SMEBusiness

Inside This IssueTOP STORY Page 6

ANALYSIS Page 9

POLICY Page 11

FOCUS Page 13

MARKETING Page 15

INITIATIVE Page 16

STRATEGY Page 17

PlusSmall World Pg 3Technology Pg19

International Pg20Upcoming Events Pg22

Journal of Small Business and Enterprise Vol 7, No. 3, May 2010

FROM THE CHAIRMAN’S DESK

Salil SinghalChairman

CII National MSME Council

Micro, small and medium enterprises (MSMEs) col-

lectively function as the fulcrum of the national

economy, accounting for the bulk of industrial

output, exports and employment. The CII National MSME

Council has pursued a multi-pronged strategy for placing

the sector on a high growth trajectory without diluting the

development goals. The last 12 months in particular bear

testimony to this.

Arising out of the Prime Minister's appointed Taskforce,

the Prime Minister's Council on Micro and Small Enterprises

has now been set up. As one of the first steps, we are work-

ing on preparing our recommendations on the labour laws

which are conducive to our sector.

On the other side, we have been actively work-

ing for the establishment of an SME Exchange and

organised a Conference in July 2009 to build a road-

map for setting up such an Exchange.

We are now pleased to see that SEBI has come out

with some guidelines on the subject, and we are plan-

ning for detailed discussions on this in a forthcoming

conference by the end of this month.

Our Council is strongly committed to encourage MSMEs

to convert their present business format to a Limited Li-

ability Partnership for which an Act of Parliament has al-

ready been enacted. We organised a meeting to discuss

the benefits of the LLP Act, 2008 where the participants

were familiarised with the law, followed by a very interest-

ing question and answer session. We would be happy to

assist members with any clarifications on this.

CII has been actively working for international coopera-

tion for the MSMEs and accordingly the CII India Global Sum-

mit on MSMEs 2009 was organised in November 2009 that

drew participants from 32 countries.

To highlight the bilateral opportunities for MSMEs, a

Roundtable Discussion on Fostering India-Canada Trade:

Role of SMEs was organised in January 2010, followed

by a CII SME delegation to the Czech Republic to explore

for JVs, transfer of technologies, etc. Earlier, an SME del-

egation also visited Slovakia with similar objectives. In

addition, a Conference on Financing SME Business and

Projects in Africa was organised in March this year to

build bilateral and multilateral partnerships with Africa in

the MSME domain. CII has also organised training pro-

grammes for MSME professionals and entrepreneurs with

partner organisations like AOTS Japan.

To take the Council's message to a wide audience, CII

launched this bi-monthly journal SME Business in November

2009, which has generated positive industry response. CII

also conducts the quarterly MSME Outlook Survey to assess

the emerging trends and challenges.

The current edition talks of the key developments taking

place in the MSME domain, with particular focus on the re-

port of the Working Group to review the Credit Guarantee

Scheme under the Credit Guarantee Fund Trust for Micro

and Small Enterprises (CGTMSE), role of ICT in MSMEs and

skills development initiatives. I would like to make a spe-

cial mention of the interview with Mr R. Bandyopadhyay,

Secretary, Ministry Corporate Affairs, Government of India,

which I am sure will be of key interest to you.

I must also mention that there is a definite lack of aware-

ness of the various Government programmes and schemes

for MSMEs. I strongly believe that entrepreneurs should

spend time to look at these schemes and take full advantage

from them. This will greatly add to their business growth.

I would therefore greatly welcome your suggestions as to

how we can popularise these schemes, as also to assist units

in case they are not able to obtain the benefits offered.

I also seek your continued participation in the content

development of SME Business and in the different activi-

ties of the CII National MSME Council.

Please write to me at Chairman.MSMECouncil@cii.in

mohan Singh, the Centre will reserve 20%

for MSME manufactured items for procure-

ment by the government. Since the govern-

ment purchase is growing at an annual rate

of 10-15%, it is likely to reach Rs 800,000

crore next fiscal and 20% reservation

would mean Rs 160,000 crore. Union Fi-

nance Minister, Mr Pranab Mukherjee, in his

2010-11 Budget speech, had announced the

implementation of the recommendations

of the Task Force.

we will form a charter of targets and

achievements for the coming year,

said Mr Dinesh Rai, while adding that

NSIC will also play a vital role under

the Prime Minister's Task Force on

MSME, which is equally important,

like consortium formation to give ten-

ders, marketing intelligence, buyer

seller meet, to organise international

exhibitions in India, website develop-

ment and making of catalogue.

Micro, Small and Medium Enterpris-

es (MSMEs) are in for a windfall, as

the government purchase from the sector

would touch almost Rs 160,000 crore dur-

ing 2010-11. At present, the government

purchase from MSME sector is around Rs

40,000 crore, of the estimated total pro-

curement of Rs 600,000-700,000 crore

annually, which is less than 7%. According

to the recommendation of the MSME Task

Force constituted by Prime Minister Man-

National Small Industries Cor-

poration (NSIC) has signed

an Memorandum of Understanding

(MoU) with Ministry of Micro, Small

and Medium Enterprises (MSME),

Government of India. The MoU for

the year 2010-11 was signed between

Mr Dinesh Rai, Secretary, Ministry of

Micro, Small and Medium Enterprises

(MSME), Government of India and Mr

HP Kumar, CMD, NSIC. Under this MoU

Govt purchase from MSMEs to touch Rs 160,000cr in FY11

NSIC signs MoU with MSME Ministry

MSME ministry seeks tax sops

for VCs, PEs

Centre thrust on IPR to boost

MSMEs

MSME ministry plans survey of SME pharma units

subordinate legislation last year. The goal

of the survey is to collect information on

the total number of pharma units including

state-wise break-up, total number of Sched-

ule M compliant units, names of units with

full addresses which have been closed since

July 1, 2005 due to the non-compliance of

Schedule M norms, cases in which licenses

have been surrendered by the manufactur-

ers, and cases in which licenses have been

suspended or cancelled by the authorities

due to the non-compliance of revised norm.

It will also collect the names of units which

are partly compliant in respect of catego-

ries while license for other categories either

suspended or cancelled. The 181st report of

the Committee on Subordinate Legislation,

Rajya Sabha, had called for such a survey.

The Ministry of Micro, Small and Me-

dium Enterprises (MSME), Govern-

ment of India, will soon launch a comprehen-

sive survey of small scale drugs and pharma

units in the country to assess the impact the

amendment of the Drugs and Cosmetics

Act with regard to the Schedule M norms,

as suggested by the Parliamentary panel on

The Ministry of Micro, Small and

Medium Enterprises (MSME), Gov-

ernment of India, wants the Finance Min-

istry to provide tax concessions to ven-

ture capitalists and private equity players,

take up the issue (to provide tax breaks or

sops to these firms) with the Finance Min-

istry and the revenue department soon in

order to attract more funds to the sector

said Mr Dinesh Rai, Secretary, Ministry

of Micro, Small and Medium Enterprises

(MSME), Government of India. He also

asked the venture capitalists and private

equity players to come out with clear cut

guidelines in terms of the incentives they

would like to get from the government.

focus on developing the MSMEs

sector, the government is emphasising

on the use of intellectual property rights

(IPRs), which it believes will give the sector

facturing Competitiveness Programme

(NMCP), is pegged to enhance the com-

petitiveness of the MSMEs sector, as also

encourage sustainable models for overall

development of such enterprises. Under

the new initiative it plans to provide as-

sistance for programmes creating aware-

ness or sensitising about the usage and

advantages of IPR, for pilot studies/proj-

ects, interactive seminars/workshops, for

providing specialised training, setting up

of intellectual property facilitation. Be-

sides, it will also provide assistance for

grant on patent registrations and interac-

tions with international agencies.

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Finance Minister Pranab Mukherjee has said that

the government is committed to double the credit

flow to MSMEs within five years. "Timely availability of

credit to MSMEs is extremely important to meet their

growing needs and to help them keep their business life-

line vibrant and progressive," Mukherjee said at a recent

event. He said that the various measures announced in

the 2010-11 Budget will revive private investment and

put the economy back on the growth path of 9% per an-

num. "The Government of India has always considered the

MSMEs as an important pillar of economic growth and has

supported the sector with proactive and growth oriented

policies. It is an acknowledged fact that finance is a high-

ly effective tool for creating economic opportunity and

fighting poverty," the minister said.

In giving a written reply to a question in Lok

Sabha, Mr Dinsha Patel, Minister of State

(Independent Charge) for Micro, Small and Me-

dium Enterprises (MSMEs), stated that the global

economic slowdown adversely affected the export

market for Indian industry, including the MSMEs.

In particular, sectors such as textiles, leather,

gems and jewellery, auto components, etc., were

mainly affected. Keeping in view the impact of

global economic slowdown on MSMEs, the Govern-

ment, the Reserve Bank of India (RBI) and the Pub-

lic Sector Banks have taken several measures for

protecting and providing a stimulus to the MSMEs

which, include: (i) extending the loan limit under

Credit Guarantee Scheme from Rs 50 lakh to Rs1

crore with a guarantee cover of 50%; (ii) increas-

ing the guarantee cover under Credit Guarantee

Scheme from 80% to 85% for credit facility up to

Rs 5 lakh; (iii) an advisory to Central Public Sector

Enterprises to ensure prompt payment of bills of

MSMEs; (iv) interest subvention of 2% in pre- and

post-shipment export credit to SME sector; (v) re-

finance limit of Rs 7,000 crore to Small Industries

Development Bank of India (SIDBI) for incremental

on-lending to the MSE sector; (vi) grant of need-

based ad hoc working capital demand loans up to

20 per cent of the existing fund-based limits; and

(vii) reduction in interest rates for borrowing by

micro enterprises by 1 per cent and in respect of

SMEs by 0.5 per cent.

Govt aims to double credit to MSMEs

SMEs will provide a growth impetus for the Indian

software market in the period 2010-14, accord-

ing to India Information Technology Report Q2 2010. It

said that despite the recent economic headwinds, the lo-

cal market is likely to grow strongly in 2010, with more

projects from key IT-spending verticals such as financial

services, telecoms and consumer goods. The report said

that in recent years, the SME market in India for hardware

deployment has grown and this has resulted in an increas-

ing opportunity in this segment for applications. More

demand for solutions and hardware now comes from sec-

ond- and third-tier cities. Industry reforms and privatisa-

tions, government regulations and new global competition

have encouraged SMEs to use more technology. Recently,

there has been an increased enthusiasm for hosted appli-

cations and software-as-a-service (SaaS), which improved

telecoms infrastructure makes more feasible.

Publ ishing industry is a Rs 10,000 crore business

in India. Around 90,000 book t i t les get publ ished

every year in India by more than 16,000 publ ishers.

The industry is spl i t between organised and unorgan-

ised players with only 35-40% of the industry in the

organised sector. The top 15% publ ishing companies

produce hundreds of t i t les per year. Compared to this ,

the SME publ ishers typical ly produce only 2-5 t i t les

per year on an average, al l of them are in-house pub-

l icat ions. For this reason, many of these publ ishing

houses are moving towards distr ibution where they

see relat ively less cost and better margins.

Small, medium and large companies need to work in an

inter-dependable way to enhance growth between India

and the US, said, Mr Thomas Donohue, President, US Chamber of

Commerce during his visit to India in New Delhi. He was quoted

saying that "there has to be interdependence between small, me-

dium and large sized enterprises whether they are connected to

any segment of the economy such as technology, healthcare, ag-

riculture or transportation." Mr Donohue said that India-US has

to look for having potential relationships between the countries

and find out ways and means where large, small and medium

sized companies come together and collaborate in business deci-

sions. It is important to observe how they (SMEs) work together,

Donohue added.

SMEs will broaden Indian IT software market

SME publishers operat-ing on thin margins

Build US-India SME cooperation: Donohue

Stimulus for MSME growth & development

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Design Clinic Scheme for Design Expertise to MSMEs is a

unique and ambitious design intervention scheme finan-

cially supported by the Ministry of MSME, Government of India.

The scheme was launched on February 17, 2010. The main ob-

jective of the Scheme is to bring the MSME sector and design

expertise onto a common platform and to provide expert advice

and solutions on real time design problems, resulting in continu-

ous improvement and value addition for existing MSME products.

This model brings design exposure to the doorstep of industry

clusters for design improvement, evaluation and analysis, lead-

ing to long-term consultancy/design related intervention.

The Scheme has a total budget of Rs 73.58 crore, of which

Rs 49.08 crore will be made available as Government of India

assistance and the balance to be contributed by the beneficia-

ry MSMEs. The Scheme will help the MSME sector to avail the

benefit of design to move up the value chain through increas-

ing value and competitiveness of their products and services.

The Scheme will be carried out in three phases: (i) Design

Sensitisation Seminar (Rs 60,000: borne by Design Clinic); (ii)

Design Awareness Programme: 10-15 Day Design Audit and 3-4

Day Design Clinic Workshop (Up to Rs 4 lakh: 75% supported

by Design Clinic / 25% funded by MSME Association/ units); (iii)

Design Project: 3-18 Month Design Project (Rs 9-15 lakh: 60%

supported by Design Clinic, 40% funded by MSMEs).

The scheme targets to touch about 200 MSME clusters over

the next two and half years. The details of the scheme are

also available on MSME website: http://www.nid.edu/index.

php?option=com_content&view=article&id=238&Itemid=296.

National Institute of Design (NID), Ahmedabad will assist the

Ministry of MSME, Government of India, as a nodal agency for

implementing the scheme. For more details, contact: Ms Supri-

ya Pokharna, Project Officer, Regional Centre, Ahmedabad.

Commerce and Industry Minister Mr Anand

Sharma invited the Finnish small indus-

tries to join hands with Indian MSMEs, citing that

collaboration in many areas has vast potential

for both sides. Mr Sharma said that areas of in-

frastructure, clean energy, bio-pharmaceuticals,

medical electronics, health and skill development

offer enormous potential and stated that the In-

dian MSME sector and Finnish small industries

should use each other's strengths to make India

a manufacturing hub for tech-rich industries. The

agreement between the two countries, which was

signed by Mr Sharma and Finnish Minister for For-

eign Trade and Development Mr Paavo Vayrnen in

Helsinki, will replace an earlier pact signed way

back in 1967 under the GATT regime.

Design Clinic Scheme for MSMEs

The Reserve Bank of India (RBI) may soon in-

crease the limit of collateral free loan for MSMEs

from Rs 5 lakh to Rs 10 lakh, RBI Executive Director, Mr

VK Sharma was quoted saying. "Recently the RBI has

appointed a working group to review this credit guar-

antee scheme for MSME and the group has given us

many recommendations. One is to increase the limit

of collateral free loan from Rs 5 lakh to Rs 10 lakh,

he said adding that very soon the RBI will issue the

guidelines to the banks to implement this. The group

has submitted the report, now we will do the inspec-

tion," he added. Earlier in January 2009, the RBI asked

the Indian banks not to ask for collateral security from

MSMEs for new loans up to Rs 5 lakh. As per the RBI

guidelines, banks are not supposed to insist on collat-

eral security from MSMEs for advances up to Rs 5 lakh.

However, the banks can take into account the viability

of their projects while granting new loans.

The micro, small and medium enterprises (MSME) sector is becom-

ing more efficient in terms of production versus persons employed.

According to the Annual Report 2009-10 released by the Ministry of Micro,

Small and Medium Enterprises (MSME), Government of India, the percent-

age rise in production in 2008-09 compared with the previous fiscal is dou-

ble the percentage rise in the number of persons employed. In 2008-09,

production in the MSME sector went up 11.4% to Rs 880,805 crore, while

the number of persons employed rose 5.2% to 659.35 lakh. In the same

fiscal, 12.37 lakh new enterprises were added to the sector. Mr Dinesh Rai,

Secretary, Ministry of MSMEs, Government of India, said, The higher pro-

duction versus employment is largely due to better utilisation of capacity

and the more efficient practices that are being used by the sector. Also, the

prices of finished goods have gone up.

Collateral free loan for MSMEs on the anvil: RBI

Small, medium units turn more effi cient: Ministry

India seeks Finnish collaboration in MSME sector

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ICT fuel for MSME engines

The appropriate adoption

and utilisation of ICTs with-

in business processes and

operations of micro, small

and medium enterprises

(MSMEs), at the minimum, will signifi-

cantly strengthen national economies

and provide new opportunities for en-

hanced efficiency and integration and

flow of trade and commerce.

In an ever-changing and dynamic

world, the advent and adoption of In-

formation and Communication Tech-

nologies (ICTs) across the globe has

permanently altered the rules of the

game and expectations of the new

digital and inter-connected economies.

Traditional notions of trans-boundary

trade have in the past two decades

changed dramatically to acknowledge

and embrace, at times reluctantly, the

increasing number of financial trans-

actions and trade-related activities

that take place purely via the Internet

and technologically assisted tools.

SMEs Driver of Economic Growth

The role of ICTs in advancing the

growth of national economies through

enhanced efficiency and productivity,

and expanded market reach is both

undisputed and irreversible. It is within

this vein that adequate and strate-

gic attention has to be placed so that

these new opportunities provided by

ICTs are not purely limited and acces-

sible only by the larger corporations

within national economies. As numer-

ous reports have indicated, MSMEs

constitute almost 95% of enterprises

within most regions and directly serve

as both the backbone and driver of na-

tional economies.

However, poor adoption of ICTs and

low Internet penetration has been due

to numerous major constraints that

range from lack of skilled technical

capacities to issues related to inad-

equate connectivity and infrastructure.

In addition, a weak understanding of

the expectations and demands of the

new digital economies has also placed

many MSMEs in an unenviable position

of being unable to participate in the

new digital knowledge economy.

ICT's role in MSMEs

As the global economy becomes in-

creasingly reliant on ICT to receive,

process, and send out information, the

small businesses in the country have

yet to reap these benefits evenly. This

is because obtaining such opportuni-

ties rests largely upon the ability of

MSMEs to engage in the regional and

global economic business networks

which, in turn, demand provision of a

prerequisite level of access to and use

of ICT.

Unless these prerequisites are in

place, these MSMEs are set to lose out

on opportunities to integrate into the

global supply chain, bid for outsourc-

ing businesses, and increase their in-

ternal productivity and efficiency.

MSMEs can benefit either as produc-

ers of ICT or as users of ICT for purposes

such as increased productivity, faster

communications and reaching new cli-

ents. However, it must be noted at the

outset that not all MSMEs need to adopt

ICT tools to the same degree of sophis-

tication. The most basic ICT tool is hav-

ing communication capabilities through

fixed lines or mobile phones, whichever

is more cost effective.SMEs may then

SMEs need to use Information Communication Technology (ICT) more as ICT eliminates poverty because of asymmetric information. And if you eliminate asymmetric information, you reduce poverty — C K Prahalad

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use a personal computer (PC) with ba-

sic software for simple information pro-

cessing needs such as producing text or

keeping track of accounting items.

Internet access enables MSMEs to

have advanced communication capa-

bilities such as email, web browsing

and launching a website. MSMEs in

manufacturing can benefit from more

advanced ICT tools such as Enterprise

Resource Planning (ERP) or inventory

management.

While ICT can benefit MSMEs in mul-

tiple ways, MSMEs have been slow

to adopt ICT as they face major con-

straints such as poor telecommunica-

tions infrastructure, limited ICT lit-

eracy, inability to integrate ICT into

business processes, high costs of ICT

equipment, and a poor understand-

ing of the dynamics of the knowledge

economy.

Countries in the world are mov-

ing from an industrial economy to a

knowledge economy in which econom-

ic growth is dependent on a country's

ability to create, accumulate and dis-

seminate knowledge. Computers and

the Internet catalyzed the growth of

the knowledge economy by enabling

people to codify knowledge into a

to capture these emerging business

opportunities.

India, for example, offered relief

from import duties for IT hardware,

tax deductions for income earned from

software exports, and tax holidays, and

developed infrastructure in Software

Technology Parks. India's thriving ICT

sector has in turn propelled the coun-

try's economic growth. MSMEs outside

the ICT sector have also benefited by

adopting ICT in their own operations,

enabling them to communicate quick-

ly, increase productivity, develop new

business opportunities, and connect to

global networks.

Given the benefits that ICT can bring

to MSMEs, most MSMEs in emerg-

ing economies still have been slow to

adopt it. Meanwhile, their counter-

parts in developed countries are us-

ing advanced ITs. One cause of limited

adoption is the lack of dynamism be-

tween ICT firms and MSMEs outside

of the ICT sector. ICT firms have not

provided goods and services tailored

to MSMEs in the past because demand

from MSMEs has been low. However,

their demand is low in part because

ICT products available in the market

are too complex and expensive. The re-

digital form easily transmitted to any-

where around the world.

People who have access to this new

wave of ICT are part of an information

society connected to a virtual network

that constantly creates and dissemi-

nates new information. ICT has sped up

the pace of globalisation and increased

the complexity of business practices

because firms not only need to be fa-

miliar with their local context but also

with global developments.

Thus, to compete in the knowledge

economy, the country needs a strong

ICT-literate skills base that can in-

novate and adapt quickly to change.

More value is placed on the knowledge

worker than ever before. Knowledge,

change and globalization are the driv-

ing forces of the new economy.

Knowledge-based MSMEs

The knowledge economy has impacted

MSMEs both positively and negative-

ly. On the positive side, because the

knowledge economy relies heavily on

ICT, it has led to the rapid growth of

ICT sectors. Many countries such as In-

dia, the Republic of Korea and Taiwan

have created enabling environments to

ensure that SMEs are well positioned

TConfederation of India Industry (CII) has sought tax

concessions for the micro, small and medium enterpris-

es (MSMEs) sector to encourage them for investing in

information and communication technology to enhance

competitiveness. The Government may consider accord-

ing 100 per cent depreciation, once in a block of three

financial years, for an annual investment in IT equip-

ment and software up to a limit of Rs 25 lakh to MSMEs,

CII MSME Outlook Survey said. It said tax concession on

investment in ICT to the sector, which contributes 40 per

cent to the country's manufacturing, would help it be-

come more competitive. Most of the survey respondents

said faster internal and external communication is the

main benefits of ICT use among the enterprises followed

by a better and enhanced relationship with customers

and partners. About 83 per cent respondents are using

ICT tools for finance and accounting, 75 per cent for HR

and administration functions, and 68 per cent for mar-

keting and sales. A large number of them are using ICT

tools for logistics operations as well, it said. The survey

is based on responses from a broad spectrum of indus-

try groups and activities of the sector.

CII Outlook Survey seeks tax sops to MSMEs for investment in ICT

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There is a plan for an ICT scheme with Government assistance of about Rs 1.2 billion that will enable 200 clusters all over the country to adopt ICT Tools. The primary objective will be to improve MSME competitiveness.

Dinesh Rai, Secretary, Ministry of Micro, Small & Medium Enterprises.

sult is a vicious cycle of limited supply

and limited demand that ultimately ex-

cludes MSMEs from the benefits of ICT.

Impeding Factors

Other factors also contribute to the

limited supply and demand of ICT

for MSMEs. For instance, poor com-

munications infrastructure results

in limited access and higher costs.

Outdated equipment often result in

expensive charges and limited cover-

age, especially in rural areas. This dis-

courages MSMEs from adopting even

the basic ICT of fixed lines or mobile

phones. Most advanced ICT products

are designed for larger firms and

not MSMEs. ICT firms used to target

large enterprises because they had a

larger budget and were willing to pay

for more complex ICT services. Their

products are often too expensive and

too complex for MSME users. Howev-

er, competition in this market is mak-

ing firms both large and small turn

their attention towards the untapped

SME market.

Limited ICT literacy of MSME owners

hinders their ability to choose the ap-

propriate technology and understand

the concrete benefits it can bring to

their business. Many MSME owners are

unfamiliar with operating a computer,

are skeptical of the concrete benefits

to its core business, and have the ste-

reotype that ICT is only for larger com-

panies. Even if they have the will and

financial resources to integrate ICT

into their core business, MSME own-

of the way businesses are conducted

will lose out to the increasing competi-

tion brought about by globalization. To

remove these constraints, the govern-

ment needs to do more than merely

improving ICT national policy and pro-

moting SMEs in the ICT sector. Instead,

the government should embed ICT com-

ponents into overall MSME policy in a

comprehensive and focused manner.

Conclusion

However, this does not mean that MSME

policy should be the same for all indus-

tries. MSMEs in different sectors use

ICT differently and will adopt them at

a different pace. Additionally, MSMEs

need help in translating the benefits of

ICT to their core business. The willing-

ness of MSMEs to integrate e-business

practices depends on how much it can

directly improve their core business and

how much the potential benefits out-

weigh the definite costs. For example,

a tour operator may be more likely to

purchase computers and Internet con-

nectivity in order to service its clients

than a grocery store owner will be will-

ing to convert its cash register system

into point-of-sale (POS) technology to

better manage inventory.

By recognising these differences

and focusing their efforts on removing

the constraints, the governments can

play an important role in encouraging

MSMEs to become more effective users

of ICT. This can have wider impact on

national economies since MSMEs are

the engines of economic growth

ers are often at a loss when needing to

choose the most appropriate and cost-

efficient product.

Limited ICT literacy of employees in

MSMEs hinders ICT adoption. Even if

MSME owners have a strategic under-

standing of why they should adopt ICT,

their staff is often untrained. Training

costs both time and money resources

that MSMEs usually lack. Adopting ICT

is an adaptive challenge, not a techni-

cal challenge. Adopting ICT is a difficult

task for companies of all sizes, whether

they are in developed or developing

countries. In fact, a lot of management

literature focuses on the organizational

changes that firms must go through in

order to effectively adopt ICT because

they change the way firms do business.

While the changes may be beneficial in

the long run, they often hurt one de-

partment and strengthen another.

Lack of financing options limits

MSME ability to purchase ICT. Lack of

financing and appropriate technology

is clearly a major handicap to produc-

ers and exporters, and it inhibits de-

veloping countries from deriving full.

MSMEs may still be hesitant to engage

in e-commerce due to undeveloped le-

gal policy for electronic payment and

security issues. In the end, the definite

costs of identifying the right goods

and/or service, finding staff to manage

it, taking the company up the learning

curve, and obtaining financial resourc-

es are not perceived to justify benefits.

MSMEs that have not adapted to the

faster pace and increasing complexity

India has been ranked 43rd most networked country in

the world, moving up nine places against last year, as per

the Global Information Technology Report 2009-2010. The

report, released by the World Economic Forum (WEF) and

business school INSEAD, ranks Sweden as numero uno net-

worked country, followed by Singapore, Denmark, Switzer-

land, US and Finland. China has moved up 11 spots to the

37th position. The Networked Readiness Index, featured in

the report, examines how prepared countries are to use

information and communication technologies (ICT) effec-

tively on three dimensions. The report covers 133 economies

worldwide, assessing the impact of ICT on the development

process and the competitiveness of nations. The success of

Sweden, Singapore and Denmark underlines the importance

of a joint ICT vision and its implementation by the differ-

ent stakeholders in a country to take full advantage of ICT

advances in daily life and overall competitiveness strategy.

This includes general business, regulatory and infrastructure

environment for ICT; the readiness of key stakeholders like

individuals, businesses and government to use and benefit

from ICT; and the actual usage of the latest information and

communication technologies available.

India ranked 43rd in most networked economy list

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top story

Big Boost For MSEs

In today's globalised economy, im-

provements in product, processes,

technology and organisational func-

tions such as design, logistics and

marketing have become key drivers

in delivering competitiveness, including

for micro and small enterprises (MSEs).

An increasingly globalised world, marked

by competition and innovation, is posing

newer and varied challenges to MSEs. Be-

cause of their small size, individual MSEs

are handicapped in achieving economies

of scale in procuring equipment, raw ma-

terials, finance and consulting services.

Often they are unable to identify potential

markets to take advantage of the oppor-

tunities, which require large volumes, con-

sistent quality, homogenous standards and

assured supply.

MSEs primarily rely on bank finance for

a variety of purposes including purchase

of land, building, plant and machinery,

and also for working capital and exports

receivables financing. Ensuring timely and

adequate flow of credit to MSEs has been

an overriding public policy objective, and

as a result, over the years there has been

a significant increase in credit extended to

this sector by banks. Besides, the Credit

Guarantee Fund Trust for Micro and Small

Enterprises (CGTMSE) was set up by the

Ministry of Micro, Small & Medium Enter-

prises (MSME), Government of India, and

Small Industries Development Bank of In-

dia (SIDBI) in 2000 with a committed cor-

pus of Rs 2,500 crore.

Despite various measures taken by the

Government of India and Reserve Bank of

India for facilitating the growth of the MSE

sector, many of them, particularly the first

generation entrepreneurs, find themselves

handicapped in accessing credit from the

banking system primarily for want of sec-

ondary collateral and third party guaran-

tee. Banks generally insist on secondary

collateral, particularly in the form of im-

movable property, and also third party

guarantee in order to hedge against de-

fault in the small loan segment.

Availability of timely and adequate bank

credit without the hassles of collateral and

third party guarantees is the essence to

small first generation entrepreneurs to re-

alise their dream of setting up their own

firms. Realising this, the Reserve Bank of

India had directed banks not to take sec-

ondary collateral from MSE units with

credit limits upto Rs 5 lakh.

Good News

However, the Working Group, set up to re-

view the Credit Guarantee Scheme of the

Credit Guarantee Fund Trust has recom-

mended the mandatory doubling of the

limit for collateral-free loans to micro and

small enterprises (MSEs) to Rs 10 lakh from

the current Rs 5 lakh.

The Working Group was constituted un-

der the chairmanship of Mr V K Sharma,

Executive Director, Reserve Bank of India,

to review the working of the Credit Guar-

antee Scheme and suggest measures to

enhance the usage and facilitate increased

The Working Group, set up to review the Credit Guarantee Scheme of the Credit Guarantee Fund Trust has recommended doubling of the limit for collateral-free loans to MSEs to Rs 10 lakh

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flow of collateral free loans to MSEs, make

suggestions to simplify the existing pro-

cedures and requirements for obtaining

cover and lodging guarantee claims under

CGTMSE Scheme and examine the feasibil-

ity of a whole turnover guarantee for the

MSE. The setting up of the Working Group

was announced in the annual policy state-

ment for 2009-10.

According to the report of the Working

Group, the guarantee fee for collateral free

loans up to Rs 10 lakh to micro enterprises

is to be absorbed by the CGTMSE, subject

to the provision that the Trust is free to

adjust the guarantee fee both downwards

and upwards based on the modelling of

the dynamically evolving distribution of

claims. This will ensure that the CGTMSE

remains self-financing and self-sustaining

in the long-term.

The report says that the CGTMSE may

charge composite, all-in guarantee fee of

1% per annum and appropriately realign

downwards the guarantee fees chargeable

to women entrepreneurs, micro enterpris-

es and units located in North-Eastern Re-

gion including Sikkim. The Trust may also

annually review the guarantee fee to be

charged on the basis of the pricing model

suggested by the Working Group.

The Working Group has suggested that

the Government consider exempting both

guarantee fee and the income on invest-

ments of the Trust from Income Tax, as is

the practice internationally for such non-

profit credit guarantee organisations. Be-

sides, consistent with the recommendation

for enhancement of the collateral free loan

limit from Rs 5 lakh to Rs 10 lakh, a guar-

antee cover of up to 85% of the amount in

default is to be made applicable to credit

facilities to micro enterprises of up to Rs

10 lakh.

However, the extent of guarantee cover

for credit facilities above Rs 10 lakh and

up to Rs 50 lakh will be 75% and for credit

facilities in excess of Rs 50 lakh and up to

Rs 1 crore will be 75% upto Rs 50 lakh and

50% of the amount in excess of Rs 50 lakh,

as per the extant provisions of the scheme.

With an attempt to simplify the proce-

dure for filing claims in respect of small

loan accounts, initiation of legal proceed-

ings as a pre-condition for invoking of

guarantees is to be waived for credit of up

to Rs 50,000. At present, banks have to ini-

tiate legal action in all cases before filing

claim with the Guarantee Trust.

The Working Group says Member Lend-

ing Institutions (MLIs) of the Trust may be

allowed to invoke guarantee within a pe-

riod of two years from the date of classi-

fication of the account as NPA instead of

the present prescription of within one year.

The final claim is to be paid by the Trust to

the MLIs after three years of abstention of

decree of recovery instead of the present

procedure of releasing the final claim by

the Trust only after the decree of recovery

becomes time barred, i.e. 12 years after

obtaining decree.

In order to upscale the CGS, it is nec-

essary to create widespread awareness

about the key features and benefits of

the scheme. As the branch level func-

tionaries have a predilection to lend

against collaterals, the Working Group

recommends that the CEOs of banks as-

sume complete and total ownership in

the matter of strongly encouraging the

branch level functionaries to avail of

the CGS cover, including making perfor-

mance in this regard a criterion in the

evaluation of their field staff. Besides,

as the scheme is yet to gain accept-

ability by banks and it needs to attain

critical mass of traction, and stabilise,

the Working Group recommends that in-

troduction of Whole Turnover guarantee

can wait until later.

Indian Pivotal League

The critical role and place of the MSE sec-

tor in the Indian economy cannot be over-

emphasised in employment generation,

exports and economic empowerment of

a vast section of the population. As per

data released by the Ministry of Micro,

Small and Medium Enterprises (MSME),

there are about 2.6 crore enterprises in

this sector. The sector accounts for 45 per

cent of manufactured output and 8 per

cent of the Gross Domestic Product (GDP).

MSMEs contributed close to 40 per cent of

all exports from the country and employed

nearly 6 crore people which is next only to

the agricultural sector.

Therefore, government policy has rightly

accorded high priority to this sector in or-

der to achieve balanced, sustainable, more

equitable and inclusive growth in the coun-

try. Advances extended to the MSE sector

are treated as priority sector advances

and as per the existing the Reserve Bank

of India guidelines, banks are required to

extend at least 60% of their advances to

the MSE sector.

So the implementation of the recom-

mendations of the Working Group would

result in enhanced usage of the Guarantee

Scheme and facilitate increase in quality

and quantity of credit to the MSE sector,

leading eventually to sustainable inclusive

growth of the pivotal sector in India.

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analysis

Mr R Bandyopadhyay, Secretary, Ministry of Corporate Aff airs, Government of India, says in an interview with SME Business that regulatory compliance is crucial for businesses to make their investors and stakeholders hold positive perceptions about the conduct of their business. Excerpts of the interview:

Compliance For Growth & Sustainability

been perceived to be effective engines

of economic growth, job creation

and entrepreneurship development.

But a large number of MSMEs in

India operate in the unorganised

sector. Around 95% of the industrial

units in the country are SMEs out of

which 90% are proprietorship firms

and another 2-3% are partnerships.

Therefore, a very small number of

these enterprises are companies.

As proprietorship and partnership

firms, the SMEs do have constraints

in obtaining institutional finance

and facing unlimited liabilities of the

entrepreneurs.

The Ministry of Corporate Affairs

has enacted the LLP Act which can

be used by these enterprises to

incorporate themselves as corporate

entities. This Act incentivises the

unincorporated entities to convert

into corporate form of business

in order to get the advantages of

limitation of liabilities, flexibility

of operation and relatively lower

compliance burden. The provision for

a one person company (OPC) under

the Companies Bill 2009 also provides

for an enabling environment for such

transition and would be surely utilised

by the MSMEs.

There are as yet no defined laws

pertaining to insolvency and

bankruptcy of MSMEs in India? Is

the Ministry of Corporate Affairs

looking at these issues?

You are right. The existing insolvency

laws with respect to individual

insolvencies continue to govern small

and medium enterprises (SMEs) and

there is a need to address this issue

Mr R. Bandyopadhyay, Secretary, Ministry of Corporate Affairs, Government of India

A large number of micro,

small and medium enterprises

(MSMEs) in India operate in

the unorganised sector. What

steps would you recommend to

bring these enterprises into the

organised sector?

Since Independence, micro, small and

medium enterprises (MSMEs) have

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policy

comprehensively. The Companies

Bill 2009 provides for a framework

of summary proceedings of winding

up of small companies which have

assets less than Rs 1.00 crore. This

framework incorporates a time-

bound process of winding up which

will be fair to the interests of all

the stakeholders. As more and more

MSMEs get reorganised as LLPs or the

proposed OPCs, the insolvency laws

pertaining to the companies and LLPs

would become applicable.

Although the Limited Liability

Partnership (LLP) Act 2008

is in place, only a fraction of

the MSMEs have registered

themselves as LLPs so far. What

steps are needed to encourage

a larger number of MSMEs to

convert their enterprises into

LLPs?

The framework for conversion

of unincorporated entities to LLPs

has been provided in the Act itself.

The taxation issues pertaining to

conversion into LLPs have also been

resolved in this year's Finance Bill.

With this enabling environment in

place, I am sure that more MSMEs will

start converting into LLPs.

Does the mandate of corporate

social responsibility extend to

the MSMEs?

Responsible business practices or

CSR is very important and there are

certain minimum expectations of the

stakeholders in this area from a small

or large enterprise. The expectations

of stakeholders are also contextual in

nature and depend on the enterprise's

size of operations. See, the CSR

Guidelines for the public sector

companies issued by the Department

of Public Enterprises refer to a

different expectations than what is

laid out in the voluntary guidelines

issued by the Ministry.

MSMEs also need to be sensitive

about the expectations of the

stakeholders, especially the workers

and the immediate communities

and make efforts to address these

expectations within the constraints of

their business models.

Are the existing corporate laws

helping the MSMEs to be more

environmental friendly?

Environmental protection is an

important governance issue before

us. Governments and business still

face unsolved problems in mitigating

negative environmental impact and

restructuring technological processes

to make them more environmentally-

friendly. The role of business in this

field is substantially growing. The

environmental laws, that are equally

applicable to the large and small

enterprises, lay down the minimum

standards that are required to be

observed. Respect for environment, is

also one of the main principles in the

voluntary guidelines released by the

Ministry.

Is corporate governance still far

fetched in the MSME domain?

Regulatory compliance is crucial for

businesses to make their investors

and stakeholders hold positive

perceptions about the conduct of their

business. Studies have shown that

good corporate governance practices

help companies to achieve sustainable

growth and help in enhancing the

organisational performance. We need

to appreciate that good corporate

governance practices are also the key

for the MSMEs to be able to grow in

size.

Will the geographical and

functional clustering of MSMEs

improve the overall governance

of these enterprises?

will not be inappropriate in the case

of the MSMEs. Currently, due to size,

scale, specialisation and not least

regulatory and legal impediments,

SMEs lack the capacity to respond

adequately to emerging challenges

from international locations and

market opportunities. There have

been cases of very successful

demonstration of the benefits of

geographical and functional clustering

of MSMEs. Clustering, I believe,

can certainly improve the overall

governance and competitiveness of

these enterprises.

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policy

There is growing need for skills and training ecosystems that support MSME growth

Skill Development in Indian SMEs: A Global Perspective

The economic growth in In-

dia has picked up consider-

able momentum once again

with all sectors showing a

great deal of buoyancy.

However, the question of whether the

country can sustain the GDP growth is

yet to be answered with any degree of

finality.

IVision India@75 has outlined the

focus on skill development, which is

a challenging opportunity. How cor-

porate and government reciprocate in

facilitating this will be an interesting

case study in itself. SMEs play a huge

role in this and hence a dedicated fo-

cus needs to be brought in. SMEs are

an important component in regional

and national economies, and the proj-

ect aims to identify training and skills

development policies that promote

growth, job creation and innovation.

The SME sector is crucial to employ-

ment generation, decentralised de-

velopment and low cost products and

services. Most of the handicrafts, in-

cluding wooden handicrafts, wrought

iron crafts and other enterprises in-

volved in textile and garment, etc.,

fall within the SME sector. The impera-

tives are:

National Rural Employment Guar-

antee Act (NREGA) would have to

be more effective so that the Indian

economy can incrementally move

away from the concept that agricul-

ture is the end of rural markets.

For making Indian infrastructure in-

vestment attractive, high cost of debt

to infrastructure should be addressed

in some form.

Along with focus on power and

roads, adequate focus should also

be placed on transmission of power

and water management. Some kind

of short-term subsidy should also be

introduced.

The concept of Special Economic

Zones (SEZ) should also be strength-

ened for handicrafts and other SMEs.

The Chamber of Small Industries

Association (COSIA) has said that the

facility of quarterly returns and avail-

ability of full credit on capital goods

proposed in the Union Budget 2010-11

for MSEs is a positive step.

Further, the government is likely

to come out with a policy in the next

two months to make it mandatory for

state-owned firms to buy at least 20%

of their total purchases from MSEs.

All these would lead to the need

for structured and focused research

on the SME sector. The Organisation

for Economic Cooperation and Devel-

opment (OECD) international project

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focus

balancing growth; (ii) local integration

of employment, skills and economic

development; (iii) skills development

and the informal economy; (iv) skills

development for SMEs and micro-en-

terprises; (v) skills development and

green jobs; and (vi) building effective

local partnerships for skills develop-

ment.

Actionable points which were

outcome of this:

(i) For national governments and

stakeholders:

Capacity building for staff on col-

lecting and analysing labour market

information (LMI)

Support acquisition of office equip-

ment for generating labour market

information

Conduct impact studies on what

workers and what does not work

Coordinate ministries and public of-

fices at the national and local levels

Improve the role of employment

services to ease the transition from

non-formal to formal.

(ii) For Local governments and

stakeholders:

Improve the role of employment

services to ease the transition from

non-formal to formal.

Create partnerships to integrate

data and information from different

administrative sources and also to

better carry out employment services

Improve awareness of the roles and

benefits of employment services for

the local economy

Analyse transformation of current

jobs to green jobs.

(iii) For International organisa-

tions:

Support evaluation and LMI as inte-

gral parts of donor programmes

Develop systematic approaches to

labour market intelligence (e.g., tech-

nical assistance towards common na-

tional indicators and local customisa-

tion)

Organise and support forums on

employment services and LMI; ex-

change practices and knowledge shar-

ing; study tours.

Contributed by India Skills, a Manipal Education--City & Guilds Initiative

focusing on the analysis of SMEs in a

selected territory, is a case in point.

This project is intended to inform

OECD policy advice on how govern-

ments can best support SMEs in their

skills development activities.

The project will involve interna-

tional comparison with regions from

countries such as New Zealand, Po-

land, Belgium and Turkey. The project

is designed to provide an understand-

ing of how the SME approach to skills

and training systems varies with each

region and as well as the best practice

approaches at both the firm level and

local skills ecosystem level.

There is particular interest in ex-

ploring the role of skills and training

ecosystems and whether the organi-

sational interactions within an eco-

system have an impact on workforce

development, in SME participation in

training and skills development activi-

ties, and on increasing awareness of

SMEs to skills upgradation activities.

Similarly, 36 government officials

who are involved in SME and technical

and vocational education and training

(TVET) policies from across the Asia-

Pacific region participated in the Re-

gional Workshop on SME Development

and Regional Economic Integration,

jointly organised by the Colombo Plan

Staff College for Technician Education

and the Asian Development Bank Insti-

tute (ADBI) at ADBI in Tokyo in 2008.

One notable trend observed in the

increasingly integrated Asia is the de-

velopment of a regional production

and distribution network, which rep-

resents a good opportunity for SMEs

to participate as suppliers of products

and/or services to and/or through this

network. Amid this trend, five sectors

that provide substantial opportunities

for SMEs were identified. These are

information technology (IT), tourism,

textiles, food processing, and auto

parts and components.

Within ASEAN, 12 priority sectors

were also identified to be fast-tracked

for integration. To take advantage of

these emerging business opportuni-

ties, SMEs need to acquire the capac-

ity, knowledge, technology and skills

that are essential for supplying qual-

ity products and services.

Vocational educational institutes

can effectively provide the needed

knowledge and skills to SMEs by fos-

tering closer linkages with the private

sector or industries which they are

serving so that the right skills can be

identified and supplied through well-

targeted and properly designed TVET

curricula. To further promote SME

development, entrepreneurship man-

agement also needs to be integrated

into vocational education.

Many Asian economies have

achieved substantial reduction in pov-

erty and creation of employment by

export-oriented development strate-

gies, focused on the US and European

markets in recent decades. Relatively

well-skilled labour forces have been a

key element of these strategies. But

the global jobs crisis, which the fi-

nancial crisis has provoked, will likely

result in skills losses as some of the

newly unemployed could lose contact

with the labour market and become

more permanently unemployed.

Looking ahead, the global financial

crisis has demonstrated that this export-

oriented growth model can no longer be

relied upon to sustain the region's eco-

nomic and employment growth as the US

consumer spending will remain sluggish

over many years to come.

Developing Asian economies now

need to adapt their development

strategies to this more difficult envi-

ronment and take up the challenge of

rebalancing growth towards greater

reliance on domestic and regional

demand. Such rebalancing will re-

quire job creation in new sectors and

adaptation of existing production

techniques and therefore new skills

development in these areas. A new

area-based, integrated approach will

be needed to develop a competitive

economy and an adequate skills base

simultaneously. Skills development

policies should also be a key compo-

nent in strengthening both industrial

and social resilience in the face of fu-

ture possible crisis and in nurturing

decent work for all.

The Initiative on Employment and

Skills Strategies in Southeast Asia

(ESSSA), jointly led by the OECD and

the ILO, deals with the following is-

sues relating to skills development:

(i) skills development to support re-

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focus

in Indian machine tools sector. Evaluation

of machine tool technology and market

trends in USA and Europe was undertaken

through technology surveys and partici-

pation in international exhibitions. Learn-

ings through such activities were supple-

mented with showcasing the capabilities

of Indian machine tools manufacturers in

India. To bridge the technology gap, espe-

cially in the small and medium segment,

a series of advanced machine tool design

courses were organized at International

Centre for Advancement of Manufacturing

Technology (ICAMT), Bangalore.

As a result of range of such activities, the

production and export of Indian machine

tools sector have gone up over the years.

Made in India label of Indian machine tools

sector has gained international reputation

making the sector more competitive in do-

mestic as well as international markets. UNI-

DO declared this initiative as a success story.

Exim Bank has been closely associated

with the export efforts of Indian machine

tools sector. The Bank, under its export facil-

itation programme, has supported the initia-

tive of IMTMA in setting up of the Bangalore

International Exhibition Centre (BIEC), for

consortium marketing.

Lines of Credit

A significant financing programme of

Exim Bank is Lines of Credit (LOCs) ex-

tends to overseas financial institutions,

regional development banks, sovereign

governments and other entities overseas,

to enable buyers in those countries to im-

port goods and services from India on de-

ferred credit terms. The Indian exporters

can obtain payment of eligible value from

Exim Bank, without recourse to them,

against negotiation of shipping docu-

ments. LOC is a financing mechanism that

provides a safe mode of non-recourse fi-

nancing option to Indian exporters, espe-

cially to SMEs, and serves as an effective

market entry tool. At present, Exim Bank

has in place 137 Lines of Credit, covering

over 95 countries with credit commit-

ments of over US$ 4.5bn.

Exim Bank of India has success-

fully implemented a number of

innovative programmes focus-

ing primarily on SMEs. The Bank

supports strategic export devel-

opment plans of companies by providing

term loans towards supply side upgradation

and financial support for their export mar-

keting activities. Through this programme,

Exim Bank of India seeks to help the Indian

companies in their efforts to penetrate and

retain their presence in overseas industri-

alised country markets.

The programme was initially supported

by the World Bank with Exim Bank as the

executing agency. Though the above pro-

gramme was intended for large as well as

SME companies, most of the beneficiaries

were SMEs from different sectors of indus-

try for their overseas marketing activities,

including acquiring quality certifications.

Based on the success achieved in the pro-

gramme, World Bank has sought Exim Bank's

support to share its experience with other

developing countries. In addition, Exim Bank

of India seeks to help Indian companies,

particularly in the SME sector, to establish

their products overseas and enter new mar-

kets by helping them in their export efforts

by proactively assisting in locating overseas

buyers/partners for their products/services.

The Bank's programme for support-

ing product/process certification aims to

enhance international competitiveness

of Indian companies, primarily SMEs,

through adherence to international qual-

ity systems and standards. Exim Bank of

India initiated a Clusters of Excellence

programme, jointly with NASSCOM in the

past, to assist small and medium sized

Indian software exporting companies in

achieving international quality standards.

The programme aimed at assisting SME

software companies to achieve the SEI-

CMM certification, enhancing their capa-

bility and acceptance, and creating the

potential for larger exports to USA and

other developed country markets.

Exim Bank of India has also launched the

Grassroots Business Initiative (GBI) to create

Consortium Marketing for SMEs: Exim Bank Approach

export capabilities in rural and grass-root

enterprises, and thereby enhancing pur-

chasing power at the bottom of the pyramid.

GBI aims to create an enabling environment

for rural grassroots enterprises to explore

newer geographies, leveraging effectively

upon Exim Bank's extensive institutional and

trade promotion linkages.

Exim Bank of India also organises fo-

cused seminars, workshops and training

programmes covering various aspects re-

lated to international trade and investment

with the help of experts including interna-

tional faculty. These programmes seek to

increase awareness amongst SMEs, assist

them in various facets related to upgrada-

tion and move up the value chain, and make

them internationally competitive. Exim Bank

of India has also brought out a publication

on Business Practices of Successful Indian

Exporters, outlining the internationalistion

strategies adopted by Indian firms includ-

ing SMEs, facilitating transfer of successful

experiences.

Case: Exim Bank Support to Machine

Tools Industry

Exim Bank identified Indian machine tools

sector a sub-segment of Indian capital goods

industry which has a strong multiplier effect,

and brought out a study identifying appro-

priate strategies to strengthen this sector

and thereby help contribute to the growth

of Indian manufacturing sector. One such

recommendation made by the study was

that the Indian Machine Tools Manufactur-

ers Association (IMTMA) may adopt a cluster

approach, seeking institutional support to

help the member-firms in overcoming the

weaknesses by adopting best practices in

the industry across the globe.

Subsequently, a National Programme

for Development of Indian Machine Tool

Industry (NPDMI) was launched as a co-

operative effort of Government of India,

IMTMA, UNIDO and Exim Bank. Exim Bank

was represented on the Committee. Under

this programme, a range of activities was

undertaken to update the manufacturing

and management practices of the players

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marketing

Waste Management, Recycle & Reuse

Ecotourism.

A select group of finalists receive pro-bono

consulting through NVI mentors network. En-

trepreneurs are then invited to present their

business plans at NVI flagship annual global

deal facilitation platform called Investor Fo-

rum. They remain engaged with NVI even af-

ter the Investor Forum to further strengthen

their businesses. NVI organizes regular train-

ing programmes and sector based work-

shops towards development of an enabling

eco system for sustainable enterprises.

Major NVI Events

Investor Forum: One of the goals of the

intensive mentoring provided to the selected

entrepreneurs is to prepare them to effec-

tively present their business plans to inves-

tors and solicit investments. Investor Forum

is an annual flagship event of NVI. The short-

listed NVI enterprises get a chance to pres-

ent their business plans to a select audience

and a panel of judges comprising of top busi-

ness executives and investors. The event also

features a series of panels and discussions

to help educate the investment community

about global market trends in environmental

sectors and sustainable investment.

Road Shows: Road Shows and mentoring

workshops are organised at regular intervals

through the year to create awareness about

the activities of New Ventures India and in-

vite companies whose products and services

have strong environmental benefits to sub-

mit their business plans. These events also

provide an opportunity for the participating

companies to interact with successful NVI

portfolio companies as well as other mem-

bers of the New Ventures India ecosystem.

Accomplishment

As on date, NVI has showcased 40 enterprises

at the Investor Forums and facilitated invest-

ments to the tune of Rs 111.33 crore ($28.27

million) into 14 of these companies.

For more information, please email: hemant.nitturkar@cii.in

About New Ventures India

New Ventures India (NVI) is a center of sus-

tainable entrepreneurship, specially de-

signed to meet the needs of Indian green

entrepreneurs and help them overcome

common business challenges to deliver en-

vironmental and social benefits as well as

economic development and opportunity.

NVI is a joint initiative of the CII-Sohrabji

Godrej Green Business Centre, Hyderabad

and the World Resources Institute, Washing-

ton DC. This initiative is supported by USAID

under the Global Development Alliance

mechanism and British High Commission un-

der the Strategic Program Fund.

NVI catalyzes the development of sustain-

able enterprises by accelerating the transfer

of private investment towards green SMEs

that generate economic, environmental and

social benefits.

NVI is a part of the global New Ventures

(NV) network which has been working in the

field of promoting green businesses for a de-

cade now in some of the most vibrant emerg-

ing economies, namely, Brazil, China, Colom-

bia, India, Indonesia and Mexico and a global

hub housed at the World Resources Institute

in Washington DC.

New Ventures India delivers:

Stronger sustainable businesses: NVI

Promoting Green EntrepreneursNew Ventures India catalyses the development of sustainable enterprises by accelerating the transfer of private investment towards green SMEs that generate economic, environmental and social benefi ts.

provides mentoring and technical assis-

tance to entrepreneurs through an ex-

tensive network of business consultants,

technical experts and investors. Mentors

help companies prepare sound business

and financial plans and target appropriate

markets. New Ventures also offers general

business workshops to prospective New

Ventures companies and start-ups.

Linkages to investors and markets: NVI

connects entrepreneurs with potential inves-

tors through Investor Forums and other tar-

geted investor events.

Access to the New Ventures network:

Companies in India will be able to benefit

from the broader CII Network and New Ven-

tures global network with sister programs in

Mexico, Brazil, China, Colombia and Indone-

sia, and leverage resources from the Global

office in Washington DC.

New Ventures supports small and medi-

um-sized enterprises (SMEs) operating in

fast-growth, green sectors such as:

Renewable Energy

Energy Efficiency

Advanced Technologies for Water Manage-

ment

Organic Agriculture/ Horticulture

Other Clean Technologies

Green Building Materials

Rapidly Renewable Materials

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initiative

development and aid quick problem solving

more accurately by integrating analytical and

simulation techniques. To give insights into

the potential of the tool and its application for

developing future products, CII L M Thapar

Centre for Competitiveness for SMEs propos-

es to introduce a new and innovative service

namely New Product Development for SMEs

in Cluster Program. The objectives are:

Dissemination of best practices in SMEs

Nurturing a culture of innovation

Thematic conferences / workshops

Partnering with academia / research

organisations

Leveraging global partnerships and best

practices

Leveraging governments & media

HR initiatives in cluster companies: The key

to ensure sustainable quality upgradation and

continuous improvement in an organization

is the willingness of its employees to adapt to

changing paradigms. The teams of core pro-

fessionals from this Centre follow the broad

pattern of steps periodically in assisting cluster

members to promote a healthy work environ-

ment and attain highest level of productivity

of their employees by streamlining their func-

tionality. Involvement of the cluster member

companies is in the form of activities to de-

velop organisation structure, roles-responsi-

bilities, HR system and in-house training.

Corrosion Management Upcoming Initiative:

The impact of corrosion on nation's exchequer is

a staggering figure of Rs 2 lakh crore. These ex-

penses can be brought down to half if the good

practices are followed to prevent and control the

corrosion. This offers a big opportunity to save

cost and also enhance the life of products, plant

& machinery, and civil structures. CII L M Thapar

Centre for Competitiveness has taken up several

initiatives to raise awareness about corrosion

and corrosion control among various industries

and to share the knowledge and expertise avail-

able within the country. The centre is helping

companies to reduce the corrosion losses by

carrying out audits, training programmes, semi-

nars, conferences and publications.

Visionary SME programme: Since 2006 CII

has worked with Prof. Shoji Shiba to bring

CII - Cluster for Competitiveness

programme aims at strengthen-

ing Indian SMEs and component

suppliers to meet the require-

ments of global competitive-

ness with the fast changing environment.

The approach is simple wherein a group of

10-12 SMEs develop together with a learning

through sharing attitude. The clusters are of-

ten sectoral, locational and quite often driven

by an original equipment manufacturer or

Tier 1 customer for their vendors. The cluster

approach aims at improving competitiveness

in an associated group rather than in discreet

companies. One obvious factor driving this

process is cost as that too gets shared.

From a humble beginning of the first CII Clus-

ter which started with 20 suppliers of Maruti

by Prof Y Tsuda in 1998, the cluster movement

got momentum during 1998-2004 where

the SMEs in India adopted these methods

through an integrated approach for becom-

ing more efficient. Productivity, quality, cost,

delivery performance, safety and employee

involvement started to get tracked and bench-

marked against the best in class.

Cluster For CompetitivenessCII - Cluster for Competitiveness programme has successfully established clusters at various locations across the country. By Dr Sarita Nagpal

Geographical reach of the Cluster Programme across the country

Since 2004, CII has proclaimed the need

for a new type of management which is

based on innovation and breakthrough rest-

ing on a foundation of Total Quality Manage-

ment. This is the need of the hour as indus-

try requires to improve competitiveness on

other parameters which gives them the edge

to go beyond labour arbitrage.

Current Scenario

The programme not only covers manufactur-

ing sector but also in the sector of Tea gar-

dens in East and school clusters in South. In

all, CII and its strategic partners have formed

170 clusters all over the country impacting

1,889 SMEs. CII Cluster programme is primar-

ily delivered from the CII L M Thapar Centre

for Competitiveness for SMEs which has suc-

cessfully established such clusters at various

locations across the country.

Road Ahead

Introducing New Product Development

(NPD): Computer aided technologies namely

PLM, CFD, CAD, RP and CAE are powerful and

flexible tools for new product design and

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strategy

programme has a special component focus-

ing on SMEs, termed as the Visionary SME

programme. This programme aims to create

high growth SMEs who aim to create unique-

ness in their business strategy for achieving

breakthrough targets. This programme is

kicked off in Western Region with partici-

pants from 26 companies. The programme

would shortly be available for more compa-

nies to participate.

Breakthrough Management into Indian in-

dustry under what is termed as the visionary

leaders for manufacturing programme with

the objective of building and strengthening

the manufacturing industry in India. This

Sector-wise break up

Sectors Clusters Companies

Food Processing 15 69

Leather 1 10

Automobile 80 698

Petroleum & Petro Products

2 80

Chemical & Chem. Products

1 78

Heavy Engineering 4 17

Electrical / Electronics

6 37

Light Engineering 39 295

Bicycle 7 48

Education 9 74

Technology 3 43

Foundry 3 440

Savings reported by the companies through cluster programme in a year

Clusters in 2008 Kaizens Savings in Rs

L M W Cluster Coimbatore 320 2.1 Crores

Munjal Showa Faridabad 3200 0.68 Crores

Munjal Showa Gurgaon 2001 1.12 Crores

Ludhiana Bicycle Cluster 1000 4.85 Crores

Jalandhar Hand Tool Cluster 3680 12.83 Crores

Vadodara Open Cluster 704 1.97 Crores

Clusters in 2009 Kaizens Savings in Rs

Heterogeneous Open Cluster 600 3 crore

Avon Cycles Advance Cluster 1573 1.82 crore

Hero Cycle Vendor Cluster I 300 0.87 crore

Jaipur Open Cluster 959 1.25 crore

Escorts Cluster 900 1.76 crore

Bosch Vendor Cluster 2500 11 crore

Leather Cluster 15,450 50 crore

CII - Cluster approach is a unique opportunity for SMEs to enhance their competitiveness by improving their quality, reliability and delivery. This initiative is path-breaking in building competitiveness in areas of efficiency and rapidly gained momentum. The spread of this cluster programme cuts across industry sectors and spread all over the country with formation of 152 clusters impacting more than 1,200 SMEs. I wish the participating SMEs who have joined this programme all success.

Mr Chandrajit Banerjee, Director General, CII

Knowledge is to be shared. At the CII - L M Thapar Centre for Competitiveness, we have acknowledged the potential of knowledge sharing. Using the Cluster Approach we will share knowledge of globally competitive SMEs. Today, we are at a juncture where we have to compete on a global platform and such knowledge sharing will be invaluable. This will help us emerge stronger and gain a wider knowledge pool in collaboration with each other to evolve as true leaders.

Mr Gautam Thapar, Chairman, Avantha Group & Chairman, CII - L M Thapar Centre for Competitiveness for SMEs

The efforts of CII to bring about improvements in the shop floor under the cluster programme are indeed laudable. We, at Libra, were able to look at areas which invariably get swept under the carpet due to work pressure but which truly add value to the final product in a large measure. The most beneficial were the problem solving and quality improve-ment techniques. Kudos to the CII team!

Ms. Vanitha Mohan, CEO, Libra Industries, Coimbatore

We are very much thankful to CII for providing services of Mr Amit Sanghvi during Vadodara advance Cluster 09-10. Looking to the evidence of result, approach has become more effective due to the open interaction and knowledge shared among the cluster members. The direction provided by CII through cluster approach has brought in similar thinking with our vendors and has a solid platform for improvement culture. Regarding benefit, we are already sharing during the MRM.

Mr DP Solanki, CEO, Econics High Tech Components

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strategy

Research has shown that SMEs

play an important role in the

economic development of

countries worldwide. However,

for SMEs to compete with large

competitors, they must nullify their size

disadvantage. Adopting technology to over-

come diseconomies of scale and to produce

innovations will surely enable SMEs to dif-

ferentiate themselves. In the current en-

vironment, technology is proving to be a

strategic weapon to beat competition. Com-

panies that adopt technology early in the

life cycle will be well placed to impress their

customers and show that they are differ-

ent as compared to their competition. For

example, Religare Technologies works with

a project management company in the con-

struction industry. This is a small company

that has invested in a portal to provide the

latest status of the projects that they man-

age. Customers of this company, who are

the builders, login to this portal to get a con-

tinuous update on the status of their proj-

ect, budgeted vs actual costs, and resource

utilisation graphs. The builders are very

happy with this platform of the PMC and

consider working with the PMC to be trans-

parent and easy. The investment needed to

develop the portal was very small, but the

strategic benefit this investment has given

the company is extremely high.

Technology Partners: Overcoming

Barriers

Many times SMEs' are limited by non-

availability of resources and the rela-

tive inability to absorb the costs and

risks associated with in-house technol-

ogy development. However, considering

an impact on its ability to survive in the

long run, it is important to identify the

primary obstacles faced with regard to

new technology development and acqui-

sition. Many companies overcome this

by utilising the services of a technology

partner to guide the company on adapt-

ing and using technology. Technology

partners can help SMEs make informed

decisions. Care should be taken by the

SMEs to identify a partner who is an

independent service provider and does

not have vested interests in a particular

technology, platform, or solution. Being

one such independent service provider,

Religare Technologies has provided such

consultation to a number of customers.

Cost Effective: Open Source Tech-

nology

There is a feeling among SMEs that adopt-

ing technology is costly and capital inten-

sive. Often this deters the SMEs, believing

the investments are very high and pro-

hibitive. This is not entirely true. One of the

ways the SMEs can manage this is by using

open source tools and technologies that are

freely available. For example, enterprise

class web applications can be developed on

Java/PHP/PERL, on the GNU Linux platform,

using JBOSS application server, and MySQL

database, all free. The entire office can be

set up on OpenOffice, a free open source Of-

fice Suite. Almost in any category, free open

source tools are available which an SME can

use to lower costs but still be able to have

an information technology platform to gain

that strategic advantage. Religare Technol-

ogies has implemented such open source

projects for many SMEs successfully.

Reducing Capital Investment: Cloud

Computing

being offered by many service providers as

part of the Cloud Computing paradigm. This

reduces the upfront investment for SMEs.

It also enables the SMEs pay based on the

usage. This model is increasingly becom-

ing popular. For example, Religare offers its

Broking Solutions and Hospital Information

Systems on a SaaS model. Such platforms

can be used by Capital Market companies and

Hospitals to reduce the initial investments.

Technology: A Strategic Investment

In conclusion, in the current day envi-

ronment, it is critical that SMEs look at

adopting technology to gain competitive

advantage. Cost effective mechanisms are

available which the SMEs can consider to

make the technology journey less strenu-

ous on budgets. Also, SMEs should work

with Technology Partners to make this

journey smooth and effective.

Ravi Raman, Head BFSI,

Religare Tec