INTRODUCTION SMALL AND MEDIUM ENTERPRISES (SMEs) IN INDIA

General
In India, ‘small and medium enterprises’ (SME) is a generic term used to describe small scale industrial (SSI) units and medium-scale industrial units. 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 upto 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. The small scale sector in India comprises of a diverse range of units from traditional crafts to high-tech industries. The number of SSI working units (registered & unregistered) in India totaled 11.4 million in 200304—80.5 per cent of which are proprietary concerns and 16.8 per cent are partnership firms and private limited companies.

Importance of SSIs in India
SSI is one of the significant segments of the Indian economy, contributing about 7 per cent to the Indian GDP and providing employment to over 28 million people. The Indian SME segment’s current production value is almost Rs 816,000 crore. It contributes to around 40% of industrial production & exports. It manufactures more than 8,000 diverse products, ranging from low-tech items to technologically-advanced products. The SSI sector targets both domestic as well global markets. SSIs sector is recognized as the engine of growth, accounting for about 70% of employment and contributes a significant amount for the growth of GDP. Globally, 99.7 per cent of all enterprises in the world are SME’s and the balance 0.3 per cent are large-scale enterprises. By contrast, the SSI sector in India accounts for 95 per cent of all industrial units. According to the Ministry of Small Scale Industries, the number of registered SSI units in India has increased from 11 million units in 2002-03 to 11.4 million units in 2003-04, up 3.6 per cent. The fixed investment grew by 5.04 per cent from Rs. 162,533 crore in 2002-03 to Rs. 170,726 crore in 2003-04. About 8,000 products are manufactured in the small-scale sector. The production of SSI units in India increased from Rs.311,993 crore in 2002-03 to Rs.357,733 crore in 2003-04.The industry groups—with a large share in the total production of SSIs such as textile products, wood, furniture, paper, printing, and metal products—have recorded high growth rates. The exports grew at a faster rate than production in 2002-03. While production at current prices grew by about 10.53 per cent and exports rose by 20.7 per cent from Rs. 71,244 crore to Rs. 86,013 crore between 2001-02 and 2002-03. The industry groups with a large share in exports are hosiery and garments (29.0%), food products (21.4%) and, leather products (18%). The SSI units continue to create employment. The number of employed in the SSI sector went up from 260.13 lakh in 2002-03 to 271.36 lakh in 2003-04. This sector is next only to agriculture in employment.

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One of the premier schemes. Also. seeks to provide employment in urban and rural areas. The margin money available in rural areas is more. India is a country where most people reside in rural areas and if we have to help these people we have to use technology. In skill development. and this strategy is paying. the focus is on clusters as India has more than 2. the remainder is provided by either the banks or the government. there are almost 16 to 18 departments and ministries who are doing this work. again. That shows the enormity of this sector. We have to use new technologies and have many trainers. Small and Medium Enterprises has launched several schemes to help the entrepreneurs.000 clusters. This sector needs lot of attention because it is the organised sector which gets most of the attention. Even if somebody wants to set-up an industry. the Prime Minister's Employment Generation Programme. The Prime Minister recently set the target of making 500 million people skilled by 2022. The MSME sector constitutes an important segment of our national economy and has shown continued dynamism in terms of growth and in number of enterprises. if we concentrate on clusters first. the focus is on clusters as India has more than 2. This is a big issue. the contribution of the entrepreneur has to be only 5 to 10 per cent. We have to have better infrastructure. We feel that less money and less effort will be . In rural areas the infrastructure is very weak. We feel that less money and less effort will be required. There is a growing worldwide appreciation of the fact that micro. As per the census. an entrepreneur faces lot of problems. The MSME sector contributes almost 45 per cent of the manufactured output and around 40 per cent of the exports. The scheme envisages creating 37 lakh job opportunities and will thus definitely help in industrialisation of rural India. employment and contribution to country's manufacturing output and exports. small and medium enterprises play a catalytic role in the development of most economies. It is not an easy task. In industry. We have to provide at least 34 times more opportunities for people to get skilled.000 clusters. there are about 26 million enterprises in the country employing about 60 million people. the thinking in the government is to go for PPP mode. So. then getting power or other related infrastructure including land is always an issue. Lately. in the unorganised sector there are more than 58 million enterprises employing more than 100 million people. we have to go for quantum jumps. The Ministry of Micro. As per our current capacities. India is a country of young people and if we do not provide skills and employment there is going to be trouble. To achieve this. The Ministry is also looking at development of entrepreneurship.Sector Needs Better Focus In industry. we require technology. Here. production.

This is a big challenge and since our banks have to follow BASELII norms. whenever we select a cluster. A successful example can be seen at Coimbatore under "Project Vikas". A diagnostic study is done before any intervention is taken up. Unfortunately. The banks are adopting to working through the micro-finance institutions (MFIs). so that 200 clusters all over the country will be benefited on ICT Tools. Many initiatives have been taken. the credit for the lowest segment is available at higher rate of interest. and (j) Scheme for ICT interventions in MSME sectors. (g) Scheme for design interventions to MSME manufacturing sector in the form of design clinics . . Finance is a major problem for the unorganised sector. sectors like automobile. especially in the unorganised sector. and once they deal with MFIs the rate of interest is 20 per cent and above. The basic objective of NMCP is to enhance competitiveness of manufacturing sector MSMEs through various strategic interventions thereby facilitating acceptability and penetration of their products in global market. (h) Marketing assistance through up-gradation of packaging and modern marketing techniques.A scheme for encouraging MSMEs to adopt energy efficient processes. The Ministry has increased the targets three times in the last three years and is again planning to do that. The Ministry of Micro.2 billion. (f) Scheme for application of lean manufacturing techniques . The ten components of NMCP include (a) Quality management systems and Quality technology tools . The Ministry is also implementing a programme called "National Manufacturing Competitiveness Programme (NMCP)" where we have 10 segments and Rs 10 billion worth of funds. we encourage to form a SPV and through the members of SPV we try to provide the soft skills. On similar approach.to assist new innovations and business ideas. This has helped many sectors and we require more technology in.which will encourage MSMEs to adopt industrial product design for enhancing their competitiveness. they have to follow international best practices. say. They say that their transaction costs are very high if they deal directly. then if required we go for hard interventions. (c) Incubation support to entrepreneurial and managerial development . Small and Medium Enterprises is also giving training from the lower end to the high-end through tool rooms. We are also using the PPP mode where we feel that the best solutions can be provided by the people themselves. (b) Building awareness about Intellectual Property Rights (IPRs) because India is very rich in IPR such as geographical indicators. it is proposed to finalise ICT scheme with Government assistance of about Rs 1. and this strategy is paying. engineering.required if we concentrate on clusters first.which provides encouragement to MSME units in quality related matters.to improve the productivity of MSMEs by minimising wastes. leather goods and sports. (d) Market support assistance to MSMEs in Bar Code system. which has been implemented by Microsoft and local entrepreneurs to encourage adoption of ICT in textile cluster. but still a lot has to be done because only 4 per cent of the credit requirement of people. All the above schemes will have a common objective to improve the competitiveness among the MSMEs. this is an issue. So. (i) Technology up-gradation and quality certification . Clearly. is being met from the formal sector. (e) Setting up of mini tool-rooms in industrial areas to facilitate tooling and also skill development.

labour issues and special package for North East Region and Jammu & Kashmir.. industry."Finance is a major problem for the unorganised sector. exit policy." The main challenge before us is how to improve the informal sector where the real India resides. Stressing that the sector needs support. "This sector plays a very important part in India's growth story. infrastructure. Underlining the importance of the sector. taxation matters. Sub-Groups have submitted their recommendations to the MSME Task Force and it is expected that some important decisions will be taken soon to help this very important sector. is being met from the formal sector. "There is a need for technological upgradation. Another challenge is in the field of marketing. growth story has to move and will move to the higher level of about 10 per cent soon and that is what the country needs. skill development.. The Prime Minister has appointed a high level Task Force under his Principal Secretary and seven subgroups have been formed — relating to credit. Commercial banks should ensure easy availability of credit to the sector. Currently. technology." The targeted delivery of credit should reach to the micro sector. Small and Medium Enterprises NEW DELHI: The finance ministry said the micro. small and medium enterprises said that the "sector employs 60 million people and contributes 40 per cent to total exports. Chawla said now is the time that the sector adopts best practices. From 3-4 per cent to 6 per cent and to 8-9 per cent now ." Finance secretary Ashok Chawla said at the AIMA Global Convention on MSMEs here. . secretary in the ministry of micro. he added. skill development and promotion of the products through marketing. small and medium enterprises are expected to raise their contribution to GDP to 10% soon from the current level of eight per cent. only 4 per cent of the credit requirement of people. Dinesh Rai. The only answer to this situation is better and freely available finance and also judicious use of technology to meet their requirements." India GDP Composition Sector Wise consists of many sectors such as agriculture. marketing. Dinesh Rai is Secretary Ministry of Micro. especially in the unorganised sector.

This sector contributed to India GDP around 18.services. services sector contributed 41%. and infrastructure. The percentage of the share of these sectors in the composition of India GDP differs and also has changed over the years. agriculture. and the industry sector contributed 27% in 1990. The contribution of the agriculture sector has gone down in India GDP in the last few years but in spite of this the sector remains the largest economic sector in India .6% in 2005.1991. The contribution of these sectors in India GDP differs with one sector contributing more than the other. India gross domestic product (GDP) means the total value of all the services and goods that are manufactured within the territory of the nation within the specified period of time. The country has the second fastest major growing economy in the whole world with the GDP growing at the rate of 9. for it has the GDP of US$ 1. India GDP Composition Sector Wise was that the agriculture sector contributed around 32%. The composition of Indian GDP includes many sectors like industry.09 trillion in 2007. The economy of India is the twelfth biggest in comparison to that of others in the whole world. The agriculture sector agriculture sector contributed the most to India GDP after the independence of the country. and services. infrastructure.4% in 20062007.

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