 |
 |
 |
| home | about us | articles | psu links | directory | publications | initiatives | feedback | contact us | | ||
| EXCLUSIVE | |||||||
| Development Policies for Micro, Small and Medium Enterprises (MSMES) in India | |||||||
| By Dinesh Rai,
Secretary, Ministry of MSME |
|||||||
The Micro, Small and Medium Enterprises
(MSME) sector has been an integral component of the industrial sector.
The MSE sector has been accorded special status and importance in the
Five-Year Plans since inception in view of the advantages it offers for
better utilisation of resources of capital and skill at the local
level. The continuous support provided to the sector in the form of
incentives, infrastructural facilities and other assistance in the
industrial policy resolutions has facilitated the sector to acquire a
place of prominence in the socio-economic development of the country.
The number of enterprises in the MSE sector is estimated to be over 13
million, providing employment to estimated 42 million persons. As per
the latest estimates, the micro and small enterprises (MSE) sector
accounts for about 39 per cent of the manufacturing output and 33 per
cent of the national exports of the country (the estimated contribution
is 45% and 40% respectively for the micro, small and medium enterprises
(MSMEs) as defined under MSMED Act, 2006). Further, in recent years the
MSME sector has consistently registered higher growth rate compared to
the overall industrial sector.
For achieving the objective of inclusive growth, creation of large employment opportunities is of significant importance. However, the declining employment trend in the organized sector has resulted in agriculture sector continuing to provide employment to almost two-third of the Indian population. With the land holding declining substantially, there is considerable surplus population engaged in the agriculture sector and needs to be provided gainful employment in the industrial and service sectors of the economy. The major advantage of the MSME sector lies in its significant employment potential at low capital cost and the labour intensity in the MSME sector is estimated to be considerable higher than the large enterprises. Hence, the MSME sector provides one of the most viable avenues for absorbing the large surplus population engaged in the agriculture sector. However, in today’s liberalized and globalised environment, there are several preconditions to enhancing the global competitiveness of the MSMEs. These relate mainly to simplified systems and procedures, easy access to capital, positioning the MSMEs in the global value chain by enhancing their productivity (involving issues like technology upgradation, quality improvement, skill development, etc.) and access to markets (both domestic and global). For the promotion and development of the MSMEs, the Government has put in place policy measures as well as implemented several schemes/programmes to address the requirements of the MSME sector in these areas. Enactment of the MSMED Act, 2006. The Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006 seeks to facilitate the development of
these enterprises as also enhance their competitiveness. It provides
the first-ever legal framework for recognition of the concept of
“enterprise” which comprises both manufacturing and service entities.
It defines medium enterprises for the first time and seeks to integrate
the three tiers of these enterprises, namely, micro, small and medium. .
The Act also provides for a statutory
consultative mechanism at the national level with balanced
representation of all sections of stakeholders, particularly the three
classes of enterprises; and with a wide range of advisory functions.
Establishment of specific Funds for the promotion, development and
enhancing competitiveness of these enterprises, notification of
schemes/programmes for this purpose, progressive credit policies and
practices, preference in Government procurements to products and
services of the micro and small enterprises, more effective mechanisms
for mitigating the problems of delayed payments to micro and small
enterprises and assurance of a scheme for easing the closure of
business by these enterprises are some of the other features of the Act.
The Ministry of MSME has also taken a
view, in the light of the liberalized provisions of the MSMED Act 2006,
to do away with the restrictive 24% ceiling prescribed for equity
holding by industrial undertakings, whether domestic or foreign, in the
erstwhile Small Scale Industries (now MSEs). This coupled with the
expected legislation on Limited Liability Partnerships (introduced in
the Parliament by the Ministry of Corporate Affairs) should pave the
way for greater corporatisation of the Small and Medium Enterprises –
thereby enhancing their access to equity and funds from the market.
Access to Finance. Finance is one of the critical inputs
for the promotion and development of the micro and small enterprises.
Finance to the MSEs is part of the Priority Sector Lending Policy of
the banks. For the public and private sector banks, 40% of the net bank
credit (NBC) is earmarked for the Priority Sector. For the foreign
banks, however, 32% of the NBC is earmarked for the Priority Sector, of
which 10% is earmarked for the MSE sector. Any shortfall in such
lending by the foreign banks has to be deposited in the Small
Enterprise Development Fund (SEDF) to be set up by the Small Industries
Development Bank of India (SIDBI). The SIDBI is the principal financial
institution for promotion, financing and development of the MSE sector.
Apart from extending financial assistance to the sector, it coordinates
the functions of institutions engaged in similar activities. SIDBI’s
major operations are in the areas of
(i) refinance assistance (ii) direct lending and (iii) development and support services. Commercial banks are important channels of credit dispensation to the sector and play a pivotal role in financing the working capital requirements, besides providing term loans (in the form of composite loans). At the State level, State Financial Corporations (SFCs) and twin-function State Industrial Development Corporations (SIDCs) are the main sources of long-term finance for the MSE sector. Recognising the importance of easy and
adequate availability of credit in sustainable growth of the MSE
sector, the Government has announced a ‘Policy Package for Stepping up
Credit to Small and Medium Enterprises (SMEs)’, with the objective of
doubling the flow of credit to this sector within a period of five
years. The measures in the Policy Package, inter alia, include banks to
achieve a minimum 20% year-on-year growth in credit to the MSME sector
and cover on an average at least 5 new MSMEs at each of their
semi-urban/urban branches per year. In addition, the Ministry of MSME
is also implementing the following major schemes:
Credit
Guarantee Scheme: To ensure better flow of credit to MSEs by
minimizing the risk perception of banks/financial institutions in
lending without collateral security, the Credit Guarantee Fund Scheme
for Micro and Small Enterprises is being implemented.
The scheme covers collateral-free credit
facility extended by eligible lending institutions to new and existing
micro and small enterprises for loans up to Rs.1 crore.
Performance
& Credit Rating Scheme: The Performance & Credit Rating
Scheme for manufacturing MSEs is being implemented with the objective
of assisting the MSEs in obtaining performance-cum-credit rating which
would help them in improving performance and also accessing bank credit
on better terms if the rating is high.
However, despite all the efforts, the
number of MSEs having accounts with the banks has been only around 4
million. Taking this into account the fact that a majority of the MSEs
at the lower-end of the sector are outside the ambit of institutional
finance, concerted efforts are being made by the SIDBI to promote micro
finance across the country to enable the unemployed persons to set up
their own ventures. There are more than 100 Micro Finance Institutions
(MFIs) developed by SIDBI that are engaged in implementation of its
micro finance programme. SIDBI has disbursed about Rs.1700 crore
(cumulative) under its programme, benefiting around 50 lakh
beneficiaries. The outstanding loan under the SFMC programme is Rs.950
crore as at the end of March 2008.
Faced with increased competition on
account of globalisation, MSMEs are beginning to move from an obsession
with bank credit to a variety of other specialized financial services
and options. In recent years, the country has witnessed increased flow
of capital in the form of primary/secondary securities market, venture
capital and private equity, external commercial borrowings, factoring
services, etc. Some of the measures required for promoting these
emerging sources of finance are: To facilitate the MSME sector to
garner resources, it is imperative that a separate trading exchange be
set up exclusively for the MSMEs; Provide special incentives for
encouraging larger flow of Venture Capital & Private Equity funds
into the sector; More liberal “All-in-Cost Ceilings” for SMEs to raise
low-cost funds through the External Commercial Borrowing route; and
Urgent need to bring the legislation on ‘Factoring Services’.
Competitive Technology and Quality Improvement. In today’s fast paced global business
scenario, technology and quality of products has become more vital than
ever before. With a view to foster the growth of MSME sector in the
country, Government has set up ten state-of-the-art Tool Rooms and
Training Centres. These Tool Rooms provide invaluable service to the
Indian industry by way of precision tooling and providing well-trained
craftsmen in the area of tool and die making. These Tool Room are
highly proficient in mould and die making technology and promote
precision and quality in the development and manufacture of
sophisticated moulds, dies and tools. The Ministry of MSME implements
the following schemes and programmes for the upgradation of
technology/quality of the MSMEs:
ISO 9000/14001 Certification Fee
Reimbursement Scheme to enhance the competitive strength of the MSEs,
the Government introduced a scheme to incentivise technological
upgradation, quality improvement and better environment management by
the MSEs.
Micro and Small Enterprises Cluster
Development Programme (MSECDP) is implemented for holistic development
of clusters of MSEs. The programme envisages measures for capacity
building, skill development, technology upgradation of the enterprises,
improved credit delivery, marketing support, setting up of common
facility centres, etc., based on diagnostic studies carried out in
consultation with cluster units and their collectives.
The Credit Linked Capital Subsidy Scheme
(CLCSS) aims at facilitating technology upgradation by providing 15 per
cent upfront capital subsidy on institutional finance up to Rs.1 crore.
To help the MSMEs improve their
competitiveness, the Government has also launched the National
Manufacturing Competitiveness Programme (NMCP). The schemes under this
Programme are aimed at addressing the technology/quality upgradation
needs of the sector, mainly in the Public-Private Partnership mode.
Further, to facilitate investments for
technological upgradation and higher productivity in the micro and
small enterprises, the phased deletion of products from the list of
items reserved for the exclusive manufacture by MSEs is being
continued. There are now only 21 items that are reserved for this
sector.
Skill Development The Ministry of MSME has a long history
of providing skill development related training of different kinds. The
Ministry has a network of 30 MSME-Development Institutes (DIs), 28
Branch MSME-DIs, 18 Autonomous bodies including 10 Tool Rooms, 6
Technology Development Centres, 2 MSME – Training Institutes, 11 MSME –
Testing Centres, 3 National Level Entrepreneurship and Business
Development Institutes, 11 Technical Service Centres (TSCs) of NSIC, 36
Training Centres of KVIC and 2 National Coir Training and Design
Centres.
The Tool Rooms, Technology Development
Centres and 2 Training Centres support the MSME sector by providing the
process and product technology development services, precision quality
tooling and training manpower with hands-on exposure to the
state-of-the-art machinery in different areas. These Institutes offer
various training programmes to meet the wide spectrum of technical
manpower required in the manufacturing sector. The MSME-DIs and the 3
National Level Entrepreneurship and Business Development Institutes
organize a number of training programmes to train potential first
generation entrepreneurs for upgradation of their techno/managerial
knowledge and skills with ultimate object to start MSEs in various
fields. The different training programmes are Industrial Motivation
Campaigns, Entrepreneurship Development Programmes, Entrepreneurship
Skill Development Programme, Management Development Programme and
Business Skill Development Programme. In addition, 2 agencies under the
Ministry of MSME, namely, Khadi and Village Industry Commission (KVIC)
and Coir Board provide grass root training to enable the bottom rung of
the society in basic skill development, followed by provision of
institutional finance. The programmes conducted by these agencies
enable the beneficiaries to set up their own projects as
self-employment ventures.
Overall during 2007-08, the various
agencies under the Ministry of MSME have conducted training programmes
for 1.8 lakh trainees, and the targets for 2008-09 has been fixed at
over 3 lakh trainees. The Ministry of MSME intends to increase the
number of trainees significantly through enhancing the infrastructural
facilities of the existing institutions and adopting
Public-Private-Partnership model for providing skill development.
Access to Market To facilitate the MSMEs in their
marketing endeavour, the various organisations under the Ministry of
MSME organize exhibitions/fairs and buyer-seller meets across the
country providing an opportunity to them for displaying their products
and capabilities. In addition, under the MSE Marketing Development
Assistance (MDA) Scheme, assistance is provided to individuals for
participation in overseas fairs/ exhibitions, overseas study tours, or
tours of individuals as member of a trade delegation going abroad.
Further, various facilities are provided to MSEs in purchases effected
by the Ministries/Departments/CPSUs to the units registered under the
Single Point Registration Scheme of NSIC. These facilities are issue of
Tender Sets free of cost; exemption from payment of Earnest Money
Deposit; waiver of Security Deposit upto the Monetary Limit for which
the unit is registered under the Single Point Registration Scheme; and
Price preference up to 15% over the quotation of large-scale units. In
addition to these facilities/benefits, 358 items have also been
reserved for exclusive purchase from the MSE Sector by the Government
agencies.
The MSMED Act, 2006 has substantially
strengthened the provisions to check delayed payments by larger
enterprises to MSEs (that supply products to the larger enterprises).
Besides laying down that payments must be made within 45 days of
supply, the legislation lays down the institutional framework in the
shape of MSE Facilitation Councils to be constituted by each State. In
addition, the Ministry of MSME has also formulated two schemes under
the NMCP to facilitate marketing of MSME products. These are -
Marketing Support/Assistance for MSMEs for adoption of “Bar Code”, and
Marketing Assistance for MSMEs & Technology Upgradation Activities.
 |
| All articles in this website are copyrighted and any infringement will be dealt with strict legal action. | ||
| RNI No.
WBENG/2008/27737 |
|
Copyright
@ Shilpa Bichitra | All Rights
Reserved | Designed by: DigiPalette
| |
Editor:
Gouri Shankar Das |