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An MSME (Micro, Small and Medium Enterprise) is defined by RBI/GOI differently for the Manufacturing
and the Services Sector, as follows:
Manufacturing sector refers to enterprises engaged in manufacture or production, processing or
preservation of goods. The definition of Micro, Small and Medium Enterprises under the manufacturing
sector is based on the Investment in plant and machinery [original cost excluding land and building] and
the items specified by the Ministry of Small Scale Industries.

Services sector refers to enterprises engaged in providing or rendering of services. These will include
small road & water transport operators (owning a fleet of vehicles not exceeding ten vehicles), small
business (whose original cost price of the equipment used for the purpose of business does not exceed
Rs.20 lakh) and professional & self-employed persons (whose borrowing limits do not exceed Rs.10 lakh
of which not more than Rs.2 lakh 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 lakh with a sub-ceiling of Rs.3 lakh for working capital
requirements). The definition of Micro, Small and Medium Enterprises under the services sector is based
on the enterprise’s investment in equipment’s.

The President under Notification dated 9th May 2007 has amended the Government of India (Allocation
of Business) Rules, 1961. Pursuant to this amendment, Ministry of Agro and Rural Industries and
Ministry of Small Scale Industries have been merged into a single Ministry, namely, “MINISTRY OF
MSMEs have an important role to play in the present context given their greater resource use
efficiency, capacity for employment generation, technological innovation, promoting inter-sectorial
linkages, raising exports and developing entrepreneurial skills. Their location flexibility is an
important advantage in reducing regional imbalances.

Small and Medium Enterprises play a vital role for the growth of Indian economy by contributing 45% of
the industrial output, 40% of exports, 59 million in employment in over 26 million units, create one
million jobs every year and produces more than 6000 quality products for the Indian and international
markets. As a result, MSMEs are today exposed to greater opportunities for expansion and
diversification across the sectors.


The Indian market is growing rapidly and Indian industry is making remarkable progress in various
Industries like Manufacturing, Precision Engineering, Food Processing, Pharmaceuticals, Textile &
Garments, Retail, IT, Agro and Service sectors. SMEs are finding increasing opportunities to enhance
their business activities in core sectors.


As the investments in the agriculture and industrial sector have seen a growing trend so the investments
in MSME have also been increasing and reached Rs. 621753 Crore in FY ending 2009 showing a 11.39
percent increase. As MSME largely relates to the manufacturing and agriculture it plays a very
important role in exports of the country. MSME’s have been showing a growing trend in the amount of
exports made. In year 2008 the amount of exports made was Rs. 202017 crore showing a growth of
10.67 percent.

As per the 4th census with respect to year 2006-2007, there were about 261 lakh enterprises providing
employment to 595 lakh people. The projected corresponding figure for year 2008-09 was 285 lakh
enterprises providing employment to 659 lakh people. The following chart depicts the trends of
employment shown by MSME’s.

The contribution made my MSME’s show the importance of such enterprise for the economy. The
following points can be derived:

 MSMEs play a major role in the country's economic development through their contribution in
the following: rural industrialization; rural development and decentralization of industries;
creation of employment opportunities and more equitable income distribution; use of
indigenous resources; earning of foreign exchange (forex) resources; creation of backward and
forward linkages with existing industries; and entrepreneurial development.
 They are vital in dispersing new industries to the countryside and stimulating gainful
employment. A country like the India where labor is abundant has much to gain from
entrepreneurial activities. MSMEs are more likely to be labor-intensive. Thus, they generate jobs
in the locality where they are situated. In this sense, they bring about a more balanced
economic growth and equity in income distribution.
 MSMEs are quick in assimilating new design trends, developing contemporary products, and
bringing them to the marketplace ahead of the competition. MSMEs tend to be far more
innovative in developing indigenous or appropriate technology, which may be grown later into
pioneering technological breakthroughs.
 They are able to effectively increase the local content or the value added in final goods that are
processed and marketed by large manufacturing firms.
 MSMEs are notably skillful in maximizing the use of scarce capital resources and are able to
partner with large firms by supplying locally available raw materials in unprocessed or semi-
processed forms.
 Also, MSMEs can act as the seedbed for the development of entrepreneurial skills and
innovation. They play an important part in the provision of services in the community. They can
make an important contribution to regional development programs.
MSME possess various strengths and weaknesses give below.

 The MSME sector is often driven by individual creativity. A major strength of the sector is its
potential for greater innovation both in terms of products and processes.
 An inherent strength of the sector is that these enterprises can be set up with very small
amounts of investments and have the locational flexibility to be located anywhere in the
 Their employment potential is higher compared to large enterprises and are presently
estimated to employ 6 crore persons. They are amenable to ancilliarisation and thus
have natural linkages with large enterprises.
 There exists a strong institutional structure at the State and Central level for the promotion
and development of the sector. There is a well-spread network at the National,
State and the local level for providing a comprehensive range of support services
under marketing, technology, finance, and infrastructure and skill development.
 The existing schemes/programs of the Central and State Governments span across
major areas of operations of MSMEs. These are administered by a workforce who are qualified
but can be upgraded with additional inputs.
 An apex consultative body has been set up at the national level, namely, National
Board for MSMEs, comprising of representatives of all sections of stakeholders for
providing guidance/inputs in policy formulation and program implementation.

 . Of the 2.6 crore enterprises, a predominant number is in the unorganized sector, often located
in non-conforming urban zones. The sector is heterogeneous with pockets of high
technology enterprises but majority suffering from low technology base resulting in low
productivity and poor quality of products. The units being small in size also have poor access to
equity and credit.
 Most of the time, the equity is coming from savings and loans from friends and relatives rather
than through banking systems. Very often, the credit is coming from operations or
domestic savings rather than established systems of cheap banking credit for working capital.
This problem is particularly acute for the village industries as well as the lower end of micro
 While we have large pool of human resources, this sector continues to face
shortage of skilled manpower due to lack of paying capacity and poor managerial
capabilities. Another major weakness is absence of marketing channels and brand
building capacity.
 The present structure also suffers from poor delivery of services at the field level. The schemes
and program have limited outreach with a large number of very small schemes. There is a lack of
coordination among the various organizations involved in the promotion of MSMEs,
including organizations of the State/UT Governments and poor linkages with the
institutional stakeholders in the private sector. Absence of a suitable exit mechanism is a
major constraint for the higher end entrepreneurs of the MSME sector.
 A major weakness is a heritage weakness. Due to the protectionist, subsidy-
driven, reservation based regime, the mindset of the sector continues to demand similar legacy
Despite its commendable contribution to the Nation's economy, SME Sector does not get the required
support from the concerned Government Departments, Banks, Financial Institutions and Corporate,
which is a handicap in becoming more competitive in the National and International Markets.

The MSMEs face problems at every stage of their operation. These industries are therefore not in a
position to secure the internal and external economies of scale.

The major problems confronting the sector have been identified as:


All kinds of business enterprises require sufficient funds in order to meet their fixed as well as
working capital requirements. Finance is one of the critical inputs for growth and development
of the micro, small and medium enterprises. They need credit support not only for running the
enterprise and operational requirements but also for diversification, modernization/upgradation
of facilities, capacity expansion, etc.

Inadequate access to credit is a major problem facing micro, small and medium enterprises.
Generally, such enterprises operate on tight budgets, often financed through owner's own
contribution, loans from friends and relatives and some bank credit. They are often unable to
procure adequate financial resources for the purchase of machinery, equipment and raw
materials as well as for meeting day-to-day expenses. This is because, on account of their low
goodwill and little fixed investment, they find it difficult to borrow at reasonable interest rates.
As a result, they have to depend largely on internal resources.


There is lack of trained and experienced employees because small firms cannot pay high salaries
and cannot spend much on training their employees. Small scale firms find it difficult to recruit
and motivate skilled managerial and technical personnel as they look for better opportunities in
the large scale industries. Therefore, they get the second rate talent or have to depend on
family members who do not have diversified skills.


Small scale units have to face several difficulties in the marketing and distribution of their
products. Most of them do not have their own marketing network. They find it difficult to sell
their output at remunerative prices due to higher cost of production and non-standardized
quality of products. They cannot afford to spend much on advertising, sales, promotion,
marketing research, etc. They have to sell their products at throwaway prices due to weak
bargaining power and immediate need for money. They also face stiff competition from large

Majority of the small scale units use old techniques of production and outdated machinery and
equipment. Upgradation of the technology and achieving economies of scale is one of the major
problems facing the sector. They cannot afford new machines and equipment and are therefore
not in a position to use the latest techniques of production. With liberalization of the economy,
the MSMEs are facing stiff competition from imports and need technological upgradation in
order to produce better quality products at cheap rates.


Non-availability of quality raw materials on a timely basis in an adequate quantity is one of the
main problems faced by MSMEs. There is acute shortage of even the basic raw materials
required by small scale units. These units are handicap in obtaining raw materials of requisite
quality and quantity at reasonable prices. They do not get the benefits of bulk buying. For
instance, the handloom industry is facing shortage of yarn. Small scale industries also face
shortage of power due to which they are unable to make full utilization of plant capacity.
Majority of them cannot afford to install their own power generating plants to ensure
uninterrupted operations.

There can be many more similar issues hindering the orderly growth of the MSME sector such as:
 Limited capital and knowledge
 Low production capacity
 Identification of new markets
 Constraints on modernization & expansions
 Follow-up with various government agencies to resolve problems
 Delayed Payments
 Lack of Appropriate Infrastructure
All these problems have been hindering the fast growth of these enterprises in all parts of the country
which can be made clear with the help of the following diagram.
Even though MSMEs face various challenges but still they have been showing a growing. Due to this
government has also been taking various measures to secure a bright future for these enterprises.
The sector is expected to show:
 Increase in Production
 Increase in Turnover
 Increase in Exports and Profitability
 Increase in Number of Enterprises

Various measures are also taken on state level to improve the working. Example of Gujrat and Orissa can
be seen who have set up various action plans and targets for this sector. Various changes at different
functional areas are also expected to be seen.

 It has been proposed to set up an SME exchange for easy finance.
 The capital gains tax exemption to be extended to those reinvesting their wealth in MSMEs.
 Also introduction of credit guarantee scheme is being proposed to provide loan without
collateral to SMEs.

In terms of infrastructure the MSMEs have been growing due to the benefits provided by states. The
MSME cluster has been doing a god job in this context. But improvements are required at private level
as not these many benefits are provided by government to these enterprises.


Marketing and skill development is a key concern for the future. Marketing will see use of information
technology and effective advertising to promote SMEs. Various skill development programs are run by
governments but still better infrastructure is required here.

Thus the future of MSMEs is of major policy concern given their strategic importance in any discussion
of reshaping the industrial sector. This is more so in case of India, which has one of the
longest histories of government support to the sector since independence compared to most
developing countries. Higher investments for innovative and knowledge based ventures as well as for
research and development through greater partnership between the industry and academic institutions
is required. The ongoing exercise to introduce a new Direct Tax Code and GST should specifically seek to
achieve these policy objectives through appropriate provisions for graded corporate tax structure, tax
pass through for angel and venture capital funds and incentives for R & D. Support should be extended
to new formats like Limited Liability Partnerships and Single Person Companies, which provide MSMEs
with an interim solution in the move from the informal to the formal economy.

All these measure and the steps already taken are a step towards building the MSME sector which is
called as the sector of future by banks. The importance of this sector in India can be easily testified by
the strong focus on MSMEs during recent visit by president Obama to India.
The strengths and weaknesses provide learning for the future strategy. Thus the learning agenda is at
several levels. It would be in the creation of insular layers to protect the MSME from the vagaries of
global/financial markets and misuse of WTO/TRIPS regimes. There is also need to learn from best of the
breed international practices both in technology and marketing. On another level, creation and
professionalization of efficient organizational systems even at the lowest level and promoting
innovations at grass root level, knowing full well that the success of some of them is only an enigma in
futuris. Various strategies implemented are:
 At a macro level there is need for a strategy for a horizontal geographical spread of the various
outreach programs for balanced growth. On the other hand, there is also a need to emphasize
the inclusive nature of any strategy to target women entrepreneurs and other weaker sections
of the society. It is only by such horizontal and vertical inclusiveness that we can attain the
objectives of this mission with equity.
 The potential strategies would mainly rest on five pillars, as it were, concurrently.
They are (not in order of priority):

o Skill development
o Markets
o Technology
o Infrastructure
o Credit availability
There are individual analyses and proposed actions which are listed below including new
knowledge driven initiatives and actions which can leverage our strength and lower the
susceptibility of the MSME to external threats.

The Ministry would focus on its efforts for giving financial assistance for Entrepreneurship
Development Training Programs (EDPs), Skill Development Training Programs (SDPs),
Entrepreneurship-cum-Skill Development Training Programs (ESDPs) and Training of Trainers
Programs. Centre for Excellence would be set up at national level for standardization of training
curriculum, training of trainers etc. Financial assistance to States/UTs for their efforts to set up
Entrepreneurship Development Institutes would be enhanced with more focus on Naxalite
affected areas, hilly areas of Jammu & Kashmir, Himachal Pradesh and Uttarakhand, North
Eastern Region and difficult areas e.g. Andaman & Nicobar group of Islands, Lakshadweep group
of Islands, etc. MSME Development Institutes would be converted into autonomous
organizations to provide handholding and advisory services to the MSME. All training
institutions of Ministry of MSME would be brought under single umbrella, in terms of
standardized syllabi, updated course content and market sensitive training. Depending upon the
individual strength, the national level institutions would endeavor to develop into separate
Centers of Excellence in their chosen areas.
 Study would be conducted to see the impact of “Assistance to Training Institutions Scheme” of
the Ministry and the efficiency of private/Government Partner Institutions empanelled by
national level Institutions.
 Database of the trained persons would be created and linked to Job Exchange to give the benefit
of training to the trainees and the industry. Industry would be enabled to access the database of
trained manpower.
 The employment generation is another area where MSMEs play a pivotal role. The Ministry of
MSME would take initiatives for improving the performance under Prime Minister’s
Employment Generation Program (PMEGP) through implementing IT-enabled application
tracking system and related data collection. A special effort would be made by creating a web-
portal as one-stop shop for multitude of products of PMEGP units to facilitate buyer-seller
 E-Commerce has emerged as a powerful tool world over for reaching out to buyers in business
as well as consumers worldwide. Territories/borders have been obliterated with the advent of
this new technology. For giving better access to MSME sector to the market, Ministry has
already promoted a Business-to-Business (B2B) Portal in NSIC. Now the endeavor would be to
have a robust and inclusive, best of the breed, Business-to-Consumer (B2C) Portal in addition to
the above. The challenge would be to create a logistics supply chain and standardization of the
products to service the customers.
The National Small Industries Corporation Ltd. (NSIC) would be strengthened by providing more
equity support for their efforts to create market for products of MSMEs. KVIC would be
strengthened to provide market to village industries. The schemes of the Ministry to provide
financial assistance to MSMEs for participation in domestic and international exhibitions/ trade
fairs would continue in the XII Plan also with more outlay.
 A policy has been formulated, awaiting Cabinet approval, to ensure that 20% of the
procurement by the different Ministries/PSUs is made from MSME sector mandatorily.
Challenge here would be to upscale the technical capabilities of MSMEs to meet quality
standards and delivery schedules.
 Ministry is also implementing Credit Linked Capital Subsidy Scheme for Technology Upgradation
with the aim to facilitating Technology Upgradation of Micro and Small Enterprises by providing
15% capital subsidy on institutional finance availed by them for induction of well-established
and improved technology in approved sub-sectors/products.
 The critical factor that drives growth in MSME sector is technology. In the present economic
scenario of globalised competitiveness, it is the technological edge that will determine the
winners. In view of this reality, the Ministry of MSME is initiating a number of programmes and
schemes for technology development of the sector. It has recently introduced 10 innovative
schemes under the National Manufacturing Competitiveness Programme (NMCP) covering
entire gamut of manufacturing in the sector aiming to develop global competitiveness among
Indian MSMEs. These ten schemes are:

o Marketing Support/Assistance to MSMEs (Bar Code)

o Support for Entrepreneurial and Managerial Development of SMEs
o through Incubators
o Enabling Manufacturing Sector to be competitive through Quality
o Management Standard & Quality Technology Tools (QMS/QTT)
o Building Awareness on Intellectual Property Rights (IPR) for MSME
o Lean Manufacturing Competitiveness Scheme for MSMEs
o Mini Tool Rooms (MTR)
o Design Clinic Scheme for design expertise to MSMEs Manufacturing sector (DESIGN)
o Marketing Assistance & Technology Upgradation Scheme in MSMEs
o Technology and Quality Upgradation Support to MSMEs
o Promotion of ICT in MSME Manufacturing Sector (ICT)
 The cluster development approach can make the industry more competitive.
This is the tool to enable them to take on the onslaught of competitive marketing strategy of
large scale sector as well as multinationals. The Cluster Development Scheme of the Ministry of
MSME addresses all the sectors of MSE clusters across the country. The awareness about the
scheme would be increased among various stakeholders including State Governments. More
clusters will be undertaken for soft and hard interventions including diagnostic study,
infrastructure development and Common Facility Centre projects.

All of these above strategies have been proposed and some of them have been applied by the
government. The success of these strategies will be measured on the basis of the parameters laid down
for each scheme and their concurrent evaluation. Implementation will be measured through a robust
MIS and grievance redressal mechanism.