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Chapter 2
Micro, Small and Medium Enterprises in India
2.1 Introduction
MSMEs in India are an important contributor to the Indian economy
and are drivers of growth. By its less capital intensive and high labour
absorption nature, MSME sector has made significant contributions to the
manufacturing output, employment generation, rural industrialization and
exports of the country. It is estimated that in terms of value, the sector
accounts for about 45 per cent of the manufacturing output and 40 per cent of
the total exports of the country. Over 6000 products ranging from traditional to
high-tech items are manufactured by MSMEs in India. The sector creates
largest employment opportunities next only to agriculture. The sector is
estimated to employ about 595 lakh persons in over 261 lakh enterprises
throughout the country (Ministry of MSME, 2012). It is estimated that 95 per
cent of all industrial units are in the MSME sector (Singh et al., 2010).
The sector has consistently showed growth in production, fixed
investment, employment and total exports over the years. One of the
strengths of Indian MSMEs is that of cost advantage in comparison to their
global counterparts (Singh et al., 2010). It has been a vibrant sector in spite of
inadequacies. In recent years, the MSME sector has consistently registered
higher growth rate compared to the overall industrial sector. The MSMEsectors performance and growth data during the period 2001-2011 are
included in Appendix 1. Growth in demand in the domestic market size due to
overall economic growth, increasing export potential for Indian products and
growth in requirements for ancillary units due to the increase in number of
units coming up in the large scale sector has led to several opportunities for
this sector. The promotional and protective policies of the Govt. have ensured
the presence of this sector in wide range of products, particularly in consumergoods.
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MSME sector plays a major role in India's present export performance.
According to the Ministry of MSME (2011b), around 45-50 per cent of the
Indian exports is contributed by this sector. Direct exports from the sector
account for nearly 35 per cent of total exports. Besides direct exports, it is
estimated that small-scale industrial units indirectly contribute about 15 per
cent to exports. This takes place through merchant exporters, trading houses
and export houses. They may also be in the form of export orders from large
units or the production of parts use in finished exportable goods. It would
surprise many to know that non-traditional products account for more than 95
per cent of the MSME exports. In the last decade, the export performance has
been further fuelled by the growth of garments, leather and gems & jewelry
units of this sector. The product groups where the sector dominates in exports
are sports items, readymade garments, woolen garments & knitwear, plastic
products, processed food and leather products (Ministry of MSME, 2011b).
According to the fourth census of MSME, 67 per cent of the enterprises
in the registered MSMEs sector were engaged in manufacturing, whereas 17
per cent of the enterprises were engaged in the services activities. The
remaining 16 per cent of the enterprises were engaged in repairing and
maintenance. About 90 per cent of the firms were proprietary owned firms
(Ministry of MSME, 2011a).
The manufacturing sector is an important segment and considered to
be a key growth driver of the Indian economy like in several developing
countries. Government of India has made several efforts to enhance the
competitiveness of the Indian manufacturing industry. National Manufacturing
Competitiveness Council (NMCC) was set up to undertake initiatives to
enhance competitiveness of the sector. According to a report by NMCC and
NASSCOM (2010), the Indian manufacturing sector has over 53 lakh
manufacturing units with 99 per cent of the units employing less than 10
workers. Food & beverages, textiles, non-metallic mineral products, chemical
products and machinery & equipment are the top 5 verticals in terms of
number of units and they account for nearly 75 per cent of the total number ofunits in the manufacturing sector.
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Small scale sector is the backbone of Indian manufacturing sector with
90 per cent of the total industrial units. However, according to the report by
NMCC and NASSCOM (2010), the contribution of Indian manufacturing to the
national GDP has stagnated over the last few years by about 15 per cent in
spite of the growth in the manufacturing sector. The contribution level is found
to be much lower when benchmarked with comparable economies such as
China (39.3 per cent), Thailand (35.2 per cent), Malaysia (31.1 per cent),
Indonesia (24.7 per cent) and Vietnam (20.8 per cent) (NMCC & NASSCOM,
2010).
The small sale sector is an important component of the foundationlayer of manufacturing sector and entrepreneurial activities in India. As the
productivity and performance of large manufacturing firms would be
influenced by the competitiveness of their suppliers, i.e., mainly MSMEs, it is
important to improve productivity levels of MSME to improve the
manufacturing sector as a whole.
2.2 Challenges faced by MSME sector in India
Despite the huge potential, the small scale sector faces several
challenges and there have been the inadequacies in capital, technology and
marketing. While SME sector in India did well in terms of the absolute
numbers, its relative performance was on the verge of stagnation. Even the
employment level remained stagnant on a per unit basis, but has improved
substantially in relation to the organized sector employment. The number of
unregistered units is much higher than the number of registered units (NMCC,
2010).
A study on MSMEs in western India, Singh et al. (2010) found that
cost, quality and delivery time are the main pressures on the small industries.
According to the study, SSIs opine that the major constraints are lack of
growth conducive environment, inadequate government support and
incentives and poor infrastructure for training. SSIs have highest
competitiveness at local level and lowest competitiveness at international
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level. Use of information to optimize decisions, to define quality standards,
and optimization of working environment are the main areas of competency
development (Singh et al., 2010).
According to the fourth all India census 2006-2007, conducted by
Ministry of Micro, Small and Medium enterprises, Govt. of India, it was
revealed that about 29.40 per cent of the total units were suffering from
sickness and about 3.73 per cent of enterprises suffered from incipient
sickness. Major problem for the sickness was found to be lack of demand,
shortage of working capital and marketing problems as mentioned in Table
2.1 (Ministry of Micro, Small and Medium enterprises, 2011a).
Table 2.1: Reasons for sickness in small scale industries in India
Sl.
No.
Reason for sickness
/ incipient sickness
Proportion of sick/ incipient
sick units (per cent)
1 Lack of demand 41.94
2 Shortage of working
capital
20
3 Non-availability of raw
material
5.11
4 Power shortage 5.71
5 Labour problems 5.64
6 Marketing problems 11.48
7 Equipment problems 3.17
8 Management problems 6.46
Source: Ministry of Micro, Small and Medium Enterprises (2011a), Government of
India, Fourth All-India census 2006-2007
Food products and beverages (17.73 per cent), apparel (10.23 per
cent), textiles (9.11 per cent) were the top three industries that suffered from
sickness. Percentage share of closed enterprises at national level was about
22 per cent of the total registered enterprises.
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According Confederation of Indian Industry (CII), Indian MSMEs face
several challenges for growth. Some of the problems are high cost of credit,
limited access to equity capital, problems in supply to government
departments and agencies, procurement of raw materials at a competitive
cost, inadequate infrastructure facilities such as power, road, low technology
levels and lack of access to modern technology, lack of skilled manpower,
problems of storage, designing, packaging and product display, absence of
suitable mechanism to revive/close sick enterprises quickly and lack of
resources for branding and marketing, lack of access to global markets (CII,
2010).
Infusing competitiveness, infrastructure development and bringing vast
population of MSMEs in the unregistered sector to the mainstream is the main
challenge before the GoI at present.
2.3 Governance and Institutional support for MSMEs
The Ministry of Micro, Small and Medium Enterprises is the
administrative Ministry in the Government of India for all matters relating to
Micro, Small and Medium Enterprises. It designs and implements policies and
programmes through its field organisations and attached offices for promotion
and growth of MSME sector. The office of the Development Commissioner is
an attached office of the Ministry of MSME, and is the apex body to advise,
coordinate and formulate policies and programmes for the development and
promotion of the MSME sector. The office also maintains liaison with Central
Ministries and other Central/State Government agencies/ organisations/financial institutions (www.dcmsme.gov.in).
2.3.1 Ministry of MSME and its network of organisations
The Development Commissioners office of MSME, have a network of
Development Institutes, Testing Centres, autonomous bodies which include
Tool Rooms and Tool Design Institutes, Technology Development Centers
and Training Institutes. Other associated agencies of this office are National
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Small Industries Corporation (NSIC), Small Industries Development Bank of
India (SIDBI) and Khadi & Village Industries Commission (KVIC).
National Small Industries Corporation (NSIC) Ltd. was establishedin 1955 by the GoI with a view to promote, aid and foster the growth of small
industries in the country. NSIC continues to remain at the forefront of
industrial development throughout the country with its various programmes
and projects to assist the MSME in the country. The main functions of the
corporation are to promote, aid and foster the growth of micro and small
enterprises in the country, generally on a commercial basis. It provides a
variety of support services to micro and small enterprises by catering to theirrequirements in the areas of raw material procurement, product marketing,
credit rating, acquisition of technologies, and adoption of modern
management practices. The NSIC is directly operating different programmes
by a dedicated team of professionals at all levels and operates through 142
offices located all over India and one office located at Johannesburg, South
Africa (Ministry of MSME, 2012).
Small Industries Development Bank of India (SIDBI) is an apex
bank set up to provide direct/indirect financial assistance under different
schemes to meet credit needs of the small-scale sector and to coordinate the
functions of other institutions in similar activities. Its major operations are in
the areas of refinance assistance, direct lending, and development & support
services.
Khadi & Village Industries Commission (KVIC), established underthe Khadi and Village Industries Commission Act, 1956, is a statutory
organization engaged in promoting and developing Khadi and Village
Industries for providing employment opportunities in rural areas, thereby
strengthening the rural economy. The KVIC has been identified as one of the
major organizations in the decentralized sector for generating sustainable
rural nonfarm employment opportunities. This also helps in checking migration
of rural population to urban areas in search of the employment opportunities.
(Ministry of MSME, 2012)
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2.3.2 Divisions of Ministry of MSME
The Ministry of MSME has two Divisions called Small & Medium
Enterprises (SME) Division and Agro & Rural Industry (ARI) Division. The
SME Division is allocated the work of administration, vigilance and
administrative supervision of the National Small Industries Corporation (NSIC)
Ltd. and the three autonomous national level entrepreneurship
development/training organisations. The division is also responsible for
implementation of the schemes relating to marketing and export promotion.
The ARI division looks after the administration of two statutory bodies
viz. the Khadi & Village Industries Commission (KVIC) and the Coir Board. It
also looks after a newly created organization called Mahatma Gandhi Institute
for Rural Industrialisation (MGIRI). It supervises the implementation of the
Prime Ministers Employment Generation Programme (PMEGP).
The Coir Board is a statutory body established under the Coir Industry
Act, 1953 for promoting overall development of the coir industry and
improving the living conditions of the workers engaged in this traditional
industry. Coir Industry is one of the major agro based rural industries in the
country. The activities of the Board for development of coir industries include
undertaking scientific, technological and economic research and development
activities; developing new products & designs; and marketing of coir and coir
products in India and abroad. It also promotes co-operative organisations
among producers of husks, coir fibre, coir yarn and manufacturers of coir
products, ensuring remunerative returns to producers and manufacturers. The
Board has promoted two research institutes namely; Central Coir Research
Institute (CCRI), Kalavoor, Alleppey and Central Institute of Coir Technology
(CICT), Bengaluru for undertaking research activities on different aspects of
coir industry (Ministry of MSME, 2012).
The national level institute namely Mahatma Gandhi Institute for Rural
Industrialization (MGIRI) , has been established as a society under Societies
(Registration) Act, 1860 at Wardha, Maharashtra, to strengthen the R&Dactivities in khadi and village industry sector. The main functions of the
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Institute are to improve the R&D activities in the rural industrial sector through
encouraging research, extension of R&D, quality control, training and
dissemination of technology related information.
2.3.3 State Government support for MSMEs
The primary responsibility of promotion and development of MSMEs is
of the state Governments. However, the GoI, supplements the efforts of the
State Governments through various initiatives. The role of the Ministry of
MSME and its organisations is to assist the states in their efforts to encourage
entrepreneurship, employment and livelihood opportunities and enhance the
competitiveness of MSMEs in the changed economic scenario. State
Government executes different promotional and developmental
projects/schemes and provide a number of supporting incentives for
development and promotion of MSME sector in their respective states. These
are executed through State Directorate of Industries, who have District
Industries Centers (DICs) under them to implement central/state level
schemes (www.dcmmsme.gov.in).
Apart from commercial banks, at state level, State Financial
Corporations (SFC) and twin function State Industrial Development
Corporations are the main sources of long term finance to MSMEs.
In Karnataka state, the Department of Industries and Commerce under
Government of Karnataka, acts as a catalyst for the overall development of
the industrial sector through effective discharge of developmental and
facilitation roles. It looks after both large scale projects and MSMEs with a
view to promote industrialization, investment and trade. It formulates policies,
schemes and programmes to promote industrialization in the state. The
department functions through the Districts Industries Centers, various Boards
Corporations and special purpose vehicles. There are 17
boards/corporations/societies operating under the Department of Industries
and Commerce. The Department has established the Single Window
Mechanism (Karnataka Udyog Mitra) for faster, single point clearances to be
http://www.karnatakaindustry.gov.in/functions_districtlevel.htmlhttp://www.karnatakaindustry.gov.in/boards_corporations.htmlhttp://www.karnatakaindustry.gov.in/boards_corporations.htmlhttp://www.karnatakaindustry.gov.in/boards_corporations.htmlhttp://www.karnatakaindustry.gov.in/boards_corporations.htmlhttp://www.karnatakaindustry.gov.in/functions_districtlevel.html7/28/2019 11_chapter2
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given to projects seeking infrastructure facilities/incentives/concessions and
help in establishing industries and businesses in Karnataka
(www.karnatakaindustry.gov.in).
2.4 Government policies and support measures for MSMEs
Since independence, GoI has given importance to the MSME sector,
as it creates employment opportunities and facilitates mobilization of private
sector resources. GoI has taken supportive measures such as reservation of
items for exclusive manufacture by MSMEs, access to credit through priority
sector lending programme for commercial banks, excise exemption,reservation under Government purchase programme and 15 per cent price
preferences in purchases, infrastructure development and establishment of
institutes of entrepreneurial and skill development.
MSME Development Institutes, formerly known as Small Industries
Service Institute (SISI), were set up all over India to train youths and tool
rooms were set up with German and Danish assistance to provide skill
training and provide technical assistance. At the state level, District Industrial
Centres were setup throughout the country. Over a period of time, with
liberalization, government policies have moved from protective measures to
infusing growth and competitiveness in the sector. Supportive measures
focused on infrastructure development, technology and quality.
In 1999, Ministry of MSME (earlier known as Ministry of Small Scale
Industries and Agro and Rural Industries SSI & ARI) came into being to
provide focused attention to the sector. Policy package announced in August
2000, addressed persistent problems on credit, infrastructure, technology and
marketing. Credit linked capital subsidy scheme to encourage technology
upgradation, credit guarantee scheme to provide collateral-free loans
particularly first time entrepreneurs and exemption limit for central excise duty
was raised to one crore rupees and list of products for exclusive manufacture
was gradually decreased. To facilitate further investments for technologicalupgradation and higher productivity in the micro and small enterprises, 654
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items have been taken off the list of items reserved for exclusive manufacture
by the manufacturing micro and small enterprises in the last few years,
reducing it to 21 at present.
In 2006, Micro Small and Medium Enterprises Act was passed to
improve competitiveness of this sector and it defined medium enterprises for
the first time. It provided a legal framework for the concept of enterprise, both
manufacturing and service industries. The Act provides statutory consulting
mechanism at the national level with a wide range of advisory functions and
defines three levels of enterprises i.e., micro, small and medium. With the
MSMED ACT Ministry of Agro and Rural Industries and Ministry of SmallScale Industries were merged into a single Ministry, namely, Ministry of Micro,
Small and Medium Enterprises. Some of the salient features of the MSMED
Act (Ministry of MSME, 2012) are:
Setting up of a National Board for MSMEs, an apex advisory body
constituted to render advice to the Government on all issues pertaining
to the MSME sector. It brings together the representatives of different
sub-sectors of MSMEs, along with policy-makers, bankers, trade
unions and others in order to move towards cohesive development of
the sector.
Classification of enterprises
Advisory Committees to support MSMEs
Measures for promotion, development and enhancement of MSMEs
Schemes to control delayed payments to MSMEs
Enactment of rules by State Governments to implement the MSMED
Act, 2006 in their respective states
Some of the important policies and schemes related to finance,
technology, marketing & procurement, skill development, and rural
development & inclusiveness for MSMEs are compiled from the various
publications of Ministry of MSME and are discussed in the following sections:
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2.4.1 Finance
The Government has initiated several measures to facilitate easy
access of funds to MSME sector. One such initiative is priority sector lending.
For public and private sector banks, 40 per cent of the Net Bank Credit (NBC)
is earmarked for the priority sector. Credit to MSMEs is through the priority
sector lending policy of the bank. For the foreign banks, 35 per cent is for
priority sector of which 10 per cent is reserved for MSMEs. Any shortfall in
lending by foreign banks has to be deposited in Small Enterprise
Development Fund (SEDF) setup by SIDBI.
The Government has also announced policy package for stepping up
credit to small and medium enterprises with the objective of doubling the
credit flow to the sector in the next five years. In recent years, the sector has
shown interest in alternative sources of funding such as primary/secondary
securities market, venture capital and private equity, external commercial
borrowings, factoring services etc. Efforts are being put for Limited Liability
Partnership Act to provide thrust to MSMEs in their move towards
corporatization.
The Government has introduced a Credit Guarantee Scheme which
provides collateral free credit facility by eligible lending institutions to new and
existing MSMEs for loans upto 100 lakh per borrowing unit.
Performance and Credit Rating Scheme was launched in April 2005
with an objective of improving their performance and access bank credits if
the rating is high. Under the scheme, 75 per cent of the fees charged by therating agencies are reimbursed by the Government to a maximum of
40,000.
2.4.2 Technology
To facilitate technology upgradation and quality improvement, several
measures have been initiated by the GoI. The Government has set up ten
state of the art Tool Rooms and Training centres. These tool rooms are
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proficient in mould and die making technology and abreast with latest
technology such as CAD/CAM, CNC machining for tooling, Vacuum Heat
Treatment, Rapid Prototyping etc. Tool Rooms offer training programmes on
technical skills required for the manufacturing sector.
The Government has introduced ISO 9000/14001 Certification Fee
Reimbursement Scheme and reimburses 75 per cent of the certification fees
subject to maximum of 75,000. To facilitate replacement of old machinery
with new ones, Government introduced Credit Linked Capital Subsidy
Scheme with state assistance of 15 per cent of the bank credit required to
finance the new purchases.
Micro and Small Enterprise Cluster Development Programme
(MSECDP) has been implemented to develop MSME clusters. It aims at a
focused programme of upgrading skills and technologies that exist in these
clusters and exposing entrepreneurs/workers to better products, processes
and practices and creation of common facility centres (CFC). These CFCs are
in the form of processing facilities, finishing or packaging centres, tool rooms,
testing or certifying laboratories, training centres and so on. Integrated
Infrastructure Development Scheme started in 1994 has been now subsumed
under MSECDP. It was started to establish industrial estates and develop
infrastructure facilities such as power distribution network, roads, drainage
and pollution control, telecommunication, banks, raw materials, storage and
marketing outlets, water, technological backup facilities etc. The scheme
cover rural as well urban areas with 50 per cent of the area reserved in rural
areas and 50 per cent of the industrial plots to be reserved for micro
enterprises.
National Manufacturing Competitiveness Programme (NMCP) aimed at
technology, marketing and skill upgradation mainly in public-private
partnership mode was initiated by National Manufacturing Competitiveness
Council in 2007-2008. Some initiatives such as application of Lean
Manufacturing to reduce wastage of resources, Design Clinic to address
design problems, attaining Quality certification, improving use of ICT,
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enhancing familiarity with Intellectual Property Rights and Intellectual Property
Facilitation Cell (IPFC).
The Ministry is also under the process of establishing TechnologyMission to promote appropriate technologies for the MSME sector. The NMCP
introduced 'Marketing Assistance/ Support to MSMEs' scheme is to
popularise the bar code registration and motivate the manufacturing MSMEs
to adopt the bar code certification on large scale and to sell their value added
products worldwide and enable higher export price realization. It also helps in
domestic marketing (wholesale & retail). 75 per cent of annual fee (recurring)
of bar code certification for the first three years are reimbursed to Micro &Small Entrepreneurs, under the Scheme.
To promote use of Information and Communication Technologies (ICT)
in the Indian MSME sector, GoI has initiated a programme with some clusters
of MSMEs. The GoI has stipulated as 160 crore (approx.) for this scheme.
Under this scheme, clusters that have quality production and export potential
are identified for ICT intervention. E-readiness infrastructure, web portals and
e-catalogues for the clusters are set up, skill development of MSME staff in
ICT applications and preparation of local software solutions for MSMEs are
undertaken to enhance their competitiveness. Networking MSME cluster
portals on the National Level Portals in order to outreach MSMEs into global
markets is also initiated. One such initiative called Project Vikas was
undertaken by National Manufacturing Competitive Council (NMCC) in
association with Microsoft India in Textile cluster Tirupur.
Design Clinics Scheme was undertaken to provide expert advice to
MSMEs and solutions on real time design problems, resulting in continuous
improvement and value-addition for existing products.
Marketing Assistance and Technology Upgradation Scheme for
MSMEs was started to identify and encourage those clusters of MSMEs,
which have quality production and export potential and assist them to achieve
competitiveness in the national and international markets. The scheme aims
at improving the marketing competitiveness of MSME sector by improving
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their techniques and technology for promotion of exports. The broad activities
planned under the scheme include technology upgradation in packaging,
development of modern marketing techniques, competition studies, etc.
Technology and Quality Upgradation Support scheme to sensitize the
manufacturing (MSME) sector in India to upgrade their technologies, usage of
energy efficient technologies to reduce emissions of greenhouse gases,
adoption of other technologies mandated as per the global standards, improve
their quality and reduce cost of production, etc., towards becoming globally
competitive. The major activities planned under the scheme include capacity
building of MSMEs clusters for energy efficiency/clean developmentinterventions, implementation of energy efficient technologies in MSME
sector, Setting up of carbon credit aggregation centres and encouraging
MSMEs to acquire product certification licenses from National/International
bodies.
2.4.3 Marketing and Procurement
National Small Industries Corporation has launched a B2B Web portal
www.msmemart.com / www.nsicindia.com in 2009 to provide B2B marketing
facilities. The portal provides the services such as tender & trade information,
banner display on NSIC website, access to national and international
business leads, joint venture opportunities and trade information,
comprehensive information on Government policies, rules and regulations,
schemes and incentives, access to industrial databases and member's
directory, various value added, specialized services for members ofinfomediary Service. The portal would enable MSMEs to showcase their
products in global markets and to weave strategic and networking alliances.
NSIC has also initiated performance and credit rating service for the MSMEs
to provide trusted third party ratings for the MSMEs (NSIC, 2011).
Further, NSIC has established a Marketing Intelligence Cell in May
2010, which shall provide database and information support to the MSMEs on
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marketing of their products/services. Many of these initiatives are recently
launched and yet to reach the masses.
Under Government Stores Purchase Programme, various facilities areprovided to enterprises registered with National Small Industries Corporation
(NSIC) in order to assist them for marketing their products in competitive
environment. These facilities are: (i) issue of tender sets free of cost; (ii)
exemption from payment of Earnest Money Deposit; (iii) waiver of security
deposit up to the monetary Limit for which the unit is registered; and (iv) price
preference up to 15% over the quotation of large-scale units. In addition to
these facilities/benefits, 358 items have also been reserved for exclusivepurchase from the MSE Sector. However, as these guidelines were/are not of
a mandatory nature, the same has failed to achieve the desired results.
To help MSEs in exporting their products, the following
facilities/incentives are provided: (i) Products of MSE exporters are displayed
in international exhibitions and the expenditure incurred is reimbursed by the
Government; (ii) To acquaint MSE exporters with latest packaging standards,
techniques, etc., training programme on packaging for exporters are
organised in various parts of the country in association with the Indian
Institute of Packaging; (iii) Under the MSE Marketing Development Assistance
(MDA) Scheme, assistance is provided to individuals for participation in
overseas fairs/ exhibitions, overseas study tours, or tours of individuals as
member of a trade delegation going abroad. The scheme also offers
assistance for (i) sector specific market study by MSE associations/Export
Promotion Councils/Federation of Indian Export Organisation (ii)
initiating/contesting anti-dumping cases by MSE associations.
2.4.4 Skill development
The Ministry of Micro, Small & Medium Enterprises promotes the
development of micro and small enterprises in the country with the objective
of creating self-employment opportunities and upgrading the relevant skills of
existing and potential entrepreneurs. The entrepreneurship and skill
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development scheme is implemented by Office of the DC (MSME) through its
network of 58 MSME-DIs and their branches. The programmes conducted
include Entrepreneurship Development, Entrepreneurship and Skill
Development, Management Development and Business Skill Development.
These programmes are of short duration and the curriculums based on needs
of the industry.
The office of the DC (MSME) also conducts vocational and educational
training through its Regional Testing Centres, Field Testing Stations and
autonomous bodies like Tool Rooms and Technology Development Centres
(TDCs). These long term, short term, trade/field-specific and industry-specifictailor-made courses also include specialized programmes for engineers,
diploma holders so that their absorption by the industry is immediate.
Rajiv Gandhi Udyami Mitra Yojana scheme aims to promote and
support establishment of new micro and small enterprises through
handholding of potential first generation entrepreneurs One of the main
objectives is to facilitate the potential entrepreneurs in dealing with various
procedural and legal hurdles and completion of various formalities which are
required for setting up and running of enterprise.
As a part of this scheme, the Ministry has recently launched a MSME
Call Centre (known as Udyami Helpline) with a toll-free number 1800-180-
6763. The Udyami Helpline, provides basic information on how to set up an
enterprise, various schemes being implemented for the promotion of MSMEs,
accessing loans from banks and further contacts for obtaining detailed
information. To provide an opportunity for first generation entrepreneurs to
acquire skills for enterprise building and to incubate them to become
successful small business owners, NSIC has setup 47 training-cum-incubator
centres (TICs) under PPP mode.
2.4.5 Rural development and Inclusiveness
The Ministry of MSME launched a special programme, namely,
'Outreach Programme for Skill Development in Less Developed Areas' in
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September, 2006. Under this programme, the field offices of the Ministry
organize short-term skill development programmes in the less developed
areas. Such short-term courses are tailor-made for these areas so as to
enable trainees to get employment or start self-employment ventures. The
target group consist wholly or partly of disadvantaged sections.
A national level credit linked subsidy scheme, namely, Prime Ministers
Employment Generation Programme (PMEGP)was introduced in August
2008 and a financial assistance is provided for setting up of micro enterprises
each costing up to ten lakh rupees in service sector and twenty five lakh
rupees in manufacturing sector. The assistance is provided in the form ofsubsidy up to 25 per cent (35 per cent for special category including weaker
sections) of the project cost in rural areas while it is 15 per cent (25 per cent
for special category including weaker sections) for urban areas.
The Government has initiated several schemes for enhancing
productivity & competitiveness of Khadi industry & Artisans and schemes for
Modernisation and Technological Upgradation of Coir industry.
Market Development Assistance (MDA) Scheme has been introduced
in 2010 and provides financial assistance @ 20 per cent on value of
production of khadi and polyvastra which will be shared among artisans,
producing institutions and selling institutions in the ratio 25:30:45. Under the
workshed Scheme for Khadi Artisans, assistance is provided for construction
of worksheds for Khadi artisans for better work environment. Mahatma
Gandhi Institute for Rural Industrialization (MGIRI), a national level institute
has been established at Wardha, Maharashtra to accelerate rural
industrialization for sustainable village economy so that KVI sector co-exists
with the main stream.
Ministry of MSME has also taken initiatives such as National Database
of MSMEs. However, biggest challenge is to bring vast number of
unregistered MSMEs in to the database. District Industrial centres would have
to take a pivotal role in this effort.
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2.5 Indian MSMEs and ICT adoption
The role of Information and Communication Technologies (ICT) in the
growth of small firms is well acknowledged in the literature (UNCTAD, 2011;
CII, 2010; NMCC & NASSCOMM, 2010). Developments in ICT have led to
increased transparency and information sharing across borders. Small firms
which were earlier operating in protected zones have to now face competition
from outside players. To meet with pressure, automation and using
information to take decisions is essential for small firms.
Small firms that have quality products, flexibility in manufacturing
based on demand and robust processes will be the ones that will survive.
However, Indian MSMEs are giving the highest priority to quality and the least
priority to flexibility. In the present era of globalization SMEs should possess
the ability to get the organization to innovate quickly and produce an
acceptable product and service to capture upcoming business opportunity
(Dangayach and Deshmukh, 2005).
IT investment in SMEs differs from IT investment in large firmsbecause a smaller number of people have decision making responsibility,
standard procedures are not instituted, long- term planning is limited and
there is more reliance on external IT experts in SMEs (Premkumar, 2003a).
Several researchers have acknowledged that MSMEs lag behind ICT
adoption compared to larger businesses (Jones et al., 2003; Macgregor and
Vrazalic, 2005). Indian MSMEs are no exception and penetration of ICT in
Indian MSME sector is still very low (Sharma and Bhagawat, 2006; Singh et
al., 2009; CII, 2010) and majority of MSMEs use basic ICT such as email,
spreadsheets etc (CII, 2010) or financial accounting packages(Sharma and
Bhagawat, 2006). ICT adoption in Indian manufacturing sector has
significantly lagged behind its global peers. Indias spend on ICT is only USD
50 per capita while China spent double that amount during 2006 (NMCC &
NASSCOM, 2010).
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Several research studies conducted on Indian MSMEs revealed that
successful use of ICT by small firm has resulted in significant benefits. Singh
et al. (2010) found that use of information technology has significant
relationship with performance of small firms in India. Lal (2004) found that
users of advanced e-business technology perform better than non-users in
the export market.
Study of Indian MSMEs in western India reveals that use of information
system has resulted in benefits such as responsiveness, better customer
service, increase in turnover, better capacity utilization, edge over other
competitors, reduction in inventory and improved relations with supply chainpartners (Sharma and Bhagawat, 2006). Kale et al. (2010) found that ERP
implementation in Indian MSMEs is beneficial in reducing inventory, improving
customer services and improving communications. Advanced IT such as
ERP/SCM software can help SMEs to increase productivity, improve inventory
controls, increase sales through closer relationships, and faster delivery
times.
According to the study by NMCC and NASSCOM (2010), some of the
drivers to adopt ICT are internal factors such as better business process flow,
better inventory control, etc. and external factors such as client requirements,
compliance needs, competition pressures etc. The clients of the small firm
have a strong influence on the adoption of ICT. More than three-fourth of the
companies especially in the micro and small firms category are strongly
influenced by the owner/management team for their ICT investments. The
education background of the firms owner has a strong impact on ICT
adoption levels. According the studys detailed analysis of the manufacturing
clusters across various Indian states, states with better physical infrastructure
and industrial policies were found to be also leaders in the manufacturing
sector. The states have been analysed on direct factors such as tele-density,
education development, e-Government initiatives, power availability and
indirect factors such as FDI inflow and export contribution. Maharashtra,
Karnataka, Tamil Nadu, Chhattisgarh, Himachal Pradesh and Kerala havegood Infrastructure and policy initiatives while states such as Bihar, Madhya
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Pradesh, Uttar Pradesh, and Jharkhand lag behind (NMCC and NASSCOM,
2010).
The internet usage and technology adoption is improving with pressurefrom international customers, especially among export oriented firms. Indian
SMEs with customers outside India were one of the first adopters of internet
technology which enabled them to integrate themselves with the supply
chains of their international customers. This integration enabled SMEs in India
to respond faster to their customers requirements. Such initiatives in the three
SME clusters of India (lock and brass clusters and garment clusters) are
enabling awareness of benefits of internet among Indian SMEs. However, theintegration of SMEs with their suppliers is non-existent (Faisal et al., 2006).
One of the sectors that has been leading in ICT adoption is the automotive
sector. However, this trend is yet to catch up in other verticals.
However, Indian MSMEs face several challenges to use ICT. There are
problems both at the demand side as well as supply side. Some of the
barriers to use ICT in SMEs are lack of financial capacity, small scale
operation and lack of in-house IT manpower inhibit the adoption, lack of R&D,
marketing (Kale et al., 2010, NMCC & NASSCOMM, 2010; Kannabiran and
Dharmalingam, 2012). MSMEs rely primarily on small number of customers
and operate in limited markets (Sharma and Bhagawat, 2006; Kale et al.,
2010). Most MSME firms lack formal ICT decision making structures and in
majority of the firms, the responsibility for ICT decision making is often with
the firms owner(CII, 2010; NMCC & NASSCOM, 2010).
According to study by CII (2010), some of the barriers to ICT adoption
by Indian MSMEs are limited internal IT expertise and managerial knowledge,
not having a formal IT budgeting process, high costs of software and
requirement of customization that increases costs and process changes, ICT
service providers not servicing the MSME market segment directly due to high
cost of sales and lack of awareness of ICT benefits (CII, 2010). Threats to
information security, resistance to change and to adopt innovations, fear of
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supply chain break down and IS breakdown were found as major barriers to
ICT adoption by Sharma and Bhagawat (2006).
As per the study by NMCC and NASSCOM (2010), most of the MSMEsemploy unskilled and non-English speaking people migrated from rural areas.
They are not exposed to IT training and do not have any expertise in business
process. Therefore, their ability to learn ICT applications is limited. Attracting
qualified personnel is a challenge for small firms with limited resources.
According to the study, software applications that are intuitive and provide
user interfaces in vernacular languages would influence greater adoption of
ICT solutions.
The study also identifies few challenges faced by the national IT
service providers catering to the MSME segment such as lack of innovative
business models by the ICT firms, high cost of sales in servicing MSMEs, high
piracy rate, and diverse needs of MSMEs. Extensive customization before
deployment would involve changes into the significant business process of the
firm which increases costs for both MSME as well as service provider.
Broadband connectivity and reliable power are two major infrastructure
challenges in the adoption of ICT solutions (NMCC & NASSCOMM, 2010).
Cost effective ICT solutions would play a major role in the
transformation of MSMEs and make them productive and competitive.
Government of India is taking initiatives to provide cloud based IT services to
allow MSMEs to use ICT solutions on pay-per-use mode. The barriers to
adoption can be overcome through policy interventions by the Government
and develop an ecosystem conducive for small firms to adopt ICT effectively.
2.6 Summary
In spite of small scale sector being the growth engine of Indian
economy, it faces several challenges in the globalized era. Government of
Indias focus in the recent past has been enhancing competitiveness of the
sector. The policies and initiatives undertaken by the Government of India
have been discussed in this chapter. Past research shows that ICT adoption
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among small firms has been very low among Indian firms. The barriers to ICT
adoption among small firms in India has been discussed to provide a
backdrop for the study. Cost effective solutions provided through pay-per-use
model would be suitable for MSMEs.