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1.

INTRODUCTION

MICRO , SMALL AND MEDIUM ENTERPRISES (MSME)


Micro, Small and Medium Enterprises (MSMEs) have been recognised as one of the most
important sectors for the development of any economy all over the world. This sector constitutes
more than 80% of all business organisations all over the world. In India too, its share is more than
90 %. This sector ensures that the processes of economic growth in our country are inclusive,
employment-friendly and they contribute to greater regional balance in levels of development.
During the last decade alone, the MSME sector has progressed from the production of
simple consumer goods to the manufacture of many sophisticated products like T.V. Sets, micro-
ware components, electro-medical equipment etc. Product range varies from simple items produced
with traditional technology to high-tech products, produced with sophisticated state of the art
technology. Other than this, the micro, tiny and small scale sector have been engaged in the
production of goods like wood products, hosiery and garments, cotton textiles, beverages and
tobacco products, food products, jute textile, leather & leather products, transport equipments etc.
These industries produce over 7500 commodities.
Understanding the importance of this sector the government has brought about the
enactment of the Micro, Small and Medium Enterprises Development Act. To strengthen this
important sector and to create more national awareness about its growing importance in our
national economic life government has also introduced comprehensive Package for Promotion of
Micro and Small Enterprises a National Commission for Enterprises in the Unorganized Sector have
been set up.The contribution of MSME towards inclusive growth compromises a greater percentage.

1.1 Inclusive Growth


‘India’ is the new global buzzword. The economy growing at a phenomenal rate, combined
with a flourishing democracy is making people sit up and take notice across the world.

India’s post 1990’s economic growth has made it one of the world’s fastest growing
economies in the world. Their GDP growth rate of up to about 9% in the last few years is historically

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unparalleled except by the neighboring China. With the rapid growth rates, however, come new
challenges and new questions. One such challenging question concerns the spread of the benefits of
growth across different segments of society. To ensure that growth has been well distributed, India’s
Planning Commission has made “Inclusive Growth” their explicit goal in the eleventh five-year plan.

The 11th Plan defines inclusive growth to be “a growth process which yields broad-based
benefits and ensures equality of opportunity for all”. The Inclusive growth implies an equitable
allocation of resources with benefits accruing to every section of society, which is a Utopian
concept. Utopia it is because it dreams of an ideal state which we all strive towards. Inclusive growth
is broad- based. It is concerned with the Pro-poor growth, growth with equity. Inclusive growth is
aimed at poverty reduction, human development, health and providing opportunity to work and be
creative. The allocation of resources must be focused on the indented short and long terms benefits
and economic linkages at large and not just equitable mathematically on some regional and
population criteria.

1.2Need for Inclusive Growth in India

Inclusive growth is necessary for sustainable development and equitable distribution of


wealth and prosperity. Achieving inclusive growth is the biggest challenge in a country like India. In
a democratic country like India, bringing 600million people living in rural India into the mainstream
is the biggest concern. The challenge is to take the levels of growth to all section of the society and
to all parts of the country. The best way to achieve inclusive growth is through developing people’s
skills.

Since independence, significant improvement in India’s economic and social development


made the nation to grow strongly in the 21st century.

The following factors encouraged India to concentrate more on inclusive growth.

• India is the 7th largest country by area and 2nd by population. It is the 12th largest economy at
market exchange rate and 4th largest by PPP. Yet, India is far away from the development of the
neighborhood nation, i.e., China.

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• The exclusion in terms of low agriculture growth, low quality employment growth, low human
development, rural-urban divides, gender and social inequalities, and regional disparities etc. are the
problems for the nation.
• Reducing of poverty and other disparities and rising of economic growth are the key objectives of
the nation through inclusive growth.
• Political leadership in the country plays a vital role in the overall development of the country. But,
the study has found that politicians in India have a very low level of scientific literacy.
• Studies estimated that the cost of corruption in India amounts to over 10% of GDP. Corruption is
one of the ills that prevent inclusive growth.
• Although child labor has been banned by the law in India and there are stringent provisions to
deter this inhuman practice. Still, many children in India are unaware of education as they lives are
spoiled to labor work.
• Literacy levels have to rise to provide the skilled workforce required for higher growth.
• Economic reforms in the country are overwhelmed by out dated philosophies and allegations by
the politicians and opposition parties in India.
• Achievement of 9% of GDP growth for country as a whole is one of the boosting factor which
gives the importance to the Inclusive growth in India.
• Inclusiveness benchmarked against achievement of monitor able targets related to (i) Income &
Poverty, (ii) education, (iii) health, (iv) women & children, (v) infrastructure, (vi) environment.
• Even at international level also, there is a concern about inequalities and exclusion and now they
are also taking about inclusive approach for development

A key part of an 'Inclusive Growth' strategy is improving the performance and sustainability of
local entrepreneurs and SMEs. Being small and with limited resources, SMEs face many challenges
even in normal times. They tend to be hit harder by recession and lag behind large corporations
during expansionary phases as they lack economies of scale and bargaining power. The priorities
and actions outlined in the plan are consistent with the concept of 'Inclusive Growth' as they seek to
broaden opportunities for, and created by, SMEs.

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1.3 Definition of Micro, Small and Medium Enterprises(MSME)

Definition:-
In Indian context, a small scale enterprise is broadly defined in terms of the value of
investment in plant & machinery. A small scale enterprise is the one in which the investment in
fixed assets in plant and machinery, is whether held on ownership terms, on lease, or in hire
purchase.
(a) Enterprises engaged in the manufacture or production, processing or preservation of
goods as specified below:
i. A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs.
25 lac;
ii. A small enterprise is an enterprise where the investment in plant and machinery is more than Rs.
25 lac but does not exceed Rs. 5 crore; and
iii. A medium enterprise is an enterprise where the investment in plant and machinery is more than
Rs.5 crore but does not exceed Rs.10 crore.

In case of the above enterprises, investment in plant and machinery is the original cost excluding
land and building and the items specified by the Ministry of Small Scale Industries.

(b) Enterprises engaged in providing or rendering of services and whose investment in equipment
(original cost excluding land and building and furniture, fittings and other items not directly related
to the service rendered or as may be notified under the MSMED Act, 2006) are specified below:

i .A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lac;
ii. A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lac but
does not exceed Rs. 2 crore; and
iii. A medium enterprise is an enterprise where the investment in equipment more than Rs. 2 crore
but does not exceed Rs. 5 crore.
The enterprises included under this sector are:

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 small road & water transport operators. (owning a fleet of vehicles not exceeding ten
vehicles)
 retail trade. (with credit limits not exceeding Rs.10lakh)
 small business. (whose original cost price of the equipment used for the purpose of
business does not exceed Rs.20 lac) and
 professional & self employed persons. (whose borrowing limits do not exceed Rs.10
lac of which not more than Rs.2 lac should be for working capital requirements except in
case of professionally qualified medical practitioners setting up of practice in semi-urban
and rural areas, the borrowing limits should not exceed Rs.15
lac with a sub-ceiling of Rs.3 lac for working capital
requirements.

As may be seen from the above definition, the segment which was
earlier known as tiny sector, have been recognized through a formal
definition (investment in plant and machinery upto Rs. 25 lac) and has been given the term Micro
Enterprise. The investment ceiling in investment in plant and machinery has been raised upto Rs.5.0
crore for small enterprises engaged in production or manufacturing as against Rs.1.0 crore earlier. It
is expected that this enhancement will allow these enterprises to go for technology upgradation and
modernization which is one of the prime requirements for enhancing competitiveness in the context
of liberalization, globalization and to fulfil the conditions of WTO. Also, for the first time, official
recognition and definition has been given to medium enterprises engaged in production or
manufacturing as those having investment in plant and machinery between Rs. 5 crore and Rs. 10
crore. The term industries has been replaces by the concept of enterprises to include the service
sector.

1.4 Characteristics of SSI


 Growing, generally resilient to adverse conditions.
 They are spread across industry at different stages of maturity.
 MSME’s geographically widespread in different industries.
 Management style is informal

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 It is usually present in the form of family business
 MSME’s generally utilizes local resources & produces goods & services
 The production output is in small quantities
 Less no. of workers & Employees are present.
 There is lowest possible capital investment in Plant & Machines
 They have lower gestation period & are easy to set up in rural and backward areas
 The units is not owned, controlled or subsidiary of any other industrial undertakings

1.5 Objectives of SSI


 To promote a decentralized pattern of ownership
 To improve the standard of living for the local population
 To introduce new products particularly to cater to the local needs
 To increase employment opportunities through labour intensive process
 To address the needs of local markets
 To stimulate growth of local entrepreneurship
 To foster diversification of economic activities

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2.ROLE OF MSME’S IN ECONOMIC DEVELOPMENT
One of the significant characteristics of a flourishing and growing economy is a booming and
blooming small and medium enterprises (SMEs) sector. Small and medium enterprises play an
important role in the development of a country. SMEs contribute to economic development in
various ways by creating employment for rural and urban growing labor force, providing desirable
sustainability and innovation in the economy as a whole .In addition to that, a large number of
people rely on the small and medium enterprises directly or indirectly.

Most of the current larger enterprises have their origin in small and medium enterprises.
SMEs are different from large scale enterprises in three main aspects; uncertainty, innovation and
evolution.SMEs are the starting point of development in the economies towards industrialization.
However, SMEs have their significant effect on the income distribution, tax revenue, and
employment, efficient utilization of resources and stability of family income. According to the
United Nations Industrial Development Organization UNIDO, for developing countries, integration
into the global economy through economic liberalization, deregulation, and democratization is seen
as the paramount way to triumph over poverty and inequality. Important to this process, is the
development of an animated private sector, in which small and medium enterprises can play a central
role.

SMEs have a propensity to employ more labor-intensive production processes than large
enterprises. Consequently, they contribute significantly to the provision of productive employment
opportunities, the generation of income and, eventually, the reduction of poverty.
According to the statistics, in industrialized countries, SMEs are major contributors to private sector
employment. Empirical studies have shown that SMEs contribute to over 55% of GDP and over
65% of total employment in high income countries .SMEs and informal enterprises, account for over
60% of GDP and over 70% of total employment in low income countries, while they contribute
about 70% of GDP and 95% of total employment in middle income countries.

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In India MSME’s account for almost 45% of the total industrial production.They contribute
to 40% of the Exports of the country.Also statistical data shows that they manufacture over 6,000
products of the country.For India,it is the second largest employer in
India after agriculture.The total jobs in the MSME’s in India goes up to
6 crores ( Acc to 11th 5 year Plan).It even provides opportunities for
development of technology. For India, MSME’s contributes 5 – 8% of
the GDP of the country.

SMEs play significant contribution in the transition of


agriculture-led economies to industrial ones furnishing plain opportunities for processing activities
which can generate sustainable source of revenue and enhance the development process. SMEs shore
up the expansion of systemic productive capability. They help to absorb productive resources at all
levels of the economy and add to the formation of flexible economic systems in which small and
large firms are interlinked. Such linkages are very crucial for the attraction of foreign investment.
Investing transnational corporations look for sound domestic suppliers for their supply chains.

The role of SMEs is well acknowledged in all industrialized economies in terms of creating
employment, reducing poverty and increasing the welfare of the society. The statistical data and
empirical studies about SMEs highlight the bulk share of SMEs in the economy.

SMEs are a distinctive mainstay of the economy that requires owing attentiveness. The
evidence shows that small firms are discriminated against relatively large firms. Large scale firms
can cope and solve their hurdles due to possessing sound experience and financial position. SME due
to their small size and the resulting peculiarities, are far less capable of adjusting and carrying on
successful business. They play a vital role in changing the industrial scenario and strengthening the
industrial sector tremendously. They assist the utilization of assets for productive purposes with
minimal initial resources. SSIs have contributed greatly in nurturing private enterprise and in
hastening the economic development by generating employment, exports, and reducing local
unevenness.

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This sector estimated to possess a huge potential in the growth of trade with the array of
products it offers. With 45 percent share in total industrial output and 40 percent share in exports,
small scale industries significantly contribute to the fiscal intensification of the country. In a nation
like India small scale industries come as boons. They persuade entrepreneurship and help in
employment of local populace. The domestic talents are put to good use to produce commodities that
have found market worldwide.

Small scale industries to a degree avert needless urbanization. The number of people
migrating to cities in search of jobs shrinks by the employment options domestic industries create
thereby reducing pollution and over population in cities and also helps in decentralized industrial
expansion. The main reason of a small scale industry is to achieve self reliance by utilizing the
resources available and harnessing the skills of local people to lay a platform that yields a steady
income. The industries are characterized by the wise utilization of labor for the commodity
production and the advantage lies in the fact that is consumption of ample laborers who are not
qualified to work for the large scale industries and thus reducing unemployment and poverty in the
country as well. Small Scale Industries help the financial system in promoting evenhanded
development of industries across all the regions of the economy and also in the efficient distribution
of money.

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3.GOVERNMENT SUPPORT FOR MSME’S DURING 11TH
FIVE YEARS PLAN (2007-2012)
The 11th plan’s approach to the MSE sector marks a shift from the welfare approach to that of
empowerment. The strategy is two pronged it focuses on livelihood and social security.Policy
initiatives are proposed to incentivize MSE’s to achieve economies of scale by expanding
production. One possibility could be to allow them to retain the benefit of excise duty exemption up
to the prescribed limit even after they graduate into MSE’s.The MSE sector, including handlooms
and handicrafts, presents an opportunity for exports. The effort during the plan period will therefore
be to organize this sector, to create clusters of weavers/artisans to improve their bargaining power,
and enable them to pool resources.Banks will be encouraged to ensure that all loans up to 5 lakh to
MSE’s are given free of collateral at the interest rate of 8%.
Govt. wants its growth at a faster pace through the support of financial institutions. And for
this purpose it came out with fresh guidelines in 2005 as special package for MSME and introduced
following important steps to boost growth of MSME Sector --
1. Define Micro, Small and Medium enterprises
2. PSBs to fix their own target - Min 20% growth every year so that outstanding is
doubled every five years.
3. Doubling of Credit flow from 67,600 cr in 2004-05 to 135,200 cr by 2009-10
4. SIDBI, in association with IBA have developed an IT enabled software programme
for application appraisal and monitoring for Small Clusters known as CART
5. Each branch to finance at least five new Tiny, S M & E at Semi-Urban and Urban branches
every year.
6. Nursing of Sick units through Debt Restructuring.
7. CGTSME –This scheme is modified and its scope widened.
8. Cluster based approach to be adopted for robust growth of this sector.
10.Setting up of watchdogs-RBI, Banks to monitor Credit flow to SME.

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Based on the guidelines Govt. came out with an Act. Known as MSMED Act.2006—which is
Effective from 02.10.2006
SPECIAL FEATURES of MSMED Act.2006—
A) classification of enterprises—MSME has been properly defined (As above)
B) Promotional Provisions –In various promotional activities i.e. trade fair etc. there will be some
reservation of stalls for MSME Sector to display their products.
C) Preference Procurement Policies—Public sector undertakings will give preference to the
products produced by MSME sector if other aspects are same.
D) Checking Delayed Payments—If Public sector undertaking procure some goods from MSME
Entrepreneur the payment will be made within 30 days otherwise interest has to be paid for delayed
period.

RBI has taken following steps For smooth credit flow to this sector in the recent past –
 Fixation of targets/sub-targets as per new definition.
 Outreach of formal credit: Opening of new accounts.
 Nursing the sick units :- Debt Restructuring Mechanism.
 Facilitative measures.
 Encouragement of CGTMSE scheme.
 Cluster based approach.
 Setting up of watchdogs: Monitoring & Review
RBI instructed all banks to formulate a comprehensive and more liberal policy for
MSME financing taking into account following guidelines as indicative minimum:-
1. Disposal of applications within 2 or 4 week as applicable.
2. Loan application register is to be maintained at branches.
3. Issue of Acknowledgement of Loan Applications
4. Rejection of applications not to be done without the approval of the next higher authority
5. Photo of Borrowers: Free of cost for weaker section
6. Collaterals are not require up to 100 lac.
7. Composite loan up to 100 lacs through single window.

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8. Specialised financing branches renames as SME branches.
9. Norms for computation of limits up to 5.00 crore working capital by turnover method.

Since December, over 38500 accounts of MSMEs have been restructured. The interim budget
has extended the 2% interest rate subvention in shipment credit up to the end of the second quarter of
the next fiscal. The size of refinance facility with SIDBI has been increased by Rs. 10,000 crore. The
Central Government is ensuring that the MSME Act, of making payments within 45 days, is being
implemented. Most banks have set up special SME care centres. The Government on the other hand
claims that the problems being faced by MSMEs are being thoroughly addressed.

3.1 Supporting Agencies of Government For MSME’s


• MSME Board
• MSME Development Organization
• MSME Development Institutions
• MSME Technology Development Centers
• MSME Testing Centers and MSME Testing Stations
• MSME Tool Rooms/Tool Design Institutes
• Entrepreneurship Development Institutes
• National Small Industries Corporation
• Small Industrial Development Bank of India (SIDBI)
• Khadi & Village Industries Commission (KVIC)

For strengthening the delivery of credit to the MSMEs, the Government announced a ‘Policy
Package for Stepping up Credit to SMEs so as to double the credit flow to this sector within five
years. To facilitate the flow of credit to MSMEs, RBI has announced a refinance facility of Rs.
7,000crore for SIDBI which will be available to support incremental lending, either directly to
MSMEs or indirectly via banks, NBFCs and SFCs.

Government has made it mandatory for all central and state PSE wings including private
units to make payments to MSMEs units within 45 days of the date of purchase of goods from them.

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All public sector banks are to setup Regional MSME Care Centres to facilitate MSME entrepreneurs
for quick redressal of their grievances..

4.PROBLEMS OF SMALL SCALE INDUSTRIES

The main problem is of finance (scarcity of capital, non availability of credit


facility).Another is of availability of raw Material (Poor quality, uneven supply of raw material,
inadequate quantity).Industries are not exposed to latest technology.

 The production problems include raw material availability, capacity utilization, and storage
problems.

 The marketing problems arises because of dealing in only one product, cut throat competition,
adopting cost oriented method of pricing, lack of advertisement, not branding their products etc.,
 The financial problems include investment risks, procurement of loan from banks and their
repayment, meeting day to day expenses and the like.
 The labour problems include highly demanding employees, absenteeism lack of skilled workers
and transportation of workers.
 Infrastructure problems also add coal to the fire. Unless and until you have the infrastructure in its
place the rest of the efforts are futile.
 Personal problems like spending less time with family and for the whole sweat exerted the
rewards have not been favorable.

Small scale industries are at a distinct disadvantage as compared to large scale industries.
The scale of operations, availability of finance, ability to use modern technology, procurement of
raw materials are some of these areas. This gives rise to several problems. Most of these problems
can be attributed to the small size of their business, which prevents them from taking advantages,
which accrue to large business organisations. However, the problems faced are not similar to all the
categories of small businesses. For instance, in the case of small ancillary units, the major problems
include delayed payments, uncertainty of getting orders from the parent units and frequent changes
in production processes. The problems of traditional small scale units include remote location with

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less developed infrastructural facilities, lack of managerial talent, poor quality, traditional
technology and inadequate availability of finance.

The problems of exporting small scale units include lack of adequate data on foreign
markets, lack of market intelligence, exchange rate fluctuations, quality standards, and pre-shipment
finance. In general the small businesses are faced with the following problems:

• Finance: One of the severe problems faced by SSIs is that of nonavailability of adequate
finance to carry out its operations. Generally a small business begins with a small capital
base. Many of the units in the small sector lack the credit worthiness required to raise as
capital from the capital markets. As a result, they heavily depend on local financial resources
and are frequently the victims of exploitation by the money lenders. These units frequently
suffer from lack of adequate working capital, either due to delayed payment of dues to them
or locking up of their capital in unsold stocks. Banks also do not lend money without
adequate collateral security or guarantees and margin money, which many of them are not in
a position to provide.
• Raw materials: Another major problem of small business is the procuremen t of raw
materials. If the required materials are not available, they have to compromise on the quality
or have to pay a high price to get good quality materials. Their bargaining power is relatively
low due to the small quantity of purchases made by them. Also, they cannot afford to take the
risk of buying in bulk as they have no facilities to store the materials. Because of general
scarcity of metals, chemicals and extractive raw materials in the economy, the small scale
sector suffers the most. This also means a waste of production capacity for the economy and
loss of further units.
• Managerial skills: Small business is generally promoted and operated by a single person,
who may not possess all the managerial skills required to run the business. Many of the small
business entrepreneurs possess sound technical knowledge but are less successful in
marketing the output. Moreover, they may not find enough time to take care of all functional
activities. At the same time they are not in a position to afford professional managers.
• Labour: Small business firms cannot afford to pay higher salaries to the employees, which
affects employee willingness to work hard and produce more. Thus, productivity per
employee is relatively low and employee turn over is generally high. Because of lower

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remuneration offered, attracting talented people is a major problem in small business
organisations. Unskilled workers join for low remuneration but training them is a time
consuming process. Also, unlike large organisations, division of labour cannot be practised,
which results in lack of specialisation and concentration.
• Marketing: Marketing is one of the most important activities as it generates revenue.
Effective marketing of goods requires a thorough understanding of the customer’s needs and
requirements. In most cases, marketing is a weaker area of small organisations. These
organisations have, therefore, to depend excessively on middlemen, who at times exploit
them by paying low price and delayed payments. Further, direct marketing may not be
feasible for small business firms as they lack the necessary infrastructure.
• Quality: Many small business organisations do not adhere to desired standards of quality.
Instead they concentrate on cutting the cost and keeping the prices low. They do not have
adequate resources to invest in quality research and maintain the standards of the industry,
nor do they have the expertise to upgrade technology. In fact maintaining quality is their
weakest point, when competing in global markets.
• Capacity utilisation: Due to lack of marketing skills or lack of demand, many small
business firms have to operate below full capacity due to which their operating costs tend to
increase. Gradually this leads to sickness and closure of the business.
• Technology: Use of outdated technology is often stated as serious lacunae in the case of
small industries, resulting in low productivity and uneconomical production.
• Sickness: Prevalence of sickness in small industries has become a point of worry to both the
policy makers and the entrepreneurs. The causes of sickness are both internal and external.
Internal problems include lack of skilled and trained labour and managerial and marketing
skills. Some of the external problems include delayed payment, shortage of working capital,
inadequate loans and lack of demand for their products.
• Global competition: Apart from the problems stated above small businesses are not without
fears, especially in the present context of liberalisation, privatisation and globalisation (LPG)
policies being followed by several countries across the world.

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4.1COMMON CAUSES OF FAILURE
There are a variety of reasons why a small business often fails. There are some steps that
small business owners can do to avoid them. Here are ten causes of small business failure and how
to avoid them.

1. Most small business owners don't have enough money saved up.
2. Some companies don't have enough advertisements throughout the year.
3. Some companies fail since they don't generate enough sales.
4. The company doesn't hire enough staff.
5. The company doesn't have a high enough budget. This is where most companies fail at since they
don't have enough money to pay everything.
6. The company can't survive during the slow season so they often fail. The company needs to figure
out a way to generate enough sales or save up enough money to survive during the slow season of
the company.
7. A company doesn't have enough money to expand the business even though it needs too. The
company needs to get a business loan, save money, or even outsource the work somehow.
8. Some try to be cheap on products or service then they often fail.

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The various factors associated with regards to failure and success of MSME’s are

Table 4.1 showing various factors affecting MSMEs

4.2 SICKNESS IN SME


In common parlance , a sick industry is one which is not healthy. A healthy unit is one which
earns a reasonable return on capital employed and which builds up reserves after providing
reasonable depreciation.

According to RBI “a sick unit is one which incurs cash losses for one year and is likely to
incur cash losses for the current year as well as for the following year”.The Sick Industrial
Companies Act 1985, defines a sick industry as “an industrial company which has at the end of any

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financial year accumulated losses equal to or exceeding its entire net worth and has also suffered
from cash losses in such financial year immediately preceding such financial year.

4.2.1Criteria to identify sickness

Following criteria indicate the sickness:

 Continuous decline in gross output compared to the previous two financial years.
 Delays in repayment of institutional loan, for more than 12 months.
 Erosion in the net worth to the extent of 50 per cent of the net worth during the previous
accounting year.

4.2.2 Signals of industrial sickness

 Decline in capacity utilization


 Shortage of liquid funds
 Inventories in excessive quantities
 Irregularity in maintaining the bank accounts
 Frequent break downs in plant & equipments
 Decline in the quality of products
 Frequent turnover of personnel
 Technical deficiency

4.2.3 Symptoms of Industrial Sickness

 Shortage of cash
 Deteriorating financial ratios
 Widespread use of creative accounting

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 Continuous decline in prices of the shares
 Delay & default in the payment of statutory dues
 Morale degradation of employees
 Frequent request to banks & financial institutions for loans
 Delay in the audit of annul accounts

4.2.4 Consequences:

 Huge financial losses to the banks & financial institutions


 Loss to employment opportunities
 Emergence of Industrial unrest
 Adverse effect on perspective investors and entrepreneurs
 Wastages of Scarce resources
 Loss of revenue to government

4.2.5 Remedial Measures Monitoring and nursing the sick units during infancy

 Diagnostic studies
 Incentives should be provided to professional managers helping in reviving sick units
 Issuing guidelines on major aspects that affect the image of the company
 Brain storm with a select group to get creative ideas for improvement
 Adopt better practices, right technology, better work culture and professional management
SSI can improve their health as well as the economy.

NATIONAL MANUFACTURING A COMPETITIVENESS PROGRAMME

With a view to build the capacity of the Indian Micro, Small and Medium Manufacturing
Enterprises for overcoming competition in the global markets and facing challenges being posed by
the entry of the multi-nationals in the domestic markets, the Government of India has announced the

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National Manufacturing Competitiveness Programme (NMCP) during the budget speech 2005-
06.The objective of NMCP with can be truly regarded as ‘National Strategy for Manufacturing’ is to
ensure healthy growth of the MSME Sector. The 10 components of the Programme dealing with the
firm level competitiveness against global challenges are being implemented in the Public Private
Partnership (PPP) mode.



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5.PRODUCTS OF MSME’S
Chart 5.1:Different products of MSME



• Following items are reserved for exclusive manufacture by micro and small enterprise sector:

• Food and Allied Industries: Pickles & Chutneys, Bread, Mustard Oil (except solvent
extracted), Ground nut oil (except solvent extracted).
• Wood and Wood Products: Wooden furniture and fixtures
• Paper Products: Exercise books and registers
• Injection Moulding Thermo Plastic Product: PVC Pipes, including conduits upto 110 mm
dia, Fittings for PVC pipes
• Other Chemicals & Chemical Products: Wax candles, Laundry soap, Safety matches, Fire
works, Agarbatties
• Glass & Ceramics: Glass Bangles
• Mechanical Engg. Excluding Transport Equipment: Steel almirah, Rolling shutters, Steel
chairs – all types, Steel tables – all other types, Steel furniture – all other types, Padlocks,
Stainless steel utensils, Domestic utensils - Aluminium

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5.1CONTRIBUTION OF MSME

TABLE 5.1:GDP and contribution of MSE

Year Contribution of MSE (%) at 1999-


2000 prices in
Total Industrial Gross Domestic
Production Product (GDP)
1999-00 39.74 5.86
2000-01 39.71 6.04

2001-02 39.12 5.77

2002-03 38.89 5.91

2003-04 38.74 5.79

2004-05 38.62 5.84

2005-06 38.56 5.83

2006-07 38.57 5.94

The table shows total industrial production of MSME throughout the years from1999-
2007.As we can see consistent contribution is made by MSME.They contribute approx about 6%
towards the GDP of the nation

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5.2Comparative Growth Rates.
Table 5.2:Comparision of growth rates

Year Growth Rate Overall


of MSE Sector Industrial
(%) Sector (%)

2002-03 8.68 5.70

2003-04 9.64 6.9

2004-05 10.88 8.40

2005-06 12.32 8.10

2006-07 12.60 11.5

2007-08* 13.00* 8.00

The table shows comparision of growth rates of MSME and overall industrial sector.It is evident that
MSME had shown considerable growth and also more than overall industrial sector .

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The above chart shows increase in production in MSME sector. It has continuosly increased around
3.5 lac million to 7 lac million.

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6.LATEST ADVANCEMENTS IN MSME
Big Boost For MSEs
The Working Group, set up to review the Credit Guarantee Scheme of the Credit Guarantee
Fund Trust has recommended the mandatory doubling of the limit for collateral-free loans to micro
and small enterprises (MSEs) to Rs 10 lakh from the current Rs 5 lakh. government policy has
rightly accorded high priority to this sector in order to achieve
balanced, sustainable, more equitable and inclusive growth in
the country.
Advances extended to the MSE sector are treated as priority
sector advances and as per the existing the Reserve Bank of
India guidelines, banks are required to extend at least 60% of
their advances to the MSE sector. So the implementation of the recommendations of the Working
Group would result in enhanced usage of the Guarantee Scheme and facilitate increase in quality and
quantity of credit to the MSE sector, leading eventually to sustainable inclusive growth of the pivotal
sector in India.

Compliance For Growth & Sustainability


The existing insolvency laws with respect to individual insolvencies continue to govern small
and medium enterprises (SMEs) and there is a need to address this issue comprehensively. MSMEs
also need to be sensitive about the expectations of the stakeholders, especially the workers and the
immediate communities and make efforts to address these expectations within the constraints of their
business models. Regulatory compliance is crucial for businesses to make their investors and
stakeholders hold positive perceptions about the conduct of their business.

Skill Development in Indian SMEs: A Global Perspective


The SME sector is crucial to employment generation, decentralized development and low cost
products and services. Most of the handicrafts, including wooden handicrafts, wrought iron crafts

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and other enterprises involved in textile and garment, etc., fall within the SME sector. The
imperatives are:
• National Rural Employment Guarantee Act (NREGA) would have to be more effective so that the
Indian economy can incrementally move away from the concept that agriculture is the end of rural
markets.
• For making Indian infrastructure investment attractive, high cost of debt to infrastructure should
be addressed in some form.
• Along with focus on power and roads, adequate focus should also be placed on transmission of
power and water management. Some kind of short-term subsidy should also be introduced.
• The concept of Special Economic Zones (SEZ) should also be strengthened for handicrafts and
other SMEs.
The Chamber of Small Industries Association (COSIA) has said that the facility of quarterly
returns and availability of full credit on capital goods proposed in the Union Budget 2010-11 for
MSEs is a positive step. Further, the government is likely to come out with a policy in the next two
months to make it mandatory for state-owned firms to buy at least 20% of their total purchases from
MSEs.

Promoting Green Entrepreneurs


New Ventures India (NVI) is a center of sustainable entrepreneurship, specially designed to
meet the needs of Indian green entrepreneurs and help them overcome common business challenges
to deliver environmental and social benefits as well as economic development and opportunity. New
Ventures supports small and medium-sized enterprises (SMEs) operating in fast-growth, green
sectors such as:
• Renewable Energy
• Energy Efficiency
• Advanced Technologies for Water
Management
• Organic Agriculture/ Horticulture
• Other Clean Technologies
• Green Building Materials

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• Rapidly Renewable Materials
• Waste Management, Recycle & Reuse
• Ecotourism

Technology for SMEs


Research has shown that SMEs play an important role in the economic development of
countries worldwide. However, for SMEs to compete with large competitors, they must nullify their
size disadvantage. Adopting technology to overcome diseconomies of scale and to produce
innovations will surely enable SMEs to differentiate themselves. In the current environment,
technology is proving to be a strategic weapon to beat competition. Companies that adopt
technology early in the life cycle will be well placed to impress their customers and show that they
are different as compared to their competition. There is a feeling among SMEs that adopting
technology is costly and capital intensive. Often this deters the SMEs, believing the investments are
very high and prohibitive. This is not entirely true. One of the ways the SMEs can manage this is by
using open source tools and technologies that are freely available. There is a feeling among SMEs
that adopting technology is costly and capital intensive. Often this deters the SMEs, believing the
investments are very high and prohibitive.This is not entirely true. One of the ways the SMEs can
manage this is by using open source tools and technologies that are freely available.

In the current day environment, it is critical that SMEs look at adopting technology to gain
competitive advantage. Cost effective mechanisms are available which the SMEs can consider to
make the technology journey less strenuous on budgets. Also, SMEs should work with Technology
Partners to make this journey smooth and effective.

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CONCLUSION
Micro, small and medium enterprises (MSMEs) collectively function as the fulcrum of the
national economy, accounting for the bulk of industrial output, exports and employment. They play a
vital role in changing the industrial scenario and strengthening the industrial sector tremendously.
They assist the utilization of assets for productive purposes with minimal initial resources. SSIs have
contributed greatly in nurturing private enterprise and in hastening the economic development by
generating employment, exports, and reducing local unevenness.

The Government of India should consider the MSMEs as an important pillar of economic
growth and should support the sector with proactive and growth oriented policies. This can have
wider impact on national economies since MSMEs are the engines of economic growth .

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REFERNCES:

1. www.smetimes.tradeindia.com/smetimes/.../additional-measures-required-
for-sme-sector.html
2. www.business-standard.com/india/news/...base-rate...to...msme.../on
3. SME Bussiness May-2010
4. www.msme.gov.in
5. www.msmefoundation.org
6. ssi.nic.in

7. www.iloveindia.com/finance/.../small-scale-industries.html

8. www.nickmutt.com/small-scale-industries-in-india.htm

9. http://www.industries.org.in/industry-sectors.htm
10. www.innovationclusters.org

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