Professional Documents
Culture Documents
Bank of Baroda
Bank of Baroda
INDIAN
ECONOMY
PREPARED FOR
BANK OF BARODA
(BANK OF BARODA TOWER,AHMEDABAD)
Guided By
Mr. P.K.SHARMA
Chief Manager (Risk Management)
Prepared By
Parmar Dinesh G.
Shri Chimanbhai Patel Institute of Management &
Research.
MBA (SEM-II)
Ahmedabad.
ACKNOWLEDGEMENT
TABLE OF CONTENTS
Sr.No.
Topic
Pg. No.
01.
02.
03.
Executive Summary.
Introduction to the Topic.
Introduction of the Organization.
I. History
II. Nature of the company
III. Mission of the company
IV. Management Profile.
V. Organizational Structure
VI. Product Profile
VII. Bank of Baroda & its Subsidiaries
Industry Analysis
Company Analysis
I. Financial position of Bank of Baroda
II. Profit & Loss Account of Bank of Baroda
III. Balance sheet of Bank of Baroda
IV. Statement of Cash Flow of Bank of Baroda
Ratio Analysis
I. Importance of Ratio Analysis.
Introduction to the small-scale enterprises
Significance of SMEs in Indian Economy
Reasons for Smes Promotions
Smes parameters regarding the performance
The Growth Story Of Indian SMEs
the growth of small-scale industries since 1975-76
Drawbacks and barriers
Assistances and promotions to SMEs by Government
Frame-work for Cluster Development
About MSMED Act 2006
Conclusions
Bibliography
04
05
06
07
08
09
10
11
12
24
25
04.
05.
06.
07.
08.
09.
10.
11.
12.
13.
14.
15.
16.
17.
13.
38
39
40
41
43
46
49
51
52
54
55
58
59
61
64
68
70
71
EXECUTIVE SUMMARY
The insight of the project report shows the capital structure of the
organization, financial position of the organization, cash flow, and
ratio analysis. The overview of the report reveals that the SME
segment is the growth engine of India economy. IT is a key strategic
tool, which can help India SMEs get a competitive advantage in the
global market place. However, there is a limited understanding of this
segment in the industry SMEs throughout India are expanding rapidly
both in terms of hiring and additional branch offices. No. 1
challenge for SMEs is increasing competition followed by pricingpressure in the market and managing customer expectations
The topic is all about the Small scale enterprises as a growth engines
for Indian economy.Small scale sector has remained high on agenda
of all political parties, intelligentsia and policy makers since
independence as a legacy of Gandhian philosophy. The special thrust
to this sector has been with the multiple objectives of employment
generation, regional dispersal of industries and as a seedbed for
entrepreneurship. The contribution of small scale industries (SSIs)
has been remarkable in the industrial development for the country.
1
For financial year ending 31 March 2008, the bank reported a net
profit of Rs.1436 crore. The bank had a total business of Rs.2,59,000
crore, as on March 31, 2008, and is eyeing 22 per cent growth to
Rs.3,10,000 crore by the end of this financial year. It is looking at a
growth of 20 per cent in deposits and 23 per cent in advances. Bank
of Baroda sanctions loans/credit assistance to Small Scale Industries
for acquisition of fixed assets (factory land/buildings & machinery)
and working capital requirements at very competitive interest rates
and against soft margins Rate of interests effective from 01.06.2003
History
Bank of Baroda was founded on July 20, 1908 with a paid up capital
of Rs.10 lakhs by Maharaja Sayajirao Gaekwad III of Baroda, one
man who made a difference, rooted in Indian values. Yet Global in
vision, rock solid in fundamentals. Nurture a culture where success
does not come in the way of the need to keep learning a fresh, to
keep innovating, to keep experimenting. It has now come a long way
to becoming the strong trustworthy financial institution. It is growing
day by day. The emblem of Bank of Baroda represents wealth, safety,
industrial development and an inclination to better and promote the
companys agrarian economy. It is a coin with an unpraised arm
indicating wealth that indicated that the depositors money is in the
safe hands.
Since then bank has traversed an eventful and successful journey of
almost 100 years. Today, Bank of Baroda has a network of 2853
branches. In mid-eighties, the Bank of Baroda diversified into areas of
merchant banking, housing finance, credit cards and mutual funds. In
1995 the Bank raised Rs.300 crores through a Bond issue. In 1996
the Bank tapped the capital market with an IPO of Rs.850 crores.
Bank of Baroda took the lead in shifting from manual operating
systems to a computerized work environment. Today, the Bank has
1918 computerized branches, covering 70% of its network and
91.64% of its business.
Bank of Baroda gives high priority to quality service. In its quest for
quality, the Bank has secured the ISO 9001:2000 certifications for 15
branches by end of the 2005-06.
Nature
The nature of the business that decide the company belongs to which
industry and it helps the many stakeholders and parties like
government, NGO, etc, to decide the parameter and other concerned
issue binding to the organization, for e.g. environmental protection,
tax rate, incentives, and rules and regulations.
The Bank of baroda belongs to the service sector, which provides
various types of financial solution related to banking industry.
As Indian economy is emerging as a major services provider in the
world, which can be seen by its contribution in GDP of India which is
closed to 55%.
Mission
To be a top ranking National Bank of International Standards
committed to augmenting stake holders' value through concern,
care and competence
About logo
Management Profile
Name
Designation
Shri M.D.Mallya
Shri V.Santhanaraman
Executive Director
Shri Satish.C.Gupta
Executive Director
Shri C.G.Chaturvedi
Shri A.Somasundaram
Nominee of R.B.I
Director
Director
Director
Director
Director
Director
Director
Director
Director
10
Organizational Structure
Organizational structure is one of the most important decision mode
by top management before starting the business, as it generally
depend on the nature and size of the company, it has lot to do with
the job description and job specification. The organizational structure
is nothing but hierarchical and departmental process.
Every organization differ in structure. There is a well defined system
in the Bank regarding decision making process. Lending and
administrative decisions are taken at various levels from JMGS I to
Top Executive grade Scale VII and also by Executive Director and
Chairman & Managing Director depending upon their positions as per
the discretionary lending powers delegated to them by the Board.
Branches receive applications for credit facilities and recommend to
the appropriate sanctioning authority. In the case of major retail loan
products applications are processed at branches and Centralised
Credit Processing Cells at select centers.
There is a well defined organizational structure and clear system of
accountability based on RBI / CVC guidelines. All credit decisions
approved by any sanctioning authority are reported to the next higher
authority for control purpose. The system of exercising proper
delegation of power and submission of control reports is in place and
they are monitored by control officers and through internal inspection.
By observing the following is a common structure as per company
guidance.
11
Product Profile
Followings are the main products of The Bank of baroda.
Deposits
Gen-next
Loans
Credit Cards
Debit Cards
Services
Lockers
(1)Deposits:
Bank of Baroda offers various deposit plans that you
can choose from depending on the term period, nature of deposit and
its unique saving and withdrawal features.
Apart from competitive interest rates and convenient withdrawal
options, our deposit plans offer other features such as overdraft
facility, outstation cheque collections, safe deposit lockers, ATM's etc.
Fixed deposits are categorised into deposits with a term period of
less than 12 months, more than 12 months and recurring deposits.
These deposit plans offer convenient solutions to both working
individuals as well as senior citizens.
Current and saving deposits are ideal for individuals who wish to take
advantage of multiple benefits within the same plan and even be
eligible to opt for overdrafts.
12
(2)Gen-next:
2.1: Gen-Next Junior (Saving Account)
Product Nature:
This is a Special kind of Savings Bank Deposit product for children to
be made available in Gen-Next Pune branch.
Target Group:
Children upto 18 years of age.
Minimum Amount & Balance:
QAB: Rs 500/ Charges for non-maintenance of QAB is Rs 50/ per quarter
only.
Maximum Amount:
In case of joint accounts with parent and minors (with sole
account) above 14 years, there is no ceiling on the maximum
amount.
An account in the sole name of minor above 10 years and
below 14 years, maximum limit is Rs 1 lakh.
Single / Joint Accounts:
In case of minor below 10 years the account shall be opened
jointly with parents / guardian.
Minors above 10 years (below 18 years) can open the account
in their sole name subject to :
Minor is able to read and write any of the recognized
languages, and
Capable in the opinion of the Bank officials of understanding the
what he / she is doing and SB account rules and regulations
13
14
Age:
Minimum 21 years
Maximum 45 years
Maximum Loan Amount:
Subject to maximum of:
Furniture & Fixture / New Consumer Durables : Rs. 2 lacs
New Vehicle (Four Wheeler) : Rs. 6 lacs (Two Wheeler) : Rs. 1
lac
Old Four Wheeler (Not more than 3 years old) : Rs. 4 lacs
New modern gadget/s : Rs. 1 lac
Aggregate loan amount should not be more than Rs. 8.00 lacs.
Subject to:
24 times gross Monthly income.
Total deductions including EMI of proposed loan should not
exceed 60% of the gross income.
Margin:
15
16
Security Documents:
D.P. Note.
Letter of continuing security.
A stamped undertaking from the employee authorizing the
employer to remit the salary every month to the bank for credit
of specified SB / Current Account during the currency of the OD
facility and also to deduct from the retirement / terminal
benefits, the outstanding overdraft amount with the interest in
case of retirement / resignation / cessation of employment for
any reason. A copy of the undertaking duly acknowledged by
the employer has to be kept on branch.
Third party guarantee having adequate net worth. Cross
guarantee may be accepted.
Rate of Interest:
1.5% above BPLR i.e. 14% p.a. with monthly rests. A Minimum
interest of Rs. 10/- shall be charged during a month if OD is availed.
Period: 12 months, subject to annual review.
Other Conditions:
17
18
(3)Loans:
19
appliances, our unique and need specific loans will enable you
to convert your dreams to realities.
KEY PRODUCTS
Housing Loan
Personal Loan
Marriage Loan
Loan to Pensioners
Education Loan
Loan to Defence
Pensioners
Car Loan
Professional Loan
Loan to Doctors
Traders Loan
20
Baroda Career
Development Loan
(4)Credit Cards:
Bank of Baroda offers following range of credit
Cards.
S IL VE R
EX CL US IV E GEN ER AL
GO LD
VI SA / MA ST ER
EX CL US IV E
WOM AN /Y OU TH
NE XT GEN GOL D
(5)Debit Cards:
Key Benefits:
Take advantage of the most widely accepted card and be able
to withdraw from any ATM displaying the VISA logo, in India and
abroad.
At VISA Electron merchant shops, it can also serve as your
electronic purse, and money gets debited instantly from your
account, as you pay.
The Card allows you to get mini-statements from Bank of
Baroda ATMs, or to check the balance in your account, avoiding
visits to even our nearest branches.
(6)Services:
Apart from the Loans, Deposits, Credit and Debit Cards, Bank of
Baroda offers other services to make financial dealings easy and
convenient.
Key Services:
Demat
BarodaHealth
Remittances (Baroda Money Express)
Collection Services
ECS (Electronic Clearing Services)
Government Business (PPF, DSRGE, Tax Collections and
Savings Bonds)
(7)Lockers:
22
23
Overseas
Subsidiary
Subsidiary
Associate Bank
Nainital Bank Ltd.
Joint Venture
Indo-Zambia Bank Ltd. (Lusaka)
24
25
* During the year FY06, two domestic banks were amalgamated Ganesh Bank of Kurundwad with Federal Bank Ltd and Bank of
Punjab Ltd with Centurion Bank Ltd to become Centurion Bank of
Punjab Ltd, while one foreign bank, UFJ Bank Ltd merged with Bank
of Tokyo-Mitsubishi Ltd. ING Bank NV closed its business in India. In
Sept, 06, The United Western Bank Ltd was placed under
moratorium, leading to its amalgamation with Industrial Development
Bank of India Ltd. in Oct, 2006, Sangli Bank, another Private Sector
Bank was merged with ICICI Bank. Ganesh Bank of Kurundwad,
Sangli Bank and The United Western Bank have therefore been
excluded of the publication.
The assets for all the profiled banks have grown at a rate of 22.6%
over the previous year. It was observed that the asset base of Private
Sector Banks was growing more rapidly compared to the other bank
groups. Total assets of private banks grew by 16% in FY05 and 33%
in FY06, over the previous year. The asset base of Foreign Banks
grew by 13% in FY05 and by 30% in FY06 mainly driven by the
growth in advances of four banks in this group. The Public Sector
Banks maintained a decent year-on-year growth of 15% and 19% in
the respective years. However, it should be noted that the growth of
Public Sector Banks is on a very high base.
26
Total Income
The total income for the 82 banks stood at Rs 2,215,280 mn in FY06,
of which the Public Sector Banks held the highest share of 72.7%,
Private Sector Banks at 19.5% followed by 7.8% for the Foreign
Banks.
The top ten banks classified on the basis of their respective total
income accounted for nearly 56% of the total income of the 82 banks.
Of these top ten banks, 8 banks were Public Sector Banks while the
remaining two were Private Sector Banks.
Non-Interest Income/Total Income
The non-interest income for all the 82 banks profiled in this
publication on an average stood at 22.1% of the total income. Among
27
the bank groups, non-interest income was the highest for Foreign
Banks at 31%, followed by Private Sector Banks at 19.8%; indicative
of the value-added services these banks offer. For Public Sector
Banks, non-interest income was just 15.3% while interest income was
a high 84.7%. Non-interest income includes fee income components
such as commission, brokerage and exchange transactions, sale of
investments, corporate finance transactions, M&A deals; and any
other income other than the interest income generated by the bank.
Net Profit
The net profit for the profiled banks together stood at Rs 248,281.5
mn for FY06. The top ten banks, based on the net profit classification,
accounted for nearly 58.5% of the total net profit of all the 82 banks.
These top ten banks included 6 Public Sector Banks, two Private
Sector Banks and two Foreign Banks. Interestingly, of these top 10
banks, four banks that managed to make it to the top ten on the basis
of net profit do not feature among the top ten on the basis of total
income.
Bank group-wise, Public Sector Banks continued to dominate with a
66.6% share in the net profit. The share of Private Sector Banks in
the total net profit stood at 21%, followed by Foreign Banks having a
12.4% share in the total net profit. Within the Public Sector Banks,
There are 5 banks, 4 foreign and one private, out of the profiled 82
banks, which made losses in FY06.
Infrastructure
28
Banks across all three groups have been rapidly increasing their
infrastructure to tap the under served markets, though Public Sector
Banks are dominant all across in all regions. As of Mar 06, the total
number of branches of the profiled banks operating in the country
was 54,346, of which 88% of the branches belonged to the Public
Sector Banks (PSBs), indicative of the extent of penetration these
banks have in the country. Another 11% of the branches belonged to
Private Sector Banks and the rest were of Foreign Banks.
Region-wise, the concentration of branches was highest in the rural
areas, accounting for almost 35% of the total. The rural segment is
entirely dominated by Public Sector Banks with 95% of the total rural
branches belonging to PSBs. 23% of the branches of PSBs are
located in semi urban area, while 19% branches are in the
metropolitan regions. The immense reach of PSBs can be seen by
the fact that almost 62% of total PSB branches are in rural & semiurban areas.
Group-wise, the presence of Private Sector Banks was largely in
urban areas with almost 30% of their branches in this region.
29
Private Sector Banks with 7,584 ATMs. Foreign Banks have installed
855 ATMs around the country.
30
Advances for all the profiled banks have grown at about 32% YoY
and that made by Private Sector Banks grew at the highest rate of
44% for FY06 followed by a growth of 30.7% for Public Sector Banks
and 30% for Foreign Banks. Among the major components of total
advances, there was no relative change in the percentage share of
Bills Purchased and Discounted, over the last three years. Cash
Credits, Overdrafts and Loans have shown a yearly decline of 4% in
FY05 as a part of total advances. Correspondingly, Term Loans have
been growing and constitute a large component of advances. In
FY04, Term Loans constituted 49.4% of Total Advances, which
increased to 54.2% in FY05, and further to 55.7% in FY06.
31
32
sub-targets of 18% and 10% of net bank credit had been stipulated
for lending to agriculture and weaker sections, respectively.
In FY06, the average credit to the priority sector by the profiled Public
Sector Banks accounted for 41.6% of their total credit, a little above
the stipulated target level of 40%. In FY05, the profiled private banks
lending to the priority sector constituted 39.6% of their total advances.
The Public Sector Banks contributed 15.6% of their total credit to the
agriculture sector and private banks contributed 11.9% for the same,
both falling short of the stipulated sub-targets of 18%.
Operating Efficiency
Net NPAs to Net Advances (Net NPAs/Net Advances)
On an average, the net NPA/Net Advances ratio for the 82 banks was
1.4% in FY06. Of this, the net NPAs to net advances ratio for the
Public Sector Banks was estimated to be 1.4%, closely followed by
Private Sector Banks at 1.8%. For Foreign Banks, the ratio was much
lower at 0.9%.
The graph below depicts that the asset quality of all the banks has
been improving for the past couple of years. It is evident that there
has been a sharp decline in non-performing loans of Public Sector
Banks and Private Sector Banks.
Operating Expenses
33
The operating expenses are those expenses that cover the day-today functioning of the bank like employee costs and charges for
normal running of business. Among the profiled 82 banks, the ratio of
operating expense to total expense for the Public Sector Banks was
26.5%, Private Sector Banks was 28.4%, while for Foreign Banks the
ratio was nearly one-third of their total expenses and stands a little
higher compared to their peers.
In the list of 82 banks profiled, the return on assets for Foreign Banks
was highest at 1.5%, followed by Private Sector Banks at 0.9%; and
Public Sector Banks at 0.6%. The graph depicts that the return on
assets bounced back smartly for Foreign Banks after the slight
decline it witnessed in FY05. The return on assets for the Private
Sector Banks has more or less remained the same with just a slight
decline in it. While the return on assets for Public Sector Banks
shows a very sharp decline.
Return on Equity
Of the 82 banks profiled in the publication, the Return on Equity for
Public Sector Banks was estimated to be the highest amongst its
peers at 16%, closely followed by Private Sector Banks at 11.1% and
9.2% for Foreign Banks. Bank of Baroda has achieved 15% return
on equity for the financial year 2007-08.
As shown in the graph depicting the trend in Return on Equity over
the last four years, it is observed that the Return on Equity for Private
Sector Banks fell drastically from 21.1% in the year 2003 to 11.1% in
the year 2006. The Return on Equity for Public Sector Banks too
showed a sharp decline from 21.8% in 2003 to 16% in 2006. As for
Foreign Banks, the return on equity showed a marginal decline from
11% in 2003 to 9.2% in 2006.
One of the reasons for the declining RoE could be the large amount
of resources raised from primary capital market to strengthen the
capital base. As per RBI data ,the equity capital for public sector
35
37
Company Analysis
Followings are included for the purpose of company analysis
Capital structure of the Bank of Baroda:
Authorized Issued
Paid Up
Capital Shares(Nos)
Paid Up
Paid Up
Face Value
Capital(rs.in crore)
Year
To Year
capital
2006
2007
1,500.00
367
364266000
10
364.27
2005
2006
1,500.00
367
364265500
10
364.27
2004
2005
1,500.00
296
293265400
10
293.27
2003
2004
1,500.00
296
293261700
10
293.26
2002
2003
1,500.00
296
296000000
10
296
2001
2002
1,500.00
296
296000000
10
296
2000
2001
1,500.00
296
296000000
10
296
1999
2000
1,500.00
296
296000000
10
296
1998
1999
1,500.00
296
296000000
10
296
1997
1998
1,500.00
296
296000000
10
296
1996
1997
1,500.00
388.46
203537400
10
203.54
1996
1997
1,500.00
388.46
92462600
55.48
38
1995
1996
1,500.00
740.94
740935900
10
740.94
9212,63,72
1173,24,10
10385,87,82
7049,95,39
1127,39,03
8177,34,42
5426,55,70
2544,31,34
1388,54,33
3875,08,73
2384,75,27
1090,54,45
9359,41,37
7350,38,45
1026,46,45
826,95,97
1026,46,45
826,95,97
256,61,61
14,31,65
206,73,99
7,61
Transfer to :
a) Statutory Reserve
b) Capital Reserve
c) Revenue and Other
Reserves
I) Investment
Fluctuation
Reserve
II) General Reserve
II) Statutory Reserve
(Foreign)
d) Dividend (including
Dividend Tax)
I) Interim Dividend
II) Proposed Dividend
-1042,54,43
1448,04,53
57,00
503,07,35
6,96,58
412,46,68
124,60,65
127,85,19
252,45,84
207,67,69
207,67,69
502,50,35
39
TOTAL
Basic & Diluted
Earnings per Share
1026,46,45
826,95,97
Rs..28.18
Rs.27.10
365,52,76
365,52,74
8284,41,00
7478,90,72
Deposits
124915,97,93
93661,99,16
Borrowings
1142,56,16
4802,20,07
8437,69,61
7083,90,04
143146,17,46
113392,52,73
6413,52,02
3333,43,34
11866,84,51
10121,20,60
Investments
34943,62,75
35114,21,87
Advances
83620,86,98
59911,77,84
Fixed Assets
1088,80,75
920,72,69
Other Assets
5212,50,45
3991,16,39
143146,17,46
113392,52,73
Total
Assets
Total
40
Statement of Cash Flow for the year ended 31st March, 2007
(000's omitted)
Year ended
31.03.2007
Year ended
31.03.2006
16542587
8920074
1942849
5442072
1111313
6096190
2190869
3200090
1760349
299718
-128475
2172062
47400
1836215
3020
1969417
-318721
-127566
29903310
23056153
-3927008
-239281783
-17024574
-36596391
312539877
10320723
13506034
-168314035
-2649422
31613670
123285273
3717501
-4833814
439034
51539374
-3536105
20679069
-3914373
328321
190848
318721
-3076483
-2014206
186730
3310300
127566
1610390
2
12
4491000
-2524584
710000
15351111
7700000
-2076769
41
-2172062
-205632
48257259
-1969417
19714925
42004384
134546394
92542010
182803653
134546394
Ratio Analysis
42
o Profitability Ratios.
43
o Valuation Ratios.
44
The valuation ratios are the result of the management of the above
four categories of the functional ratios. Valuation ratios are generally
presented on the per share basis and thus are more useful to the
share holders and the other interested parties may be external.
It includes the following ratios
(1) earning per share
(2) dividend per share
(3) book value per share
(4) earning yield
(5) Dividend yield etc.
Valuation ratios indicate how the equity stock of the company is
assessed in the capital market. Since the market value of equity
reflects the combined influence of risk and return, valuation
ratios are the most comprehensive measures of a firms
performance. Valuation ratios are the result of the management
of above categories of the functional ratios. Valuation ratios are
generally presented on a per share basis and thus are more
useful to the equity investors.
45
EBIT___ x 100
Total Assets
=0.89%
As per the calculation the return on average assets improved from
0.80% to 0.89% on year-to-year basis which shows 11.25%
increases than previous financial year. It shows efficient utilization
of the total assets of the Bank of Baroda.
Earning per share = Net Profit - Preference Dividend
Total Number of Equity Shares
= Rs.39.41 (Rs.28.18 last year)
It shows significant increase in the earning per share by 39.85%
compare to other banking companies the bank of baroda holds a
bulwark over increasing the value of share holders.
Book Value per Share = Equity capital + Reserves Misc. expenses
No. of equity shares
47
48
49
Contribution to Indian
Economy
In terms of volume
In terms of employment
In terms of exports
In terms of no. of
enterprises
51
Corporate
Enterprises (%)
60
20
40
7 to 8
SMEs (%)
40
80
60
92
52
53
Areas of
performance
No. of units
Production
17.70
19.80
14.47
Employment
5.80
6.99
4.01
Exports
20.4
20.73
17.77
The economic performance of India has often been equated with the
slow growth rate of around 3.5 % never quite entering into the take
off stage of the Rostow's model. Some economists believed, as
though the nation was destined for it. At the time of India's
independence in the year 1947, the nation had a plethora of serious
problems to face, viz. shortage of food-grains, poor infrastructure,
lack of financial resources, high rate of illiteracy and poor industrial
base. To build the nation's economy, following the socialist path of
development an overwhelming importance was attached to the public
sector units, which the first Prime Minister of India called them
"Modern Temples of India.
The Industrial Policy Resolution of 1948, which marked the evolution
of Indian Industrial Policy, outlined the broad contours of the policy
and defined the role of the state in industrial development both as an
entrepreneur and a regulatory authority. In order to optimize the
utilization of scarce resources and reduce the threat of re-colonization
by the multinationals, centralized planning was adopted with wide
ranging controls on private trade, investment, land ownership and
foreign exchange.
The foundations of the policy for the small-scale industry were
laid in the Second Five Year Plan.
In 1956, the government announced its second industrial policy which
unambiguously chose equity as the guiding principle for small
industry development. The operative statement says: small scale
industries provide immediate large scale employment, offer a method
of ensuing a more equitable distribution of national income and
facilitate an effective mobilization of resources of capital and skill
which might otherwise remain unutilised.
55
57
58
As the man behind the machine is the most important, I will take up
the managerial barriers to innovation in the context of Indian SMEs,
first. India, as you know, was a protected market economy before
liberalization.The Indian industrial environment was traditionally
identified by its regulative and protective characteristics. Till, 1990,
the Indian economy was inward looking and protected from internal
and external competition. In the absence of competition, firms did not
develop the technological capability needed for penetrating the global
market. This decades long protective environment also reduced the
risk taking capacity of the SME manager and made him complacent
and averse to risk. He chose to avoid risky situations.
Earlier, Indian firms had quite often followed an opportunistic
approach to growth, as opposed to capability driven approach that
seeks to strengthen key aspects of manufacturing. Consequently,
firms have paid very little strategic attention to their shop floors in the
last few decades. Today Indian industry is facing tough competition
from imports in the domestic markets also. This competition is in
terms of new designs, new usages, reduced cost, improved quality,
59
60
Ministry of SSI
Ministry of ARI
Small Industries Development Organisation (SIDO)
National Small Industries Corporation(NSIC)
Khadi & Village Industries Commission(KVIC)
Coir Board
Entrepreneurship Development Institutions (EDIs)
Directorate of Industries
District Industries Centres
State Finance Corporation
State Industrial Development Corporation
Technical Consultancy Organisations
Entrepreneurship Development Institutions (EDIs)
(3) Others
Industry Associations
NGOs
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Banks/Financial Institutions
62
Technology Support:
Credit Support:
SUPPORT SERVICES:
63
Growth Phase :
The second phase characterizes rapid development of the industry,
intervention by support institutions including government institutions
and consolidation of other raw material and service providers. New
firms enter the market and thus the competition increases. This
increased competition encourages technology development and
expansion into new markets. The growth is usually fueled by the
widening of national or international markets that the cluster caters to.
Both in the spheres of marketing and management, innovative means
are likely to be developed thus reducing the overall decline in the
prices. Since the industries go through their cycles of recession
and growth, a cluster that is not currently in the growth stage may
reach that stage later. An example of the industry currently in the
growth stage is automotive components industry that was pushed
back from maturity stage because of the industry for new cars and
other automotive vehicles had been allowed to be set up first during
the early 1980s in India and subsequently with the onset of
liberalization several MNCs set up their base in India. From the
sample of 138 clusters under study it was observed that 38 of them
are in the Growth Phase.
Maturity Phase :
The third phase is characterized by the growth of the cluster slowing
down due to over capacity generally created in the cluster and
resultant very high competition amongst the units. The data seems to
suggest that in the Indian context so far, the stage of maturity lasts
longer than the previous two stages. During the maturity phase strong
input of research & development may be needed to reduce costs,
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Extinction Phase :
If due to wide ranging technological changes that the cluster is unable
to cope with or due to change in the life styles, a product is no longer
in demand, the cluster may go to face extinction. Another reason may
be the erosion of competitiveness because of increase in the labor
costs in the cluster. However the same industry may find itself viable
in a different location where favorable conditions exist for the survival
and growth of the cluster. One example of such a cluster is related to
shoddy yarn made from recycled wool which shifted itself from Prato
in Italy to Panipat in India where not only the skills existed due to the
presence of textile industry and the cheap labor but also the
favorable market for the shoddy yarn existed. During the last decade,
Panipat has grown to be a cluster of 700 carding machines each on
an investment of Rs. 7 million (USD 200,000). Now there is hardly
any such unit in Prato in Italy. In the Indian case , tile industry cluster
based in Mangalore with a history of 175 years has now gone into
oblivion due to the stated reasons of scarcity of raw material and fire
wood and accentuated with increased competition from China in the
export market.
Exceptions may occur :
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68
69
:Conclusions:
70
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Author
D.R. Patel
Prasanna Chandra
19.
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