Evaluation

Study of

Medium Enterprises in Manufacturing Sector

Final Report

Dr. M. S Chhikara & Dr. A Sahay

Management Development Institute

Gurgaon – 122001

January 2008

ii

Table of Contents

S.No Pages

I Director’s Message iii

II Acknowledgement iv

III Introduction v

IV Summary x

Chapters

1 Study Approach 1

2 Estimation Of The Size Of Manufacturing

Medium Enterprises Sector Across The States &

Products

5

3 Analysis Of Growth Pattern Of Manufacturing

Medium Sector

17

4 Identification Of Factors For Locational

Preference

31

5 Factors Influencing Performance 40

6 Evaluation Of Assistance Programmes, &

Schemes

49

7 Global Scenario Of Manufacturing Medium

Sector

57

8 Specific Policy & Programme Interventions. 68

iii

Director’s Message

At the outset I thank Development Commissioner, Small Scale Industries, Ministry of

Micro, Small and Medium Enterprises, (GOI), for showing confidence in

Management Development Institute by entrusting this assignment and thus giving an

opportunity to our faculty to prepare the baseline for medium manufacturing

enterprises and thereby suggest measures for their growth.

Undoubtedly, it is the modern medium manufacturing sector which, with

heterogeneous group of enterprises, has been the backbone of all developed and

developing nations; where R & D starts, where new technologies are born, where

scientists and engineers are challenged to develop new and better processes, products

and technologies.

I am happy to share that your concerted efforts made through various development

measures are proving boons for medium manufacturing enterprises. The roadmap

suggested in this study would definitely provide smooth growing pattern to them.

I expect that the cooperation between the DCCSSI (Min. of MEMEs, GOI) and our

Institute will get strengthened further for evolving and evaluating different policies

and programmes.

Dr. Sujit K. Vasu - Director,

Management Development Institute

Gurgaon – 122001. January 28, 2008

iv

Acknowledgement

The Development Commissioner, Small Scale Industries, Ministry of Micro, Small

and Medium Enterprises, (GOI), entrusted the evaluation of Medium Manufacturing

Enterprises to Management Development Institute.

The medium manufacturing enterprises (MMEs) sector, the heterogeneous group of

enterprises, a vibrant and dynamic sector of the Indian economy has been defined

very first time through the MEMED Act 2006. So getting required data was a big

problem. Therefore, in this regard our special thanks are due to Sh Praveen Mahto,

Additional Economic Advisor, DCSSI for providing timely assistance.

Primary as well as secondary information was collected from different sets of

respondents and we got constructive cooperation from them. So on behalf of the

consulting team it is my privilege and pleasure to extend gratitude to all respondents.

Special thanks are due to the Director (DIPP) and his staff for making available the

requisite information.

I am also thankful to the owners of medium enterprises who provided information to

our field investigators. I will be failing in my duty if I do not thank the research

investigators for assisting in collecting field data. Above all I can not forget the

cooperation extended by my learned colleagues at various stages of the study.

The experience of working on the assignment was highly exciting and useful.

M.S. Chhikara January 28, 2008

Project Leader

Study Team

Dr. M. Chhikara (Project Leader)

Dr. A. Sahay (Co-project Leader)

Shri Phool Singh (Team Member)

Shri Abhishek Yadav (Team Member)

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Introduction

Manufacturing sector has been the backbone of all developed and developing nations.

It is rightly said that Industrial Revolution started with manufacturing. Even now it is

called the real economy. It is where R & D starts, where new technologies are born,

where scientists and engineers are challenged to develop new and better processes,

products and technologies. It takes an important position in most fast moving

economies of the world, with a share of between 30 to 50 % of the economy.

The medium manufacturing enterprises (MMEs) sector, the heterogeneous group of

enterprises, constitute a vibrant and dynamic sector of the Indian economy. This

sector has recorded consistently rising growth in terms of production, investment,

creation of employment and phenomenal growth in exports over the years. The post

liberalization era in the Indian economy has enhanced the opportunities and

challenges for this sector. With their dynamism, flexibility and innovative drive they

are increasingly focusing on improved production methods, penetrative marketing

strategies and management capabilities to sustain and strengthen their operations.

They are, thus, poised for global partnership to adopt, adapt and absorb latest

technologies in diverse fields.

Being generally less capital intensive and more employment intensive in comparison

to large firms, MMEs suit the Indian economic environment with scarce financial

resources and large population base. Besides, they promote regional and interpersonal

equalization and thus have a scope for building upon the traditional as well as

emerging skills and knowledge. Further, unlike micro and small enterprises MMEs do

not concentrate on domestic market for inputs as well as output. It is because they

have greater potential for competitive advantage and hence internationalization of

business. They are less worried about uncertainties and inherent unknowns of

competing in foreign markets. Their tendency of graduating to large enterprise is

higher. They do not have greater fear from liberalization of trade and fall of protective

walls like micro and small enterprises.

Thus the process of economic liberalization and market reforms, while exposing the

Indian MMEs to increasing levels of domestic and global competition, has also

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opened up attractive possibilities of access to larger markets and of stronger and

deeper linkages with larger enterprises. Improved manufacturing techniques and

management processes can be sourced and adopted with greater ease. A robust and

vibrant MME segment can drive the benefits of these new opportunities provided

appropriate enabling policies are put in place and measures for capacity building in

public mode are also initiated. Competition, cooperation and interaction between

SMEs and with large firms may generate collective efficiency, technical upgrading

and pooling of resources and enhancement in scope and scale of economies especially

in agglomerations or clusters

The MMEs, in addition to freer access to capital, technology and markets, are now in

a better position to get information from across the globe, use appropriate technology

and produce goods as per customers’ needs. In the liberalized economic atmosphere

they can concentrate on utilization of better technology, production of quality

products, and improvement in management efficiency, diversification of product lines

etc. Since the emerging liberal environment has thrown open them to highly

competitive environment they will have to survive in the new climate, which was not

known to them over the last four decades. Therefore, improving quality of products,

offering competitive prices, upgrading managerial skills and producing goods and

services as per customer’s needs, that too through aggressive marketing are not their

pleasant choice. These are compulsions for survival, especially the healthy one.

Medium manufacturing enterprises produce a wide range of products, from simple

consumer goods to highly précised and sophisticated end products. The spectacular

expansion of the MMEs sector is as much a result of the policies and programmes of

the government as of the initiatives and endeavors of the entrepreneurs themselves.

These achievements are particularly creditable against the backdrop of a number of

constraints faced by them like inadequate flow of incidental credit, higher cost of

credit and growing competition arising out of economic liberalization and reforms.

Even during the period of liberalization and globalization this sector has not only

shown constant growth in all the spheres mentioned above but has also out-performed

the large-scale sector.

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However, the growth pattern in terms of products-lines and locations, has not been

uniform. The economic liberalization as a consequence of the new policy regime is

likely to pose major challenges further for remote areas particularly in backward

states which are already trapped in vicious circle of poverty. Even in the presence of

numerous area specific concessions, incentives, inducements, grants and subsidies,

the backward areas could not attract the desired industrial investment. In the

emerging environment there may not only be lesser fresh investment of investors but

also there is a likelihood of plight / division of the existing investors from slow

growth area to the fast growth area.

For long, small and medium scale enterprises were clubbed together loosely, with no

clear definition of what constituted medium scale units. By enacting MSMED Act

2006 the government has now provided clarity on this issue for the first time. The new

policy developments are likely to change significantly the concept, philosophy and

development environment of MMEs in the country. The new measures introduced in

industry, trade and financial sectors may provide new challenges and opportunities for

operating MMEs. The competitive environment may prove boon to some units and

curse to others. It is likely to accelerate their overall growth by weeding out weaker

units and consolidating and strengthening healthy ones. The easy and adequate access

to capital, technology and markets may bring qualitative as well as quantitative

improvements in the MME sector. Deregulation and de-bureaucratization will reduce

fetters on its growth potential. Administrative reforms as a sequel to the new policy

measures will remove licensing restrictions and minimize location restrictions.

Bringing industry related services under MSME Ministry and simplifying registration

procedure will give greater encouragement to MMEs. Further transforming the

enforcement of labour laws for MMEs from an area of regulation to an area of self-

discipline and voluntary compliance, rationalizing environmental clearance

procedures and excise duty administration may provide additional impetus to the

growth potential of this sector. The new definition fixing investment ceilings for

MMEs will consolidate their competitive position further as it has focused the scope

for entrepreneurs to invest more and graduate to large sector for reaping the fruit of

economies of scale and modern technology.

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The changes made in the policy, especially the definition of MMEs clearly reflect the

determination of the government to help the healthy sustenance of this sector. These

changes undoubtedly would expand the scope and significance of assistance

programmes. With the introduction of new definition medium units have become

eligible to facilities and concessions. It also shows intention of government to direct

MMEs policy towards the up-building of the modern MMEs by (a) encouraging

gradual transformation of the traditional industry sector and (b) by establishing new,

modern types of MMEs. The modern MMEs imply to fulfill the requirements of

emerging modern economy, have a progressive outlook, are ready to adapt to

changing conditions and are willing to use those processes that modern science and

technology have offered and are willing to apply modern organization and

management concepts. The new policy may broaden their outlook for:

� Continued search for improved ways and ready adaptability.

� Up-dating their products and designs to suit the modern needs of the economy that

is in transition from developing to developed.

� Greater utilization of physical and technological advancements.

� Familiarizing entrepreneurs with organizational and management skills.

� Increasing awareness of benefits of training for skill development.

However, considering the strategic role played by MMEs, it is essential to examine

how they can improve their performance in international markets and how they can

enhance their export competitiveness. It is also necessary because in changing

economic scenario, they cannot expect sympathy or support in the form of gifts or

grants. Even subsidies and concessions are going to be the talk of history. The

commercially viable projects will be required for only one time benefit. Ultimately

they have to be self-sustaining.

Thus, there is a need for continuous monitoring of the impact of policy changes and

taking up corrective measures to meet the need of the medium enterprises. There is

also a need to develop data banks on industries to guide the potential entrepreneurs,

including investors from abroad, to provide support for technology, infrastructure

support, to bring about attitudinal change among the officers of banks and financial

institutions as well as officers of other concerned organizations for improving the

flow of credit and other services. Also, the MME sector must realize that in the

emerging economic scenario of liberalization, structural reforms and globalization

ix

their easy and smooth sailing has been replaced by uneven tides. They will have to

stand on their own to face competition from within the country and abroad, which is

likely to grow in the next few years. The emerging challenges and opportunities may

make or mar their progress depending on their own capacity and capability.

In this regard this study has special importance to provide baseline for medium

manufacturing sector. This study is focused on ( i ) Estimation of the size of

Manufacturing Medium Enterprises Sector ; ( ii ) Assessment of the contribution of

Manufacturing Medium Enterprises Sector; ( iii ) Study of Regional Dispersal; ( iv )

Identification of factors for Location Preference; ( v ) Analysis of growth pattern of

manufacturing medium enterprise sector including the vertical growth of small

enterprises to the medium enterprises, and the comparative global trend in the last 10

years; ( vi ) Evaluation of assistance programmes, schemes undertaken by different

central and state governments for the promotion of manufacturing medium enterprise;

and ( vii ) Identification and suggesting specific policy/ programme interventions

required for accelerating the growth of manufacturing medium enterprises.

It is an All-India study and the findings reflect a general scenario of medium

enterprises in the country as a whole. It is based on both the primary and secondary

information that involved intensive desk work as well as field survey. Secondary

information has been collected from records of Ministry of MSMEs (GOI), State

Directorate of Industries, District Industries Centre, CMIE, All India Annual

Economic Surveys, Annual Survey of industries, CSO Internet/website, Industrial

Associations etc. The observations revealed by the secondary data have been

substantiated through primary information collected through field survey of 246

enterprises selected randomly, spread over urban and rural areas in backward and

non-backward districts/areas, was undertaken..

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Summary

Introduction:

The medium manufacturing enterprises is a vibrant and dynamic sector of the Indian

economy consisting of heterogeneous groups of enterprises. Their investment,

technology and production patterns at local level are determined by national and

international factors. They are characterized with the techno-economic merits of both

small and large enterprises.

The enactment of the MSMED Act, 2006 has created the first-ever legal framework

for the medium manufacturing enterprises (MMEs) sector. The new policy

developments are changing significantly the concept, philosophy and development

environment of MMEs in the country.

But there is lack of information in regard to their number, investment, output,

exports, spatial distribution, techno-economic requirements etc. This study attempts to

provide a baseline pertaining to their size, spread, strengths etc. which may help for

evolving new policy measures.

The study is based on secondary data for 12, 760 units, supplemented by primary data

collected from a random sample of 246 medium enterprises, belonging to different

product lines and spread-over across the country. The sample enterprises were

selected from the list of medium enterprises provided by the state directorate of

industries using stratified random sampling technique and taking product-lines and

location as the basic parameters for stratification. Thus it is based on both the desk

research and field survey. A wide range of tools and methods, like, review of

secondary information, focused discussions, semi-structured questionnaires, personal

intuition etc were used for collecting and analyzing information

Aim & Objectives

The study aims at compiling the information related with medium manufacturing

enterprises (MMEs) and present their current status. The specific Objectives include:-

• Estimation of the size of MMEs Sector

• Assessment of the contribution of this Sector

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• Study of its Regional Dispersal

• Identification of factors for Locational Preference

• Analysis of growth pattern,

• Comparative global trend

• Evaluation of assistance programmes undertaken by central and different state

governments for the promotion of MMEs

• Identifying and suggesting specific policy / programme interventions required

for accelerating the growth of MMEs

Typical Findings

Secondary Data-based Observations

Size of Medium Manufacturing Enterprises Sector:

There is no authentic source stating the size of medium sector. Different sources

convey different views. The rough estimate about the size varies from 10,000 units to

70,000 units. We have based this study on the most reliable sources i.e. the data

available from the department of Industrial Policy and Promotion [DIPP (GOI)]. It

shows that there are 12, 760 medium enterprises with investment of rupees 87, 949

crores and 2009557 employees. Theses are the manufacturing enterprises falling in

the investment slab of rupees five to ten crores in plant & machinery.

Contribution:

• The contribution of medium enterprises is about 18 % in the number of

enterprises, 3.5% in investment and 2% in employment for all manufacturing

enterprises having investment above one crore rupees.

• The figures for average investment and employment per unit are rupees 7

crores and 157 employees respectively.

• The employment–investment ratio, showing investment intensity in relation to

employment in medium enterprises, is 22.85. That is, investment of rupees one

crore provides employment to about 23 persons in medium sector.

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Regional Distribution (State-wise)

Number:

State-wise size varies drastically in terms of all parameters, namely number of

enterprises, investment and employment.

• In terms of number of medium enterprises the dominating states are

Maharashtra and Gujarat, followed by Uttar Pradesh, Andhra Pradesh,

Haryana, Tamil Nadu and West Bengal.

• These seven states alone accounted for 66 % units.

• Only two states alone, namely, Maharashtra and Gujarat accounted for 32

percent units.

• On the other extreme 15 states have less than one percent units.

• State-wise average number of enterprises is 387.67

Investment:

• In terms of investment also the leading states are Maharashtra and Gujarat,

followed by Uttar Pradesh, Andhra Pradesh, Haryana, Tamil Nadu and West

Bengal.

• These seven states alone accounted for 65.78 percent of the investment.

• Only two states alone, namely, Maharashtra and Gujarat account for 31

percent of investment.

• On the other extreme 16 states had less than one percent share in investment.

• In terms of average investment the position of medium enterprises across the

different states was almost similar. Average investment per unit was rupees 7

crore

• State-wise average investment in medium enterprises is 2665.12 crores of

rupees.

Employment

• In terms of Employment also the dominating states are Maharashtra and

Gujarat, followed by Uttar Pradesh, Andhra Pradesh, Haryana, Tamil Nadu,

West Bengal and Rajasthan. These eight states taken together accounted for

78.5 percent of the employment.

• Only three states alone, namely, Maharashtra, Tamil Nadu and Gujarat

account for about 30 percent of total employment provided.

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• On the other extreme, 16 states had less than one percent share.

• In terms of average employment per unit the position of medium enterprises

across the different states was quite dissimilar. Average employment per unit

was 157 employees. Location-wise it varies form 368 persons in Chandigarh

to 83 persons in Tripura.

• Employment/Investment ratio varies from 12.78 in DADAR & NAGAR

HAVELI to 36.24 in Punjab and 37.11 in Arunachal Pradesh.

• State-wise average number of employees in medium enterprises is 60895.67

Regional Distribution - Product-wise

Number

• Product-wise (NIC Two digit level classification) size in terms of number of

medium enterprises shows that metallurgical industries, chemicals (other

than fertilizers), and textiles dominate the scene.

• These three industry groups alone account for 43 % share.

• Eighteen industry groups have less than one percent share.

• The other six industry groups have less than two percent share

Investment

• Product-wise size in terms of investment of medium enterprises also varies

drastically. Again the dominating industries are metallurgical industries,

chemicals (other than fertilizers), and textiles.

• These three industries alone accounted for 43.03 percent investment.

• On the other extreme 18 industries have less than one percent share.

• In terms of average investment the position of different industry groups in

medium sector enterprises was almost similar.

• Average investment per unit varies form 5.7 crores in Sugar units to 7.7 crores

in Dye-Stuffs.

Employment

• Product-wise distribution of employment in medium enterprises also

concentrated in metallurgical industries, chemicals and textiles. These three

products alone taken together accounted for 43 % of employment.

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• Only two product groups alone, namely, metallurgical industries, and textiles

account for about 34 % of total employment.

• On the other extreme, 16 product groups had less than one percent share in

employment.

• In terms of average employment the position of medium enterprises across the

different product groups was quite dissimilar. Average employment per unit

varies form 418 persons in Rubber goods to 56 persons in Glue & Gelatin

industries.

• Employment intensity in different industry groups in relation to investment

varies to great extent. Employment/Investment ratio varies from 8.82 in Glue

& Gelatin to 58.92 in Rubber goods.

• The three highest employment intensive industries are Rubber goods, Fuels

and Industrial instruments.

• The three lowest employment intensive industries are Glue & gelatin, Dye-

Stuffs (10.33) and Miscellaneous mechanical & engineering industries (14.44)

Growth Pattern

All India Basis

Graphic presentation of Yearly Growth Patten of Number of medium enterprises,

Investment and Employment given below clearly reveals how uneven has been the

growth pattern over the last 17 years.

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Employment

Number

• The Growth Pattern measured in terms of annual growth rates of medium

enterprises over the last 10 years, i.e. since 1995 has been quite uneven.

• The absolute number of medium enterprises has been increasing consistently

over the years. The cumulative figure was 3252 units at the end of the year

1995, and increased to 7441 in the year 2000, to 10701 in the year 2005 and

12760 in the year 2007

• The overall average growth rate was 11.99 percent.

Investment

• The investment in medium enterprises has increased about four times. But the

annual growth rate has come down.

xvi

• The average level of investment rose by 3.9% from 1995 to 2001 and by 2.2%

during 2001 – 2007.

Employment

• Employment in absolute terms has increased by three times but the rate of

growth has come down.

• The average level of employment per unit rose by 10.8% during 1995-2001

and by 5.2 % during 2001 – 2007.

• The status of medium enterprises in terms of Average Investment &

Employment has been rising over the last ten years.

Inter-state Growth Pattern Between 1995-2007

The state-wise rate of growth pattern in terms of number of units, investment and

employment across the states as well across the products varies to a great extent.

• There was 76 % increase in rate of growth in terms of number in Meghalaya,

followed by 50 % in Sikkim and 47 % increase in Uttra Khand. These are the

three states in which there has been maximum growth rate.

• The states having growth below 10% are Bihar. MP, Punjab, Rajasthan,

Chandigarh and Delhi.

• Maximum rate of growth of investment is again in Meghalaya that is of 92 %

followed by Sikkim, and Uttrakhand.

• The states with less than 10% annual growth rate are Bihar, Madhya Pradesh,

Punjab, Rajasthan, Delhi and Chandigarh.

• The highest increase in the rate of employment is in Meghalaya.

• The lowest growth rate of employment is in Chandigarh.

• The other states having employment rate below 10 % are Bihar, Gujarat,

Kerela, Haryana, Madhya Pradesh, Rajasthan, Uttar Pradesh, Andman &

Nicobar, Delhi and Daman & Diu.

Product-wise:

• Product-wise growth pattern of number of enterprises also shows great

variation. Highest growth rate (65%) is for miscellaneous mechanical &

engineering industries, followed by Fermentation industries. Lowest growth

rate (2%) Sugar industry closely followed by Telecommunications.

xvii

• Product-wise growth pattern in terms of Investment also shows great

variation. Highest growth rate of investment is for Miscellaneous mechanical

& engineering industries, followed by Fermentation industries.

• Lowest growth rate (4%) is in Sugar industry closely followed by

Telecommunications.

• Product-wise growth pattern in terms of Employment also shows great

variation. Highest growth rate of investment (59.5%) is for Miscellaneous

mechanical & engineering industries, followed by Fermentation industries.

• Lowest growth rate (2.7%) is in Sugar industry closely followed by

Telecommunications

Growth Pattern of MMEs across Population and Area

It is said rightly that there are lies, white lies and statistics. Sometimes averages and

growth rates convey somewhat misleading picture. Average is influenced by extreme

values while the growth rate (%) is greatly influenced by base or denominator. For

example, in this case also state-wise average of number of enterprises, investment and

employment do not provide very meaningful picture. Therefore we have related the

number of enterprises, investment and employment in medium enterprises with the

area and population of the respective states. The emerging picture is presented below.

Number Across Population and Area

• In the country as a whole the density - number of medium enterprises per

thousand kilometers and per lakh population - is just 3.8 and 1.1 units

respectively.

• State-wise highest density of medium enterprises measured in terms of units in

relation to area and population is in Dadra & Nagar Haveli and Daman & Diu.

• In 18 states it is lower than one unit per lakh of population.

• In terms of area also nine states have less than one unit per thousand of square

kilometers.

Investment Across Population and Area

• Position of investment per thousand square kilometers and per lakh population

is satisfactory.

• Across the country rupees 13.9 crores have been invested per lakh of

population.

xviii

• In terms of area rupees 47.7 crore have been invested per thousand square

kilometers.

• Dadra & Nagar Haveli and Daman & Diu are exceptionally excellent in terms

of both the population and area. It is also better than other states in

Poducherry.

• In seven states investment in medium enterprises is more than rupees 20 crores

per lakh population. But in 14 states it is less than 5 crores.

• In terms of area in 16 states investment per thousand kilometers exceeds

rupees 20 crores. Only in six states/UTs it is less than rupees five crores per

thousand kilometers.

Employment over population and Area

• Employment creation per thousand kilometers of area and per lakh population

across the country is 1713 and 498 persons respectively.

• In five states/UTs employment generation exceeds 500 persons per lakh

population.

• In terms of area employment creation per thousand kilometers of area is more

1000 persons in 13 states/UTs.

• But position is poor in seven states.

Primary Data (Field Survey) based Observations

Following observations have been derived from the field survey of 246 medium scale

enterprises selected randomly from different states.

Location-wise Distribution of Enterprises (% of units)

Location Particulars Backward Areas Non-Backward Areas Total

Urban Area 57.14 54.84 55.69

Semi-Urban Area 28.57 43.23 37.80

Rural Area 14.29 3.23 6.51

Total 100.00 100.00 100.00

Industrial Area/Estate 84.62 88.39 87.81

Non- Industrial Area/ Estate 15.38 11.61 12.19

Total 100.00 100.00 100.00

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Product-wise distribution of Enterprises

Product Lines % of Units

Chemicals & Chemical Products 7.72

Machinery & Equipment 7.31

Basic Metal & Alloy Industries 14.65

Transport equipment & Parts 10.97

Non-Metallic Mineral Products 3.25

Beverages, tobacco & Related Products 3.65

Rubber b& plastic Products 12.19

Paper & Printing 9.75

Textile & Garments 11.38

Leather Products 2.03

Wood Products 2.45

Food products 12.20

Other Manufacturing Industries 2.45

Total 1.00.00

Size of enterprises

• Average investment per unit in Plant & Machinery is 7.53 crore rupees.

• Average Employment per unit is 118.59 persons

Factors for Locational Preference

• The enterprises have visible preference for developed industrial areas/estates

(87.8%).

• Though there are number of incentives and subsidies for locating enterprises

in backward districts most of the promoters have distinct choice for non-

backward districts.

• Power (electricity), transport and communication facilities are the life line of

manufacturing enterprises.

• Own urge/desire played major role for choosing a particular location (73.6%),

followed by the advice from friends/family members (59.3%), availability of

better infrastructure facilities (50.8%) and future prospects (48.4%).

• The moderate category of pull or push factors for choosing location includes

easy availability of financial assistance (37.4%), peaceful socio-industrial

environment (33.3%), and availability of incentives and subsidies (27.6%).

• Very few medium enterprises are dependent on local resources and skills.

Neither local availability of Techno-Economic Services/Consultancy is big

attraction.

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• Thus the entrepreneurs have preference for locations which are:-

o Nearer to the industrial centres

o Have close linkages with outside economy in terms of supply of

inputs and sale of output , and

o Have adequate infrastructure facilities

o Have adequate institutional support system

Growth Pattern

Factors influencing performance

• Performance of an enterprise is directly related with enabling environment.

There is one to one positive relationship between the two.

• About 66 per cent units made profits constantly for 3 years while only 3.2 per

cent units incurred losses continuously for 3 years.

Factors limiting the size of enterprise

• Promoters’ own resources are limited (37.4%),

• Limitations of raising loans from external sources (48%),

• Marketing limitations for the product (43.9%)

• Other important inhibiting factors were the entrepreneur unwillingness to take

greater risks and his techno- managerial limitations.

• About one-fourth entrepreneurs stated that the current size of their enterprise

was optimum.

Future Prospects

• Only about 15% promoters stated the future prospects of their enterprises very

bright while 31.7% and 32.5% stated them to be bright and moderate.

• On the other hand about 17% promoters were uncertain.

• The extreme cases stating the future of their enterprises very dark were only 4

percent.

Capacity Utilization:

• Only 3.1% units were operating at full capacity.

• None of the unit was utilising more than 80% capacity in backward areas.

• About 8 per cent units were operating at less than 40 % capacity and all of

those were in backward areas.

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Target Achievement:

• About 19% units were achieving their profit /targets but 68.7% failed to

achieve the set targets.

• Only 12.5 per cent units were fortunate to cross their targets

Contributory Factors:

• No doubt better management is the most important contributory factor(73%)

closely followed by, better infrastructure facilities (68%), the availability of

easy financial assistance (63%), location in industrial area (55%), and

Government policy (46.%).

• Incentives and subsidies do contribute but they are not rated very high. Similar

is the position of Techno-economic services and Cluster of similar units. They

are rated at medium scale.

Rating of current Position of Contributory factors

• Rating of current Position of Contributory factors is just of average level.

Rather percentage of responses regarding poor and very poor position are

higher than the percentage of responses for excellent and very good.

Rating of current Position of Impeding factors

• Impeding factors were shortage of power, inadequacy of working capital, too

many procedures and formalities to be completed for availing any type of

assistance and lack of coordination among various programmes of assistance

and the institutions implementing those programmes. The other problems

mentioned by the entrepreneurs included lack of general day to day support

facilities, scarcity of raw materials, inadequate facilities for technical know

how, marketing problems and labour problems.

Global Scenario

Manufacturing sector

Manufacturing sector has been the backbone of all developed and developing nations.

It is rightly said that Industrial Revolution started with manufacturing. Even now it is

called the real economy. It is where R & D starts, where new technologies are born,

where scientists and engineers are challenged to develop new and better processes,

xxii

products and technologies. It takes an important position in most fast moving

economies of the world, with a share of between 30 to 50 % of the economy. Even

the economies of Asian countries such as Thailand, Indonesia, Malaysia, Singapore,

Hong Kong, Taiwan, Philippines, Korea, and China are driven by manufacturing

accounting for 30 – 50 % of their GDP. China’s manufacturing is 50% of GDP. But

India is lagging behind with 25 % share of GDP. The present conditions do not

promote manufacturing in India, especially preference for high labour intensive

technologies, unfriendly employee and labour policies and reservations in the SSI

sector. It is only in the last few years that the beginning has been made. Now foreign

firms have also started realizing that India is the right place to locate manufacturing to

outsource for world markets.

Medium Enterprises

There is no specific definition for medium enterprises across the world. They are

considered as transitional phase between the small and large enterprises. Mostly they

are clubbed together with small enterprises and most of policies and programmes are

common for both. Thus the available secondary information relates to SMEs and not

exclusively to medium enterprises. The review of secondary information reveals

following important observations.

Economic Environment

• The modern small and medium enterprises are facing cost pushed inflation

• The demand for inputs is rising

• Market opportunities are growing;

• Demand for labour in general is falling

• New capacities are created by medium enterprises

• There is a great need to encourage the entry of new medium enterprises/

entrepreneurs and to help them grow to achieve an overall higher rate of

economic growth.

Status & Contribution of SMEs

a) make up over 80-90% of all enterprises;

b) provide over 60% of the private sector jobs

c) generate over 30-40% of total employment

d) contribute about 50% of sales or value added

e) share about 30% of direct total exports.

xxiii

Country-wise Features

• On an average, it was about 80% in respect of the LDCs in Asian region.

• SMEs in Asia are mostly proprietary or partnership (90% of the total) with

exception of Malaysia where about 72% operate as private limited companies.

• The share of SMEs in the total employment ranged between 56 and 98%

(except Malaysia and Philippines with less than 50 %).

• Generally, in all Asian countries, MSME sector has been the second largest

employer after agriculture.

• The ability of SMEs to contribute to exports varies widely in Asia- between

10 and 60 per cent. Asian countries generally compared well with those in the

developed economies such as, Austria (99.5%), Canada (99.7%), U.K. (99%)

and USA (99.7%) and by employment to total industrial employment, such

as, 72%-Austria, 60%-Canada, 66%-UK and 50%-USA.

• The percentage share of MSME contribution to GDP in the Asian countries

was lower than those in the developed economies which generally ranged

between 30%- Australia to 40%-Finland.

• Latin America (particularly Bolivia, Chile, Costa Rica, El Salvador,

Paraguay) recorded lower percentage shares than Asian countries in relation

to all the three components. Incidentally, in Asia well above 60% of the total

workforce is employed by the MSME sector compared to Botswana (17%),

Kenya (18%), Lesotho (17%), Malawi (23%), Swaziland (26%) and

Zimbabwe (27%).

Following are the Global competitiveness index (GCI) that reflects productivity and

competitiveness and the business competitiveness index (BCI) which ranks MMEs by

their macroeconomic competitiveness, identifies competitive strength and weakness,

of selected Asian Economies.

Country (GCI Ranking BCI Ranking

Bangladesh 99 108

India 43 27

Indonesia 50 35

Malaysia 26 20

Nepal 110 111

Pakistan 91 67

Philippines 71 72

Vietnam 77 82

Source: Global Competitiveness Report - 2006-07

xxiv

Major Constraints for growth External constraints1

Policy Related

• Taxations laws / high taxes are major constraints faced by SMEs of India,

Mauritius and Malaysia

• Bureaucracy of the Governments in the countries like India, Mauritius and

China are posing major constraints for the SMEs.

• Unfavorable legislation in India and Hong Kong is indeed a constraint for the

SMEs.

• Poor property right enforcement in Malaysia and India.

ii) Infrastructure Availability

• China followed by India has observed high growth on account of availability

of Roads, Industrial Estates, and Power & Transport facilities while other

developing countries are facing big constraints.

iii) Major Financial Constraints

• 71.43% SMEs in China, 71% of SMEs in Sri Lanka and 42% of Indian SMEs

have experienced difficulty in getting easy access to finance.

• Getting collateral security is the bottleneck for the SMEs of Sri Lanka, China

and India to obtain loans-

• Mauritius SMEs are facing lot of problems in obtaining working capital loan.

The least difficulty is experienced by New Zealand SMEs

Technological Constraints

• Locating sources of appropriate technology, financial resources to acquire

technology, product design are together added woes to the SMEs of Mauritius,

Thailand and China. The respondents have attributed them as major

constraints towards achieving growth.

v) Application of ICT tools

• Usage of ICT tools in business communication is very high in India (80%)

followed by Hong Kong, Thailand

1 Source: SMEs in Asian Region; AAMO, Global Projects – 2007.

xxv

• Use of ICT tools in marketing and sourcing information is also noticed highest

amongst the SMEs of India as compared to other countries under study.

vi) Relative strength of Certified SMEs (ISO or Equivalent)

• In India 32% of SMEs have obtained ISO to remain competitive and take

advantage of globalization. Indian Government is partly funding SMEs to

motivate them to obtain ISO, by providing incentives.

• SMEs of China and Hong Kong have also shown relatively high percentage

(25%) of ISO certification.

vii) Marketing Constraints

• Competition in the global market for exports is mostly experienced by India,

China and Mauritius

• Lowering of Import duties resulting in free movement of imported goods has

posed major constraints to SMEs of India, Malaysia and Mauritius

• Cut in subsidies and reduction in the extent of protection, which are not WTO

compatible have by and large affected the Indian SMEs.

viii) Business Environment

• Technology change is one of the major threats as experienced by the SMEs of

the countries like Mauritius, Hong Kong, India, and New Zealand.

• Competition from imports -a major threat as per 74% SMEs of India o High

cost of production -a phenomena of concern for all countries

• Threats of having more competitors in the domestic market are being

experienced by almost all the countries under study.

Internal Constraints

� Shortage of working capita/ to finance exports

� Identifying foreign business opportunities

� Limited information to locate / analyze markets

� Inability to contact potential/ overseas customers

� Obtaining reliable foreign representations

� Lack of managerial time to deal with internationalization

� Inadequate availability and poor skills of personnel

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� Difficulty in matching competitors' price

� Lack of government assistance / incentives

� Excessive transportation / insurance costs

Development Requirements across the globe

• Pro-active Government support

• Resilient private sector participation.

• Simplified procedures

• Openness to changes and shaking of rigid mind-set

• Developing competitiveness by falling in line with the latest changes.

• Keeping an eye on capturing the global market

• Treating large industries as partners and not as competitors- for increasing

outsourcing and sub-contracting, ancillarisation, and strategic alliance

• Growing public private sector partnership

Policy & Programmes Evaluation – India

Policy

• The need for the government intervention stems from the failure of the market

mechanism to equitably distribute the economic benefits amongst different

regions of the country and different sections of population

• In regard to de-regulation when compared to 174 other countries India’s

position is at the median.

• India also compares poorly with other countries on the measure of governance,

regulatory effectiveness and the quality and quantity of infrastructure and the

percentage of management time spent to deal with government officials on

regulatory and other administrative issues. Even the ranking of Global

Competitiveness index (GCI) and Business Competitiveness index (BCI) 2006

among selected Asian Economies are at low level.

• The government is well aware of the situation and the periodical changes in

policy clearly reflect the determination of the government to help the healthy

sustenance of MME sector.

• The new policy seems to be founded on a proper understanding of the

fundamental problems of medium sector and the measures proposed by it are

well directed to mitigate the handicaps that face this sector.

xxvii

• The industry associations provide the common platform to voice the needs of

MMEs and to initiate co-operative efforts for their promotion. They are

working in line with changing environment.

• There are various national level Autonomous institutions, which help support

the MMEs in various ways.

• However it is observed that the current industrial policy promotes survival of

the fittest. Further, based on capital intensive techniques, it promotes

replacement of labour by machines.

Incentives and inducements

• In order to create level playing an elaborate network of institutions has been

established to provide various types of assistance at different development

stages of medium enterprises. But monitoring & coordination need special

attention.

• There are numerous financial or non-financial Incentives and inducements that

motivate and attract new entrepreneurs and improve productivity of

enterprises.

• But a mere increase in the number of institutions for various types of

assistance does not by itself assure successful growth and viability of

industries.

• Monitoring of promotional programs is not effective and efficient.

• An integrated functional approach with in-built checks & balances on the part

of these institutions is even more important.

Outlook

• The outlook of the medium sector is broader and there is continued search for

improved ways and ready adaptability.

• Their up-to-date products and designs suit the modern needs of the economy

that is in transition from developing to developed.

• There is greater utilization of physical and technological advancements.

Machines, materials and processes are used optimally.

• Entrepreneurs are aware of organizational and management planning,

budgeting, market and grievances handing.

• There is also awareness of benefits of training for skill development

xxviii

Suggestions

• The promoters of medium enterprises facing functional constraints suggested

measures for developing enabling environment which included:-

• Easy & Adequate Finance (65.45%),

• Infrastructure & Support Facilities (59.76%),

• Attitudinal change in administrators (34.96%),

• Developing Economic Zone (31.30%),

• More market promotion schemes (26.42%),

• Special Institutional arrangements for providing stimulatory, support and

sustaining services (18.29%),

• Providing Progressive performance Oriented Incentives

and subsidies (17.07%)

• Developing Clusters (12.60%).

Specific Policies for MMEs Development.

Suggestions for Government

• Reform regulations and legal framework

• Place MME sector high in development agenda, national development plans, etc.

• Consult private sector while designing policies & programmes for MMEs

• Foster international cooperation in MMEs sector for better investments and trade

• Encourage bi-lateral and multi-lateral agencies to collaborate with the MME

sector

• Network foreign aid and technical assistance

Suggestions for Public-Private Partnerships:

• Develop cross border trade

• Transfer skills and knowledge with technology and R&D support.

• Increase investments

• Ensure basic in-puts to MMEs

Suggestions for Private sector

• Play more pro-active entrepreneurial role through Associations and Chambers.

• Bring awareness to entrepreneurs & MMEs on opportunities for growth,

technology etc. and responsiveness to society.

xxix

• Develop more linkages with MNCs and TNCs.

• Set quality standards

• Pursue good governance & self audit system

Suggested Road Map

In order to create enabling environment, a package of Government policies is needed

covering institutional framework in regard to fiscal, financial, infrastructural,

marketing, export-import, technology development / modernization, R&D and

venture capital, capital market with suitable listing, insulating the sector from

dumping external goods and exit route policy, equity support, women development,

TQM and environment management policies, harassment from inspectors &

bureaucracy etc. Governments and public sector organizations should take following

actions:

1. Government Policy Programming

� Reforms Policies, Regulation, and Legal Frame work for MMEs: Policy

design and regulation for new star-ups, registration of firms, the tax system,

Labour laws, financial markets and access to formal source of finance,

bankruptcy laws, and regulation of intellectual property rights should be

enacted or simplified so as to attract new and existing entrepreneurs to enter

the formal market and the benefit from a systemized approach to operating a

business.

� Involve the Private Sector in the Policy Process: Government needs to

establish permanent councils/partnership/collaboration arrangements through

chamber of commerce and industry with the representative of MMEs, to serve

platform where MMEs views can be discussed and deliberated before

finalization of any policy and implementation of changes.

� Promote an Entrepreneurial Culture: Government both central state need

to promote their vision for entrepreneurship development, innovation, and

competitiveness of the enterprises at the state level, national and international

level by introducing entrepreneurship awards, financial products and schemes,

Web-based portals for marketing and information, entrepreneurship training

and technological innovation etc

xxx

2. Identification of Investment Opportunities & Benchmarking of Information:

� In today's world, knowledge is power hence information process must be in

place. Paucity of authentic information on investment opportunities and gaps

for the guidance of prospective entrepreneurs and data on number of industrial

units, manufacturing lines, sales/exports, export opportunities, etc. is one of

the major bottleneck of MMEs. Country-wise/region-wise mapping of

investment opportunities, identification of growth centers, markets, export

potential, project profiles for taking quick investment decisions by the

promoters, census, developing electronic data base for dissemination of latest

information are some of the areas to be taken care of.

� Realizing the skill and resource constraints of both the new and existing

entrepreneurs for gathering the required information, a three-tier information

network is needed to be built up at local, regional and national level. It will

strengthen business advisory services. The manufacturers individually as well

as their associations, associations of traders and private consultants must be

involved in collecting and disseminating market information. They may help

in identifying projects and markets best suited for the entrepreneurs and

geographical regions.

� In the rapidly changing economic and commercial environment, after building

such a network there is need for a constant monitoring and upgradation to

provide relevant and up to date information.

� Further, expertise from government, public and private sources should be

utilized to make market information more purposeful and professional. The

local associations of industrialists can play an important role by scanning

through the various commercial websites and disseminating the relevant

information to their members.

3. Infrastructure, Marketing infrastructure Development Programme

� State-of-the art infrastructure is a prerequisite for any development

programme. Similarly well-developed marketing infrastructure both tangible

and intangible (such as advertising, brand equity, trade-fairs & exhibitions,

fashion shows) is also very critical input. For these types of support,

Government policies and financial support will be needed.

xxxi

4. Marketing

Specific marketing assistance should be provided to MMEs in the following areas:

• Market intelligence

• Standardization, brand equity building and brand positioning strategy

• Dissemination of information in the form of bulletins and journals on the

emerging market opportunities.

• Supply chain management.

• Subcontracting exchange

• Strategic alliances with large national and Multinational Corporation.

5. Technology

Technology plays a key role in MME growth. Therefore there is need to adopt

suitable technology to harness the resources available. As on date, no specific data is

available on the technology levels of various products and services. To draw a long-

term technology map, it is necessary to carry out technology missions to:

� Bring awareness and promote introduction of new and emerging technologies

for MMEs,

� Assess the present level of technology in the various sectors and to forecast

technology level to be achieved,

� Set up an IT portal for information dissemination and creating awareness,

� Coordinate the efforts of various agencies, technical centers and institutions

engaged in Technology studies & audit

� Encourage R&D of indigenous technologies to assist MMEs,

� Create incubator infrastructure facilities in various technical and management

institutions,

� Motivate MMEs to obtain BIS/ ISO certification,

� Organize awareness campaigns among MMEs pertaining to quality,

standardization and customer satisfaction,

� Focus on selected sectors contributing to the economyby developing five year

plan and ,

xxxii

� Promote environment friendly technologies and address issues relating to

pollution control.

6. Finance & Credit Schemes

� Availability of timely and adequate credit is the lifeline for the MMEs sector.

Mismatch of the short term with long term loan, delayed working capital

decisions give birth to sick units from day one. It is, therefore, essential to

have a package of credit assistance programme starting from equity/seed

capital support, followed by support for augmenting promoter's contribution,

long-term loan and working capital, marketing including export-import

support, bills marketing for quick realization of sale proceeds, venture capital,

etc. This requires sound central banking policies, well conceived development

financing institutions schemes and commercial banks credit schemes.

� Based on credit worthiness, sales volume, area of sales and other important

indicators, the credibility and performance of more and more companies

should be rated periodically by some independent agency. Such rating if

widely publicized will be useful for the stake holders.

7. HRD, Training, Institutional Development, Capacity building

For comprehensive development on a sustained basis, programmes for HRD and

skill development, entrepreneurial development programmes, training of

Government officials, bank officers and extension agencies for sensitizing them

towards assisting MMEs sector are essential. In order to get good results, opening

up of more regional institutes for enterprise development may be considered. Else,

the existing technical institutes may be encouraged in this direction.

8. Chambers of Commerce and Associations

• Chambers must serve as' Eyes and Ears' of the MSME sector because this

sector is not in a position to develop the network unlike their Big brothers, on

their own. Thus, informatics network at national, provincial and regional

levels must be put in place and used for all types of communications,

information dissemination, creating awareness, telemarketing, providing

economic and market intelligence data, market forecast, future demand pattern

xxxiii

sector-wise, etc. The Chambers can successfully run this activity on

commercial lines.

• Chambers may, with the support of the Government, launch region/nationwide

survey of MMEs sector as the benchmark information for effective policy

planning by the Government

• Chambers may take up industrial potential surveys in their own regions for

informing entrepreneurs about the scope of embarking upon private ventures.

Thereafter, Chambers may come out in regional languages/English Project

Profiles for prima facie assisting entrepreneurs in taking investment decisions.

These may be put on both electronic and print media. Chambers may organize

a number of workshops to create awareness of these projects.

• Training in all its comprehensive sense i.e. entrepreneurship creation,

enterprise growth of the existing units, skill upgradation programmes in

technology, marketing including exports, financial system and its

requirements, sensitizing banks and private sector to each others problems etc.

• Chambers may create core of volunteers consisting of executives and

professionals to provide expert advisory services to MMEs in specific

disciplines and serve as mentors to them. A token fee can be charged for the

service.

• Chambers should play effective Advocacy Role for MME sector, Government

and international agencies like WTO, WIPO, and UNO etc. They should be

represented in the Policy making Council of the Government at the national as

well as international level.

• Chambers can play very effective role by organizing Trade Fair /Exhibition

providing facilities for permanent displays, organize exhibitions, and hold

buyers-sellers national and international meets. This must be run on

commercial lines.

9. Role of the International Agencies

Multilateral Development Institutions contribute significantly on developing

financial markets, providing business development services to medium

xxxiv

enterprises and special funds, improving corporate governance and corporate

social responsibility, and enhancing the focus of sustainability. They can :-

• Bring different recommendations to various Governments through UN-

ESCAP, Asian Development Bank, IFC and the World Bank

• Support investments and extend lines of credit along with Technical

Assistance Programmes

• Develop Regional Fund for MME Development for countries to draw

assistance

• Develop a second-tier capital market for MMEs to feel encouraged to

corporatise, and enter open market borrowing programmes rather than only

depending on the institutional loans.

• Supporting Associations in setting up Risk Mitigation programmes for the

financial system

• Develop exchange and networking for market intelligence, technology

transfers and exchange of R&D activates at the international level.

10. Public-Private Partnership

Public private partnership (PPP) should make concerted efforts to deliver the State-of-

the-Art infrastructure, support services, entrepreneurship training and education,

access to broader financing operations, and market access through viable partnership

models like, ‘Build – Operate and Transfer’ . The government should take a lead in

introducing special funds/grants schemes for technology development, market

development, research and development, professional education and training, and

mentoring programs for entrepreneurs etc. through larger alliances and linkages with

business schools, universities, and NGOs.

The above Road Map is based on following pragmatic factors:-

� Human capital is the most important resource. India has a large pool of skilled

manpower available at low cost and can use it.

� India’s manufacturing sector, though small in size in relation to its GDP, has

great potential for growth.

� Though India’s manufacturing is fairly advanced but modernization,

diversification and expansion would continue to have competitive edge

internationally.

xxxv

� It is large employment generator, more labour intensive than IT and so

planners, central and state governments and business community would pay

more attention to it.

� Other costs in India are low, e.g. rail transport, administrative and other

overheads, design and development, prototype manufacture, production of

small batches, human capital etc. This cost advantage would be used to exploit

a large number of untapped opportunities.

� The central and state government finances are in poor shape. The question of

pumping additional funds has little scope. So looking outwards would be

speeded up.

� Exports of manufactured products would be given further boost by using the

advantage of India as a lower cost economy and emphasizing on high quality

of products.

� India would control exports of its valuable iron and aluminum ores / bauxite

ores, as the earnings are not very high and make finished metal and add value

to finished products as Japan, Korea and China, the main buyers, convert the

same into finished products and sell back.

� Manufacturing costs are pushing up in the developed countries. India would

explore possibilities to enter into joint ventures with suitable partners in those

countries.

� India prepares a holistic plan with the participation of politicians,

administrators, financial institutions, entrepreneurs and customers such that it

is understood by all and implemented easily.

Conclusion

The outlook of the medium sector is broader and there is continued search for

improved ways and ready adaptability. Their up-to-date products and designs suit the

modern needs of the economy in transition from developing to develop. There is

greater utilization of physical and technological advancements. Machines, materials

and processes are used optimally. Entrepreneurs are well versed with organizational

and management planning, budgeting, market and grievances handing. There is

awareness of benefits of training for skill development

However, the process of privatization, liberalization and globalization of economic

activities has affected the whole economy in one way or the other. It has increased the

xxxvi

sphere of competition both horizontally and vertically in national as well as

international markets and created an environment where fittest will survive and

inefficient will be weeded out. It has underlined the concepts of productivity, quality,

effectiveness and efficiency.

Therefore the suggested policy interventions when implemented in letter and spirit are

expected to make MMEs more competitive nationally as well as globally. It will add

new vibration and impetus to harness growth potential with a view to stimulate socio-

economic transformation through production of quality goods and provide services for

customer satisfaction, contribution to export development & national wealth. Above

all it will inculcate entrepreneurial culture and generate employment opportunities for

youth and instill a sense of pride amongst them.

Limitations:

In the history of industrial development medium enterprises have defined first time

through the MSMED Act 2006. Therefore this study, first of its kind, faced numerous

limitations. Even the Central Statistical Organization, National Sample survey,

Annual Survey of Industries, Economic Census (CSO), National Income Accounts

(CSO) could not provide relevant / required information. Thus the major limitations

include:

� Non-availability of Secondary Data.

� Reluctance on the part of medium enterprises to respond to the questionnaire.

� Secrecy of information and hesitation of entrepreneurs to part with data.

� Authenticity of the data gathered and used could not be re-checked.

� Un-matching Data from different sources.

1

Chapter-1

STUDY APPROACH

1.1 Introduction:

The medium manufacturing enterprises (MMEs), defined first time in the history of

industrial development, constitute an important and progressive segment of economy.

Today their investment, technology and production patterns at local level are

determined by national and international factors. They are characterized with the

techno-economic merits of both small and large enterprises. They enjoy easy access to

capital, technology and markets production, distribution and consumption of their

products across the globe.

But at the same time the new policy measures introduced in industry, trade and

financial sectors have provided new challenges and opportunities for operating MMEs

internally and externally from both within and outside the country. The Indian

economy is now opened up for global competition, so they will have to face stiff

competition from global players. Therefore they have to upgrade their management

styles to survive and grow in the changed economy, and to become global leader.

There is also need for new types of policies and programmes on behalf of the central

and state governments In the emerging business environment their sustenance is

possible only if they have competitive edge in terms of cost, quality, techniques,

processes etc. and their customers are fully aware of their product/services and have

easy access to them.

In this regard the government, with a well envisaged institutional framework is

endeavoring to help medium enterprises by providing new ideas, approaches,

processes and techniques to consolidate and strengthen their operational efficiency.

But there is lack of information in regard to their number, investment, output, exports,

spatial distribution, techno-economic requirements etc. is lacking. This study attempts

to provide a baseline pertaining to their size, spread, strengths etc. which may help for

evolving new policy measures.

2

1.2 Objective:

The study aims at compiling the information related with medium manufacturing

enterprises regarding:-

1: Estimation of the size of Manufacturing Medium Enterprises Sector

2: Assessment of the contribution of Manufacturing Medium Enterprises

Sector

3: Study of Regional Dispersal

4: Identification of factors for Locational Preference

5: Analysis of growth pattern of manufacturing medium enterprise sector

including the vertical growth of small enterprises to the medium enterprises,

and the comparative global trend in the last 10 years

6: Evaluation of assistance programmes, schemes undertaken by different

central and state governments for the promotion of manufacturing medium

enterprise

7: Identification and suggesting specific policy/ programme interventions

required for accelerating the growth of manufacturing medium enterprises

1.3 Scope & Methodology:

Major part of the study is based on secondary information collected from Ministry of

Industries (GOI), State Directorate of Industries, District Industries Centre, CMIE, All

India Annual Economic Surveys, Annual Survey of industries, CSO Internet/website,

Industrial Associations etc. It has been supplemented by primary information

collected through field survey. Therefore besides reviewing and analyzing secondary

information a sample of 246 enterprises has been taken randomly. The sample

enterprises were selected from the list of medium enterprises provided by the state

directorate of industries. For selection of the sample units stratified random sampling

technique was used. Product-lines and location were the basic parameters for

stratification. Thus they belonged to different product lines spread over across the

country. The distribution of sample enterprises is presented below.

3

1.4 Sample Size

Table-1: Product-wise sample distribution

Product Lines No of Units %

Chemicals & Chemical Products 19 7.72

Machinery & Equipment 18 7.31

Basic Metal & Alloy Industries 36 14.65

Transport equipment & Parts 27 10.97

Non-Metallic Mineral Products 8 3.25

Beverages, tobacco & Related Products 9 3.65

Rubber b& plastic Products 30 12.19

Paper & Printing 24 9.75

Textile & Garments 28 11.38

Leather Products 5 2.03

Wood Products 6 2.45

Food products 30 12.20

Other Manufacturing Industries 6 2.45

Total 246 1.00.00

1.5: Tools & Techniques Used

We have used a wide range of tools and methods, like, review of secondary

information, focused discussions, semi-structured questionnaires, personal intuition

etc. We have concentrated on examining problems, opportunities, constraints,

resources and abilities and taking decisions about general priorities and courses of

action. In this regard, though not in a set sequence, following broad tools have been

our coverage.

Tools & Techniques:

Data Collection

� Semi-structured Questionnaires,

� Group Discussions and

� Personal Observations

� For each category of Respondents

Data Analysis

Measures of Mean and presentation and interpretation of

Text through Tables, Graphs and Diagrams

Presentation of

Report

Text, Tables, Graphs and Diagrams

4

1.6 Limitations:

In the history of industrial development medium enterprises have defined first time

through the MSMED Act 2006. Therefore this study, first of its kind, faced numerous

limitations. Even the Central Statistical Organization, National Sample survey,

Annual Survey of Industries, Economic Census (CSO), National Income Accounts

(CSO) could not provide relevant / required information. Thus the major limitations

include:

� Non-availability of Secondary Data.

� Reluctance on the part of medium enterprises to respond to the questionnaire.

� Secrecy of information and hesitation of entrepreneurs to part with data.

� Authenticity of the data gathered and used could not be re-checked.

� Un-matching Data from different sources.

1.7 Brief Outline of the Report

This report broadly consists of data analysis collected from secondary sources as well

as through interviews and discussions, findings thereof, conclusions and

recommendations. For the sake of simplicity the report, besides the Summary and

Introduction, has been divided in nine chapters describing ( i ) The Study Approach,

( ii ) Estimation Of the Size of Manufacturing Medium Enterprises Sector Across the

states and Products; (iii) Growth Pattern of Manufacturing Medium Enterprises

Sector; (iv) Identification of Factors for Locational Preference; (v) Factors

Influencing Performance; (vi) Evaluation of Policies & Assistance Programmes,;

(vii) Global Scenario of Manufacturing Medium Sector and (viii) Specific Policy &

Programme Interventions.

5

Chapter-2

Estimation of the size of Manufacturing Medium Enterprises Sector

across the States and Products

2.1 Introduction:

The medium manufacturing sector, the heterogeneous group of enterprises, constitute

a vibrant and dynamic sector of the Indian economy. This sector has recorded

consistently rising growth in terms of production, investment, creation of employment

and phenomenal growth in exports over the years. The post liberalization era in the

Indian economy has enhanced the opportunities and challenges for this sector. With

their dynamism, flexibility and innovative drive they are increasingly focusing on

improved production methods, penetrative marketing strategies and management

capabilities to sustain and strengthen their operations. They are, thus, poised for

global partnership to adopt, adapt and absorb latest technologies in diverse fields.

The basic accent of India’s policy for MME sector has been indifferent. Strictly

speaking they were not identified and recognized as an independent sector of the

economy. They were considered just as a transitional phase between small and large

sector. Broadly the policy remained to be step-motherly. They were clubbed together

with large sector with whom they were not having equal level playing as their position

in terms of management, technology and R & D was quite weak. They were unable to

enjoy economies of scale. Most of them operated at under-equilibrium point on both

input and output sides. But they were given same treatment (Incentives &

Inducements) as given to large scale enterprises. Therefore, it is surprising that despite

all these unfavorable circumstances they not only survived and sustained but proved

them as the most dynamic segment of the economy. They continued to maintain rising

trend in terms of all economic parameters, like, the number, investment, employment,

output and exports.

Thus it is only through the MSME Act 2006 that the medium enterprises have been

recognized as an independent segment and clubbed together with micro and small

enterprises. There has been evolved a specific definition and they are eligible for

similar incentives, subsidies and concessions as the micro and small enterprises to

cope with changing environment. Government has taken cognizance of the

6

institutional context and complementary infrastructure facilities for MMEs. The new

impetus may prove a big push for the growth of medium manufacturing enterprises.

Therefore this chapter is an attempt to analyze the product-wise (2 digit level, NIC

Classification) and location-wise the status of MME sector measured in terms of

Number of Medium enterprises, Investment in Plant & Machinery, and Persons

employed. The analysis is in terms of relative status of medium enterprises across the

different states and product-lines.

Size of Manufacturing Medium Enterprises Sector

Size of medium manufacturing enterprises sector could be measured either in absolute

terms like:

� Number of Medium enterprises

� Investment in Plant & Machinery

� Annual Turnover

� Persons employed

Or in relative terms like:

� Number of Medium enterprises as a percentage of total enterprises

� Investment in Plant & Machinery in Medium enterprises as a percentage of

total enterprises

� Annual Turnover in Medium enterprises as a percentage of the turnover of

total enterprises

� Persons employed in Medium enterprises as a percentage of total

employment in all enterprises

� Number of Medium enterprises in relation to Area

� Investment in Plant & Machinery in Medium enterprises in relation to Area

� Employment in Medium enterprises in relation to Area

� Number of Medium enterprises in relation to Population

� Investment in Plant & Machinery in Medium enterprises in relation to

Population

� Employment in Medium enterprises in relation to Area Population

7

In regard to the parameters described above the study faced number of data

limitations. Firstly, the concept, though very old and popular in usage across the

world, but has been defined precisely very first time in India. So there is no exclusive

availability of data – neither nationally nor internationally. We explored all the

possibilities and probed all the potential sources. But most of the sources differed in

one way or the other and could not provide meaningful data. Ultimately we based our

study on data available from Department of Industrial Policy and Promotion Division

of Ministry of Industry. From there we extracted basic data and analysed it to serve

our purpose. The available data is related with Number of Medium enterprises,

investment and employment. Employment intensity per unit of investment has also

been calculated. Further, information regarding Number of Medium enterprises,

investment and employment has been related to the area nad population. Position of

State-wise size varies drastically in terms of all parameters, namely number of

enterprises, investment and employment.

Table-1:

Distribution of All Enterprises Registered with DIIP (GOI) and share of Medium

Enterprises

Below 5 Crore 5-10 Crore Above 10 Crore Total

Average

Per state

Units 30884 (44.25) 12760 (18.28) 26155 (37.47) 69799 386.67

Investment 78293 (3.05) 87949 (3.42) 2403695 (93.53) 2569937 2665.12

Employment 3370154 (3.62) 2009557 (2.16) 87782342 (94.23) 93162053 60895.67

Size-wise Share

U n i t s

4 4 . 2 5

1 8 . 2 8

3 7 . 4 7 B e lo w 5 c r o r e

5 - 1 0 c r o r e

A b o v e 1 0 c r o r e

8

Investment

3.05

3.42

93.53

Below 5 Crore

5-10 Crore

Above 10 Crore

Employment

3.62

2.16

94.23

Below 5 Crore

5-10 Crore

Above 10 Crore

State-wise Size:

A. Size in terms of Number of Medium enterprises

The available data as on 31.12. 2006, shows that there are 12, 760 medium enterprises

with investment of rupees 87, 949 crores and 2009557 employees. The figures for

average investment and employment per unit are rupees 6.89 crores and 157

employees respectively. The employment–investment ratio, showing investment

intensity in medium enterprises, is 22.85. State-wise size varies drastically in terms of

all parameters, namely number of enterprises, investment and employment. The

dominating states are Maharashtra and Gujarat, followed by Uttar Pradesh, Andhra

Pradesh, Haryana, Tamil Nadu and West Bengal. These seven states alone accounted

for 66.16 percent units. Only two states alone, namely, Maharashtra and Gujarat

accounted for 31.66 percent units. On the other extreme 15 states have less than one

percent units.

9

B. Size in terms of Investment

The total investment in medium enterprises was rupees 87,949 crores. State-wise

distribution of investment in medium enterprises shows that it also concentrated in

Maharashtra and Gujarat, followed by Uttar Pradesh, Andhra Pradesh, Haryana,

Tamil Nadu and West Bengal. These seven states alone accounted for 65.78 percent

of the investment. Only two states alone, namely, Maharashtra and Gujarat account

for 30.97 percent of investment. On the other extreme 16 states had less than one

percent share.

In terms of average investment the position of medium enterprises across the different

states was also almost similar. Average investment per unit was rupees 6.89 crore.

State-wise it varies form 5.50 crores in Andaman & Nicobar to nine crores in Sikkim.

Employment/Investment ratio varies from 12.78 in DADAR & NAGAR HAVELI to

36.24 in Punjab. While there has been absolute increase in the production,

productivity, employment and investment in industrial sector of the backward areas,

the disparities between the backward and non-backward areas have widened.

However, the industrial structure of the backward areas is changing but at a very slow

rate.

In terms of average investment and employment as well as the ratio of employment to

investment the position of medium enterprises across the different states was also

almost similar. Average investment per unit varies form 5.50 crores in Andaman &

Nicobar to nine crores in Sikkim.

C. Size in terms of Employment

Total employment in medium sector is 2009557 employees. State-wise distribution of

employment in medium enterprises shows that it also concentrated in Maharashtra

and Gujarat, followed by Uttar Pradesh, Andhra Pradesh, Haryana, Tamil Nadu, West

Bengal and Rajasthan. These eight states taken together accounted for 78.44 percent

of the employment. Only three states alone, namely, Maharashtra, Tamil Nadu and

Gujarat account for about 30 percent of total employment provided by medium

enterprises. On the other extreme, 16 states had less than one percent share.

In terms of average employment the position of medium enterprises across the

different states was also almost similar. Average employment per unit was 157.49

10

employees. Location-wise it varies form 368.00 persons in Chandigarh to 82.67

persons in Tripura.

D. Employment Intensity

Employment/Investment ratio varies from 12.78 in DADAR & NAGAR HAVELI to

36.24 in Punjab and 37.11 in Arunachal Pradesh. Thus medium enterprises in Punjab

and Arunachal Pradesh were three times more employment intensive. While there has

been absolute increase in the production, productivity, employment and investment in

industrial sector of the backward areas, the disparities between the backward and non-

backward areas have widened. However, the industrial structure of the backward

areas is changing but at a very slow rate. As stated earlier the wide variation may be

firstly due to great difference in the size of states and secondly due to the difference in

the enabling environment.

Table-2:

State-wise distribution of Medium Enterprises showing share in total number,

investment & employment as on 31-10-2007.

(Figures in %)

State % units % Investment % Employment.

Andhra Pradesh 6.75 6.82 7.68

Assam 0.58 0.56 0.39

Bihar 0.34 0.37 0.31

Gujarat 11.46 11.21 10.39

Haryana 5.72 5.7 6.79

Himachal Pradesh 1.51 1.51 1.43

Jammu & Kashmir 0.67 0.65 0.66

Karnatka 3.57 3.7 3.48

Kerla 0.67 0.67 0.75

Madhya Pradesh 3.7 3.69 3.86

Maharashtra 20.2 19.76 18.91

Manipur 0.02 0.02 0.02

Meghalaya 0.38 0.39 0.32

Nagaland 0.02 0.03 0.03

Orissa 1.64 1.69 1.23

Punjab 3.69 3.66 5.8

Rajasthan 4.45 4.44 5.45

Tamil Nadu 8.49 8.63 10.27

Tripura 0.02 0.02 0.01

Uttar Pradesh 7.34 7.34 7.35

West Bengal 6.2 6.32 5.8

Sikkim 0.03 0.04 0.02

Chattisgarh 2.08 2.23 1.52

Jharkhand 1.15 1.17 0.96

Uttrananchal 2.59 2.64 2.15

Andaman & Nicobar 0.05 0.04 0.05

11

Arunachal Pradesh 0.05 0.05 0.09

Chandigarh 0.04 0.04 0.09

Dadar & Nagar Haveli 3.22 3.27 1.83

Delhi 0.28 0.28 0.26

Goa 0.75 0.74 0.43

Pondhicherry 0.96 0.95 0.65

Daman & Diu 1.37 1.35 1.02

Toatal 100.00 100.00 100.00

E. Average Size of Medium Enterprises

The average size of medium enterprises in terms of investment is rupees 6.89 crores.

There is little variation in terms of average investment across the states. It varies from

rupees 5.50 crores in Andaman & Nicobar to nine crores in Sikkim. In terms of

employment the average size is 157.49 persons. But state-wise there is big variation.

It varies from 104.95 persons in Assam to 368 persons in Chandigarh. The average

employment intensity per crore of investment is 22.85. Minimum employment

intensity is in Sikkim and the maximum is in Chandigarh. Details are shown below.

Table-3:

State-wise distribution of Medium Enterprises showing the position of average

investment, employment & capital employment ratio as on 31.10.2007

(Figures in %)

State Average Investment Average Employment Employment/ Investment

Andhra Pradesh 6.96 179.22 25.74

Assam 6.69 104.95 15.69

Bihar 7.56 143.12 18.94

Gujarat 6.75 142.87 21.18

Haryana 6.87 186.85 27.21

Himachal Pradesh 6.86 149.25 21.76

Jammu & Kashmir 6.60 154.22 23.35

Karnatka 7.14 153.41 21.50

Kerla 6.98 177.47 25.44

Madhya Pradesh 6.87 164.24 23.90

Maharashtra 6.75 147.45 21.86

Manipur 8.50 213.50 25.12

Meghalaya 7.02 130.45 18.58

Nagaland 8.00 191.67 23.96

Orissa 7.10 118.11 16.63

Punjab 6.83 247.55 36.24

Rajasthan 6.88 192.68 28.00

Tamil Nadu 7.01 190.52 27.17

Tripura 6.00 82.67 13.78

Uttar Pradesh 6.90 157.89 22.88

West Bengal 7.03 147.44 20.98

Sikkim 9.00 124.25 13.81

Chattisgarh 7.38 114.94 15.57

12

Jharkhand 7.00 131.19 18.74

Uttrananchal 7.03 131.18 18.67

Andaman & Nicobar 5.50 152.50 27.73

Arunachal Pradesh 6.71 249.14 37.11

Chandigarh 7.60 368.00 48.42

Dadar & Nagar Haveli 7.00 89.49 12.78

Delhi 6.94 142.39 20.50

Goa 6.78 89.64 13.22

Pondhicherry 6.79 106.70 15.72

Daman & Diu 6.79 117.48 17.31

Total 6.89 157.49 22.85

Size Product-wise:

Data compiled and disseminated by industry division is based on NIC classification.

The information in this way is spread over 37 product lines.

A. Product-wise Size in terms of Number of Medium enterprises

The available data, as on 31.10. 2007, shows that for 12, 760 medium enterprises

three industries, namely Metallurgical industries, Chemicals (other than fertilizers),

and Textiles dominate in the share in numbers. These three industry groups alone

account for 42.63 percent share. Eighteen industry groups have less than one percent

share. The other six industry groups have less than two percent share.

B. Product-wise Size in terms of Investment of Medium enterprises

Product-wise size in terms investment also varies drastically. The dominating

industries are Metallurgical industries, Chemicals (other than fertilizers), and Textiles.

These three industries alone accounted for 43.03 percent investment. On the other

extreme 18 industries have less than one percent share.

In terms of average investment the position of different industry groups in medium

sector enterprises was also almost similar. Average investment per unit varies form

5.70 crores in Sugar units to 7.67 crores in Dye-Stuffs.

C. Product-wise Size in terms of Employment

Total employment in medium sector, as stated earlier, is 2009557 employees.

Product-wise distribution of employment in medium enterprises shows that it also

concentrated in Metallurgical industries, Chemicals (other than fertilizers), and

Textiles. These three product groups alone taken together accounted for 42.55 percent

of the employment. Only two product groups alone, namely, Metallurgical industries,

13

and Textiles account for about 33.45 percent of total employment provided by

medium enterprises. On the other extreme, 16 product groups had less than one

percent share in employment.

In terms of average employment the position of medium enterprises across the

different product groups was also almost similar. Average employment per unit varies

form 417.84 persons in Rubber goods to 55.89 persons in Glue & gelatin industries.

D. Product-wise Employment Intensity

Employment intensity in different industry groups in relation to investment varies to

great extent. Employment/Investment ratio varies from 8.82 in Glue & gelatin to

58.92 in Rubber goods. Thus medium enterprises in Rubber goods were seven times

more employment intensive than Glue & gelatin enterprises. The three highest

employment intensive industries were Rubber goods (58.92), Fuels (40.17) and

Industrial instruments (35.14). The three lowest employment intensive industries were

Glue & gelatin (8.82), Dye-Stuffs (10.33) and Miscellaneous mechanical &

engineering industries (14.44).

Table-4:

Product-wise distribution of Medium Enterprises showing share in total number,

investment & employment as on 31-10-2007

(Figures in %)

SCHEDULED INDUSTRY Enterprises Investment Employment

Mettellurgical industries 16.21 16.57 15.63

Fuels 0.58 0.63 1.11

Boilers & steam generating plant 0.03 0.03 0.03

Prime movers other than electrical generators 1.69 1.72 1.69

Electricals equipment 4.87 4.89 5.51

Telecommunications 1.72 1.78 2.19

Transportation industry 1.71 1.7 2.16

Industrial machinery 1.94 1.9 1.66

Machine tools 0.27 0.28 0.33

Agricultural machinery 0.15 0.14 0.12

Earth-Moving Machinery 0.09 0.09 0.13

Miscellaneous mechanical & engineering

industries 4.26 4025 2.68

Commercial, office and household equipments 0.29 0.3 0.3

Medical and surgical appliances 0.09 0.09 0.1

Industrial instruments 0.02 0.02 0.02

Scientific instruments 0.48 0.45 0.55

Fertilizers 0.92 0.95 1.01

14

Chemicals ( other than fertilizers) 13.19 13.25 9.1

Photographic raw film and paper 0.16 0.14 0.12

Dye-Stuffs 0.05 0.05 0.02

Drugs & pharmaceuticals 2.56 2.65 1.96

Textiles 13.03 13.21 17.82

Paper & pulp including paper products 3.53 3.51 2.93

Sugar 3.68 3.05 3.97

Fermentation industries 2.05 2.07 1.52

Food processing industries 5.49 5.45 6.85

Vegetable oil& vanspati 5.33 5.3 4.4

Soaps, cosmetics & toilet preparations 0.84 0.83 1.28

Rubber goods 1.11 1.14 2.93

Leather, Leather goods & Pickers 0.47 0.47 0.77

Glue & gelatin 0.07 0.06 0.03

Glass 0.49 0.52 0.39

Ceramics 0.67 0.67 0.51

Cement & Gypsum products 2.05 2.01 1.64

Timber products 0.019 0.19 0.18

Miscellaneous industries 1.06 1.06 0.85

Others 8.66 8.61 7.5

Total 100 100 100

Table- 5: Product-wise distribution of Medium Enterprises. Showing the Position

of average investment, employment & capital employment ratio as on 31.10.2007

(Figures in %)

State Avg. Inv. Avg. Emp. Emp/ Inv

Mettellurgical industries 7.05 151.89 21.55

Fuels 7.47 300.18 40.17

Boilers & steam generating plant 7.00 172.50 24.64

Prime movers other than electrical generators 6.99 156.77 22.43

Electricals equipment 6.93 178.40 25.76

Telecommunications 7.13 200.62 28.13

Transportation industry 6.85 199.25 29.07

Industrial machinery 6.76 135.45 20.04

Machine tools 7.03 187.23 26.64

Agricultural machinery 6.68 123.89 18.54

Earth-Moving Machinery 6.42 217.67 33.92

Miscellaneous mechanical & engineering industries 6.87 99.18 14.44

Commercial, office and household equipments 7.16 160.78 22.45

Medical and surgical appliances 6.50 175.42 26.99

Industrial instruments 7.00 246.00 35.14

Scientific instruments 6.44 182.28 28.29

Fertilizers 7.07 172.65 24.43

Chemicals ( other than fertilizers) 6.92 108.68 15.70

Photographic raw film and paper 5.81 115.67 19.91

Dye-Stuffs 7.67 79.17 10.33

Drugs & pharmaceuticals 7.10 120.61 16.98

Textiles 6.99 215.34 30.82

15

Paper & pulp including paper products 6.85 130.46 19.05

Sugar 5.70 169.62 29.75

Fermentation industries 6.95 116.43 16.74

Food processing industries 6.85 196.51 28.68

Vegetable oil& vanspati 6.85 129.92 18.95

Soaps, cosmetics & toilet preparations 6.81 241.03 35.38

Rubber goods 7.09 417.84 58.92

Leather, Leather goods & Pickers 6.87 256.27 37.32

Glue & gelatin 6.33 55.89 8.82

Glass 7.32 127.10 17.36

Ceramics 6.86 120.08 17.50

Cement & Gypsum products 6.77 126.13 18.63

Timber products 6.79 149.46 22.01

Miscellaneous industries 6.90 127.10 18.43

Others 6.85 136.44 19.92

TOTAL 6.89 157.49 22.85

State-wise distribution in terms of number of medium enterprises is quite uneven. The

reasons could be many. The first most important factor is the size of the state. But the

distribution is uneven even in the states which are equal or comparable in size. In

some cases the state is smaller in size but has more number of medium enterprises. It

is because of the difference in enabling environment in different states. It is reflected

by Bihar and Haryana. The leading states are Maharashtra, Gujarat, Tamil Nadu,

Andhra Pradesh, Uttar Pradesh, and West Bengal. But if the number of medium

enterprises is related with area and population of the state Haryana and Punjab would

come in the list of top states.

In terms of average investment and employment as well as the ratio of employment to

investment the position of medium enterprises across the different states is almost

similar. Average investment per unit varies form 5.50 crores in Andaman & Nicobar

to nine crores in Sikkim. Employment/Investment ration varies from 12.78 in

DADAR & NAGAR HAVELI to 36.24 in Punjab. While there has been absolute

increase in the production, productivity, employment and investment in industrial

sector of the backward areas, the disparities between the backward and non-backward

areas have widened. However, the industrial structure of the backward areas is

changing but at a very slow rate.

Thus there has been absolute increase in the production, productivity, employment

and investment in medium enterprises in all states and across all product lines. But

there have been great disparities between the different states and different product

lines. As stated earlier the wide variation may be firstly due to great difference in the

16

size of states and secondly due to the difference in the enabling environment. The

entrepreneurs have preferred locations which (1) are nearer to the industrial centres

(2) have close linkages with outside economy in terms of supply of inputs and sale of

output , and (3) have adequate infrastructure facilities. The inter linkages between the

backward and developed areas are also limited and hence call for the reorientation of

the policy in selecting such sites and industries which offer maximum of backward

and forward linkages.

However, the industrial structure of the states is changing though at a very slow rate.

This changing scenario may reduce the inter state and inter product variations.

17

Chapter-3

Analysis of Growth Pattern of Medium Manufacturing Sector

Introduction:

This chapter describes the growth pattern of medium enterprises over the last 17 years

i.e. since 1990 - 91. Based on secondary information it presents growth pattern over

the years, across the state and over the product-lines. In terms of all the three

variables, namely, year-wise, State-wise and Product-wise growth pattern of number

of enterprises, investment and employment has been quite uneven. While there has

been absolute increase in the number of enterprises, employment and investment in

medium sector across the country as well as across the productlines, the disparities

between the states and between the product categories have widened. Thus it shows

that the industrial structure of all the states is changing but in some of the states

progress is at a very slow rate.

Growth Patten of medium enterprises across the country

- Number of Enterprises

The absolute number of medium enterprises has been increasing consistently over the

years. It was 3252 units in the year 1995, and increased to 7441 in the year 2000, to

10701 in the year 2005 and 12584 in the year 2006 (positions as on 31st January).

Graphic presentation of Yearly Growth Patten of Number of medium

enterprises is given below.

Units

0

200

400

600

800

1000

1200

1400

1600

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Units

18

Table –1: Yearly Addition, Cumulative figures and Growth Patten of Number of

medium enterprises

Year Yearly Addition Cumulative Figures Rate of Growth

1992 1405 1405

1993 671 2076 47.76

1994 823 2899 39.64

1995 1378 4277 47.53

1996 915 5192 21.39

1997 681 5873 13.12

1998 791 6664 13.47

1999 622 7286 9.33

2000 542 7828 7.44

2001 501 8329 6.40

2002 503 8832 6.04

2003 668 9500 7.56

2004 925 10425 9.74

2005 1022 11447 9.80

2006 1313 12760 10.13

Investment & Employment

The investment in medium enterprises has increased about four times. But the annual

growth rate has come down. Overall growth rate has been 14.37 percent. It was about

25% during 1995-2000 and came down to 8.91 during 2000-05 and rose to 9.02 %

during 2005 -07. Similar has been the position of employment. In absolute terms it

has increased by three times but the rate of growth has come down from 20.37%

during 1995-2000 to 6.24% during 2000-05 and to 7.85% during 2005-07. The overall

growth rate was 11.49 percent. The graphs given below show long term growth

pattern in the number of enterprises, employment and investment in medium sector

across the country

19

Graphic presentation of Yearly Growth Patten of Investment is given below.

Investment

0

10002000

30004000

5000

60007000

80009000

10000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Investment

Table –2: Yearly Addition, Cumulative figures and Growth Patten of Investment

Year Yearly Addition

Cumulative

Figures

Rate of

Growth

1992 9637 9637 1993 4656 14293 48.31

1994 5751 20044 40.24 1995 9355 29399 46.67 1996 6357 35756 21.62

1997 4706 40462 13.16 1998 5018 45480 12.40

1999 4266 49746 9.38 2000 3751 53497 7.54

2001 3474 56971 6.49 2002 3396 60367 5.96 2003 4589 64956 7.60

2004 6474 71430 9.97 2005 7127 78557 9.98

2006 9392 87949 11.95

Table –3: Yearly Addition, Cumulative figures and Growth Patten of Employment

Year Yearly Addition Units

Cumulative

Figures

Rate of

Growth

1991 158924 158924 1992 167495 326419 105.39

1993 115245 441664 35.31 1994 152545 594209 34.54 1995 224099 818308 37.71

1996 128649 946957 15.72 1997 100060 1047017 10.57

20

1998 107114 1154131 10.23 1999 87793 1241924 7.61 2000 77766 1319690 6.26 2001 67159 1386849 5.09 2002 57970 1444819 4.18 2003 92960 1537779 6.43 2004 115277 1653056 7.50 2005 148763 1801819 9.00

2006 207738 2009607 11.53

Note: DIPP started maintaining data base only after 1991. Thus the base year is

1990-91 for calculating the growth rates in the number of enterprises, investment and

employment.

Graphic presentation of Yearly Growth Patten of Employment is given below.

Employment

0

50000

100000

150000

200000

250000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Employment

Average Investment & Employment

The status of medium enterprises in terms of Average Investment & Employment has

been rising over the last ten years. The average level of investment per unit rose from

rupees 6.48 crore in 1995 to rupees 6.73 crore in 2001 to rupees 6.88 crore in 2007.

The average level of employment per unit rose from 134.67 persons in 1995 to 149.25

persons in 2001 and to156.94 persons in 2007.

Table - 4: Distribution of Average Level of Investment & Employment

Years Sr. No. Particulars

1995 2001 2007

1 Average investment 6.48 6.73 6.88

2 Average Employment 134.67 149.25 156.94

21

Growth Patten in Number of Medium Enterprises:

The state-wise rate of growth in terms units varies to a great extent. Even within the

state there were high variations over different periods. Across the states there was

76.38 % increase in rate of growth in Meghalaya, followed by 50 % in Sikkim and

47.12 % increase in UttraKhand. These are the three states in which there is maximum

growth rate in 1995-2000.

Table- 5:Five yearly State-wise Growth Pattern of Medium Enterprises in Terms of

Units

S.No State 1995 to 2000 2000-05 2005 -07 Total

1 Andhra Pradesh 26.04 9.08 12.80 15.97

2 Assam 11.67 28.42 29.35 23.15

3 Bihar 15.29 5.33 6.58 9.07

4 Gujarat 23.32 6.84 8.12 12.76

5 Haryana 21.72 6.26 6.19 11.39

6 Himachal Pradesh 20.57 18.59 19.34 19.50

7 Jammu & Kashmir 12.50 36.92 66.22 38.55

8 Karnatka 24.70 9.81 8.09 14.20

9 Kerla 24.80 5.36 9.86 13.34

10 Madhya Pradesh 18.46 3.60 7.02 9.69

11 Maharashtra 34.18 7.42 5.32 15.64

12 Manipur 0.00

13 Meghalaya 100.00 123.33 5.81 76.38

14 Nagaland 0.00 0.00

15 Orissa 22.86 50.67 11.32 28.28

16 Punjab 15.68 5.19 4.33 8.40

17 Rajasthan 14.94 4.13 5.81 8.29

18 Tamil Nadu 31.80 6.12 11.14 16.35

19 Tripura 0.00 0.00

20 Uttar Pradesh 17.96 6.36 5.70 10.01

21 West Bengal 44.22 24.57 10.25 26.35

22 Sikkim 0.00 0.00 150.00 50.00

23 Chattisgarh 32.38 50.91 16.67 33.32

24 Jharkhand 36.00 34.29 14.47 28.25

25 Uttrananchal 32.22 36.60 72.56 47.13

26 Andaman & Nicobar 40.00 0.00 0.00 13.33

27 Arunachal Pradesh 37.50 12.50

28 Chandigarh 10.00 13.33 0.00 7.78

29 Dadar & Nagar Haveli 49.32 10.43 3.38 21.04

30 Delhi 3.81 3.20 10.34 5.78

31 Goa 62.67 8.06 4.60 25.11

32 Pondhicherry 33.10 8.57 5.91 15.86

33 Daman & Diu 32.73 7.59 2.81 14.38

Total 25.76 8.76 8.80 14.44

22

The rate of growth from the period 2000 to 2005 the maximum rate of growth is again

in Meghalaya that is of 123.33% but followed by Chattisgarh and Orissa with the

growth rate of 50.91% & 50.67% respectively. The other states having annual growth

rate above 20% are Assam, Jammu & Kashmir, West Bengal, Dadar & Nagar Haveli,

and Goa. On the other hand the lowest rate of growth was only 5.78 % in Delhi. The

other states with lower than 10% annual growth rate are Bihar, Madhya Pradesh,

Punjab, Rajasthan, Chandigarh, and Delhi. Details are shown in the table.

Growth in Investment

The investment in absolute terms has been increasing over the years. State –wise

analysis reveals that there is significant increase in the rate of growth in Meghalaya,

Goa, Dadar & Nagar Haveli, Chhatishgarh and Orissa. On the other hand, lowest rate

of growth during 2005-07 was in Dana & Diu. Details are shown below.

Table- 6: Growth Pattern of Medium Enterprises in terms of investment

S.No State 1995 to 2000 2000-05 2005 -07 Total

1 Andhra Pradesh 26.01 8.94 13.01 15.99

2 Assam 9.17 25.43 26.73 20.44

3 Bihar 13.68 5.68 5.27 8.21

4 Gujarat 23.39 6.83 8.31 12.84

5 Haryana 22.26 6.29 6.41 11.65

6 Himachal Pradesh 22.39 18.50 20.61 20.50

7 Jammu & Kashmir 13.88 37.83 68.33 40.01

8 Karnatka 24.18 10.06 8.33 14.19

9 Kerla 22.91 5.83 9.78 12.84

10 Madhya Pradesh 17.90 3.55 7.27 9.57

11 Maharashtra 31.98 7.62 5.59 15.06

12 Manipur 0.00

13 Meghalaya 152.00 118.14 6.57 92.24

14 Nagaland 0.00 0.00

15 Orissa 23.54 51.06 10.95 28.52

16 Punjab 15.47 5.20 4.83 8.50

17 Rajasthan 14.22 3.95 5.55 7.91

18 Tamil Nadu 31.79 6.22 11.66 16.56

19 Tripura 0.00 0.00

20 Uttar Pradesh 17.29 6.41 5.63 9.78

21 West Bengal 40.91 25.01 10.13 25.35

22 Sikkim 0.00 0.00 150.00 50.00

23 Chattisgarh 29.47 56.91 16.25 34.21

24 Jharkhand 35.41 33.38 13.83 27.54

25 Uttrananchal 32.28 35.66 73.65 47.20

26 Andaman & Nicobar 46.00 0.00 0.00 15.33

27 Arunachal Pradesh 33.93 11.31

23

28 Chandigarh 14.29 11.67 0.00 8.65

29 Dadar & Nagar Haveli 49.53 10.48 3.47 21.16

30 Delhi 4.29 2.94 11.79 6.34

31 Goa 63.56 8.01 4.57 25.38

32 Pondhicherry 33.58 8.55 6.57 16.23

33 Daman & Diu 38.48 6.74 2.83 16.02

Total 25.17 8.91 9.02 14.37

Growth Pattern in Employment

Similar is the position of employment. In absolute terms it has been increasing but the

rate has been decreasing. The highest increase in the rate of employment is in

Meghalaya. The other states having growth rate above 20% are Assam, Orissa, West

Bengal, Sikkim, Chhattisgarh and Jharkhand. The lowest growth rate of employment

was in Chandigarh. The other states having employment rate below 10 % are Bihar,

Gujarat, Kerela, Madhya Pradesh, Rajasthan, Uttar Pradesh, Andaman & Nicobar,

Delhi and Daman & Diu. Details are shown below.

Table- 7: Growth Pattern of Medium Enterprises in terms Employment

State 1995 to 2000 2000-05 2005 - 07 Total

Andhra Pradesh 14.47 5.56 23.40 14.48

Assam 16.00 39.70 27.62 27.77

Bihar 20.05 5.60 3.38 9.68

Gujarat 19.32 5.90 4.55 9.92

Haryana 18.94 4.77 5.27 9.66

Himachal Pradesh 21.99 15.36 14.87 17.41

Jammu & Kashmir 3.41 10.59 27.16 13.72

Karnatka 23.83 9.57 9.32 14.24

Kerela 13.54 5.32 4.48 7.78

Madhya Pradesh 11.76 3.16 6.39 7.10

Maharashtra 51.13 -0.51 2.94 17.85

Manipur 0.00

Meghalaya 164.80 227.10 5.51 132.47

Nagaland 0.00 0.00

Orissa 20.65 33.52 19.47 24.55

Punjab -8.59 41.53 2.64 11.86

Rajasthan 14.81 4.87 2.89 7.52

Tamil Nadu 23.03 6.02 15.14 14.73

Tripura 0.00 0.00

Uttar Pradesh 9.41 4.00 4.88 6.10

West Bengal 35.56 25.54 7.69 22.93

Sikkim 0.00 0.00 62.95 20.98

Chattisgarh 19.23 44.92 13.93 26.03

Jharkhand 40.01 19.26 10.59 23.29

Uttrananchal 24.15 33.23 67.95 41.78

24

Andaman & Nicobar 14.86 0.00 0.00 4.95

Arunachal Pradesh 35.66 11.89

Chandigarh 4.00 1.15 0.00 1.72

Dadar & Nagar Haveli 36.25 9.90 2.46 16.20

Delhi 1.17 1.59 9.96 4.24

Goa 47.90 8.29 4.03 20.07

Pondhicherry 38.02 4.95 4.95 15.97

Daman & Diu 18.37 6.21 1.72 8.77

Total 20.37 6.24 7.85 11.49

Measuring the growth pattern through rate of growth is not very meaningful, if not

quite mis-leading. It is because there is big difference in the denominators (Figures in

base years). This is clearly shown in this case also. So we have related the number of

units, investment and employment in medium enterprises with the population and area

of the states. This gives somewhat a realistic picture.

Growth Pattern of Units across Population and Area:

In the country as a whole the density - number of medium enterprises per thousand

kilometers and per lakh population - is just 3.83 and 1.11 units respectively. State-

wise highest density of medium enterprises measured in terms of units in relation to

area and population is in Dadra & Nagar Haveli and Daman & Diu. In 18 states it is

lower than one unit per lakh of population. In terms of area also nine states have less

than one unit per thousand of square kilometers. Details are shown below.

Table –87: Total units over population & Area Population per lakh and area (in

000 sq. km.)

States Units/ Population Units/area

Andaman & Nicobar Islands 1.49 0.73

Andhra Pradesh 1.04 3.08

Arunachal Pradesh 0.59 0.08

Assam 0.25 0.93

Bihar 0.05 0.46

Chandigarh 0.48 43.86

Chhattisgarh 1.12 1.92

Dadra & Nagar Haveli 161.18 837.07

Daman & Diu 92.35 1508.93

Delhi 0.21 23.60

Goa 6.01 25.66

Gujarat 2.60 7.38

Haryana 3.06 16.22

Himachal Pradesh 2.93 3.41

Jammu & Kashmir 0.72 0.39

Jharkhand 0.50 1.84

25

Karnataka 0.78 2.32

Kerala 0.25 2.19

Madhya Pradesh 0.69 1.52

Maharashtra 2.42 8.31

Manipur 0.08 0.09

Meghalaya 1.92 2.14

Nagaland 0.14 0.18

Orissa 0.49 1.25

Pondicherry 11.63 256.78

Punjab 1.76 9.19

Rajasthan 0.89 1.66

Sikkim 0.68 0.56

Tamil Nadu 1.60 8.10

Tripura 0.09 0.29

Uttar Pradesh 0.50 3.85

Uttaranchal 3.48 6.10

West Bengal 0.89 8.73

Total 1.11 3.83

Distribution Pattern of Investment across Population and Area:

Position of investment per thousand square kilometers and per lakh population is

satisfactory. Across the country rupees 13.87 crores have been invested per lakh of

population. In terms of area rupees 47.73 crore have been invested per thousand

square kilometers. Dadra & Nagar Haveli and Daman & Diu is exceptionally

excellent in terms of both the population and area. It is also better than other states in

Pondicherry. In seven states investment in medium enterprises is more than rupees 20

crores per lakh population. But in 14 states it is less than 5 crores. In terms of area in

16 states investment per thousand kilometers exceeds rupees 20 crores. Only in six

states/UTs it is less than rupees five crores per thousand kilometers. Details are shown

below.

Table – 9: Distribution of Total Investment over Population & Area

states Investment/ Population Investment/ area

Andaman & Nicobar Islands 8.19 4.00

Andhra Pradesh 7.23 21.38

Arunachal Pradesh 3.97 0.56

Assam 1.66 6.22

Bihar 0.35 3.45

Chandigarh 3.66 333.33

Chhattisgarh 8.24 14.17

Dadra & Nagar Haveli 1128.63 5861.51

Daman & Diu 622.95 10178.57

Delhi 1.46 162.51

Goa 40.80 174.23

26

Gujarat 17.53 49.74

Haryana 20.99 111.12

Himachal Pradesh 20.07 23.39

Jammu & Kashmir 4.74 2.56

Jharkhand 3.48 12.91

Karnataka 5.59 16.54

Kerala 1.75 15.26

Madhya Pradesh 4.75 10.48

Maharashtra 16.31 55.94

Manipur 0.66 0.76

Meghalaya 13.42 14.98

Nagaland 1.11 1.45

Orissa 3.51 8.90

Pondicherry 78.92 1743.22

Punjab 12.02 62.77

Rajasthan 6.14 11.41

Sikkim 6.13 5.07

Tamil Nadu 11.17 56.52

Tripura 0.52 1.72

Uttar Pradesh 3.41 26.53

Uttaranchal 24.42 42.72

West Bengal 6.28 61.41

Total 13.87 47.73

Distribution of Employment over population and Area

Employment creation per thousand kilometers of area and per lakh population across

the country is 497.87 and 1713.02 persons respectively. In five states/UTs

employment generation exceeds 500 persons per lakh population. In terms of area

employment creation per thousand kilometers of area is more 1000 persons in 13

states/UTs. But position is poor in seven states. Details are shown below.

Table – 10: Distribution of Employment over population and Area

States Employment / Population Employment/ Area

Andaman & Nicobar Islands 227.05 110.92

Andhra Pradesh 188.83 558.26

Arunachal Pradesh 147.17 20.83

Assam 26.15 98.24

Bihar 6.66 65.35

Chandigarh 177.43 16140.35

Chhattisgarh 123.90 213.14

Dadra & Nagar Haveli 14423.14 74906.31

Daman & Diu 9971.58 162928.57

Delhi 29.77 3325.02

27

Goa 535.67 2287.68

Gujarat 374.39 1062.25

Haryana 570.00 3018.14

Himachal Pradesh 439.46 512.13

Jammu & Kashmir 110.76 59.68

Jharkhand 65.16 241.93

Karnataka 112.92 334.26

Kerala 44.50 388.16

Madhya Pradesh 113.92 251.49

Maharashtra 356.95 1223.94

Manipur 16.46 19.12

Meghalaya 253.08 282.54

Nagaland 26.62 34.68

Orissa 53.99 136.90

Pondicherry 1240.45 27398.75

Punjab 439.27 2292.90

Rajasthan 172.17 319.69

Sikkim 84.67 70.04

Tamil Nadu 303.82 1537.98

Tripura 7.16 23.65

Uttar Pradesh 78.54 610.84

Uttaranchal 456.49 798.72

West Bengal 129.20 1264.11

Total 497.87 1713.02

Product-wise growth rate in number of enterprises

Product-wise growth pattern of number of enterprise also shows great variation.

Highest growth rate (64.77%) is for Miscellaneous mechanical & engineering

industries, followed by Fermentation industries. Lowest growth rate (2.17%) Sugar

industry closely followed by Telecommunications. Details are shown in table.

Table-11: Distribution of Product-wise Units growth rate

(Figures in %)

S.No. Scheduled Industry 1995- 2000 2000-05 2005 -07 Total

1 Mettellurgical industries 20.71 14.88 10.01 15.20

2 Fuels 24.29 21.94 6.15 17.46

3 Boilers & steam generating plant -19.33 20.00 25.00 8.56

4 Prime movers other than electrical generators 17.32 17.97 11.76

5 Electricals equipment 34.14 8.34 7.26 16.58

6 Telecommunications 10.00 2.47 2.15 4.87

7 Transportation industry 44.71 11.27 12.21 22.73

8 Industrial machinery 34.12 8.70 10.86 17.89

9 Machine tools 11.43 8.18 6.45 8.69

10 Agricultural machinery 8.00 17.86 8.62

11 Earth-Moving Machinery 25.00 0.00 16.67 13.89

28

12 Miscellaneous mechanical & engineering industries 157.39 17.94 18.99 64.77

13 Commercial, office and household equipments 31.11 4.35 16.07 17.18

14 Medical and surgical appliances 12.00 18.75 10.25

15 Industrial instruments 20.00 0.00 0.00 6.67

16 Scientific instruments 30.00 12.00 2.68 14.89

17 Fertilizers 26.00 10.14 6.73 14.29

18 Chemicals ( other than fertilizers) 19.75 4.02 3.71 9.16

19 Photographic raw film and paper 6.25 0.00 0.00 2.08

20 Dye-Stuffs 20.00 0.00 6.67

21 Drugs & pharmaceuticals 59.00 9.11 20.43 29.51

22 Textiles 24.17 7.35 11.67 14.40

23 Paper & pulp including paper products 34.56 5.02 7.58 15.72

24 Sugar 4.16 2.35 2.17

25 Fermentation industries 170.77 2.62 57.80

26 Food processing industries 15.15 6.13 7.96 9.75

27 Vegetable oil& vanspati 8.24 3.80 4.60 5.55

28 Soaps, cosmetics & toilet preparations 18.89 21.14 22.22 20.75

29 Rubber goods 16.17 6.82 10.09 11.03

30 Leather, Leather goods & Pickers 35.00 20.91 14.44 23.45

31 Glue & gelatin 40.00 26.67 14.29 26.99

32 Glass 25.45 18.40 13.54 19.13

33 Ceramics 13.64 14.59 14.84 14.36

34 Cement & Gypsum products 28.89 3.64 4.91 12.48

35 Timber products 40.00 12.00 0.00 17.33

36 Miscellaneous industries 33.68 17.65 19.79 23.71

37 Others 40.77 11.87 10.89 21.18

Total 25.76 8.78 8.81 14.45

Product-wise Investment growth rate

Product-wise growth pattern in terms of Investment also shows great variation.

Highest growth rate of investment (65.14%) is for Miscellaneous mechanical &

engineering industries, followed by Fermentation industries. Lowest growth rate

(3.80%) is in Sugar industry closely followed by Telecommunications. Details are

shown in table.

Table-12: Distribution of Product-wise Investment growth rate (Figures in %)

S.No. SCHEDULED INDUSTRY 95-2000 2000-05 2005-07 Total

1 Mettellurgical industries 21.04 15.48 10.05 15.52

2 Fuels 26.67 26.00 6.63 19.77

3 Boilers & steam generating plant -19.17 15.00 25.00 6.94

4 Prime movers other than electrical generators 19.01 18.27 12.43

5 Electricals equipment 34.72 8.05 6.98 16.58

6 Telecommunications 10.46 2.56 2.15 5.06

7 Transportation industry 45.60 10.91 12.07 22.86

8 Industrial machinery 34.75 8.68 11.56 18.33

9 Machine tools 11.83 9.32 5.99 9.05

29

10 Agricultural machinery 7.81 21.35 9.72

11 Earth-Moving Machinery 24.00 0.00 20.00 14.67

12 Miscellaneous mechanical & engineering industries 158.73 17.46 19.24 65.14

13 Commercial, office and household equipments 27.32 3.81 16.25 15.79

14 Medical and surgical appliances 10.00 21.57 10.52

15 Industrial instruments 26.67 0.00 0.00 8.89

16 Scientific instruments 31.40 12.22 2.53 15.38

17 Fertilizers 24.50 10.00 6.28 13.59

18 Chemicals ( other than fertilizers) 19.26 4.10 3.64 9.00

19 Photographic raw film and paper 6.52 0.00 0.00 2.17

20 Dye-Stuffs 20.00 0.00 6.67

21 Drugs & pharmaceuticals 68.13 8.93 22.03 33.03

22 Textiles 23.96 7.42 12.02 14.47

23 Paper & pulp including paper products 36.07 4.99 8.01 16.36

24 Sugar 4.71 2.89 2.53

25 Fermentation industries 162.34 2.86 55.07

26 Food processing industries 14.35 5.91 7.90 9.39

27 Vegetable oil& vanspati 8.30 3.60 4.64 5.51

28 Soaps, cosmetics & toilet preparations 17.01 18.63 24.22 19.95

29 Rubber goods 19.13 7.07 11.41 12.54

30 Leather, Leather goods & Pickers 31.33 20.26 14.03 21.87

31 Glue & gelatin 32.50 24.76 10.64 22.63

32 Glass 25.85 17.55 13.31 18.90

33 Ceramics 14.76 14.68 15.45 14.96

34 Cement & Gypsum products 26.99 3.78 5.46 12.08

35 Timber products 46.25 10.75 0.00 19.00

36 Miscellaneous industries 34.09 17.98 17.92 23.33

37 Others 37.59 11.78 11.13 20.17

Total 25.17 8.91 9.02 14.37

Product-wise Employment growth rate

Product-wise growth pattern in terms of Employment also shows great variation.

Highest growth rate of investment (65.14%) is for Miscellaneous mechanical &

engineering industries, followed by Fermentation industries. Lowest growth rate

(3.80%) is in Sugar industry closely followed by Telecommunications. Details are

shown in table.

Table-13: Employment growth rate

(Figures in %)

S.No. SCHEDULED INDUSTRY 95- 2000 2000-05 05 -07 Total

1 Mettellurgical industries 16.52 8.18 6.47 10.39

2 Fuels 14.69 131.51 1.24 49.15

3 Boilers & steam generating plant -19.19 2.73 83.00 22.18

4 Prime movers other than electrical generators 17.47 16.27 11.25

5 Electricals equipment 22.45 5.18 5.43 11.02

6 Telecommunications 8.79 1.39 1.05 3.74

7 Transportation industry 23.27 5.06 3.82 10.72

8 Industrial machinery 29.37 6.46 13.68 16.50

9 Machine tools 5.66 3.52 2.13 3.77

30

10 Agricultural machinery 5.30 7.50 4.27

11 Earth-Moving Machinery 51.49 0.00 4.53 18.67

12 Miscellaneous mechanical & engineering industries 145.61 13.88 19.13 59.54

13 Commercial, office and household equipments 31.75 1.70 24.57 19.34

14 Medical and surgical appliances 13.76 26.11 13.29

15 Industrial instruments 6.59 0.00 0.00 2.20

16 Scientific instruments 19.16 7.21 0.87 9.08

17 Fertilizers 6.71 3.37 6.15 5.41

18 Chemicals ( other than fertilizers) 14.59 3.47 3.02 7.03

19 Photographic raw film and paper 1.94 0.00 0.00 0.65

20 Dye-Stuffs 15.06 0.00 5.02

21 Drugs & pharmaceuticals 30.93 6.60 15.14 17.56

22 Textiles 19.41 8.55 13.45 13.80

23 Paper & pulp including paper products 28.03 3.37 6.53 12.64

24 Sugar 5.74 2.26 2.67

25 Fermentation industries 130.19 1.84 44.01

26 Food processing industries 8.99 3.52 4.79 5.77

27 Vegetable oil& vanspati 5.39 2.36 2.98 3.58

28 Soaps, cosmetics & toilet preparations 8.13 16.40 7.99 10.84

29 Rubber goods 16.91 11.86 57.45 28.74

30 Leather, Leather goods & Pickers 55.60 7.87 7.03 23.50

31 Glue & gelatin 32.00 8.89 24.41 21.77

32 Glass 8.01 16.89 12.24 12.38

33 Ceramics 6.22 11.04 13.32 10.19

34 Cement & Gypsum products 25.72 2.12 2.81 10.22

35 Timber products 43.06 20.06 0.00 21.04

36 Miscellaneous industries 26.38 7.99 9.52 14.63

37 Others 31.25 10.91 6.16 16.11

Total 19.13 7.07 7.86 11.35

Conclusion

The analysis given above clearly reveals that in terms of all the three variables,

namely, year-wise, State-wise and Product-wise growth pattern of number of

enterprises, investment and employment has been quite uneven. While there has been

absolute increase in the number of enterprises, employment and investment in

medium sector across the country as well as across the product-lines, the disparities

between the states and between the product categories have widened. Thus it shows

that the industrial structure of all the states is changing but in some of the states

progress is at a very slow rate.

31

Chapter-4

Identification of factors for Locational Preference

Introduction:

Balanced development is essential for creating harmonious living conditions of a

federal state such as India. However, present picture is dominated by acute inter and

intra regional variations The just five leading industrial states account for 40% of all

large industries, 55% of employment, 60% of value of output, 58% of value added.

All other states and union territories taken together share the rest. This is mainly due

to the availability of external economies generated by the infrastructure facilities,

which induce the promoters (private investors) as well as the development and

financial institutions to go to developed areas.

Further, in all states, particularly in advanced states there is a marked pull of already

developed and urban and metropolitan areas for attracting new enterprises. For

example, in West Bengal, 70% of new industrial capacity has been located in the

Hoogly District. Nearly 86% of registered factories in Maharashtra were in Poona,

Bombay and Thane belt. Delhi, Ghaziabad, Faridabad and Gurugaon belt have

cornered a major chunk of small scale enterprises.

Thus, a very large number of medium enterprises have been located in the already

developed areas. This pattern of concentration has not changed substantially over the

last six decades Despite numerous attempts, the two states of Maharashtra and Tamil

Nadu account for more than 1/4th

of factory employment and fixed capital as well as

more than 1/3rd

of gross output and value added by manufacturing. If four industrially

advanced states are taken together then about half of the total output, value added,

employment and fixed capital in factory sector is found in them alone and the

remaining states and union territories together account for the rest.

However, the economic liberalization as a consequence of the new policy regime is

likely to pose major challenges for backward states/regions/areas. Due to multiple

factors limitations they are already trapped in vicious circle of poverty. Even in the

presence of numerous area specific concessions, incentives, inducements, grants and

subsidies, the backward areas could not attract the desired industrial investment. In

the emerging environment there may not only be lesser fresh investment of investors

32

but also there is a likelihood of plight / division of the existing investors from slow

growth area to the fast growth area. It will develop a new pattern of dualism, more

social polarization and territorial inequalities.

The spatial industrial development induced by institutional assistance has been

grossly uneven. The growth momentum has confined to a few regions. The just five

leading industrial states account for 40% of all large industries, 55% of employment,

60% of value of output, 58% of value added. All other states and union territories

taken together share the rest. There has been substantial concentration of medium

enterprises in the advanced states. This is mainly due to the availability of external

economies generated by the infrastructure facilities, which induce the promoters

(private investors) and financial institutions to go to developed areas.

Further, in all states, particularly in advanced states there is a marked pull of already

developed and urban and metropolitan areas for attracting new enterprises. For

example, in West Bengal, 70% of new industrial capacity has been located in the

Hoogly District. Nearly 86% of registered factories in Maharashtra are in Poona,

Bombay and Thane belt. Delhi, Ghaziabad, Faridabad and Gurugaon belt have

cornered a major chunk of small scale enterprises. Thus, a very large number of

medium enterprises have been located in the already developed areas. If industrial

growth, measured in terms of any indicator like, number of units, volume of

investment, volume of output or persons employed, is taken as a measure of regional

disparities, it shows that most of the industries got concentrated in few states and at

few centres. Despite numerous attempts, the two states of Maharashtra and Tamil

Nadu account for more than 1/4th of factory employment and fixed capital as well as

more than 1/3rd

of gross output and value added by manufacturing. If four industrially

advanced states are taken together then about half of the total output, value added,

employment and fixed capital in factory sector is found in them alone and the

remaining states and union territories together account for the rest.

Factors for locational preference are many. This chapter, based on field survey of 246

medium enterprises, examines the role of pull and push factors for locating medium

enterprises in a particular state/area. An attempt has also been made to compare and

contrast the position of backward and non-backward areas, particularly while

analyzing the information.

33

Locational Distribution:

Locational distribution of medium enterprises is quite uneven in terms of Urban Area,

Semi-Urban Area and Rural Area. Urban areas are the main attraction for establishing

industrial units. Their distribution across urban, semi-urban and rural areas is 55.69,

37.80 and 6.51 percent respectively. These enterprises have visible preference for

industrial areas/estates (87.81%). Further, though there are number of incentives and

subsidies for locating enterprises in backward districts most of the promoters have

distinct choice for non-backward districts. This uneven distribution is due to the

difference in the availability of infrastructure and support facilities. Details are shown

in the table.

Table-1: Locational Distribution of Enterprises (Figures in %)

Location Particulars Backward Areas Non-Backward

Areas

%

Urban Area 57.14 54.84 55.69

Semi-Urban Area 28.57 43.23 37.80

Rural Area 14.29 3.23 6.51

Total 100.00 100.00 100.00

Industrial Area/Estate 84.62 88.39 87.81

Non- Industrial Area/ Estate 15.38 11.61 12.19

Total 100.00 100.00 100.00

Factors Influencing/ governing choice of Location

The most important factor for governing the location of the enterprise is the

availability of plot in developed industrial area/estate. But there are significant

differences in stating factors for governing location in backward and non-backward

areas. In case of backward areas it is the availability of incentives and subsidies

whereas in case of non-backward areas it is the availability of infrastructure and

support facilities that play major role for attracting and establishing medium

enterprises. Power (electricity), transport and communication facilities are the life line

of manufacturing enterprises. Own urge/desire played major role for choosing a

particular location (73.57%). It is followed by the advice from friends/family

members (59.34%), availability of better infrastructure facilities (50.81%) and future

prospects (48.37%). The moderate category of pull or push factors for choosing

34

location includes easy availability of financial assistance (37.39%), peaceful socio-

industrial environment (33.33%), plot/shed in industrial area (30.89%) and

availability of incentives and subsidies (27.64%). Thus availability financial

incentives and capital subsidy does not show encouraging results. They hardly

stimulate the level of production Training facilities for

workers/supervisors/managers/entrepreneurs, climatic/weather conditions, availability

of raw materials, workers and market are not given much weight for choosing the

location.

Table- 2: Consideration of pull or push factors for setting up enterprise in particular

area / location

(Figures in %)

Factors Responses

My native place 19.51

Own Urge/Desire 73.57

Advice from family members/friends 59.34

Future prospects 48.37

Availability of easy financial assistance 28.04

Incentives/Subsidies 27.64

Training facilities 5.69

Easy availability of manpower 22.35

Easy availability of Raw Materials 18.69

Nearness to market 24.39

Availability of Techno-economic services 15.85

Cluster of similar units/ 21.13

Easy availability of plot/shed in Industrial area 30.89

Better infrastructure facilities 50.81

Peaceful Industrial /Social environment 33.00

Climatic/weather conditions 14.63

Others 8.94

Total 100.00

Note: Sum of percentages exceeds 100.00 due to multiple choices/responses.

Role of Local Human Resources and Skills

The development of MMEs is assumed to promote and utilize local resources and

skills and thereby lead to economic development. In other way-round, the local

35

resources attract industrial enterprises. In case of medium enterprises this statement is

not substantiated by the information gathered. Very few medium enterprises are

dependent on local resources. The table given below shows percentage of local human

and material resources used. Though almost all the units employed some local persons

in different working categories but majority of human resources was attracted from

different districts/ states. In case of using human resources, share of local skills in

different categories is very small.

Table-3: Distribution of Units showing Utilization of Human Resources

(Figures in % )

Particulars Local Others Total

Promoters 15.04 8 4.96 100.00

Managers 17.41 82.59 100.00

Supervisors 19.69 80.31 100.00

Workers 24.70 75.30 100.00

-Skilled workers 21.00 79.00 100.00

-Unskilled workers 83.02 16.98 100.00

Total Employees 25.17 74.83 100.00

Role of Infrastructure / Support Facilities

Infrastructure and support facilities provide external economies to an enterprise. They

facilitate production and movement of goods and services and provide safety and

security. Nearer such services better it is. Such services consist of rail, roads, bank,

railway station, telecommunication, workers colony, source of raw material, fire

station, post office, market place etc. A major impediment to the development of

MSMEs is their inability to command, on their own the facilities mentioned above. In

this context following schemes have been formulated.

� Industrial Areas / Estate Programmes

� Integrated Infrastructural Development Scheme

� Industrial Clusters

� Industrial Growth Centres

� Export Promotion Zones

� Industrial Parks

No doubt, theses are the first preference for medium enterprises. These are composite

areas consisting of basic infrastructure and support facilities. In this regard to distance

of enterprise from National/State Highway, Bank, Railway Station, Fire station, Post

Office, Market – city Bazaar, etc., as shown in the table, medium enterprises are at

36

satisfactory position. For most of the medium enterprises these facilities are available

within a radius of ten kilometers. Details are shown below.

Table-4: Distribution of Units showing Distance of Support Facilities

(Figures in %)

Distance Infrastructure / Support

Facilities Less than

10 11 – 15 16 – 20

More than

20

National/State Highway 91 (36.93) 64(26.01) 57(23.17) 34(13.89)

Bank 117(47.56) 73(29.67) 43(17.48) 13(5.29)

Railway Station 72(29.27) 89(36.18) 56(22.76) 29(11.79)

Fire station 65(26.42) 82(33.33) 76(30.90) 23(9.35)

Post Office 118(47.97) 91(36.99) 32(13.01) 05(2.03)

Market – city Bazaar 157(63.82) 60(24.39) 29(11.79) -

Techno-Economic Facilities (Distance)

Availability of techno-economic facilities not only accelerates production but also

helps improve quality of products. Therefore it does not appear feasible to locate a

new venture deep in the interior where the necessary infrastructure does not exist. A

MME unit needs an environment where there is a good communication system,

availability of power, raw material, lending, loading and unloading facilities and an

accessible market. A manufacturing enterprise, most vulnerable to risk like an infant

child does not have enough resilience to absorb economic shocks of even small

intensity.

But the study reveals a different picture. In this regard very small fraction of medium

enterprises has such services in the near by vicinity. Most of the units have to cover a

long distance for seeking tool-room facility, techno- economic diagnosis, quality

marking / testing and making bulk purchases of raw materials. Even skill upgradation

centres, marketing assistance centres and raw material depots were not in their close

vicinity. However, weighing facilities are available nearby to their enterprises.

Details are shown in the table.

37

Table-5: Distribution of Units showing Distance of Techno-Economic Services/Consultancy

(Figures in %)

Distance

Facilities < 50 KM 50-100 101-150 151 -200

More than

200 KM

No

Response

Techno-economic diagnosis 6.90 4.70 3.60 15.40 23.12 46.28

Quality marking / testing 16.26 12.60 10.97 8.95 11.38 39.84

Provision of bulk purchase 9.35 8.95 8.13 6.09 4.88 62.60

Skills upgradation centre 7.34 8.56 6.09 8.13 3.60 66.28

Tool room facility 4.08 5.29 6.50 4.88 3.25 66.66

Weighing 65.85 17.88 - - - 16.27

Raw material deport 10.97 12.60 6.09 16.26 13.03 41.05

Role of Incentives and Inducements

Incentives and Inducements are motivational forces which attract new entrepreneurs

and improve productivity of enterprises. These could be financial or non-financial.

They include concessions, subsidies and bounties (bonus or financial assistance. They

help balanced regional development, removal of economic constraints and provide

competitive strength and growth. But if they are not monitored judiciously, fail to

meet the desired objectives developing bogus units, encouraging inefficiencies,

promoting unviable entrepreneurs and use of resources, breeding corruption and

blocking graduation of micro to small to medium to large unit. Further, theses are

related to investment, export/import, R & D, taxes/excises, technology upgradation

etc.

Table-6: Distribution of units availing Incentives / Inducements for Setting up /

Operating Enterprises

(Figures in %)

Incentives and Inducements Total %

Central / State capital subsidy 63 25.60

Sales tax loan 37 15.04

Seed money 40 16.26

Power subsidy/concession 96 39.02

Raw material supply 16 6.50

Land/shed 164 66.67

Feasibility study grant 46 30.89

Entrepreneurial training 14 5.69

Workers training 6 2.43

Incentives and Inducements play important role for choosing a particular location. For

example almost all the entrepreneurs locating their enterprises in backward areas

availed of central or state capital subsidy. The other important inducement in this

38

regard was the availability of industrial plot/shed in the area developed by

government and which were supported by other support facilities. About two-third

promoters have their enterprises in industrial areas. The third important incentive was

in the form of subsidized or concessional power. More than 39 % promoters availed

of this. Details of incentives in background and non-background areas over time are

given in the table.

Conclusion

Unlike micro and small enterprises the locational decisions for medium enterprises

are hardly based on the chance. They are not taken arbitrarily and at the last moment

and under socio-economic compulsions. They are based on systematic and precise

calculations of costs and revenue. Though in some cases the promoters establish their

enterprises at the sites which are nearby their native places, easily accessible and

easily available yet majority of entrepreneurs choose the location that is the best one

in terms of commercial parameters. In other words, they go for best sites, even at a

long distance, which could give minimum costs, maximum revenue and profit.

Minimization of costs is eroding in importance as the guiding force for location of

enterprises. The maximization of revenue and profits are gaining ground in this

respect. Thus, neither the freely selected sites nor the sites selected and developed by

the government in backward areas are the optimum. It is revealed by the concentration

of MMEs in the metropolitan centres is a national corollary of the market forces

according to which entrepreneurs invariably prefer those locations, which offer more

external economies.

The economic liberalization as a consequence of the new policy regime is likely to

pose major challenges for backward states/regions/areas. Due to multiple factors

limitations they are already trapped in vicious circle of poverty. Even in the presence

of numerous area specific concessions, incentives, inducements, grants and subsidies,

the backward areas could not attract the desired industrial investment. In the

emerging environment there may not only be lesser fresh investment of investors but

also there is a likelihood of plight / division of the existing investors from slow

growth area to the fast growth area. It will develop a new pattern of dualism, more

social polarization and territorial inequalities.

39

� Minimization of costs is eroding in importance as the guiding force for location of

enterprises whereas maximization of revenue and profits are gaining ground in

this respect. Thus, neither the freely selected sites nor the sites selected and

developed by the government in backward areas are the optimum.

The entrepreneurs have preferred locations which (1) are nearer to the industrial

centres (2) have close linkages with outside economy in terms of supply of inputs and

sale of output (3) have adequate infrastructure facilities.

Further, in case of credit supply the entrepreneurs, instead of subsidized/cheap credit,

desired adequate supply of credit.

40

Chapter-5

Factors influencing performance

Performance of an enterprise is directly related with enabling environment. There is

one to one positive relationship between the two. Enabling environment is a

comprehensive concept composed of various factors of development. The major

factors include national policies governing Government schemes, legal framework,

finance and fiscal issues, employment, technology education and the like. Logically,

Government policies and legal framework are expected to provide enabling

environment to MMEs and play positive role in shaping effectiveness of the sector.

Size of Enterprises

Table-1:

8(a) Composition of Assets (Per Unit Investment - Book Value Rs. in Crores)

Sr. No. Equipments Investment Average Investment

1 Land & Building 3312.46 13.47

2 Plant & Machinery 1852.38 7.53

3 Furniture & Fixtures 206.64 0.84

4 Others (Please specify) 137.76 0.56

Total 5509.24 22.40

Table-2:

8(b) Employment (Other Than Promoters)

Sr. No. Particulars Employment Average Employment

1 Total No of Employees 29172 118.59

2 Managers 1476 6.00

3 Supervisors 2214 9.00

4 Workers total 25482 103.59

4.1 Skilled 23498 95.52

4.2 unskilled 1984 8.07

Table-3:

8(c) Exports (Rs.. in crores)

Year 2004-05 2005-06 2006-07

Exports 78. 54 126.87 243.97

41

4.1 Reasons for limiting the size of Enterprise

Growth is a natural phenomenon. However, there are numerous inhibiting factors

like own resources, borrowed resources, market capturing capacity, high technical

knowledge and skills, his managerial ability, availability of inputs etc. The study

reveals that current size of enterprise is limited to present level because

promoters’ own resources are limited (37.39%), limitations of raising loans from

external sources (47.96%), selling the product (43.90%) and government policies

(34.55%). Other important inhibiting factors were the entrepreneur unwillingness

to take greater risks and his techno- managerial limitations. About one-fourth

entrepreneurs stated that the current size of their enterprise was optimum.

.Table-4: Reasons for Limiting the Size of enterprises at present level

Factors Responses %

Limited own resources 92 37.39

Limitation in raising funds 118 47.96

Market limitations 108 43.90

Inadequate technical knowledge 43 17.47

Managerial limitations 45 18.29

Unwillingness to take greater risks 46 18.69

It is an ideal size 63 26.60

Shortage of suitable manpower 49 19.91

Shortage of Raw Materials 52 21.13

Others 12 04.87

Total 246 100.00

Note: Sum of percentages exceeds 100.00 due to multiple choices/responses.

The initial size of project depended on various factors. Less than 40% promoters

stated that the initial size of their project was the optimum size. However, the reasons

for keeping a particular size varied in degree in backward and non-backward areas as

well as over time. Details are shown above.

Impact on Performance

The performance of an enterprise can be measured through financial like sales, profits

and physical –output - data. Promoters hesitate to provide financial information. So

the performance of an enterprise was measured in general terms. As they hesitated to

provide balance sheets and profit and loss accounts of their units the main promoters

were asked whether their units were making profits or losses. Units making profits

continuously during the last 3 years were taken as healthy. While units incurring

42

losses constantly for three years were categorized as sick units. Thus based on above

parameters the units were categorized in four groups namely making profits in the last

3 years, two years and one year, or making losses continuously for 3 years on the day

of field survey.

The study in this regard revealed that 65.86 per cent units made profits constantly for

3 years while only 3.25 per cent units incurred losses continuously for 3 years.

Details are shown in the Pie-gram given below. Details are shown below in Table.

Table- 5: Performance Status

Performance Status Responses %

Making profit for 3 years 162 65.86

Making profit for 2 years 49 19.92

Making profit for 1 years 27 10.97

Incurring Losses for 3 yrs. 8 3.25

Total 246 100.00

Future prospects

Only about 15% promoters stated the future prospects of their enterprises very bright

while 31.70% and 32.52% stated them to be bright and moderate. On the other hand

about 17% promoters were uncertain. The extreme cases stating the future of their

enterprises very dark were only 4 percent. Details are shown below.

Table-6: Future prospects

Particulars Responses %

Very Bright 36 14.65

Bright 78 31.70

Moderate 80 32.52

Doubtful 41 16.67

Dark 11 4.46

Total 246 100.00

Capacity Utilization

Level of production is one the most important indicator of the performance of an

enterprise. It is because more than half of the capital as also labour force in most of

the small-scale units was involved in production directly. Capacity Utilisation is

directly related with production. Or production has linear relation with capacity

utilisation. Hence capacity utilization has been taken as one of the measures for

assessing the performance of the enterprise. The availability of finance, power, raw

43

materials, labour and demand of the product directly affected capacity utilization. It

was also affected by the availability of numerous other support facilities in a

particular area.

Table-7: Distribution of Units showing levels of capacity utilisation

Level of Utilization Responses %

Full capacity 30 12.19

More than 80% 78 31.71

More than 70% 65 26.42

More than 60% 41 16.66

More than 50% 22 8.95

More than 40% 10 4.07

Less than 40% - -

Total 246 100.00

Only 3.13% units were operating at full capacity and those were located in non-

backward areas. None of the unit was utilising more than 80% capacity in backward

areas. Less than 5% units in backward areas were utilising 60 to 80 per cent capacity.

About 8 per cent units were operating at less than 40 % capacity and all of those were

in backward areas. About 44% and 87% units were utilising more than 50% capacity

in backward and non-backward areas respectively.

Return on Investment

Making profit is the most important factor for any enterprise. All enterprises make

efforts to maximize their profits. They set targets and try to achieve. About 19%

units were achieving their profit /targets but 68.7% failed to achieve the set targets.

Only 12.50 per cent units were fortunate to cross their targets. Further, most of the

units achieving and crossing their targets were located in non-backward areas. On the

other hand, 85.19% units in backward areas were in soup as they were unable to

achieve their profit targets.

Table-8: Distribution of Units showing Returns on Investment

(Figures in %)

level of return Backward Non-

Backward Total

Equal to target (62.64) 57 (53.55) 83 140

More than target (24.18) 22 (35.48) 55 77

Less than target (13.18) 12 (10.97) 17 29

Total 91 155 246

44

However, in their anxiety to systematically control the MSME sector for over three

decades, most of the Asian countries ended up in operating draconian laws full of

controls and approvals. In the process, Governments were perceived as "Controllers"

rather than "Facilitators". The control regime generally worked as barriers to growth

resulting in emergence of non-enabling and unfriendly environment for MSMEs.

Barring a few countries where systemic reform process was underway, in the rest of

the region these factors continued to work as barriers to growth and inhibit smooth

functioning of the sector. This chapter presents an analysis of the contributory and

impeding factor on performance of medium enterprises.

Factors Influencing Performance

Performance of an enterprise depends on internal as well as external factors.

Internally managerial capability/capacity is positively correlated with the success of

an enterprise. Actually management in an enterprise means effective and efficient

utilization of men, material, money and machine (4 Ms) in such a way that the best

results are produced with minimum cost. Thus, it basically includes management of

production, personnel, marketing, finance , and materials/inventories. Managerial

skills are dynamic and can be updated through tailored short duration training. But the

promoters of enterprises hardly admit internal/managerial limitations. Rather they

claim good performance and blame external factors for poor performance.

The external factors that compensate external diseconomies generally consist of

infrastructure and support facilities, industrial policy – both central & state

government, and incentives and inducements. These not only motivate potential

entrepreneurs to opt for self-employment but also attract them to establish their units.

The major inducements and incentives availed by the entrepreneurs are the

availability of developed land / shed and power / capital subsidy. The other

incentives/inducements include central capital subsidy, sales tax loan, seed money,

raw material supply, feasibility study grant, liberal assistance for modernization, state

capital subsidy, workers/entrepreneurial training etc. Some of these are available

exclusively in backward areas only, where general infrastructure facilities are

relatively less developed and entrepreneurs would not have gone and survived there in

the absence of additional incentives/inducements. But the availability, utilization and

hence their impact on performance of enterprises vary greatly. The proceeding

paragraphs highlight these contributory and inhibiting factors.

45

Contributory Factors

No doubt better management is the most important contributory factor closely

followed by the availability of easy financial assistance, better infrastructure facilities,

availability of plot/shed in industrial area, and Government policy. Incentives and

subsidies do contribute they are not rated very high. Similar is the position of Techno-

economic services and Cluster of similar units. They are rated at medium scale.

Details are shown in the table.

Table-9: Contributory factors for better performance

Particulars Responses %

Government policy 114 46.34

Better management 179 72.76

Technology up gradation / modernization 82 33.33

Availability of skilled manpower 61 24.80

Availability of easy financial assistance 154 62.60

Better infrastructure facilities 167 67.87

Availability of plot/shed in industrial area 136 55.28

Incentives/subsidies 57 23.17

Availability of Techno-economic services 76 30.89

Cluster of similar units 83 33.74

Others 19 07.72

Ranking of current Position of Contributory factors

The promoters have measured the current Position of Contributory factors on a five

point scale varying from excellent to very poor. The factors considered include better

management, availability of easy financial assistance, infrastructure facilities,

availability of plot/shed in industrial area, Government policy, incentives and

subsidies, techno-economic services and Cluster of similar units in a particular

location. Most of the responses reveal just average level in regard to most of the

above factors. Further percentage of responses regarding poor and very poor position

are higher than the percentage of responses for excellent and very good. Details are

shown below.

46

Table-10: Ranking of current Position of Contributory factors Available locally

(Figures in %)

Particulars Ranking Responses Percentage

1 2 3 4 5 No Response

Government policy 6.10 16.26 27.64 27.64 7.72 16.26

Management Services 4.07 15.04 27.24 23.58 25.20 4.88

Technology up gradation /

modernization Facilities 7.32 12.20 25.20 26.02 26.42 10.98

Availability of skilled

manpower 8.94 16.26 24.80 21.14 18.70 10.16

Availability of easy financial assistance 6.50 15.45 21.95 24.39 28.05 3.66

Better infrastructure facilities 14.23 21.95 26.83 18.70 12.60 5.69

Incentives/subsidies 8.13 13.41 23.17 28.46 21.54 5.28

Availability of Techno-economic services 11.79 16.67 29.67 17.48 15.45 8.94

Cluster of similar units 15.45 16.26 25.20 18.70 16.26 8.13

Others 4.07 5.28 7.72 6.50 4.07 31.71

Note: 1 is excellent, 2, is very good, 3 is good, 4 is poor and 5 is very poor.

Impeding factors:

Entrepreneurs were requested to specify the major operational problems and the

impeding factors thereof.. The responses showed that the main difficulties which

affected their performance and hindered their progress were shortage of power,

inadequacy of working capital, too many procedures and formalities to be

completed for availing any type of assistance and lack of coordination among

various programmes of assistance and the institutions implementing those

programmes. The other problems mentioned by the entrepreneurs included lack of

general day to day support facilities, scarcity of raw materials, inadequate

facilities for technical know how, marketing problems and labour problems. The

interest rate was also stated to be high.

47

Table-11: Distribution of units stating operational Problems

(Figures in % )

Problems Responses %

Inadequacy of working capital 132 53.65

Scarcity of raw materials 43 17.47

Inadequate facilities for technical know how 82 33.33

Marketing problems 127 51.62

Lack of coordination among various programmes and institutions

72 29.26

Too many procedures & formalities 113 45.93

Shortage of power 185 75.20

Labour problems 57 23.17

Transport problems 96 39.02

Lack of support facilities 103 41.86

High Interest Rates 80 32.52

Others 22 8.94

Ranking of problems

Problems faced by entrepreneurs in the functioning of their enterprises were ranked in

order of importance on the basis of their responses. The picture emerged from the

analysis showed that shortage/irregular power was the most important problem. The

other problems in the descending sequence were inadequacy of working capital, too

many procedural formalities, and lack of coordination among programmes/

institutions, lack of general support facilities, marketing problems, high interest rate,

labour problems, transport and communication problems, inadequate technical

facilities and scarcity of raw materials. However, the incidence of those problems

varied in backward and non-backward areas.

Table-12: Distribution of units stating ranks for different problems

(Ranks)

Nature of Problems Backward Non-Backward Total

Shortage of Power 1 1 1

Inadequacy of Working Capital 2 2 2

Too many procedural formalities 3 3 3

Lack of support facilities 4 5 5

Lack of coordination in programs/institutions 5 4 4

Marketing problems 6 6 6

Transport & Communication Facilities 7 11 9

High interest rate 8 7 7

Labour problems 9 8 10

Inadequate technical facilities 10 9 8

Scarcity of raw materials 11 10 11

48

Conclusions

Most of medium enterprises are doing well. The share of units making profits

constantly for the last three years was significantly higher. On the other extreme, in

the group of units incurring losses constantly for the last three years the share of

enterprises was much lower.

Further, position in terms of capacity utilization was satisfactory. And hence the

share of enterprises stating returns on investment equal to target or more than target

was significantly higher. Thus in the emerging environment of privatization,

liberalization and globalization, has favorable impact on medium enterprises.

However, project financing needs special attention. As in case of credit supply the

entrepreneurs, instead of subsidized/cheap credit, desired adequate supply of credit.

49

Chapter-6

Evaluation of Assistance Programmes, & Schemes

Introduction:

The central as well the state governments have evolved their industrial policies

consisting of many assistance programmes, & schemes for the promotion of medium

enterprises. These are related with Promoters’ background, Investment/size of

enterprises, nature of product, geographic area, activities (Marketing, Finance etc.),

and nature of inputs or output. Further, these assistance programmes, & schemes are

related to promotion of investment, export/import, R & D, taxes/excises, technology

upgradation etc. This chapter presents critical review of industrial policy, assistance

programmes, & schemes and incentives & subsidies which create enabling

environment for developing medium enterprises. It is divided in three parts, namely,

Policy Evaluation, Institutional Support System and Incentives and Inducements.

Analysis in first part is based on secondary information while the second part consists

of findings revealed by field survey.

Policy Evaluation:

The history of industrial development reveals that the basic infrastructure and the

foundation of key industries were laid down before Independence. However the

endeavor was inadequate, inadvertent and irregular with short term objective of

protecting growth objectives of foreign rulers. The systematic efforts to protect

national interest and achieve growth goals started only after independence. India

pursued a modal of planned economic development and the federal government

crafted a series of industrial development policies consistence with the changing

socio-economic concerns of the country..

But the basic accent of India’s policy for MME sector has been indifferent. Strictly

speaking they were not identified and recognized as an independent sector of the

economy. They were considered just as a transitional phase between small and large

sector. Broadly the policy remained to be step-motherly. They were clubbed together

50

with large sector with whom they were not having equal level playing as their position

in terms of management, technology and R & D was quite weak. They were unable to

enjoy economies of scale. Most of them operated at under-equilibrium point on both

input and output sides. It is surprising that despite all these unfavorable circumstances

they not only survived and sustained but proved them as the most dynamic segment of

the economy. They continued to maintain rising trend in terms of all economic

parameters, namely, the number, investment, employment, output and exports.

Therefore new MSMED Act 2006 has been evolved to cope with changing

environment. It is only now (After the introduction of MSMED Act 2006) that a new

impetus has been provided for the growth of medium manufacturing enterprises. In

the wave of economic reforms and the emerging economic environment, the

government has taken cognizance of the institutional context and complementary

infrastructure facilities for MMEs. Salient points are listed below:

Salient Features of The Micro, Small and Medium Enterprises Development Act,

2006

� It provides the first-ever legal framework for recognition of the concept of

“enterprise” (comprising both manufacturing and services) and integrating the

three tiers of these enterprises, viz, micro, small, and medium.

� Under the Act, enterprises have been categorized broadly into those engaged

in (i) manufacturing and (ii) providing/rendering of services. Both categories

have been further classified into micro, small and medium enterprises, based

on their investment in plant and machinery (for manufacturing enterprises) or

in equipment (in case of enterprises providing or rendering services)as under:

Manufacturing Enterprises:

Micro Enterprises investment up to Rs.25 lakh. Small Enterprises-investment

above Rs.25 lakh and up to Rs.5 crore. Medium Enterprises-investment above

Rs.5 crore and up to Rs. 10 crore.

51

Typical Observations:

� The policy states that its primary objective is to impart greater vitality and growth

to the sector. In furtherance of this objective, the sector would be deregulated and

de-bureaucratized to remove all fetters on its growth potential.

� Modifications in all statements, regulations and procedures would be made to

ensure that they do not militate against the interest of MMEs.

� A separate package for the promotion of MMEs would be developed.

� There would be a shift in emphasis from subsidized / cheap credit except for

specified target groups to adequate flow of credit on normative basis to MMEs

sector.

� Access to capital markets will be facilitated for MMEs and equity participation by

other industrial undertakings would be allowed.

� Legislation to ensure prompt payment MMEs by large companies.

� New impetus to the scheme of Integrated Infrastructural Development to provide

industrialization in rural and backward areas.

� Significant stress on technology upgradation by setting up of Technology

Development Cell and strengthening the existing facilities available with SIDO.

� Promotion of marketing of MME products through institutions, other agencies and

consortia approach.

� Strengthening of exports through setting up of Export Development Centres.

� Enforcement of quality control and support to modernization and technology

upgradation of MSME sector.

� Change in definition of women enterprises and support to women entrepreneurs.

� Significant expansion in programmes for entrepreneurship development.

� Simplification of rules and procedures to provide easy and adequate access to

physical financial and techno-economic facilities.

Appraisal of the policy

The need for the government intervention stems from the failure of the market

mechanism to equitably distribute the economic benefits amongst different regions of

the country. It is also desired because of sharp divergence between social and private

costs as well as benefits. The social costs/benefit analysis is not taken into account at

all by the entrepreneurs operating under market forces. Temptation of profit earning

seems to be the sole criteria of entrepreneurs for setting up their enterprises. Therefore

52

it is difficult to judge the impact of such a major policy changes against performance

indicators.

In regard to enabling environment the new policy is founded on a proper

understanding of the fundamental problems of medium sector and the measures

proposed by it are well directed to mitigate the handicaps that face this sector.

Some analysts argue that the periodical changes in policy itself are an achievement

which clearly reflect the determination of the government to help the healthy

sustenance of MME sector. These changes would undoubtedly expand the scope and

significance of assistance programmes.

Reducing protection would force to compete and impart a new dynamism to innovate

and improve quality to reach international levels. The new policy also shows intention

of government to direct MMEs policy towards the up-building of the modern medium

industry. The concept of modern enterprises implies to units which fulfill the

requirements of emerging modern economy, have a progressive outlook, are ready to

adapt to changing conditions and are willing to use those processes that modern

science and technology have offered and are willing to apply modern organization and

management concepts.

In regard to enabling environment the new policy is founded on a proper

understanding of the fundamental problems of medium sector and the measures

proposed by it are well directed to mitigate the handicaps that face this sector.

Some analysts argue that the periodical changes in policy itself are an achievement

which clearly reflect the determination of the government to help the healthy

sustenance of MME sector. These changes would undoubtedly expand the scope and

significance of assistance programmes.

Reducing protection would force to compete and impart a new dynamism to innovate

and improve quality to reach international levels. The new policy also shows intention

of government to direct MMEs policy towards the up-building of the modern medium

industry. The concept of modern enterprises implies to units which fulfill the

requirements of emerging modern economy, have a progressive outlook, are ready to

53

adapt to changing conditions and are willing to use those processes that modern

science and technology have offered and are willing to apply modern organization and

management concepts.

However, in regard to de-regulation when compared to other countries the World

Bank compared India with 174 countries and found India’s position at the median

position in the regulation measure. India also compares poorly with other countries on

the measure of governance, regulatory effectiveness and the quality and quantity of

infrastructure and the percentage of management time spent to deal with government

officials on regulatory and other administrative issues. Therefore it is good that

regulation burden in its widest meaning has been reduced. Further, it is observed that

the current industrial policy promotes survival of the fittest based on capital intensive

techniques.

Institutional Support System

An elaborate network of institutions has been established to provide various types of

assistance to small enterprises. While some of them are activity specific (like market,

finance, raw material supply, technology, etc.) others are area specific (backward

area, hill area or District level, State level etc.). Some of the organizations undertake

multiple functions and provide assistance at different stages of a project cycle. Most

of the All India level institutions frame policies, design programmes and provide

indirect assistance for SSI development and play the role of a coordinator. On the

other hand state level institutions implement those policies and programmes. Then

there are other autonomous institutions and industrial associations extending support

to MMEs. Thus, there is well envisaged institutional framework extending

stimulatory, support and sustenance services and helping small enterprises at pre-

investment as well as post investment stages.

Though the Government – both Central and State, have made considerable efforts to

formulate comprehensive and consistent industrial development policies and

programmes but the institutional framework has not achieved the desired objectives

due to many reasons.

Firstly, it is well known that a mere increase in the number of institutions for various

types of assistance does not by itself assure successful growth and viability of

54

industries. An integrated functional approach on the part of these institutions is even

more important. A proper balance between different types of activity is necessary.

For example, credit may not be utilised, industrial areas/shed may remain unoccupied

if adequate measures are not taken to stimulate entrepreneurship. Similarly,

productivity may remain low if due importance is not given to modernisation.

Modernisation will not be undertaken without adequate provision of finance and

techno-economic services to improve managerial skills and technology. The

matching arrangement for different types of facilities, needed at different stages of

development of industrial units, seems missing.

Secondly, bureaucratic approach and lengthy and cumbersome procedures also seem

to constitute impediments to the utilisation of institutional resources as reflected by

the preference of entrepreneurs not for government institutions, but for the private

sources of physical, financial inputs and techno-economic services. They even prefer

to pay higher prices/interest to private sources to avoid institutional formalities.

Thirdly, the multiplicity of organisations, with duplication of functions reduces

accountability and responsibility of the organisations in poor performance in a

particular area or activity. Instead of competing, they shirk their responsibility as the

career of the staff is not linked with the performance. Entrepreneurial spirit and self-

initiative are almost missing in development agencies. Mounting socio-political

pressures and deteriorating moral values, very often, do not allow fair working. Red-

tapism has not reduced and delay in the work is unabated.

Fourthly, many organisations work individually, in isolation, with their own rules and

regulations. This feature of lack of co-ordination is being observed not only among

various institutions, but in the different cells/wings of the same institution also. Very

often, the different institutions, individually, demand for same types of

information/documents from the small entrepreneurs, resulting in wastage of

productive time, money and energy. In some of the organisations, the formats are

quite old, asking for routine information which has no relevance for current policy,

except increasing the file-load.

55

Fifthly, some of the agencies deal with fiscal measures to raise revenue for the

Central/State Governments and/or local administrative bodies as well as to give

specific direction to industrial development. But, sometimes, these fiscal measures

have uneven/impeding impact on the performance of industrial units located quite

nearby but in different administrative areas. They have adverse effect on the

industrial units of one area and thus erode their viability.

Though the institutions and the policies and programmes have emerged as a result of

considerable thought and planning, there is a need to critically examine the

procedures and practices adopted for helping, guiding and regulating the small

manufacturing enterprises.

Incentives and Inducements

Incentives and inducements are motivational forces which attract new entrepreneurs

and improve productivity of enterprises. These could be financial or non-financial.

They include concessions, subsidies and bounties (bonus or financial assistance. They

help balanced regional development, removal of economic constraints and provide

competitive strength and growth. But if they are not monitored judiciously, fail to

meet the desired objectives developing bogus units, encouraging inefficiencies,

promoting unviable entrepreneurs and use of resources, breeding corruption and

blocking graduation of micro to small to medium to large unit.

The incentives and inducements also tend to discourage the beneficiaries from

graduating to large enterprises. They also have achieved limited success in motivating

local population of the backward areas to adopt industrial careers.

Thirdly, the inter linkages between the backward and developed areas are limited and

hence call for the reorientation of the policy in selecting such sites and industries

which offer maximum of backward and forward linkages. The incentives and

inducements should take care of such issues.

Fourthly, the policy of the incentives and inducements has received limited success in

the provision of non-financial assistance concerned with both the inputs and output,

except the provision of the readymade sheds and plots.

56

Therefore, while monitoring the new policy focus should remain at competition,

cooperation and interaction between MMEs that generates collective efficiency,

technical upgrading and pooling of resources and enhances scope and scale of

economies especially in agglomeration or cluster. There is a need for continuous

monitoring of the impact of policy changes and taking up corrective measures to meet

the need of the enterprises. There is also a need to develop data banks on industries to

guide the potential entrepreneurs, including investors from abroad, to provide support

for technology, infrastructure support, to bring about attitudinal change among the

officers of banks and financial institutions as well as officers of other concerned

organizations for improving the flow of credit and other services. Also, the MME

sector must realize that in the emerging economic scenario of liberalization, structural

reforms and globalization their easy and smooth sailing has been replaced by uneven

tides. They will have to stand on their own to face competition from within the

country and abroad, which is likely to grow in the next few years. The emerging

challenges and opportunities may make or mar their progress depending on their own

capacity and capability

57

Chapter-7

Global Scenario Of Manufacturing Medium Sector

Introduction:

At the dawn of the 21st century there is globally great change in the business

environment. In contrast to the earlier highly protective and self-reliant period this can

be called a period of de-licensing, deregulation and decontrol for industrialization.

The process of privatization, liberalization and globalization of economic activities

has affected all economies across the world in one way or the other. Almost all

individual enterprises growing under protective umbrella have been left open to the

invisible hands of market forces. The compulsions of changing economic scenario

have made their operations more transparent, accountable and responsive. It has

increased the sphere of competition both horizontally and vertically in national as well

as international markets and created an environment where fittest will survive and

inefficient will be weeded out. It has underlined the concepts of productivity, quality,

effectiveness and efficiency. Even the MMEs, like large firms, are subjected to

increased competition in foreign markets due to decline in tariff barriers as adopted by

the Uruguay Round of Negotiations.

Thus, it can be said quite safely that the emerging socio-economic scenario has

changed the macro-economic scene for MMEs. They are facing:-

� Cost pushed inflation

� Increasing market opportunities for inputs and output;

� Rising demand for skilled labour

� Increasing capital intensive techniques

� Increasing application of innovations

� Increasing professional management

Therefore, MMEs are moving towards the healthy sustenance and the potential

benefits may be realized in the emerging business environment.

Socio-economic globalization has become the necessity as well as compulsion.

Development experience sharing remains no more a sweet choice of different nations

but urgency for maintaining a competitive edge. This chapter attempts to present

critical examination of the status of medium enterprises across the countries.

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Information available in this regard is quite limited. It is mainly because the medium

enterprises are not defined properly. They are considered just a transitional phase

between the small and large enterprises. Perhaps it is only in India for the time that a

specific definition has been evolved through its MESME Act 2006. In this definition

medium enterprises are taken as a part and parcel of small enterprises and they are

looked-after by the MSME Ministry. Therefore, due to data limitations, this study

endeavors to assess the position of medium enterprises with the help of

information/data available for small and medium enterprises(SMEs) taken together

that occupy special status in all economies across the world. This chapter is based on

secondary information collected from different studies, papers and articles2.

Status & Contribution of SMEs

Among various sectors of the economy contributing to the economic growth, SME

sector requiring least investments has emerged as a major contributor and potential

force to fight against poverty. SMEs in Asia may be well characterized as the engines

of growth, backbone of national economies, second highest employment generating

sector next to agriculture, a potential tool of poverty alleviation by offering self-

employment avenues, and a significant contributor to country's industrial production,

exports, national income and the GDP.

In developing Asia, SMEs have made significant contributions over the years

measured in terms of their share in the (i) number of enterprises; (ii) employment;

(iii) production and value added; (iv) GDP, (v) enterprises set up by women

entrepreneurs; (vi) regional dispersal of industry, etc. SMEs contribution to the

economy is very vital in as much as they, by and large:

a) make up over 80-90% of all enterprises;

b) provide over 60% of the private sector jobs

c) generate over 30-40% of total employment

d) contribute about 50% of sales or value added

e) Share about 30% of direct total exports.

2 Major Sources:

1. SMEs in Asian Region: Harnessing the Growth Potential, AAMO – 2007

2. Entrepreneurship Development for Competitive Small & Medium Enterprises; Asian

Productivity Organization - 2007 3. OECD/APEC project; Key Note Paper, Nov. 2006

4. Global Competitive Report – 2007

5. World Development Report - 2002

59

Typical Observations:

However, there is a wide disparity in the status of SMEs as between countries of

Asia. SMEs in the LDCs do not appear to have reaped the benefits of globalization

and technological developments happening around them. SMEs need to be exposed

to the advancements and global markets through 'open-door' intensive support policy.

The share of SME enterprises in the total number of industrial enterprises ranges

between 79 percent and 99.7%. On an average, it is about 80% in respect of the

LDCs in Asian region. SMEs in Asia are mostly proprietary or partnership (90% of

the total) with exception of Malaysia where about 72% operate as private limited

companies. Their presence in the corporate sector is quite negligible. This ownership

pattern has significantly influenced the pace and flow of institutional support and in

particular access to institutional finance and credit. Generally, rigid mind set,

lukewarm approach to change, fear of losing trade secrets, reluctance to share

financial information for fear of regulators are some of the factors contributing to

continuance of proprietary pattern of ownerships and hinder their process of

graduating into corporate sector.

The share of SMEs in the total employment ranged between 56 and 98% (except

Malaysia and Philippines, where the percentage share was less than 50 %. Generally,

in all Asian countries. Among them, smaller firms exhibit higher net job creation

rates as compared to the large firms. Incidentally, in Asia well above 60% of the total

workforce is employed by the SME sector compared to Botswana (17%), Kenya

(18%), Lesotho (17%), Malawi (23%), Swaziland (26%) and Zimbabwe (27%).

The ability of SMEs to contribute to exports varies widely in Asia- between 10 and

60 per cent. Asian countries generally compared well with those in the developed

economies such as, Austria (99.5%), Canada (99.7%), U.K. (99%) and USA (99.7%)

and by employment to total industrial employment, such as, 72%-Austria, 60%-

Canada, 66%-UK and 50%-USA, the percentage share of SMEs contribution to GDP

in the Asian countries was lower than those in the developed economies which

generally ranged between 30%- Australia to 40%-Finland. However almost all

countries in Latin America (particularly Bolivia, Chile, Costa Rica, El Salvador,

Paraguay) recorded lower percentage shares than Asian countries in relation to all the

three components.

60

Major Constraints for growth

External

i) Policy Related

• Taxations laws / high taxes are major constraints faced by SMEs of India,

Mauritius and Malaysia

• Bureaucracy of the Governments in the countries like India, Mauritius and

China are posing major constraints for the SMEs.

• Unfavorable legislation in India and Hong Kong and it is indeed a constraint

for the SMEs.

• Poor property right enforcement in Malaysia and India.

ii) Infrastructure Availability

• China followed by India has observed high growth on account of availability

of Roads, Industrial Estates, and Power & Transport facilities.

iii) Major Financial Constraints

• 71.43% SMEs in China, 71.11% of SMEs in Sri Lanka and 42% of Indian

SMEs have experienced difficulty in getting easy access to finance.

• Getting collateral security is the bottleneck for the SMEs of Sri Lanka, China

and India to obtain loans-

• Mauritius SMEs are facing lot of problems in obtaining working capital loan.

The least difficulty is experienced by New Zealand and SMEs

iv) Technological Constraints

• Locating sources of appropriate technology, financial resources to acquire

technology, product design are together added woes to the SMEs of

Mauritius, Thailand and China. The respondents have attributed them as

major constraints towards achieving growth.

v) Application of ICT tools

• Usage of ICT tools in business communication is very high in India (80%)

followed by Hong Kong, Thailand

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• Use of ICT tools in marketing and sourcing information is also noticed

highest amongst the SMEs of India as compared to other countries under

study.

vi) Relative strength of Certified SMEs (ISO or Equivalent)

• In India 32% of SMEs have obtained ISO to remain competitive and take

advantage of globalization. Indian Government is partly funding SMEs to

motivate them to obtain ISO, by providing incentives.

• SMEs of China and Hong Kong have also shown relatively high percentage

(25%) of ISO certification.

vii) Marketing Constraints

• Competition in the global market for exports is mostly experienced by India,

China and Mauritius

• Lowering of Import duties resulting in free movement of imported goods has

posed major constraints to SMEs of India, Malaysia and Mauritius

• Cut in subsidies and reduction in the extent of protection, which are not WTO

compatible have by and large affected the Indian SMEs.

viii) Business Environment

• Technology change is one of the major threats as experienced by the SMEs of

the countries like Mauritius, Hong Kong, India, and New Zealand.

• Competition from imports -a major threat as per 74.21% SMEs of India o

High cost of production -a phenomena of concern for all countries

• Threats of having more competitors in the domestic market are being

experienced by almost all the countries under study.

Internal Constraints

1. Shortage of working capita/ to finance exports

2. Identifying foreign business opportunities

3. Limited information to locate / analyze markets

4. Inability to contact potential/ overseas customers

5. Obtaining reliable foreign representations

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6. Lack of managerial time to deal with internationalization

7. Inadequate availability and poor skills of personnel

8. Difficulty in matching competitors' price

9. Lack of government assistance / incentives

10. Excessive transportation / insurance costs

Enabling Environment

Enabling environment, a comprehensive concept is composed of various factors of

development. The major factors include national policies, programmes and schemes,

legal framework, finance and fiscal issues, employment, technology education and the

like. Logically, Government policies and legal framework are expected to provide

enabling environment but over the decades, most of the Asian countries ended up in

operating draconian laws full of controls and approvals. In the process, Governments

were perceived as "Controllers" rather than "Facilitators". Barring a few countries

where systemic reform process was underway, in the rest of the region these factors

continued to work as barriers to growth and inhibit smooth functioning of the sector.

Though there is equal need for promoting MMEs, the enabling environment is

different in different countries. Table – 1 given below shows the ranking of SMEs in

11 Asian countries.

In the Study of 53 countries on "Most and Least Friendly Countries the top four

countries, namely New Zealand, USA, Canada and Australia find the environment

conducive and face a few hurdles for starting and operating businesses. Undoubtedly,

SMEs contribute significantly to the economic development of Asian Countries, and

are emerging as engines of growth for these economies. But their growth potential is

not fully realized. Some of the major barriers to MSME growth are identified as

finance, credit, access to information, bureaucracy, taxation, legislation and lack of

business and management skills. These factors are in fact characteristics of the

environment in which SMEs grow. AAMO study assigned to Global Projects &

Services to identify variables that act as barriers to MSME creation & growth in Asian

Countries, conducted recently (2007) also corroborates the ranking given in table -1.

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Table – 1. Ranking of SMEs in 11 Asian countries.

Rank Country Fortune Small Business Score

5 Singapore 1.88

6 Hong Kong, China 1.86

13 Japan 1.64

15 Thailand 1.60

28 Malaysia 1.31

34 South Korea 1.25

37 Taiwan, China 1.15

42 China 1.05

46 India 0.94

51 Philippines 0.90

53 Indonesia 0.61

Source: Study of 53 countries on "Most and Least Friendly Countries; conducted by

Fortune Small Business and London Business School and Babson College.

The common emerging scenario is that, in many countries of the region, there is still

inadequate recognition of the dynamic potential of SMEs. While they are viewed as

necessary for job creation in the short run, the fact that their development can play an

important role' in the growth process is insufficiently appreciated. As a result, a

coherent policy framework at macro-level is lacking in many cases, although

programmes for micro-level assistance to SMEs exist in all countries. The regulatory

framework for the operation of SMEs is either non-existent or inappropriate, skill

development programmes scarcely address their specific problems and very little

effort has been made to promote their linkages with large enterprises. Unless these

problems are addressed, SMEs will remain precarious providers of low-quality jobs

rather than become dynamic agents of economic growth.

Asian Competitiveness

The World Economic Forum in its annual series of research project viz., "G/oba/

Competitiveness Index”, identifies key factors affecting growth. The Table below

shows ranking of some of the Asian countries.

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Table 2: Ranking in terms of key factors affecting growth

Country Weak Technology

Macro- Eco. Enviro.

Public Institutions

Business competition

Global Comp. Index

Skilled Persons Availability

Competitive Growth Index

Finland 3 3 3 2 2 2 1 USA 1 15 21 11 1 8 2 Korea 9 35 41 24 26 52 29 Malasiya 27 20 38 23 23 43 31 China 62 24 55 47 32 67 46 India 63 52 53 30 37 1 55 Pakistan 87 67 102 73 87 61 91

Source: Global Competitive Index – 2005; World Economic Forum

The above situation is indicative of the fact that countries develop and compete only if

the enabling environment is favorable. Finland is able to attain growth

competitiveness index at number one mainly because it could arrest the adverse

impact of factors affecting growth. On the contrary, others in Asia could not be so

successful in containing the negative role of hindering factors.

Global competitiveness index (GCI) that reflects productivity and competitiveness

includes critical factors like institutions, infrastructure, macro economy, health and

primary education, higher education and training, market efficiency, technological

readiness, business sophistication, and innovation. Competitiveness finds its ultimate

expression in the prosperity that countries can sustain over time. Prosperity is

sustainable if it is based on the level of productivity that MMEs can reach given the

condition they face in an economy. While competitiveness remains focused on

macroeconomic, political, legal and social circumstances that strengthen a successful

economy, progress in these area is necessary but not sufficient. Hence the business

competitiveness index (BCI) has been developed, which ranks MMEs by their

macroeconomic competitiveness, identifies competitive strength and weakness in

term of countries’ business environment conditions, operation and strategies, and

provides an assessment of the sustainability of countries’ current level of prosperity.

GCI and BCI Ranks of selected Asian Economies is given below.

Table 3. GCI and BCI Ranks of selected Asian Economies

Country GCI BC

Bangladesh 99 108

India 43 27

Indonesia 50 35

Malaysia 26 20

Nepal 110 111

Pakistan 91 67

Philippines 71 72

Vietnam 77 82

Source: Global Competitiveness Report - 2006-07,” World Economy Reforum September 26, 2006

65

The enabling environment is central to the development process of any country. To

harness and sustain development, a healthy enabling environment is a must.

Technology & Innovations

Governments have, therefore, come to realize that for national and regional balanced

development, SMEs competitiveness must be strengthened. This can be achieved by

making the sector technologically robust on the solid base of R&D, innovations and

adoption of latest technology through technology transfer and adoption of ICT

enabled services. Most of the developing economies in Asia do not have this strength.

Generally, the following road- blocks are responsible for low technology base.

a) Rigid mind-set with resistance to change.

b) Low human capital: Many Asian countries suffer from low level of technology

due to low level of investment in human capital and aggravated by large scale of

outward migration of highly professional skills.

c) Apathy to skill upgrading of the employees: While, the MSME sector in

Mauritius, Singapore and India have definitely benefited from continuous skill

upgrading programmes, in many other countries, issues such as cost, paucity of funds,

absence of such programmes, etc. come in the way.

d) Cost: Benefit looming large: SMEs are generally not appreciative of the gains out

of upgrading the technology or modernization, when viewed on the basis of cost:

benefit analysis.

High value added technological development is emerging very fast and in order to

keep pace with the speed, it is highly desirable for SMEs to acquire differentiated

knowledge and new technology to survive and retain their positions in the market.

This will lead to regional balanced development, narrow the growing the developed

and the least developed divide, and above all create a skilled band of labour /

managerial force in the region.

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Project Financing

Both 'availability' and 'easy access' to "timely and adequate credit" have been the

major problems for SMEs. In their joint research project on "Removing Barriers to

MSME Access to International Markets” (November 2006) OECD &APEC, have

found that SMEs rate "Shortage of Working Capital" as number one constraint out of

major ten.

Banks perceive SMEs as Risky due to insufficient assets and low capitalization,

vulnerability to market fluctuations resulting in high mortality rates, lack of

accounting records, inadequate financial statements or business plans. Further, high

administrative I transaction costs of lending or investing small amounts do not make

SMEs loan portfolio a profitable business.

SMEs view Banks as Hostile due to inadequate and delayed availability of credit

especially the short term I working capital, wide time gap in the dispensation of

working capital and term loan, banks insistence on more than 100% collaterals and

third party/personal guarantees, higher promoters' contribution.

Conclusions

The SMEs globally have carved out a niche of their own and have proved their mettle

in boosting any national or regional economy. It is mainly due to pro-active

government support, resilient private sector participation, simplified procedures,

openness to changes and shaking of rigid mind-set, developing competitiveness by

falling in line with the latest changes keeping an eye on capturing the global market,

treating large industries as partners and not as competitors- for increasing outsourcing

and sub-contracting, ancillarisation, and strategic alliance, and growing public private

sector partnership

They are, however, constrained due to various inhibiting factors in growing fast so as

to keep pace with the changes taking place in the world market. The major roadblocks

are unresponsive enabling environment, lack of modern technology, R&D,

innovations and environment management, paucity of timely and adequate finance

and innovative finance with no risk mitigation, old infrastructure and no cluster

development, lack of market information, and marketing support, no knowledge of

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global value chain and supply chain management, shy entrepreneurship with limited

sustaining power in adverse situations, and irrelevant institutional network, which are

heavy and overlapping without poor delivery mechanism.

Therefore taking an overall view relating to the criticality of SME sector and its

current status there is need for having a comprehensive plan for development of S&T,

innovative finance, developing state-of-the art infrastructure, and support facilities

and evolving and implementing training, institutional development, capacity building

programmes.

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Chapter-8

Specific Policy & Programme Interventions

With the improvements in information system the MMEs in India are facing changes

in the internal pattern of work, in corporate links and business expansion. The Hi-

Tech information system has changed the way of working, simplified decision making

process, made the relationships more open and closer, and facilitated direct contact

with an unspecified number of customers over a wide area through dissemination and

collection of information. The modern MME units know how to fulfill customer

orders fix prices, reduce costs, maintain inventories and increase profits.

However, the business environment has become more complex, competitive and

challenging. Pattern of consumer demand is becoming increasingly diverse with the

adoption of more varied values and life styles, growing insistence on high quality

products and the public’s increasing concern about health and safety, environmental

concerns. These forces working on consumer and firm level demand continued

improved technology, product quality, distribution channels and suppliers operations

along the growing reliance on information systems. So there is need for Identification

and suggesting specific policy/ programme interventions required for accelerating the

growth of manufacturing medium enterprises

In this regard this chapter presents suggestions for policy/ programme interventions

required for accelerating the growth of manufacturing medium enterprises to cope

with the emerging environment. These are based on field survey, interactions with

concerned officials, discussions with industrial associations, review of secondary

information and have been supplement with personal observations of consultants.

The promoters of medium enterprises facing functional constraints suggested

measures for developing enabling environment which included, Easy & Adequate

Finance (65.45%), Infrastructure & Support Facilities (59.76%), Attitudinal change in

administrators (34.96%), Developing Economic Zone (31.30%), More market

promotion schemes (26.42%), Special Institutional arrangements (18.29%), Providing

Progressive performance Oriented Incentives and subsidies (17.07%) and Developing

Clusters (12.60%). Details are given below.

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Table -1: Suggest Policy Measures for promoting and accelerating the growth of

Medium Manufacturing Enterprises

Measures Responses %

Developing Clusters 31 12.60

Developing Economic Zone 77 31.30

Providing Progressive performance

Oriented Incentives and subsidies

42 17.07

Special Institutional arrangements 45 18.29

More market promotion schemes 65 26.42

Attitudinal change in administrators 86 34.96

Infrastructure & Support Facilities 147 59.76

Easy & Adequate Finance 161 65.45

Thus, adequate supply of credit, technology assistance, infrastructure and low

transaction costs are the hallmarks for promoting MMEs which may be achieved by

developing a variety of linkages between enterprises and their support institutions,

partnership between the private sector and the government, greater information flows

and by streamlining the legal and institutional framework. Emphasis should be on

promoting clusters of small scale enterprises with adequate institutional facilities,

abundant provision of services and infrastructure development. In this regard the

centre-piece of the new approach should be an increasingly public private partnership

(PPP) for setting up support systems.

New Policy Directions

Undoubtedly Indian Industrial Policy has remained in tune with the ground realities.

From the very early stages of industrial development the government judiciously

fostered an elaborate structure of institutions that met a wide array of needs of this

sector operating in scarcity-ridden economy. However, due to excessive licenses,

quotas and permissions to be sought from government entry into industry and

successes subsequent to entry became heavily dependent on entrepreneurs ability to

deal with officials and inspectors. Further much of the policy regime became

protective in nature. Fiscal benefits discouraged the beneficiaries from graduating into

medium and large scale companies and thus limited the social benefit. A variety of

government agencies providing a gamut of professional services proved to be

inadequate, ineffective and inefficient.

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Therefore the new policy (MSMED Act 2006) has sought to reinforce the impulse for

accelerated expansion. Its emphasis is on promoting interdependence between the

small, medium and large segments of industry as is existing in Japan, Italy and other

Developed countries, such that the small, medium and large sectors are mutually

reinforcing and not competitively erosive. It aims to promote collective action by

business associations, local governments and support organizations for acquiring

knowledge and skills to renew production and marketing methods of individual

enterprises. Special attention is paid towards industrial clusters which can lower

transaction costs, help realize external economies and lower the cost of credit. Private

companies are promoted to supply a host of business services which were earlier

delivered by state owned institutions. On equity considerations government has

sought geographical dispersion of growth by investing in infrastructure of backward

areas.

However, enabling environment is a comprehensive concept composed of various

factors of development. The major factors include national governing policies,

Government schemes, legal framework, finance and fiscal issues, employment,

technology education and the like. Logically, Government policies and legal

framework are expected to provide enabling environment to MMEs and play positive

role in shaping effectiveness of the sector. Therefore in this regard following

suggestions should be taken care of:-

Suggestions for Government

• Reform regulations and legal framework

• Place MME sector high in development agenda, national development plans, etc.

• Consult private sector while designing policies & programmes for MMEs

• Foster international cooperation in MMEs sector for better investments and trade

• Encourage bi-lateral and multi-lateral agencies to collaborate with the MME

sector

• Network foreign aid and technical assistance

Suggestions for Public-Private Partnerships:

• Develop cross border trade

• Transfer skills and knowledge with technology and R&D support.

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• Increase investments

• Ensure basic in-puts to MMEs

Suggestions for Private sector

• Play more pro-active entrepreneurial role through Associations and Chambers.

• Bring awareness to entrepreneurs & MMEs on opportunities for growth,

technology etc. and responsiveness to society.

• Develop more linkages with MNCs and TNCs.

• Set quality standards

• Pursue good governance & self audit system

Suggested Road Map

In order to create enabling environment, a package of Government policies is needed

covering institutional framework in regard to fiscal, financial, infrastructural,

marketing, export-import, technology development / modernization, R&D and

venture capital, capital market with suitable listing, insulating the sector from

dumping external goods and exit route policy, equity support, women development,

TQM and environment management policies, harassment from inspectors &

bureaucracy etc. Governments and public sector organizations should take following

actions:

1. Government Policy Programming

� Reforms Policies, Regulation, and Legal Frame work for MMEs: Policy

design and regulation for new star-ups, registration of firms, the tax system,

Labour laws, financial markets and access to formal source of finance,

bankruptcy laws, and regulation of intellectual property rights should be

enacted or simplified so as to attract new and existing entrepreneurs to enter

the formal market and the benefit from a systemized approach to operating a

business.

� Involve the Private Sector in the Policy Process: Government needs to

establish permanent councils/partnership/collaboration arrangements through

chamber of commerce and industry with the representative of MMEs, to serve

platform where MMEs views can be discussed and deliberated before

finalization of any policy and implementation of changes.

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� Promote an Entrepreneurial Culture: Government both central state need

to promote their vision for entrepreneurship development, innovation, and

competitiveness of the enterprises at the state level, national and international

level by introducing entrepreneurship awards, financial products and schemes,

Web-based portals for marketing and information, entrepreneurship training

and technological innovation etc

2. Identification of Investment Opportunities & Benchmarking of Information:

� In today's world, knowledge is power hence information process must be in

place. Paucity of authentic information on investment opportunities and gaps

for the guidance of prospective entrepreneurs and data on number of industrial

units, manufacturing lines, sales/exports, export opportunities, etc. is one of

the major bottleneck of MMEs. Country-wise/region-wise mapping of

investment opportunities, identification of growth centers, markets, export

potential, project profiles for taking quick investment decisions by the

promoters, census, developing electronic data base for dissemination of latest

information are some of the areas to be taken care of.

� Realizing the skill and resource constraints of both the new and existing

enterprises for gathering the required information, a three-tier information

network is needed to be built up at local, regional and national level. It will

strengthen business advisory services. The manufacturers individually as well

as their associations, associations of traders and private consultants must be

involved in collecting and disseminating market information. They may help

in identifying projects and markets best suited for the entrepreneurs and

geographical regions.

� In the rapidly changing economic and commercial environment, after building

such a network there is need for a constant monitoring and upgradation to

provide relevant and up to date information.

� Further, expertise from government, public and private sources should be

utilized to make market information more purposeful and professional. The

local associations of industrialists can play an important role by scanning

through the various commercial websites and disseminating the relevant

information to their members.

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3. Infrastructure, Marketing infrastructure Development Programme

� State-of-the art infrastructure is a prerequisite for any development

programme. Similarly well-developed marketing infrastructure both tangible

and intangible (such as advertising, brand equity, trade-fairs & exhibitions,

fashion shows) is also very critical input. For these types of infrastructure &

support facilities though Government policies and financial support is

essential but public private partnership is ideal.

4. Marketing

Specific marketing assistance should be provided to MMEs in the following areas:

• Market intelligence

• Standardization, brand equity building and brand positioning strategy

• Dissemination of information in the form of bulletins and journals on the

emerging market opportunities.

• Supply chain management.

• Subcontracting exchange

• Strategic alliances with large national and Multinational Corporation.

5. Technology

Technology plays a key role in MME growth. Therefore there need to adopt suitable

technology to harness the resources available. As on date, no specific data is available

on the technology levels of various products and services. To draw a long-term

technology map, it is necessary to carry out technology missions. The objectives of

such mission could be:

� To bring awareness and promote introduction of new and emerging

technologies for MMEs,

� To assess the present level of technology in the various sectors and to forecast

technology level to be achieved,

� To set up an IT portal for information dissemination and creating awareness,

� To coordinate the efforts of various agencies, technical centers and institutions

engaged in Technology studies & audit

� To encourage R&D of indigenous technologies to assist MMEs,

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� To create incubator infrastructure facilities in various technical and

management institutions,

� To motivate MMEs to obtain BIS/ ISO certification,

� To organize awareness campaigns among MMEs pertaining to quality,

standardization and customer satisfaction,

� The technology mission should focus on selected sectors contributing to the

economy. A detailed five year plan can be worked out for these sectors and

� To promote environment friendly technologies and address issues relating to

pollution control.

6. Finance & Credit Schemes

� Availability of timely and adequate credit is the lifeline for the MMEs sector.

Mismatch of the short term with long term loan, delayed working capital

decisions give birth to sick units from day one. It is, therefore, essential to

have a package of credit assistance programme starting from equity/seed

capital support, followed by support for augmenting promoter's contribution,

long-term loan and working capital, marketing including export-import

support, bills marketing for quick realization of sale proceeds, venture capital,

etc. This requires sound central banking policies, well conceived development

financing institutions schemes and commercial banks credit schemes.

� Based on credit worthiness, sales volume, area of sales and other important

indicators, the credibility and performance of more and more companies

should be rated periodically by some independent agency. Such rating if

widely publicized will be useful for the stake holders.

7. HRD, Training, Institutional Development, Capacity building

For comprehensive development on a sustained basis, programmes for HRD and

skill development, entrepreneurial development programmes, training of

Government officials, bank officers and extension agencies for sensitizing them

towards assisting MMEs sector are essential. In order to get good results, opening

up of more regional institutes for enterprise development may be considered. Else,

the existing technical institutes may be developed in this direction.

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8. Chambers of Commerce and Associations

Chambers must serve as' Eyes and Ears' of the MSME sector because this sector is

not in a position to develop the network unlike their Big brothers, on their own.

Thus, informatics network at national, provincial and regional levels must be put

in place. Today, knowledge is most effective power. This network may be used

for all types of communications, information dissemination, creating awareness,

telemarketing, providing economic and market intelligence data, market forecast,

future demand pattern sector-wise, etc. The Chambers can successfully run this

activity on commercial lines.

• Chambers may, with the support of the Government, launch region/nationwide

survey of MSMEs sector as the benchmark information for effective policy

planning by the Government

• Chambers may take up industrial potential surveys in their own regions for

informing entrepreneurs about the scope of embarking upon private ventures.

Thereafter, Chambers may come out in regional languages/English Project

Profiles for prima facie assisting entrepreneurs in taking investment decisions.

This type of document is much needed by the sector and budding

entrepreneurs. Compendia of Project Profiles may be industry specific,

location specific or for special types of Knowledge-based industry, like IT,

Medico care, Biotechnology, etc. and will give in brief details of technology,

plants and machinery with addresses of suppliers, cost, market of the product,

total project cost, return on investment, profitability, etc. These may be put on

both electronic and print media. Chambers may organize a number of

workshops to create awareness of these projects.

• Training in all its comprehensive sense i.e. entrepreneurship creation,

enterprise growth of the existing units, skill upgradation programmes in

technology, marketing including exports, financial system and its

requirements, sensitizing banks and private sector to each others problems etc.

• Chambers may create core of volunteers consisting of executives and

professionals to provide expert advisory services to MMEs in specific

disciplines and serve as mentors to them. A token fee can be charged for the

service.

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• Chambers should play effective Advocacy Role for MME sector before the

Government and international agencies like WTO, WIPO, and UNO etc. They

should be represented in the Policy making Council of the Government at the

national level.

• Chambers can play very effective role by setting up Trade Fair /Exhibition

infrastructure with the assistance of Government, private sector and

institutional finance including international agencies like ITC, Geneva. It can

provide facilities for permanent displays, organize exhibitions, and hold

buyers-sellers national and international meets. This must be run on

commercial lines.

9 Role of the International Agencies

Multilateral Development Institutions contribute significantly on developing

financial markets, providing business development services to medium

enterprises and special funds, improving corporate governance and corporate

social responsibility, and enhancing the focus of sustainability. They can :-

• Bring different recommendations to various Governments through UN-

ESCAP, Asian Development Bank, IFC and the World Bank

• Support investments and extend lines of credit along with Technical

Assistance Programmes

• Develop Regional Fund for MME Development for countries to draw

assistance

• Develop a second-tier capital market for MMEs to feel encouraged to

corporatise, and enter open market borrowing programmes rather than only

depending on the institutional loans.

• Supporting Associations in setting up Risk Mitigation programmes for the

financial system

• Develop exchange and networking for market intelligence, technology

transfers and exchange of R&D activates at the international level.

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10. Public-Private Partnership

� Public private partnership (PPP) should make concerted efforts to deliver the

State-of-the art infrastructure, support services, entrepreneurship training and

education, access to broader financing operations, and market access through

viable partnership models like, ‘Build – Operate and Transfer’ .Specific

initiatives under PPP could be through larger alliances and linkages with

business schools, universities, and NGOs, public-private collaboration in

professional education and training, and multinational and local companies.

� Here, the government should take the lead in developing models of private

sector collaboration, keeping in mind the appropriate business environment.

Example of such models are development of clusters, knowledge and industry

parks/village, subcontracting arrangements with large companies and

multinationals, supply chain networks and e-marketing portals etc.

� Broadening Financing Options providing availability of specialized credit

products from public and private financial institutions, along with risk capital

and venture capital avenues. The government should take a lead in

introducing special funds/grants schemes for technology development, market

development, research and development, etc.

The above suggestions and the road map are based on following pragmatic

factors:-

� Human capital is the most important resource. India has a large pool of skilled

manpower available at low cost and can use it.

� India’s manufacturing sector, though small in size in relation to its GDP, has

great potential for growth.

� Though India’s manufacturing is fairly advanced but modernization,

diversification and expansion would continue to have competitive edge

internationally.

� It is large employment generator, more labour intensive than IT and so

planners, central and state governments and business community would pay

more attention to it.

� Other costs in India are low, e.g. rail transport, administrative and other

overheads, design and development, prototype manufacture, production of

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small batches, human capital etc. This cost advantage would be used to exploit

a large number of untapped opportunities.

� The central and state government finances are in poor shape. The question of

pumping additional funds has little scope. So looking outwards would be

speeded up.

� Exports of manufactured products would be given further boost by using the

advantage of India as a lower cost economy and emphasizing on high quality

of products.

� India would control exports of its valuable iron and aluminum ores / bauxite

ores, as the earnings are not very high and make finished metal and add value

to finished products as Japan, Korea and China, the main buyers, convert the

same into finished products and sell back.

� Manufacturing costs are pushing up in the developed countries. India would

explore possibilities to enter into joint ventures with suitable partners in those

countries.

� India prepares a holistic plan with the participation of politicians,

administrators, financial institutions, entrepreneurs and customers such that it

is understood by all and implemented easily.

Conclusion

The outlook of the medium sector is broader and there is continued search for

improved ways and ready adaptability. Their up-to-date products and designs suit the

modern needs of the economy in transition from developing to developed. There is

greater utilization of physical and technological advancements. Machines, materials

and processes are used optimally. Entrepreneurs are well versed with organizational

and management planning, budgeting, market and grievances handing. There is

awareness of benefits of training for skill development.

However, the process of privatization, liberalization and globalization of economic

activities has affected the whole economy in one way or the other. It has increased the

sphere of competition both horizontally and vertically in national as well as

international markets and created an environment where fittest will survive and

inefficient will be weeded out. It has underlined the concepts of productivity, quality,

effectiveness and efficiency.

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The suggested policy intervention when implemented in letter and spirit are expected

to make MMEs more competitive nationally as well as globally. It will add new

vibration and impetus to harness growth potential with a view to stimulate socio-

economic transformation through production of quality goods and provide services for

customer satisfaction, contribution to export development & national wealth. Above

all it will inculcate entrepreneurial culture and generate employment opportunities for

youth and instill a sense of pride amongst them.