Micro, Small and Medium Enterprises in India

An overview

What they actually are?

• The commonly used criteria at the international level to define SMEs are the number of employees, total net assets, sales and investment level.

• The European Union makes a general distinction between self-employment, micro,small and medium sized businesses based on the following criteria:

And the criteria is-

0 Self-employed

2-9 Micro business

10-49 Small business

50-249 Medium-size business

In the Indian context, micro, small and medium enterprises are defined as..

• It is based on the investment investment in plant and machinery (for manufacturing enterprise) and on equipments for enterprises providing or rendering services.

Criteria in India-

• Micro enterprise-investment does not exceed 25 lakh rupees.

• Medium enterprise- more than five crores but not upto ten crores.

• Small enterprise- more than 25 lakhs rupees but doe not exceed 5 crores.

In case of services-

• a micro enterprise- not upto 10 lakh rupees.

• a small enterprise- more than 10 lakh but not upto 2 crore rupees.

• a medium enterprise- more than 2 crores but not upto 5 crores.

Importance of the MSME sector

• The contribution of micro, small and medium enterprises (MSME) sector to

manufacturing output, employment and exports of the country is quite significant.

• The MSME sector employs about 42 million persons in over 13 million units throughout the country.

• There are more than 6000 products, ranging from traditional to high-tech items, which are being manufactured by the Indian MSMEs.

Specific policy measures initiated for boosting MSMES-

• Reservation of items for exclusive manufacturing in small sector.

• Preferential credit support measures.• Fiscal concessions.• Infrastructural development like

development of industrial estates, testing labs, common facility centres.

• Entrepreneurship development

PERFORMANCE AND CONTRIBUTION OF MSMEs.

13 Million MSMEs> 8000 products

MSMEs

31 Million Employment

40% Exports45% industrial

production

Micro, Small and Medium Enterprises Development Act,

2006salient features.1. Industry replaced by enterprise

which include service enterprises also.

2. Ambit of sector enlarged to cover medium enterprises.

3. Constitution of MSME Board.4. Simplification of registration

procedure.5. Progressive credit support.6. Penalty for delayed payments.

7. Provision for exit policy.

Institutional Support Structure for MSMEs in India

At Federal Level

1. Ministry of MSMEs

2. Small Industries Development Organisation (SIDO)

3. National Small Industries Corporation(NSIC)

4. Khadi & Village Industries Commission(KVIC)

5. Coir Board

6. Entrepreneurship Development Institutions (EDIs)

MSMEs

At State Level

1. Directorate of Industries

2. District Industries Centres

3. State Finance Corporation

4. State Industrial Development Corporation

5. Technical Consultancy Organisations

6. Entrepreneurship Development Institutions

Others

1. Industry Associations

2. NGOs

3. Banks/Financial Institutions

MAJOR SCHEMES FOR

MSME’s SUPPORT

Credit Support

1. Public sector banks advised to double the flow of credit to MSMEs within 5 years (20% annual growth)

2. A minimum of 40% of bank credit earmarked for priority sector lending which includes loans to MSEs

3. Specialised SME Bank branches in industrial clusters for smooth flow of credit to MSMEs

4. One Time Settlement (OTS) scheme for settling NPAs of MSMEs

Technological Support

• Credit Linked Capital Subsidy Scheme for Technology Upgradation

– Scheme meant to improve quality of products by technology upgradation.

– Investment upto INR 10 million (US$ .250,000) eligible for support with subsidy upto 15% on investment.

Contd.

• Testing Centres for Quality Certification

• Tool Rooms and Training Centres for skill upgradation

• Incentive scheme for obtaining ISO Certification by MSEs

Marketing Assistance and Export Promotion

1. Support for participation in trade fairs and exhibitions – national as well as international.

2. Training programmes on packaging for exports.

3. Purchase preference in Government procurement.

4. Market Development Assistance Scheme for publicity, market studies and adoption of modern market practices

Cluster Development Programme

• Cluster formation has been considered important for MSME development. A cluster may be defined as a local agglomeration of enterprises (mainly SMEs, but often also ncluding some large enterprises), which are producing and selling a range of relatedand complementary products and services

International Cooperation Programme

• Provides exposure to MSMEs to the latest technologies, manufacturing practices prevalent in their fields in different countries.

• Encourages their participation in international exhibitions for exports.

Factors affecting MSMEs

• Accessing adequate and timely financing on competitive terms, particularly longer tenure loans.

• Accessing credit on easy terms has become difficult in the backdrop of current global financial crisis which has held back the growth of SMEs and impeded overall growth andDevelopment.

Contd.

• factors that include policy, legal/regulatory framework (in terms of recovery,bankruptcy and contract enforcement), institutional weaknesses (absence ofgood credit appraisal and risk management/ monitoring tools), and lack ofreliable credit information on SMEs

Contd.

• It has become difficult for lenders to be able to assess risk premiums properly,creating differences in the perceived versus real risk profiles of SMEs.

• Access to skilled manpower, R&D facilities and marketing channels is limited

• Availability of finance at cheaper rates, skills about decision-making and good management and accounting practices, and access to modern technology.

• Bribery,corruption,red tapism.

Challenges before MSMEs• Problem of skilled manpower.

• Inadequate credit assistance.

• Irregular supply of raw material.

• Absence of organised marketing.

• Lack of machinery and equipment.

• Absence of adequate infrastructure.

• Competition from large-scale units and imported articles.

• Other problems like poor project planning, managerial inadequacies, old and orthodox designs, high degree of obsolescence and huge number of bogus concerns etc.

Thank you.

• A presentation by-Raveena kaushal

Bba 4th sem