Mr Juneja about smal scale industries

8/7/2019 Mr Juneja about smal scale industries

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SMEs & THEIR ECONOMIC RELEVANCE:

OVERALL POLICY AND FRAMEWORK


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The entrepreneur always searches for change, responds

to it, and exploits it as an opportunity.

By

Peter F. Drucker


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EVOLUTION OF POLICY FRAMEWORK

Industrial Policy Resolution 1948 Priority to promote rural and traditional industries in sectors, such as:

Handlooms, Handicrafts, Sericulture, Coir and Khadi and village industries

Constitution of Statutory Boards / Commissions for the same

Industrial Policy Resolution 1956

Policy Framework for SSI sector

Constitution of Independent Board for Small Scale Industries

Policy on Credit, Marketing, Technical Assistance, Industrial Infrastructureand Extension Services.

Policy Focus Priority to mitigate regional imbalances 1977

Measures to promote ancilarisation 1988

Stress on Exports and dispersal of enterprises in rural areas year 1990

Priority for Small tiny agro industries 1991

MSMED Act 2006


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DEFINITION OF SMALL

INDUSTRIES

Year 1950

Size of Gross Investment in fixed assets in plant and machinery, land,

building etc. (not exceeding Rs. 5 lakhs and strength of workforce

(employment less than 50 workers / day using power or less than 100

workers / day without use of power)

Year 1950 to 2004

Periodical change in the definition shifting the definition from work force,

criteria, inclusion of cost of building in the definition to a sole criteria of

investment in plant and machinery only and merging of this requirement for

both segments of the industry

Eligibility criteria based on investment in Machinery

and Equipment only


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INVESTMENT CEILINGS FOR SMALL

SCALE INDUSTRIES YEAR 2004Type of Unit Investment Ceiling

Limit in IRSConditions

Small Scale Industry 1 crore (10 million) Original value of plant andmachinery

Ancillary 1 crore (10 million) At least 50% of its output to go

together other industrialundertakings

Export Oriented Unit 1 crore (10 million) Obligation to export 50% of production

Tiny Enterprise 25 lakhs (2.5 million) No location condition

Service and Business(industry related) Enterprise 10 lakhs (1 million) No location condition

Women Enterprises 1 crore (10 million) 51% equity holding by women

High Tech and Exportoriented units

5 crore (50 million) Total only for 64 items


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OBJECTIVES FOR PERIODICCHANGES IN DEFINITION

To facilitate growth of this sector with changing

economic scenario

To facilitate growth within the framework of

social and economic policy of the country

To encourage technology modernization

To promote entrepreneurship among technically

qualified persons

To improve product standards

To create opportunities for in house R&D

To provide greater export thrust


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SMES THE MOST VIBRANT &

POTENTIAL GROWTH SEGMENT

A recent World Bank Report states: There is nowwidespread recognition within India that vibrant SMEs

are potentially a key engine of economic growth, jobcreation and greater economic prosperity.

10th Plan Document of Govt. of India states: Growthas planned will come from a sharp step-up in industrial

and services growth, spurred by SMEs.


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SME SECTOR SIGNIFICANCE IN

INDIAN CONTEXT

SMEs are generally less capital-intensive and more labour-intensive.

Are best suited for countries like India, China and most of the developing worldhaving abundant supply of low-cost manpower and bountiful natural resources

Have provided seed bed for Enterprise Development in the country

Provide large scale employment, ensure equitable distribution of income andfacilitate effective mobilization of resources of capital and skills, which wouldotherwise remain unutilized, particularly in rural and backward areas.

India has already established a niche in SME Development Strategy and providingexcellent support in product development, R&D, financial instruments, Infra-structure, marketing and export development

Consequently, India is fast emerging as a global hub for labour-intensivemanufacturing and knowledge-oriented businesses.


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PERFORMANCE OF SSI SECTOR IN INDIA

YearNo. of Registered

SSI working Units

(Million)

No. ofUnregistered SSI

working Units

(Millions)

Total SSI

working Units

(Millions)

Production (Rs. Billion) Employment

(Million

Persons)

At current

prices

At constant

prices (1993-9 4

prices)

1990-1991 0.79 6.00 6.79 635.18 682.95 15.834

1991-1992 0.87 6.19 7.06 730.72 791.80 16.599

1992-1993 0.99 6.36 7.35 855.81 935.23 17.484

1993-1994 1.06 6.59 7.65 988.04 988.04 18.264

1994-1995 1.16 6.80 7.96 1222.10 1091.16 19.140

1995-1996 1.16 7.12 8.28 1482.90 1216.49 19.793

1996-1997 1.20 7.42 8.62 1684.13 1353.80 20.586

1997-1998 1.20 7.77 8.97 1891.78 1478.24 21.316

1998-1999 1.20 8.14 9.34 2129.01 1594.07 22.055

1999-2000 1.23 8.48 9.71 2342.55 1707.09 22.9102000-2001 1.31 8.80 10.11 2612.89 1844.28 23.909

2001-2002 1.37 9.15 10.52 2822.70 1956.13 24.909

2002-2003 1.59 9.36 10.95 3119.93 2106.36 26.021

2003-2004 1.70 9.70 11.40 3514.27 2265.81 27.142

2004-2005 1.85 10.11 11.86 4182.63 2515.11 28.257

2005-2006 1.87 10.47 12.34 4762.01 2776.68 29.491Source : SIDOs Half Century y DCSSI, Govt. ofIndia, 2004, and Economic Survey, Govt. ofIndia, 2006-2007, Feb. 2007


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SSI units : 12.3 million

Employment generated in SSIs :

29.5 million

Production : At current Princes

Rs. 4762.01 billion

Exports : Rs. 1215 billion

SSIs account

Industrial Production : 40%

Exports : 35% (50% of

Direct & Indirect)

GDP Share : 7%

Ownership pattern :

Proprietorships : 78%

Partnerships : 16%

Corporate & Others : 6%

Industrial Units : 96%

Service Enterprises : 3%

Ancillary Units : 1%

Produces Diverse range of

products (more than 8000-

consumer items, capital goods

and intermediates)

INDIAN SME SECTOR AT A

GLANCE


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COMPARATIVE GROWTH RATES OF SSI

SECTOR AND TOTAL INDUSTRIAL SECTOR

Year SSI Sector Growth Rate Total Industrial SectorGrowth Rate

1993-94 5.65 6.00

1994-95 10.44 9.10

1995-96 11.49 13.00

1996-97 1.29 6.101997-98 9.19 6.70

1998-99 7.84 4.10

1999-2000 7.09 6.70

2000-01 8.04 5.00

2001-02 6.06 2.70

2002-03 7.68 5.70

2003-04 8.06 6.09

2004-05 9.96 8.04

Source: SIDO Half Century by DCSSI, Govt. of India 2004 and Annual Report of the

Ministry of SSI 2005-06


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NODAL AGENCY FOR POLICY FRAMEWORK

Ministry of Small, Rural and Agro Industries

FACILITATING INSTITUTIONS / DEPARTMENTS

Office of the Development Commissioner (Small Scale Industries)

Small Industries Development Bank of India

National Small Industries Corporation Limited

Commercial Banks

State Financial Corporations

National Institute of Entrepreneurship and Small Business Development

Product Process Development Centres

Tool Rooms and Testing Centres

NSIC Technical Services Centres


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INSTITUTIONS FOR GROWTH OFKNOWLEDGE BASED & SERVICES

SECTORS

Software Technology Park of India (STPI)

Tidal Park, Cyber City Public / Private Participation

STEP (Science & Technology Entrepreneurship Park)

Incubators Set up by Universities, Development

Institutions

National Institute of Fashion Technology (NIFT)

National Institute of Design

Institutes Pertaining to Hospitality sector


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Study by AIMA - SMALL SCALE INDUSTRY IN INDIA

ASSESSMENT OF GROWTH AFTER LIBERALISATION

While the cumulative growth rate over the five - year period (base: 1997-98) is negative,

there is a turn-around during the last two years.

Overall negative growth rate is primarily on account of Northern and Eastern regions. The

companies in the South have recorded a growth rate of 25% in their turnover in the last

five years.

The apparent wide disparity in the growth pattern of the SSIs between the Southern regionand the rest of India points to the fact that SSIs in South had exploited the market

opportunities better than others.

However for 1999-2003 while overall growth rate is 8.48%, in case of companies in the

North, East and West, the Southern region has reported a 24% growth.

Sector wise, the manufacturing sector has recorded a negative growth of -8.14% in the

last five years while in the services sector there is a growth of 16.34%.

Cumulative growth rate in various regions of India

between 1998-2003

Results Revealed

Percentage

North -18.61

East -0.15

West 9.65

South 25.79

Over all -5.18


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AIMAAIMA Impact AssessmentImpact Assessment

IMPEDIMENTS TO GROWTHIMPEDIMENTS TO GROWTH

Problems Faced by SSIs as Barriers to Growth

Market Related 70%

Finance Related 25%

Government Policy Related 12.78%

Power Related/Infrastructure 14.0%

Technology 14.60%


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TRENDS OF LENDING BY BANKING

SECTOR TO SSI

Rs. in Crores

As at end March Total advances by

Banking Sector

Total Advances to

SSI Sector

Proportion of SSI to

Total Advances

1999 246203 42674 17.30

2000 292943 45788 15.63

2001 469153 56002 1.94

2002 536727 57199 10.66

2003 669534 60394 9.02

2004 764383 65855 8.62

2005* 972587 76114 7.83

Source : RBI Report on Trend and Progress of Banking in India

* Provisional


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SALIENT FEATURES OF MSMED

ACT - 2006 Manufacturing enterprises defined in terms of investment in Machinery and

Equipment (excluding land and building) classified into

a. Micro enterprises - investment upto Rs 25 lakhs,

b. Small enterprises - investment above Rs 25 lakhs and upto Rs 5 crore

c. Medium enterprises - Investment above Rs 5 crores and upto Rs 10 crores

Service enterprises defined in terms of their investment in equipment (excluding land

and building) classified into

a. Micro enterprises-investment upto Rs 10 lakhs

b. Small enterprises-investment above Rs 10 lakhs and upto Rs 2 crore

c. Medium enterprises-investment above Rs 2 crores and upto Rs 5 crores

Constitution of national board, advisory committee

Provisions for clear cut procurement policy, credit, delayed payment, closure of

business etc


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MSMED Act 2006 and its ImpactClause Salient Features Impact

1. Establishment of National Smalland Medium Enterprises Board

Maximum No. of members 47

1. Specific representation forWomen

2. Mandatory Quarterly Meeting

Statutory Status, compact boardand quarterly meetings will

address problems of SMEs

immediately to take corrective

action

2. Concept of Enterprises Clear-cut demarcation of

manufacturing/production and

rendering services

Facilitates SMEs to enter into

service enterprises aggressively

3. Definition of Enterprises Specific ceiling limit for

manufacturing/production and

service enterprise definition for

Medium enterprises

Existing small units can graduate

into Medium units and avail

facilities under the act.

4. Filing of memoranda optional for

Micro and Small enterprises inmanufacturing and service

sector Medium enterprises in

Service Sector but mandatory

for Medium enterprises in

manufacturing sector

Replacement of registration with

memorandum

Facilitates SMEs to avail the

benefits of the act immediatelyafter setting up of the unit.

Contd/----


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MSMED Act 2006 and its IMPACT

Clause Salient Features Impact

5. Procurement Policies Notification of preference

policies by central or State

Governments for goods and

services provided by Micro &

Small enterprises

Facilitates opportunity for

supply of goods/services

without any hassles.

Public Procurement Policy

under Section 11 of MSME

Act, yet to be notified

6. Delayed Payment Penalty &dispute resolution Period of payment by theprocuring organizations 45

days

Penal interest 200% of PLR

SMEs can plan their cashflow/financial requirement

7. Dispute Resolution Establishment of MSE

facilitation Council; 90 days

framework for dispute resolution

Easy financial planning and no

waste of human resources for

chasing/follow up.

8. Delayed Payment allowable

deduction under IT Act 1961

Deduction disallowed This will encourage

procurement agencies to

ensure timely payment to

SMEs.

9. Closure of Business Statutory notification of scheme

for closure

Facilitates expedition of

liquidation

Contd/-


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MSMED Act 2006 and its IMPACT

Clause Salient Features Impact

10. Notification of guidelines or

instructions for promotion

of SMEs wrt. To Funds

appropriation and release

Statutory Mandatory on all facilitating

development of SMEs ensuring

fast growth

11. Facilitating Credit Statutory Mandatory on all providing

credit. Guidelines for credit for

20% year on year growth


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PRESENT POLICY FRAMEWORK

Enactment of MSMED Act 2006.

The present policy framework covers specific actions for

growth of MSME sector in the Areas of:

Specific legislation on limited liability partnerships covering Micro, Small and

Medium enterprises

Guidelines by RBI for 20% year on year growth of credit to SMEs

Grant for SIDBIs Portfolio risk fund

Additional Branches by SIDBI to cater to credit needs of clusters of MSMEs

Loan limit under credit guarantee fund to be raised to 50 lakhs

Credit guarantee cover to be raised from 75% to 80% for micro enterprises up

to 5 lakhs

Fiscal support excise exemption limit increased to Rs. 1.5 crores


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Identification of new sites for clusters and Management of Infrastructurerelated assets in public-private partnership mode.

Project cost for cluster program to be raised to 10 crores

Support and quality up gradation through setting up of new productdevelopment centres

Assistance for attainment of ISO 9000 and 14001 to be continued duringnext Plan period

Technology Mission to be launched

Support for Marketing

Support for Entrepreneurial and Managerial Development

Empowerment for women owned enterprises

Contd/-


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Opportunities

Fashion Technology

Information Technology

Design Technology

Health Technology

Bio Technology


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Fashion Technology

OPPORTUNITIES

Glamour & Limelight

Creative

High Value Addition

Coverage (Extensive)

Clothes

Dresses

Garments

Textile

Footwear

Various Leather Products

Jewellery

Travel Goods

Fashion Accessories (purses, bags, carryon, watches etc.)

Personal Embellishment (Face, Hair, Hands, Feet, Cosmetics, Perfumesetc.)


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Information Technology

OPPORTUNITIES

Media & Entertainment

Contents,

Animation,

Games,

Gaming.


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Design Technology

OPPORTUNITIES

Interiors - (Furniture & Furnishing homes, work places, community, hospitals,schools, shopping places, recreation, sports)

Exteriors - (Architectural)

Industrial products

Textiles

Electrical appliances

White goods

Leather products

Engineering products

Machinery

Dies and tools

Watches

Jewellery

Hospital equipments

Medical instruments

Electronics and Communication Products and Equipments


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Health Technology

Personal Health Care

Preventive Health Care

Physiotherapy

Monitoring (sensors)

Community Health

Vaccines

Public Health

Surveillance of Health Status (AIDS,Bird Flu etc)

Medical Imaging Technology such as

X-ray, Cat scanning, ComputedTomography Scan (CTs), MagneticResource Images (MRIs), Sonogramsetc.

Surgical & Physiotherapy

Health Information Management

Medical Laboratory Technology

Beauty Care and Wellness

Nursing

Pharmacy Technology

Medical Research Laboratory

Yoga & Naturopathy

Herbal Therapies

Environmental Health

Food Supplements Food, Inspection and Testing etc.

Medical Waste Management

Hospital Supplies & Staffing

Services

OPPORTUNITIES


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Bio Technology

The biotech industry continues to grow at almost the same rate that it did in last

year. The industry recorded 36.55 percent growth compared to the previous years

figure. There are 28 companies.

An Ernst and Young study has named India as one of the five emerging biotech

leaders in the Asia Pacific besides Singapore, Taiwan, Japan and Korea, with

mainland China catching up quickly. The study ranked India third in the region

based on the number of biotech companies in the country, after Australia and

China, including Hong Kong.

The above-expected growth will facilitate SMEs to enter into this field by setting

up contract Research Organisations (CROs) and in other areas to meet the demand

of US $ 3.1 billion market of Indian Pharmaceutical Industry.

Target for 2010 US $ 5 billion

With the industry zooming part the US $ 1 billion mark, registering revenues

of US $ 1.07 billion, the sector has achieved a significant milestone.


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Projected Market opportunities in theknowledge sector including above is US $ 365

billion in 2020.

as per High level strategic group of AIMA


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CONCLUSIONS

It can be seen that the policy framework is consistent sinceindependence

The specific definition for medium enterprises augurs well for

graduation of micro enterprises to small and small enterprises to

medium enterprises

With more budgetary allocation to service sector, SMEs will be

able to generate more employment opportunities to educated

unemployed youth

The launching of Technology Mission will facilitate the

Government to work out a long term action plan to ensure

organized growth of this sector to face competition in liberalized

services sector and knowledge based economic scenario


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Mr Juneja about smal scale industries

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