Small & Medium Enterprises (Sme)

8/3/2019 Small & Medium Enterprises (Sme)

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BY

Asst Prof. Arvind Gajakosh

B.E. MBA, NET


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In India the SME is generally referred as small scaleindustry including the tiny sector.

Companies with fewer than 10 employees called asMicro enterprise.

Companies with fewer than 50 employees called asSmall enterprise.

Companies with fewer than 250 employees called asMedium enterprise.


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In accordance with the MSMED (Micro, Small &Medium Enterprises Development) Act, 2006 they

are classified into two classes. 1) Manufacturing Enterprises: according to

Development & Regulation Act, 1951) themanufacturing enterprises are defined in terms ofinvestment in P & M.

Type of Enterprise Investment in P&M

Micro


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2) Service Enterprises: The enterprises engaged inproviding or rendering of services & are defined interms of investment in equipment.

Type of Enterprise Investment in P&M

Micro


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A small scale industry is an industry that isprivately owned and operated, with a small numberof employees & relatively low volume of sales.

Small business are normally privately ownedcorporations, partnerships, or sole proprietorships.

In India small business is categorized intofollowing groups:

1) Small scale industries: a unit in which invst inP&M doest exceed 5 crore rupees.

2) Ancillary units: an undertaking SSI unit, whichsells more than 50% of its output to otherindustrial undertaking.


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3) Export Oriented Units: is a SSI unit which exports>30% of its output.

4) Tiny Units:a units are nothing but micro enterprises.

5) Small Scale Service & Business Enterprises:a SSSBM is

one whose investment in fixed assets of P&M is


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India is largely an agricultural country and major

part of the population lives in villages. SME are small in size but play a big role in economic

development of our nation.

Small scale firms are helpful in the achievement of

economic goals in the following ways. Employment : small scale firms use labor intensive

techniques therefore they have high potential toprovide employment to a larger no. of people.

Balanced Regional Development: stops migration Optimization of Capital : small scale industries

require less capital per unit of output therefore,greater output can be obtained with small invest.


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Mobilization of local resources & skills: Exchange earnings: they can earn valuable foreign

exchange through exports.

Feeder to large Industries: various types ofcomponents , spare parts, tools & accessories whichare required by the large scale sector.

Opportunity for artisans: because of lack ofopportunities their skills do not come intolimelight.

Increase standard of Living: Equitable Distribution of Income: Social Advantage: they offer savings in social

overheads like education, housing & medicalfacilities by taking industry nearer to the people.


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The main objectives of policy framework are:

1) To encourage & facilitate the entry of newentrepreneurs in small sector.2) To support the growth of small-scale units.3) To protects small firms from acute competition

from large sector.

4) To solve the problems faced by the small scaleindustries.

5) To encourage technology up gradation,productivity improvement and export production inthe small-scale sector.


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Industrial policy resolution 1948 attributed animportant role to the SSI sector. The karve committee(1955) and the international perspective planning teamalso emphasized the need to develop small scale andvillage industries to meet the following objectives:

To create large-scale employment at relatively smallcapital costs. To mobilize unused resources of capital and skills. To ensure a more equitable distribution of national

income including regional dispersal of industries.


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Industrial policy resolultion,1956: Industrial policy resolultion,1977:

Industrial policy resolultion,1980:


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It stated that besides continuing the policy ofsupporting cottage village and small industries bydifferential taxation or direct subsidies.

To ensure that decentralized sector acquires sufficientvitality (essential function) to be self supporting and itsdevelopment is integrated with that of LSI.

To counter the tendencies towards concentration ofeconomic power by widening opportunities for newentrants and medium and small sized units.


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This policy specified the following measures : Reservation of504 items for exclusive production in the

small scale sector.

Establishing of district industries centre. (DIC) Special assistance to tiny sector and cottage and

household industries. Special marketing arrangements through the provision

of services like product standardization, quality ,control, market survey, etc.

Encouragement for technological Up-gradation in thetraditional sector.

Promotion of khadi and village industries and thehandloom sector


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Definition of small scale, tiny units and ancillaries unitswas redefined;

The DIC were replaced by nucleus plants in eachindustrially backward district to promote cottage andsmall industries.

Reservations of items continued; Financial support to small units was strengthened; Village industries including handloom, handicrafts,

khadi etc. received greater attention;


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The major problems confronting the sector are as follows:

Technology obsolescence: up gradation of the technology& achieving economies of scale is one of the majorproblems facing the sector.

They cannot afford new machines & equipments and aretherefore not development on a continuing basis.

Small businesses face the following three essentialproblems:

Lack of Technological Knowledge Barriers in Implementation Funding Problem


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Managerial Inadequacies: as the business grows ownerfinds it difficult to manage even small businesseffectively with managerial functions.

Credit & Finance: inadequate access to credit is amajor problem facing MSME

Organizational structure: there is lack of proper divisionof work and benefits of specialization are not available.

Raw materials & Products: non availability of quality rawmaterials on a timely basis in an adequate quantity. Ex:

handloom industry is facing shortage of yarn.


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Marketing & Export: MSME face greater difficulty in themarketing & distribution of their products. Some of theseare:

Competition from large firms

Lack of mktg networks

Lack of resources

Low negotiating power

Infrastructure: transportation facility, adequate powersupply, channels of telecommunication.

Increasing Competition:


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Meaning & Definition of Sick Unit

According to the sick industrial companies act 1985, : A sickindustrial company indicates an industrial unit which isshowing accumulated losses equal to or exceeding itspresent net worth at the end of any financial year.

An industrial unit was defined as sick if:

It was registered for at least 7 yrs.

It incurred cash losses for the current and the preceding yrand

Its net worth has eroded.


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Following criteria were adopted to identify sick unitsare:

Continuous decline in gross output compared to theprevious two FYs

Delay by more than 12 months in repayment of loantaken from institutional sources

Erosion in the net worth to the extent of 50% of the networth during the previous accounting yr.


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End please.!

Small & Medium Enterprises (Sme)

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