an asset light business model, an increasing usage of big ticket plant & equipment that come with high technological obsolescence, and emergence of professional lease providers with specialised expertise in asset management and residual value risk management. At present, the Indian leasing sector is witnessing a transition from being a nascent market dominated by simple finance lease structure to an evolving market, marked by emergence a strong market for operating leases.

Some favourable and unfavourable condition for Leasing

s

CONSTRAINTS 1.Uncertainties in the legal and taxation environment governing leasing transactions continue 2.Enablers for emergence of an efficient leasing market underdeveloped; secondary market, asset valuation, service backbone for equipments such as in construction 3. Mindset of the Indian customer of pride in owning an asset. This is

ENABLER 1.Strong Customer Demand Drivers in place-Emergence of Asset Lite MNCs and significant capital investments across all sectors of economy and infrastructure 2.Entry of Large OEMs with specialised equipments across multiple industry segments 3.Emergence of Organized Lease providers with specialized skills in

showing gradual changes with MNC culture and business imperatives

asset management 4.Anticipated changes in the legal and taxation framework expected to bring clarity fort the sector

Information Technology equipment, vehicles and construction equipment are the primary segments where leasing has shown significant growth and these segments are estimated to constitute around 40% of all leasing volumes in India in FY10. Other sectors where leasing is prevalent and/or isexpected to gain momentum are aircrafts, containers, railway wagons, office equipment, temporary power, renewable power and medical equipment. GROWTH POTENTIAL IN THE SECTOR Going forward, we believe that the market for simple finance leases may slow down further with the impending introduction of new Direct Tax Code and would get limited to special situations where the lessor has a need to resort to leasing as a structure to better secure his ownership rights on the equipment as compared to debt financing or hire-purchase transactions. However, we firmly believe that strong customer demand drivers for operating leases are falling in place in several business segments, which are likely to result in high annual growth rates of 25-30% over the next five years. Leasing of construction equipment is expected to rise with introduction of large ticket size sophisticated equipments from International OEMs and significant demand for capital investments across all infrastructure sectors. Leasing of information technology and office equipment are expected to be driven by high pace of technological obsolescence, trend towards outsourcing of non-core assets and rise in MNC culture of operating on an asset light model. Medical Equipments is another segment where leasing is expected to pick up significantly, driven by introduction of equipments with rapidly changing technology from international manufacturers and emergence of corporate hospital chains.. As the changes in the taxation laws and regulations kick in over the next 12-24 months, we may even witness a higher growth rate for the leasing industry which has already found a strong business case in the emerging economic scenario 1.2 ROLE OF PUBLIC SECTOR BANKS IN SME FINANCING Banks are playing a major role in financing SMEs in India. Nearly 82% of the total SME financing in year 2006-07 is through banks. And among them the major share is of public sector banks i.e. 57%. Thus it is clear that the most

common source of finance for SMEs is Bank Financing. There is no. of banks that help in assisting the SMEs for financing. The main channel used by the SMEs via Banks is Specialized loans by various Banks. The Main reason for choosing bank loans by SMEs compared to other sources of financing like venture capital, PE funding etc is that is only interest to be paid no stake is to be diluted thus the whole command of the SME is with the owner only. There are a number of Private as well as Public sector banks who assist SME in Financing

OTHER 18% PUBLIC SECTOR BANK - 57% PRIVATE SECTOR BANK - 25%

Sources Of SME Finance (2006-07)

SIT TO REF (http://www.businessworld.in/bw/2009_11_19_Reforms_To_Improve_Credit_Access _To_SMEs.html last accessed on 5 Jan, 2010) The role of Banks, in general, has become very important in the above context The SME sectors demands were comprehensively taken care of by the Public sector Banks through several initiatives such as:
Single Window dispensation, Quick decision with least Turnaround

Time through specially constituted SME Cells,

and above all, Better service. Cluster-based Schemes are also on the list of the Banks initiatives. The Bank prioritized the following more particularly: Provision of timely and adequate credit to the SMEs, Encouraging Technology Up gradation, for better quality

and competitiveness of

their product(s), and

Proactively

detecting sick and viable units in time so as to nurse them back to health through appropriate re-structuring. Financing of Clusters with adequate and concessional Bank finance on liberal terms in several pockets for specified activities concentrated in these pockets, which would result in reducing transaction cost and greater economies of scale.

Credit to SME sector from Public Sector Banks The table below gives the status of credit flow to the micro and small enterprises (SME) sector from the public sector banks since 2000:

YEAR

NET BANK CREDIT

2000 2001 2002 2003 2004 2005 2006 2007

316427 341291 396954 477899 558849 718772 1017614 1317705

CREDIT TO SME 46045 48400 49743 52988 58278 67364 82492 104703

% OF NSB 14.60% 14.2% 12.50% 11.10% 10.40% 9.40% 8.10% 8.00%

REF SITE- (http://www.rbi.org.in/scripts/PublicationsView.aspx?id=11993 last accessed on 11 Jan, 2010) Some Public sector Banks offering SME financing schemes are as follows: 1) State bank of India and its subsidiaries 7) Central Bank of India 2) Allahabad Bank 8) Punjab National Bank 3) Oriental Bank of Commerce 9) IDBI Bank 4) Bank of Baroda 10) Indian Bank 5) Bank of India 11) Canada Bank 6) Punjab & Sind Bank 12) Corporation Bank

State Bank of India State Bank of India has been playing a vital role in the development of small scale industries since 1956.The Bank has financed over 8 lakhs SSI units in the country. It has 55 specialized SSI branches, 99 branches in industrial estates and more than 400 branches with SIB divisions. The Bank finances for Small

Business activities which are of special significance to a large number of people as many of these activities can be started with relatively lower investment and with no special skills on the part of the entrepreneurs. The following are the SME products offered by State Bank Of India: Commodity Packed Warehouse Receipt Financing Surabhi Deposit Scheme Traders Easy Loan Scheme SSI Loans Business Current Accounts Open Term Loan Retail Trade Doctor Plus SBI Shoppe Cyber Plus SME Credit Plus Small Business Credit Card SME Petro Credit Dal Mill Plus Paryatan Plus Auto Loans Transport Operators Rice Mills Plus School Plus (http://www.sbi.co.in/user.htm last accessed on 27 Nov, 2009)

IDBI Bank
IDBI Bank has been actively engaged in providing a major thrust to financing of SMEs. With a view to improving the credit delivery mechanism and shorten the Turn around Time (TAT), IDBI Bank has developed a special business model to serve the SMEs in India. The Bank has set up 24 City SME Centres (CSCs) across India in Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune to name a few. These CSCs are the Bank's hubs while dedicated SME desks have been set up in several branches across these cities. These branches serve as front offices for sales delivery and customer service. IDBI Bank has a wide variety of products and services catering to the needs of different segments within small business. Long years of experience in being the trusted partner of large and mid corporates has translated into deeper understanding of needs of business and industries. The Bank has parameterised

products for transporters, dealers, traders, and vendors. In addition, it has a separate Transaction Banking Group that has expertise in products like cash management services, letter of credit, bank guarantees and treasury products IDBI Bank provides following SME products: Sulabh Vyapar Loan Dealer Finance Funding Under CGFMSE Direct Credit Scheme-SIDBI Preferred Customer Scheme Vendor Financing Programme Lending against the security of future Credit Card Receivables Working Capital Financing Finance to Medical Practitioners Loans to SRWOTs SME Hosiery Special Current Account
(http://www.idbi.com/sme/ last accessed on 27 Nov, 2009)

Bank of Baroda
Bank of Baroda started its operation in the year 1908 in Baroda though its Corporate Centre is in Mumbai now. Its mission is "to be a top ranking National Bank of International Standards committed to augment stake holders' value through concern, care and competence. Bank of Baroda offers following SME products and services:
Baroda Vidyasthali Loan Baroda Arogyadham Loan Baroda Laghu Udhyami Credit Card Baroda Artisans Credit Card Technology Upgradation scheme SME short term loans SME medium term loans Composite Loans (http://www.bankofbaroda.com/bbs/sme.asp last accessed on 26 Nov, 2009)

Union Bank of India Union Bank is committed to extend its best services to Micro, Small and Medium enterprises and at a very competitive price. Union Bank of India has adopted a policy package for stepping up credit to Small & Medium Enterprises. Union Bank of India has adopted a policy package for stepping up credit to Small & Medium Enterprises [SME] with the approval of the Board in its meeting held on 30th September 2005 and subsequently following steps have been initiated in this direction. Union High Pride
Union Procure Union Supply Union Cyber Union SME Plus Union Transport Financing SMALL HOSIERY UNITS in Kolkata (http://www.unionbankofindia.co.in/cb_sme.aspx last accessed on 27 Nov, 2009)

Canara Bank Canara Bank was founded by Shri Ammembal Subba Rao Pai, a great visionary and philanthropist, in July 1906, at Mangalore, then a small port in Karnataka The Bank has adopted a Policy for lending to SME sector, in tune with Govt. of India guidelines as per MSMED Act, 2006, which has come into force w.e.f. 2nd October, 2006. LOAN PRODUCTS Schemes for Capital Investment Term loan for acquisition of fixed assets Standby credit for capital expenditure Standby term loan scheme for Apparel Exporters Loan scheme for reimbursement of investment made in fixed assets by SMEs Soft loan scheme for Solar Water Heaters Scheme for Energy Savings for SMEs

 Technology Upgradation Fund scheme (TUFS) for textile & jute industries in SME sector Credit linked capital subsidy scheme (CLCSS) Loans under Interest Subsidy Eligibility Certificate (ISEC) Scheme of Khadi & Village Industries Commission (KVIC) to eligible institutions Schemes for Working Capital Simplified Open Cash Credit (SOCC) Open Cash Credit (OCC) Micro financing joint liability groups (Handloom weaver & Agarbathi manufacturer groups) Laghu Udhyami Credit Card (LUCC) Bill of Exchange discounting facility to Small Enterpreneurs at concessional rate of interest (BE-SE) (http://www.canarabank.com/English/scripts/LoanProToMSMEnterprises.aspx last accessed on 27 Nov, 2009)

SMEs in India
India has a vibrant SME sector that plays an important role in sustaining economic growth, increasing trade, generating employment and creating new entrepreneurship in India. In keeping in view its importance, the promotion and development of SMEs has been an important plank in our policy for industrial development and a well-structured programme of support has been pursued in successive five-year plans for. SMEs in India have recorded a sustained growth during last five decades. The number of SMEs in India is estimated to be around 13 million while the estimated employment provided by this sector is over 31 million. The SME sector accounts for about 45 per cent of the manufacturing output and over 40 per cent of the national exports of the country. India embarked on the path of opening up its economy and integrating it with the global economy in 1991. The liberalization of economy, while offering tremendous opportunities for the growth and development of Indian industry including SMEs, has also thrown up new challenges in terms of fierce competition. The very rules which provide increased access for our products in the global markets also put domestic industry under increased competition from

other countries. In todays world, access on a global basis to modern technology, capital resources and markets have become the most critical determinants of international competitiveness.

DEFINITION OF SME
In India, the enterprises have been classified broadly into two categories: (i) Manufacturing; and (ii) Those engaged in providing/rendering of services. Both categories of enterprises have been further classified into micro, small and medium enterprises based on their investment in plant and machinery (for manufacturing enterprises) or on equipments (in case of enterprises providing or rendering services).

The classification on basis of investment is as under:

Classification Investment Ceiling for Plant, Machinery or Equipments

Manufacturing Enterprises

Service Enterprises Upto Rs.10 lakh Above Rs.10 lakh & upto Rs.2 crore Above Rs.2 crore & upto Rs.5 crore

Micro Small Medium

Upto Rs.25 lakh Above Rs.25 lakh & upto Rs.5 crore Above Rs.5 crore & upto Rs.10 crore

(http://www.dcmsme.gov.in/ssiindia/MSME_OVERVIEW09.pdf last accessed on 26 Nov, 2009)

CALCULATION OF INVESTMENT
While calculating the investment in plant and machinery/equipment referred to above, the original price thereof shall be taken into account, irrespective of whether the plant and machinery/equipment are new or second hand. In case of imported machinery/equipment,the following duty/charges/costs shall be included in calculating their value:

 Import Duty (not to include miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port); Shipping Charges; Customs Clearance charges; and Sales Tax or Value-added Tax. Cost of the following plant & machinery/equipments etc would be excluded:; Equipments such as tools, jigs, dies, moulds, and spare parts for maintenance and the cost of consumable stores; Installation of plant &machinery; Research and development and pollution control equipments; Power generation set and extra transformer installed by the enterprises as per the Regulations of the State Electricity Board; Bank charges and Service Charges paid to the National Small Industries Corporation or the State Small Industries Corporation; Procurement or Installation of cables, wiring bus bars, electrical control panels (not mounted on individual machines) . Oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures; Gas producer plants; Transportation charges (other than sales tax or value-added tax and excise duty) for indigenous machinery from the place of their manufacture to the site of the enterprise); Charges paid for technical know-how for erection of plant machinery; Such storage tanks which store raw materials and finished products only and are not linked with the manufacturing process; Fire-fighting equipment; and Such other items as may be specified, by notification from time to time.

In case of Service Enterprises, the original cost to exclude furniture, fittings and other items not directly related to the services rendered. Land and Building would also not be included while computing the machinery/equipments cost. SME would be meant to include Micro Small and Medium Enterprises (MSMEs). The above definitions of Micro, Small and Medium Enterprises would be in place of the existing definitions of Small & MediumIndustries and SSSBEs/Tiny Enterprises.

 Micro Enterprises would include Tiny Industries also. Small Enterprises (Manufacturing) would mean Small Scale Industries (SSIs). Medium Enterprises (Manufacturing) would mean Medium Industries (MIs). Small Enterprises (Services) and Medium Enterprises (Services) would mean other Small & Medium Enterprises. Thus, SME Advances would be categorised as under: All advances to segments viz. Micro, Small and Medium Enterprises in the Manufacturing sector irrespective of sanctioned limits, (including advances against Govt. Securities etc for business purposes to these categories of Borrowers), and Advances to Services Sectors such as Professional & Self-Employed, Small Business Enterprises, and Small Road/Water Transport Operators and other enterprises, engaged in providing/rendering of services, conforming to the above investment criteria and enjoying borrowing/nonborrowing facilities with the Bank (including advances against Govt. Securities etc for business purposes to these categories of Borrowers). Those enterprises exceeding the investment ceilings would be categorized as Large Enterprises and be outside the purview of SME. The sanctioned limits would no longer be the criteria determining the status as micro or small or medium enterprises in these cases. Reserve Bank of India has since reviewed the definition on Priority Sector and have issued revised guidelines on lending to Priority Sector vide their Master Circular dated 2nd July, 2007. As per this circular Retail Trade is excluded from the activities classified as SME.

(http://www.bankofindia.com/smepol.aspx last accessed on 26 Nov, 2009) Contribution of SMEs to Development and the New Challenges
The notion of SME and entrepreneurship development was introduced into the growth and development landscape as early as the late 1940s with the introduction of targeted policies (grants, subsidized credits, special tax treatment, etc.) and the establishment of small business or SME support agencies by governments (e.g. publicly funded SME agencies were set up in 1948 in Japan, 1953 in USA, 1954 in India, 1966 in Tanzania, 1976 in Turkey). Despite a long history of development efforts, SMEs, including the informal sector, were perceived rather as a synthetic construction mainly of social and political importance7, especially throughout the 1980s and up to

late 1990s. Although domestic SMEs and the informal sector constituted most of what could be and what are still deemed as the private business activity in most developing countries, private sector development strategies advocated for and implemented in these countries were skewed towards the needs of largescale business, including foreign invested ones. This type of policy advice was partly motivated by the rather disappointing8 results achieved through extensive SME support systems operated in developed countries since the 1970s. Recent empirical studies show that SMEs contribute to over 55% of GDP and over 65% of total employment in high-income countries, Figure 1. SMEs and informal enterprises, Figure 2, account for over 60% of GDP and over 70% of total employment in low-income countries, while they contribute over 95% of total employment and about 70% of GDP in middle-income countries. Figures 1 and 2 also show that the relative importance of SMEs and the informal sector (shadow economy) are inversely associated with economic development. In low-income countries, especially in the least developed economies, the contribution of SMEs to employment and GDP is less than that of the informal sector, where the great majority of the poorest of the poor make a subsistence level of living. Therefore, an important policy priority in developing countries is to reform the policies that divide the informal and formal sectors, so as to enable the poor to participate in markets and to engage in higher value added business activities. In middle-income countries, formal SMEs contribute about 20% more to employment and GDP than the informal enterprises. Thus, in these countries, eliminating factors that discourage informal enterprises from entering the formal SME sector would also bring about gains in economic terms. This is evidenced by the fact that SMEs contribute over 3 times as much as the informal sector in both total employment (~65%) and GDP (~55%) in high-income countries, and that these countries are also taking initiative to bring as many informal enterprises as possible into the formal sector. SMEs are an important source of export revenues in some developing economies. Table 1 provides information on the SME shares of manufactured exports in selected East Asia and African developing economies and OECD countries. An interesting observation is that SMEs contribute a larger share of manufactured exports in more industrialized East Asian economies (56% in Chinese Taipei, more than 40% in China) and in India (31.5%) than the less industrialized African economies (<1% in Tanzania and Malawi). Table 1 also seems to support the intuitive understanding that medium-sized enterprises have higher export potential than small enterprises with up to 50 employees (see SME definitions in Tanzania, Malawi and Mauritius in comparison to those in other developing and OECD countries). These observations show that policies for the promotion of SME export potential and SME exports must be targeted.

SMEs contribute to employment and income generation and export revenues. However, in order to tap into the potential of SMEs for development and poverty reduction, transition and developing country governments, development partners and SMEs themselves need to address a number of challenges: The domestic SME/private sector has to expand, through: The creation of new and innovative firms and The graduation of as many informal enterprises as possible into the formal sector. SMEs have to become more competitive and productive at their home base. At least a proportion of these nationally competitive SMEs have to achieve a level of competitiveness that will enable them to integrate into the global value chains through trade (exports and internationalization) and investment, including linkages with FDI.

SME CONTRIBUTION IN INDIAN ECONOMY Site ref:www.dsir.gov.in/reports/mitcon/chap2.pdf

SMALL AND MEDIUM ENTERPRISES (SMEs) IN INDIA

The SMEs alone contribute to 7% of Indias GDP. As per the Third All India Census of Small Scale industries conducted in 2004, the SMEs have increased

from about 80,000 units in the 1940s to about 10.52 million units. Their total employment is about 25 million and they produce about 7500 products including high technology products. In the sports goods and garments sector their contribution to exports is as high as 90% to 100%. They constitute 90% of the industrial units in the country and also contribute to about 35% of Indias exports. (Pandey, 2007) The Government of India since 1951 has encouraged and supported the SMEs through its various policy initiatives. Since 2005, The Government of India has identified 3,000 SME clusters of artisan-specific, village and small enterprises in the country and has taken up 1,150 such clusters for intervention and improvement. The performance of the Indian small scale sector in terms of critical economic parameters such as number of units , production , employment and export during the last decade is indicated below SMEs developed in a manner, which made it possible or them to achieve the following objectives: High contribution to domestic production Significant export earnings Low investment requirements Operational flexibility Location wise mobility Low intensive imports Capacities to develop appropriate indigenous technology Import substitution Contribution towards defence production Technology oriented industries Competitiveness in domestic and export markets

The SMEs have made significant contribution towards technological development and exports.Some have been established in almost all-major sectors in the Indian industry such as: Food Processing Agricultural Inputs Chemicals & Pharmaceuticals Engineering; Electricals; Electronics Electro-medical equipment Textiles and Garments Leather and leather goods Meat products Bio-engineering

 Sports goods Plastics products Computer Software, etc. 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 centres 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.

Performance of Small Scale Sector

Year No. of unit(million no.) 2.38 2.57 2.67 2.80 2.97 3.08 3.21 3.37 3.46 3.67 3.83 4.00 4.18 4.37 Production (Billion Rs) (at current prices) 2416.48 2998.86 3626.56 4118.58 4626.41 5206.50 5728.87 6454.96 6905.22 8243.63 9323.54 10600.87 12138.00 14019.39 Employment Exports (Million nos) (Billion Rs) (at current prices) 13.93 253.07 14.65 290.68 15.26 364.70 16.00 392.48 16.72 444.42 17.15 489.79 17.85 542.00 18.56 599.78 19.22 712.44 20.07 861.03 20.90 NA 21.78 NA 22.78 NA 22.17 NA

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Below are a number of key economic factors that identify how the SMEs contribute towards a countrys economy : example
SMEs are the growth engine behind most economies.

Generally this sector is the largest contributor of employment in most countries. This is especially relevant for new job creation. The SME sector is a major contributor to technical innovation and new product developments;

SMEs are essential for a competitive and effective market. Due to adaptability, SMEs play a major role in removing regional and sector imbalances in an economy. Easy entry and exit of SMEs make economies more flexible and more competitive. Due to the large number of SMEs competition is created in the market place. SMEs also play an essential role as subcontractors in the downsizing, privatization and restructuring of large companies; and SMEs are important for poverty reduction. SMEs often employ poor and low-income workers. This is specifically relevant in rural areas where this may be the only sector offering any form of employment. When focusing on the small or micro organization, selfemployment may be the only source of income for many of the poor. This poverty reduction is specifically relevant to developing countries where poverty is most severe. Example in varius sector

ELECTRICAL INDUSTRY
The Indian Electrical Industry has a history of more than 100 years advancing through technical collaborations, joint ventures and indigenous research and development. Today, the industry has a capacity of manufacturing most of the equipment. The industry largely depends on the power programme, industrial requirements, urban and rural demand. Maharashtra enjoys a competitive advantage in electrical sector viz. Electrical home appliances, electrical motors, transformers, industrial equipment, switch-gears, circuit breakers, pollution control equipment, Power Capacitors,Lighting fixtures and lamps, etc. In Maharashtra, the electrical industry will continue to remain a large and crucial industry segment catering to vital needs of industry & household (According to industry review of Indian Electrical Equipment Manufacturers Association [IEEMA]).Maharashtra and Gujarat will continue to dominate this industry with more than half the nations output and value addition. The Maharashtra Government has taken the right steps by introducing stringent pollution control laws.

B. ENGINEERING INDUSTRY The engineering industry has been titled the engines of growth. The tremendous impact and influence it has on industrialization and consequently the economy can be clearly seen from the economic scenario the world over. It has catapulted many nations like Japan, Germany, USA, UK, etc into frontline industrial nations within a very short time. India too has found this industryvery responsive and eager to take up any stimulus to growth. Importance of engineering industry in India can be gauged from the fact that it employs over 3 million people and accounts for nearly one-third each of productive capital, value added and output in the organized sector that contributes substantially to both the production and exports of engineering goods. C. FOOD PROCESSING INDUSTRY The Food Processing Industry is an important sector of the Indian economy. The food processing industry sector, which leap-frogged during the period 1990-95 has slowed its pace in the past half decade as, the manufacturers have realized that the consumer is yet to familiarize himself with the products available in the market. The food industry contributes about 18% of Indias manufacturing output and around 5% of total industrial investment. The estimated turnover of this highly heterogeneous food and beverage industry exceeds Rs. 570 billion. Niche segments comprising packaged and branded food products have recently witnessed rapid growth accompanied by intense competition. Nearly 52% of the Indian household budget is spent on food items and the share of processed food entering the market is expected to rise rapidly. Both in terms of foreign investment and number of joint ventures / foreign collaborations, the consumer food segment has top priority. By last year, foreign investment of Rs. 20,870 Million had been proposed. Deep sea fishing and aquaculture, milk and milk products, meat and poultry segments attracted attention of foreign investors, interest is also growing in fruit and vegetables and grain / cereal based products. Maharashtra has been one of the major producers of fruits and vegetables, milk and meat products. Maharashtra has 10 to 15% production share of agro produce related to processed industry. Major units in a. Fruit and Vegetables Maharashtra b. Bakery Products c. Dairy Products d. Cereals e. Meat Products f. Fish Products

Maharashtra and Gujarat will continue to dominate this industry with more than half the nations output and value addition. The Maharashtra Government has taken the right steps by introducing stringent pollution control laws.

D. PHARMACEUTICALS INDUSTRY Indias pharmaceutical industry is highly fragmented with over 16,000 licensed units and 250 units in the organized sector. The causes of fragmentation are historic. It was a highly controlled industry. The price of most of the drugs was regulated. The investments were not only low but also thinly spread out over a large number of companies. However, in the changing market, there is likelihood of major changes in years to come. Fragmented industry cannot continue for long and industry is sure to consolidate with acquisitions and mergers. Indian pharmaceutical industry has been nurtured to a large extent by Indian patent laws, which recognized only process patents. Though India could build a strong base and infrastructure for production of medicines, which is evident from the impressive growth in production of bulk drugs and formulations, it never cared to spend on Research and development (R & D). Expenditure on R & D in India is still less than 3 per cent of the industrys turnover. It may be seen that the Indian Pharmaceutical Industry has been growing at a healthy 16.7 per cent per annum over the last one decade. India is able to meet over 70 per cent of its requirement of bulk drugs and 95 per cent of formulations. The industry is well represented in almost all-therapeutic groups. The industry in India is in a highly competitive market environment. It is also one of those industries where foreign investment is very high. A number of Transnational Corporation (TNCs) have plants in India. The country has strong advantage because of availability of relatively low cost skilled labour and a large domestic market. So far as the future of this industry is concerned, planning commission expects this industry to grow at 12 per cent per annum. Exports of drugs and pharmaceuticals from the country are rising very fast. They have increased from Rs. 2256.6 crores in 1994-95 to Rs. 3177.7 crores in 1995-96 to record Rs. 4090.3 crores in 1996-97, registering an impressive annual growth rate of 34.4 per cent. More that 20 plants in India have USFDA validation that is considered the strictest in the industry. Many companies have also been upgrading their facilities to match internationally recognized standards such as GMP requirements and ISO 9002 certifications.

D. CHALLENGES OF THE SMEs

Most SMEs die within their first five years of existence. Another smaller Percentage goes into extinction between the sixth and tenth year thus only about five to ten percent of young companies survive, thrive and grow to maturity. Many factors have been identified as to the possible causes or contributing factors to the premature death. Key among this include insufficient capital, lack of focus, inadequate market research, over-concentration on one or two markets for finished products, lack of succession plan, inexperience, lack of proper book keeping, lack of proper records or lack of any records at all, inability to separate business and family or personal finances, lack of business strategy, inability to distinguish between revenue and profit, inability to procure the right plant and machinery, inability to engage or employ the right caliber staff, plan lessness, cut-throat competition, lack of official patronage of locally produced goods and services, dumping of foreign goods and overconcentration of decision making on one (key) person, usually the owner. Other challenges which SMEs face in India include irregular power supply and other infrastructural inadequacies (water, roads etc) unfavorable fiscal policies, multiple taxes, levies and rates, fuel crises or shortages, policy inconsistencies, reversals and shocks, uneasy access to funding, poor policy implementation, restricted market access, raw materials sourcing problems, competition with cheaper imported products, problems of inter-sect oral linkages given that most large scale firms source some of their raw material outside instead of sub contracting to SMEs, insecurity of people and property, fragile ownership base, lack of requisite skill and experience, thin management, unfavorable monetary policies, lack of preservation, processing and storage technology and facilities, lack of entrepreneurial spirit, poor capital structuring as well as poor management of financial, human and other resources. Their characteristics and the attendant challenges not withstanding, it is the consensus that SMEs, which globally are regarded as the strategic and essential fulcrum for any nations economic development and growth have performed rather poorly in India. The reason for this all-important sectors

dismal performance have been varied and convoluted depending on who is commenting or whose view is being sought. For sure it has nothing to do with governments appreciation of the vital central role of the sector as evidenced by how well SMEs have been acknowledged and orchestrated in various governments budget, with the imperativeness of SMEs as the bulwark for employment generation, poverty reduction and technological development being highlighted. While many attribute the relatively poor performance of SMEs in India when compared with the significant roles which SMEs have played in developed economies such as the United Kingdom, Germany and the United States and even developing countries of the world like India to the challenges outlined above, some others hinge the reasons on the fair share of neglect on the sector by the government. The latter group argues that governments appreciation of the SMEs in capacity building has always been restricted to the pages of the budget presentations and submissions at various fora. Essentially, they argue that poor budget implementations over the years account for the unsavoury impacts of SMEs on the India economy, which has had a record sluggish growth and declining future as measured by the population of India becoming literate, having more access to better health care, shelter, food, and other necessities of life such as access to more and better paying jobs as well as declining per capita income. Other parameters usually used to measure the performance of SMEs include percentage of working population employed by the SMEs in a given country or economy, the percentage contribution to the countrys GDP, managerial and technical capacity building, percentage of revenue internally generated or percentage of total PAYE accruing to the government from the SMEs employees, years increases in average household income, etc. This research is intended to critically appraise and analyse the operating environment and circumstances of SMEs in India with a view to actually identifying why they (SMEs) are not playing the vibrant and vital roles in the Indian economy as they (SMEs) do in other economies such as Nigeria which has so many similarities with Nigeria in terms of population and other demographic variables. This is even more disturbing if one recalls that Nigeria remains the largest market in the African continent where investment opportunities are beckoning to be exploited.

PROBLEMS OF SMEs IN INDIA:-

1. Inadequate, inefficient, and at times, non-functional infrastructural facilities, which tend to escalate costs of operation as SMEs are forced to resort to private provisioning of utilities such as road, water, electricity, transportation, communication, etc.

2. Institutional and Legal Factors

In the case of many developing countries, the abovementioned obstacles to SME financing are exacerbated by institutional and legal factors. First, many developing countries still have highly concentrated and uncompetitive banking sectors. This is often the result of restrictive government regulations. This reinforces the tendency to adopt very conservative lending policies or to charge high interest rates. If banks can thrive with a stable pool of well-established clients, they have no real incentive to improve the range of financial products and, in particular, no incentive to go down market, to meet the needs of small businesses. The same is true if banks can make hefty profits simply by buying government debtas is often the case in Latin American countrieswhich results in the crowding out of small-scale lending. Second, insufficiently developed legal systems effectively prevent the development of certain

financing instruments, including the use of collateral as a risk-mitigating element. For instance, legal provisions regarding security interests (how the collateral is protected, how the collateral priority is determined, etc.) are of crucial importance in determining the efficacy of collaterals. Likewise, if company laws offer only limited protection to minority shareholders, the development of venture capital and angel financing is inevitably negatively affected. These problems were particularly severe at the beginning of the transition period in former socialist countries, when even the memories of certain fundamental market institutions had disappeared. Third, even when adequate legislation is available, there are often problems with enforcement. Today, transitional and developing economies often have cadastres and registers of movable assets. Nevertheless, their functioning is often less than ideal. Records are frequently missing or misplaced. There are lengthy procedures for filing mortgages and pledges, and for ascertaining the status of certain assets. There are often cases of corruption among personnel. Fourth, the information infrastructure is still largely undeveloped. There is a lack of credit bureaus and other mechanisms for collecting and exchanging information on payment performance. This inevitably exacerbates the informational asymmetries between enterprises and lenders/ investors. While some of the above institutional constraints apply to all enterprises, it is clear that small businesses are likely to suffer disproportionately from their presence.
3. Transaction Costs

Irrespective of risk profile considerations, the handling of SME financing is an expensive business. The cost of appraising a loan applicationor of conducting a due diligence exercise in view of a possible equity investmentis largely independent from the size of the financing under consideration. For all practical purposes, the following costs are fixed: (i) administrative costs; (ii) legal fees; and (ii) costs related to the acquisition of information, such as the purchase of a credit profile from a specialized agency. In the case of smaller loans or investments, it is more difficult to recoup these costs. Similar considerations apply to the costs that outside financiers must incur after disbursement, when conducting field inspections, or attending board meetings. Again, the problem is more severe in developing countries for the following reasons: (i) the lack of adequate management information systems in financial institutions; (ii) the undeveloped state of the economic information industry; and (iii) the poor state of certain public services, such as the registration of property titles and collaterals. To some extent, the problem can be solved by raising the cost of financing through a higher interest rate or closing fee. This is indeed the

approach adopted by many micro lending schemes, but it is possible only up to a certain point 4. Discrimination from banks, which are averse to the risk of lending to SMEs especially start-ups because of Lack of Collateral In the case of debt financing, lenders typically request collateral in order to mitigate the risks associated with the moral hazard. The lack of collateral is probably the most widely cited obstacle encountered by SME in accessing finance. The amount of collateral required in relation to the loan size is a measure frequently adopted to empirically assess the severity of the financing gap. In some cases, the enterprise may be unable to provide sufficient collateral because it is too newbecause it is not firmly enough established. That problem is closely related to the higher risk argument presented above. In some cases, the lender may deem the collateral insufficient in view of the size of the loan requested. In other words, the proposed expansion project may be too large in comparison with the current size of the firm. Again, this is an issue related to the higher risk argument presented above. In other cases, the collateral may be insufficient simplynbecause the managers-owners tend to siphon off resources from the company for personal or other purposes. Again, this is closely related to the risk profile and the moral hazard issues. Lack of collateral can be viewed more as a symptom than as a direct cause of the difficult relations between SME and providers of finance. Whatever the sequence of causes and effects, it is widely acknowledged that in developing countries the issue of collateral is comparatively much more severe. The following section examines how the undeveloped state of institutional and legal frameworks, prevents the possibility of pledging the owned assets as collaterals.

6. Another approach ascribes the difficulties faced by SME in accessing finance to their higher risk profile. Suppliers of external funds regard SME as riskier enterprises for a number of reasons. First, SME face a more uncertain competitive environment than larger companiesthey experience more variable rates of return and higher rates of failure. Second, SME are comparatively less equipped in terms of both human and capital resources to withstand economic adversities. Third, there is the problem of inadequate accounting systems, which undermines the accessibility and reliability of information concerning profitability and repayment capacity. In developing countries, there is the added problem of a more volatile operating environment, which has a negative impact on the security of transactions. There is a greater risk that lenders/investors will not get paid, or that assets will not be properly registered.

7. Lack of access to appropriate technology as well as near absence of research and development 8. High dependence on imported raw materials with the attendant high foreign exchange cost and scarcity at times 9. Weak demand for products, arising from low and dwindling consumer purchasing power aggravated by lack of patronage of locally produced goods by the general-public as well as those in authority. 10. Unfair trade practices characterized by the dumping and importation of substandard goods by unscrupulous businessmen. This situation is currently being aggravated by the effect of globalization and trade liberalization, which make it difficult for SMEs to compete even in local/home markets. A good example can be given of chines product which are very cheap in price as compare to Indian product that are dumped into the Indian market . This unfair trade practice because it is reuning the Indian product and giving tough compitition . 11. Weakness in organization, marketing, information-usage, processing and retrieval, personnel management, accounting records and processing, etc. arising from the dearth of such skills in most SMEs due to inadequate educational and technical background on the part of the SME promoters and their staff. 12. High incidence of multiplicity of regulatory agencies, taxes and levies that result in high cost of doing business and discourage entrepreneurs. This is due to the absence of a harmonized and gazette tax regime, which would enable manufacturers to build in recognized and approved levies and taxes payable. 13. Widespread corruption and harassment of SMEs by some agencies of government over unauthorized levies and charges 14. Absence of long-term finance to fund capital assets and equipment under project finance for SMEs 15. The lack of scientific and technological knowledge and know-how, i.e. the prevalence of poor intellectual capital resources, which manifest as:

i. Lack of equipment, which have to be imported most times at great cost (capital flight) and which would require expatriate skills to be purchased at high costs. ii. Lack of process technology, design, patents, etc., which may involve payment of royalties, technology transfer fees, etc. and heavy capital outlay. iii. Lack of technical skills in the form of technological and strategic capability iv. Inability to meet stringent international quality standards, a subtle trade barrier set up by some developed countries in the guise of environmental or health standards. A relevant example is the impending ban of marine foods, vegetables, fruits and other agricultural products from Africa into the United States of America markets. v. The inability to penetrate and compete favourably in export markets either because of poor quality of products, ignorance of export market strategies and networks or lack of appropriate mechanism and technology to process, preserve and package the products for export. 16. Lack of initiative and administrative framework or linkage to support and sustain SMEs development, which to a large extent, is also a reflection of poor technological capability or intellectual resource 17. Lack of appropriate and adequate managerial and entrepreneurial skills with the attendant lack of strategic plan, business plan, succession plan, adequate organizational set-up, transparent operational system, etc on the part of many founders and managers of SMEs in India. As fallout of this, many of the SME promoters purchase obsolete and inefficient equipment thereby setting the stage ab initio for lower level productivity as well as substandard product quality with dire repercussions on product output and market penetration and acceptance. 18. Lack of suitable training and leadership development. In spite of the fact that training institutions abound in India, they rarely address the relevant needs of SMEs especially in the areas of Accounting, Marketing, Information Technology, Technological processes and development, International trade, Administration and management of Small and Medium Enterprises. Essentially, SMEs are left most often on their own to eke out success amidst the avalanche of operational difficulties inherent in the India environment as well as the operational shortcomings, which characterize institutions set up to facilitate SME businesses

CHAPTER -2

GOVERNMENT EFFORT TOWARDS SME

Small industry has been one of the major planks of India's economic development strategy since Independence. India accorded high priority to small and medium enterprises (SMEs) from the very beginning and pursued support policies to make these enterprises viable and vibrant and over time, these have become major contributors to the GDP. Despite numerous protection and policy measures for the past so many years, SMEs have remained mostly small, technologically backward and lacking in competitiveness. The opening of the Indian economy in 1991 added problems to the SMEs. At the beginning, small scale enterprises found it difficult to survive. In the last decade, the economic environment has changed in favour of SMEs. Presently, the SMEs in India are at a crossroad and intense debate is centered around questions like what would be the future of the small enterprises? How these enterprises can survive in the international trade arena? What role can the government play in making these SMEs more competitive? In this context, it is important to re-look into the basic issues of SME and what indian government has done on this track to improve the condition of SME in this comptitive era specily after globelization

CERTAIN SCHEME ARE AS FOLLOWS

1 - Scheme of Surveys, Studies and Policy Research

Objectives
The objectives of the Scheme of Surveys, Studies and Policy Research are: (i) To regularly/periodically collect, from primary, secondary and other sources, relevant and reliable data on various aspects and features of micro, small and medium enterprises (MSME) engaged in manufacturing and services (whether in the category of tiny/small scale industries, khadi, village industries or coir) as a composite group or specific segments thereof. (ii) To study and analyse, on the basis of empirical data or otherwise, the constraints and challenges faced by the MSME as well as the opportunities available to them, in the context of liberalisation and globalisation of the economy. (iii) To use the results of these surveys and analytical studies for policy research and designing appropriate strategies and measures of intervention by the Government, by itself or in public private partnership mode, to assist and enable these enterprises in facing the challenges and availing of the opportunities with

a view to enhancing their efficiency and competitiveness and also expanding generation of sustainable employment by them.

2. Scope
The scope of the Scheme includes (but is not limited to) the following areas of interest: (i) Sector-wide issues like criteria for classification of enterprises, international standards and norms for such classification, reservation/dereservation of products for exclusive manufacture by any segment of MSME and statutory and other forms of regulation of enterprises consistent with the objectives of (a) quick entry and smooth exit, (b) operational ease and reduction of transaction costs of compliance, (c) simplification and harmonisation of regulatory processes and procedures, etc. (ii) Concurrent/periodical evaluation/assessment of impact of the existing policies, programmes and schemes of assistance on the target segments of MSME with reference to the objectives of such policies, etc., and designing remedial measures for improvement of impact. (iii) Issues like credit flow, sickness, technological upgradation, infrastructure support, marketing (including exports), enterprise management practices, intellectual property rights, etc., in the context of specific segments or whole of MSME and with a view to enhancing competitiveness in the global context. (iv) Measures for capacity building of enterprises/associations of enterprises and their empowerment, with particular emphasis on micro enterprises and enterprises owned/operated by women and/or the scheduled castes/tribes and promotion and development of enterprises in less developed regions/Sates of the country.

(v)

Entrepreneurship entrepreneurs.

development

and

problems

of

first-generation

(vi) Role and efficacy of the existing institutions of the Government in delivering the services that they are mandated to and measures for improvement of their human resources and operative practices.

(vii) Any other matter within the purview of the Ministry of Small Scale Industries and Ministry of Agro and Rural Industries.

Entrepreneurship Development Institution Scheme

Institutes (EDIs).
The main objectives of the scheme are (i) promoting entrepreneurship for creating self-employment through enterprise creation Entrepreneurship has been considered the backbone of economic development. It has been well established that the level of economic growth of a region to a large extent, depends on the level of entrepreneurial activities in the region. The myth that entrepreneurs are born, no more holds good, rather it is well recognised now that the entrepreneurs can be created and nurtured through appropriate interventions in the form of entrepreneurship development programmes. In the era of liberalisation, privatisation and globalisation along with ongoing IT revolution, capable entrepreneurs are making use of the opportunities emerging from the evolving scenario. However, a large segment of the population, particularly in the industrially backward regions/rural areas generally lags behind in taking advantage of these opportunities. Therefore, there is a need to provide skill development and entrepreneurship development training to such people in order to mainstream them in the ongoing process of economic growth. Entrepreneurship development and training is, thus, one of the key elements for development of micro and small enterprises (MSEs), particularly, the first generation entrepreneurs. To undertake this task on regular basis, the Ministry has set up three national-level Entrepreneurship Development Institutes (EDIs). These are, the National Institute for Micro, Small and Medium Enterprises (NIMSME), Hyderabad; the Indian Institute of Entrepreneurship (IIE), Guwahati and the National Institute for Entrepreneurship and Small Business Development (NIESBUD), Noida. Further, the Ministry has been implementing (in addition to the schemes of MSME-DO) an important scheme, namely, Scheme for Assistance for Strengthening of Training Infrastructure of Existing and New Entrepreneurship Development; (ii) facilitating creation of training infrastructure; and (iii) supporting research on entrepreneurship related issues.

Further, in order to improve the success rate of the EDP trainees in the establishment of new enterprises, the Ministry has recently launched a new scheme, namely, Rajiv Gandhi Udyami Mitra Yojana (AScheme for Promotion and Handholding of Micro and small ). The main objective of this scheme is to provide handholding support to first generation entrepreneurs, through designated lead agencies i.e. Udyami Mitras. Under this scheme, the Udyami Mitras would provide guidance and assistance to the potential entrepreneurs registered with them, in preparation of project report, arranging finance, selection of technology, marketing tie-ups with buyers, installation of plant and machinery as well as obtaining various approvals, clearances and NOCs etc. For providing this handholding assistance to the new entrepreneurs, the Udyami Mitras shall be paid handholding charges under the scheme.

- SCHEME FOR ASSISTANCE FOR STRENGTHENING OF

TRAINING INFRASTRUCTURE OF EXISTING AND NEW ENTREPRENEURSHIP DEVELOPMENT INSTITUTES (EDIs)
The scheme envisages providing financial assistance to State-level existing/proposed institutions meant for supporting entrepreneurship development and self-employment activities. Under this scheme, grant is given for setting up of new entrepreneurship development institutions (EDIs) and also for up-gradation and modernisation of existing EDIs in the country. Under the scheme, a matching grant of 50 per cent, subject to a ceiling of Rs.100 lakh, is provided for building, equipment, training aids etc., the balance being contributed by the State/Union Territory Governments and other agencies. The financial assistance provided under this scheme is only catalytic and supportive to the contribution and efforts of State/Union Territory Governments and other agencies. Under no circumstances grant funds provided under the scheme can be used to meet the recurring expenditure of the institute. The institutions/organisations seeking assistance under this scheme should be registered as not-for-profit organisation with entrepreneurship development as its main objective, should possess a clear title of the land required for setting up of the proposed/existing institution, have a separate bank account in a scheduled bank in which all receipts/funds received by the institute should be credited and payments made on the basis of authorisation by the Governing Council of the institute.

 All the proposals under this scheme are required to be recommended by and routed through the concerned State/UT Government.
NATIONAL INSTITUTE FOR MICRO, ENTERPRISES (NI-MSME), HYDERABAD SMALL AND MEDIUM

INDIAN INSTITUTE OF ENTREPRENEURSHIP (IIE), GUWAHATI NATIONAL INSTITUTE FOR ENTREPRENEURSHIP BUSINESS DEVELOPMENT (NIESBUD), NOIDA SCHEME OF PARTNER INSTITUTION AND SMALL

SME

RAJIV GANDHI UDYAMI MITRA YOJANA

(A Scheme of Promotion and Handholding of Micro and Small Enterprises) 1. Background
World over, micro and small enterprises (MSEs) are recognized as an important constituent of the national economies, contributing significantly to employment expansion and poverty alleviation. Recognizing the importance of micro and small enterprises, which constitute an important segment of Indian economy in terms of their contribution to countrys industrial production, exports, employment and creation of entrepreneurial base, the Central and State Governments have been implementing several schemes and programmes for promotion and development of these enterprises. The small scale industries in India, including the tiny or micro industries and service/business entities, collectively referred as micro and small enterprises (MSEs), have a long history of promoting inclusive, spatially widespread and employment-oriented economic growth. In terms of employment generation, this segment is next only to agriculture. Entrepreneurship development and training is one of the key elements for development and promotion of micro and small enterprises, particularly, the first generation entrepreneurs. Entrepreneurship Development Programmes (EDPs) of various durations are being organized on regular basis by a number of organizations e.g. national and state level Entrepreneurship Development Institutes (EDIs), Micro, Small and Medium Enterprises Development Institutes (MSMEDIs) [earlier known as Small Industries Service Institutes (SISIs)], national and state level Industrial Development Corporations, Banks and other training institutions/agencies in private and public sector etc., to create new entrepreneurs by cultivating their latent qualities of entrepreneurship and enlightening them on various aspects necessary for setting up micro and small enterprises. Besides, skill development programmes (SDPs) and entrepreneurship-cum-skill development programmes (ESDPs) are also being organized by various public as well as private training institutions. However, there are still wide spread variations in the success rate, in terms of actual setting up and successful running of enterprises, by the EDP/SDP/ESDP trained entrepreneurs. It has been observed that new entrepreneurs generally face

SME

difficulties in availing full benefits under available schemes of the Governments / financial institutions, completing and complying with various formalities and legal requirements under various laws/regulations, in selection of appropriate technology, tie-up with buyers and sellers etc. In order to bridge the gap between the aspirations of the potential entrepreneurs and the ground realties, there is a need to support and nurture the potential first generation entrepreneurs by giving them handholding support during the initial stages of setting up and managing their enterprises.

2. Objective
The objective of Rajiv Gandhi Udyami Mitra Yojana (RGUMY) is to provide handholding support and assistance to the potential first generation entrepreneurs, who have already successfully completed EDP/SDP/ESDP or vocational training from ITIs, through the selected lead agencies i.e. 'Udyami Mitras', in the establishment and management of the new enterprise, in dealing with various procedural and legal hurdles and in completion of various formalities required for setting up and running of the enterprise.

SME

MARKETING ASSISTANCE SCHEME EFFECTIVE W.E.F.

BACKGROUND
The Micro, Small and Medium Enterprises (MSMEs) 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 contribute enormously to the socio-economic development of the country. Fast changing global economic scenario has thrown up various opportunities and challenges to the MSMEs in India. While on the one hand, many opportunities are opened up for this sector to enhance productivity and look for new markets at national and international level, it has also, on the other hand, put an obligation to upgrade their competencies to meet the competition as new products are launched at an astonishing pace and are available world wide in short time. Micro, Small & Medium Enterprises do not have any strategic tools /means for their business/ market development as available with large industries. In the present competitive age, Marketing is one of the weakest areas wherein MSMEs face major problems.

MARKETING ASSISTANCE SCHEME

Marketing, a strategic tool for business development, is critical for the growth and survival of micro, small & medium enterprises. Marketing is the most important factor for the success of any enterprise. Large enterprises have enough resources at their command to hire manpower to take care of marketing of their products and services. MSME sector does not have these resources at their command and thus needs institutional support for providing these inputs in the area of marketing. Ministry of Micro, Small & Medium Enterprises, inter-alia, through National Small Industries Corporation (NSIC), a Public Sector Enterprise of the Ministry, has been providing marketing support to Micro & Small Enterprises (MSEs) under Marketing Assistance Scheme. Emergence of a large and diverse services sector in the past years had created a situation in which it was no longer enough to address the concerns of the small scale industries (SSI) alone but essential to include the entire gamut of enterprises, covering both SSI Sector and related service entities, in a seamless web. There was a need to provide space for the small enterprises to grow into medium scale enterprises, for that is how they will be able to adopt better and higher levels of technology and remain competitive in a fast globalizing world.

SME

Thus, as in most developed and developing countries, it was necessary that in India too, the concerns of the entire range of enterprises micro, small and medium, were addressed andthe sector was provided with a single legal framework. The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 addresses these issues and also other issues relating to credit, marketing, technology upgradation etc concerning the micro, small and medium enterprises. The enactment of MSMED Act 2006, w.e.f. from 2nd October, 2006 has brought medium scale industries and service related enterprises also under the purview of the Ministry, accordingly the name of Ministry has also been changed. The need of the hour presently is to provide sustenance and support to the whole MSME sector (including service sector), with special emphasis on rural and micro enterprises, through suitable measures to strengthen them for converting the challenges into opportunitiesand scaling new heights. Thus although the medium enterprises are also proposed to be included as the target beneficiaries in the scheme, special attention would be given to marketing of products and services of micro and small enterprises, in rural as well as urban areas.

OBJECTIVES
The broad objectives of the scheme, inter-alia, include: To enhance marketing capabilities & competitiveness of the MSMEs. To showcase the competencies of MSMEs. To update MSMEs about the prevalent market scenario and its impact on their Activities. To facilitate the formation of consortia of MSMEs for marketing of their products and services. To provide platform to MSMEs for interaction with large institutional buyers. To disseminate/ propagate various programmes of the Government. To enrich the marketing skills of the micro, small & medium entrepreneurs.

GUIDELINES ON PRIME MINISTERS EMPLOYMENT GENERATION PROGRAMME (PMEGP)

1. The Scheme
Government of India has approved the introduction of a new credit linked subsidy programme called Prime Ministers Employment Generation Programme (PMEGP) by merging the two schemes that were in operation till 31.03.2008 namely Prime Ministers Rojgar Yojana (PMRY) and Rural Employment Generation Programme (REGP) for generation of employment opportunities through establishment of micro enterprises in rural as well as urban areas. PMEGP will be a central sector scheme to be administered by the Ministry of Micro, Small and Medium Enterprises (MoMSME). The Scheme will be implemented by Khadi and Village Industries Commission (KVIC), a statutory organization under the administrative control of the Ministry of MSME as the single nodal agency at the National level. At the State level, the Scheme will be implemented through State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs) and District Industries Centres (DICs) and banks. The Government subsidy under the Scheme will be routed by KVIC through the identified Banks for eventual distribution to the beneficiaries / entrepreneurs in their Bank accounts. The Implementing Agencies, namely KVIC, KVIBs and DICs will associate reputed Non Government Organization (NGOs)/reputed autonomous institutions/Self Help Groups (SHGs)/ National Small Industries Corporation (NSIC) / Udyami Mitras empanelled under Rajiv Gandhi Udyami Mitra Yojana (RGUMY), Panchayati Raj institutions and other relevant bodies in the implementation of the Scheme, especially in the area of identification of beneficiaries, of area specific viable projects, and providing training in entrepreneurship development.

2. Objectives
(i) To generate employment opportunities in rural as well as urban areas of the country through setting up of new self-employment ventures/projects/micro enterprises. (ii) To bring together widely dispersed traditional artisans/ rural and urban unemployed youth and give them self-employment opportunities to the extent possible, at their place.

41

(iii) To provide continuous and sustainable employment to a large segment of traditional and prospective artisans and rural and urban unemployed youth in the country, so as to help arrest migration of rural youth to urban areas. (iv) To increase the wage earning capacity of artisans and contribute to increase in the growth rate of rural and urban employment.

5. Implementing Agencies
The Scheme will be implemented by Khadi and Village Industries Commission (KVIC), Mumbai, a statutory body created by the Khadi and Village Industries Commission Act, 1956, which will be the single nodal agency at the national level. At the State level, the scheme will be implemented through State Directorates of KVIC, State Khadi and Village Industries Boards (KVIBs) and District Industries Centres in rural areas. In urban areas, the Scheme will be implemented by the State District Industries Centres (DICs) only. KVIC will coordinate with State KVIBs/State DICs and monitor performance in rural and urban areas. KVIC and DICs will also involve NSIC, Udyami Mitras empanelled under Rajiv Gandhi Udyami Mitra Yojana (RGUMY), Panchayati Raj Institutions and other NGOs of repute in identification of beneficiaries under PMEGP.

5. Other Agencies
The details of other agencies to be associated by nodal agencies in the implementation of PMEGP are as under: i) Field Offices of KVIC and its State offices ii) State KVI Boards iii) District Industries Centre (DIC) of all State Governments/Union Territories Administrations reporting to respective Commissioners /Secretaries (Industries). iv) Banks/Financial Institutions. v) KVI Federation VI) Department of Women and Child Development (DWCD), Nehru Yuva Kendra Sangathan (NYKS), The Army Wives Welfare Association of India (AWWA) and Panchayati Raj Institutions vii) NGOs having at least five years experience and expertise in Project Consultancy in Small Agro & Rural Industrial Promotion and Technical Consultancy Services, Rural Development, Social Welfare having requisite infrastructure and manpower and capable of reaching Village and Taluk level in the State or Districts. NGOs should have been funded by State or National Level Government Agency for any of its programmes in the preceding 3 years period.
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viii) Professional Institutions/Technical Colleges recognized by Government/University and University Grants Commission (UGC)/ All India Council for Technical Education (AICTE) having department for vocational guidance or technical courses providing skill based training like ITI, Rural Polytechnic, Food Processing Training Institute, etc. ix) Certified KVI institutions aided by KVIC / KVIB provided these are in category A+, A or B and are having required infrastructure, manpower and expertise for the role. x) Departmental and Non-Departmental Training Centres of KVIC / KVIBs. xi) Micro, Small and Medium Enterprises Development Institutes (MSME-DIs), MSME Tool Rooms and Technical Development Centres, under the administrative control of Office of Development Commissioner, MSME. xii) National Small Industries Corporations (NSIC) offices, Technical Centres, Training Centres, Incubators and Training cum Incubation Centres (TICs) set up in PPP Mode. xiii) National level Entrepreneurship Development Institutes like National Institute for Entrepreneurship and Small Business Development (NIESBUD), National Institute for Micro, Small and Medium Enterprises (NIMSME) and Indian Institute of Entrepreneurship (IIE), Guwahati under the administrative control of Ministry of MSME, their branches and the Entrepreneurship Development Centres (EDCs) set up by their Partner Institutions (PIs). xiv) Udyami Mitras empanelled under Rajiv Gandhi Udhyami Mitra Yojana of Ministry of MSME. xv) PMEGP Federation, whenever formed.

6. Financial Institutions
(i) 27 Public Sector Banks. (ii) All Regional Rural Banks. (iii) Co-operative Banks approved by State Level Task Force Committee headed by Principal Secretary (Industries)/Commissioner (Industries) (iv) Private Sector Scheduled Commercial Banks approved by State Level Task Force Committee headed by Principal Secretary (Industries)/Commissioner (Industries). (v) Small Industries Development Bank of India (SIDBI).

43

DEVELOPMENT, DESIGN INTERVENTION AND PACKAGING [PRODIP]

1. BACKGROUND
KVIC has been implementing the scheme for Product Development, Design Intervention and Packaging from November 2002 onwards. Based on feedback received from the field offices, a Committee was constituted with the approval of F.A., C.E.O., and Chairperson to review the existing guideline and recommend a more versatile and effective model to implement the scheme so as to derive maximum possible result. The Commission in its meeting held on 25th October 2007 considered the recommendations of the Committee and extended approval for their implementation. The revised guidelines as detailed below are to be followed in the implementation of the scheme with immediate effect.

2. THE SCHEME
The KVIC will continue to implement the scheme on Project Approach basis, that is activities, will be approved as individual projects.

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KHADI AND VILLAGE INDUSTRIES COMMISSION

1. INTRODUCTION
Khadi & Village Industries Commission (KVIC) established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956), is a statutory organisation engaged in promoting and developing khadi and village industries for providing employment opportunities in the rural areas, thereby strengthening the rural economy of the country. It took over the activities from the erstwhile All India Khadi and Village Industries Board w.e.f. 01 April 1957. KVIC has been identified as one of the major organisations in the decentralised sector for generating non-farm employment opportunities in rural areas at low per capita investment. It undertakes activities like skill improvement, transfer of technology, research & development, marketing, etc., in the process of generating employment/self-employment opportunities in rural areas.

2. MAIN OBJECTIVES
The social objective of providing employment in rural areas; The economic objective of producing saleable articles; and The wider objective of creating self-reliance amongst people and building up a strong rural community spirit.

3. FUNCTIONS
The functions of KVIC as prescribed under the KVIC Act, 1956 (61 of 1956) and Rules made thereunder, are as follows: To plan and organise training of persons employed or desirous of seeking employment in khadi and village industries; To build up reserves of raw materials and implements and supply them or arrange supply of raw materials and implements, to persons engaged or likely to be engaged in production of handspun yarn or khadi or village industries at such rates as the Commission may decide;

45

 To encourage and assist in the creation of common service facilities for the processing of raw materials or semi-finished goods and for otherwise facilitating production and marketing of khadi or products of village industries; To promote the sale and marketing of khadi or products of village industries or handicrafts and for this purpose to forge links with established marketing agencies wherever necessary and feasible; To encourage and promote research in the technology used in khadi and village industries, including the use of non-conventional energy and electric power with a view to increasing productivity, eliminating drudgery and otherwise enhancing their competitive capacity and arranging dissemination of salient results obtained from such research; To undertake directly or through other agencies, studies of the problems of khadi or village industries; To provide financial assistance directly or through specified agencies to institutions or persons engaged in the development and operation of khadi or village industries and guide them through supply of designs, prototypes and other technical information for the purpose of producing goods and services for which there is effective demand in the opinion of the Commission; To undertake directly or through specified agencies, experiments or pilot projects which in the opinion of the Commission are necessary for the development of khadi and village industries; To establish and maintain separate organisations for the purpose of carrying out any or all of the above matters; To promote and encourage cooperative efforts among the manufacturers of khadi or persons engaged in village industries;

To ensure genuineness and to set up standards of quality and ensure that products of khadi and village industries do conform to the said standards, including issue of certificates or letters of recognition to the concerned persons; and To carry out any other activity incidental to the above.

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5. GROUPING OF INDUSTRIES
While the khadi programme comprises hand spun and hand woven cotton, woollen, muslin and silk varieties, the village industry programmes have been classified into seven broad groups. These are: Mineral Based Industry; Forest Based Industry; Agro Based and Food Processing Industry; Polymer and Chemical Based Industry; Rural Engineering and Bio Technology Industry; Hand Made Paper & Fibre Industry; and Service Industry.
Margin Money Assistance Under REGP Sl. No. 1 Category of Beneficiary Project Cost Margin Money Assistance 25 per cent of project cost Rs. 2.5 lakh plus 10 per cent of project cost over Rs. 10 lakh. 30 per cent of project cost Rs. 3 lakh plus 10 per cent of project cost over Rs. 10 lakh.

General

Up to Rs. 10 lakh Above Rs. 10 lakh and up to Rs. 25 lakh

SC/ST/OBC/Women/PH/ Exservicemen/NE Region /Hill Areas

Up to Rs. 10 lakh Above Rs. 10 lakh and up to Rs. 25 lakh

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MSMED Act
1. Introduction
MSMED act was established to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matter connected there with or incidental thereto. The act is operational from October 2, 2006. The MSMED act is superior as compared to the provision for SSI under the IDRA in much way. The scope of promotion and protection measures under the IDRA was restricted only to SSI. However, during last 60 years of independence , the norms for the promotions and development have changed and the requirement to motivate the higher and different version of SSI is felt. The MSMED act not only addresses these issues but it also takes care of Micro, small and medium scale enterprise . Another major highlight of the MSMED act is that the MSM enterprise in the service sector. The MSMED Act was framed with the following object: To facilitate the promotion and development of micro, small and medium scale enterprises (MSM enterprises); Another major highlight of the MSMED act is that the MSM enterprises in service sector are also covered under the act. Separate investment limit for plant and machinery has been prescribed for MSM enterprises in the service sector.

2. OBJECTIVES

To facilitate the promotion and development of micro, small and medium scale enterprises. To enhance the comptitiveness of MSN enterprise. To concentrate on the related matter of MSM enterprise. To extend the scope of benefit for SSI undertaking and ancillary indistries to MSM enterprises.T

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CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISES

Site name - http://www.cgtmse.com/schemes.aspx
The Board of Trustees of Credit Guarantee Fund Trust for Small Industries, having decided to frame a Scheme for the purpose of providing guarantees to a substantial extent in respect of credit facilities to borrowers in Micro and Small Enterprises, hereby make the following Scheme: 1.Title and date of commencement (i)The Scheme shall be known as the Credit Guarantee Fund Scheme for Small Industries (CGFSI) (ii) It shall come into force from August 1, 2000. (iii) It shall cover eligible credit facility extended by the lending institutions to eligible borrowers effective June 1, 2000. Subsequent to the enactment of MSMED Act-2006 the Trust was renamed as Credit Guarantee Fund Trust for Micro and Small Enterprises and scheme as Credit Guarantee Scheme for Micro and Small Enterprises. SCOPE AND EXTENT OF THE SCHEME 3. Guarantees by the Trust (i.) Subject to the other provisions of the Scheme, the Trust undertakes, in relation to credit facilities extended to an eligible borrower from time to time by an eligible institution which has entered into the necessary agreement for this purpose with the Trust, to provide a guarantee on account of the said credit facilities. (ii.) The Trust reserves the discretion to accept or reject any proposal referred by the lending institution which otherwise satisfies the norms of the Scheme.

Site to refer www.msmedildh.gov.in/cdp.pdf

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Micro & Small Enterprises Cluster Development Programme (MSE-CDP)

Background
1 The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India (GoI) has adopted the cluster development approach as a key strategy for enhancing the productivity and competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) and their collectives in the country. A cluster is a group of enterprises located within an identifiable and as far as practicable, contiguous area and producing same/similar products/services. The essential characteristics of enterprises in a cluster are (a) Similarity or complementarity in the methods of production, quality control and testing, energy consumption, pollution control, etc (b) Similar level of technology and marketing strategies/practices (c) Channels for communication among the members of the cluster (d) Common challenges and opportunities. 2 In October 2007, the erstwhile cluster development scheme Small Industries Cluster Development Programme (SICDP) was renamed as Micro and Small Enterprises Cluster Development Programme (MSE-CDP). It was also decided that the Integrated Infrastructural Development (IID) Scheme shall be subsumed in MSE-CDP for providing developed sites for new enterprises and upgradation of existing industrial infrastructure. A comprehensive MSE-CDP is being administered by the office of Development Commissioner (MSME), the Ministry of MSME. 3 These guidelines for the Micro and Small Enterprises - Cluster DevelopmentProgramme (MSE-CDP) are issued in supersession of the previous guidelines relating to SICDP and IID schemes and encompass, inter-alia, the procedure and funding pattern for admissible activities, namely:(i) Diagnostic Study Reports: To map the business processes in the cluster and propose remedial measures, with a validated action plan. (ii) Soft Interventions: Technical assistance, capacity building, exposure visits, market development, trust building, etc for the cluster units.

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(iii)

Detailed Project Report: To prepare a technical feasible and financially viable project report for setting up of a common facility center for cluster of MSE units and/or infrastructure development project for new industrial estate/ area or for upgradation of infrastructure in existing industrial estate/ area/ cluster. Hard Intervention/Common Facility Centers (CFCs): Creation of tangible assets like Testing Facility, Design Centre, Production Centre, Effluent Treatment Plant, Training Centre, R&D Centre, Raw Material Bank/Sales Depot, Product Display Centre, Information Centre, any other need based facility.

(iv)

(v) Infrastructure Development: Development of land, provision of water supply, drainage, Power distribution, non- conventional sources of Energy for common captive use, construction of roads, common facilities such as First Aid Centre, Canteen, other need based infrastructural facilities in new industrial (multi- product) areas/estates or existing industrial areas/estates/clusters. The projects sanctioned under erstwhile SICDP (renamed MSE-CDP) and Integrated Infrastructural Development (IID) schemes will also be eligible for financial support issued under the scheme as per earlier approvals.

4 Objectives of the Scheme

i. To support the sustainability and growth of MSEs by addressing common issues such as improvement of technology, skills and quality, market access, access to capital, etc. ii. To build capacity of MSEs for common supportive action through formation of self help groups, consortia, upgradation of associations, etc. iii. To create/upgrade infrastructural facilities in the new/existing industrial areas/ clusters of MSEs. iv. To set up common facility centres (for testing, training centre, raw material depot, effluent treatment, complementing production processes, etc).

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Site ref. http://www.nmcc.nic.in/NMCP.aspx

National Manufacturing Competitiveness Council

National Manufacturing Competitiveness Programme (NMCP) In the 2005-06 Budget, the Government has announced formulation of a National Competitiveness Programme, particularly to support the Small and Medium Enterprises (SMEs) in their endeavour to become competitive.
1. Accordingly, the NMCC has discussed in detailed with relevant stakeholders like the Ministry of SSI in a number of meetings and has conceptualised and finalised the components of the programme incorporating suitable inputs from the stakeholders in a meeting taken by Chairman, NMCC on 7.12.2005. The Honble Prime Minister while recently addressing the 78th AGM of FICCI on December 24, 2005 has observed I hope the National Competitiveness Programme announced by our Government, to support small and medium enterprises in particular, will enable this. The National Manufacturing Competitiveness Council, along with the Ministry for Industries, is in the process of finalizing the scheme in consultation with stakeholders. This Scheme, once put in operation, could help in improving the competitiveness of Indian firms. Ensuring that the Small Scale Sector grows at a healthy rate is crucial for the overall growth of Manufacturing Sector as also the National Economy. For this to happen the small scale sector has to become competitive. To obtain national competitiveness or sectoral competitiveness a number of actions would be needed at various levels. The Indian Industry will have to become competitive by cutting down overall costs and improving quality to survive and grow. The situation confronting the Small Industries in particular provides both opportunities as well as challenges. The draft National Strategy for Manufacturing prepared by the National Manufacturing Competitiveness Council (NMCC) elaborates on the various aspects about ensuring competitiveness of the manufacturing sector. Ultimately, it is firms that compete in the market and not countries. Therefore, it is necessary for them to become competitive by building abilities to acquire, assimilate, develop new technologies; reduce production costs; cut down delivery time; practice Total Quality Management; enhance productivity and customer service. While some organizations in the country have initiated Lean manufacturing practices and have started to reap the benefits, these practices have not reached many industrial units in the country. The firm level competitiveness has to be strengthened by having an appropriate policy environment. Therefore, the NMCP deals mainly with firm level competitiveness. It is designed to address the issues of competitiveness in the background of global challenges. A National Lean Manufacturing Competitiveness Programme needs to be implemented so that it would cover various important sectors of the industry. The general approach in the National Programme on Application of Lean Manufacturing would be to work in
52

2.

3.

4.

5.

clusters with focus on clusters approved under IIUS to begin with. It is also envisaged to work in collaboration with Industry Association or SPV constituted under the IIUS and other industrial clusters functioning across the country. About 10000 firms in various industrial clusters/ industrial sector can be selected all over the country based on firms willingness to participate and minimum threshold technological capability. The total project cost would be Rs.400.00 crore for five years and could be adjusted further depending upon the experience/integration with other schemes. To ensure the commitment and full involvement of the selected firms, 25% of project cost (Rs.100 crore) has been proposed to be contributed from the Industry. 6. The Ministry of SSI has been implementing several schemes for the growth and development of the small scale industries. Recently they have prepared a comprehensive package for promotion of micro & small enterprises which is under consideration. The package needs to be implemented properly and schemes having particular relevance for increasing the global competitiveness of Indian SMEs need to be supplemented and strengthened viz. relating to waste minimisation, market assistance, tool room expansion and business incubation. The directly relevant schemes out of the above package for increasing the competitiveness of the micro and small enterprises in India relate to Technology and Quality Upgradation Support; Marketing Support, Support for Entrepreneurial and Managerial Development. Market assistance and technology upgradation activities would be carried out by the Ministry of SSI in co-operation with TIFAC/CSIR in selected areas where technological obsolescence is high. Accordingly, Ministry of SSI has proposed to organise 50 sensitization campaigns, 50 bench marking studies, provide in-plant technology support to 1000 small units and to participate in 25 selected exhibitions. It is expected that the total fund requirement for these activities would be Rs.26.50 crore for five years. 15 new Mini-Tool Rooms are proposed to be set up in view of the proven usefulness of the existing ten tool rooms as extension centre of existing tool rooms. This is likely to be at an approximate cost of Rs.135 crore for five years. To set up Business Incubators the Government will provide financial assistance to select universities, business schools, engineering and technological institutions, reputed training institutes capable of supporting entrepreneurs or new SME founders. This scheme envisages selection of a large number of academic and training institutes, at least 50 in the next 5 years, and provides financial support as grant-in-aid to set up at least 100 business incubators to host about 1000 small enterprises. (Budget provision of Rs.50 crore is required for five years). Innovation is clearly crucial to the future of Indian manufacturing industry. To improve IPR awareness the need is to target SMEs to ensure they can use the IP systems effectively; improve the available evidence base on IP use and awareness as well as develop appropriate metrics to monitor and assess progress; and target "innovators of the future", such as business studies, design and technology students and entrepreneurs, to raise awareness of IP. Improving awareness of Intellectual Property Rights (IPRs) amongst businesses, particularly Small and Medium-sized Enterprises (SMEs), means that they will be able to make informed decisions about their strategies for protecting their ideas. It is necessary for the Government of India and its concerned Ministries jointly with relevant stakeholders/Industry Organisations like CII, FICCI and ASSOCHAM to launch a national campaign for Indian firms to invest in next generation intellectual property in the product, process and practice
53

7.

domain. (Budget provision of Rs.50 crore is required for five years). 8. A National Quality Campaign as enabling platform for developing competitiveness in the Indian manufacturing industry is needed. This is key to their survival. Role of quality is to be visibly demonstrated in making SMEs competitive and more importantly in improving their business/financial performance. The orientation of National Quality Campaign is to be appropriately changed from Promotion of Quality Standards to Enabling SMEs to be competitive through quality management standards and quality technology tools. Budget provision of Rs.50 crore is required for five years. The Design Clinic scheme is being proposed to be implemented to bring Indian manufacturing sector and design expertise on to a common platform and to provide expert advice and cost effective solutions on real time design problems, resulting in continuous improvement and value addition for existing products. (Budget provision of Rs.50 crores would be needed for five years).

9.

10. Current Stage of IT adoption in Indian manufacturing sector is not encouraging. Indian manufacturing industries are facing various challenges in terms of global competitiveness partly due to lack of IT enablement of their business processes and management practices. A planned model of IT adoption needs to be implemented in the current Indian manufacturing scenario. The relation between quality and certification and the assessment process (auditing) is also an extremely important element in the manufacturing and movement of goods and in the whole supply chain. These concepts have to be adapted in the e-business context too and applied to the manufacturing sector in India in order to enable them to be competitive. (Budget provision of Rs.160.00 crores would be needed for five years) 11. Basically, the approach to be followed under the scheme would be selection of some clusters and firms based on some identified criteria and doing a diagnostic study with the help of qualified professionals in order to identify the major gaps in their competitiveness and necessary steps which could be taken to correct the situation, This could mean interventions in technology upgradation, design and IPR protection, marketing and sales promotion strategy, skill upgradation etc. The following four major areas could be covered for suitable action based on the diagnostic study and the particular requirements of the firm/cluster/industry:

Manufacturing and engineering Marketing Financial and general management

Information technology

Based on the diagnostic study an action plan would be prepared to make the firm competitive taking into account the context and the specific requirements. The cost of implementing the plan would be shared depending upon the intervention/industry/size. The implementation would be done on the Public Private Partnership mechanism and the funds also would need to be spent both by the firms and the Government. The Government assistance would not be in the nature of subsidy but for implementing the
54

concrete interventions identified to improve competitiveness. Linkages to existing schemes of the Government which promote competitiveness would also be established to reinforce the steps taken under the proposed scheme.

55

Performance & Credit Scheme for Rating of Small Scale Industries

BACKGROUND
The Small Scale Sector occupies an important position in any developing economy the world over. Fast changing global economic scenario has thrown up many opportunities and challenges to the Small Scale Industries in India. While, on the one hand, many opportunities have opened up for the small scale sector to enhance productivity and look for new markets in other countries, it has also put an obligation on them to upgrade their competence in terms of technology, management & financial strength to successfully meet the global competition. Therefore, there is a need to create awareness amongst Small-Scale Units about the strengths and weaknesses of their existing operations and to provide them an opportunity to enhance their organizational strengths. As a step in this direction, a need was felt for introducing a Rating Scheme for the Small Scale Industries. It is expected that the Rating Scheme would encourage SSI sector in improving its contribution to the economy by way of increasing their productivity, since a good rating would enhance their acceptability in the market and also make access to credit quicker and cheaper and thus help in economizing the cost of credit. Besides, the rating would also infuse a sense of confidence amongst the buyers for taking a decision on the options of sourcing material from Small Scale Units. With above background, a Performance & Credit Rating Scheme for Small Scale Industries has been formulated in consultation with various stakeholders i.e. Small Industries Associations, & Indian Banks Association and various Rating Agencies viz. CRISIL, ICRA, Dun & Bradstreet (D&B) and ONICRA. It has the approval of the Government.

Site ref - msme.gov.in/Workshed_scheme_khadi_artisan_English.pdf

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WORKSHED SCHEME FOR KHADI ARTISANS

A growing need was being felt to facilitate and empower khadi spinners and weavers to chart out a sustainable path for growth, income generation and better work environment so that they are able to have a right working atmosphere and better ambiance to enable them to carry out their spinning and weaving work efficiently. Accordingly, the Government has approved a new Central Sector Plan Scheme called Workshed Scheme for Khadi Artisans (WSKA) for implementation w.e.f. 27th May 2008 through the Khadi and Village Industries Commission (KVIC) in an attempt to facilitate the development of khadi spinners and weavers essentially belonging to BPL category by providing them financial assistance for construction of worksheds, on a pilot basis. This scheme will be implemented during the XI Plan (2008-09 to 2011-12). More than 38,000 worksheds are proposed to be constructed at a total cost of Rs. 127 crore approximately, involving financial assistance of Rs. 95 crore as grants to KVIC from Government of Indias budgetary sources. 3. ASSISTANCE UNDER THE SCHEME Financial Assistance for Area per unit construction of worksheds will be provided to those khadi artisans who belong to BPL category through the khadi institutions with which these khadi artisans are associated and the quantum of assistance will be as under: Component Individual Workshed 20 Square meters (approximately) Amount Assistance of

Group Worksheds (for a group of minimum 5 and maximum 15 khadi artisans)

Rs. 25,000/- or 75% of the cost of the workshed, whichever is less. 15 Square meters per Rs. 15,000/- per beneficiary beneficiary of the (approximately) group or 75% of the total cost of the project, whichever is less.

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REJUVENATION, MODERNIZATION AND TECHNOLOGY UPGRADATION OF THE COIR INDUSTRY - A CENTRAL SECTOR SCHEME 1. INTRODUCTION Coir Industry is one of the oldest traditional industries. It generates 'value' literally out of 'waste' (coconut husk), besides providing eco- friendly products resulting in large scale employment comprising mostly women andcontributing to around Rs. 600 crore worth of exports annually. Presently, the utilized capacity of coir husk is only around 40%. This is essentially because the basic producers of raw material and semi finished products do not have the wherewithal to convert a higher percentage of husk into fibre and yarn. The machinery (ratts and looms) have been in use for decades without replacement or modernization besides being exposed to rains. ACentral Sector Scheme on Rejuvenation, Modernization & Technology Up gradation of the Coir Industry is, therefore, launched during 2007-08, on a pilot basis, to facilitate the sustainable development of the Spinning and Tiny/Household Weaving Units of the coir industry by providing proper work sheds and enabling replacement of traditional age old ratts with motorized ratts in the Spinning sector and replacement of traditional looms with the mechanized looms in the Tiny/Household sector in the first phase, during XI Plan. The scheme aims to develop the supply of basic raw material at the grass root level of the coir industry to ensure continuous supply of quality coir yarn through out the year. The Scheme will be implemented among the major coir producing States of the country. Table 1 depicts the State-wise estimated distribution of beneficiaries proposed to be covered under the Scheme. 2. OBJECTIVES OF THE SCHEME: (i) To modernize Coir industry by adoption of modern technology in production and processing of Coir in the spinning and weaving sectors; (ii) Upgradation of the production and processing technology for improving the productivity and quality; (iii) To increase the efficiency and productivity for enhancing the earnings of the workers and income of spinners/ tiny-household sectors; (iv) To improve the utilization of coconut husk for increasing the production of Coir and Coir products; (v) To generate employment in the rural areas of the Coir producing states; (vi) To provide more employment opportunities for women in the rural sector for gender empowerment;
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(vii) To contribute to inclusive growth of vulnerable sections of beneficiaries especially those belonging to Scheduled Castes (SC), Scheduled Tribes (ST) and North Eastern Region (NER); and (viii) To give sufficient training to the rural youth of the coconut producing States with an eye on attracting them to the fold of coir sector.

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SCHEME FOR ENHANCING PRODUCTIVITY AND COMPETITIVENESS OF KHADI INDUSTRY AND ARTISANS Site ref - msme.gov.in/salient_features_kvic_29.7.2008.pdf 1.0 Introduction

1.1 Khadi is a traditional khadi industry and its sustainability is largely dependent on provision of appropriate technological implements which play a vital role in achieving better productivity and quality besides reducing drudgery so that the artisans productivity is enhanced and competitiveness of the activity is maintained 1.2 The scheme envisages a comprehensive support to around 200 Khadi Institutions in order to make khadi industry more productive as well as competitive and also strengthen its potential for creation of qualitative employment. 2.0 Prime Objectives make khadi industry more competitive with more market-driven, profitable, production and sustained employment for khadi artisans and related service providers by replacement of obsolete and old machinery and equipment and repairs to/renovation of existing/operational machinery and equipment; extend an evenly balanced and need-based support in all areas of Khadi activities viz. production, distribution, promotion and capacity building; provide appropriate incentives to shift to market driven approach. the scheme would cover activities upto cloth stage and may not venture into readymade garments.

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Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation of the Small Scale Industries
Site-msmestartupkit.com/.../credit_linked_capital_subsidy_scheme.pdf

1. Background
The Ministry of Small Scale Industries (SSI) is operating a scheme for technology upgradation of Small Scale Industries (SSI) called the Credit Linked Capital Subsidy Scheme (CLCSS). The Scheme aims at facilitating technology upgradation by providing upfront capital subsidy to SSI units, including tiny, khadi, village and coir industrial units, on institutional finance (credit) availed of by them for modernisation of their production equipment (plant and machinery) and techniques. The Scheme (pre-revised) provided for 12 per cent capital subsidy to SSI units, including tiny units, on institutional finance availed of by them for induction of well established and improved technology in selected sub-sectors/products approved under the Scheme. The eligible amount of subsidy calculated under the pre-revised scheme was based on the actual loan amount not exceeding Rs.40 lakh. Due to insufficient investment and lack of awareness of both the quality standards and access to modern technologies, a large percentage of SSI units continue with outdated technology and plant & machinery. With increasing competition due to liberalisation of the economy, the survival and growth of the SSI units are critically dependent on their modernisation and technological upgradation. Upgradation of both the process of manufacture and corresponding plant and machinery is necessary for the small enterprises to reduce the cost of production and remain price competitive at a time when cheaper products are easily available in the global market. It is in this background that the Finance Minister made an announcement in the Budget Speech of 2004-05 to raise the ceiling for loans under the Scheme from Rs. 40 lakh to Rs. 1 crore and rate of subsidy from 12 per cent to 15 per cent. Further, in the light of the experience gathered in implementing the Scheme, certain other modifications were also required to make it more useful to the SSI units, including tiny, khadi, village and coir industrial units, in taking up technology upgradation on a larger scale.

61

1.4 After considering these issues, the CLCSS has been amended as follows : (a). the ceiling on loans under the Scheme has been raised from Rs. 40 lakh to Rs. 1 crore; (b). the rate of subsidy has been enhanced from 12 per cent to 15 per cent; (c). the admissible capital subsidy is to be calculated with reference to the purchase price of plant and machinery, instead of the term loan disbursed to the beneficiary unit; (d). the practice of categorisation of SSI units in different slabs on the basis of their present investment for determining the eligible subsidy has been done away with ; and (e). the operation of the Scheme has been extended upto 31 st March, 2007. The above amendments are effective from September 29, 2005.

2. Objective
The revised scheme aims at facilitating technology upgradation by providing 15 per cent upfront capital subsidy with effect from the 29 th September, 2005 (12 per cent prior to 29.09.2005) to SSI units, including tiny, khadi, village and coir industrial units (hereinafter referred to as SSI units), on institutional finance availed of by them for induction of well established and improved technologies in the specified sub-sectors / products approved under the scheme.

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Indias Growth Sustaining SMEs

SMEs , Small business entity is widely known and recognized in India next only to agriculture. In terms of its overall contribution to the Indian economy, Small and Medium Enterprises or Small sector, infact, is better placed than Indias agricultural sector. With Micro (Tiny) businesses traditionally known as Village and Cottage industries as their counter part, Indian SMEs have ancient heritage. Uniquely innovated through Craft Technology, some of the products like Muslin enjoyed pride of place in ancient India and attained fame in foreign countries till the emergence of factory made cloth (Agarwala 2001). Today, Indias small sector consists of (i) Micro Enterprises (village and cottage industrial units) (ii) Small Enterprises and (iii) Medium Enterprises. Government of India officially defines these enterprises in terms of investment in plant and machinery which is upto Rs.25 lakh in case of Micro enterprise, for Small enterprise it is above Rs.25 lakh and upto Rs.5 crore, and for medium enterprise the investment ranges above Rs. 5 crore and upto Rs. 10 crore. Apparently, defined in this way, Indias small businesses are tiny both in terms of investment and total number of employees which in majority of tiny and small enterprises happen to be 9 or less and in growth oriented small and medium enterprises on an average the employee strength ranges between 10 and 40. Yet, aggregate performance (output, employment and exports) of Indias small sector has been quite substantial and almost consistent throughout last more than four decades. According to Development Commissioner SSI (2007), in all there are 13 million \enterprises in Indias small sector providing employment to about 29 million people, contributing 40% of total industrial production and 34% of total exports. These small enterprises produce about 8000 items ranging from conventional products to hi-tech components. These bold statistics are seen at the top of continuous incremental growth curve of Indias small sector. With this economic performance, small businesses (particularly Micro enterprises) have been the major support to Indias village / rural economy and small-Medium enterprises have been the major counterpart of Indias growing urban economy. From Technology Transfer To Technology Innovation The growth of Indias small sector in general and SME segment in particular during first four decades of independence was the result of government policy of promotion and protection of small business units. Micro enterprises relied largely on craft technology where as small and medium enterprises resorted to imports of technology and technology transfer. Emphasis was on technology up gradation and not technology innovation. However, in an era of globalization which began for Indian economy from 1991, Indias small enterprises along with corporate enterprises are increasingly exposed to open competition. Without resorting to Technology innovations to enhance
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competitiveness and sustainable growth, unprotected Indian SMEs will find survival an unprecedented tough task. This research paper investigates into present status of Indian SME innovation, challenges faced by SME entrepreneurs and future prospects of SME innovation in India. It is broadly divided in four parts. The first part investigates into Industry-Institutions Linkage - a support system for creation and dissemination of Technology innovation. Part two exhibits government policy initiative towards SME innovation. The third part provides the findings of the micro empirical case study about innovative SME entrepreneurs from Indias industrially well-known city ofPune. The fourth and last part provides a few suggestions to further innovative growth of the Indian SMEs by overcoming their present barriers and harness better innovation prospects in future. This research paper has development context with special reference to Indian SMEs. The time honored Oxford Conference has been the motivation for this research endeavor. The objectives of this research paper include i) Understanding state of SME innovations in India. ii) Reviewing Industry - Institution (R&D) Linkage for scaling up SME Innovations in India. iii) Examining policy initiatives and intervention in relation to SME Innovations and iv) Highlighting certain efforts / action pan to strengthen progress of SME Innovations in India and its relevance to other BRICS countries. Industry (SMEs) R&D Institutions Linkage : Indian Scenario Industries are at the helm of harnessing innovations for commercial purposes but they need technological synergies through R&D institutions. America and other developed nations have made deliberate and focused efforts to develop and maintain this vital linkage environment through which established as well as start-up industrial enterprises benefited immensely. Researchers like Alpert Shapero (1979) advocated special efforts in the form of R&D institutions linkages with smaller firms because these firms have huge potential for innovations and new jobs. In comparison, India is far behind in this respect. As Katharine Wakelin (1997) observes, countrys history and culture shape its innovation profile. Pro-science Technology and innovation environment was almost non-existent in India during period before independence. Post independence period hardly witnessed deliberate and aggressively pursued linkages between industry and R&D institutions as also universities for creating and disseminating Technology particularly in relation to small enterprises.
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There are many R&D organizations established and run by the government departments and some of them are exclusively devoted to defense requirements and operate according to regulatory frame and formal modus operandi of the defense ministry. There are total 412 universities in India (as against 104 in UK and 380 in Germany) but the volume of research, its consistency and reputation of overall research contribution do not uphold even a few of them to be designated as research universities. Research first and Teaching next has never been the guiding principle of the Indian universities. Even the Technology institutions or Engineering colleges functioning under Indian universities are found all these years giving thrust on Design and Development without live practical applications. The institutions of higher education therefore, hardly seem to have urge for undertaking research - theoretical as well as applied and thus are found lacking initiative to attract and absorb industries in general and small industry in particular into their research. In fact, Indian universities today, suffer from the absence, weakness and irrelevance of research (Shastree N. K. 2008). Unlike universities of western world, Indian universities are not required to generate funds for themselves through industrymarket oriented research. Government of India provides the universities and the colleges with funds and grants on regular basis and without explicit obligation in terms of research. Even when international institutions like - UNESCO endeavored to introduce novel scheme - UNISPAR (University - Industry - Science Partnership), Moegiadi (1998) brought out from UNESCO report that the Indian Universities lacked whole hearted involvement in this promising experiment. Late Mr. S. L. Kirloskar (1967), a doyen and elite industrialist observed about four decades ago that there existed ignorance and prejudice among the intellectuals (academia) about the business practice in India. The contemporary research also shows that the situation has not changed (improved) much today. Kowjalgi (1997) observes that there is no effective interaction between industry and institutions for dissemination of R&D and innovative work. Industry initiative to get connected and remain connected with universities has been slow and scanty. Industry has been apprehensive about the usefulness of university research from the point of view of market results and business growth. Traditionally, universities are the producer of basic research and its results naturally flow to applied research. But this research flow is not seen as a vibrant part of Industry-University Linkage. Of late, Indias premier institutions like IITs (Indian Institute of Technology) and Science and Technology parks under Science and Technology Ministry, Government of India have undertaken new efforts in the form of Technology Business Incubation (TBI) to help start-up enterprises to transfer their are very meager to support Indias innovation movement. Universities, Engineering colleges and Business schools so far have not participated in Business Incubation program. Thus, there is hugely untapped
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research and development synergy of the academic institutions and R&D Institutions not effectively linked in nurturing and strengthening SME innovations. Research Laboratories under CSIR (Council for Scientific Industrial Research) provide R&D facilities and Technology mainly to large corporate organizations. NCL (National Chemical Laboratory) recently put up an Innovation Centre which again initially expects large companies to exploit its R&D know how and technology development facilities. SME Innovations In India : Policy Initiative SMEs are relatively more suitable for innovations. Small entrepreneurs have innovational instinct. Smaller entities like SMEs are found innovating successfully in an experimental way (Muller R. K. 1971). Therefore, public action is advocated to promote and strengthen innovative efforts among the SMEs through R&D programs and facilities. Indias policy towards SME innovation has remained slow and lopsided for quite sometime. R&D as such was not a focus till 1960s. The early industrial policy resolutions emphasized development of indigenous technology through investment in R&D in product and processes. Indian industry in general however, gave R&D low priority. SMEs preferred second hand imported technology. The industrial policy through 1970s and 1980s witnessed technology up gradation through effective technology transfer. Self employment was overriding objective of small industry entrepreneurship programs. Protection policy kept away competitive pressure and hence less urgency for adoption of new and superior technology. R&D culture and climate remained of low profile for more than three decades. Innovation era occurred for Indian industry only with the opening up of Indian economy in 1991. Innovation related policy initiative has been largely through Science and Technology Department, Science and Technology Ministry, Government of India. Awareness campaign, Entrepreneurship Training and Development programs, provision and allocation of funds / grants for R&D to institutions, science and Technology parks and various universities are among the tasks with which Department of Science and Technology is vested with. Besides, different Ministries have setup their R&D institutions to facilitate the technological and training / skilling requirements of SMEs. Ministry of Textiles, Ministry of Commerce, Ministry of ARI (Agriculture and Rural Industries) and Ministry of Chemicals and Petro- Chemicals are also encouraging and supporting SME innovations directly and indirectly. Private players viz; Trusts and Societies are also endeavoring to create and activate innovative culture and climate particularly in SME sector. The Working Group on Science and Technology for SMEs has prepared and delivered its report to the Government of India to be implemented through The Eleventh Five Year Plan (2007 - 2012).
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The Working Group recommended existing schemes and programs of Technology Business Incubators (TBIs) and Technology Innovation Centre (TICs) to continue and expects their total number of 170 and 50 respectively during 11th plan. The Working Group also, recommended role of Polytechnics and Industrial Training Institutes (ITIs) for serving the manpower requirements of SMEs in Rural / Small town areas.

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