The SMEs are major contributors to the Indian export basket. Many of them such as the textile units have been mauled in the global slowdown. Today when India is opening its retail sector to FDI, the government is trying to give the SME sector a boost by planning to make it mandatory for retailers to source 30 percent purchases from SMEs. The multinationals are trying to get this watered down. The government has set up an inter-ministerial panel to write easier entry and exit norms for the sector. A partnership with us will provide you access to the right people so that the final policy takes care of your business interests. Also, MSMEs often fail to defend their intellectual property (IP) rights because of lack of awareness. We will tell you how to use IP tools and technology to safeguard your interests and retain competitive edge.
The micro, small and medium enterprise (MSME) sector is the engine of equitable economic growth. The MSME units are categorised on the basis of investment in plant and machinery or equipment. The ceilings are set at Rs 10 crore, Rs 5 crore and Rs 25 lakh for medium, small and micro enterprises respectively in manufacturing sector and Rs 5 crore, Rs 2 crore and Rs 10 lakh in services sector.
The sector’s USP is its employment potential at low capital cost. MSMEs constitute over 90 percent of total enterprises in most economies. Besides generating highest rates of employment growth, they account for a lion’s share of production and exports. MSMEs contribute 8 percent of GDP in India. They manufacture more than 8,000 value-added products including handloom saris, carpets, soaps, pickles and machine parts for large Indian and foreign industries. Studies reveal that small and medium enterprises contribute to over 55 percent of GDP and 65 percent of employment in high income countries, over 60 percent of GDP and over 70 percent of employment in low-income countries, and about 70 percent GDP and 95 percent employment in middle-income countries.
In India it is mandatory for all public sector companies, ministries and departments to purchase 20 percent of products and services from small and medium enterprises. Of this 4 percent should be from SMEs owned by entrepreneurs from the scheduled castes and scheduled tribes.
According to the fourth census of MSME sector in India, there are more than 2.6 crore enterprises. The MSME sector accounts for about 45 percent of the manufacturing output and around 40 percent of exports in value.
The MSME sector is the second largest employer in India after agriculture. It employed 7.32 crore people in 2010-11. This is set to increase by another 1.2 crore between 2011-12 and 2013-14. Nearly 95 per cent of the MSME units are micro enterprises which employ around 69 per cent of the MSME workforce. Most of the micro enterprises operate in the unorganised sector and need government and private sector support for growth.
The MSME sector has to battle a lot of handicaps such as reluctance of banks and financial institutions to lend to MSMEs, limited ability to harness technology and insufficient marketing strength. Most of them are susceptible to the uncertainties of the markets and the banking system.
The Union Budget 2013-14 has envisaged doubling the refinance capacity of the Small Industries Development Bank of India to Rs 10,000 crore per year, and setting up a Rs 500 crore corpus with the bank to facilitate upscaling of factoring services. The Microfinance Equity Fund, which was set up in 2011-12 with a budgetary support of Rs 100 crore to assist micro finance institutions, is being allocated an additional Rs 100 crore. The Gross Budgetary Support (GBS) for the 12th Plan (2012—17) of the MSME ministry has been approved at Rs 24,124 crore by the Planning Commission.
The public holds a poor opinion about the quality of goods produced in the MSME. The sector must adopt modern technology to attain global quality standards. It should identify and focus on niche segments such as khadi and coir products.
The sector is receiving help from the Union MSME ministry in form of support for promoting entrepreneurial culture among the youth, aiding credit flow, improving competitiveness, promoting MSMEs via cluster-based approach, providing marketing support, creating new micro enterprises through Prime Minister’s Employment Generation Programme, helping khadi and village industries and coir industry, and supporting entrepreneurship and skill development.
The MSME sector has the potential for greater product and process innovation. These businesses need small investments and can be set up anywhere in the country. Their amenability to being an ancillary provides natural linkages with large enterprises. The existing schemes and programmes of the central and state governments cover major operational areas of MSMEs.
A majority of the 2.6 crore enterprises are in the unorganised sector, often in non-conforming urban zones. There are pockets of high technology enterprises but most use low technology leading to low productivity and poor product quality. Tool Rooms and Technology Development Centres play an important part in providing technology and design support to MSME units. Fifteen such centres are being set up in the Twelfth Plan period at a cost of Rs 2,200 crore.
The MSMEs lack of access to equity and credit means most of the financing is either in form of savings of the owners or loans from friends and relatives. This is especially true for village and lower-end micro industries. Several banks now have specific funds to meet the capital needs of MSMEs but credit penetration is still low. The SME Rating Agency of India (SMERA) launched in 2005 by SIDBI in association with Dun & Bradstreet, Credit Information Bureau (India) Ltd and leading public and private sector banks provides credit information about these enterprises in a bid to improve the credit flow to the sector.
The MSMEs are also denied access to good-quality skilled workers and managerial resources because they cannot afford to pay well. The absence of marketing and brand-building capabilities is among other impediments faced by the sector.
The MSMEs have moved up the value chain. The sector has progressed from the manufacturing traditional products to value-added services segment. This has mainly been because of the adoption of the cluster approach. Currently, there are over 600 industrial SMEs clusters, and more than 7,000 artisan and micro enterprise clusters in India. There are also about 2,500 untapped rural industry clusters. Some are large enough to account for the manufacture of nearly 80percent of a product in the country. The clusters have helped MSMEs overcome hurdles such as outdated technology, ineffective supply, global competition and credit crunch.
India micro, small and medium enterprises (MSMEs) are facing stiff competition from China. The government has undertaken several initiatives to help them in this fight for survival. The sector has immense business potential. In fact, the contribution of the SMEs to the country’s GDP is expected to increase to 22 percent by 2020.
(Disclaimer: The information has been aggregated through secondary research. IFIE is not responsible for errors if any)