Sme Sector in India

West Bengal University Of Technology
Summer Project Work
“Emerging SME Sectors in India and their

future prospects
At
By
WBUT Registration No: 091360710078 OF 2009-2010
WBUT Roll No: 09136009106
ARMY INSTITUTE OF MANAGEMENT

KOLKATA
1
AUTHORISATION
This project was undertaken at Bank of Baroda, SME Loan Factory, Kolkata from July 01,
2010 to August 31, 2010 as an Assignment for Summer Internship Project in management
for partial fulfillment of the PGDM Program at Army Institute of Management, Kolkata
Date: Aug,31st 2010
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ACKNOWLEDGEMENT
I would like to express my gratitude to Mr. Victor Vincent, General Manager, HRD, Bank of
Baroda, Kolkata, for giving me the permission to carry out my Summer Internship at Bank of
Baroda, SME Loan Factory, Kolkata.
My sincerest gratitude also goes to Mr. Swapan Chandra, Chief Manager, SME Loan
Factory, Kolkata, who took proactive steps granting requisite organizational facilities, He was
extremely kind and patient and his guidance and encouragement was of immense help
throughout my project.
I would like to thank Mr. Subir Sanyal, Senior Manager Credit, SME Loan Factory, Kolkata
who as my Project Guide has always encouraged me to do new things, to critically analyze
the cases and gave his inputs as and when it was necessary.
My gratitude goes to Prof. Moushmi Bhattacharya, Army Institute of Management,

Kolkata, who as my Faculty Guide has always motivated us to put our best foot forward by
setting high standards. I thank him for guiding us at every step of the project and motivating
us to do in-depth analysis.
My special thanks also go to the following individuals at SME Loan Factory, Kolkata. Their
cooperation has helped me immensely and made the experience of the internship program
at Bank of Baroda, SME Loan Factory an enriching one.
Mr. Arun Khandelwal, Manager Credit

Mr. Pankaj Biswas, Manager Credit
Mr. Jayanto Samadar, Manager Credit
Mr. Sunil Kumar Saha, Manager Credit
Mr. Ujjwal Roy, Manager Credit
Ms. Snehi More, Officer Credit
Last but not the least; I would like to thank all my family members for their care,
encouragement and support.
TABLE OF CONTENTS
CHAPTERS TOPICS PAGE NO.

SECTION- 0 Title 1
Authorisation 2
Acknowledgement 3
SECTION- 1.0 Industry Overview 7
1.1 Banking Industry 7
1.2 Indian Banking: A Paradigm Shift 10
3
1.3 Types of Reform Measures for the Banking 13
Sector
1.4 Limitations of the Study 16
1.5 Impacts of Reforms upon the Banking Industry 20
1.6 Small And Medium Enterprises (SMEs) In India 21
1.7 Role of Small and Medium Enterprises (SMEs) 22
1.8 Financing the SMEs 22
SECTION- 2.0 Company Background 23

2.1 Bank’s Mission Statement 23
2.2 Brief History 24
2.3 Products And Services 24
2.4 Bank’s Logo 24
2.5 Business & Financial Performance. 24
SECTION -3.0 SME Policy 25
3.1 Objectives 25
3.2 Scope of Policy 26
3.3 Small & Medium Enterprise Sector. 26
3.4 Bank’s approach towards SME 27
3.5 Establishment of SME Loan Factory 27
3.6 Targets for Priority Sector / SME Sector 28
Lending
3.7 Guidelines for Takeover of Advance Accounts 28
3.8 SME Products 30
SECTION- 4.0 Food & Agro Based Industries 31
4.1 Executive Summary 32
4.2 Methodology 32
4.3 Data Collection & Analysis 33
4.4 Findings 42
4.5 Conclusion & Recommendations 48
SECTION- 5.0 Chemicals 51
5.2 Methodology 53
5.4 Findings 64
SECTION- 6.0 Textiles 70
6.2 Methodology 71
6.4 Findings 77
SECTION- 7.0 Automotive Components 86
7.2 Methodology 87
7.4 Findings 91
4
SECTION- 8.0 Pharmaceuticals 102

8.1 SME Model 103
8.2 Procedure of Processing 103
8.4 Findings 110
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1.0) INDUSTRY OVERVIEW
1.1 Banking Industry
A Banking sector performs three essential functions in an economy: the operation of the
payment system, the mobilization of savings and the allocation of savings to the investment
projects. By allocating capital to the highest value use while limiting the risks and the costs
involved the banking sector can exert a positive influence on the overall economy and thus
is of broad macroeconomic consequence (Roland, 2006; Jaffe and Levonian, 2001, Rajan
and Zingales, 1998).
Commercial banking has been one of the oldest businesses in India and the earliest
reference of commercial banking in India can be traced in the writings of Manu. Modern
banking in India can be dated as far back as in 1786 with the establishment of General Bank
of India (Kalita, 2008). In the early nineteenth century three Presidency Banks were
established in Bengal, Bombay and Madras and in 1921 they were merged in to newly form
Imperial Bank of India. In 1935, the Reserve Bank of India was established under the
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Reserve Bank of India Act as the central bank of India (Chakrabarti, 2005). The Imperial
Bank of India was converted in to State Bank of India under the State Bank of India Act,
1955.
In spite of all these developments, independent India inherited a rather weak banking and
financial system marked by a multitude of small and unstable private banks whose failures
frequently robbed their middle-class depositors of their life’s savings. After independence,
the Reserve Bank of India was nationalized in 1949 and given wide powers in the area of
bank supervision through the Banking Companies Act (later renamed Banking Regulations
Act). The nationalization of the Imperial bank through the formation of the State Bank of
India and the subsequent acquisition of the state owned banks in eight princely states by
the State Bank of India in 1959 made the government the dominant player in the banking
industry. In keeping with the increasingly socialistic leanings of the Indian government, 14
major private banks, each with deposits exceeding Rs. 50 crores, were nationalized in 1969.
This raised the proportion of scheduled bank branches in government control from 31% to
about 84%(Kalita, 2008 ) .In 1980, six more private banks each with deposits exceeding Rs
200 crores, were privatized further raising the proportion of government controlled bank
branches to about 90%(Chakrabarti, 2005).
While there are those who have emphasized the political importance of public control over
banking, most arguments for nationalizing banks are based on the premise that profit
maximizing lenders do not necessarily deliver credit where the social returns are the
highest. The Indian Government when nationalizing all the larger Indian banks in 1969
argued that banking was “inspired by a larger social purpose” and must “sub serve national
priorities and objectives such as rapid growth in agriculture, small industry and exports”
(Banerjee et.al, 2004, Das et. al., 2005).
There are essentially two views that justify Government’s ownership of financial markets.
The optimistic or „developmental‟ view is that of Alexander Gerschenkron who emphasized
on the necessity of financial development for economic growth (La Porta et.al. 2002;
Dobson 2006).Gerschenkron argued that privately owned commercial banks had been
crucial for channelising savings into industry in the second half of the 19th century in
industrialized nations such as Germany. However, in some countries, most conspicuously
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Russia, economic institutions were not sufficiently developed for private banks to play this
crucial development role. According to Gerschenkron “...no bank could have successfully
engaged in long term credit policies in an economy where fraudulent banking practices had
almost elevated to the rank of a general business practice…” (La Porta et. al., 2002).
Banking in India has grown at a rapid pace with the number of commercial banks increasing
from 89 in 1969 to 284 in 1995 (RBI Banking Statistics, 2009).
Prakash Tandon, former chairman of the Punjab National Bank (nationalized in 1969)
describes the rationale for nationalization as follows:
The two significant aspects of nationalization were rapid branch expansion and channeling of
credit according to Plan priorities (Mohan, 2002).
As in other areas of economic policy-making, the emphasis on government control began to

weaken and even reverse in the mid-80s and liberalization set in firmly in the early 90‟s.
The poor performance of the public sector banks, which accounted for about 90% of all
commercial banking, was rapidly becoming an area of concern. The continuous escalation in
Non-Performing Assets (NPAs) in the portfolio of banks posed a significant threat to the very
stability of the financial system. They were the „smoking gun threatening the very stability
of the Indian Banks‟ (Bidani, 2002). The lack of recognition of the importance of
transparency, accountability and prudential norms in the operations of the banking system
led also to a rising burden of non-performing assets (Ghosh and Prasad, 2007).
Banking reforms, therefore, became an integral part of the liberalization agenda which
provided the necessary platform for the banking sector to operate on the basis of
operational flexibility and functional autonomy enhancing productivity, efficiency and
profitability (Kalita, 2008).For good reason, India chose a „gradualistic‟ approach to the
reform over a „big-bang‟ approach (Bhinde, Prasad and Ghosh, 2002). As pointed out by
Bhide et.al., 2002, such gradualism was due to the fact that reforms were not introduced in
face of a prolonged economic crisis, and most importantly; gradualism was a result of
India’s democracy and highly pluralistic polity in which reforms could be undertaken only if
based on popular consensus. While expansion of credit was desirable to help the economy
grow, equally important was the need for proper credit appraisal.
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1.2 Indian Banking: A Paradigm Shift
The decade gone by witnessed a series of financial reforms, with many of them still in the
process of implementation. The 1990s saw India implementing Macroeconomic Adjustment
Program of which the financial sector reform is a major component (Narayana, 2000).The
basic principle guiding financial sector reform was that the financial system has a crucial
role to play in the mobilization of savings and their allocation to the most productive uses.
Research studies have time and again proved that financial liberalization had a positive
effect on bank performance (Koeva, 2003). The ground for reform was the several
distortions which had crept into the financial system rendering it unable to meet the
challenges of a competitive environment. Joshi and Little (1996) had characterized the
Indian banking sector as „...unprofitable, inefficient and financially unsound…‟ The first
Narasimham Committee set the stage for financial and bank reforms in India. Interest
rates, previously fixed by the Reserve Bank of India, were liberalized in the 90‟s and
directed lending through the use of instruments of the Statutory Liquidity Ratio which was
reduced (Chakrabarti, 2008). While several committees have looked into the ailments of
commercial banking in India, three of them – the Narasimham committee I (1992) and II
(1998) and the Verma committee – have aimed at major changes in the banking system.
The financial reform process is often thought of as comprising two stages – the first phase
guided broadly by the Narasimham Committee I report while the second is based on the
Narasimham Committee II recommendations. The aim of the former was to bring about
“operational flexibility” and “functional autonomy” so as to enhance “efficiency, productivity
and profitability”. The latter focused on bringing about structural changes so as to
strengthen the foundations of the banking system to make it more stable (Chakrabarti,
2008).
The Narasimham Committee had acknowledged the success of public sector banks in
respect of branch expansion, deposit mobilization in household sector, priority sector
lending and removal of regional disparities in banking. But during the post nationalization
period, the banking sector suffered serious erosion in its efficiency and productivity (Dhar,
2003). Moreover, the sound banking system had been disturbed by the system of directed
credit operation in the form of subsidized credit flow in the under banked and priority areas,
IRDP lending, loan festival, etc. According to the committee the operational expenditure of
the public sector banks had tremendously increased due to rise in number of branches, poor
supervision, rising staff level and high unit cost of administering loan to the priority sector.
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The major recommendations made by the Narasimham I committee report are listed below
(Kalita, 2008).
1. The ban on setting new banks in private sector should be lifted and the licensing policy in
the branch expansion must be abolished.
2. The govt. has to be more liberal in the expansion of foreign bank branches and also
foreign operations of Indian banks should be rationalized.
3. The Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) should be
progressively brought down from 1991-92.
4. The directed credit program should be re-examined and the priority sector should be
redefined to comprise small and marginal farmers, the tiny industrial sector, small business
operators and weaker sections.
5. Banking industry should follow BIS/Basel norms for capital adequacy within three years.
6. Interest rates should be deregulated to suit the market conditions.
7. The govt. should tighten the prudential norms for the commercial banks.
8. The govt. share of public sector banks should be disinvested to a certain percentage like
in case of any other PSU.
In order to initiate the second generation of financial sector reforms a committee on

Banking Sector Reforms (BIS) was formed in 1998 under the chairmanship of M.
Narasimham. The committee submitted its report on 23rd April 1998 to the Finance Minister
of Govt. of India (Kalita, 2008). Narasimham committee report II observed that Central
Bank’s role should be separated from being monetary authority to that of regulator of the
banking sector.
The major recommendations of the second Narasimham II report were mentioned below
(Kalita, 2008).
1. The committee favoured the merger of strong public sector banks and closure of some
weaker banks if their rehabilitation was not possible.
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2. Expressing concern over rising non-performing assets, the committee provided the idea
of setting up an asset reconstruction fund to tackle the problem of huge non-performing
assets (NPAs) of banks under public sector.
3. The report emphasized the need of enhancement of capital adequacy norms from the
present level of 8 percent but did not specify the amount to which it should be raised.
4. The Banking Sector Reform Committee further suggested that existence of a healthy
competition between public sector banks and private sector banks was essential.
5. The report envisaged flow of capital to meet higher and unspecified levels of capital
adequacy and reduction of targeted credit.
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1.3 Types of Reform Measures for the Banking Sector
Since the general importance of a banking sector for an economy is widely accepted, the
questions arise under which coordination mechanism – state or market – it best performs its
functions, and, if necessary, how to manage the transition to this coordination mechanism
(Kaminsky and Schmukler, 2002).Currently, there are opposing views concerning the most
preferable coordination mechanism. According to the development and political view of state
involvement in banking, a government is through either direct ownership of banks or
restrictions on the operations of banks better suited than market forces alone to ensure that
the banking sector performs its functions. The argument is essentially that the government
can ensure a better economic outcome by for example channeling savings to strategic
projects that would otherwise not receive funding or by creating a branch infrastructure in
rural areas that would not be build by profit-maximizing private banks.
In the words of Lenin „...Without big banks, socialism would be impossible. The „big banks‟
are the state apparatus which we need to bring about socialism and which we take ready
made from capitalism…” (La Porta et. al., 2002). , Governments acquire control of
enterprises and banks in order to provide employment, subsidies and other benefits to
supporters, who return the favour in the form of votes and political contributions. The
attraction of such political control of banks is greatest in economies with underdeveloped
financial systems and poorly protected property rights, because the government does not
have to compete with the private sector. The view of state ownership is buttressed by
considerable evidence documenting the inefficiency of government enterprises, the political
motives behind the provision of services and the benefits of privatization The active
involvement of government thus ensures a better functioning of the banking sector, which
in turn has a growth enhancing effect (Denizer, Desai and Gueorguiev, 1998; La Porta,
Lopez de Silanes and Schleifer, 2002).
The proponents of financial liberalization take an opposite stance. In their view, repressive
policies such as artificially low real interest rates, directed credit programs and excessive
statutory pre-emption that are imposed on banks have negative effects on both the volume
and the productivity of investments. Removing these repressionist policies and giving more
importance to market forces will, in the view of the proponents of financial liberalization,
increase financial development and eventually lead to higher economic growth
(Demetriades and Luintel, 1997, p. 311; Denizer, Desai and Gueorguiev, 1998).However, a
majority of the empirical studies support the financial liberalization hypothesis supporting
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the fact that financial liberalization is essential for economic growth (King and Levine, 1993;
Watchel, 2001).
The banking sector reforms started in the early 1990s essentially followed a two pronged
approach; first, the level of competition was gradually increased within the banking system
while simultaneously introducing international best practices in prudential regulation
supervision tailored to Indian requirements (Kalita, 2008). In particular, special emphasis
was placed on building up the risk management capabilities of Indian banks while measures
were initiated to ensure flexibility, operational autonomy and competition in the banking
sector.
Secondly, active steps were initiated to improve the institutional arrangements like legal
and technological frameworks (Mohan, 2006). Some of the measures undertaken in this
regard are as follows (Kalita, 2008; Mohan, 2006; Roland, 2006; Singh, 2005).
Competition Enhancing Measures
 Allowing operational autonomy and reduction of public ownership in public sector

banks by raising capital from equity market up to 49 percent of paid up capital.
 Transparent norms for entry of Indian private sector banks, foreign banks and joint
venture banks.
 Permission for foreign investment in the financial sector through foreign direct
investment (FDI) as well as portfolio investment.
 The banks are allowed to diversify product portfolio and business activities.
 Roadmap for foreign banks and guidelines for mergers and amalgamation of private
sector banks with other banks and NBFCs.
 Instructions and guidelines on ownership and governance in private sector banks.
Measures enhancing role of market forces
 Reduction in pre-emption through reserve requirement, market determined pricing

for govt. securities, disbanding of administered interest rates and enhanced
transparency and disclosure norms to facilitate market discipline.
 Introduction of auction-based repos and reverse repos for short term liquidity
management, facilitation of improved payments and settlement mechanism.
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 Significant advancement in dematerialization and markets for securitized assets are
being developed.
Prudential measures
 Introduction of international best practices norms on capital to risk weighted asset

ratio (CRAR) requirement, accounting, income recognition, provisioning and
exposure. Following the Basel Accord of 1988, the capital to risk-weighted assets
ratio (CRAR), which took into account the element of risk involved in both balance
sheet as well as off-balance sheet business, emerged as a well recognized and
universally accepted measure of soundness of the banking system. Accordingly, as a
part of banking sector reforms, India adopted the Basel norms in a phased manner.
In fact, India went a step further and stipulated CRAR at nine per cent as against the
international norm of eight per cent from March 31, 2000. Furthermore, India also
prescribed the capital charge for market risk in June 2004, broadly in line with the
1996 amendment to Basel norms.
 Measures to strengthen risk management though recognition of different component
of risk, assignment of risk weights to various asset classes, norms of connected
lending, risk concentration,
 Introduction of capital charge for market risk, higher graded provisioning for NPAs,
guidelines for ownership and governance, securitization and debt restructuring
mechanism norms, etc.
 Introduction and roadmap for implementation of Basel II.
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1.4 Impacts of Reforms upon the Banking Industry
The Indian banking industry had made sufficient progress during the reforms period. Before
the start of the 1991 reforms, there was little effective competition in the Indian banking
system for two reasons. First, the detailed prescriptions of the RBI concerning for example
the setting of interest rates left the banks with limited degrees of freedom to differentiate
themselves in the marketplace. Second, India had strict entry restrictions for new banks,
which effectively shielded the incumbents from competition (Roland, 2006; Joshi and Little,
1997) .Through the lowering of entry barriers; competition has significantly increased since
the beginning of the 1990s. Seven new private banks entered the market between 1994
and 2000. In addition, over 20 foreign banks started operations in India since 1994. By
March 2004, the new private sector banks and the foreign banks had a combined share of
almost 20% of total assets Deregulating entry requirements and setting up new bank
operations has benefited the Indian banking system from improved technology, specialized
skills, better risk management practices and greater portfolio diversification (RBI Report on
Trend and Progress of banking in India).
Kumar and Gulati (2008) have examined the issue of convergence of efficiency levels
among Indian public sector banks (PSBs) during the post-reforms period spanning from
1992/1993 to 2005/2006. Their empirical results indicate that the majority of PSBs have
observed an ascent in technical efficiency during the post-reforms years. Further, the
inefficient PSBs have been noted to be catching up with the efficient ones. That is, the
banks with low level of efficiency at the beginning of the period are growing more rapidly
than the highly efficient banks. In sum, the study confirms a presence of convergence
phenomenon in the Indian public sector banking industry.
Table 1.1: Progress of Scheduled Commercial Banks in India Pre and Post-Reforms
Progress of Scheduled Commercial Banks in India June March March March

Indicators 1980 1991 2000 2005
1. No. of SCBs 154 272 298 288
2.No. of bank offices 34594 60570 67868 68355
Of which Rural and Semi-urban 23227 46550 47693 47485
3. Population per Office („000) 16 14 15 16
4. Per capita Deposit (Rs.) 738 2368 8542 16091
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5. Per capita Credit (Rs.) 457 1434 4555 10440
6. Deposit (% to national income) 36 48.1 53.5 68.3
Interest rate deregulation
Prior to the reforms, interest rates were a tool of cross-subsidization between different
sectors of the economy. To achieve this objective, the interest rate structure had grown
increasingly complex with both lending and deposit rates set by the RBI. One of the major
factors that affected the banks‟ profitability was the high pre-emptions in the form of Cash
Reserve Ratio (CRR) and Statutory Liquidity Ratio which had reached at the historically high
levels of 63.5% in early 1990s. The administered structure of interest rates did not allow
banks to charge the interest rates depending upon the credit worthiness of the borrower
and thus, impinged on the allocated efficiency of resources (Report on Currency and
Finance, RBI, 2006-2008). The deregulation of interest rates was a major component of the
banking sector reforms that aimed at promoting financial savings and growth of the
organized financial system (Singh, 2005, Roland, 2006). Deregulation of interest rates
implied that banks were able to fix the interest rates on deposits and loans depending upon
the overall liquidity position and their risk perceptions (for lending rates).
The Narasimham Committee having commended the Indian Banking system for its
impressive quantitative achievements during the two decades since nationalisation in 1969
noted the decline in productivity and efficiency of the system and the related erosion of
profitability (Narayana, 2000). In the Committee's view the major elements leading to low
productivity and profitability were-
 Constraints on operational flexibility owing to directed investment in terms of SLR

together with cash reserve ratios and directed credit programs.
 Decline in portfolio quality owing to political and administrative interference in credit
decision making.
 Concessional interest rate on directed investment and credit.
 Expansion of branch network into rural and semi-urban areas turning many offices
into primarily deposit centres without adequate credit business and income.
The above diagnosis of the maladies of banking led the Committee to recommend-
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 SLR requirements be related to prudential requirements and be brought down to
25% of net demand and time liabilities.
 The borrowing rates to be brought closer to market rates. CRR be turned into an
instrument of monetary policy.
 Directed credit program be phased out in the long run; redefine priority sector in the
short run, and review the concessional interest rate. Use fiscal instruments rather
than the credit system to help the weaker sections.
 Dismantle the administered interest rate structure and allow interest rates "to
perform their main function of allocating scarce loan-able funds to alternative use”.
The motive behind the liberalization of interest rates in the banking system was to allow the
banks more flexibility and encourage competition. Banks can charge rates according to their
cost of funds and to reflect the creditworthiness of different borrowers. Banks can vary
nominal rates offered on deposits in line with changes in inflation to maintain real returns
(Ahluwalia, 2002).
The most important and far reaching impact of banking liberalization in India has been the
deregulation of the interest rate (Kalita, 2008). The Indian banks are now adopting a
completely market driven interest rate structure which was in earlier a govt. driven interest
rate structure. The interest rate deregulation has resulted in the integration of the lending
rates across spectrum. The prime lending rate of each bank is now synchronized with the
bank rate. The bank rate was revived by the RBI to serve as the reference rate for the
banking sector.
Directed credit Policies: Directed credit policies have been an important part of India’s
financial sector reforms. Under the directed credit policy commercial banks are required to
provide 40% of their commercial loans to the priority sectors which include agriculture,
small-scale industry, small transport operators, artisans, etc. (Kalita,2008). Within the
aggregate ceiling there are various sub-ceilings for agriculture and also for loans to poverty
related target groups. The Narasimham committee had recommended reduction of the
directed credit to 10% from 40%. The committee had also suggested narrowing down the
definition of priority sector to focus on small farmers and low income target groups.
The policy of 40% of loans to the priority sectors has not been abolished by the govt.
However, the definition of the priority sector activities has been broadened with the new
inclusion and reclassifications. The Committee on Banking Reforms has suggested inclusion
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of activities related to food processing, dairying and poultry in the priority sector list (Kalita,
2008).This will increase the list of activities under the priority sector credit and also improve
the quality of the portfolio.
The issue of priority sector lending, an important concern against privatization, is no longer
that crucial, since in 2003 the share of credit of private sector banks going to the priority
sector had surpassed that of public sector banks [In 2002-03, 42.5% of the total credit of
PSUs was given to the priority sector whereas 44.4% of the total bank credit was given by
Private Sector Banks to priority sector] (Source: Trend and Progress of Banking in India,
RBI). At present if a bank fails to fulfill the target for priority sector lending, it can invest the
shortfall amount in RBI securities dealing with flow of funds towards agriculture and small-
scale industries but it still desirable that banks adhere to the priority sector lending target
(RBI, 2008).The current arrangement shows how the banking sector reforms have provided
operational flexibility to the banks even while meeting social objectives. The priority sector
lending norms have been fulfilled by a good margin by both public and private sector banks
at present. While public sector banks, as a group, achieved the overall priority sector
targets 40%, they failed to achieve the various sub-targets for agriculture, tiny sector within
the SSI sector, advances to weaker sections, etc. Significant variation was also observed in
the performance of different banks within the public sector banks with regard to the
achievement of sub-targets (RBI, Annual Report, 2004-05).
One of the major objectives of the reform was to bring in greater efficiency in the Indian
Banking sector by permitting entry of private sector banks and increased operational
flexibility of the banks. Keeping this view several measures were initiated to instil
competitiveness in the banking sector where the lack of threat to the entry of new players
had led to inefficiency in the banking sector. In January 199, norms for the entry of Private
players were announced. In the context towards deregulation, it was decided in 1992 to
give greater freedom to banks in opening up branches. Following liberalization of entry of
new private sector banks, 10 new banks were set up by 1998. Besides, 22 foreign banks
were also set up. The number of foreign bank branches increased from 140 at end-March
1993 to 186 at end-March 1998. However, that the impact on competition remained muted
was evident from the limited number of mergers (four). Normally when competition
intensifies, it inevitably leads to increased mergers and acquisitions activity. The lack of
enough competition was also reflected in the net interest margins (NIM) of banks, which
increased during this phase from 2.51% in 1992-93 to 2.95 per cent in 1997-98 (RBI
Report on Currency and Finance 2006-08, Vol. 1).
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3.5 Small And Medium Enterprises (SMEs) In India
The small and medium enterprises segment has been a topic of intense deliberation among banks, financial
institutions, industry and academicians. In India, ‘small and medium enterprises’ (SME) is a generic term used to
describe small scale industrial (SSI) units and medium-scale industrial units. As per the Micro, Small and Medium
Enterprises Development Act of 2006, any industrial unit with a total investment in its fixed assets or leased assets
or hire-purchase asset upto Rs10 million is considered as a SSI unit and investment up to Rs. 100 million is
considered as a medium unit. In addition, an SSI unit should neither be a subsidiary of any other industrial unit nor
can it be owned or controlled by any other industrial unit.
The SME sector produces a wide range of industrial products such as food products, beverage, tobacco and tobacco
products, cotton textiles, wool, silk, synthetic products, jute, hemp & jute products, wood & wood products,
furniture and fixtures, paper & paper products, printing publishing and allied industries, machinery, machines,
apparatus, appliances and electrical machinery. SME sector also has a large number of service industries.
 In India, SME is the biggest provider of employment next only to Agriculture. The SMEs constitute 95% of
total industrial units and constitute 40% of total industrial output.
 Formerly, both Government and RBI credit policy placed emphasis on manufacturing units from the Small
Scale Sector. However, in order to make the size of the unit and the technology employed by firms to be
globally competitive, the definition of “Small Scale Sector” was revisited. Keeping in view the same and
the global practices, it was decided to broaden the concept of SSI Sector by inclusion of services within its
ambit as also including the “Medium Enterprises” in a composite sector of “Small & Medium Enterprises”.
 Subsequently, MSMED Act was operationalised with effect from 2nd October 2006, which defines an
“enterprise” instead of an “industry” to give recognition to service sector and also defines a “medium
enterprise” to facilitate technology upgradation and graduation.
 Banks were interalia advised to formulate comprehensive and more liberal policies than the existing
policies in respect of loans to SME Sector.
3.6 Role of Small and Medium Enterprises (SMEs)
SMEs have been playing a pivotal role in country’s overall economic growth, and have
achieved steady progress over the last couple of years. From the perspective of industrial
development in India, and hence the growth of the overall economy, SMEs have to play a
prominent role, given that their labour intensiveness generates employment. The SME
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segment also plays a major role in developing countries such as India in an effort to
alleviate poverty and propel sustainable growth. They also lead to an equitable distribution
of income due to the nature of business. Moreover, SMEs in countries such as India help in
efficient allocation of resources by implementing labour intensive production processes,
given the abundant supply of labour in these countries, wherein capital is scarce.
The enactment of the Micro, Small and Medium Enterprises Development (MSMED) Act,
2006 was a landmark initiative taken by the Government of India to enable the SMEs’
competitive strength, address the issues and challenges and reap the benefits of the global
market. SME policy initiatives at the national and state level are aimed at strengthening the
role of SMEs at the base as well as at the higher level.
With globalisation, all forms of production of goods and services are getting increasingly
fragmented across countries and enterprises. With large players adopting different models
of business that include involvement of the traditional partners, suppliers or distributors at a
different level, SMEs now are experiencing a new model of functioning in the value chain.
The past few years has seen the role of the SME segment evolve from a traditional
manufacturer in the domestic market to that of an international partner. The restructuring
of production at the international level through increased outsourcing is having significant
effects on small and medium entrepreneurs in a positive as well as negative manner.
Demand in terms of new niche products and services are providing more opportunities for
SMEs that are in a better position to take advantage of their flexible nature of operations.
However, at the same time they have realized their drawback in terms of inadequate
availability of managerial and financial resources, lack of working capital, personnel training
and inability to innovate on a faster pace.
The combined effect of market liberalisation and deregulation has forced the SME segment
to change their business strategies for survival and growth. Some of the changes that SMEs
are focusing on include acquiring quality certifications, increasing use of ICT, creating e-
business models and diversification to meet the increasing competition. Globalisation,
economic liberalisation and the WTO regime would undoubtedly open up a unique
opportunity for the largest business community, i.e. SMEs through effective involvement in
international trade by streamlining certain factors, such as, access to markets, access to
technology, access to skills, finance, development of necessary infrastructure, SME-tax
friendly environment, exchanges of best practices to name a few.
20
The SME sector has also registered a consistently higher growth rate than the overall
manufacturing sector. In fact, it plays a dual role since the output produced by SMEs is not
only about final consumption but also a source of capital goods in the form of inputs to
heavy industries.
3.7 Financing the SMEs
In Feb 2008, the Ministry of Micro, Small and Medium Enterprises (MSME), continued with
its dereservation policy by removing 79 items from the list of 114 items reserved specifically
for SSI (small scale industries) manufacturing. Only 35 items remain in the reserved
category from the total 836 selected in 1994 denoting the declining monopoly of the SSI
segment on the reserved products. However, the government has set up various schemes in
place such as the Credit Linked Capital Subsidy Scheme, MSME Cluster Development
Scheme and ISO 9000 Reimbursement Scheme to help SMEs for procuring timely funds.
Also the government has put in place the Credit Guarantee Scheme to encourage banks to
lend up to Rs 0.50 million without collateral. There has also been a recent budget
announcement of setting up of a Risk Capital Fund.
Though SMEs are being touted as the priority sector within the economy, they continue to
face problems pertaining to finance. When it comes to banks, they have a very traditional
way of lending to this segment against collateral and SMEs end up being under financed.
Evidently, the biggest challenge before the SMEs today is to have access to non debt based
and non-traditional financial products such as external commercial borrowings, private
equity, factoring etc.
Lately this segment has been witnessing winds of change in the new sources of capital- in
the form of private equity (PE) and foreign direct investments (FDI). In Jan 2008, The Soros
Economic Development Fund (SEDF), Omidyar Network and Google.org announced a Small
to Medium Enterprise Investment Company with an initial corpus of $17 million for providing
capital to SMEs in underserved markets. Mauritius-based Frontline Strategy launched a
$200 million India Industrial Growth Fund (IIGF) for investment in SMEs targeting
companies, primarily in the industrial space with revenues between Rs 200 – 1,000 million.
In 2007, Mauritius-based Horizon advisors launched Ambit Pragma Fund I, an India
dedicated PE fund, with a corpus of $100 million for providing equity capital and
professional management advice to SMEs.
21
Investments in the SME sector are not only by PE funds but this sector is also attracting
FDI. In this respect the government has removed the 24 per cent cap on FDI in the SME
sector. Foreign entities are also keen on promoting trade and cooperation between SMEs of
different countries. Genesis Initiative, an UK-based organization consisting of
entrepreneurs, policy makers and SMEs, is trying to forge mutual cooperation between
SMEs in India and UK for in terms of JVs and partnerships in sectors such as textiles, IT,
infrastructure etc.
CHAPTER 2 : COMPANY BACKGROUND
Bank of Baroda (BoB) is the 3rd largest bank in India, after State Bank of India and Punjab National Bank and
ahead of ICICI Bank. BoB has total assets in excess of Rs. 2.27 lakh crores, or Rs. 2,274 billion, a network of over
3000 branches and offices, and about 1100+ ATMs. It offers a wide range of banking products and financial services
to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and
affiliates in the areas of investment banking, credit cards and asset management. [1]
2.1 Bank’s Mission Statement
2.2 Brief History
Bank of Baroda was incorporated in 1908 by Maharaj Sayajirao Gaekwad III. It launched its first branch in 1910 in
Ahmedabad. In 1953, its first branches in Kampala and Mombasa became operational. Its overseas branch in
Nairobi was opened in 1954.
2.3 Products And Services

Bank of Baroda provides it banking products and services in several categories like personal, international, business,
treasury, corporate and rural. In personal banking section Bank of Baroda offers products like deposits, debit cards,
Gen-Next, personal banking services, loans, lockers and credit cards.
22
In business banking sector, Bank of Baroda offers products and services such as deposits, business banking services,
loans and advances and lockers. In corporate banking section, Bank of Baroda offers products and services like
wholesale banking, loans and advances, deposits and corporate banking services.
2.4 Bank’s Logo
Bank’s new logo is a unique representation of a universal symbol. It comprises dual ‘B’ letterforms that hold the
rays of the rising sun. They call this the Baroda Sun.
The sun is an excellent representation of what our bank stands for. It is the single most powerful source of light and
energy – its far reaching rays dispel darkness to illuminate everything they touch. At Bank of Baroda, it seek to be
the source that will help all our stakeholders realise their goals. To our customers, we seek to be a one-stop, reliable
partner who will help them address different financial needs. To our employees, we offer rewarding careers and to
our investors and business partners, maximum return on their investment.
2.5 Business & Financial Performance

The Bank has reported a healthy growth in its business and profits with improvement in all key parameters during
FY10. [2]
 As stated earlier, its Global Business touched a new milestone of Rs 4,16,080 crore in FY10 reflecting a
growth of 24.0% (y-o-y).
 Both its domestic deposits and advances increased at the above-industry pace of 22.4% and 21.3%,
respectively.
 The Bank recorded a growth of 44.0% in SME credit, 27.0% in farm credit and 24.0% in retail credit
reflecting a well-diversified growth achievement.
 Total assets of the Bank’s overseas operations increased from Rs 51,165 crore to Rs 68,375 crore
registering a growth of 33.6% during the year under review.
 The Bank’s Net Profit at Rs 3,058.33 crore for FY10 reflected a robust year-on-year growth of 37.3%.
 As the Bank’s primary objective has been to grow with quality, the Bank focused on containing the
impaired assets to the minimum possible level. While the Gross NPA in domestic operations stood at
1.64% at end-March 2010, the same for Overseas Operations was at 0.47%. In spite of growing slippages
for Indian banking industry during FY10, our Bank succeeded in restricting its global Gross NPA level to
1.36% and Net NPA level to 0.34% by end-March, FY10.
23
CHAPTER 3 : SME POLICY
3.1 Objectives
The SME Loan Policy is framed with the following objectives:

 To improve flow of credit to SME Sector.
 To formulate norms of lending to SME sector, to ensure availability of adequate and timely credit to the
sector.
 To provide guidelines to the branches to dispense credit to SME Sector.
 To devise an organizational structure at all levels for handling SME credit portfolio in a more focused
manner.
 To comply with terms of Policy package announced by Hon’ble Union Finance Minister on 10.08.2005 and
further guidelines received from Reserve Bank of India from time to time for improving flow of credit to
SME Sector.
3.2 Scope of Policy
This Policy will form a part of Bank’s Domestic Loan Policy and will cover
following:
24
 Composition of SME Sector
 Broad guidelines on lending to SME Sector
 SME Loan Factory Model
 Credit Rating and Pricing Policy
 Identifying Thrust Industries
 Discretionary lending powers
 Training needs
 Reporting and Monitoring System
3.3 Small & Medium Enterprises Sector
The SME segment is broadly classified as under in MSMED ACT, 2006 :
Particulars Investment in Plant & Investment in Equipment

Machineries in case of in case of Service Sector
Manufacturing Enterprises *
Enterprises *
Micro Enterprises Upto Rs. 25/- lacs Upto Rs.10/- lacs
Small Enterprises Above Rs. 25/- lacs and Above Rs.10/- lacs and
upto Rs.500/- lacs upto Rs.200/- lacs
Medium Above Rs.500/- lacs and Above Rs.200/- lacs and up

Enterprises upto Rs.1000/- lacs to Rs.500/- lacs
* original cost excluding land and building and the items specified by the Ministry of Small Scale Industries
** original cost excluding land & Building and Furniture, Fittings and other items not directly related to the service
rendered or as may be notified under MSMED Act, 2006
3.4 Bank’s Approach Towards SME Sector
SMEs are growth engines for development of Economy. Bank has therefore for internal purposes given focused
attention to finance all Commercial enterprises i.e. enterprises which may be outside the purview of regulatory
definition of SME but having turnover upto Rs 150.00 crores and new infrastructure and real estate projects where
the project cost is upto Rs. 50/- crores by treating them as part of SME segment. SME Banking business will thus
include the following across the bank:
 Micro, Small and Medium Enterprises – as per regulatory definition irrespective geographical location, i.e.
rural, semiurban, urban, metro areas.
 All other entities with their annual sales turnover of Rs. 1/- crore to Rs. 150/- crores and new infrastructure
and real estate projects, where the project cost is upto Rs. 50/- crores.
 SMEs which are Associate/sister concerns of Wholesale Banking customers.
25
 Clubs, Trusts, etc.
 Financing under various Government schemes launched for MSME Sector.
However, such units, which are outside the purview of regulatory definition will not form part of Priority Sector
lending.
3.5 Establishment Of SME Loan Factories
Business Model which operates on assembly line principle is adopted by the bank for hassle free and faster
dispensing of credit to SME segment. This model titled SME Loan factory has separate Hub for Centralized
Processing of SME proposals.
SME LOAN FACTORY :

To grab vast business opportunities available and with an aim to extend focused attention to Industries & Service
Sector, Bank of Baroda has come out with an unique model in the form of SME LOAN FACTORY exclusively
for SMEs.
 It is a revolutionary step taken by Bank of Baroda amongst the Nationalised Banks. It envisages setting up
of Centralized Processing Hub to ensure speedy appraisal and sanctioning of proposal of SME Sector
within a time bound schedule.
 The model works on assembly line principles with simplified processes using latest technology and in-
house skilled men power to deliver focused services to SME customers.
 A team of Relationship Officers/Relationship Managers have been stationed at different key places spread
over the micro segment of the city who will reach out to SME customers.
 As of March, 2009, 34 SME Loan Factories have been operationalized across the country.
Attractive features of the model are as under :

 Team of officers having expertise in the area of credit with positive approach is selected.
 Instead of appointing DSAs(Direct Selling Agents), bank has appointed officers from existing dedicated
team only.
 The hub’s main role is ensuring speedy appraisal & sanctioning of proposals pertaining to SME sector in a
time bound program.
 The team members reach out to different market segments.
 Its important feature is working of the SME Loan Factory on assembly line principles with simplified
processes.
 We have two nodes to take care of the marketing /sales(SALES HUB) and credit processing
sanction(CREDIT HUB), under a single umbrella of the SME Loan Factory.
26
3.6 Targets for Priority Sector / SME Sector Lending
As regards lending to SME Sector, Banks are advised to fix their own target in order to achieve a minimum 20%
YOY growth in credit to SME as per statutory guidelines so as to double flow of credit to SME sector by the year
2009-10. There is no sub-target fixed for lending to small enterprises sector. However in order to ensure that credit
is available to all segments of the Small Enterprises sector, banks are advised to ensure that 60% of the total
advances to small enterprises sector should go to Micro Enterprises as under:
 40% to Micro (manufacturing) enterprises with investment in plant and machinery upto Rs.5 lacs and
Micro(service) enterprises having investment in equipment upto Rs.2 lacs
 20% to Micro (manufacturing) enterprises with investment in plant and machinery above Rs.5 lacs and
upto Rs.25 lacs and Micro(service) enterprises having investment in equipment above Rs.2 lacs and upto
Rs.10 lacs.
3.7 Guidelines for Takeover of Advance Accounts:
There are two types of compliances:

Non-Financial norms to be complied in case of takeover of SME accounts as per regulatory guidelines or
SME as per expanded coverage:
Sr.N Norms Deviation allowed

o.
a. Various authorities have been
Profit-making (i.e. net profit before tax) concerns only as per authorized to permit deviations in
last audited Balance Sheet. respect of accounts.
b.
Accounts be rated as per the new credit rating model
(BOBRAM) subject to ‘minimum’ BOB 6.
Accounts, which are not covered under BOBRAM Credit
Rating System, may be considered under
permitted deviation as per extant guidelines issued from time
to time.
c. There should not have been any reschedulement /restructuring

in the account during last two years.
d. Satisfactory report from the existing bank/FI and/or Various authorities have been
satisfactory conduct of account as per latest statement of authorized to permit deviations in
accounts. respect of accounts.
e. Accounts with existing lenders should be under the category of
“Standard Assets”.
f. All other existing norms, guidelines as applicable to borrowal
accounts are to be scrupulously followed.
27
Financial norms in case of takeover of SME accounts as per regulatory guidelines or SME accounts as per
expanded coverage:
Ratio Norms Authority who can allow

Deviation
1 2 3 Proposed
Micro & Small Medium Units
Industries Enterpris outside the
under es under purview of
manufactu- manufact- regulatory
ring sector uring sector definition
and service and service but covered
Sector as per Sector as per under SME
regulatory regulatory Sector as
guidelines guidelines Per expanded
definition.
Current Minimum Minimum Minimum Various authorities have been authorized
Ratio 1.17 & 1.20 & 1.33 & to permit deviations in respect of
above above above accounts.
Debt Maximum Maximum Maximum Various authorities have been authorized
Equity 4:1 3:1 3:1 to permit deviations in respect of
Ratio accounts...
(TTL /
TNW)
Total Maximum Maximum Maximum Various authorities have been authorized
outside 4.5:1 4.5:1 4.5:1 to permit deviations in respect of
liability/ accounts..
TNW
Average Minimum Minimum Minimum Various authorities have been authorized
DSCR 1.75 with a 1.75 with 1.75 with a to permit deviations in respect of
for condition a condition accounts.
Term that in any condition that in any
Loan one year it that in one year it
should not any one should not
be below year it be below
1.25 should 1.25
not be
below
1.25
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3.8 SME Products
The following products are launched for SME sector across the country:
 Baroda SME Gold Card providing additional 10% facility over the assessed MPBF for meeting emergent
business requirements.
 Baroda SME Loan Pack providing single line of credit for meeting SME borrowers’ working capital as
well as long term requirements within the overall limit approved by the bank as per the eligibility, i.e. 4
times of borrower’s tangible net worth as per last audited Balance Sheet, or Rs. 2/- crores, whichever is
lower.
 Baroda Overdraft against Land & Building is a unique product for financing working capital
requirements, long term margin requirements of SME borrowers against the security of unencumbered land
and building belonging to the unit, or, promoters of the unit, upto a maximum limit of Rs. 2/- crores
depending on the location, viz. rural and semi-urban, urban and metro.
 Baroda Vidyasthali Loan providing finance to Educational Institutional upto a limit of Rs. 5/- crores on
liberalized terms. This scheme is implemented at select branches of the Bank depending on the business
potential.
 Baroda Arogyadham Loan for providing finance for setting up new Nursing Homes, Hospitals including
Pathological Laboratories, renovation of existing Nursing Homes/Hospitals, purchase of medical diagnostic
equipments as also office equipments etc. and to meet working capital requirement upto a maximum limit
of Rs.5/- crores, depending on the location, on liberalized terms. This scheme is also implemented at select
branches of the bank.
 Scheme for financing existing SME customers/Current Account holders for purchase of new vehicles
upto a limit of Rs. 50/- lacs with 10% margin.
29
4.) FOOD & AGRO BASED INDUSTRIES
30
4.1) EXECUTIVE SUMMARY
Emerging Food Processing SMEs of India attempts to provide a platform to the Food
Processing SMEs, so as to facilitate their interface with potential global partners and buyers.
The report has profiled 262 companies with a turnover of less than Rs 1,000 mn. Of these,
83% are small-scale firms and 17% are medium scale. There are 53 companies having
presence in more than one industry sub-segment. Of the balance 209 companies profiled,
around 33% are into grain processing & spices, 10% each in non-alcoholic beverages and
packaged/convenience food, 8% in fruits & vegetables, 7% each in bakery and milk & milk
products, 5% in sugar & confectionary, 4% each in meat & poultry and marine products,
3% in alcoholic beverages and 9% in the others sub-segment.
The regional representation of companies in the report suitably reflects the geographical
concentration of the Indian food processing industry. The profiled companies are from 17
states and 2 union territories. The list consists of 89 companies from West India (49%
registered in Mumbai-Navi Mumbai region, followed by 8% each from Ahmedabad and
Pune), 82 from the South (20% each from Chennai and Hyderabad) and 68 companies
from the North (50% registered in Delhi, followed by 21% from Rajasthan). These regions
are the major industrial clusters of food processing SMEs in the country.
Of the 262 companies profiled, as many as 245 companies provided us sufficient data
points to enable a statistical analysis. Some of the insights revealed include the following:
In terms of ownership patterns, 13% are proprietary firms, 17% partnership firms, 43%
private limited companies and the rest 27% are public limited companies. As many as 65%
of profiled companies are engaged solely in manufacturing, while 35% are engaged in
manufacturing as well as trading. Around 79% of the companies began operations during
the 1980s and 1990s, while 18% of the companies are relatively new and have begun
operations post-2000. 71% companies have a single manufacturing facility while 27%
operate with 2 or more plants. In terms of IT penetration, 42% companies have a website.
The food processing industry is expected to continue its high-growth trajectory in the near
future, and SMEs are expected to play a critical role. Emerging Food Processing SMEs of
India will provide the right platform for SMEs, enabling them to become globally
competitive.
4.2) METHODOLOGY
31
The Micro, Small and Medium Enterprises Development Act of 2006, which came into effect
from October 2, 2006 defines SMEs as entities that have an investment of above Rs 10 mn
and below Rs 100 mn in plant and machinery for firms engaged in production of goods.
Considering the challenges entailed in tapping financial information from a highly
fragmented sector, the analysis has formulated a correlation between investment and
turnover to arrive at a benchmark of Rs 1,000 mn turnover for the SMEs.
Emerging Food Processing SMEs of India focuses on processors of food and food
products across the value chain, from fruits & vegetables to meat & poultry, bakery, non-
alcoholic beverages, packaged/convenience food, milk & milk products, marine products,
alcoholic beverages and grain processing. Trading companies have been excluded. The
report also includes diversified companies operating in the food processing and allied
segments and having business interests in other industries. The report has excluded
subsidiaries of large Indian business houses, multinational companies and subsidiaries of
multinational companies, thus honouring the true Indian entrepreneurial spirit that the
SMEs represent.
The companies that qualified on the basis of turnover were further screened through
another set of parameters to arrive at a truly representative list of emerging SMEs.
Companies with negative net worth and those declared financially sick by the Board for
Industrial & Financial Reconstruction (BIFR) were eliminated. Other considerations included
financial growth performance over the past two years, growth prospects and production
efficiencies.
Every effort was made to ensure that the report covers food processors located across the
length and breadth of the country. Based upon the Annual Survey of Industries (ASI) and
National Sample Survey Organization (NSSO) And Centre for monitoring Indian economy
and Capitaline database. we identified a large universe of auto component manufacturers.
The sections titled Industry Report and SME Insights are special analyses on the food
processing industry which looks at current trends, competitive dynamics and the future
outlook for the segment. The SME Insights section presents analytical findings drawn from
the primary information collated by leading consulting firms across the world.
4.3) DATA COLLECTION AND ANALYSIS
Overview
The food processing industry in India is a sunrise sector that has gained prominence in
recent years. Availability of raw materials, changing lifestyles and relaxation in policies has
given a considerable push to the industry’s growth. This sector is among the few that
serves as a vital link between the agriculture and industrial segments of the economy.
Strengthening this link is of critical importance to improve the value of agricultural
produce; ensure remunerative prices to farmers and at the same time create favourable
demand for Indian agricultural products in the world market. A thrust to the food
processing sector implies significant development of the agriculture sector and ensures
value addition to it.
32
The Indian food processing industry holds tremendous potential to grow, considering the
still nascent levels of processing at present. Though India’s agricultural production base is
reasonably strong, wastage of agricultural produce is sizeable. Processing of fruits and
vegetables is a low 2%, around 35% in milk, 21% in meat and 6% in poultry products. By
international comparison, these levels are significantly low - processing of agriculture
produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines
and 80% in Malaysia. Value addition to agriculture produce in India is just 20%, wastage is
estimated to be valued at around US$ 13 bn (Rs 580 bn).
India, with an arable land of 184 mn hectares is, the highest producer of milk in the world
at 90 mn tonnes p.a., second largest producer of fruits & vegetables (150 mn tonnes), third
largest producer of foodgrains and fish and has the largest livestock population.
Considering the wide-ranging and large raw material base that the country offers, along
with a consumer base of over one billion people, the industry holds tremendous
opportunities for large investments.
Ministry of Food Processing Industries
The Ministry was set up in 1998 and the industry segments that come under its purview
are:
• Fruit & Vegetable processing (including freezing and dehydration)

• Grain Processing
• Processing of Fish (including canning and freezing)
• Processing and refrigeration of certain agricultural products, dairy products,
poultry and eggs, meat and meat products
• Industries related to bread, oilseeds, meals (edible), breakfast foods,
biscuits, confectionery, malt extract, protein isolate, high protein food, weaning food
and extruded food products (including other ready-to-eat foods)
• Beer, including non-alcoholic beer
• Alcoholic drinks from non-molasses base
• Aerated water and soft drinks
• Specialised packaging for food processing industries.
The Ministry of Food Processing Industries, GoI, has estimated the size of the Indian food
market at US$ 191 bn (Rs 8,600 bn). The processed food market is projected to be over
US$ 100 bn, of which the primarily processed food market accounts for 60%, while the
value-added processed food market is around 40%.
The average annual growth of the food processing industry has been around 8% between
FY01-FY08. The segments that have driven the growth are the beverages and meat & meat
products and processed fish sectors. The food processing industry in India has a share of
1.5% in the total GDP of the country, and as part of total manufacturing accounts for 9%.
India’s share in world trade in respect of processed food is about 1.6%.
An extensive and highly fragmented industry, the food processing sector largely comprises
of the following sub-segments: fruits & vegetables, milk and milk products, beer & alcoholic
beverages, meat and poultry, marine products, grain processing, packaged/convenience
food and packaged drinks. A large number of players in this industry are small sized
companies, and are largely concentrated in the unorganised segment. This segment
accounts for more than 70% of the output in volume terms and 50% in value terms.
33
However, though the organized sector is comparatively small, it is growing at a much faster
pace.
Food Processing Units in Organised Sector (numbers)
Source: Ministry of Food Processing Industries, Annual Report 2007-08.
Industry Sub-Segments
Fruits & Vegetables
The installed capacity of fruits and vegetables processing industry has increased from 1.1
mn tonnes in January 1993 to 2 mn tonnes in 2000 and further to 2.2 mn tonnes in 2008.
The processing of fruits and vegetables is estimated to be around 2.2% of the total
production in the country. The prominent processed items in this segment are fruit pulps
and juices, fruit based ready-to-serve beverages, canned fruits and vegetables, jams,
squashes, pickles, chutneys and dehydrated vegetables. Some recent products introduced
34
in this segment include vegetable curries in retortable pouches, canned mushroom and
mushroom products, dried fruits and vegetables and fruit juice concentrates.
The fruits and vegetable processing industry is highly decentralized, and a large number of
units are in the cottage / household and small scale sector, having small capacities of up to
250 tonnes/annum. Since 2000, the industry has seen significant growth in ready-to-serve
beverages, fruit juices and pulps, dehydrated and frozen fruits and vegetable products,
pickles, processed mushrooms and curried vegetables, and units engaged in these
segments are export oriented.
The domestic industry is yet to change its preference in favour of processed foods.
Consumption of value added fruits and vegetables is low compared to the primary
processed foods, and fresh fruits and vegetables. The inclination towards processed foods is
mostly visible in urban centers.
A significant thrust can be given to this sector by strengthening linkages between farmers
and processors. The weak linkage between farmers and markets, as well as, farmers and
processing companies has brought about inefficiencies in the supply chain and encouraged
the involvement of middlemen. The Government of India’s National Agriculture Policy
envisages the participation of the private sector through contract farming and land leasing
arrangements which not only assures supply of raw material for processing units, but also a
market for agriculture produce, accelerate technology transfer and capital inflow into the
agriculture sector.
Contract farming in wheat practiced in Madhya Pradesh by Hindustan Lever Ltd and by
Pepsi Foods Ltd in Punjab for tomatoes, foodgrains, spices and oilseeds are some successful
examples of contract farming in India, which changed the farming landscape and promoted
the cultivation of processable variety of farm produce. Such innovative practices will power
the fruits, vegetables and grain processing industry. Apart from such initiatives, fiscal
incentives and tax concessions will also give impetus to the sector. The five-year 100% tax
exemption announced by the Government in FY05 was one such incentive for upcoming
fruits and vegetable processing units.
Milk and Milk Products
India has one of the highest livestock population in the world, accounting for 50% of the
buffaloes and 20% of the world’s cattle population, most of which are milch cows and milch
buffaloes. India’s dairy industry is considered as one of the most successful development
programmes in the post-Independence era.
As of 2008-09 total milk production in the country was over 100 mn tonnes with a per
capita availability of 229 gms/day. The industry has been recording an annual growth of
4% during the period 1993-2007, which is almost 3 times the average growth rate of the
dairy industry in the world. Milk processing in India is around 35%, (with the organized
dairy industry accounting for 13% of the milk produced) while the rest of the milk is either
consumed at farm level, or sold as fresh, non-pasteurized milk through unorganised
channels.
Dairy Cooperatives account for the major share of processed liquid milk marketed in the
India. Milk is processed and marketed by 170 Milk Producers’ Cooperative Unions, which
federate into 15 State Cooperative Milk Marketing Federations. Over the years, several
35
brands have been created by cooperatives like Amul (GCMMF), Vijaya (AP), Verka (Punjab),
Saras (Rajasthan). Nandini (Karnataka), Milma (Kerala) and Gokul (Kolhapur).
The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat,
Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk
products is concentrated in these milk surplus States.
As per data released by the Ministry of Food Processing Industries, exports of dairy
products have been growing at the rate of 25% p.a. in quantity terms and 28% in value
terms since 2001. Significant investment opportunities exist for the manufacturing of value-
added milk products like milk powder, packaged milk, butter, ghee, cheese and ready-to-
drink milk products.
Meat & Poultry
Since 1995, production of meat & meat products has been steadily growing at a rate of 4%
p.a.. Currently, the processing level of buffalo meat is estimated at 21%, poultry 6% and
marine products 8%. Only about 1% of the total meat is converted into value added
products like sausages, ham, bacon, kababs, meat balls, etc. Production of meat is
governed under local by-laws as slaughtering is a state subject. Processing of meat is
licensed under the Meat Food Products Order, 1973.
In 2003 India had a livestock population of 470 mn that included 205 mn cattle and 90 mn
buffaloes. The country produces about 450 mn broilers and 30 billion eggs annually. Cattle,
buffaloes, sheep and goat, pigs and poultry are the types of animals which are generally
used for production of meat. Slaughter rate for cattle as a whole is 20%, for buffaloes it is
41%, pigs 99%, sheep 30% and 40% for goats. The country has 3,600 slaughter houses, 9
modern abattoirs and 171 meat processing units licensed under the meat products order.
The poultry industry is among the faster growing sectors rising at a rate of 8% per year.
Vertical integration of poultry production and marketing has lowered costs of production,
marketing margins and consumer prices of poultry meat. There are eight integrated poultry
processing units in the country, which hold a significant share in the industry.
Marine Products
India is the third largest fish producer in the world and ranks second in inland fish
production. India’s vast potential for fishes, from both inland and marine resources, is
supplemented by the 8,000 km coastline, 3 mn hectares of reservoirs, 1.4 mn hectares of
brackish water, 50,600 sq km of continental shelf area and 2.2 mn sq km of exclusive
economic zone.
Processing of marine produce into canned and frozen forms is carried out almost entirely
for the export market. Infrastructure facilities for processing of marine products include 372
freezing units with a daily processing capacity of 10,320 tonnes and 504 frozen storage
facilities with a capacity of 138,229.10 tonnes. Apart from these, there are 11 surimi units,
473 pre-processing centres and 236 other storages.
Processed fish products for export include conventional block frozen products, individual
quick frozen products (IQF), minced fish products like fish sausage, cakes, cutlets, pastes,
surimi, texturised products and dry fish etc.
36
Exports of marine products have been erratic and on a declining trend which can be owed
to the adverse market conditions prevailing in the EU and US markets. The anti-dumping
procedure initiated by the US Government has affected India’s shrimp exports to the US.
Grain Processing
Grain processing includes milling of rice, wheat and pulses. As of 1999-00, there were over
91,000 rice hullers and 2,60,000 small flour mills engaged in primary milling. Also, there
are about 43,000 modernised rice mills/huller-cum-shellers. Around 820 large flour mills in
the country convert about 10.5 mn tonnes of wheat into wheat products. Also there are
10,000 pulse mills milling about 75% of pulse production of 14 mn tonnes in the country.
Primary milling of grains is the most important activity in the grain processing segment of
the industry. However, primary milling adds little to shelf life, wastage control and value
addition. Around 65% of rice production is milled, mostly in modern rice mills. However,
the sheller-cum-huller mills operating give low recovery. Wheat is processed for flour,
refined wheat flour, semolina and grits. Apart from the 820 large flour mills, there are over
3 lakh small units operating in this segment in the unorganised sector. Dal milling is the
third largest in the grain processing industry, and has approximately 11,000 mechanised
mills in the organised segment. Oilseed processing is another major segment, an activity
largely concentrated in the cottage industry. According to estimates, there are
approximately 2.5 lakh ghanis and kolus (animal operated oil expellers), 50,000 mechanical
oil expellers, 15,500 oil mills, 725 solvent extraction plants, 300 oil refineries and over 175
hydrogenated vegetable oil plants.
Indian rice, especially Basmati rice, has gained international recognition, and is a premium
export product. Branded grains as well as grain processing is now gaining popularity.
Beer & Alcoholic Beverages
India is the third largest market for alcoholic beverages in the world, and the domestic
market is largely dominated by United Breweries, Mohan Meakins and Radico Khaitan. The
demand for beer and spirits is estimated to be around 373 mn cases per year. There are 12
joint venture companies having a licensed capacity of 33,919 kilo-litres p.a. for production
of grain based alcoholic beverages. Around 56 units are manufacturing beer under license
from the Government of India.
The two segments in the liquor segment, country liquor and Indian Made Foreign Liquor,
both cater to different sections of society. The former is consumed in r ural areas and by
low-income groups, while the latter is consumed by the middle and high income groups.
There are approximately 23,000 licensed liquor outlets in India, with another 10,000
outlets in the form of bars and restaurants. Regulations in this sector differ state-wise. In
Tamil Nadu, Kerala and Andhra Pradesh, the distribution is controlled by the state
government, and any change XVIII in the ruling party has a direct impact on the availability
of alcohol. In Uttar Pradesh, liquor distribution licenses were earlier based on bidding, and
the highest bidder was given the license. This has not changed to the lottery allotment
system. Gujarat Government has banned the sale and distribution of liquor in the state.
The wine industry in India has come into prominence lately and has been receiving support
from the Government as well. The market for this industry has been estimated to be
37
growing at around 25% annually. Maharashtra has emerged as an important state for the
manufacture of wines. There are more than 35 wineries in Maharashtra, and around 1,500
acres of grapes are under cultivation for wine production in the state. The Maharashtra
Government has declared wine-making business as small-scale industry and has also
offered excise concessions.
Consumer Foods
This segment includes packaged foods, aerated soft drinks, packaged drinking water and
alcoholic beverages.
Packaged / Convenience Foods
Consumer food industry mainly consists of ready-to-eat and ready-to-cook products, chips,
salted snacks, pasta products, cocoa based products, bakery products, biscuits, soft drinks,
etc.
There are around 60,000 bakeries, 20,000 traditional food units and several pasta food
units. The bakery industry is among the few processed food segments whose production
has been increasing steadily in the country in the last couple of years. Bakery products
include bread, biscuits, pastries, cakes, buns, rusk etc. This activity is mostly concentrated
in the unorganized sector. Bread and biscuits constitute the largest segment of consumer
foods with an annual production is around 4.00 mn tonnes. Bread manufacturing is
reserved for the small scale sector. Out of the total production of bread, 40% is produced in
the organized sector and the remaining 60% in the unorganised sector. Similarly, in the
production of biscuits, share of unorganized sector is about 80%.
Cocoa Products
There are 20 units engaged in the manufacture of cocoa products like chocolates, drinking
chocolate, cocoa butter substitutes, cocoa based malted milk foods with an annual
production of approximately 34,000 tonnes.
Soft drinks
This segment is the 3rd largest in the packaged foods industry, after packed tea and
packed biscuits. The aerated soft drinks industry in India comprises over 100 plants and
provides direct and indirect employment to over 125,000 employees. It has attracted one
of the highest foreign direct investments in the country. Its position is strengthened by
strong forward and backward linkages with glass, plastic, refrigeration, sugar and the
transportation industry.
Penetration levels of aerated soft drinks in India are quite low compared to other
developing and developed markets, which is indicative of the potential the segment holds
for further growth.
Constraints & Drivers of Growth
Growing urbanization, increasing disposable income, emergence of organised food retail,

changing lifestyles and food consumption patterns are the key factors driving growth for
38
processed foods in India. These are post-liberalisation trends that have given an impetus to
the sector.
Consumption patterns in India have been undergoing a visible shift. Earlier, the share of
cereal products was the highest, followed by milk & milk products, vegetables, edible oil
and meat products. However, in recent years, the growth rates for fruits, vegetables, meat
and dairy products have been higher than cereals and pulses. This shift in turn implies that
there is also a need to diversify the food production base to match the changing
consumption preferences.
This shift in consumption follows the pattern observed in developed countries in the
evolution of the global food demand. There is a shift from carbohydrate staples to animal
sources and sugar. Going by this pattern, in future, there will be increasing demand for
prepared meals, snack foods and convenience foods and further on the demand would shift
towards functional, organic and diet foods.
Some of the key constraints identified by the industry include:
• Lack of suitable infrastructure in terms of cold storage, warehousing, etc

• Lack of adequate quality control and testing infrastructure
• Inefficient supply chain and involvement of middlemen
• High inventory carrying cost
• High taxation
• High packaging cost
• Affordability and cultural preference of fresh food
Highest priority has been accorded by the Government for the development of
infrastructure. The Government has already taken several initiatives on this front which
include developing of food parks, packaging centres, modernised abattoirs, integrated cold
chain facilities, irradiation facilities and value added centres.
The initiative to develop food parks was taken primarily in order to assist the small and
medium enterprises which are unable to invest in capital intensive activities. So far, 22 food
parks have come into operation which provide common facilities like cold storage, food
testing and analysis laboratories, packaging centres, etc
In terms of policy support, the ministry of food processing has taken the following
initiatives:
• Formulation of the National Food Processing Policy

• Complete de-licensing, except for alcoholic beverages
• Declared as priority sector for lending in 1999
• 100% FDI on automatic route
• Excise duty waived on fruits & vegetables processing from 2000 – 01
• Income tax holiday for fruits & vegetables processing from 2004 – 05
• Customs duty reduced on freezer van from 20% to 10% from 2005 – 06
• Implementation of Fruit Products Order
• Implementation of Meat Food Products Order
• Enactment of FSS Bill 2005
• Food Safety & Standards Bill, 2005
39
Apart from these initiatives, the Centre has requested state Governments to undertake the
following reforms:
• Amendment to the APMC Act

• Lowering of VAT rates
• Declaring the industry as seasonal
• Integrate the promotional structure
Investments
The total inflow of foreign direct investment in the food processing sector has been around
Rs 55 bn between 1991 to November 2008. During the last five years, FDI witnessed an
inflow of over Rs 24 bn of foreign investment. The highest investment in a single year was
in 2001-02 amounting to Rs 10 bn.
Maharashtra was among the front-runners to receive the highest share of FDI in food
processing during the last five years. The dairy and consumer industrise received FDI worth
Rs 2.7 bn each as foreign investment. Nearly 30 per cent of FDI in the food processing
sector comes from EU countries such as Netherlands, Germany, Italy and France. Perfetti,
Cadbury, Godrej-Pilsbury, Nutricia International, Manjini Comaco are some of the
successful ventures from EU countries.
Major Food Processing Companies in India
The entry of multinational companies has increased competition in the food processing
industry. At the same time, these companies are facing tough competition from strong
Indian brands. This level of competition has increased innovations, facilitating a sustained
growth of the sector and also improve global competitiveness. The emerging new growth
phase of the sector is just in its initial stages with the potential for India to emerge as a
leading food supplier to the world.
SWOT Analysis of Food–Processing Industry
Strengths
• Abundant availability of raw material

• Priority sector status for agro-processing given by the central Government
• Vast network of manufacturing facilities all over the country
• Vast domestic market
Weaknesses
40
• Low availability of adequate infrastructural facilities
• Lack of adequate quality control & testing methods as per international standards
• Inefficient supply chain due to a large number of intermediaries
• High requirement of working capital.
• Inadequately developed linkages between R&D labs and industry.
• Seasonality of raw material
Opportunities
• Large crop and material base offering a vast potential for agro processing activities
• Setting of SEZ/AEZ and food parks for providing added incentive to develop
greenfield projects
• Rising income levels and changing consumption patterns
• Favourable demographic profile and changing lifestyles
• Integration of development in contemporary technologies such as electronics,
material science, bio-technology etc. offer vast scope for rapid improvement and
progress
• Opening of global markets
Threats
• Affordability and cultural preferences of fresh food

• High inventory carrying cost
• High taxation
• High packaging cost
4.4) FINDINGS
SME Insight
The attention that small and medium enterprises are lately commanding from banks,
institutions, industry and academicians, has encouraged this study on the SME segment.
The SMEs were relatively over-shadowed for long by other economic concerns. As a result,
there has been a deficit of authentic information on this segment and has limited the
estimation of value contributed by it to India’s economy. Through this primary research
undertaken by the leading consulting firms, we attempt to add value through insights that
have emerged from our study.
This study aims to draw a profile of how small and medium companies in the food
processing space function. We have attempted to chart their operational structure, business
practices, preferences, marketing, efficiency parameters, etc. For this quantitative exercise,
a sample of 245 companies was considered; the requirement being that at least 80% of the
information sought has been provided.
Some key characteristics of the sample of 245 companies are:
• Ownership pattern of companies include: proprietary firms 13.5%,

partnership firms 16.5%, private limited companies 43% and public limited
companies 27%
41
• The sample covers over 98% of the food processing clusters, except a few in
Himachal Pradesh and Jammu & Kashmir
• The geographical spread of the sample companies mirrors the concentration
of food processing companies in the country. The West and South have maximum
representation. Around 33.5% companies are located in the West, 31% in the
South, 27.5% in the North and 8% in the East
• Reflecting the low capital intensive nature of the industry, around 77% of the
companies in the sample are small scale enterprises on the basis of investments in
plant and machinery. The rest are medium enterprises. (Refer Fig 01)
• The representation from the various sub-segments of the industry is as
follows: 34% in grain processing & spices segment, 14% into packaged /
convenience food, 8% in non-alcoholic beverages which includes soft drinks, tea,
coffee, fruit juices, water, etc, 7% each in milk & milk products and fruits &
vegetable processing, 6% into bakery, 5% into sugar & confectionary, 4% in meat &
poultry, 3% each into alcoholic beverages and marine products and 9% in the
others segment (Refer Fig. 2). The ‘others’ category include manufacturers of food
colours, flavours, additives, seeds, guar gum etc. (Refer Fig 02)
• Around 65% of the companies are solely into manufacturing, while 35% are
engaged in manufacturing as well as trading
• Around 78.5% of the companies in the sample began operations between
1980 and 2000; only 4% were present prior to 1980s. The rest are relatively new
having begun operations post-2000
• 71% of companies have a single manufacturing facility while 27% operate
with 2 or more plants.
• In terms of IT penetration, 42% of the companies have a website.
42
Turnover
Over 50% of the companies in the sample have a turnover of less than Rs 100 mn, and
most of them were private limited companies, followed by proprietary firms. Another 33%
were earning over Rs 100 mn but less than Rs 500 mn. Of the remaining 17% of the
companies which were in the turnover bracket of Rs 500 mn and Rs 1,000 mn, the public
limited and private limited companies dominated with a share of 60% and 33%
respectively.
In terms of the regional spread of these companies, a large number of small firms were
concentrated in the West. The northern and southern region showed a higher proportion of
companies falling in the Rs 500 mn and above turnover bracket.
43
Figure 03
Top
Ownership Structure
The North-based companies once again showed a preference for proprietary form of
ownership, similar to that observed among textile SMEs. The companies in the South were
prominently private limited companies. The companies in the Western region were again
predominantly private limited companies. (Refer Fig. 04)
44
Branding
Around 65% of the companies in the sample had branded products. The grain processing
and packaged/convenience foods segments were the most prominent among the brand
owning companies. Brand consciousness among companies was widespread irrespective of
their size. It was found that among the small scale companies with turnover less that Rs
100 mn, 62% of the companies had branded products. Correspondingly, 69% of the
companies in the turnover bracket of Rs 500-1,000 mn had developed brands for their
products.
Exports
Around 114 companies, or 47% of the sample, were exporting their products and 36%
were exporting more than 90% of their produce. Of the total exporting firms, 23 companies
were 100% exporters mainly in the grain processing, fruits & vegetables and meat &
poultry segments, with many of them exporting directly to foreign clients.
Of the exporting companies, 61% have branded products and almost 55% have quality
certifications. The average capacity utilization among exporting companies was relatively
higher (80%) compared with those selling only in the domestic market. Segment-wise, the
pre-dominant exporters were companies in the grain processing and the fruits & vegetables
segments having a share of 29% and 15% respectively.
In terms of the various sub-segments in the food processing industry and their exports, it
was found that companies exclusively into meat & poultry exported over 96% of their
output, followed by marine product manufacturers, which on an average exported 93% of
their produce.
Capacity Utilisation
The companies in the study were operating at an average capacity utilisation of 78%.
Approximately 44% of the companies were operating at 90% and above of installed
capacity. Of these companies operating at 90% and above capacity, 38% were operating in
the Grain Processing & Spices segment followed by companies in Fruits & Vegetable
Processing segment.
Regionally, the North-based companies reflected higher capacity utilisation and were on an
average operating at 82% of installed capacity. In terms of ownership, public limited
companies constituted a significant 36% of those operating at more then 90% capacity. On
the basis of size, the enterprises having turnover between Rs 250-500 mn showed higher
average capacity utilisation of an average 88%.
Average capacity utilisation across segments
45
Table 2
Top
Future Plans
Of the total 245 companies in the sample, 61% have envisaged strategies for future
growth. The plans range from capacity expansion, modernisation, diversification to new
marketing initiatives and venturing into newer markets.
Out of the total companies with future plans for growth, 45% of the companies have plans
for expanding their capacity in order to meet the growing demand. A substantial 29% of
the companies have diversification plans into related or un-related fields.
Segment-wise, the grain processing companies showed highest dynamism with 65% of the
companies in this segment having divulged future growth plans. In terms of future plans, of
the companies having capacity expansion plans, 33% were from the grain processing
segment followed by packaged/convenience foods (15%). Bakeries accounted for 13% of
the companies having plans for diversifying their product segment, while 16% companies
looking for newer markets belonged to non-alcoholic beverages segment
46
Figure 05
Hindrances to growth
Infrastructure and lack of institutional support were cited as the key hindrances to growth
by the SMEs. Nearly 52% of the companies in the sample responded to the query on
hindrances to growth. Of these, over 80% of the responses alluded to lack of institutional
support as an impediment. A large number of these companies were from the northern and
southern belt. Infrastructure as a barrier was cited by 37% of the companies. The West-
based companies were largely concerned with marketing issues.
Top
4.5) CONCLUSION AND RECOMMENDATIONS
FUTURE PROSPECTS
The decade-and-a-half of Indian economic reforms have now reached a stage where it is
bringing about changes in the the agriculture and food processing sectors. Reforms had
more or less bypassed the agriculture sector till recently. However, demographic factors,
changing lifestyles and consumer demand for greater variety has increased pressures on
the food processing sector to provide products at competitive prices. Experience of large
developed agricultural economies has proven that the integration of production and
processing stages are a universal feature of efficient food marketing systems in the
advanced stages of economic development.
Driving growth in the food processing sector holds the key to imparting changes in the
labour intensive agriculture sector in India. Inefficient marketing systems are already being
targeted. Policies are now promoting the participation of private investors that would
promote efficiency in food processing and agriculture marketing systems. These are just
the initial stages of development and further efficiencies in the agriculture sector, in terms
47
of improving productivity and investments, will be a source of power for the food
processing sector in turn. In other words, the two sectors share a symbiotic relationship
and changes to either will impact the other.
In this backdrop, the Government of India is already in the midst of a vision, strategy and
action plan for the food processing sector. This strategy addresses issues of taxation,
organised retail, infrastructure development, marketing interventions and regulations,
strengthening of institutions and issues of food safety and regulations. The Vision 2017
strategy released in 2007-08 envisages:
• Trebling the size of the processed food sector to close to US$ 400 bn by 2015
• Increasing level of processing of perishables from 6% to 20%
• Value addition to increase from 20% to 35%
• Increase share in global food trade from 1.5% to 3%
• Increase the share of value added products in food consumption from the
current 16% to 50%.
Realising this vision entails an investment of US$ 24 bn over the decade of 2004-2015.
Acquiring global competitiveness implies building-in efficiencies into the agricultural
production and processing systems. For the agriculture sector, the state Governments will
have to play a critical role in raising yields and improving quality of agricultural produce.
This would require improving infrastructure for warehouses, cold storage, access roads,
creating facilities for primary grading/sorting, improving access to price and market
information to farmers, contract farming and supply chain management.
Policy reforms in the food processing sector are already in their advanced phase, and have
prompted several corporates to invest in the sector. Among the food processing segments,
progress has been pre-eminent in the grain processing sector with the extensive branding
of processed end-products like wheat flour and processed rice. A few prominent companies
XXIX investing in this segment include ITC, HLL and Cargill. The other growing segment is
poultry and meat, where too significant progress has taken place in terms of branding and
marketing of products. This is among the faster growing segments in the industry, and will
continue to witness significant changes in the next few years. Key players in this segment
include Venky’s India and Godrej.
The fruits and vegetables segment is still localised in its operations, and largely unbranded.
However, several companies have already made foray into this segment, and are backward
integrating their operations. The products that would see remarkable growth include
pickles, fruit pulps, canned and frozen fruits and vegetables.
Organised food retailing is likely to play an important role in increasing the consumption of
processed food items. The retail format reduces the number of intermediaries and
transaction costs. It also aids better understanding of consumer preferences as it is a vital
link between the processors and consumers. The Ministry of Food Processing, GoI, has
projected the organised food retail industry to grow by 30% for the next five years. Among
the key categories that constitute the organised retail market, the food and beverages
segment make up a high 29%. Though current sales of processed foods through retail
outlets are hardly 1% of total food sales, it is estimated to grow at an annual rate of 40%
in the near future. Indian corporates who have already ventured into this segment include
ITC, Bharti, Reliance, Aditya Birla Group, Subhiksha and Future Group.
48
Studies on the impact of organised food retailing on the supply chain have shown that it
helps in consolidation among farmers towards meeting consumer requirements,
investments in infrastructure and a shift towards centralised distribution centres from the
traditional wholesale markets.
The food processing industry in India has taken off substantially and will continue to grow
rapidly considering the untapped potential in the sector. The growth in this segment not
only indicates the changing development patterns of the country, similar to the developed
nations, but also the promise it holds in driving growth of a certain section of society that
has remained marginalised for a long time. More than just demand and supply dynamics,
stakeholders in the food processing sector of India have a social responsibility to fulfil.
49
5.) CHEMICALS
50
The Emerging Chemical SMEs of India attempts to provide a platform to the chemical
SMEs, so as to facilitate their interface with potential global partners and buyers to tap ever
increasing export opportunities by leveraging high quality Indian technical expertise. The
report has profiled 384 companies with a turnover of less than Rs 1,000 mn.
The report covers SMEs based in 10 chemical clusters across the country. The geographical
spread of the industry mirrors the concentration of chemical companies in the country with
the West region dominating with a 76% share. The region is entirely represented by two
states – Gujarat (58% of total West) and Maharashtra (42% of total West). Around 11%
companies are located in the North, 9% in the South and 4% in the East. Location-wise,
companies are featured from 75 cities, with Ahmedabad at 30% and Mumbai at 25% share
topping the chart.
Of the 384 companies profiled, as many as 271 companies were used for a statistical
analysis. Some of the insights revealed include:
• Three segments — organic, inorganic and dyestuff — were most optimistic on

future growth, and on an average, around 60% of companies in these segments
were exporting their products.
• It was observed that public sector companies had a dominant presence in the
Rs 500 – 1000 mn bracket, while private limited companies were prominently high
in the Rs 100 – 500 mn turnover bracket.
• On the query of availability of funds, a large 55% of the companies
responded that fund availability was moderate. Another 35% felt that it was easy to
acquire funds, and a large number of such companies were located in the West and
South of the country.
• The average capacity utilisation of the sample companies was around 85%,
with 45% of the companies operating at over 90% of their capacity.
On the strengths of low cost manpower, a large and growing domestic market, strong
forward and backward linkages and a conducive policy environment, prospects for the
Indian chemicals sector are bright. Emerging Chemical SMEs of India will provide the
right platform for SMEs, enabling them to become globally competitive.
51
5.2)METHODOLOGY.
The definition of small and medium enterprises (SMEs) in the Indian context has remained
contentious until recently. As per the Micro, Small and Medium Enterprises Development
Act of 2006, the Government of India has defined SMEs as entities that have an investment
of above Rs 10 mn and below Rs 100 mn in plant and machinery. Considering the
challenges entailed in tapping financial information from a highly fragmented sector, the
analysis has formulated a correlation between investment and turnover to arrive at a cut-
off Rs 1,000 mn turnover for auto component SMEs.
Emerging Chemical SMEs of India focuses on manufacturers of chemicals and allied

products; trading companies have been excluded. The report includes diversified companies
operating in the chemical space and having business interests in other industries. The
report has excluded subsidiaries of large Indian business houses, multinational companies
and subsidiaries of multinational companies, thus honouring the true Indian entrepreneurial
spirit that the SMEs represent.
efficiencies.
Every effort was made to ensure that the report touches upon auto component
manufacturers located across the length and breadth of the country. Based upon the
Annual Survey of Industries (ASI) and National Sample Survey Organization (NSSO) And
Centre for monitoring Indian economy and Capitaline database. we identified a large
universe of auto component manufacturers.
The sections titled Industry Report and SME Insights are special analyses on the auto
component industry which look at current trends, competitive dynamics and the future
the primary information collated by the various research conducted by the leading
consulting firms.
52
5.3) DATA COLLECTION AND ANALYSIS.
Introduction
The Indian chemical industry is among the established traditional sectors of the country,
playing an integral role in the country’s economic development. This sector, forming part of
the basic goods industry, is a critical input for industrial and agricultural development. The
industry has a weight of 14% in the Index of Industrial Production (Base year 1993-94 =
100), giving an indication of the importance the sector holds in the country’s industrial
growth. A robust chemical industry is a harbinger of significant economic and strategic
benefits to the nation.
The chemical industry is among the most diversified industrial sectors, including basic
chemicals and its products, petrochemicals, fertilisers, paints, gases, pharmaceuticals,
dyes, etc. The sector covers over 70,000 commercial products, and provides the building
block for many downstream industries, such as finished drugs, dyestuffs, paper, synthetic
rubber, plastics, polyester, paints, pesticides, fertilisers and detergents.
The industry includes a wide variety of products, from basic chemicals to research-driven
specialised products, at different levels across the industry supply chain. The fundamental
nature and diversity of the industry is best understood from the fact that the industry itself
is the largest consumer of its products, accounting for around 33% of total consumption.
Sources: Department of Chemicals & Petrochemicals,Gol
As stated in the Annual Report of 2005-06 of the Department of Chemicals &

Petrochemicals, GoI, the domestic chemical industry contributes about 17.6% to the total
output in the manufacturing sector, 13-14% to total exports and 8-9% of total imports into
the country. The sector has a share of 3% to the country’s total GDP. Its contribution to the
revenue kitty of the Government is around 18-20%.
53
The domestic industry’s turnover is estimated to have crossed US$ 30 bn (Rs 1,300 bn),
which is slightly over 1% of the global production. In world ranking, India stands 12th in
terms of production.
Industry structure
The chemical industry can be broadly classified into two segments – organic and inorganic
chemicals. Organic chemicals cover over half of all known chemical compounds, and
includes petrochemicals, drugs, cosmetics, agrochemicals, etc. Inorganic chemicals
comprise of alkalis, dyes & dyestuffs.
Based on a more functional classification, chemicals may be divided into basic, specialty
and fine chemicals.
The basic chemicals industry forms the largest part of the chemical industry and is
characterised by capital intensive, high volume, low margin products. Specialty and fine
chemicals are low volume, high margin in nature. It is estimated that nearly 70% of fine
chemicals produced in India are used by the pharmaceutical and agrochemical industries.
Specialty chemicals include adhesives, additives, antioxidants, biocides, corrosion
inhibitors, cutting fluids, dyes, lubricants, pigments, etc..
Sources: Department of Chemicals & Petrochemicals, Gol
This report largely focuses on basic chemicals, which can be further divided into alkalis,
organic and inorganic chemicals, pesticides and fungicides, dyes and dyestuffs. This
classification is based on the product categorisation as provided by the Department of
Chemicals & Petrochemicals, GoI, for the chemical industry, and excludes drugs &
pharmaceuticals and petrochemicals.
Regional concentration of the basic chemicals industry
54
Though the chemical industry is spread across the country, there is relatively a high
concentration along the west-coast, largely due to the proximity to raw materials and ports.
Gujarat alone is estimated to contribute around 53% to the total production in the country,
followed by Maharashtra, which contributes 9%.
The other major producing states include UP, TN, MP and Punjab. On the other hand, in the
case of heavy chemicals segment, especially inorganic chemicals, fuel availability is a
determining factor, and hence there is a concentration of these companies around power
plants. Due to the regional concentration of chemical companies in certain pockets, logistics
costs for the industry have tended to become a significant position of total costs.
Industry Sub-segments
The annual production of basic chemicals between FY02-FY06 has been growing at 7% per
year, while consumption has been rising at 5% per annum. Imports and exports have also
been rising at 7.25% and 37.6% respectively, implying that India has been a net exporter
of chemicals. As per the Department of Chemicals, on the largest imports, in value terms
have been for organic chemicals followed by dyes & dyestuffs, while the largest export item
in value terms is also organic chemicals and chlor-alkali chemicals.
State-wise Capacity & Production of Major Chemicals(‘000 MT)
55
Chlor Alkali
Chlor alkalis, the largest segment of basic chemicals produced in India, is a volume driven,
low margins industry and accounted for around 72% of the total production in FY06.
Caustic soda, soda ash and chlorine are products of this industry, forming the basic building
block for the chemical processing industry. End-users of this segment include aluminium,
dyes, pharmaceuticals, glass, newsprint, paper & boards, soaps & detergents, viscose,
textiles, water treatment, pesticides industries, to name a few. The scale of margins for
alkalis, to a large extent, depends upon the levels of industrial activity in sectors such as
metals, textiles and pharmaceuticals.
Being a capital intensive sector, the sector is largely dominated by big players. Hence,
energy costs form a key determinant of the profitability of the industry. Chlor alkali
companies are largely concentrated along the west coast due to the availability of salts, a
key raw material.
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The Chlor alkali segment has been witnessing a robust 6% growth in production since FY02,
with production in FY06 touching an estimated 5.5 mn tonnes. This is one of the few
industries where supply exceeds demand, thus having tremendous potential for exports.
Since FY03, the sector has been a net exporter. Exports of chlor alkali have been growing
at 52% annually since 2001, while imports are rising at close to 6% per year.
Technology has played a key role in this segment in adopting better production techniques.
Around 60% of mercury-based caustic-chlorine plants in the country have shifted from
mercury cell technology to membrane cell technology that has been recommended as a
viable production alternative.
Performance of Chlor Alkali Chemicals(‘000 MT)
Note: @ = Production + Imports - Exports

Source: Annual Report 2005 – 2006, Department of Chemicals & Petrochemicals, GoI
Organic Chemicals
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Organic chemicals form the second largest segment of the chemical industry. This segment
has the largest number of products classified under it, most of which are knowledge driven.
As a result, R&D forms a considerable part of the manufacturer’s costs. Acetic acid, phenol,
methanol, formaldehyde, nitrobenzene, citric acid, etc are part of this segment, most of
which are used in drugs, pesticides, etc. This segment accounts for 20% of total chemical
production in the country.
This segment produces a large number of products and combinations thereof, and is
dominated by medium and small players, with specialised focus in particular product
segment. Being largely a technology driven segment, these manufacturers have exhibited
the competence to produce chemicals of high quality standards. This segment too is
concentrated in Western India.
During FY06, production of organic chemicals is estimated to have increased by 2% to 1.5

mn tonnes. This sluggish rate of growth has been persisting since FY05, while between
FY02-FY05 production grew at an impressive 7%. Exports of organic chemicals have been
impressive, both in terms of value and volume. Between FY02-FY05, exports grew by 55%
while imports went up by 6% annually in quantity terms. This rise in exports can be
attributed to the significant value-addition to the Indian product list, especially in the drugs
and pharmaceutical segments.
During FY05, exports of organic chemicals rose by 36% in volume terms to 63 thousand
tonnes, with a 66% jump in value terms to Rs 5.7 bn. Imports, although dropped by 6% to
561 thousand tonnes in volume in FY05, saw a rise of 26% in value to Rs 12.3 bn during
this period. The domestic market forms a large part of the consumer base for the XVI
industry. However, due to price competitiveness, products like methanol are mainly
imported into India.
Inorganic Chemicals
This segment comprises of products such as aluminum fluoride, calcium carbide, carbon
black, potassium chlorate, sodium chlorate, titanium dioxide and red phosphorous, etc.
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End-users of these chemicals include manufacturers of soaps & detergents, glass, fertilisers
and alkalis.
Inorganic chemicals are manufactured by using naturally occurring minerals, and therefore
availability of raw materials is the key determinant for the development of the industry. In
2005, this segment accounted for 7% of total chemical production in India. There are large
variations among products in the segment owing to the required skills and technology used,
and the value addition to the products.
The inorganic chemicals sector is the fastest growing sub-segment, having recorded an
average annual growth rate of around 11% between FY02-FY05. During FY06 production is
estimated to have risen by 7% to 544 thousand tonnes. Exports of inorganic chemicals too
have been rising by over 50% annually since FY02. Imports have been erratic and on the
decline in volume terms, though the value of imports has been high, implying the high-
value imports by domestic players.
Performance of Inorganic Chemicals (’000 MT)
Pesticides
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Pesticides are one of the most important constituent of the agro-chemicals sub-segment,
which has played an almost revolutionary role in the Indian agricultural sector. According to
estimates, India is the second largest manufacturer of agrochemicals in the world with 165
pesticides registered in the country.
India has one of the most dynamic generic pesticide manufacturing base, with more than
60 technical grade pesticides being manufactured indigenously by 125 producers consisting
of large and medium scale enterprises, including about 10 multinational companies, and
more than 500 pesticide formulators spread all over the country. India is also a dominant
producer of Isoproturon, a weedicide, accounting for nearly 25% of the world’s production.
This segment is also a knowledge driven segment and R&D plays an important role. It has
witnessed consolidation over a period of time and the presence of MNCs has been
expanding through increased acquisitions of local players. Nonetheless, a large number of
small and medium players are associated with the production, distribution and marketing of
agrochemicals.
Use and production of pesticides is directly related to the crop situation, and indirectly to
monsoons. Cash crop producers are the major consumers of pesticides. During FY06,
production of pesticides dropped by 12% to 82,000 tonnes mainly due to lower intake of
pesticides in the cotton crop, which typically consumes the highest proportion of pesticides.
However, exports have been one of the growth enablers for this sector, which also helps to
hedge the risk of weather conditions. Although most of the exports have been undertaken
by MNCs through their established distribution channels across the globe, Indian players
have also shown competence in select product segments.
During FY05, exports of pesticides grew by 9% to 22,000 tonnes. However, unit realization
remained under pressure and fell by 9% thus leading to a decline in the export value by
1.6% to Rs 5,180 mn. Some key export destinations for India include US, UK, France,
Netherlands, Belgium, Spain, South Africa, Bangladesh, Malaysia and Singapore. India
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meets most of the domestic requirement of pesticides and imports are limited to only few
innovative products.
Performance of Pesticides(’000 MT)
India has lately emerged as a global base for generic agrochemicals, sales of a significant
proportion which are to traders and not to end-users. The reason for this is that apart from
lack of necessary sales and distribution infrastructure, companies have yet to obtain
relevant product registrations to enable direct sales.
Dyes and Dyestuff
Dyes and dyestuff finds application in a range of industries, including paints, leather,
textiles, ink, plastics, etc. The textile industry is the largest consumer for this segment,
accounting for nearly 80% of total demand. A large number of manufacturers in this
segment are small and medium scale players. However, being intermediate suppliers, their
performance is critically linked with that of their end-users’ performance.
From being an importer and distributor during the 1950s, the dyes and dyestuff industry
has come a long way. India today accounts for 6% of total world production of dyes, and
Indian dyes are exported to the East Asia, Africa, EU, etc. During FY06, production of dyes
grew by 4% to 30,000 tonnes. As per data available from the Department of Chemicals &
Petrochemicals, exports of dyes and dyestuff witnessed a fall of 7% during FY05 to 112,000
tonnes in volume and a drop of 6% in value to Rs 2.27 bn. In contrast, imports went up by
21% to 15,000 tonnes in volume and by 20% to Rs 3.56 bn in value during this period.
Performance of Dyes & Dyestuffs (’000 MT)
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Source: Annual Report 2005 – 2006, Department of Chemicals and Petrochemicals, GoI
Key Strengths & Drivers
The chemical industry forms the backbone of the Indian manufacturing base. Some key
strengths of the sector that can drive growth for the industry include low cost manpower,
large domestic market, strong forward and backward linkages and conducive policy
environment.
Considering the vastness of this sector, some of the common growth drivers that could be
identified for the sector include:
(a) Macroeconomic factors
Being largely an intermediate product, a strong economic growth is an important factor for
sustaining demand for the chemical industry. In fact, the per capita consumption of most of
the finished products under this sector is far below the world average, giving a hint to the
potential growth for the industry.
(b) Integration along the value chain
The industry participates in different stages of the value chain by producing intermediates
and finished goods. This makes integration of processes easier. In fact, growing
competition in select chemical segments has forced the industry to scale up production,
which, inter-alia, requires backward or forward integration in some cases. Higher
consolidation and capacity building has driven growth.
(c) Focus on R&D
Specialty and fine chemicals are essentially a knowledge-based industry, which requires
sustained investment in R&D. During the past few years, the chemical industry has
witnessed a rise in R&D and technology up-gradation. This has led to many new products
being introduced in the market, thus boosting demand.
(d) Outsourcing and contract manufacturing
On the strength of low-cost production and world-class technology, India is being looked
upon as a preferred destination for outsourcing and contract manufacturing. This has led to
higher utilisation of capacity and revenue generation for the participants.
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The Indian chemical industry today is emerging from a protected environment into highly
competitive global market, and at the same time the domestic market is already reaching a
mature level where demand potential for chemical end-products is on the rise. In these
changing circumstances, the industry faces some key challenges.
(a) Power costs
Chemicals, especially heavy chemicals, are power intensive sectors, and sustained supply
of power is imperative. Volatility in power supply and prices of crude oil has been impacting
the margins of the chemical companies.
(b) Technology
Although India has shown remarkable improvement in technological innovation, it still lags
behind international standards. Chemical sectors are one, where technological changes are
rapid and needs continuous up-gradation and innovation.
(c) Infrastructure
Poor infrastructure, like roads, rail and ports are other detrimental factors. Regional
concentration of the chemical industry requires better infrastructure and logistics to reach
across the country.
(d) Dumping
Growing international competition and low customs duty on some of the chemicals have led
the dumping of certain chemicals in domestic industry. Notably, most of the cases related
to anti-dumping duty in India relates to chemical sector.
5.4) FINDINGS
SME Insights
The small and medium enterprises, which form the backbone of India’s manufacturing
sector, have been the focus of banks, institutions, industry and academicians. However,
there has been a deficit of authentic information on this segment that has limited the
estimation of value contributed by it to India’s economy. Through this primary research
undertaken by the leading consulting firms, we present here some insights that have
emerged from our study.
This study aims to draw a profile of how small and medium companies operating in the
chemical space function; we have attempted to chart their operational structure, business
practices, preferences, marketing, efficiency parameters, etc. For this exercise, we have
considered a sample of 271 companies, which have provided over 85% of the information
sought.
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• Ownership pattern of companies include: proprietary firms 30%, partnership
firms 25%, private limited companies 34% and public limited companies 11%.
• The total sample is from 15 states; the highest coming from the Western
region. The companies in the West are entirely from Gujarat and Maharashtra and
account for 74.5% of the total sample. Around 11.4% companies are located in the
North, 8.5% in the South and 5.5% in the East.
• Around 89% of the companies in the sample are small scale enterprises with
investments less than Rs 50 mn in plant and machinery. The rest are medium sized
enterprises.
• Close to 77% of the companies in the sample operate in a single segment.
The Organic and Inorganic manufacturers constitute 65% of the sample, organic
companies at 37% and inorganic 28%. The next largest segment is Dyes and
Dyestuff accounting for 22%. Representation of Alkali and Pesticide companies is
1.2% each.
• Depicting the long-established nature of the industry, around 49% of the
companies in the sample were established prior to 1990. Another 42% began
operations during the 1990s, while only 9% began operations post-2000.
• In terms of IT penetration, around 39% of the companies have a website.
Turnover
A large number of companies, close to 72%, had a turnover of up to Rs 100 mn, while
another 16% had a turnover of between Rs 100 – 250 mn. Unlike other SME-dominated
segments, the small companies in this sample of chemical companies did not show any
particular ownership pattern, and were equally represented by proprietary, partnership and
private firms. It was observed that public limited companies had a dominant presence in
the Rs 500 – 1000 mn bracket, while private limited companies were prominently high in
the Rs 100 – 500 mn turnover bracket.
Chemical sub-segments
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Though alkalis forms the largest segment of the basic chemicals industry in terms of
production, their representation in the sample was very small. The organic, inorganic and
dyes & dyestuff companies dominate the sample, accounting for 87%. Around 63
companies were operating in more than one segment, with over 50% of these companies
manufacturing organic as well as inorganic chemicals. Among these companies operating in
multiple segments, a large number of dyes & dyestuff manufacturing companies were also
manufacturing organic chemicals.
The three segments — organic, inorganic and dyestuff — are the key growth drivers of the
basic chemicals industry. On an average, around 60% of the companies in these segments
were exporting their products. Among the dyes & dyestuff manufacturers that were
exporting their products, a significant 66% were exporting more than 50% of their
products.
Branding
Around 38% or 102 companies in the sample sold their products under a brand name.
Among these brand conscious companies, partnership companies accounted for 31%,
private limited were 29% while proprietary firms accounted for 24%. Nearly 68% of these
companies were exporting their products, with 27% of them exporting more than 50% of
their total production.
Exports
Nearly 61% or 165 companies in the sample were exporting their products. Of these
exporting firms, 7% of the companies were totally export oriented. Around 39% of the
companies were exporting over 50% of their produce, and nearly 43% of the exporting
companies have quality certifications. Nearly 41% of the companies exporting were private
firms, followed by proprietary firms at 25%, partnership firms having a share of 22 and
public limited companies 12%. In terms of chemical sub-segments, the major exporters
were organic chemical manufacturers, followed by dyes, inorganic chemicals, alkalis and
pesticides.
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Funding
Banking preference of companies was largely rooted with the public sector banks with 72%
of the companies banking with PSUs, while 12% with private sector and another 3% each
with cooperatives and MNCs. The remaining 10% were dependent on internal resources to
meet their working capital requirements. On the query of availability of funds, a large 55%
of the companies responded that fund availability was moderate. Another 35% felt that it
was easy to acquire funds while 5% of the companies expressed difficulty in acquiring
funds.
Hindrances in Business
In terms of concerns expressed by the companies for business growth, lack of institutional
support was highlighted by maximum number of companies. Nearly 70% of such
companies were located to the West, another 9% in the North, and 4% each from East and
South. The other major concerns were related to marketing and infrastructure. Availability
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of facilities for quality checks and hindrances in having an assured market was also brought
forth by the companies, in terms of pre-empting the cyclical nature of operations.
5.5) CONCLUSIONS AND RECOMMENDATIONS.
FUTURE PROSPECTS.
Prospects for the Indian chemical industry are bright, considering the central role it plays in
the growth of the manufacturing and agriculture sector of the country. The current growth
pattern of the country, driven by agriculture, industry and services, ensures a sustained
demand for chemicals in future. Nevertheless, the industry also faces considerable
challenges in a changing environment, such as increased globalisation of markets, societal
demand for improved environmental performance and the need for increased profitability
and productivity.
India’s global competitiveness in the chemical industry has grown and will continue to grow
in the medium term for the following reasons:
• High demand growth in the domestic and global market

• Localisation of end-user industries. Some of the end-user industries are also
growing rapidly and are emerging as outsourcing hubs for the global market, like
textiles, pharmaceuticals.
• Low production costs in terms of labour, resources, etc
These factors have led to increasing investments, R&D spending as well as building up of a
skill base. Going forward, technology may play a significant role in empowering the
chemical industry to meet future challenges.
However, the dumping of chemicals and increased inflow of chemical products (mostly
basic) under a reduced customs regime will hinder the growth in certain sub-segments.
Big-push from the Pharmaceutical sector
The pharmaceutical sector is a significant growth driver for the chemical industry, and will
continue to be an adjunct to the chemical industry. Indian pharmaceutical players have
shown impressive progress on filing new chemicals entities with foreign regulatory
agencies, which illustrates the maturing technical and chemical synthesis skills of Indian
players. This trend is likely to gain momentum in the backdrop of recently announced
government policies related to R&D in the Union Budget for FY08.
The Union Budget FY08 offers incentives for R&D by way of extending the weighted
deduction at the rate of 150% of the expenses on R&D for the next five years and duty
exemption for imports of specified machinery used for R&D purpose. These measures will
help the sector to augment R&D capabilities. Moreover, the proposed exemption of customs
duty on coking coal would also provide respite to the fuel intensive sectors.
Growth in the pharmaceutical sector in turn implies impressive growth for the organic
chemicals segment. Also, following the future trend and opportunities in the field of CRAMS,
this segment, especially exports is set to witness high growth in the near term.
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Pesticides segment may witness further consolidation, however, domestic players
may give stiff competition to MNCs
MNCs have expanded their presence in the country by introducing innovative products,
process integration and acquisition. However, few big domestic players have shown their
competitive skills in the domestic and international market by pushing their superior
products. Although, the growing presence of MNCs will impact the small and medium
players, it will simultaneously open up opportunities in terms of contract manufacturing and
research.
In fact, the strength of domestic pesticide players lies in their regional presence and
understanding local needs, which will help them to stay and grow in the market.
Dyes and dyestuff have good prospects based on economic growth
Impressive performance of the-end user segments in the dyes and pigment sector is set to
give a boost to a large number of players associated with the industry, whether organized
or unorganized.
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6.0) TEXTILES
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Emerging Textile SMEs of India attempts to provide a platform to the Textile SMEs, so
as to facilitate their interface with potential global partners and buyers. The report has
profiled 621 companies with a turnover of less than Rs 1,000 mn. Of these, 88% are small-
scale firms and 12% are medium scale. Around 16% of the profiled companies are into
spinning, 11% into weaving, 20% in the clothing segment and 15% are into made-ups.
There are 62 companies that have integrated operations and function in more than one
sub-segment.
The regional representation of companies in the report suitably reflects the geographical
concentration of the Indian textile and clothing industry. The profiled companies are from
18 states and 2 union territories. The list consists of 232 companies from the North (31%
registered in Delhi-Noida region, followed by 19% from Panipat) 144 from the West (80%
registered in Mumbai region, followed by 10% each from Ahmedabad and Surat) and 226
from the South (23% from Tirupur, followed by 15% from Coimbatore), the major
industrial pockets of textile manufacturers in the country. No response was received from
companies in the North-eastern states.
points to enable a statistical analysis. Some of the insights revealed include: in terms of
ownership pattern; proprietary firms are 24%, partnership firms 31%, private limited
companies 27% and public limited companies 18%; around 63% of the companies are only
into manufacturing, while 37% are engaged in manufacturing as well as trading; around
70% of the companies in the sample began operations during the 1980s and 1990s, 16%
of the companies are relatively new and have begun operations post-2000; 73% of
companies have a single manufacturing facility while 27% operate with 2 or more plants; in
terms of IT penetration, 42% of the companies have a website.
The textile and clothing industry is expected to continue its high-growth period in the near
future, and SMEs are expected to play a critical role. Emerging Textile SMEs of India will
provide the right platform for SMEs, enabling them to become globally competitive.
6.2) METHODOLOGY
challenges entailed in tapping financial information from a highly fragmented sector, the
analysis has formulated a correlation between investment and turnover to arrive at a cut-
off Rs 1,000 mn turnover for auto component SMEs.
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Emerging Textile SMEs of India focuses on manufacturers of textile products across the
value chain, from yarns, fibres to processing and finished goods. Trading companies have
been excluded. The report also includes diversified companies operating in the textiles and
readymade garments space and having business interests in other industries. The report
has excluded subsidiaries of large Indian business houses, multinational companies and
subsidiaries of multinational companies, thus honouring the true Indian entrepreneurial
spirit that the SMEs represent.
efficiencies.
consulting firms.
6.3) DATA ANALYSIS AND COLLECTION
Overview
The Indian textile industry is one the largest and oldest sectors in the country and among
the most important in the economy in terms of output, investment and employment. The
sector employs nearly 35 million people and after agriculture, is the second-highest
employer in the country. Its importance is underlined by the fact that it accounts for around
4% of Gross Domestic Product, 14% of industrial production, 9% of excise collections, 18%
of employment in the industrial sector, and 16% of the country’s total exports earnings.
With direct linkages to the rural economy and the agriculture sector, it has been estimated
that one of every six households in the country depends on this sector, either directly or
indirectly, for its livelihood.
A strong raw material production base, a vast pool of skilled and unskilled personnel, cheap
labour, good export potential and low import content are some of the salient features of the
Indian textile industry. This is a traditional, robust, well-established industry, enjoying
considerable demand in the domestic as well as global markets.
India vis-à-vis Global Textiles
The global textile and clothing industry is estimated to be worth about US$ 4,395 bn and
currently global trade in textiles and clothing stands at around US$ 360 bn. The US market
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is the largest, estimated to be growing at 5% per year, and in combination with the EU
nations, accounts for 64% of clothing consumption.
The Indian textile industry is valued at US$ 40 bn with exports totalling US$ 19 bn in 2007-
2008. At the global level, India’s textile exports account for just 4.72% of global textile and
clothing exports. The export basket includes a wide range of items including cotton yarn
and fabrics, man-made yarn and fabrics, wool and silk fabrics, made-ups and a variety of
garments. Quota constraints and shortcomings in producing value-added fabrics and
garments and the absence of contemporary design facilities are some of the challenges that
have impacted textile exports from India.
India’s presence in the international market is significant in the areas of fabrics and yarn.
• India is the largest exporter of yarn in the international market and has a
share of 25% in world cotton yarn exports
• India accounts for 12% of the world’s production of textile fibres and yarn
• In terms of spindleage, the Indian textile industry is ranked second, after
China, and accounts for 23% of the world’s spindle capacity
• Around 6% of global rotor capacity is in India
• The country has the highest loom capacity, including handlooms, with a share
of 61% in world loomage.
India’s Textile Industry Structure
Cotton textiles continue to form the predominant base of the Indian textile industry, though
other types of fabric have gained share in recent years. In 1995-96, the share of cotton
and manmade fabric was 60% and 27% respectively. More recently, cotton fabrics
accounted for 46% of the total fabric produced in 2007-08, while man-made fibres held a
share of 41%. This represents a clear shift in consumer preferences towards man-made
fabric.
The fibre and yarn-specific configuration of the textile industry includes almost all types of
textile fibres, encompassing natural fibres such as cotton, jute, silk and wool; synthetic /
man-made fibres such as polyester, viscose, nylon, acrylic and polypropylene (PP) as well
as multiple blends of such fibres and filament yarns such as partially oriented yarn (POY).
The type of yarn used is dictated by the end product being manufactured.
The Man-made textile industry comprises fibre and filament yarn manufacturing units of
cellulosic and non-cellulosic origin. The cellulosic fibre/yarn industry is under the
administrative control of the Ministry of Textiles, while the non-cellulosic industry is under
the administrative control of the Ministry of Chemicals and Fertilisers.
It is well-established that India possesses a natural advantage in terms of raw material

availability. India is the largest producer of jute, the second-largest producer of silk, the
third-largest producer of cotton and cellulosic fibre/yarn and fifth-largest producer of
synthetic fibres/yarn.
The industry structure is fully vertically integrated across the value chain, extending from
fibre to fabric to garments. At the same time, it is a highly fragmented sector, and
comprises small-scale, non-integrated spinning, weaving, finishing, and apparel-making
enterprises. The unorganised sector forms the bulk of the industry, comprising handlooms,
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powerlooms, hosiery and knitting, and also readymade garments, khadi and carpet
manufacturing units. The organised mill sector consists of spinning mills involved only in
spinning activities and composite mills where spinning, weaving and processing activities
are carried out under a single roof.
As in January 2008, there were 1779 cotton/man-made fibre textile mills in the organised
sector, with an installed capacity of 34.1 million spindles and 395,000 rotors. Of these, 218
were composite mills which accounted for just 3% of total fabric production, with 97% of
fabric production happening in the unorganised segment. Cloth production in the mill sector
has fallen from 1,714 million sq mtrs in 1999-2000 to a projected 1,493 million sq mtrs in
2007-08, declining at a rate of 2% per annum. As a result, the number of sick units in the
organised segment has also been growing rapidly.
The competitiveness of composite mills has declined in comparison to the powerlooms in

the decentralised segment. Policy restrictions relating to labour laws and the fiscal
advantages enjoyed by the handloom and powerloom sectors have been identified as two
of the major constraints responsible for the declining scenario of the mill sector.
Nonetheless, overall cloth production in the country has been growing at 3.5% per annum
since 2000, with growth driven largely by the powerloom sector. Being the largest
manufacturer of fabric in the country, the powerloom sector produces a wide variety of
cloth, both grey as well as processed. According to the Ministry of Textiles, there are 1.923
mn powerlooms in the country distributed over 430,000 units. The sector accounts for 63%
of the total cloth production in the country and provides employment to 4.815 mn people.
The handloom sector is the second-highest employer in the country after agriculture. The
sector accounts for 13% of the total cloth produced in the country, not including wool, silk
and handspun yarn. The production of handloom fabrics had gone up to 4700 mn sq mtrs in
2007, from 500 mn sq mtrs in the 1950s, representing an annual growth of around 4%.
The sector is weighed down by several problems such as obsolete technology, unorganised
production systems, low The Man-made textile industry comprises fibre and filament yarn
manufacturing units of cellulosic and non-cellulosic origin. The cellulosic fibre/yarn industry
is under the administrative control of the Ministry of Textiles, while the non-cellulosic
industry is under the administrative control of the Ministry of Chemicals and Fertilisers. XV
productivity, weak marketing links, overall stagnation in demand and competition from the
powerloom and mill sectors.
Knitting and hosiery units account for around 17% of fabric production in the country.
According to data available for the year 2000, India had about 6,000 knitting units
registered as producers or exporters and most of these units were registered as small-scale
units.
Trends in Production
Yarn and fabric production has been growing annually at 1.9% and 2.7% respectively, since
2000. Yarn production has increased from 3,940 mn kg in 1999- 00 to 4,400 mn kg in
2007-08. Man-made yarn has driven much of this, showing a robust growth of 4.3% in the
last five years. Spun yarn production and the cotton yarn sector have also grown, albeit
less impressively, recording growths of 2.4% and 0.6% respectively.
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Source: Ministry of Textiles, GoI
Fabric production has been growing at 2.9% annually between 2000 and 2008, driven
primarily by the smallscale, independent powerloom sector. Growth in the 100% non-cotton
segment touched 5%, followed by cotton fabric at 1.5% and blended fabric at 0.3%. Fabric
production touched a peak 47000 million sq mtrs in 2007-08, and in Nov 08, production
recorded a robust 9% growth compared to the corresponding period in the previous year.
Trade Scenario
According to the provisional DGCI&S data, textile exports during fiscal 2007-08 stood at
around US$17.5 billion, recording a 22% growth year-on-year. Except for man-made
textiles, all segments in the textile industry, including handicraft carpets, wool and silk,
have recorded a growth in exports during 2007-08 - the first year since the phasing out of
the quota system in the global market.
Readymade garments (RMG) is the largest export segment, accounting for a considerable
45% of total textile exports. This segment has benefited significantly with the termination
of the Multi-Fibre Arrangement (MFA) in Jan 08. In 2007-08, total RMG exports grew by
29%, touching US$ 7.75 bn. In 2003-04 and 2007-08, the growth in RMG exports was
8.5% and 4.1% respectively. The jump in 2007-08 exports has been largely due to the
elimination of quotas.
Exports of cotton textiles -- which include yarn, fabric and made-ups -- constitute over
2/3rd of total textiles exports (excluding readymade garments). Overall, this segment
accounts for 26% of total textile exports. According to the Ministry of Textiles, in 2007-08,
total cotton textile exports Source: Ministry of Textiles, GoI Source: Ministry of Textiles,
GoI XVI were worth US$ 4.5 bn, implying a growth of 27% over the exports in 2007-08,
which were worth US$ 3.5 bn.
Man-made textiles exports have witnessed a decline of 2.5% in 2007-08. Between 1999-
2000 and 2002-03, man-made textiles exports were growing at around 30% per annum.
The slowdown began since 2003-04 and have been on the decline since.
Major export destinations for India’s textile and apparel products are the US and EU, which
together accounted for over 75% of demand. Exports to the US have further increased
since 2005, post the termination of the MFA. Analysis of trade figures by the US Census
Bureau shows that post-MFA, imports from India into the US have been nearly 27% higher
than in the corresponding period in 2007-08.
Investments
Investments in the textiles sector can be assessed on the basis of three factors:
• Plan schemes such as the Technology Upgradation Funds Scheme (TUFS),

Technology Mission on Cotton, Apparel Parks, etc. -- Under the TUFS scheme, a
total of Rs 916 bn has been disbursed for technology upgradation. There are around
26 Apparel Parks in eight states in India, with a total estimated investment of Rs
134 bn
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• Industrial Entrepreneurship Memorandums implemented from 1992 to Aug
08, amounting to Rs 263 bn
• Foreign Direct Investments inflows worth US$ 910 mn have been received by
the textile industry between Aug 91 and May 08, which account for 1.29% of total
FDI inflows in the country.
Though significant investments are being made in the textiles segment, the bulk of them
are in the spinning and weaving segments. A cumulative total of US$ 6.67 bn in investment
is expected by 2008. Of this, more than two-thirds is expected in the spinning and weaving
segments, while only 25% is expected in processing and garment units.
Source: Ministry of Textiles
Government Initiatives
The Government’s role in the textile industry has become more reformist in nature.
Initially, policies were drawn to provide employment with a clear focus on promoting the
small-scale industry. The scenario changed after 1995, with policies being designed to
encourage investments in installing modern weaving machinery as well as gradually
eliminating the pro-decentralised sector policy focus. The removal of the SSI reservation
for woven apparel in 2000 and knitted apparel in 2008 were significant decisions in
promoting setting up of large-scale firms. Government schemes such as Apparel Parks for
Exports (APE) and the Textile Centres Infrastructure Development Scheme (TCIDS) now
provide incentives for establishing manufacturing units in apparel export zones.
The new Textile Policy of 2000 set the ball rolling for policy reforms in the textile sector,
dealing with removal of raw material price distortions, cluster approach for powerlooms,
pragmatic exit of idle mills, modernisation of outdated technology etc. The year 2000 was
also marked by initiatives of setting up apparel parks; 2002 and 2003 saw a gradual
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reduction in excise duties for most types of fabrics while 2004 offered the CENVAT system
on an optional basis. The Union Budget of 2005-2006 announced competitive progressive
policies, whose salient features included:
• A major boost to the 1999-established Technology Upgradation Fund Scheme

for its longevity through a Rs 4.35 bn allocation with 10% capital subsidies for the
textile processing sector
• Initiation of cluster development for handloom sector
• Availability of health insurance package to 0.2 mn weavers from 0.02 mn
initially
• Reduction in customs duty from 20% to 15% for fibres, yarns, intermediates,
fabrics and garments; from 20% to 10% on textile machinery and from 24% to
16% in excise duty for polyester oriented yarn/polyester yarn
• Reduction in corporate tax rate from 35% to 30% with 10% surcharge
• Reduction in depreciation rate on plant and machinery from 25% to 15%
• Inclusion of polyster texturisers under the optimal CENVAT rate of 8%
To meet the challenges of the post-MFA setup, the Government of India initiated a reforms
process which aimed at promoting large capital investments, pruning cumbersome
procedures associated with the tax regime, etc. The Textile Vision 2015 was born as a
result of interaction between the government and the industry which has around 12%
annual growth in the textile industry from US$ 36 billion now to US$ 85 billion by 2010.
Additionally, Vision 2015 also proposes the creation of an additional 15 million jobs through
this initiative.
6.4) FINDINGS
SME Insights
This study aims to draw a profile of how small and medium companies in the textiles space
function; we have attempted to chart their operational structure, business practices,
preferences, marketing, efficiency parameters, etc. For this quantitative exercise, a sample
of 350 companies was considered; the requirement being that at least 80-90% of the
information sought has been provided.
• In terms of ownership pattern; proprietary firms are 24%, partnership firms

31%, private limited companies 27% and public limited companies 18%
• The geographical concentration of the sample companies reflects the
concentration of textile manufacturers in the country. The North and South have
maximum representation. Around 37% companies are located in the North, 33% in
the South, 26% in the West and 4% in the East
• The sample of 350 companies has representation from all textiles clusters
across the country, except from those based in Orissa and Madhya Pradesh
• On the basis of investments in plant and machinery, around 92% of the
companies are small scale enterprises, mirroring the low capital intensive nature of
the industry (Figure 01)
• In terms of the textiles industry sub-segments, 18% of the companies are
into weaving, 16% into garmenting, 12% each into spinning and dyeing, 11% each
into knitting and made-ups, 8% into printing and 2% in ginning (Figure 02)
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• Similarly on the basis of raw materials used, 43% companies are into cotton
and cotton based products, 16% each in man-made and silk, 13% in blended and
10% use wool
• Around 63% of the companies are only into manufacturing, while 37% are
engaged in manufacturing as well as trading
• Around 70% of the companies in the sample began operations during the
1980s and 1990s. Around 16% of the companies are relatively new which have
begun operations post-2000
• 73% of companies have a single manufacturing facility while 27% operate
with 2 or more plants
• In terms of IT penetration, 42% of the companies have a website.
Turnover
The dominance of small-scale enterprises was largely reflected in the sample. Over 55% of
the companies have an annual turnover of less than Rs 100 mn, with investments of less
than Rs 20 mn. Another significant 35% were earning over Rs 100 mn but less than Rs 500
mn. Of the remaining companies in the bracket of Rs 500 mn and Rs 1,000 mn, the public
limited and private limited companies dominated with a share of 52% and 26%
respectively.
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In terms of the regional spread of these companies, the southern region showed a higher
proportion of companies falling in the Rs 250 mn and above turnover bracket. The northern
region had a high share of small companies. The western region had a reasonably
proportionate share of companies in the various revenue brackets. (Figure 03)
Ownership Structure
Though no distinct ownership structure was evident, but north-based companies showed a
preference for proprietary form of ownership while south-based companies were
prominently for partnership. The companies from the Western region were predominantly
private limited companies. (Figure 04)
Comparing ownership structure with the turnover of companies revealed that proprietary
firms were concentrated in the Rs 100 mn and below turnover bracket. The private and
public enterprises were mostly in the Rs 500 mn and above turnover range.
Exports
Around 234 companies, or 67% of the sample, were exporting their products. Of these, 114
companies were 100% exporters with many of them exporting directly to foreign clients.
Another 53% of the 234 companies export 90% of their total output. In terms of market
access, 27% of the companies directly export 100% of their output to foreign clients,
indicating they are part of the global value chain. Another 20% of the companies export
only through trading houses. The remaining sell partly through trading houses and direct
sales.
Of the exporting companies, only 35% have shown to have any kind of quality
certifications. The average capacity utilization among exporting companies was relatively
higher compared with those selling only in the domestic market.
The major export destinations were the US and Europe, with over 70% of the companies
necessarily exporting to these countries. On an average, these companies were exporting
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at least 71% of their produce. The pre-dominant exporters were garment and fabric
manufacturers having a share of 39% each. The other major segment was home
furnishings. (Figure 05)
In terms of the various sub-segments in the textile industry and their exports, it was found
that companies exclusively into made-ups exported, on an average, over 90% of their
output, followed by garment firms, which on an average exported 82% of their produce.
Approximately 59% of the companies were operating at 80% and above of their installed
capacity. Among these, 2% of the companies were operating across the value chain, from
yarn making to garmenting. Companies in this sample, that were exclusively into weaving
and garmenting held a share of 23% and 18%, respectively.
Regionally, the South-based companies reflected higher capacity utilization and were on an
average operating at 86%. In terms of ownership, partnership companies constituted a
significant 32% of those operating at more then 90% capacity. (Figure 06)
On the basis of size, the medium scale enterprises having turnover between Rs 500-1000
mn showed higher average capacity utilisation of an average 91% - endorsing the industry
view that the bigger companies are able to fulfill more orders.
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Figure 06
Top
Regional Products
Of the companies engaged in the manufacture of home furnishing products, 67% were
located in North India. Fabric manufacturers had a strong presence in the South and North
India, with a share of 34% and 31% respectively. Yarn manufacturers were concentrated
mostly in the South, representing 59% of the yarn manufacturers.
In terms of the finished goods, representation of garment and home furnishings

manufacturers in the sample was largely from the North. Industrial textile manufacturers
were more in number from the Western region. (Table 01)
(as % of total companies)
Home
Region Fabrics Yarn Garment
Furnishing
North 31.4 14.3 42.4 66.1
South 33.9 58.7 25.8 13.6
East 7.4 1.6 9.1 1.1
West 27.3 25.4 22.7 19.2
Growth
The companies in the sample were largely optimistic on growth prospects over the next two
years. On an average, the players were expecting an average growth rate of 32% for the
next two years, the garment firms being the most hopeful and expecting a 40% increase in
sales. The other sub-segments that are expecting to do well are manufacturers of fabric
and made-ups. (Figure 07)
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In the last two years, the average growth for all companies in the sample was an average
28%. The Western region showed higher growth compared with the other regions.
Figure 07
Technology Upgradation Fund (TUF)
The number of companies that have availed of the TUF facility given by the government
comprise 24% of the sample size. Of these, 53% are into yarn and fabric manufacturing.
Another interesting factor is that nearly 73% of those benefiting from this Fund were small
scale enterprises with investments in the range of Rs 10-50 mn. In terms of ownership,
37% of the companies were private limited companies.
Figure 08
Top
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Funding
Funding Of the companies in the sample, 75% met their funding requirements from
nationalised banks. Private Banks were next in preference for these companies, however
with only a 13.5% share. Cooperative banks and MNCs were least preferred. There were
4% companies which utilized internal resources to meet their finances. Most respondents
felt that availability of funds for future plans and working capital requirements was
moderately difficult. (Figure 09)
Hindrances to growth
Of the companies in the sample, 29% of them perceive lack of infrastructure as the biggest
hindrance to growth; over 50% of these companies being small scale enterprises with
turnover less than Rs 100 mn. This concern was mostly highlighted by the south-based
companies.
Almost 28% of the companies raised concerns regarding labor issues and an equal
proportion highlighted lack of institutional support as their priority concern. These
companies were mostly from the North, South and East. The garmenting and weaving
segments mainly showed labour as their principal concern.
FUTURE PROSPECTS
Expectations are high, prospects are bright, but capitalising on the new emerging
opportunities will be a challenge for textile companies. Some prerequisites to be included in
the globally competing textile industry are:
• Imbibing global best practices
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• Adopting rapidly changing technologies and efficient processes
• Innovation
• Networking and better supply chain management
• Ability to link up to global value chains.
The Indian textiles industry has established its supremacy in cotton based products,
especially in the readymade garments and home furnishings segment. These two segments
will be the key drivers of growth for Indian textiles. Readymade garment exports were
worth US$ 9 bn in FY08 and will cross US$ 20 bn by the end of 2015, assuming a
conservative growth of 15% per annum. According to estimates, investments in textiles are
expected to touch US$ 31 bn by 2010.
The readymade garment segment will be the principal driver of growth even in the
domestic industry. The changing preferences of Indian consumers -- from buying cloth to
readymade garments -- have prompted several companies to move up the value chain into
the finished products segment.
Strategic Initiatives
Business integration -- especially forward integration -- by the larger textile companies has
been prominent among Indian companies. Several companies that are engaged in fabric
manufacturing, are now keen to enter the readymade garments space. A recent entrant is
Siyaram, which launched its readymade garments range in Nov 06, following suit with other
majors like Century Textiles and Raymonds.
Most of the large textile companies have opted for an inorganic growth strategy to scale up
operations. Acquisition is the most logical step towards integrating operations and building
the value chain. Domestic acquisitions are on the rise, while acquiring foreign assets is yet
to gain traction. Some recent domestic acquisitions that have been executed in 2006
include KSL & Industries’ acquisition of Deccan Cooperative, and Ambattur Clothing taking
over Celebrity Fashions. Another growing phenomenon observed among Indian textile
companies is the setting up of manufacturing facilities in strategic regions outside India,
where they can avail of duty concessions and reduce export lead-time. Zodiac and
Ambattur Clothing have set up facilities in the Gulf region to cut down on export delivery
schedules to the European and US markets. Raymonds has set up a unit in Bangladesh to
avail of the zero duty access to the EU.
This trend is seen primarily among the large domestic players, who are trying to achieve
sizable scales in order to win orders from the large retailers in the US and EU. Global
retailers prefer large-sized companies that can scale up capacities consistently, keep up
with delivery schedules and meet their growing demand. They have clear preferences for
companies with integrated design, process and manufacturing facilities.
An interesting commonality in countries with successful garment exports is that they have a
much lower level of sub-contracting than India. A study during the 1990s found that
apparel firms Future Outlook XXXIII in India subcontracted 74% of their output, as
compared to only 11% in Hong Kong, 18% in China, 20% in Thailand, 28% in South Korea
and 36% in Taiwan. Consequently, these countries have a wider base of exports and have
done very well in the market for large volumes of uniform products.
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The exports market will remain favourable for India till 2008, when quota restrictions on
China end. Post 2008, competition will become tougher. This will be the phase in which
Indian textile companies will come under tremendous pricing pressures and tighter product
delivery schedules. Nevertheless, the value-added segments of readymade garments, home
furnishings and made-ups will continue to grow.
Implications for SMEs
The new business dynamics have varying undertones across the value chain. The segment
that is likely to be hit is weaving. The SMEs in the powerloom and handloom sector will face
significant churn in the future. Spinning mills that account for 95% of the yarn and fibre
production, will move up the value chain into weaving. This will erode the viability of the
hitherto protected powerloom and handloom operators numbering over 400,000, who have
remained insulated from competitive forces so far. A possible remedy could be for these
weavers to align with bigger players or integrate operations that would ensure off-take of
their products.
The fragmented industry structure has in the past been beneficial in generating
employment, but will be difficult to sustain in a globally competitive environment. For fabric
manufacturers in the unorganised segment, this will mean inefficient units losing out
eventually, while the more efficient and dynamic ones aligning with manufacturers or
buyers.For readymade garment SMEs, rising demand and preference for ready-to-wear
outfits in the domestic market will sustain a large number of units in this sector. This will be
the most thriving segment in the industry and SMEs will play a key role.
India’s key assets include a large and low-cost labour force, sizable supply of fabric,
sufficiency in raw material and spinning capacities. On the basis of these strengths, India
will become a major outsourcing hub for foreign manufacturers and retailers,with
composite mills and large integrated firms being their preferred partners. It will thus be
essential for SMEs to align with these firms, that can ensure a market for their products
and new orders.
Weaknesses of the Indian textile industry include fragmentation of the industry,

lengthMessages in this topic (1) y delivery times, delays in customs clearance and high
transportation and input costs. To tackle these factors, the Government will have to play a
key role. Infrastructure development, reforms in labour laws and significant policy support
will be essential.
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7.0.) AUTOMOBILE COMPONENT INDUSTRY
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7.1) EXECUTIVE SUMMARY.
The Auto Component sector has tremendous potential to encourage entrepreneurship, and
was therefore selected for profiling in the first report of the series. The sector has emerged
among the fastest growing industries in the Indian economy, with strong potential for
global impact. The sector is projected to grow at a rate of 15-20% over the next decade.
Further, the production process lends itself to operations that can be divided and tiered,
and promises a wide range of opportunities for SMEs, considering the diverse nature of the
industry.
Emerging Auto Component SMEs of India profiles 370 companies with a turnover of
less than Rs 1,000 mn. Of these, 70 companies are not members of any industry
associations or trade bodies, thus tapping a range of companies that have remained
unrecognised.
The number of small and medium firms profiled is in the proportion of 43:57. Of the 370
companies profiled, 160 companies are small-scale firms with investments of less than Rs
50 mn in plant and machinery, and have a turnover range of Rs 50 mn to Rs 535 mn. The
rest of the companies are medium scale and have a maximum turnover of Rs 1,000 mn.
The regional representation of companies in the report suitably reflects the concentration of
the Indian auto component industry. We have covered companies from 17 states and 3
union territories. The list consists of 152 companies from the north, 128 from the west and
78 from the south, the major industrial clusters of auto component manufacturers in the
country.
An interesting aspect of this industry segment, as revealed by our research, is that public
sector banks are their principal lenders, with few dependent on private sector banks.
The auto component industry is expected to continue its high-growth period for at least
another decade, and SMEs will play a pivotal role in this critical growth phase. Emerging
Auto Component SMEs of India will provide the right platform to SMEs, enabling them to
become globally competitive.
7.2) METHODOLOGY.
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challenges entailed in tapping financial information from a highly fragmented sector, Dun &
Bradstreet India (D&B India) has formulated a correlation between investment and
turnover to arrive at a cut-off Rs 1,000 mn turnover for auto component SMEs.
Emerging Auto Component SMEs of India focuses on manufacturers of auto

components; trading companies have been excluded. The report includes diversified
companies operating in the auto component space and having business interests in other
industries. The report has excluded subsidiaries of large Indian business houses,
multinational companies and subsidiaries of multinational companies, thus honouring the
true Indian entrepreneurial spirit that the SMEs represent.
efficiencies.
consulting firms.
7.3) DATA COLLECTION & ANALYSIS.
Overview of Auto Component Industry.
The Indian auto component industry has been navigating through a period of rapid changes
with great élan. Driven by global competition and the recent shift in focus of global
automobile manufacturers, business rules are changing and liberalisation has had sweeping
ramifications for the industry. The global auto components industry is estimated at US$1.2
trillion. The Indian auto component sector has been growing at 20% per annum since 2000
and is projected to maintain the high-growth phase of 15-20% till 2015.
The Indian auto component industry is one of the few sectors in the economy that has a
distinct global competitive advantage in terms of cost and quality. The value in sourcing
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auto components from India includes low labour cost, raw material availability, technically
skilled manpower and quality assurance. An average cost reduction of nearly 25-30% has
attracted several global automobile manufacturers to set base since 1991. India’s process-
engineering skills, applied to re-designing of production processes, have enabled reduction
in manufacturing costs of components. Today, India has become the outsourcing hub for
several global automobile manufacturers.
Innovation and cost pruning hold the key to meeting the global challenge of rising demand
from developed countries and competition from other emerging economies. Several large
Indian auto component manufacturers are already gearing to this new reality and are in the
process of substantially investing in capacity expansion, establishing partnerships in India
and abroad, acquiring companies overseas and setting up greenfield ventures, R&D
facilities and design capabilities.
Some leading manufacturers of auto components in India include Motor Industries

Company of India, Bharat Forge, Sundaram Fasteners, Wheels India, Amtek Auto,
Motherson Sumi, Rico Auto and Subros. The India’s Top 500 Companies, published by Dun
& Bradstreet in 2008, listed 26 auto component manufacturers as top companies in India
with a total turnover of US$ 3 bn. These companies are in the process of making a mark on
the global arena, and some have already acquired assets abroad.
Industry Structure
The total turnover of the Indian auto component industry is estimated at US$10 bn in
2008. The industry has the resources to manufacture the entire range of auto products
required for vehicle manufacturing, approximately 20,000 components. The entry of global
manufacturers into India during the 1990s enabled induction of new technologies, new
products, improved quality and better efficiencies in operations. This in turn effectively
acted as a catalyst to the local development of the component industry.
The Indian auto component industry is extensive and highly fragmented. Estimates by the
Department of Heavy Industries, Government of India, indicate there are over 400 large
firms who are part of the organised sector and cater largely to the Original Equipment
Manufacturers (OEMs). Another 10,000 firms exist in the unorganised sector that operates
in a tier-format. The firms in this segment operate in low technology products and cater to
Tier I and Tier II suppliers and also serve the replacement market
Around 4% of the companies operating in the auto component segment cater to 80% of the
demand emanating from OEMs. Within the unorganised segment, apart from supplying in
the aftermarket, a number of players are also involved in job work and contract
manufacturing.
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Source: ACMA
The range of products manufactured, with each broad product segment having a different
market structure and technology, has negated any possible concentration of the market in
a few hands. The market is so large and diverse that a large number of players can be
absorbed to accommodate buyer needs. However, there are a select few large companies
that have integrated their operations across the value chain. The key to competing in this
industry is through specialisation by product-type, and integrating operations across the
related area of specialisation.
An interesting insight provided by a study conducted by the National Council of Applied

Economic Research revealed that the market segments for auto components included OEMs
constituting 33%, local components having 25% with the balance 42% comprising of
spurious market including re-conditioned parts. A large part of the spurious or grey market
companies are in the unorganised sector.
The regional base of auto component manufacturers is mostly concentrated in the West,
North and South of India.This regional concentration of auto component manufacturers has
been dictated by the emergence of automobile manufacturers in these regions. The set up
of Tata Motors, Bajaj, Mahindra & Mahindra and TVS in the 1950s and 1960s laid the
foundation for auto component manufacturers in the West and South, whilst the entry of
Maruti during the 1980s created the base in the North.
Industry Growth
Production of auto ancillaries was estimated at US$13 bn in 2007-08 and has been growing
at a robust 20% per annum since 2000. Exports of auto components have been strong
growing at 24% per annum since 2000. This growth in exports if sustained for another five
years will see India’s auto components exports will touch US$ 8 bn by 2015 from the US$
3.5 bn at present.
Till the 1990s, the auto component industry was solely dependent on the domestic
automobile industry todrive the demand for ancillary products. This composition of the
market however is undergoing radical changes with global outsourcing gaining momentum.
In recent times, exports has emerged as a significant driver of growth, and the demand
emanating from global OEMs and Tier I manufacturers has opened new opportunities for the
auto component industry in India. At the same time, a bright outlook for the domestic
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automobile industry also offers significant growth potential, given the fast rising income
levels with a rapidly growing middle and high income consumers.
Share of exports in total production has risen from 10% in 1997 to 20% in 2008. The
composition of exports in terms of the proportion of OEM and aftermarket has also
undergone a sweeping change since the past decade. The ratio of OEM to aftermarket has
changed from 35:65 in the 1990s to 75:25 in 2008. While exports have been booming,
there has been a sharp rise in imports of auto components as well, especially in the last
three years. From an import of US$ 250 mn in FY03, they have gone up to US$800 mn in
FY08. This is a healthy trend, indicative of rising domestic demand.
Investments
Since 2000, the auto component industry has recorded an investment level of Rs 18 bn and
has attracted US$ 530 mn in terms of foreign direct investment. Investments in the sector
have been growing at 14% per year. In 2007-08, investments touched US$ 5 bn, and have
grown significantly since then.
The Investment Commission has set a target of attracting foreign investment worth US$ 5
bn for the next five years to increase India’s share in the global auto components market
from the present 0.4% to 3-4%. This is a sizeable target considering the meagre amount of
FDI currently coming into the industry. The changing perception of global auto makers is
however fast altering this scenario.
With less than 1% share in the global market, India has tremendous potential to emerge as
a supply base. Several global giants like Ford and Toyota have already set up base in India
to source auto components. Outsourcing is fast catching up with domestic OEMs as well,
with most Indian OEMs today sourcing nearly 70-80% of their component requirements
from vendors.
7.4) FINDINGS
SME Insights.
The small and medium enterprises segment has been a topic of intense deliberation among
banks, financial institutions, industry and academicians. However, the paucity of authentic
information on this segment has limited the estimation of value contributed by this integral
constituent of India’s economy.
The research began with the leading consulting firms reports association member
directories and trade listings. This database was further short-listed based on the criteria of
being only manufacturing companies, having less than Rs 1,000 mn turnover and other
parameters. These companies were contacted through various means. Of the responses
received, 370 companies met the criteria set by D&B India, and have been profiled in the
report.
Of the profiled 370 companies, 332 were considered for the purpose of this quantitative
exercise. Some key characteristics of this sample include:
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• Ownership pattern of these 332 companies include proprietary firms 8%, partnership
firms 12%, private limited companies 58% and public limited companies 22%
• The firms included are to a degree replicating the concentration of auto component
manufacturers across the country, with maximum representation coming from the
North and West. Around 40% companies are located in the North, 37% in the West,
18% in the South and 4% in the East
• Around 43% of the companies are small scale, and 57% are medium scale on the
basis of their investments in plant and machinery
• Of the 332 companies, 254 or 77% of the companies are having a website and 309
companies have an email facility
• Over 60% of the companies in the sample began operations during the 1980s and
1990s. Around 7% of the companies are relatively new which have begun operations
post-2000
• Around 61% of companies have single manufacturing facility while 22% operates 2
plants.
Key observations and findings are covered below.
Turnover
The proportion of companies in the sample with a turnover above Rs 500 mn is high in the
Southern and Western parts of the country. Around 15% of the companies from the South
and 17% of those in the West fall in this bracket as compared to 8.5% in the North and
8.3% in the East. Around 90% of the auto component manufacturers in the East are small
enterprises with a turnover less than Rs 250 mn.
Overall, around 41% of the companies have an income up to Rs 100 mn. Only 13% of the
companies were in the turnover bracket of Rs 500 mn to Rs 1,000 mn, of which 58% are in
the private sector while 35% are public limited companies.
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Top
Demand
Around 57% of the companies are supplying to OEMs and Tier I suppliers. In terms of
ownership, private sector companies are the largest suppliers to OEMs and Tier I firms
followed by public limited companies. About 77% of total proprietary firms and 55% of
partnership firms in the sample are supplying to only OEMs and Tier I companies. Around
30% of the companies are supplying to both OEMs and the replacement market.
Regionally, the North, West and South based companies are supplying to all segments of
the market, while the East based companies are largely supplying to the OEMs. The North
and West based companies are the largest players in the replacement market.
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Top
Nature of Operations
Regardless of type of ownership, around 60% of the companies in the sample are operating
on standalone basis, while the remaining are either into contract manufacturing or are
ancillary units. Around 56% of these standalone companies are supplying to OEMs.
Assessing in terms of ownership of these companies, over 70% of partnership firms, 60%
of private and public sector firms, and 55% of proprietary firms are operating on a
standalone basis.
Region-wise, over 50% of companies in the North, East and South are standalone
companies while over 33% of the companies in the West are ancillary units.
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Exports
Almost 67% of the companies in the sample are exporting their products; 7% of the
companies are totally export oriented. Around 21% of the companies export more than
50% of their produce. The major export destinations are Americas and EU, with over 60%
of the companies exporting to these countries. The regional distribution of these exporting
companies show a high concentration in the North and West accounting for 46% and 35%
respectively.
Nearly 90% of the exporting companies in the sample have quality certifications. The
private sector companies constitute a large portion of these certified companies, accounting
for 59%. Proprietary and partnership firms constituted just 2%. Ownership-wise, the
private sector companies were most dominant among the exporting firms, accounting for
56%, followed by public limited companies (25%), partnership firms (10%) and proprietary
firms (7%).
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Product Brands
In this sample, around 16% of the companies manufactures engine parts, 17%
manufacture body & chassis parts, 13% manufacture suspension and braking parts and
14% manufacture drive transmission & steering parts. Only 35% of the companies sell their
products under a brand name. Among these brand conscious companies, the private limited
companies dominate holding a share of 61% followed by public limited companies with
25%. Branding among proprietary and partnership firms is low at 5% and 9% respectively.
Over 55% of the companies with brands have indicated exploring new markets both in
India and abroad. Around 31% of these companies are drawing up plans for undertaking
innovative marketing initiatives.
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Collaborations
Only 11% of the companies in the sample have entered into joint ventures or
collaborations, either with domestic or international companies. Some of these companies
have multiple collaborations, while nearly 90% of the companies indicated having tie-ups
with foreign companies in some form or the other.
The purpose for the collaboration varied, ranging from financial, strategic to marketing
arrangements and technical tie-ups. Of the total companies in this basket, 57% have
collaborated for technical purposes, while 13% have strategic alliances. The rest have
marketing, production and financial tie-ups.
The companies were found to be operating on an average at about 75% of their capacity.
Around 19% of the companies have a capacity utilisation of over 90%. These companies
were mostly concentrated in the Northern and Western parts of the country. The private
limited companies constituted 55% of all companies with above 90% capacity utilisation.
On an average, the
South-based companies showed higher capacity utilisation compared to the other regions.
They exhibit an average capacity utilization of 77%. This was followed by the North with
utilisation rate of 74%.
A noteworthy factor noticed from the sample was that the smaller the company the higher
their capacity utilisation. The small companies, with investments less than Rs 10 mn,
operated at 81% capacity, with the average capacity utilisation ranging around 77-78% for
higher investments. Partnership firms showed higher capacity utilisation while public limited
companies were the lowest.
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Top
Growth
The companies have exhibited growth of an average rate of 35% over the last two years.
The North-based companies conveyed a higher growth followed by companies in the
Western region. Private sector companies showed the most robust growth followed by the
public sector. Furthermore these companies are confident of maintaining the momentum
over the next two years. Around 22% of the companies are expecting the industry to grow
at a rate of 10-20%, while 30% of the respondents are expecting the domestic auto
component industry to continue growing at 20% and above for another two years.
The companies indicating future plans for diversification, capacity expansion, modernisation
and marketing accounted for 68% of the total sample. Of these, a large number (66%) are
planning capacity expansion. Modernisation plans were indicated by around 45% of the
companies, while 14% were planning marketing initiatives. A little over 55% of the
companies intend to extend their reach by making forays into new markets.
Top
Funding
The most preferred source of funding among companies in the sample was the public sector
banks. Nearly 66% of the companies preferred banking with public sector banks (PSBs) or
96
nationalised banks for their fund requirements, followed by private banks and cooperative
banks. MNC banks were funding only 1% of the companies. There were approximately 4%
companies that have funded their business through internal resources.
In terms of availability of funds, some 7% of companies in the sample have claimed

difficulty in acquiring funds. These are primarily North and West based, standalone
companies, with a turnover of less than Rs 300 mn.
Top
Hindrances in Business
Infrastructure and lack of institutional assistance were cited as the key hindrances to
growth for these SMEs. Only 35% of the companies gave a response to this query. Around
56% of the companies that have responded complained of lack of infrastructure with close
to 50% of the companies with issues pertaining to infrastructure from the Northern belt.
Around 35% of the companies complained of marketing issues. This issue largely emanated
from Maharashtra, West Bengal and Haryana.
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Top
We hope that the fine points that have emerged from this study are useful for further
deliberation.
FUTURE PROSPECTS
Current trends indicate a smooth run for the auto component industry. In fact, since 2000,
this is one sector which has made a global mark and has been identified as a sunrise
industry. The industry is transforming from being highly domestic-centric, to a force ready
to face global competition.
The factors that will drive growth for the auto component industry are:
• The growth expected in the domestic automobile industry will give a fillip to
the auto component sector. The Indian automobile industry offers great potential
considering the low penetration along with rising income levels and a rapidly
growing middle class. These factors will see a boost in demand for vehicles,
especially passenger cars and two wheelers. These two segments are estimated to
grow at between 10-12% for at least the next five years.
• The entry of global OEMs, making India as their manufacturing base, has
given a big boost to the industry. For instance, Skoda plans to source parts for its
European operations from its Indian base and raise indigenisation level for Indian
models to 70%. This trend has also enabled Indian companies to gain a competitive
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edge in the global market. Further, the model of cluster-based development
prominent in this sector will provide economies of scale.
• Export of automobiles has also emerged as a key component of growth.
Rising exports of Indian-made vehicles like M&M’s Scorpio model, Bajaj Auto’s Bikes,
Tata Motors’ City Rover are indirectly increasing the demand for Indian auto
components. Also, the export of India-made models of global OEMs like Hyundai’s
Santro Xing and Suzuki’s Alto has given a boost to the industry.
• De-regulation and the Government’s policy initiatives have facilitated growth
and focus has now shifted towards attracting foreign direct investments. Also, the
Government’s initiative towards road development will give a boost to demand for
vehicles and indirectly auto components.
• The Government’s initiatives towards opening up channels of finance.
• Investments coming in for research and development will keep the industry
abreast of the latest technology.
Entry of global OEMs has transformed the Indian automobile and auto components
landscape. India is being perceived as a major market for cars and two wheelers by global
OEMs. Before the end of 2010, at least 30 new car models are expected to be launched by
foreign OEMs.
These factors portend a robust auto ancillary industry in India and the overall expected
good growth will provide several opportunities for the emergence of new enterprises.
Extending their reach to global markets is the pre-dominant outlook among the top auto
component manufacturers in the country. The vision to compete globally comes from the
inherent strengths the Indian auto component industry possesses. Some features are:
• Cost reduction of 25-30% in production in the domestic market compared to

overseas
• Low labour costs
• Designing, engineering and technical skills
• Established quality systems
• Availability of raw materials
• Adaptability to new technology
• Investments in research and development, coming in from global OEMs. This
stands out positively in favour of India. Key players are not only willing to invest in
R&D but also in mechanical and engineering operations. These investments are
expected to increase in the near future
Though India rides on these inherent strengths, a few risks exist that the auto component
manufacturers may have to confront.
• A global slowdown can derail the prospects of the industry.

• Volatility in the prices of metals and other inputs could erode the industry’s cost
competitiveness. Further, global OEMs expect a commitment of 5-10% reduction in
prices every year.
• Tier I manufacturers taking up greenfield projects overseas.
• Intense competition from counterparts in other emerging economies may add
pressure on margins of manufacturers.
The Indian auto component industry is poised for robust growth till 2015. There is a
perceptive exuberance in the industry and growth estimates indicate a booming industry.
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Going by current trends in production and exports of auto components, indicate a doubling
of the domestic auto component industry by 2015. The production of auto components
could grow to US$30 bn by 2015. Similarly, India’s exports of auto components could grow
to US$4.5 bn as compared to US$1.8 bn in 2015. Achieved growth in production and
exports of auto components is shown in the graphs below.
This growth outlook implies opportunities for the small and medium enterprises. The overall
trend is encouraging, but remaining competitive in this changing scenario will be the
toughest challenge. The combination of low manufacturing costs along with quality systems
would give an edge to companies in terms of pricing and quality. Expansion and
diversification will help break into new markets. It would be imperative for these
companies, which are largely based on traditional management practices, to imbibe
technology in a big way. The SMEs can exploit these opportunities through joint ventures,
collaboration and technical tie ups. Knowledge, specialisation, innovation and networking
will determine the success of the SMEs in this globally competitive environment.
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8.0)PHARMACEUTICAL INDUSTRY
101
8.1)EXECUTIVE SUMMARY
Emerging Pharmaceutical SMEs of India attempts to provide a platform to the

pharmaceutical SMEs, so as to facilitate their interface with potential global partners and
buyers to tap ever increasing export opportunities by leveraging high quality Indian
technical expertise. This report has profiled 271 companies with a turnover of less than Rs
1,000 mn.
The report covers SMEs based in 10 pharmaceutical clusters. The geographical spread of
the industry mirrors the concentration of pharmaceutical companies in the country with the
West region dominating with 56% companies based in three states – Goa, Gujarat and
Maharashtra. Around 21% companies are located in the North, 19% in the South and 4% in
the East. In the western region, Mumbai with 28% and Ahmedabad with 8% of total
companies top the charts, while Hyderabad with 8% and Delhi with 10% are key hubs in
southern and northern regions respectively.
points to enable a statistical analysis. Some of the insights revealed include:
• In terms of ownership pattern; proprietary firms are 9%, partnership firms

14%, private limited companies 52% and public limited companies 25%
• Around 50% of companies featured in the report export there products to
various overseas destinations including US, Europe, Middle East, Africa etc.
Moreover, exports, with a reported growth of 22% in the last five years, will
continue to remain the biggest opportunity for pharmaceutical companies.
• Going forward, R&D would be the key growth driver and survival strategy for
SMEs. Interestingly, 12% of the SMEs considered for this analysis are keenly
involved in R&D activities such as clinical trials and contract research.
The generic opportunities in the overseas market, growing domestic market, orientation
towards R&D, CRAMs (Contract Research and Manufacturing Services) opportunities would
keep the pharmaceutical industry on a high growth trajectory, and SMEs are expected to
play a critical role. Emerging Pharmaceutical SMEs of India will provide the right
platform for SMEs, enabling them to become globally competitive.
8.2)METHODOLOGY
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challenges entailed in tapping financial information from a highly fragmented sector, Dun &
Bradstreet India (D&B India) has formulated a correlation between investment and
turnover to arrive at a cut-off Rs 1,000 mn turnover for auto component SMEs.
Emerging Pharmaceuticals SMEs of India focuses on manufacturers of

pharmaceuticals; trading companies have been excluded. The report includes diversified
companies operating in the pharmaceutical and having business interests in other
industries. The report has excluded subsidiaries of large Indian business houses,
multinational companies and subsidiaries of multinational companies, thus honouring the
true Indian entrepreneurial spirit that the SMEs represent.
efficiencies.
consulting firms.
8.3) DATA COLLECTION AND ANALYSIS.
OVERVIEW OF PHARMACEUTICAL INDUSTRY
The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent
years, driven by rising consumption levels in the country and strong demand from export
markets. The pharmaceutical industry in India is estimated to be worth about US$ 10 bn,
growing at an annual rate of 9%. In world rankings, the domestic industry stands fourth in
terms of volume and 13th in value terms. The ranking in value terms may also be a refl
ection of the low prices at which medicines are sold in the country.
The industry has seen tremendous progress in terms of infrastructure development,

technology base and the wide range of products manufactured. Demand from the exports
market has been growing rapidly due to the capability of Indian players to produce cost-
effective drugs with world class manufacturing facilities. Bulk drugs of all major therapeutic
groups, requiring complicated manufacturing processes are now being produced in India.
Pharma companies have developed Good Manufacturing Practices (GMP) compliant facilities
for the production of different dosage forms.
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In addition to having GMP, WHO, several Indian companies have also been getting plant
approvals from international regulatory agencies like US FDA, MCA (UK), TGA (Australia),
MCC (South Africa). India possesses the highest number of US FDA approved
manufacturing facilities outside the USA and currently tops in filing the drug master files
(DMF) with the US FDA. This has also facilitated the domestic industry to attract contract
manufacturing opportunities in the rapidly growing generics market.
A paradigm shift occurred in the Indian pharmaceutical industry with India becoming a
signatory to the WTO order, ushering in the Product Patent Regime. Earlier, with the
enactment of The Patent Act, 1970, only process patent was applicable for
pharmaceuticals.
With the introduction of the product patent beginning 01-Jan-05, which has now made
India TRIPS compliant, the Indian market has become an attractive option for the
introduction of research-based products. As a result, the Indian companies are now
exploring new business models such as contract research, for drug and discovery research
& development, as well as contract manufacturing.
However, it poses a challenge to the generics industry as it would no longer be able to

freely continue with the production of generics of the new patented molecules without
license/payment of royalty to the innovator company.
Industry Trends
A highly fragmented industry, the Indian pharmaceutical industry is estimated to have over
10,000 manufacturing units, as given by the Organisation of Pharmaceutical Producers of
India. The organized sector accounts for just 5% of the industry with around 300 players,
while a huge 95% is in the unorganized sector. A large number of players in the
unorganized segment are small and medium enterprises and this segment contributes 35%
of the industry’s turnover.
In calendar year (CY) 2008, turnover of the organized sector companies aggregated to Rs
302 bn, of which 19% came from MNCs while the remaining 81% was contributed by
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Indian companies. Turnover of players in the unorganized segment, though difficult to
assess, is estimated to be around Rs 160 bn.
The Indian pharmaceutical industry consists of manufacturers of bulk drugs and

formulations. Bulk drugs include the active pharmaceutical ingredients (APIs) which are
used for the manufacture of formulations. According to estimates, the proportion of
formulations and bulk drugs is in the order of 75:25. There are believed to be over 60,000
formulations manufactured in India in more than 60 therapeutic segments. More than 85%
of the formulations produced in the country are sold in the domestic market. India is
largely self-sufficient in case of formulations, though some life saving, new-generation-
technology-barrier formulations continue to be imported.
Among the therapeutic segments, the anti-infectives top domestic production in volumes.
In 2007, the chronic therapy segment accounted for around 26% of the domestic
formulation business, growing at a rate of 10%; faster than the acute therapy segment.
The chronic therapy segment includes anti-diabetics, cardiac and neuro-psychiatry
formulations.
Bulk drug manufacturing is largely concentrated in Andhra Pradesh, which accounts for
more than one-third of the country’s total bulk drug production, followed by Gujarat. The
Indian bulk drug industry has lately been gaining signifi cant presence in the global market
as foreign and multinational companies are looking to sourcing APIs and intermediates from
Indian manufacturers. Factors favouring the industry are a vast resource of technical
people, stateof- the-art manufacturing facilities, low cost and the advantage of the English
language. As part of government’s support to increase exports, duty free zones have been
set up and several manufacturers of bulk drugs have been shifting their facilities to these
areas. As a result, the diverse spread has now started getting consolidated and
concentrated in certain regions across the country.
India has a significant share in the global generics market and is ranked third. In recent
years, this segment has been facing stiff competition which makes the scale of production
important to improve profitability. India has pre-dominantly been a generic player and has
the potential to gain a global presence for the following key developments:
• Multiple branded drug patent expirations in the short term. According to IMS
Health, in 2007 and 2008 a total of US$ 28 bn and US$ 20 bn, respectively, of
branded sales were likely to become susceptible to the entry of generic equivalents
• Increasing confidence of consumers in generics in the developed markets
• A pro-generic sentiment from healthcare authorities driven by the pressure of
containing rising healthcare costs
• An aging population across the world, leading to increasing demand for low
cost therapies
• Global healthcare crisis like AIDS in the developing world, necessitating affordable
medication for the masses
Generic companies in India are recognizing the importance of patent expiries and are
making significant incremental investments in research and drug development.
Production and Trade
105
The domestic bulk drug and formulation industry has been able to largely meet the
domestic demand for these products. Besides, it also exports to several regions, including
the EU and US. Exports currently constitute nearly 48% of the industry’s turnover, and
have been growing at an average 22% annually since 1994. In FY08, exports grew by an
impressive 21% touching Rs 300 bn.
The growing demand from the domestic market and increased manufacturing activities has
led to rising imports during the past few years. In FY08, imports were worth Rs 50 bn as
against Rs 35 bn in FY05. The nature of imports has undergone a significant change over
the years, from finished doses imported prior to the 1970s, to largely bulk drugs today.
Domestic demand has been showing significant growth; the rise in consumption being
primarily attributed to the rising population, rise in income levels and increasing health
awareness among people. New product launches by the Indian and multinational companies
have also catalyzed market demand. Moreover, the favourable regulatory environment,
increased expenditure on R&D and improved technical skills in the fi eld of chemical
synthesis has also played an important role.
The increasing alliances and tie-ups of Indian companies with global players has further
given a boost to Indian exports.
Key Drivers for the Pharmaceutical Industry
Growing orientation towards Research and Development (R&D)
The introduction of product patent in India has brought some fundamental changes in
strategies of Indian pharmaceutical companies, with focus shifting more towards R&D.
The original Indian patent law, which recognized only process patent, gave Indian
companies the opportunity to produce products under patent in overseas markets,
particularly regulated markets, by adopting new processes. Consequently, companies were
in advantageous position to produce drugs through reverse engineering at relatively very
low cost that helped the domestic industry to grow faster during the initial stages of
development. On the other hand, this discouraged multinational companies from launching
their new products in India, fearing duplication of their new drug discovery through reverse
engineering. As a result, MNCs’ market share declined from 70% prior to 1972 to 20% at
present.
The introduction of product patent has led the domestic industry towards exploring new
avenues of drug development, which would require higher capital investment in R&D, and
greater thrust towards innovation. Current trends indicate that R&D expenditure of top
domestic companies has increased from a mere 2% of total turnover in CY00 to nearly 4%
in CY05. Though this is the average for the industry, top-line players have spent in the
range of 8-10% during FY08. This level of expenditure is however low compared with the
spending of 12-16% of turnover on R&D by international leaders.
R&D by Indian pharmaceutical companies is backed by a favourable policy environment and

availability of surplus skilled technical workers at low costs. This is to the advantage of the
sector and will see a significant thrust in coming years.
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Leveraging CRAMs opportunities
The global pharmaceutical industry is increasingly facing cost pressures on various counts,
and R&D productivity of these players has gone down significantly in recent years, under
rising manpower costs and higher regulatory risk. In fact, the process of getting approval of
new products in regulated market requires strict compliance of quality norms, which is
stringent and is also subject to high legal risk. This factor is forcing MNCs to outsource part
of their R&D and manufacturing activities to low cost destinations like India and China.
India is emerging as the global hub for contract research and manufacturing services
(CRAMs) due to its low cost advantage and world class quality standards. The Indian
pharma industry possesses world standard manufacturing facilities as per the GMP norms
which are approved by various regulatory agencies across the globe. The diverse disease
profile and abundance of patients in India provides better ground for clinical trials. India
has leveraged this advantage to attract clinical trials process outsourced by the companies
involved in innovation.
Majority of the contract manufacturing deals relate to production of active pharmaceutical

ingredients (APIs) and intermediates, in which India possesses competence. Nicholas
Piramal, Shasun Chemicals, Divi’s Lab, Dishman Pharma, Cadila Healthcare, Lupin, Matrix
Lab and Aurobindo Pharma are some of the companies which have witnessed impressive
growth in revenues from their CRAMs business under various tie-ups with global
pharmaceutical majors.
Growing exports
Exports have been the major growth enabler of the Indian pharmaceutical industry in
recent years. India exports pharmaceutical products, APIs and intermediates to more than
200 countries across the world. Traditionally, Russia, Germany, Nigeria and India’s
neighbouring countries like Sri Lanka, Nepal, and the Middle East were the major markets
for Indian pharmaceutical exports. Most of these markets are not highly regulated and are
considered to be low-value markets.
Remarkably, the proportion of exports in domestic turnover has been increasing over the
years, despite the growing domestic demand. Currently, exports constitute 48% of
estimated turnover of the industry as compared to nearly 35% during CY02.
Expanding presence in regulated market
Over the years, India has shown better regulatory awareness and superior technical skills,
which has enabled Indian companies to penetrate the high-value markets like the US and
EU. Exports of pharmaceutical products (finished products as classified under heading 30 of
ITC-HS code) to the US grew by an impressive 33% to Rs 23 bn and by a whopping 62% to
Rs 35 bn to the EU during FY04-FY06. Regulated markets, though difficult to penetrate due
to stringent regulations, are known to give better value and margin to exporters
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The increasing presence in high-value markets like the USA and Europe has strongly
boosted the overall growth of the Indian pharmaceutical industry. However, with
competition getting stiffer in the regulated markets and the consequent pressure on
margins, Indian players are also expanding their geographical reach to high-growth regions
such as the CIS and Latin American countries. Although considered as low-value markets,
these markets are witnessing impressive growth and therefore it provides great opportunity
for Indian players.
Rise in new product launches
In the pharmaceutical industry, new product launches create new demand. After the
introduction of product patent in India, the domestic industry has witnessed a fresh spell of
new product launches. New products launched since 2007 accounted for around 12% of the
overall market growth. These launches have been done by both domestic and international
players and some of them are first time launch of new chemical entity (NCE).
The rise in new launches of products has emerged as one of the important factors, which
has driven the growth in recent past. In fact, the rate of launching new molecules had
come down during the process patent era.
Key issues facing the Pharmaceutical Industry
Some of the issues the domestic industry is facing are as under:
Increasing span of price control
The draft National Pharmaceuticals Policy, 2006, currently underway and awaiting approval
from the Parliament, intends to bring 354 drugs under price control, which is in addition to
the 74 bulk drugs already notified under price control. The price control as proposed in the
Policy is likely to cover at least 50-60% of the domestic market under price control. The
proposed control on prices is set to impact the industry margin significantly, especially
those players having only local operations. However, to secure the profitability, firms will
have to increase their scale of production.
The number of drugs under price control had come down from nearly 400 in the 1970s to
72 in 1995, and further reduced to 29 in 2002. This decision was however stalled by the
Supreme Court, asking the Department of Fertilisers and Chemicals, GoI, to identify the
essential and life saving drugs that need to continue remaining under price control. The
Department listed 354 items that it purchases for its hospitals called the National List of
Essential Medicines (NLEM). The new draft policy consists of these 354 drugs that are likely
to be under the cost based price control.
Price erosion in generics
Indian generics market is witnessing a margin pressure in most of the product categories
due to two main reasons: the proposed price control likely to be imposed by the
Government and the stiff competition among domestic players. In fact, India has witnessed
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a fast rise in the number of players over a period of time. Moreover, the expansion of
capacities by certain leading players has also fuelled competition in certain product
categories, which restricts margins of the smaller players.
The fall in prices of generic drugs are not limited to India only. The US, which is the world’s
largest pharmaceutical market, is also experiencing a sharp reduction in prices of generic
drugs due to stiff competition. Some other developed countries like the UK and Germany
have also witnessed the same scenario. The erosion in prices is to the extent of 90% in
some cases. Indian players, which have been operating in these markets, have also
witnessed erosion in margins in certain therapeutic segments.
Low R&D productivity
Despite the increasing expenditure on R&D, the introduction of new molecules by Indian
players has been limited. It is, in fact, a hit-and-miss situation in the field of discovery and
developments of new chemical entity (NCEs), where misses are more than hits. Very few
discoveries reach the final stages of approvals, and in most of the cases, the claim for
patent gets stuck in legal battles.
In spite of the rising expenditure in R&D, the level of investment in R&D is still low, at
average 4% as compared to the global practice of spending 12-16% of sales on R&D.
The changing global pharmaceutical industry has transformed prospects of Indian

pharmaceutical companies. The leading pharma companies in India have been actively
extending the frontiers of scientific knowledge and going global through mergers and
acquisitions. In 2005, acquisitions by the Indian pharmaceutical companies were the
highest, with 20 buyouts abroad. A similar trend was observed during 2006, which include
Dr Reddy’s buyout of Germany’s Betapharm and Ranbaxy’s purchase of Romania’s Terapia.
Europe has emerged as the most preferred destination for acquisitions by Indian
companies.
The European generics market has emerged as a major attraction for acquisitions by Indian
companies. According to reports, margin erosion in Europe is much less compared to the
US when a drug or formulation becomes generic.
Consolidation is inevitable and is expected to bring in economies of scale and provide

access to newer geographies to regional players. The Government has estimated that by
year 2015, the industry has the potential to achieve a size of US$ 40 bn
8.4) FINDINGS.
SME INSIGHTS
This study aims to draw a profile of how small and medium companies in the
pharmaceuticals space function; we have attempted to chart their operational structure,
business practices, preferences, marketing, efficiency parameters, etc. For this quantitative
exercise, we have considered all the 225 companies; the requirement being that at least
80-90% of the information sought has been provided.
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• Ownership pattern of companies include: proprietary firms 9.6%, partnership
firms 14%, private limited companies 51.7% and public limited companies 24.7%.
• Apart from Orissa, the sample covers companies from 10 out of the 11
pharmaceutical clusters identified.
• The representation of companies is highest from the West with 56.1% of the
companies located in this region. Around 21.4% companies are located in the North,
18.8% in the South and 3.7% in the East.
• Around 82% of the companies in the sample are small scale enterprises on
the basis of investments in plant and machinery. The rest are medium enterprises.
• Bulk drug manufacturers constitute 8% of the sample, which includes 2%
companies also into intermediaries. Another 5% companies are solely into
intermediaries. Companies manufacturing allopathic formulations account for 74%,
while 13% are into other forms of medicines like herbal and ayurveda.
• In the sample, around 98% of the companies were necessarily into
manufacturing either on their own or on contractual basis, but 75% companies were
purely manufacturing companies with own facilities. Close to 1.5% of the companies
were focused on only research & development, and another 10.5% of the companies
were doing R&D work (clinical tests as well as contract research) along with
manufacturing. 13% companies were engaged in manufacturing as well as trading.
• Around 57% of the companies in the sample began operations before 1990
while only 11% are relatively new having begun operations post-2000.
• 59% of the companies have a single manufacturing facility while the
remaining operates with 2 or more plants.
Some key highlights have been presented below.
Ownership pattern
Private and public limited companies largely dominate the sample accounting for 76%, with
60% of these companies located in the western region of the country. It has been observed
that pharmaceutical companies are largely concentrated along the coastal states. The
largest number of companies with quality certification was among the private and public
limited companies. Companies engaged in contract-based manufacturing were observed
largely among private limited companies. Proprietary and partnership firms were mostly in
the turnover bracket of less than Rs 10 mn. These companies largely sold their products in
the domestic market.
Research & Development
Companies in the sample that have undertaken only clinical trials were small enterprises
with investments of up to Rs 10 crore. Companies with investments between Rs 10-50 mn
were engaged in manufacturing as well as clinical trails. The companies engaged in the dual
function of manufacturing and R&D were mostly medium sized enterprises. R&D operations
among companies did not show any connection with ownership patterns.
Exports
Of the total sample, 48% companies were exporting their products. The West-based
companies were found to be dominating in terms of exports with 61% of those exporting
concentrated in this region. The 100% export-oriented firms were mostly large companies
with turnover above Rs 500 mn.
110
Region-wise exports classified by share in turnover
Nearly 87% of the exporting companies were found to be having quality certifications, a
prerequisite in the pharmaceutical industry. A large number of these companies were
operating in the anti-infectives, gastrointestinal, cardiac, and vitamins therapeutic
segments. Over 90% of these companies divulged future plans of accessing new markets or
undertake product diversification.
On an average, the capacity utilisation in the sample was at 75.5% with the North-based
companies being way ahead of the rest of the regions. These companies were operating at
an average 82% of their capacity. There were 43% companies which were operating at
more than 90% capacity utilization, and most of these companies were located in the West.
Finance
the pharmaceutical SMEs also showed a strong preference for banking with public sector
banks. A massive 84% of the respondents revealed banking with PSUs, followed by co-
operative banks. A large number of West-based companies were receiving funds from co-
operatives. MNCs had a small share in funding of pharmaceutical SMEs in the sample.
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Growth Trends
The turnover growth indicated by companies in the sample averaged around 23%. Most of
the respondents were expecting growth to accelerate in the next two years to around 29%.
The South and West-based companies were the most optimistic.
Hindrances to Growth
Some interesting aspects came to light when companies were asked what they perceived as
the major hindrances to the growth of their business. Pertaining to lack of infrastructure,
56% companies who responded to the query agreed that infrastructure inadequacy was a
big hindrance, with majority emphasising as investment in R&D as a big constraint.
A whopping 94% of the respondents viewed lack of institutional support as a major

hindrance, the biggest worry being industry regulation along with price controls, taxes &
duties imposed. 78% of the companies cited marketing issues and the lack of marketing
and distribution networks. Quite a few of companies expressed apprehensions regarding
the threat from spurious and counterfeits available in the market.
To conclude, the western region was found to be the most prominent and dominant region
for pharmaceutical companies, especially Maharashtra and Gujarat. Concentration of
companies in the higher turnover bracket was largely from this region and also in terms of
exports.
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8.5) CONCLUSION AND RECOMMENDATIONS.
FUTURE PROSPECTS.
The Indian pharmaceutical industry is passing through a transformation and industry

players are organizing themselves to avail of the immense opportunities that have opened
up globally. The sector is set to report impressive growth in the years to come and outlook
for the industry remains strong.
Demographic factors
Population growth coupled with rise in per capita income and increasing health awareness
are factors which will continue to drive domestic demand for the pharmaceutical industry.
Demographic factors like population growth and improving life expectancy is set to drive
domestic demand. According to projections given in the Economic Survey 2005-06, India’s
population is likely to touch 14.11 bn by 2026. The proportion of population in the age-
group of 15-65 years is likely to constitute 68% of the total population in 2026 as against
61% in 2001.
New product launches

After the introduction of product patent laws in India, multinational companies have shown
renewed interest in launching some blockbuster products in India. This trend is likely to
continue in future as well. Launches of new molecules by MNCs will accrue contract
manufacturing and in-licensing opportunities for Indian players including the small and
medium enterprises. SMEs have acquired expertise in formulations & chemical synthesis.
Manufacturing under contracts gives them a safe position against margin fluctuations.
Increasing investments in R&D

Given the long gestation period right from the discovery of molecules to the final approval
for marketing, the current investments made towards R&D will lead to sustainable growth.
Some important molecules developed by Indian players have already reached different
stages of clinical trials, some of which have reached the critical phase-II.
SME players, however, have been lagging in investments towards in-house R&D. To
circumvent this fallback, several small players have started setting up separate clinical
research unit. Doing so categorises them as a research organisation, thus giving them the
edge in acquiring research contracts from the big players in the domestic, as well as
international market. Already, several such companies have attracted sizeable contracts for
research.
Growing generics market - an opportunity for India

Increasing number of products getting off-patent and recognition of generic drugs by some
developed countries is set to expand opportunities for India in the generics market. The
generic industry is estimated to grow by more than 20% annually till 2008 and the total
size is estimated to be around US$ 100 bn by 2010. In the US, generic drugs make up for
55% of the prescription written.
Leveraging the cost-effective production capabilities of Indian manufacturers, better

scientific skills and favourable regulatory environment, the Indian pharmaceutical industry
is well-placed to tap these opportunities. For SMEs which are largely engaged in the
generics business, this rise in the generic market size will be to their benefit.
113
Growing exports market
Exports will continue to remain strong and an enabler of growth for the pharmaceutical
industry. Impressive performance of Indian exports, achieved during last few years, is
likely to continue in the near future. During FY08, exports grew by 21% despite the sharp
price erosion in key generics markets. Exports as a proportion of the industry’s turnover
have gone up to 43% in 2008 from 36% in 2002. Despite the growing competition in the
global generics market and increased participation among developing countries in the
global generics market, Indian companies have already proven their ability to compete.
CRAMs opportunities will continue to pick up
Contract manufacturing and contract research will gain prominence among the Indian
pharmaceutical companies. There has been a spate of tie-ups and acquisitions by
companies in the CRAMS segment in India. The driving factors include the rising
manufacturing costs in developed countries and falling prices in the generics segment world
over. India aptly suits the changing global scenario, having the largest number of US FDA
approved facilities outside the US and low cost manpower with technical expertise. Contract
manufacturing business is estimated to touch US $40 bn by 2015 and is likely to grow at
10-12%.
In the field of R&D, Indian companies are capable of conducting various clinical trials at
relatively lower costs. Although India has also started experiencing rising bills on skilled
manpower, it is still in a relatively advantageous position on the cost front. Contract
research business is estimated at US$ 6-10 bn, and is growing in the range of 16-18%.
Price control remains the principal concern

The expanding span of control on drug prices in India remains the main concern for the
pharmaceutical industry. As the price is proposed to be fixed on the basis of manufacturing
costs and fixed margins, the volume of sales will determine the profits of the players. Under
this situation SMEs may be hit due to the smaller economies of scale. Nevertheless, the
price scenario in markets not under price control will witness a rise in prices due to
increasing demand.
Hedge risk by changing the product mix

Despite the price control on certain bulk drugs and formulations, it has been seen that the
prices of medicines, on an average, have been increasing over a period of time. The
increase in average price is attributed to the rise in prices of drugs not under control and
upward revision in prices of certain controlled drugs owing to rise in input costs.
Most of the OTC drugs are out of the ambit of price control and recent trends show an
impressive growth in the Over The Counter (OTC) segment. Therefore, the product-mix
between prescription and OTC drugs or the mix of business between domestic and exports
holds the key to profitability for players in general, and for SMEs in particular.
To sum up, despite the concern over pricing and huge investments in R&D leading to
blocking of funds and resulting in short term obstacles, the industry is set to grow in the
medium to long term on the strength of better R&D capabilities and rise in exports to a
high value and high growth market.
114
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West Bengal University Of Technology

Summer Project Work

“Emerging SME Sectors in India and their

ARMY INSTITUTE OF MANAGEMENT

Date: Aug,31st 2010

My gratitude goes to Prof. Moushmi Bhattacharya, Army Institute of Management,

Mr. Arun Khandelwal, Manager Credit

CHAPTERS TOPICS PAGE NO.

SECTION- 2.0 Company Background 23

SECTION -3.0 SME Policy 25

SECTION- 8.0 Pharmaceuticals 102

1.1 Banking Industry

As in other areas of economic policy-making, the emphasis on government control began to

6. Interest rates should be deregulated to suit the market conditions.

In order to initiate the second generation of financial sector reforms a committee on

Competition Enhancing Measures

 Allowing operational autonomy and reduction of public ownership in public sector

Measures enhancing role of market forces

 Reduction in pre-emption through reserve requirement, market determined pricing

 Introduction of international best practices norms on capital to risk weighted asset

Progress of Scheduled Commercial Banks in India June March March March

Interest rate deregulation

 Constraints on operational flexibility owing to directed investment in terms of SLR

3.6 Role of Small and Medium Enterprises (SMEs)

3.7 Financing the SMEs

CHAPTER 2 : COMPANY BACKGROUND

2.1 Bank’s Mission Statement

2.2 Brief History

2.3 Products And Services

2.4 Bank’s Logo

2.5 Business & Financial Performance

The SME Loan Policy is framed with the following objectives:

3.2 Scope of Policy

3.3 Small & Medium Enterprises Sector

The SME segment is broadly classified as under in MSMED ACT, 2006 :

Particulars Investment in Plant & Investment in Equipment

Micro Enterprises Upto Rs. 25/- lacs Upto Rs.10/- lacs

Medium Above Rs.500/- lacs and Above Rs.200/- lacs and up

3.4 Bank’s Approach Towards SME Sector

3.5 Establishment Of SME Loan Factories

SME LOAN FACTORY :

Attractive features of the model are as under :

3.7 Guidelines for Takeover of Advance Accounts:

There are two types of compliances:

Sr.N Norms Deviation allowed

c. There should not have been any reschedulement /restructuring

Ratio Norms Authority who can allow

4.3) DATA COLLECTION AND ANALYSIS

Ministry of Food Processing Industries

• Fruit & Vegetable processing (including freezing and dehydration)

Food Processing Units in Organised Sector (numbers)

Source: Ministry of Food Processing Industries, Annual Report 2007-08.

Fruits & Vegetables

Milk and Milk Products

Meat & Poultry

Beer & Alcoholic Beverages

Packaged / Convenience Foods

Constraints & Drivers of Growth

Growing urbanization, increasing disposable income, emergence of organised food retail,

Some of the key constraints identified by the industry include:

• Lack of suitable infrastructure in terms of cold storage, warehousing, etc

• Formulation of the National Food Processing Policy

• Amendment to the APMC Act