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SME is the abbreviation for Small and Medium Enterprises. These enterprises can be rightly called as the backbone of the GDP of India. The SME sector in India is growing at an exceptionally fast rate due to which it is proving to be beneficial to the Indian Economy. However, there are some important points that need to be considered for further development of the SME sector. The contribution of the SME sector to the entire output of country is 45%. Currently, there are over 26 million SME units in India that produces more than 6000 products. 90 % of the Industrial Units in India belong to the SME sector. These SME units contribute 40 % to the Indian Industrial Export. Some of the factors that have contributed to the growth of the SME sector in India: SME units in India are being funded by foreign and local fund providers. The advancement in technology has also contributed highly to the SME sector. There are numerous business directories and trade portals available online that contains a rich database of manufacturers, sellers and buyers To start and maintain these units, minimal investment is required. These SME units are now being funded by many government and private banks. The SME sector is one of the greatest contributors of domestic production as well as the export earnings. Many major mergers have taken place recently. Thought the sector is flourishing and expected to grow further in the near future, there are however certain challenges that the SME sector will have to face: Though the SME industries are spread all over the urban areas, proper infrastructure needs to be developed in the rural areas to establish these industries there. The SME units are functioning efficiently and effectively, but even now there is lack of information regarding the inputs of these industries, like the raw materials, skills, machinery and equipment. There is need of high level research and development required to develop these sectors in both the urban and rural areas. The SME sector is almost at the initial stage of its growth. With further advancements in technology, this sector is likely to grow further and contribute greatly to the economy of India. Some of the areas where the Small and Medium Enterprises are expected to grow are: Textiles/Readymade Garments (Including Footwear) Food Products/Processing Drugs and Pharmaceuticals (Including Chemicals and Chemical Products) IT and ITES (IT enabled services) Retail
Automobiles/ Automotive Components Service Sector Leather Industry Furniture/Wood Basic Metal/ Metal Products Rubber and Plastic Products Manufacturing/Engineering Design Precision Engineering
Chapter 1 : Introduction
Small industry has been one of the major planks of India's economic development strategy since Independence. India accorded high priority to small and medium enterprises (SMEs) from the very beginning and pursued support policies to make these enterprises viable and vibrant and over time, these have become major contributors to the GDP. Despite numerous protection and policy measures for the past so many years, SMEs have remained mostly small, technologically backward and lacking in competitiveness. The opening of the Indian economy in 1991 added problems to the SMEs. At the beginning, small scale enterprises found it difficult to survive. In the last decade, the economic environment has changed in favour of SMEs. In this context, it is important to re-look into the basic issues of SMEs, past, present and future prospects, especially in the policy framework
1.1 Definition of the Small and Medium Enterprises
In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes: (a) Manufacturing Enterprises- The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951). The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery. (b) Service Enterprises: The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under Particulars Investment in Plant & Machineries Investment in Equipment in case of in case of Manufacturing Service Sector Enterprises Enterprises Up to Rs. 25/- lacs Above Rs. 25/- lacs and up to Rs.500/- lacs Up to Rs.10/- lacs Above Rs.10/- lacs and upto Rs.200/lacs
Micro Enterprises Small Enterprises
Therefore.Medium Enterprises Above Rs.lacs and up to Rs. Assist in fostering self-help and entrepreneurial culture by bringing together skills and capital through various lending and skill enhancement schemes. Attracts direct foreign investment since multinationals and big conglomerates have started to outsource from countries with strong SME sectors. The SMEs act as engines through which the growth objectives of developing countries can be achieved Advantages of SME’s The advantages of SMEs in an economy. the development of small and medium industries in any country has specific 4 .lacs Table 1.lacs and up to Rs. reducing dependence on imported machinery. Contribute significantly to export revenues because of the low cost labour intensive nature of its products.1000/.500/. Provide rural people an opportunity for income generation and personal growth since they can work at home. Small and Medium Enterprises as per MSME Act 2006 1. be it labour intensive or otherwise are manifold. Have a positive effect on the trade balance since SMEs generally use indigenous raw materials.Classification of Micro. Assists in regional and local development since SMEs accelerate rural industrialization by linking it with more organized urban sector. Help achieve fair and equitable distribution of wealth by regional dispersion of economic activities. The low labour cost makes production osemi finished goods very economical for large concerns operating in international markets.200/.2 Importance of the Small and Medium Enterprises SME’s are considered as the engine of economic growth in developed as well as developing countries as they : Provides low cost employment since the unit cost of persons employed is lower for SMEs than for large sized units.500/. raw material or labour. Firms with sales less than $1 million spend 2x .lacs Above Rs. And result is SMEs’ producing 55 percent more innovations than LSEs’ Converts the raw material within the country into semi-finished items and later pass it on to the LSEs that have capital.3x more on R&D per $ of sales than the average. skill and equipment to process these into finished goods. This helps to achieve fair and equitable distribution of wealth by creating nationwide non-discriminatory job opportunities. Impart the resilience to withstand economic upheavals and maintain a reasonable growth rate since being indigenous is the key to sustainability and self-sufficiency.
However. by infusion of technologies. technology and marketing. This sector is ideally suited to build on the strengths of our traditional skills and knowledge. attract the infusion of just these things in the sector. thus it has the ability to adapt according to the ever changing needs of the customer. 1. Small industries use a high percentage of local raw materials. given some safeguards. By its less capital intensive and high labour absorption nature. It taps the resources at the grass root levels The promotion of Small and medium industries induces rapid growth of large scale manufacturing in the long run. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. small and medium enterprises (MSMEs) in the economic and social development of the country is well established. SME sector has made significant contributions to employment generation and also to rural industrialisation. indeed promising. particularly in consumer goods. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. the bugbear of the sector has been the inadequacies in capital. There will be flourishing and well grounded markets for the same product/process. value added and sophistication. It has a number of advantages over large scale industries. The MSME sector is a nursery of entrepreneurship. This sector contributes 8 per cent of the country’s GDP 45 per cent of the manufactured output 40 per cent of its exports 90 per cent of Industrial Units The MSMEs provide employment to about 60 million persons through 26 million enterprises. differentiated by quality. Most of local consumable products are produced by small scale industries. The increased employment and the goods/services produced has a positive effect on the GNP of a country. It also generates cheaper goods and services to the general population which attempts to break the cycle of the ever increasing price hikes. This becomes a catalyst in breaking the poverty cycle.effects on the balanced and dynamic growth of a country. Similarly it is also strongly integrated into the domestic economy. The process of liberalisation coupled with Government support will therefore.3 Contribution of SME’s to the Economy The role of micro. often driven by individual creativity and innovation. It may be said that the outlook is positive. The small businesses are remarkably flexible because they operate near the customer. Some of these are mentioned below: It generates more jobs per unit of capital and is more capital efficient. This is the opportune time to set up projects in the small-scale sector. 5 . This expectation is based on an essential feature of the Indian industry and the demand structures. capital and innovative marketing practices.
The labour to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries. Japan Taiwan Singapore South Korea Malaysia Indonesia 6 . Funding . Tooling & Testing support 11. The geographic distribution of the MSMEs is also more even. Reservation for Exclusive Purchase by Government 12. Project Profiles 5. 52% 81% 32% 33% 13% 36% Share of Employment 45% 53% 72% 79% 58% 51% 17% 45% Share of exports 40% n. Thus. 13% 48% 16% 40% 15% 11% Criteria for recognition Fixed Assets Employment Employment Paid up Capital. Growth in demand in the domestic market size due to overall economic growth 14. Increasing Export Potential for Indian products 15. Raw Material Procurement 8. Manpower Training 9.a. Growth in Requirements for ancillary units due to the increase in number of green-field units coming up in the large scale sector. variety of products and services produced and the levels of technology employed. Less Capital Intensive 2. Export Promotion 13. The MSME sector in India is highly heterogeneous in terms of the size of the enterprises. Reservation for Exclusive Manufacture by small scale sector 4. The opportunities of growth in the SMEs sector are enormous due to the following factors: 1.A.S.a. Technical & Managerial skills 10. Table 2: Contribution of SME’s in different countries Country Share of total establishment 90% 98% 99% 97% 97% 90% 92% 99% Share of output 45% n. Extensive Promotion & Support by Government 3. MSMEs are important for the national objectives of growth with equity and inclusion.Finance & Subsidies 6. Machinery Procurement 7. Assets & Sales Fixed assets & Employment Employment Shareholders Funds & Employment Employment India U.
They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. indeed promising. next only to agriculture. processed foods. by infusion of technologies. plastic products. 45%-50% of the Indian Exports is contributed by the sector. given some safeguards. processed food and leather products. There will be flourishing and well grounded markets for the same product/process. capital and innovative marketing practices. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. SMEs Sector plays a major role in India's present export performance. This takes place through merchant exporters. trading houses and export houses. In case of items like readymade garments. The SMEs sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO. technology and marketing. attract the infusion of these in this sector. SMEs sector in India creates largest employment opportunities for the Indian populace.79 million in 1990-91 to 26 million in 2009-10 providing employment to more than 60 million people in India. engineering items. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. This expectation is based on an essential feature of the Indian industry and the demand structures. readymade garments. etc. Besides direct exports. 7 . By its less capital intensive and high labour absorption nature. Statistics from Ministry of Micro. particularly in consumer goods. However. In view of this. incentives for higher production of exports. The process of liberalisation coupled with Government support will therefore. simplification of duty drawback rules. Direct exports from the sector account for nearly 40% of total exports. value added and sophistication. This is the opportune time to set up projects in the sector. it is estimated that small-scale industrial units contribute around 10% to exports indirectly. This sector is ideally suited to build on the strengths of the traditional skills and knowledge. The number of SSI units has increased from 6. woollen garments and knitwear.SMEs sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. SMEs sector has made significant contributions towards employment generation and rural industrialisation. It may be said that the outlook is positive. the bottleneck of the sector has been the inadequacies in capital. differentiated by quality. Small & Medium Enterprises also reflect the growth trajectory of SSI industry in India. preferential treatments to MSMEs in the market development fund. the performance has been commendable both in terms of value and their share within the MSME sector while in some cases like sports goods they account for 100% share to the total exports of the sector. The product groups which dominate the exports from SMEs sector include sports goods. Products of MSME exporters are displayed in international exhibitions free of cost under SIDO Umbrella abroad. The promotional and protective policies of the Government of India have ensured the presence of this sector in an astonishing range of products. The exports from SMEs sector have shown excellent growth rates in this decade. The capability of Indian MSME products to compete in international markets is reflected in its share of about 40% in national exports. export promotion from the small scale sector has been accorded high priority in India's export promotion strategy which includes simplification of procedures. leather goods.
the Government has emphasized on its growth and development. 2010’ on www.5 million (94%) are in the unregistered segment. etc. Some of the major subsectors in terms of manufacturing output are: Table 3: Major Subsectors of SME’s (in terms of Manufactured Output) Product Food Products Textile and Readymade Garments Basic Metal Chemicals and Chemical Products Metal Products Machinery and Equipment Transport Equipment Rubber and Plastic Products Furniture Paper and Paper Products Leather and Leather Products % of Manufactured Output 18.9 % 2.Uttar Pradesh. It has taken various measures/initiatives from time to time which have facilitated the sector’s ubiquitous growth.1. launching of Prime Minister’s Employment Generation Programme (PMEGP) to generate employment opportunities.03 % 1. Tamil Nadu. Small and Medium Enterprises Development Act. About 7% of MSMEs are owned by women More than 94% of the MSMEs are proprietorships or partnerships.msme. 2006.5 million are in the registered segment while the remaining 24.98 % Source: Publication ‘PM’s Task Force on MSME. launching of new/innovative schemes under National Manufacturing Competitiveness Programme (NMCP). announcement of a Package for promotion of Micro and Small Enterprises (MSEs).5 % 3.97 % 14.4 SME Insights As per the quick estimates of 4th All-India Census of MSMEs.35 % 4. The State-wise distribution of MSMEs show that more than 55% of these enterprises are in 6 States. West Bengal.in In view of the MSME sector’s role in the economic and social development of the country.52 % 6. only 1. Of the 26 million MSMEs.05 % 8.62 % 2. MSMEs in the country manufacture over 6.gov.81 % 7.000 products. Andhra Pradesh and Karnataka.55 % 7. Maharashtra. 8 . Some of the recent measures include enactment of the Micro. the number of enterprises is estimated to be about 26 million and these provide employment to an estimated 60 million persons. amendments to the Khadi and Village Industries Commission Act.
There is. buyer-seller meets. in view of the dependent relationship of such enterprises with the large enterprise. adaptation and innovation. food processing. Lean Manufacturing. they also face several problems. etc. etc. Several measures have been taken by the Government towards this endeavour such as ancilliarisation. telecom equipment. Such arrangements has not only helped in providing marketing linkages but has also resulted in technological linkages through provision of product specification and design. paper. acquisition. chemicals and petrochemicals. Simultaneously. 9 . Some of the major problems include: (i) Considerable delays in payments. hese could be broadly grouped into the following three categories. a need to promote inflow of equity capital into this sector by providing suitable incentives to MSME-focused angel/venture capital funds as well as by setting up of SME Exchanges/platforms. therefore.The MSME sector in India is highly heterogeneous in terms of the size of the enterprises. etc. Quality Management Standards and Quality Technology Tools. The programme includes several new and innovative schemes (viz. These include MSMEs in sectors like textiles and garments. Such enterprises not only have high potential for growth but could also contribute significantly in enhancing country’s exports. In addition. there is a need to make massive efforts for dissemination of information on the latest/modern technologies among the MSMEs and supporting them for undertaking technology upgradation. This has resulted in a significant number of micro and small enterprises operating under some system of sub-contracting with large enterprises. The Government has launched the National Manufacturing Competitiveness Programme with the objective of enhancing the competitiveness of MSMEs. it is not only difficult for them to invest in research and development activities but even to acquire modern and latest technologies available in the market due to high costs. IT hardware and electronics. vendor development programmes. One of the major constraints in growth of such enterprises is access to equity capital.. leather and leather products. there is almost negligible flow of equity capital into this sector despite the fact that overall such capital inflow has witnessed significant increase in the recent years. Given their scale of operations. Another aspect that is critical for their growth is technology.) for assisting the MSMEs in adoption of best international practices to enhance their competitiveness. etc. drugs and pharmaceuticals. At present. based on the different sets of constraints faced and requirements of policy interventions: (a) High Growth Enterprises One end of the MSME spectrum contains highly innovative and high growth enterprises. auto components. However. variety of products and services produced the levels of technology employed. the Government also needs to encourage R&D in the engineering/technical institutions through suitable tax incentives and setting up of Business Incubators (b) Enterprises with market linkages (Sub-Contracting) Promotion of sub-contracting has been one of the important ingredients of the policy envisaged for the development of MSMEs in the country. Incubators. Design Clinics.
The National Commission for Enterprises in the Unorganised Sector (NCEUS) defines unorganized sector as enterprise employing less than 10 workers. The household enterprises operate on the basis of family labour – organizing production on its own. the small firms end up with practically no option but to dispose off their products (iii) Linkages such as financial and supply of raw material are seldom provided by the buyer enterprises (iv) Buyer enterprises are not bothered to ensure that such enterprises operate with minimum working conditions or comply with various regulations related to their working. where there are no hired workers and are run by self with or without the help of unpaid family members. 2006 provides for more rigorous provisions to counter the problems of delayed payments to the MSEs. The MSE Facilitation Councils constituted in the States have to become more active to help MSEs in quick resolution of disputes relating to delayed payments. A large segment in this universe of self-employed consists of those who are engaged in non-farm activities. this segment also consists of enterprises having hired workers between 2 to 9.e. The own account enterprises can be distinguished into those running within households and those outside the households. these enterprises are located in clusters but function independently without inter-firm linkages. acquire its own raw material.(ii) Uncertainty – in case of rejection. there is a need to provide enabling legal environment by suitably amending the labour and urban zoning laws that is conducive to setting up of new enterprises as well as functioning of existing enterprises. i. (c) Unorganized Sector Enterprises No discussion on MSMEs can be complete without a full treatment of the unorganized sector in which enterprises are typically established through own funds or funds obtained through non-institutional sources. Further. particularly working capital. Of these. Very often. with a large number established in the informal or unorganized sector. Apart from own account enterprises. important to address the constraints faced by the enterprises operating under such arrangements. the MSMEs need to be supported through appropriate programmes/schemes with focus on skill development and technology upgradation for improving the quality of their products so that rate of rejection is minimized. the sense of insecurity of contract prevents them from taking legal action for recovery of dues. more than half the workers are classified as ‘self-employed’. Also.. Shortage of capital. This segment predominantly consists of own account enterprises. While the MSMED Act. More than 94 per cent of MSMEs are unregistered. Sub-contracting offers significant scope for cost reduction and may lead to higher incidence of sub-contracting among micro and small enterprises. It is. there is an increasing pressure on industries to reduce costs to withstand the domestic as well as international competition. It has estimated such enterprises at 58 million with employment generated of 104 million persons. use its own machinery and tools and market its products. do not have established channels for marketing and are centered around a single traditional technology. is the major problem faced by the 10 . they lack managerial bandwidth. therefore. In the present globalized regime.
water. Knitwear Processed Foods Marine Products Leather Products Plastic Products Cosmetics. • Procurement of raw materials at a competitive cost. including power. Basic Chemicals & Pharmaceutical Products Engineering Goods % of SME’s in Exports 100 % 90 % 35 % 65 % 29 % 80 % 45 % 55 % 30 % 1. 11 . A similar situation exists for technology upgradation – market uncertainties. Although enterprises in the unorganized sector do not report skill shortages as a major constraint – may be because skilled workers demand higher pay. which are briefly indicated below: • Lack of availability of adequate and timely credit. they face some common problems. leave to work for competitors or establish enterprises themselves – it remains a serious barrier towards their upgradation/modernization. • Low technology levels and lack of access to modern technology. • Lack of skilled manpower for manufacturing. the field studies undertaken by NCEUS indicate that seasonality of markets is another major problem faced by them. packaging and product display. • Collateral requirements. Further. lack of information. etc have resulted in poor adoption of even the available technologies by the enterprises in the unorganized sector. designing. etc. services. • Limited access to equity capital. marketing. • High cost of credit. • Problems of storage. • Inadequate infrastructure facilities.5 Problems/Challenges faced by SME’s Although Indian MSMEs are a diverse and heterogeneous group. • Lack of access to global markets. roads.enterprises in the unorganized sector. • Multiplicity of labour laws and complicated procedures associated with compliance of such laws. Table 4: Percentage of SME’s in Exports of Various Goods Product Sports Goods Ready Garments Woolen Garments. etc. • Problems in supply to government departments and agencies.
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 unutilized” 1977 Policy Statement . etc.A high watermark in the evolution of the policy for small industry was the ‘Industrial Policy Statement’ of 1977. the government announced its second industrial policy which unambiguously chose equity as the guiding principle for small industry development. the guarded initiatives of earlier years were cast aside by a heightened zeal for an expanded role for this sector. marketing surveys. centralized planning was adopted with wide ranging controls on private trade. * The focal point of development for small sector and cottage industries will be taken away from big cities and state capitals to the district headquarters. cottage industries must only be so produced * The number of products reserved for SSI was increased from 180 to 504 and further to 836 items in 1986. It was then that the protection of small industry touched its acme. * Special attention to be given to the `Tiny Sector’ defined as enterprises with investment in plant and machinery of upto Rs. In each district.000 * Special Legislation will be introduced to give due recognition and adequate protection to the self-employed in cottage and household industries. begun in 1967. which marked the evolution of Indian Industrial Policy. land ownership and foreign exchange. 1980 Policy Statement .6 Changes in Industrial policy over the years 1948 Policy Statement . investment. Moreover. The foundations of the policy for the small scale industry were laid in the Second Five Year Plan. 1 lakh and situated in towns and in villages with population less than 50. the reservation of products for exclusive manufacturing by the small industry.• Absence of a suitable mechanism which enables the quick revival of viable sick enterprises and allows unviable entities to close down speedily. In order to optimize the utilization of scarce resources and reduce the threat of recolonization by the multinationals. in particular. In 1956. 12 . * Special arrangements for marketing of the products of Small Scale Sector will be made by providing services such as product standardization. • Identification of new markets 1. The important planks of the 1977 industrial policy statement were: * Whatever can be produced by small. 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. and • Issues relating to taxation. was greatly extended to many more products. The operative statement says: “small scale industries provide immediate large scale employment.The recognition of the importance of ancillary industry found expression in the policy statement of 1980 which laid emphasis on ancillaries. This will be called “District Industries Center”. and procedures thereof. both direct and indirect. there will be one agency to deal with all requirements of small and village industries.The Industrial Policy Resolution of 1948. the program for the development of rural and backward areas was accelerated. quality control.
1. Thus a cluster of MSMEs.The Industrial Policy Statement of 1985 made incremental changes and took into account the impact of inflation. components and machinery or the availability of workers with sector specific skills. A way of categorizing the clusters depends upon the type of relationship amongst the constituents of a cluster which may be important for the establishment and growth of not only an individual enterprise but also for the entire cluster. innovation and collective learning. The investment ceiling for SSI was raised to Rs. with a few exceptions. Around 636 SME (industrial) and 6000 artisan/micro enterprises clusters are estimated to exist in India. hereafter referred to as “cluster”. a town or a city and its surrounding areas. Features of Cluster: • • • Give rise to collective benefits.7 SME Clusters A cluster is a sector targeted geographical concentration of micro and/ or small & medium enterprises service providers and institutions faced with common opportunities and threats. The micro and SME clusters in India are estimated to have a significantly high share in employment generation. Import of capital goods has been significantly made free from restrictions. Such relations are dependent on i) the 13 . Foreign equity participation is also encouraged. administrative and financial services. for example through the spontaneous inflow of suppliers of raw materials. With the lifting of several trade and investment related restrictions. would no longer need licenses. The openness that has come with the ongoing economic reform process during the last five years has hastened several changes and the debate has shifted from the 'whys' to 'hows' indicating high level of acceptability of the reform process. 35 lakh and for ancillaries to Rs. Create a conducive environment for the development of inter-firm co-operation as well as of co-operation among public and private institutions to promote local production. Full foreign ownership will henceforth be possible in export – oriented enterprises. a cluster of MSMEs is a concentration of economic enterprises. Foundation for MSME Clusters assists institutions in undertaking cluster based local area development. Most of the medium and large industrial units. India is witnessing a mini-revolution in its economic growth faced with the challenges of global market and competitiveness. 45 lakh 1991 Policy Statement . producing a typical product/service or a complementary range of products/services within a geographical area. Favour the creation of providers of specialised technical. In other words. The location of such enterprises can span over a few villages. is identified by the ‘product/service’ that the micro and small enterprises produce and the ‘place’ where the enterprises are located.The Industrial Policy of July 1991 marks a conscious shift from the regulated and controlled policy to a liberal one.
we have preferred to keep the mixed character a separate classification. However. in all of which it is possible to split the production process and farm out to separate firms due to non perishable character of the product. Some of their examples are sports goods in Jallandhar.This is usually witnessed in the case of hosiery. textile processing and metal products. ii) the policies of the government that may regulate the entry of firms into the market and thus their competition with medium & large firms and iii) on how the relationship it may have evolved over a period of time. Second. thus shifting to horizontal linkages rather than vertical ones. this becomes feasible if it requires a degree of specialization for each of the processes involved. This may indicate the individualistic approach to business in clusters or no scope for division of units. Example – 14 . Based on these relationships. it may be a possible to develop an indicator that if more than half of the SMEs in particular cluster are large unit based. Large Unit Based: A cluster which is established around a large unit or a few large units is called a large-unit based cluster. most of which are essentially SMEs. in order to distinguish from the large unit based clusters. This phenomenon may also be witnessed due to splitting up of units to remain small for easy management. Small firms in such clusters therefore tend to shift to products with wider application or for the product for replacement markets through trader intermediaries. the clusters can be classified as : Horizontal clusters: This type of cluster is characterized by units which process the raw material to produce and subsequently market the finished product themselves. Vertically integrated clusters: In vertical clusters the operations required in producing the finished product are divided and are carried out separately by different units. However. Since a mixed character may emerge in several clusters. for escaping labor regulations that come into force when the firm grows to become large and/or to enjoy the policy related advantages that the small firms are entitled to. agricultural pumps cluster in Coimbatore etc. They could also undertake to produce the final product by developing trading and non trading links among themselves depending upon whether it could technically be feasible to do so. Development of a cluster of ancillary units is one of the examples of large unit based clusters. as the different stages of production are confined to a unit itself. their relationship with small firms within the cluster may or may not be healthy and long term oriented as has been witnessed in the case of automotive components industry except in the case of Maruti Udyog Ltd. There is a high degree of inter-dependence among the small firms in the vertically integrated clusters.nature of production processes. The relationship that exists between the small and the large units could be based on supply of some of the critical raw materials from large enterprises or on their working as subcontractors to the large firms which means they are either backward linked or forward linked. even where the large firms have their strong presence. it could be called large munit based cluster.
Sangrur Diesel Engines: Phagwara Auto Components. Cutting Tools: Patiala The SME clusters are well connected through roads. railways and air transport. International Airport at Rajasansi (Amritsar) and two aerodromes at Patiala and Sahnewal (Ludhiana). 4. Rice Mills: Jammu/ Kathua Timber Joinery/ Furniture: Srinagar The major SME clusters in Gujarat: 15 . 5. The length of the rail routes passing through the State is around 3. 7. 11. 13. Madhopur Bharatpur belt Marble Slabs: Kishangarh Chemicals: Alwar Plaster of Paris: Bikaner Sand Stone: Mahuwa Food Processing: Ganganagar Gems & Jewellery: Jaipur Wooden Furniture: Shikhawati The major SME clusters in Jammu and Kashmir: 1. 12. Rice Mills: Amritsar Shoddy Yarn. Electroplating: Ludhiana Bicycle Parts: Ludhiana Agricultural Implements. bridges and buildings. 10.726. 9. 6. The major SME clusters in Rajasthan: 1.The major SME clusters in Punjab 1. Govindgarh Machine Tools: Batala Rice Mills: Batala. Oil Mills: Alwar. Rail communication with Pakistan also emanates from Punjab (Amritsar). 6. 8. S. Hand tools: Jalandhar Rubber Goods: Jalandhar Wooden Furniture: Kartarpur Rice Mills: Kapurthala. 15.06 km. 8. 2. 4. 2. 14. 3. one domestic airport at Chandigarh. Gurdaspur Castings & Forging: Batala Sports Goods: Jalandhar Agricultural Implements. 7. Cricket Bats: Anantnag Steel Re-rolling: Jammu Oil Mills. There are Four Civil Aviation Clubs at Ludhiana. Patiala. 3. 3. Amritsar and Jalandhar. 2. Powerloom: Amritsar Steel Re-rolling: Mandi. Public Works Department Building and Roads branch has been responsible for assets of State Government in terms of roads. 4. 5.
1 Overview of the Auto-Component Industry The Indian auto component industry has been navigating through a period of rapid changes with great élan. The global auto components industry is estimated at US$1. Diamond Processing: Ahmedabad. Vapi/Ankleshwar Chapter 2 – Auto-Component Industry 2.2 16 . Machine Tools. Wood Product & Furniture. Driven by global competition and the recent shift in focus of global automobile manufacturers. Powerloom: Kalol 9. Diamond Processing. Diamond Processing: Rajkot. Weights & Measures: Savarkundla 6. Auto Parts. Cotton Cloth Weaving: Vijapur 11. Readymade Garments. Machine Tools.Bulk Drugs: Ahmedabad. Auto components: Ahmedabad 5.1. Bhavnagar 8. Chemicals. Steel re-rolling. Machine Tools. Castings & Forging. Wall Clocks: Morvi 12. Textile Machinery Parts: Ahmedabad 2. Electric Motors. Surat. Plastic processing. business rules are changing and liberalisation has had sweeping ramifications for the industry. Diesel Engines. Oil Mills Machinery: Amrelli Juna Garh Rajkot belt 7. Choryasi 13. Wood Product & Furniture: Jamnagar 10. Steel Utensils. Dyes & Intermediates. Electronic Goods: Ahmedabad 4. Brass Parts. Moulded Plastic Products. Pharmaceuticals. Paper Products: Ahmedabad 3.
R&D facilities and design capabilities. applied to re-designing of production processes. has negated any possible concentration of the market in a few hands. These companies are in the process of making a mark on the global arena. listed 22 auto component manufacturers as top companies in India with a total turnover of US$ 3 bn. The Indian auto component industry is one of the few sectors in the economy that has a distinct global competitive advantage in terms of cost and quality. Rico Auto and Subros. Motherson Sumi. The Indian auto component sector has been growing at 20% per annum since 2000 and is projected to maintain the high-growth phase of 15-20% till 2015. published by Dun & Bradstreet in 2006. raw material availability.trillion. The key to competing in this industry is through specialisation by product-type. Bharat Forge. 17 . The India’s Top 500 Companies. and some have already acquired assets abroad. technically skilled manpower and quality assurance. An average cost reduction of nearly 25-30% has attracted several global automobile manufacturers to set base since 1991. Several large Indian auto component manufacturers are already gearing to this new reality and are in the process of substantially investing in capacity expansion. Some leading manufacturers of auto components in India include Motor Industries Company of India. India’s processengineering skills. with each broad product segment having a different market structure and technology. Amtek Auto. However. Today. Innovation and cost pruning hold the key to meeting the global challenge of rising demand from developed countries and competition from other emerging economies. Sundaram Fasteners. have enabled reduction in manufacturing costs of components. Wheels India. establishing partnerships in India and abroad. India has become the outsourcing hub for several global automobile manufacturers. acquiring companies overseas and setting up greenfield ventures. The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The range of products manufactured. The value in sourcing auto components from India includes low labour cost. and integrating operations across the related area of specialisation. there are a select few large companies that have integrated their operations across the value chain.
As part of a highly fragmented industry.This regional concentration of auto component manufacturers has been dictated by the emergence of automobile manufacturers in these regions. and most of the companies in the SME segment are in the Tier II or below. Few of the suppliers to OEMs are medium scale enterprises. these companies mostly are part of the unorganised sector. The regional base of auto component manufacturers is mostly concentrated in the West. Bajaj. Mahindra & Mahindra and TVS in the 1950s and 1960s laid the foundation for auto component manufacturers in the West and South. This new business model being followed by global companies holds tremendous potential for the growth of small and medium enterprises (SMEs) in India.Figure 1 – Segments of Auto Component Products An interesting insight provided by a study conducted by the National Council of Applied Economic Research revealed that the market segments for auto components included OEMs constituting 33%. Auto component SMEs are one of the fastest growing within the SME category of industries. The set up of Tata Motors. local components having 25% with the balance 42% comprising of spurious market including re-conditioned parts.2 SME’s in the Auto-Component Industry The division of production processes and outsourcing among global automobile manufacturers has led to a major reorganisation of the supply base within the automobile and auto component industry. These units are key contributors to the total production of auto components and also have a significant share in the exports of the industry. 2. whilst the entry of Maruti during the 1980s created the base in the North. North and South of India. 18 . A large part of the spurious or grey market companies are in the unorganised sector. They operate in a tier framework.
The SMEs are riding a boom phase. Nevertheless. This bodes well for the auto component industry as it would enable the collective development auto component SMEs. are some key factors the auto component SMEs will have to imbibe to survive in the new global set-up. especially raw materials like steel. Strategic tie-ups and contract manufacturing is another way forward for SMEs in the auto component industry. customer orientation. Cost competitiveness. these companies face the limitations of being SMEs. new products and an assured market. aluminium. the government is encouraging banks to adopt a cluster-based lending approach to ease availability of funds to SMEs. like • • • • • • • Low capital base Limited generation of surplus funds for re-investment due to tight working capital cycle Lack of awareness of business opportunities Inadequate exposure to international environment Limited geographical diversity of markets Obsolete Technology Poor infrastructure facilities Despite these limitations. Delphi and Ford of US and some European companies have announced plans to enter the Indian markets. polymers Poor negotiation powers due to fragmented nature of industry. This form of networking of small firms is a means of achieving economies of scale. This will bring in better technology. lead time. which in turn limits their pricing power Dependence on traders and agents to access overseas markets which threatens their competitiveness Product substitutes due to fast-changing technology Addressing these challenges and risks will be crucial to promoting SMEs in the auto component industry. skills. The key risks that the auto component SMEs faces include: • • • • Fluctuations in the cost of production. At the same time. the SMEs have managed to significantly contribute towards development of India’s industrial base. 19 . administrative and financial services. The government has initiated cluster-based development – geographical concentration of enterprises having similar lines of business – which gives rise to external economies and favours emergence of specialised technical. Multinational automobile manufacturers like Magna International of Canada. sustenance and survival still remains an issue of concern for these companies as they will have to absorb global best practices in this competitive environment. driven by demand from global auto manufacturers. The industry is undergoing a major restructuring and many existing companies are expected to move up in the value chain to a higher tier. Extending this intitiative further.
The outlook for the industry is bright and is expected to continue on a high-growth trajectory for the next 10 years. Capitalising on this growth prospect will mean keeping pace with global developments and imbibing capabilities that will give an edge to Indian SMEs in surviving this rapidly changing competitive environment.Looking forward.3 SME insights Figure 2 20 . Andhra Pradesh 1 Delhi 1 Gujarat 5 Haryana 3 Jharkhand 1 Karnataka 2 Maharashtra 5 Madhya Pradesh 1 Punjab 4 Tamil Nadu 1 2. Table 5 – State-Wise Distribution Auto Component Clusters in India State No. it is the best of times for Indian auto component manufacturers.
Figure 3 Figure 4 Figure 5 21 .
Figure 6 Figure 7 22 .
Figure 8 Figure 9 Figure 10 23 .
Further. The vision to compete globally comes from the inherent strengths the Indian auto component industry possesses. Also.2. Key players are not only willing to invest in R&D but also in mechanical and engineering operations. • Export of automobiles has also emerged as a key component of growth. the model of cluster-based development prominent in this sector will provide economies of scale. • The entry of global OEMs. making India as their manufacturing base. • These factors portend a robust auto ancillary industry in India and the overall expected good growth will provide several opportunities for the emergence of new enterprises. Also. the export of India-made models of global OEMs like Hyundai’s Santro Xing and Suzuki’s Alto has given a boost to the industry.4 Future Outlook The factors that will drive growth for the auto component industry are: The growth expected in the domestic automobile industry will give a fillip to the auto component sector. has given a big boost to the industry. Skoda plans to source parts for its European operations from its Indian base and raise indigenisation level for Indian models to 70%. Rising exports of Indian-made vehicles like M&M’s Scorpio model. • The Government’s initiatives towards opening up channels of finance. • De-regulation and the Government’s policy initiatives have facilitated growth and focus has now shifted towards attracting foreign direct investments. The Indian automobile industry offers great potential considering the low penetration along with rising income levels and a rapidly growing middle class. Some features are: • • • • • • Cost reduction of 25-30% in production in the domestic market compared to overseas Low labour costs Designing. These investments are expected to increase in the near future 24 . Extending their reach to global markets is the pre-dominant outlook among the top auto component manufacturers in the country. engineering and technical skills Established quality systems Availability of raw materials Adaptability to new technology • Investments in research and development. Bajaj Auto’s Bikes. These two segments are estimated to grow at between 10-12% for at least the next five years. This trend has also enabled Indian companies to gain a competitive edge in the global market. • Investments coming in for research and development will keep the industry abreast of the latest technology. This stands out positively in favour of India. These factors will see a boost in demand for vehicles. coming in from global OEMs. the Government’s initiative towards road development will give a boost to demand for vehicles and indirectly auto components. especially passenger cars and two wheelers. Tata Motors’ City Rover are indirectly increasing the demand for Indian auto components. For instance.
The SMEs can exploit these opportunities through joint ventures. Figure 11 The overall trend is encouraging. a few risks exist that the auto component manufacturers may have to confront • • • • A global slowdown can derail the prospects of the industry. innovation and networking will determine the success of the SMEs in this globally competitive environment. global OEMs expect a commitment of 5-10% reduction in prices every year. specialisation. Knowledge. 25 .Though India rides on these inherent strengths. but remaining competitive in this changing scenario will be the toughest challenge. Further. Intense competition from counterparts in other emerging economies may add pressure on margins of manufacturers. collaboration and technical tie ups. Expansion and diversification will help break into new markets. Tier I manufacturers taking up greenfield projects overseas. Volatility in the prices of metals and other inputs could erode the industry’s cost competitiveness.
18% of employment in the industrial sector. after China. robust. India’s textile exports account for just 4. either directly or indirectly. The Indian textile industry is valued at US$ 36 bn with exports totalling US$ 17 bn in 20052006. made-ups and a variety of garments. estimated to be growing at 5% per year. the Indian textile industry is ranked second.1 Overview of the Textile Industry The Indian textile industry is one the largest and oldest sectors in the country and among the most important in the economy in terms of output. India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn exports • India accounts for 12% of the world’s production of textile fibres and yarn • In terms of spindleage. and in combination with the EU nations. At the global level. investment and employment. accounts for 64% of clothing consumption. enjoying considerable demand in the domestic as well as global markets. • 26 . including handlooms. cheap labour. Quota constraints and shortcomings in producing value-added fabrics and garments and the absence of contemporary design facilities are some of the challenges that have impacted textile exports from India. is the second-highest employer in the country. With direct linkages to the rural economy and the agriculture sector. The export basket includes a wide range of items including cotton yarn and fabrics. The US market is the largest. A strong raw material production base.Chapter 3 – Textile Industry 3. for its livelihood. with a share of 61% in world loomage. and 16% of the country’s total exports earnings. a vast pool of skilled and unskilled personnel. man-made yarn and fabrics. India vis-à-vis Global Textiles The global textile and clothing industry is estimated to be worth about US$ 4.395 bn and currently global trade in textiles and clothing stands at around US$ 360 bn. Its importance is underlined by the fact that it accounts for around 4% of Gross Domestic Product. it has been estimated that one of every six households in the country depends on this sector. This is a traditional. wool and silk fabrics. 14% of industrial production. good export potential and low import content are some of the salient features of the Indian textile industry. 9% of excise collections. The sector employs nearly 35 million people and after agriculture. well-established industry. India’s presence in the international market is significant in the areas of fabrics and yarn. and accounts for 23% of the world’s spindle capacity • Around 6% of global rotor capacity is in India • The country has the highest loom capacity.72% of global textile and clothing exports.
2 mn weavers from 0. though it eroded the competitiveness of the industry and acted as a disincentive for capital investment. both grey as well as processed. viscose.2 SME’s in the Textile Industry The phasing out of the international quota system is a major turning point for the Indian textile industry – an opportunity and a threat. from 20% to 10% on textile machinery and from 24% to 16% in excise duty for polyester oriented yarn/polyester yarn • Reduction in corporate tax rate from 35% to 30% with 10% surcharge • Reduction in depreciation rate on plant and machinery from 25% to 15% • Inclusion of polyster texturisers under the optimal CENVAT rate of 8% • 3. large-scale production in the textile industry was curtailed through restrictions on total capacity and level of mechanisation. with growth driven largely by the powerloom sector. acrylic and polypropylene (PP) as well as multiple blends of such fibres and filament yarns such as partially oriented yarn (POY).The fibre and yarn-specific configuration of the textile industry includes almost all types of textile fibres. India is the largest producer of jute. yarns. jute. the second-largest producer of silk. fabrics and garments. Several textile items were reserved for the small scale segment. overall cloth production in the country has been growing at 3. The textile industry is among the SME intensive sectors in India. encompassing natural fibres such as cotton. These policies promoted the extensive growth of small scale textile enterprises that were highly labour intensive. the third-largest producer of cotton and cellulosic fibre/yarn and fifth-largest producer of synthetic fibres/yarn. The sector accounts for 63% of the total cloth production in the country and provides employment to 4.815 mn people.000 units. intermediates. The type of yarn used is dictated by the end product being manufactured. Being the largest manufacturer of fabric in the country. there are 1. the powerloom sector produces a wide variety of cloth. silk and wool.35 bn allocation with 10% capital subsidies for the textile processing sector • Initiation of cluster development for handloom sector • Availability of health insurance package to 0. It is well-established that India possesses a natural advantage in terms of raw material availability. Nonetheless. According to the Ministry of Textiles. synthetic / man-made fibres such as polyester. Focusing on promoting domestic employment. Government Initiatives A major boost to the 1999-established Technology Upgradation Fund Scheme for its longevity through a Rs 4. largely an outcome of government policies during the early years of Independence. nylon.5% per annum since 2000.02 mn initially • Reduction in customs duty from 20% to 15% for fibres.923 mn powerlooms in the country distributed over 430. 27 .
retailers like Zara.with roughly 70 textile clusters producing 80% of the country’s total textiles. Today. In the newly defined business environment for textiles. the readymade garments sector will play a crucial role in the economy. have been accepted as high quality and cost effective apparel suppliers in international markets.mostly natural clusters -.resulted in the dominance of the decentralised powerloom and handloom sectors in the textile industry. responsible for 80% of the country’s hosiery exports 28 . large. a buyer-driven network. As trade barriers come down and capital mobility increases. and big opportunities for SMEs are forthcoming. availability of raw material or private initiatives.pursued from the 1950s to the 1970s -. Small Scale Industries (SSIs) perform the bulk of the weaving and processing operations. In the cloth production segment. many of the large textile companies are also conglomerates of medium sized mills. marketers and manufacturers. which are mainly small and medium scale enterprises. in terms of contributing to exports as well as employment generation. Alok Industries. among others. hosiery suppliers of Ludhiana and suppliers of home textiles from Tamil Nadu. Kerala and Punjab. some noteworthy textile clusters include: • • Panipat. which was believed to be the most effective way to foster productivity and efficiency within the sector. Statistics released by the Ministry of Textiles shows a highly fragmented industry. These regions are also SME dominated textile clusters that have emerged either due to market access. H&M. is dominated by retailers. Raymonds. Welspun India. The organised sector contributes over 95% of spinning. have redefined the life of fashion trends from the earlier five to six months to around two months. etc. Arvind Mills and Madura Garments. Buyer-Driven Network The global textile industry. but hardly 5% of weaving fabric. It is likely that India will become a preferred destination for global manufacturers and retailers as well. the small scale operations of Indian SME apparel manufacturers gives them the flexibility to service custom-made orders at low cost. The textile industry of India operates largely in the form of clusters -. All textile items were removed from the reservation list by 2005. In fact. In the new scenario of a quota-free world.These policies -. These measures were a prerequisite to compete globally in the post-MFA regime. Cotton knitwear suppliers of Tirupur. apart from the big Indian textile manufacturers like Gokuldas Exports. considering its inherent labour-intensive nature. organised and integrated firms will gain importance in establishing a presence in the global market and to tap opportunities. the hosiery and mill sectors are likely to be the gainers. De-reservation of textile products has been a priority area for the government since 1997. several small and medium sized apparel manufacturers have also become significant contributors to the total apparel exports of the country. accounting for 75% of the total blankets produced in the country Tirupur. In this scenario of such short shelf-life. Based on a UNIDO study conducted on SME clusters in India. except in the spinning sub-segment.
Ludhiana, which accounts for 95% of the country’s woollen knitwear produced.
Cluster-based Approach to Development Inspite of some natural advantages such as low costs and flexibility, the SMEs suffer from disadvantages of being in a relatively isolated environment. The Government of India’s cluster development initiatives, involving technical assistance, subsidies for technology upgradation and marketing support, have strengthened the competitiveness of the SMEs, which has also consolidated their position in the global value chain. A case in point is the initiative undertaken by the Textile Committee under the Ministry of Textiles, which has undertaken a cluster-based programme for capacity building in textile and clothing SMEs in across 20 clusters in the country. Some key benefits of a cluster based approach for developing SMEs are:
• • • • • • •
Networking among enterprises Economies of scale Improved bargaining power Technology and skill upgradation Global visibility and being part of the value chain Easier access to finance Greater institutional support.
Among the successes of the Textile Committee’s cluster development initiatives has been the acquiring of intellectual property rights protection for the Pochampally Ikat tie-and-dye sari, from Andhra Pradesh. It is the first traditional Indian craft to receive this status of XXVIII geographical branding, and is expected to benefit at least 100,000 weavers in the state. The powerloom clusters in Sholapur and Salem are also following suit in acquiring geographical indications protection. Another successful initiative is seen in the Terry Towel cluster of Solapur, where some major interventions were undertaken by the committee such as setting up of a polytechnic institute, acquiring quality certifications for some of the units, setting up an export consortium and establishing networks. The concentration of textile firms in the form of clusters is to a natural advantage for adopting a cluster-based development approach of the textile SME segment. International and domestic experience has proved that this approach has helped firms in attaining competitiveness -- a requisite in today’s new market.
Linking with the Global Value Chain An inevitable outcome of the opening up of the textile markets is the rationalisation of supplier base by large retail chains such as Wal Mart and Gap. Under such circumstances, it will be difficult for small enterprises to individually meet the requirements of these international buyers. Hence, it will be essential to build value networks through linkages with large players who can win large orders, while smaller players service these orders. This entry into value networks will not only link up small players to the global value chain but also assure a market for their products. Incorporation of textile SMEs as third and fourth tier suppliers will be an effective way of ensuring that they gain from the growing demands of the global market. However, here the role of the government and the large textile companies will be imperative.
3.3 SWOT Analysis of the Indian Textile Industry
• • • • • • •
Self reliance Manufacturing flexibility Abundance of raw material production Design expertise Availability of cheap labour Growing economy and domestic market Progressive reforms
• • • • • •
Highly fragmented High dependence on cotton Lower productivity Declining mill segment Technological obsolescence Non-participants in trade agreements
• • • •
End of quota regime Shift in domestic market to branded readymade garments Increased disposable income Emerging mall culture and retail expansion
Stiff competition from developing countries; especially China Pricing pressure
Locational disadvantage International labour and environmental laws
3.4 SME Insights
Table 6: Indian Textile Clusters Cluster Location Guntur Nagari Narsapur Pochampally Anantpur Sirsilla Warangal Delhi Ahmedabad Jetpur (Rajkot) Gandhinagar Surat Vijapur Bhiwani Gurgaon Panipat Bangalore Belgaum Bellary Gadag Mysore Ernakulam Faizlure Kannur Mallappuram Palakkad Burhanpur Chanderi Indore Jabalpur Maheshwar State AP AP AP AP AP AP AP Delhi Gujarat Gujarat Gujarat Gujarat Gujarat Haryana Haryana Haryana Karnataka Karnataka Karnataka Karnataka Karnataka Kerala Kerala Kerala Kerala Kerala MP MP MP MP MP Product Specialisation Powerloom & Cotton Ginning Powerloom Crochet lace Tie and dyeing Jeans/ RMG Powerloom Powerloom RMG/ Hosiery RMG Textile printing Powerloom Powerloom Weaving Powerloom RMG Powerloom RMG Powerloom Jeans Powerloom Silk Powerloom Powerloom Handloom Powerloom Powerloom Powerloom Handloom RMG RMG/ Powerloom Handloom
SMERA (SME Rating Agency of India Ltd) 32 .Ujjain Bhiwandi Ichalkaranji Madhavnagar Malegaon Mumbai Nagpur Pune Solapur Balasore Dhenkanal Ganjam Nuapatna Amritsar Ludhiana Jaipur Jodhpur Kishangarh Sanganer & Bagru Bhavani & Chennimalai Karur Madurai Rajapalyam Salem Surampatti Tirupur Agartala Banda Gorakhpur Jhansi Kanpur Lucknow Mau Noida Varanasi Kolkata Ranaghat MP Maharashtra Maharashtra Maharashtra Maharashtra Maharashtra Maharashtra Maharashtra Maharashtra Orissa Orissa Orissa Orissa Punjab Punjab Rajasthan Rajasthan Rajasthan Rajasthan TN TN TN TN TN TN TN Tripura UP UP UP UP UP UP UP UP WB WB Powerloom Powerloom Powerloom Powerloom Powerloom RMG/ Hosiery Powerloom. RMG RMG Powerloom Powerloom Powerloom Powerloom Tussar silk Powerloom Woollen knitwear Garments Hand processing Powerloom Hand block printing Home textiles Home textiles Tie & dye. hand printing. UNIDO.RMG Surgical textiles Powerloom Powerloom Knitwear/ Hosiery Handloom & Loin Looms Powerloom Powerloom Powerloom Hosiery Chikan embroidery Powerloom RMG Powerloom Hosiery/ RMG Powerloom Source: D&B Research.
3.5 Future Outlook
Expectations are high, prospects are bright, but capitalising on the new emerging opportunities will be a challenge for textile companies. Some prerequisites to be included in the globally competing textile industry are:
• • • • •
Imbibing global best practices Adopting rapidly changing technologies and efficient processes Innovation Networking and better supply chain management Ability to link up to global value chains.
Strategic Initiatives 35
Business integration -. are now keen to enter the readymade garments space. Some recent domestic acquisitions that have been executed in 2006 include KSL & Industries’ acquisition of Deccan Cooperative. following suit with other majors like Century Textiles and Raymonds. Table 7: Foreign Acquisitions by Indian Textile Companies Period May 01 Jun 01 Sep 01 Sep 03 Dec 04 May 05 Jun 05 Dec 05 May 06 May 06 Jul 06 Jul 06 Jul 06 Acquirer Arvind Mills Ambattur Clothing Raymonds Jindal Polyester JCT Ltd Reliance Group Zodiac Clothing GHCL Malwa Industries Malwa Industries Welspun India Spentex Industries GHCL Acquired Company License Of ‘Healthtex’ Kidswear Brand Of Vf Corpn (USA) Colourplus (UK) Regency Texteis Portuguesa Limitada (Portugal) Rexor Group (France) CNLT Malaysia (Synegal) ICI Pakistan Ltd (Pakistan) Shirting Company Located In AlqozeIndustrial Area (Dubai) Dan River (USA) Emmetre Tintolavanderie Industrial (Italy) Third Dimension Apparels (Italy) CHT Holding (UK) Tashkent-To’yetpa Tekstil Ltd (Uzbek) Rosebys (UK) Source: D&B Research Implications for SMEs 36 .especially forward integration -. Acquisition is the most logical step towards integrating operations and building the value chain. Several companies that are engaged in fabric manufacturing. A recent entrant is Siyaram. Another growing phenomenon observed among Indian textile companies is the setting up of manufacturing facilities in strategic regions outside India. Zodiac and Ambattur Clothing have set up facilities in the Gulf region to cut down on export delivery schedules to the European and US markets. Raymonds has set up a unit in Bangladesh to avail of the zero duty access to the EU. and Ambattur Clothing taking over Celebrity Fashions. which launched its readymade garments range in Nov 06.by the larger textile companies has been prominent among Indian companies. where they can avail of duty concessions and reduce export lead-time.
For fabric manufacturers in the unorganised segment. rising demand and preference for ready-to-wear outfits in the domestic market will sustain a large number of units in this sector. The segment that is likely to be hit is weaving. A possible remedy could be for these weavers to align with bigger players or integrate operations that would ensure off-take of their products. This will erode the viability of the hitherto protected powerloom and handloom operators numbering over 400. On the basis of these strengths. The SMEs in the powerloom and handloom sector will face significant churn in the future. Spinning mills that account for 95% of the yarn and fibre production. India’s key assets include a large and low-cost labour force. sufficiency in raw material and spinning capacities. It will thus be essential for SMEs to align with these firms. this will mean inefficient units losing out eventually. but will be difficult to sustain in a globally competitive environment. that can ensure a market for their products and new orders. while the more efficient and dynamic ones aligning with manufacturers or buyers. will move up the value chain into weaving.The new business dynamics have varying undertones across the value chain.000. who have remained insulated from competitive forces so far.For readymade garment SMEs. sizable supply of fabric. The fragmented industry structure has in the past been beneficial in generating employment. with composite mills and large integrated firms being their preferred partners. India will become a major outsourcing hub for foreign manufacturers and retailers. This will be the most thriving segment in the industry and SMEs will play a key role. 37 .
With the BPO going strong for the past few years. In contrast.4 billion in 2009-10. is still at a nascent stage of development in the country. It is expected that emergence of the KPO market will offer high-value services in off shoring and help the Indian ITeS Industry to climb the global value and knowledge chain. Government is actively pursuing measures to stimulate the growth of Electronics Hardware Industry. application management. and an improving policy and regulatory environment have enabled both domestic and foreign firms to rapidly expand in the internationally competitive IT services sector.7 billion in 2008-09 to $12. It provides a complete technology road map on how the Indian IT sector has evolved over the years and detailed information about the policies and events.7 billion in year 2009-10. which remains heavily dependent on imports of components and finished IT goods. Though the United States & United Kingdom still remains the dominant market. ITeS-BPO exports are estimated to grow from $11. custom applications. The Indian Software and Services export is estimated to grow at 5.Chapter 4 – IT Industry 4.5% and to generate export revenue of $49. India now has a 62% share of the global technology services market (IT Services.1 billion in 2009-10. Information Technology Industry in India 2010. infrastructure management. the IT hardware segment has lagged and has focused very largely on the domestic market. accounting for about 79%. showing a growth of 5. Competitive factors such as skilled workers. provides a comprehensive understanding of the entire market dynamics of the Information technology sector to assist players interested in assessing the market opportunities in this robust and dynamic market. The key highlight of the report is that it presents a complete and coherent competitive overview of the Indian Information Technology. adequate telecommunication networks. Growth in Indian information technology in the world market is primarily dominated by IT software and services. software testing and web development. the Knowledge Process Outsourcing (KPO). accounting for almost 51% of the global sourcing market size of $94 billion in 2009.1 Overview of Indian Information Technology Industry The Information Technology (IT) Sector has been one of the hotshots of Indian economy. The IT services exports is estimated to be $27.3 billion in 2009-10 as compared to US $ 25. including system integration. social. The Indian IT & ITES Sector has grown considerably over the last decade to contribute over 6% of the country’s GDP. a year-on-year growth of 6%.8 billion in 2008-09. India is regarded as the premier destination for the global sourcing of IT-ITeS. Along with a 38 . Remarkable transformation and growth of the economy has created opportunities both in exporting software and services and in the domestic market. the Continental Europe and Asian markets are catching up as they witness higher growth in demand. legislative and environmental trends impacting the sector. Besides providing detailed analysis of the Indian Electronics & IT hardware and Software & Services Sectors. technological. which may be called the highest level of the BPO. the report also conducts a scrutiny of the various political. IT consulting. for the Indian IT-BPO industry. economic. Engineering Services and R&D) of about $58 billion and a 32% share of the Global Business Outsourcing Market of about $37 billion. The revenue amassed by Indian information technology sector is estimated to have grown by over 5% to reach $73.8%.
telecommunications.20 million as of November.0% of the country's population.040. Pune. More than 2. a total of 81. Hyderabad. As a result hiring has dropped sharply and employees are looking at different sectors like the financial service. which have been growing phenomenally over the last few years. a total of 506.570. although 12% of India's population can speak in English. Kochi. but lack the vision or/ and adequate exposure Go alone approach.000 mobile phone connections. India's growing stature in the Information Age enabled it to form close ties with both the United States of America and the European Union. 4. WIPRO Table 8: Comparison of SME’s in IT industry 39 . In 2010-11. and manufacturing industries.detailed profile of top players in the industry. Mumbai. India's outsourcing industry is expected to increase to US$225 billion by 2020. the recent global financial crisis has deeply impacted the Indian IT companies as well as global companies.000 telephone lines in use. making it one of the biggest job creators in India and a mainstay of the national economy.000 people in the country have access to broadband Internet— making it the 12th largest country in the world in terms of broadband Internet users. Mostly followers of the successful models set forth by the likes of Infosys.000 Internet users—comprising 7. annual revenues from IT-BPO sector is estimated to have grown over US$76 billion compared to China with $35. This study is a critical guide to understanding the forces that produce the changes in the IT/ITeS Market and in making informed decisions on the industry. Kolkata. out of them only 25% to 30% possessed both technical competency and English language skills. the report further details various business models adopted by the leading players in the sector. Coimbatore. The other emerging destinations are Chennai. More in numbers though contribution to the IT industry's revenue bases is very low Focus on outsourcing led growth Missing entrepreneurial mindset. Desire to go global. By 2009. and 7.76 billion and Philippines with $8. Ahmedabad and NCR .000. Total fixed-line and wireless subscribers reached 543. However. Each year India produces roughly 500. Technically proficient immigrants from India sought jobs in the western world from the 1950s onwards as India's education system produced more engineers than its industry could absorb.2 SME’s in the Indian IT Industry Indian IT Small and Medium Enterprises Characteristics etc Mostly thriving on single contract or client.160.85 billion.000 engineers in the country. India also has a total of 37.5 million people are employed in the sector either directly or indirectly. The most prominent IT hub is IT capital Bangalore. 2009.
Beneficiaries of the most VC funds and policies implemented for SME’s Customized Service Provider/Integrator/ Reseller/ Product Companies/ Global Presence or Operations Manpower Strength – Strugglers Medium Act as a subvendor to the main vendor. Lack of Market Intelligence 40 . East Europe etc.3 The Looming Problems for Indian IT SME’s Large Dependency on Exports Indian Rupee appreciating Lack of means and information to hedge export risks. Multiple client base. Do not even qualify for most Venture Capital (VC) funds Mostly resellers Manpower Strength – Survivors Medium to High May have direct access/ dealing with the end user. Yet most of VC’s ignore them Service Provider/ Reseller 4. But No direct interaction with end client Moderate Capital. New competition from China. No direct interaction with end client Very small capital.Manpower Strength – Start-ups Very Less Act as a subvendor to another subvendor. Lack of financial patronage Very few Venture Capitalist are interested in the lower segment of SMEs which require more support Lack of proper infrastructure for SMEs to go for public issues in order to collect money for further investment. Qualify for some VC funds.
upcoming changes and competitors Limitations to get client /prospective partner. Retail. Entrepreneurship is on the rise. Healthcare.4 The Opportunities Ahead Growing domestic market. Potential for technology led growth Collaborations for reduced cost of operations Focused growth Booming economy has already roped in many VC and Angle funds Reverse brain drain : Brings in the global mindset – help creating the much needed environment. E-commerce etc. Limited ability to gather information regarding the market opportunities. Inflation is at all time high 4. employee verifications in new territories Cost of Operations going up Increasing Recruitment and Training Costs High employee attrition rate The SME sector has become a headhunting ground for the big companies. CII and Government agencies to support IT SME Emergence of tier 2 cities with IT infrastructure Potential Action Areas – E-Commerce Embedded Software Communication Gaming and Animation Mobile Devices/Application Website Content Open Source Solutions 41 . Specific emphasis by trade bodies like NASSCOM. FICCI.
Organize SME Focused delegations to and from India Cross industry tie – up for SME-SME interaction. Facilitating SMEs for bidding for contracts in a transparent manner. To help SMEs identify new market segments Promoting the cause of IT SMEs with various trade commissions across the globe. A fund for marketing SMEs will be created. To promote the SME participation by pitching at the policy level for Government contracts Nasscom is likely to form a formal SME forum both for meetings as well as on the Web.4. Initiating mentoring programs in association with large companies 42 .5 Nurturing Indian IT SME’s SIDBI (Small Industries Development Bank of India) Problems faced by SME’s Delayed Payment of Bills Schemes operated by SIDBI to address the problems Direct Discounting of bills scheme Invoice Discounting Scheme Bills Rediscounting Scheme Obsolescence of Technology Technological Development and Modernization Fund Scheme Single window composite loan scheme ISO 9000 Scheme: Subsidy on Quality Consultation Working Capital Availability Working capital term loan Short term loan NASSCOM (National Association of Software and Service Companies) Increase networking and face-to-face meetings between SME companies and potential customers in the developed markets. Creating SME oriented CIO forum from developed markets to facilitate B2B interactions.
43 . Association with State Government Help in Policy making E-governance Research 3. Infrastructure Support Incubation Facility Data Com Facility Non Built Area 2. small and medium entrepreneurs by creating conducive environment for entrepreneurship in the field of IT/ITES. STPI (Software Technology Parks of India) 1. To promote micro. Collaboration with Educational institutes Technology Incubators Provide domain expertise Enable Industry Interaction The objectives of STPI are – To promote the development and export of software and software services including Information Technology (IT) enabled services/ Bio. Creating detailed directory containing capability statements and service offerings for ready reference by potential clients. E-Governance implementation. Special division by CRISIL(S&P Company) to rate the SME sectors. To provide data communication services including value added services to IT / IT enabled Services (ITES) related industries. To provide statutory and other promotional services to the exporters by implementing Software Technology Parks (STP)/ Electronics and Hardware Technology Parks (EHTP) Schemes and other such schemes which may be formulated and entrusted by the Government from time to time. UN supply cell set up to promote and develop business of IT sector with various United Nations procurement agencies like UNIDO. Other Initiatives to support SME’s in IT sector CII (Confederation of Indian Industries) plans 100 clusters across the country only for SMEs Government of India directive to promote SME participation in Government projects.IT.
bill discounting etc. Various initiatives by Small Industries Development Organization (SIDO) targeted at developing Small Scale Industries (SSI) through credit guarantee schemes. 44 .
By international comparison.a. the industry holds tremendous opportunities for large investments. 21% in meat and 6% in poultry products. oilseeds. the highest producer of milk in the world at 90 mn tonnes p. wastage is estimated to be valued at around US$ 13 bn (Rs 580 bn). considering the still nascent levels of processing at present. Value addition to agriculture produce in India is just 20%. meals (edible). third largest producer of foodgrains and fish and has the largest livestock population. breakfast foods. A thrust to the food processing sector implies significant development of the agriculture sector and ensures value addition to it. The Indian food processing industry holds tremendous potential to grow. 70% in Brazil. around 35% in milk. wastage of agricultural produce is sizeable. biscuits. Availability of raw materials. malt extract. 78% in the Philippines and 80% in Malaysia. Though India’s agricultural production base is reasonably strong. with an arable land of 184 mn hectares is. ensure remunerative prices to farmers and at the same time create favourable demand for Indian agricultural products in the world market. dairy products. Strengthening this link is of critical importance to improve the value of agricultural produce. Considering the wide-ranging and large raw material base that the country offers. including non-alcoholic beer • Alcoholic drinks from non-molasses base • • • • 45 . protein isolate. poultry and eggs.1 Overview of the Food Processing Industry in India The food processing industry in India is a sunrise sector that has gained prominence in recent years. weaning food and extruded food products (including other ready-to-eat foods) • Beer. Ministry of Food Processing Industries The Ministry was set up in 1998 and the industry segments that come under its purview are: Fruit & Vegetable processing (including freezing and dehydration) Grain Processing Processing of Fish (including canning and freezing) Processing and refrigeration of certain agricultural products. these levels are significantly low . confectionery.Chapter 5 . along with a consumer base of over one billion people. 30% in Thailand. changing lifestyles and relaxation in policies has given a considerable push to the industry’s growth.. Processing of fruits and vegetables is a low 2%. India. meat and meat products • Industries related to bread. high protein food. second largest producer of fruits & vegetables (150 mn tonnes).processing of agriculture produce is around 40% in China. This sector is among the few that serves as a vital link between the agriculture and industrial segments of the economy.Food Processing Industry 5.
• • Aerated water and soft drinks Specialised packaging for food processing industries. Figure 18 Industry Sub-Segments Fruits and Vegetables Milk and Milk Products Meat and Poultry Marine Products Grain Processing Beer and Alcoholic Beverages Consumer Foods – Packaged/Convenience Foods. while the valueadded processed food market is around 40%. Soft Drinks 46 . The processed food market is projected to be over US$ 100 bn. of which the primarily processed food market accounts for 60%. The Ministry of Food Processing Industries. Cocoa Products. has estimated the size of the Indian food market at US$ 191 bn (Rs 8.600 bn). GoI.
Figure 19 In terms of policy support.2 SWOT Analysis of the Food Processing Industry Strengths • • • • Abundant availability of raw material Priority sector status for agro-processing given by the central Government Vast network of manufacturing facilities all over the country Vast domestic market Weaknesses • • • • Low availability of adequate infrastructural facilities Lack of adequate quality control & testing methods as per international standards Inefficient supply chain due to a large number of intermediaries High requirement of working capital. except for alcoholic beverages Declared as priority sector for lending in 1999 100% FDI on automatic route Excise duty waived on fruits & vegetables processing from 2000 – 01 Income tax holiday for fruits & vegetables processing from 2004 – 05 Customs duty reduced on freezer van from 20% to 10% from 2005 – 06 Implementation of Fruit Products Order Implementation of Meat Food Products Order Enactment of FSS Bill 2005 Food Safety & Standards Bill. the ministry of food processing has taken the following initiatives over the years: • • • • • • • • • • • Formulation of the National Food Processing Policy Complete de-licensing. 2005 5. 47 .
though they account for just 1% of food sales at present. ground and processed spices other than spice oil and Oleo resin spice. The food processing industry is among the sectors reserved for the small scale industry. pastries. which are emerging as a driving factor for food processing. due to its diverse nature and a policy of SME reservations. Small and medium firms are mostly operating in niche markets. confectioneries. Surya Food & Agro and Haldiram’s were for long well-known names in their respective regions. tapioca sago and tapioca flour. mustard oil. material science. consisting of mostly large companies. offer vast scope for rapid improvement and progress Opening of global markets Threats • • • • Affordability and cultural preferences of fresh food High inventory carrying cost High taxation High packaging cost 5. Venky’s India. However. Another factor has been growth of retail stores. Though de-reservation of food products began during the 1990s. Prominent food processing companies like Priya Foods. The micro and local community based food processing enterprises have dominated the primary processing segment of the industry. MTR.. These products include bread. lately these companies have changed their strategy towards expanding their market reach. etc.• • Inadequately developed linkages between R&D labs and industry. with limited national presence. 48 . The organised sector. Seasonality of raw material Opportunities • • • • • • Large crop and material base offering a vast potential for agro processing activities Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield projects Rising income levels and changing consumption patterns Favourable demographic profile and changing lifestyles Integration of development in contemporary technologies such as electronics. has ordained a predominant role for small enterprises. groundnut oil. Marico. sweetened cashewnut products. accounts for only 25% of the market while the remaining 75% of the market is divided between the small scale and the unorganised sectors.3 SME’s in Food Processing Industry The food processing industry. there are still around 12 products reserved for manufacturing in the small scale sector. sesame oil. bio-technology etc. This phenomenon among the food processing companies received impetus following the entry of Indian large business enterprises like ITC. Godrej. rapeseed oil (except solvent extracted). into the branded foods segment.
linking with larger processing firms will be to a limited scale. unlike in the auto components and textile industries.UNIDO has identified over 60 clusters of small and medium enterprises across India existing in the food processing sector. Table 9 – Food Processing Clusters 49 . where supply chain plays a critical role in the development of the SME segment. In the light of these realities. These include: Inadequate knowledge of technical standards. food laws and regulations Quality raw material supplies Weak information channels with regards to price and quality Lack of infrastructure facilities in terms of facilities for testing and research. the Government will have to continue playing a critical role in supporting SMEs in the food processing sector. Thus. sub-contracting relationships among processing firms does not appear to be a conducive arrangement. packaging facilities. it may not be very relevant to the food processing segment. The state-wise distribution of the clusters shows the largest concentration of companies in Maharashtra and Gujarat followed by Andhra Pradesh. UNIDO’s study of Indian food processing clusters identified some common deficits in these areas. As a result. However. especially in the short-shelf life products. For perishable food items. being part of the supply chain for retail outlets could be a driving factor for the growth of SMEs. cooperation among the small units is limited. Also. Punjab and Orissa.
Source – D & B Research. SIDO 51 . UNIDO.
4 SME Insights Figure 20 Figure 21 52 .5.
Figure 22 Table 10 – Average Exports as % of Total Production 53 .
Table 11 – Capacity Utilization of Food Processing Plants Figure 23 54 .
marketing interventions and regulations. The growth in this segment not only indicates the changing development patterns of the country.5 Future Outlook The decade-and-a-half of Indian economic reforms have now reached a stage where it is bringing about changes in the the agriculture and food processing sectors. Policies are now promoting the participation of private investors that would promote efficiency in food processing and agriculture marketing systems. organised retail. infrastructure development. similar to the developed nations. Inefficient marketing systems are already being targeted. Experience of large developed agricultural economies has proven that the integration of production and processing stages are a universal feature of efficient food marketing systems in the advanced stages of economic development. These are just the initial stages of development and further efficiencies in the agriculture sector. demographic factors. the two sectors share a symbiotic relationship and changes to either will impact the other. In this backdrop. In other words. The Vision 2015 strategy released in 2003-04 envisages: Trebling the size of the processed food sector to close to US$ 300 bn by 2015 Increasing level of processing of perishables from 6% to 20% by 2015 Value addition to increase from 20% to 35% Increase share in global food trade from 1. • • • • • The food processing industry in India has taken off substantially and will continue to grow rapidly considering the untapped potential in the sector. 55 . stakeholders in the food processing sector of India have a social responsibility to fulfill. in terms of improving productivity and investments. the Government of India is already in the midst of a vision. will be a source of power for the food processing sector in turn.5. strengthening of institutions and issues of food safety and regulations. strategy and action plan for the food processing sector. This strategy addresses issues of taxation. Driving growth in the food processing sector holds the key to imparting changes in the labour intensive agriculture sector in India. but also the promise it holds in driving growth of a certain section of society that has remained marginalised for a long time.5% to 3% Increase the share of value added products in food consumption from the current 16% to 50%. Reforms had more or less bypassed the agriculture sector till recently. changing lifestyles and consumer demand for greater variety has increased pressures on the food processing sector to provide products at competitive prices. However. More than just demand and supply dynamics.
supported by Intellectual Property Protection regime is well set to take on the international market. 56 . From simple headache pills to sophisticated antibiotics and complex cardiac compounds.Pharmaceutical Industry 6. medicines ready for consumption by patients and about 350 bulk drugs. low R&D costs.e. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share... Following the de-licensing of the pharmaceutical industry. innovative scientific manpower. Indian pharmaceutical industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. As per a report by IMS Health India. The domestic market was worth US$ 12.26 billion. This was reported by the Department of Pharmaceuticals. The pharmaceutical industry in India meets around 70% of the country’s demand for bulk drugs. quality and range of medicines manufactured.04 billion. strength of national laboratories and an increasing balance of trade. Its rank is 14th in terms of value. The Indian Pharmaceutical sector is highly fragmented with more than 20. drug intermediates. Ministry of Chemicals and Fertilizers. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. the pharmaceutical industry in India has low costs of production. Playing a key role in promoting and sustaining development in the vital field of medicines. industrial licensing for most of the drugs and pharmaceutical products has been done away with. assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world.1 Overview of the Pharmaceutical Industry in India The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. i. A highly organized sector. Technologically strong and totally self-reliant. i. which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). orals and injectibles. There are about 250 large units and about 8000 Small Scale Units. Global Scenario in 2010 . tablets.000 registered units. It ranks very high in the third world. Between September 2008 and September 2009. capsules.India's pharmaceutical industry is now the second largest in the world in terms of volume.5 billion. International companies associated with this sector have stimulated. almost every type of medicine is now made indigenously. chemicals. with its rich scientific talents and research capabilities. It is an extremely fragmented market with severe price competition and government price control. pharmaceutical formulations. These units produce the complete range of pharmaceutical formulations.Chapter 6 . chemicals having therapeutic value and used for production of pharmaceutical formulations. the Indian Pharma Industry is estimated to be worth $ 4. It has expanded drastically in the last two decades. The Pharmaceutical Industry. growing at about 8 to 9 percent annually. the total turnover of India's pharmaceuticals industry was US$ 21.e. in terms of technology.
there is every likelihood that they will open a potential US$ 8 billion market for multinational companies selling costly drugs by 2015. realising true potential" by McKinsey & Company. In the same report. A highly organized sector.2 SME’s in the Pharmaceutical Industry With a large number of medicines expected to go off patent during the next few years and with increasing emphasis on the use of generic medicines in developed countries. with the small and medium enterprises expected to chalk out a defining role for themselves.6 %) Lupin (18.In the domestic market. Despite the lag in R&D investments in India.59 billion by 2020. competition in the global pharmaceutical industry is set to get steeper. The domestic pharma market is estimated to touch US$ 20 billion by 2015. This was stated in a report title "India Pharma 2020: Propelling access and acceptance.1%) Alkem Laboratories (23. especially in the bulk drugs space. Other leading companies in the Indian pharma market in 2010 are Sun Pharma (25. Ranbaxy followed next. India will have a key role to play in this transforming scenario. The healthcare market in India to reach US$ 31.7%) Abbott (25%) Zydus Cadila (24. Several new opportunities have opened up for the SME sector. the pharma market has the further potential to reach US$ 70 billion by 2020 Due to increase in the population of high income group. 6. growing at about 8 to 9 percent annually. The highest growth was for Mankind Pharma (37. An emerging trend among these enterprises has been their involvement in clinical trials. The sale of all types of pharmaceutical drugs and medicines in the country stands at US$ 9. small and medium players seem well poised to take on global challenge.3%) Pfizer (23.6 %) GSK India (19%) Piramal Healthcare (18.the Indian pharmaceutical market reached US$ 10. CRAMs (Contract Research and Manufacturing) opportunities are also 57 .2%). it was also mentioned that in an aggressive growth scenario. either on their own or on contract basis. which is expected to reach around US$ 19. Domestic Market .04 billion in size in July 2010. Cipla retained its leadership position with 5.61 billion. the Indian Pharma Industry is estimated to be worth $ 4.8 % The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12. This was estimated in a report by Ernst & Young.27 per cent share. Thus India would really become a lucrative destination for clinical trials for global giants.6 billion in 2009.22 billion by 2012.5 billion.
• Enhance the exemption limit of small scale units from excise duty from the present level of Rs 10 mn to Rs 50 mn • 58 . though immense. The advantage of locating in these zones includes availability of developed infrastructure. The GoI continues to closely regulate the pharmaceutical sector and maintains a list of products reserved for manufacturing by the small scale enterprises. although mainly done by large players. hospitals in these areas. Growing competition has compelled huge capital investments in fixed assets and technology. health institutions and medical practitioners. and excise relief. are however being acquired by mainly players with better economies of scale and constant quality delivery. helps the SMEs to acquire contracts for manufacturing and opportunities to supply APIs and related chemicals. Given that a large number of drugs are going off patent. as compared to the ex-factory price earlier. Pyrazolones. To a great extent. The draft National Pharmaceuticals Policy 2006 has incorporated some key factors favouring the small and medium enterprises: Since Jan 2005. exports. This calls for high investments on the part of SMEs in R&D as also to maintain quality standards. Paracetamol. which the SMEs are finding difficult to sustain. The major customers of these companies would be the rural customers. survival of these units would depend on how well and quickly these companies are able to adapt to the changing business scenario. Parabens and their Sodium salts starting from p-hydroxy benzoic acid. The policy proposes a reduction in excise duty from 16% to 8%. consistent technical upgradation and marketing. many multinational and large Indian companies are expected to enter the generics market. Most of these items relate to medicines of mass consumption and therefore have a huge market. Outsourcing opportunities. Benzyl Banzoate. Around 18 pharmaceutical SEZs have already been identified so far that will focus on the pharmaceutical industry. These include: Nicotinic Acid/Niacinamide. Calcium Gluconate. Aluminium Hydroxide Gel and Para Amino Phenol Industrial grade. and mainly manufacture formulations. This has increased the burden on the industry. The Indian government has been making every attempt to support SMEs through several incentives. Most of the small and medium enterprises in the pharmaceutical segment operate in the local market. an excise duty of 16% is being levied on 60% of the maximum retail price (MRP). market access. a marketing approval of generic products gives them the opportunity to increase their product portfolio. The development of pharmaceutical SEZs can support the growth of SMEs.accruing to small and medium players who have got expertise and facilities approved by regulatory agencies. Moreover. Some of the key challenges faced by SMEs include achieving stricter quality norms. New product launches.
Pune Andhra Pradesh . Baddi in Himachal Pradesh and Pantnagar and Haridwar in the state of Uttarakhand are the upcoming formulation clusters. The bulk drug clusters are located primarily in the following regions: Gujarat. The R&D clusters have followed a similar development pattern. Bangalore. Apart from the National Capital Region (NCR). attracting formulation manufacturers from across the country due to fiscal incentives offered by the Government. The captive R&D Units are located in the following regions: National Capital Region Ahmedabad Mumbai Aurangabad Hyderabad Bangalore Chennai The contract R&D Units are located in the following regions: Mumbai Hyderabad 59 .Ahmedabad. • SMEs in the pharmaceutical industry are linking up with larger players and are entering into clinical trials and contract manufacturing in a big way. Medak Tamil Nadu – Chennai. Tarapur. Maharashtra and Goa are the major pharmaceutical manufacturing clusters in the country. Vadodara Maharashtra .Mumbai. Pune and Hyderabad have been the preferred destinations for formulation players in the past. other R&D clusters have been limited to the established pharmaceutical regions in the country. Mumbai. Ankleshwar. Aurangabad. Pondicherry Karnataka . Vapi. Goa Visakhapatnam (Vizag) in Andhra Pradesh is the upcoming bulk drug cluster that has generated significant interest in the players.A dedicated fund would be set up for providing interest subsidy (5%) on borrowings to small scale/medium pharma units going in for Schedule M implementation for GMP for Drugs and Cosmetics Rules. Gujarat. government support will be critical in laying the foundations for SMEs to gear-up and face the inescapable challenge that they confront today. However.Hyderabad. 6. Goa.3 Pharmaceutical Clusters and SEZ’s Andhra Pradesh.Mysore. However.
textiles. There were 43% companies which were operating at more than 90% capacity utilization.4 SME Insights The attention small and medium enterprises are lately commanding from banks.5% with the North-based companies being way ahead of the rest of the regions. has encouraged this study on the SME segment. The SMEs were relatively over-shadowed for long by other economic concerns. These companies were operating at an average 82% of their capacity. 60 . As a result. institutions. and most of these companies were located in the West. The pharmaceuticals segment is the fourth sector in the Emerging SMEs of India series. after auto components. the capacity utilisation was at 75. and food processing which have been examined to draw insights relevant to the small and medium enterprises segment. industry and academicians. On an average. Bangalore Chennai Ahmedabad Table 12: Pharmaceutical SEZ’s in India 6. there has been a defi cit of authentic information on this segment and has limited the estimation of value contributed by it to India’s economy.
A large number of West-based companies were receiving funds from co-operatives. MNCs had a small share in funding of pharmaceutical SMEs Figure 25 61 .Figure 24 Like other SME intensive sectors. A massive 84% revealed banking with PSUs. the pharmaceutical SMEs also showed a strong preference for banking with public sector banks. followed by co-operative banks.
Over 90% of these companies divulged future plans of accessing new markets or undertake product diversification.Region Wise Exports Classified as Share in Turnover Some interesting aspects came to light when companies were asked what they perceived as the major hindrances to the growth of their business. A large number of these companies were operating in the anti-infectives. Nearly 87% of the exporting companies were found to be having quality certifications. 78% of the companies cited marketing issues and the lack of marketing and distribution networks. gastrointestinal. Table 13. the biggest worry being industry regulation along with price controls. Quite a few of companies expressed apprehensions regarding the threat from spurious and counterfeits available in the market. Pertaining to lack of infrastructure. and vitamins therapeutic segments. Concentration of companies in the higher turnover bracket was largely from this region and also in terms of exports. especially Maharashtra and Gujarat. cardiac. 56% companies agreed that infrastructure inadequacy was a big hindrance. The West-based companies were found to be dominating in terms of exports with 61% of those exporting concentrated in this region. with majority emphasising as investment in R&D as a big constraint. Advantage India in the Pharmaceutical Industry Competent Workforce Cost-effective Chemical Synthesis Legal and Financial Framework Information Technology 62 . A whopping 94% of the respondents viewed lack of institutional support as a major hindrance. taxes & duties imposed. the western region was found to be the most prominent and dominant region for pharmaceutical companies. a prerequisite in the pharmaceutical industry. To conclude. The 100% export-oriented firms were mostly large companies with turnover above Rs 500 mn.48% companies were exporting their products.
Price control remains the principal concern . have been increasing over a period of time. As the price is proposed to be fixed on the basis of manufacturing costs and fixed margins. and for SMEs in particular. The increase in average price is attributed to the rise in prices of drugs not under control and upward revision in prices of certain controlled drugs owing to rise in input costs. Generic drugs make up 55% of the written prescription. Under this situation SMEs may be hit due to the smaller economies of scale. Impressive performance of Indian exports. Nevertheless. on an average. India aptly suits the changing global scenario. Globalization Consolidation 6. Therefore.Increasing number of products getting off-patent and recognition of generic drugs by some developed countries is set to expand opportunities for India in the generics market. Most of the OTC drugs are out of the ambit of price control and recent trends show an impressive growth in the Over The Counter (OTC) segment. having the largest number of US FDA approved facilities outside the US and low cost manpower with technical expertise. multinational companies have shown renewed interest in launching some blockbuster products in India Increasing investments in R&D Growing generics market . it has been seen that the prices of medicines. the volume of sales will determine the profits of the players. Chapter 7 – Other Industries 63 . the product-mix between prescription and OTC drugs or the mix of business between domestic and exports holds the key to profitability for players in general. New Product Launches . There has been a spate of tie-ups and acquisitions by companies in the CRAMS segment in India. the price scenario in markets not under price control will witness a rise in prices due to increasing demand. The driving factors include the rising manufacturing costs in developed countries and falling prices in the generics segment world over.After the introduction of product patent laws in India.5 Future Outlook Demographic Factors – Population growth coupled with the rise in per capita income and increasing health awareness will continue to drive the domestic demand. CRAMs opportunities will continue to pick up .Exports will continue to remain strong and an enabler of growth for the pharmaceutical industry. Growing Export Market . is likely to continue in the near future. Hedge risk by changing the product mix .Contract manufacturing and contract research will gain prominence among the Indian pharmaceutical companies. achieved during last few years.The expanding span of control on drug prices in India remains the main concern for the pharmaceutical industry.Despite the price control on certain bulk drugs and formulations.
it is estimated that 2. paper. fuelwood. SSFEs are an important player in the forestry sector. It is estimated that more than 90% of India’s wood-based products are presently manufactured in the private sector. and that these enterprises play an important role in the national economy. Due to the diversity of products. There are many very small enterprises that cater to local demand. Farmers and communities are important producers though their contribution is not widely recognised or acknowledged. Amongst the diverse range of activities carried out by the Indian SSFE sector are production or collection of products such as fuelwood. As well as processing a wide range of products. herbal medicines and other non-timber forest products. It is estimated that 30-40 million people are directly or indirectly involved 64 . Still. the bulk of which is processed by SSFEs. and marketing at every level ranging from barter at the local level to export to international markets. For instance. available industry wise figures do indicate large-scale employment in this sector. it is difficult to make generalisations for the entire SSFE sector. as are 50 million yokes. veneer. charcoal. available information strongly indicates that the bulk of forest produce processing in India is carried out by small-scale forestry enterprises (SSFEs).1 Small Scale Forest Enterprises ( and Wood Industry) As regards the small-scale forestry sector. Joint forest management communities are now protecting over 18% of India's forests and half the industrial wood supply is coming from non-forest sources. handicrafts. 98% of the sawmills in India are small. Most of this demand is met by local artisans who utilise local raw materials and traditional skills.7. poles and non timber forest products. their processing either by hand (e. It is estimated that the wood processing industries in India process about 24 to 30 million m3 of wood per annum. whilst the bulk of sports goods are manufactured in just two cities. mainly farms. fibreboard. blockboard. there are certain features of the sector that are clearly discernible: While most of India’s forests are owned by the government.g. SSFEs are also involved in production of forest products. particle board.1 million bullock carts are constructed each year. For instance. plywood. SSFEs generate significant employment in India. sports goods. leaf plate stitching) or by modern machinery. furniture. the bulk of SSFEs are in the private sector. markets and policies. About 87% of plywood factories and 94% of paper mills also fall into the small enterprise category. labour and markets. which is determined on the basis of the availability of resource. most safety matches are manufactured in Tamil Nadu. 100 million wooden ploughs and 30 million wooden seeders. safety matches. For example. The sector produces a wide range of products such as poles. Generally SSFEs are by nature location specific. While it is difficult to obtain national figures. and they produce as much as 82% of the sawn timber. sawn timber.
Ramanathapuram and Tirunelveli. SawmillingFigure 26 . Safety Matches .g. Some SSFEs also earn valuable foreign exchange e.There are approximately 12. both in Tamil Nadu. blockboards and flush doors. Some of the categories of Small scale forest enterprises are – 1. where there are over 400 small-scale units making veneers and splints for supply to the match industry. SSFEs play animportant role in the manufacture of these products.000 safety match making units in the country.The main uses of the sawn wood produced by the saw mills 2. Nearly half a million people are employed in safety match making. and particle board. This ancillary industry employs over 15. including veneers. and all except five are in the small-scale and cottage industries category. Over two-thirds of India's matches are produced in just two districts . sawmilling and wood carving.000 people directly and indirectly 3 Wood-based Panels – There are three major wood-based panel products that are manufactured in India . 82% of the production is in the small-scale and cottage sectors.plywood. fibreboard. medicinal plants and wood carving industries.000 are in the large-scale mechanised sector. According to an estimate made a few years ago.3 The industry as a whole employs 250.000 people out of which only 6. The bulk of the wood comes from neighbouring Kerala. of which 418 (87%) were in the small-scale sector (Federation of Indian Plywood and Panel Industry) 65 . many of whom are tendu leaf collectors and beedi rolling workers.in the beedi industry. there were 480 plywood factories in the country.
windows. stationery holders. candle stands. it is estimated that around 25 truck loads of wood are consumed per day by the industry. Most of this paper is used for greeting cards and certain stationery items Figure 27. gunny bags. Uttar Pradesh and Jammu and Kashmir. The main products made are boxes. It is estimated that 70. A large number of expansion programme & expansion of capacities with an outlay of Rs. panels. mulberry. ash and rosewood. The handmade paper industry. maple. cane. . Ernakulum. tobacco jars. with an output of more than 6 millions tones annually with an estimated turnover of Rs.Three-quarters of the registered sports goods units are in Punjab.4 The consumption is high. paperboard. textile mill accessories (bobbins and shuttles) etc. which translates into roughly 3. incense boxes and stick holders. doors. tables. 10. The major wood carving centres are located in the states of Uttar Pradesh (Saharanpur and Nagina). 150. photo frames.4 Paper – Paper and paperboard production is an important forest-based industry in India.India has a well-developed traditional wood carving industry. shoelasts and heels. screens and carved furniture 4.1 Sports Goods . 4. In addition. a traditional craft. cotton linters and other waste material.000million Paper Industry in India is riding on a strong demand and on an expanding mood to meet the projected demand of 8 million tones by 2010 & 13 million tones by 2020. In Saharanpur alone.800 ft3 of wood is consumed by the industry in Kerala. Trichur and Thiruvananthapuram). Nearly half the units were located in two towns. Kerala (Kochi.2 million ft3 per annum. figurines. is a recognized village industry under the Khadi and Village Industries Act and receives special assistance from the Khadi and Village Industries Commission (KVIC). jewellery boxes. idols. Gujarat (Surat and Mahuva). pipe stands. Jalandhar and Meerut. newsprint etc. truck and bus body building and the manufacture of agricultural implements are also important wood-based industries which consume a large quantity of wood. Arunachal Pradesh (Tirap). Rajasthan (Jodhpur). coaster sets. Most of the work is done in small-scale units or by individual artisans.2 Pencils 4.000 crores have been announced covering the various sectors like paper. and Madhya Pradesh. Around 85% of the units were in the small-scale sector. The Indian Paper Industry is among the top 15 global players today. The industry gets its raw material from the Forest Department as well as farmers. A large number of wooden agricultural implements are manufactured each year.3 Wood Carving . Jammu and Kashmir.Raw Material Mix of Paper Industry 66 .25 m3 of sawn timber. sports goods. letter racks. 4. It generally utilizes textile fibre derived from rags. The main raw materials used were willow.4 Wood Working – Wood working is a traditional industry in India producing furniture. It is estimated that construction of the body of each truck consumes 6. handicrafts.
lacquerware. brooms. etc. essential oils. Madhya Pradesh and Chhattisgarh are largest tendu 67 . herbal medicines and cosmetics. It is estimated that about 550 billion pieces of beedi are sold annually in India. 5. It is estimated that over 30 million people are indirectly dependent on the beedi industry. cane and bamboo furniture. resin and rosin.Indian Agro Paper Mills Association (IAPMA) . 350 billion are used annually in India and the government revenue from NTFPs is around Rs. katha and cutch.Table 14.190 billion. which are otherwise a lean season from the employment perspective. The beedi industry employs a large number of workers directly and many more are indirectly involved. 27% is used as chewing tobacco and the balance 19% is used in cigarettes. tannins. Non-Timber Forest Products – India’s forests yield a large number of diverse Non-Timber Forest Products (NTFPs) There are a number of industries based on NTFPs such as beedi (country cigarette).Capacity Wise Breakdown of Indian Paper and Pulp Mills Source.1 Beedi (Country Cigarette) – Beedi is a local cigarette that is made by rolling tobacco into tendu (Diospyros melanoxylon) leaves. Beedi smoking is the most prevalent form of tobacco use among Indians – around 54% of tobacco is used in beedis. It is estimated that NTFPs worth Rs. collectors as these leaves are collected during the summer months. New Delhi 5. 20 billion. especially in the collection of tendu leaves. The beedi-making industry has an annual turnover of Rs. especially tribal. nearly 50% of the total forest revenue. The employment generated through tendu leaf collection is very valuable for the poor.
5 Broom Making – A large quantity of brooms are used in India annually and most are made from grasses (such as Thysanolaena maxima). The majority of beedis are rolled by women and child workers. processing and transportation. 5.) earn their living through bamboo handicraft work. Some of the industries have also shifted base from Madhya Pradesh – a major tendu producing state – to neighbouring states like Maharashtra due to a hike in minimum wages bythe Madhya Pradesh state government. Katha is used as an ingredient of paan (betel) and paan masala chewing confectionery in India. Reed bamboo based traditional industries. 50 million annually. Kamars. 5. Mumbai. Hyderabad and Jullundhar 5. some in the manufacture of a variety of handicraft items and furniture.000 village people in Kerala state alone. Cutch is used for dying canvas and tanning leather.. It is estimated that in Channapatna Taluka of Karnataka. Many tribes and ethnic groups (Bhanjaras. cleaning.000 tonnes of leaves are harvested annually and 4. It is estimated that 350. India is an important producer of lac and lac products. It has been estimated that bamboo based SSFEs provide livelihoods to more than 300. The cottage units are generally located near the rattan growing forests in three regions: South India. Chennai. which is a parasite on a number of wild and cultivated plants. which also produced 4. The total consumption of wood was estimated to be around 200. Recently some bamboo mat board manufacturing units have also been established.000 people. 5. According to an estimate made a few years ago. which is much less than the peak production of 91.000 m3.000 small to medium sized rattan-based industrial units inIndia. and the rest predominantly in the rural areas in extraction. by and large. The rattan furniture industry produces goods worth Rs. trays.000 tonnes of katha was produced annually in India. over 35% of the workforce is engaged in lacquer work. of which 2. Maharashtra (15%) and Andhra Pradesh (13%).3 Lac – Lac is produced from the secretions of a tiny insect Laccifer lacca Kerr. The larger units are in urban areas such as Kolkata.700 tonnes are exported. 15 billion annually. The trade in beedis is reported to be declining due to increased competition from chewing tobacco (guthka). The value of tendu leaves harvested for making beedis is estimated at Rs. The main products manufactured from bamboo are handicraft items such as table mats. such as mat and basket weaving.leaf producing states (41%) followed by Orissa (17%). and the Andaman and Nicobar Islands.500 tonnes of cutch. Lacquerware and lac turnery is a traditional industry based on lac. Kotwalias. etc. employing over 200. Rattan (cane) extraction and 68ptimizing68 in India is. East and North East India.000 tonnes was produced in the factory sector. play a crucial role in the rural economy. lampshades and other household articles. a cottage industry. Bansforias.2 Katha and Cutch – Katha and cutch are products made from the heartwood of Acacia catechu tree. palms (such as Phoenix acaulis) and 68 . Bangalore.199 metric 68ptim achieved between 1978 and 1979.000 metric 68ptim. 3. who are generally paid on piece rate basis by sub-contractors of the beedi manufacturers. The present production of lac is about 15. About 10% of the goods are exported.4 Bamboo and Rattan Products – There are a number of SSFEs manufacturing bamboo and rattan based products. It is estimated that there are around 2. Delhi.
For instance. a survey conducted in two blocks of Mandla district in Madhya Pradesh showed that there are several household based broom making enterprises in the area 5. many court rulings have also resulted in the closure of many forest 69 . perfumery. While disaggregated export data is not available.166 billion 5. Another possible reason is the availability of chemical substitutes. leaves. These essential oils are major raw materials for soaps and cosmetics. pine resin and turpentine. Ukand Japan. salai or guggal and balsam resins are commercially important. The major importing countries are USA.8 Herbal Medicines – The Indian system of medicine comprises Ayurveda. 47. as noted above it is actually also an opportunity for production enterprises such as farm forestry plantations. although the figures are uncertain due to the large number of micro-units By far the most important export is Psyllium husk. The main reason for the decline in production is unscientific and indiscriminate tapping of trees. These are not only important for the domestic market but have a growing market in other countries as well. 45 billion. and frequent fires in pine forests resulting in heavy mortality of trees. These could be large or small units. attars. The supply base of medicinal plants used for manufacture of traditional medicines is largely from the wild. Ayurveda is the major system followed in India. However. France. confectionery. their production is declining over the years. Germany. The Ayurvedic manufacturing units can be broadly classified into two groups: the ‘organised’ sector. pharmaceuticals. Switzerland. Some major threats faced by Small Scale Forest Enterprises are – A growing shortage of quality raw material due to felling bans and restrictions on extraction in several states. It is estimated that around 80% of the medicinal plants active in trade are procured from wild areas. wood. comprising mainly 69ptimizing ayurvedic doctors (vaidyas) and micro-units manufacturing only a few products and operating at local levels It is estimated that the total annual turnover of the ayurvedic industry is around Rs. 5.7 Resins – There are a number of resins derived from plants of which sal resin. These are derived from grasses. Siddha and Unani systems. agarbattis and incense industries.bamboos. cosmetic or toilet preparations” were to the tune of Rs. mostly notified as forest land. However. Broom making is an important forestry enterprise in several parts of the country.6 Essential Oils – Oils originating from plants are used for perfumery and similar purposes. Often a small manufacturer can be considerably strong in a niche market. while this is certainly a threat to processing industries. the ‘unorganised’ sector. scented tobacco. roots and flowers. aerated water. comprising well-established manufacturers who operate in both domestic and/ or international markets. In recent years. There are a number of tree and plant species which yield oil but only a few are commercially exploited for extracting essential oils. the total exports under the category “essential oils and resinoids. Growing concerns over environmental and labour issues are also significant threats.
such as reservation. leather garments. semi-finished leather and finished leather is produced mainly by the small units. With the world leather industry shifting its manufacturing base to the developing countries. which is about 2. Indian SSFEs are generally quite inefficiently run. 70ptimizing of production capacities. In the Indian tanning sector. leather goods and finished leather. However. Since economic 70ptimizing70tio there has been growing competition from cheap imports and a trend towards removal of protective policies. adversely. The tanning industry in India is primarily concentrated in Tamil Nadu. especially processing industries. large investments. which is very fragmented. The industries in the north-eastern states and the Andaman and Nicobar Islands have been particularly badly affected. 7.2 Leather Industry The Indian leather industry occupies a place of prominence in the Indian economy in terms of its export earnings. Around 10% of world’s supply of leather is processed in India. upgradation of technology and 70 . West Bengal. The leather exports turnover in FY07 stood at approximately US$ 2. the industry is confronted with major challenges like effluent management. Agra and Kanpur are prominent exporters of leather garments & harnesses and footwear. the quality of products is poor and there is lack of 70ptimizing70tion – thus they are quite uncompetitive internationally. whereas the large units are usually fully integrated. Exports of finished leather grew at a moderate rate in comparison with various types of leather products. It is heavily dependent on the availability of indigenous raw hides and skins for its supply of raw materials. The fragmented nature of the leather industry has resulted in nearly 90% of the industry being operated by the SSI units. designing capabilities and technical know-how make India an attractive destination for FDI into leather industry.produce processing industries on account of enhanced environmental concerns . the relative ease of availability of raw material. Stringent application of an international intellectual property rights regime is also likely to affect Indian SSFEs. whereas in the North. skilled labour. Nonetheless. footwear & footwear components. While the Southern region including Tamil Nadu focuses on finished leather and footwear component.5 million people. quality specifications. Uttar Pradesh and Maharashtra. 250 billion and it employs around 2. non tariff barriers and cost of compliance to various standards. the size of Indian leather industry is approximately Rs.9 billion. the eastern region including Kolkatta and West Bengal accounts for nearly 66% of the country’s exports of leather accessories like wallets and handbags. According to National Manufacturing Competitiveness Council (NMCC). employment generation and growth.3% of India’s total exports. which are facing strong competition from their Chinese counterparts. The industry comprises tanning & finishing.
in 85% of the companies manufacturing leather goods followed by 80% of the leather garments manufacturers earn more than 50% of their revenue from the international market. Figure 28 Source : www. The average revenue growth of the companies dealing in finished leather is 19% and for leather footwear is 24%.org.rbi. Figure 29 71 .strengthening of enabling infrastructure – along with increasing demand – would drive the growth of Indian leather industry.
13 billion. India’s share in the global footwear imports is around 1.Marketing initiatives.5 million people. The Slowdown in Leather Industry – With a direct employment of 2. Exports to Germany. Ambur. manpower training and technology were the key benefits derived by the companies.4%. the sandals and chappals are produced in the household and cottage sector. On the other hand. Other destinations such as Hong Kong. Cheaper alternate markets such as Russia. Trichy. About 46 per cent of the production in the leather sector is exported to other countries. UAE and Australia act as trade hubs. which covers 80 percent of Indian leather exports. turnover of Rs 15. However. UK. UK. Global recession had a major impact on the industry. in terms of revenue fall and markets. that did not happen. the increasing demand is largely witnessed from EU. Footwear is the major segment of the leather goods market and constitutes about 1400 Crores.25 billion by 2013-14.62 percent of the global leather import trade of $137. Ranipet. Spain. More than 4000 units are engaged in manufacturing. While leather shoes and uppers are concentrated in large scale units. accounts for 2. 000 (with 27% of them being Women). Netherlands. SME were expecting Dubai to bail them out. Italy. The major markets for Indian leather products are Germany. Leather exports from India are expected to touch US $8. As compared to the US. India's labour intensive leather industry. which provides employment to 2. leather and leather goods industry is a significant driver of economic growth. etc). With the collapse of traditional Germany and UK market. Eastern Europe with lower gross margins emerged to fill in the coffers. lack of proper infrastructure and availability of skilled labour were the major obstacles observed for the companies covered in the sector. of which 95% are SME.Cluster Benefits and Hindrances . 72 . business development services are slated to be provided by three categories of providers including government support institutions (like the Council of Leather Exports. The major production centers of leather and leather products are located at Chennai. France. 50. The industry is labour intensive and is concentrated in the small and cottage industry sectors. Tamil Nadu. Infrastructure Leasing and Financial Services (IL&FS) has been selected by SIDBI for implementation of BDS component of the project in the Kanpur leather cluster. and USA. Exports dipped by 11% and SME’s that were primarily into semi-finished leather processing saw a dip over 30% in their revenues. The country produces over two billion pairs of different categories of footwear and nearly 95 percent of its production goes to meet its own domestic demand. and wwith world’s largest livestock stock. The reason is attributed to an increase in demand from EU. Vaniyambadi. with Tamil Nadu is the biggest leather exporter (40%) of the country and its share in India’s output on leather products is 70%. As per a report of Leather Council. India’s export is to reach 10%. government subsidies. funding from institutions. Under the cluster approach. the three major exports markets saw a fall of 17%. quality upgradation. the Central Leather Research Institutes and IIT-K. export of leather will see a growth of 15 per cent by 2011. and USA. industries associations and private BDS providers like online business platforms (fibre2fashion) etc.200 Crores and an export earnings of Rs 1500 Crore.
Duty emissions for Duty Entitlement Pass Book Scheme (DPEB) scheme. Opportunities in countries such as Russia (primarily imports from Turkey). Domestic brands were realizing the limits to growth by pursuing own store format and switching over to franchise formats to tap markets such as Patna. While men's footwear is the biggest target category (contributing almost 48%). Secondly. M&B footwear does high street retailing through multi-brand outlets and discounts retail chain stores. kids and women were the steps the domestic brands expected to pursue in future. focus on domestic market beyond semi-finished leather and uppers. From a price perspective the market consists of four primary segments: less than $3(about 19%). they need to diversify and expand in order to stay competitive in the market and explore domestic market. Store format targeting women and children is an unexplored area in retail footwear market. With organised retail on the rise and increase in the disposable income retailing certainly looks a promising option. Vaniyambadi and Agra based SME’s also discovered Japan as a profitable destination for low quality leather products. With large volume brands sales remaining at high streets. $9$16(41%). and mid segment customers preferring to purchase shoe and other accessories in tandem with clothes. Retail footwear segment in Indian is very price sensitive and has been steadily growing over the year. prefers Malls to position international retail chain stores (sale of international brands such as Lee. Provogue. According to the National Council of Applied Economic Research (NCAER) reports. While an average Indian male purchase 3 shoes per annum. Domestic footwear retail business witnessed a shift in channels too. saddler and leather clothing this can enable the SME’s to grow at a faster rate with better global reach. and Brazil with no manufacturing base were targeted more aggressively. removal of FBT. etc). The leather SME’s needs to exploit opportunities for leather products in countries such as Russia and Newzealand which has huge potential for value add products like gloves. Argentina. Vizag. and >$16(4%). Domestic Tier-II market (semi-rural) with high support crop prices and loan waivers had seen growth over 30%. Domestic brands moved beyond regional markets and were embarking pan-India presence. $3-$8 (46%). Service tax exemptions for ‘Transport of goods through road’ and ‘Commission paid to foreign agents’ instead of going through refund route This slowdown has brought forth significant learnings for SME’s in the Leather IndustryFirstly. Branded shoe market only account for 20% of the entire market. some of the retailers were reworking their presence. etc. Major part of the demand is met by the unorganised sector and still there is a shortfall of 300 million pairs. For example. While international brands largely dominate the higher end of the spectrum.Central Government announced Stimulus package offering the following to leather industry: • • • • 2% interest subvention scheme for leather sector continued till 31st March 2010. the lower end of the market is dominated by home-grown players as well as unorganised players. the second gender purchases an average 6 pairs per annum. Ranchi. Raipur. there are 720 million consumers across 73 . children's (11%) and women's lifestyle footwear (41%) is not behind in the race. Expansion into sub-brands such as sportswear.
27. Local players such as Damask. The US and European markets constitute about 60 per cent of India’s gems and jewellery exports. Customers prefer to buy brands they can relate and trust. the jewellery mall developer. SGL leathers increased their gross margins with introduction of Bags. On the back of healthy demand from Western markets like the US and Europe. The recessionary period has been a great teacher. Finally. Even in price sensitive markets. the largest supplier. Industry Structure . Indian exporters are also exploring other new markets including South America and East Asia in order to reduce their dependency on the West. branding does pay off.Although the market is highly dominated by unorganised players. Exports . India's gems and jewellery exports rose by about 22 per cent year-on-year (y-o-y) to US$ 2. moving up the value chain from just suppliers of semi-finished leather and expansion into retail helps to grow revenues even in difficult times. Wallets and Leather Accessories. a gems and jewellery special economic zone (SEZ) sprawling over 40 acres with an investment of US$ 441. with increase in consumer income and economic prosperity. platinum accompanied by a variety of precious and semi-precious stones. In its bid to enhance the market strategy.86 billion in January 2011. The company plans to have residential apartments named Gold Souk City.1 million is being planned to be set up by Gold Souk. changing consumption patterns. the rural market (semi-urban) which constitutes about 32% showed a growth rate of 17%.000 villages in rural India. Led by the rising purchasing power. SME’s focused more emphatically on institutional sales. apart from having gems and jewellery manufacturers from Thailand and Dubai who will open their units in India. as per the credit rating agency Crisil. the components of jewellery include not only conventional gold but also diamond. according to the Gem & Jewellery Export Promotion 74 . Thirdly.3 Gem and Jewellery Industry Gems and Jewellery symbolise Indian tradition in a lot many ways. A legacy that passes from one generation to another. the future of organised branded jewellery in India is very bright. 7. rose by 39 per cent in the April 2010-January 2011 period.The diamond industry in India is predicted to remain stable during 2010-11 due to improved prices and steady demand. on the back of increasing government efforts and incentives coupled with private sector initiatives. The Indian gems and jewellery sector is expected to grow at a compound annual growth rate (CAGR) of around 13 per cent during 2011 – 2013.6. SS and other also found safety shoes for industrial use a niche segment where margins are better than in the wholesale business. It taught SME’s to seek out opportunities in moments of challenge.Gems and jewellery exports from India.
Seemingly. followed by gold jewellery (15. Furthermore. India is expected to spend $100 billion over the next decade for defence and security related acquisitions and that would provide the country with nearly $30 billion as offsets. as per data from Gem and Jewellery Export Promotion Council (GJEPC).44 per cent year-onyear in January 2011.6 billion from US$ 22 billion a year earlier.81 percent to US$ 30. Any policy preference for SMEs in Defence extended by the Government can only help the growth of the industry in defence and homeland Security due to the use of dual-use technologies. Shipments increased to US$ 30. under which the global firms obtaining contract worth over &apos. These defence and homeland security clusters are to be designated areas in each state which are to locate SMEs pursuing the burgeoning defence and homeland security sectors. India is the most technologically advanced diamond cutting center in the world. Established manufacturing excellence in jewellery and diamond polishing. Besides.3 billion have to plough back 30 percent of the deal amount in the domestic industry. the accelerated growth of the domestic industry is essential to meet the requirements of the armed forces and the paramilitary.8 per cent).59 billion in comparison to the same period last fiscal. exports of precious items increased by 38.9 billion.Council. Exports in January 2011 gained 22 per cent to US$ 2.4 Defence and Aerospace Industry India Inc is set to promote the small and medium enterprises (SMEs) cluster in the defence and homeland security sector in the wake of India’ first Defence Production Policy (DPP) explicitly favouring the growth of SMEs. period. the defence ministry aiming at achieving 70 percent indigenisation and 30 percent imports in defence acquisitions. yet low-cost labor. PHDCCI will launch initiatives to create India’s first-ever defence and homeland security clusters for SME’s in the states across the country. citing provisional estimates. the trade group said on its website. During the April 2010-January 2011. The Diamond cutting and polishing industry is centered around Surat. Exports of cut and polished diamonds saw the maximum growth of 23. Opportunity to address one of the world’s largest and fastest-growing Gems and Jewelery markets. Citing Indian Automotive and Indian Information Technology (IT) sectors are proven examples of SME-led accelerated and sustainable growth. Opportunity to leverage India’s strengths to address the global market 7. The opportunities available to SME’s in this sector are• • • • • Highly skilled.38 per cent) and coloured gemstones (3. 75 .
Indian small and medium enterprises (SMEs) are set to gain substantially from the growing aerospace business in the country that 76 . Indian SMEs are partnering with global players such as Airbus. National Small Industries Corporation (NSIC) (A Government of India Enterprise) and Federation of Indian Micro and Small & Medium Enterprises (FISME) (National body of MSMEs in India) are jointly organizing an International Sub-contracting & Supply exhibition for Defence. Also.. Aerospace and Homeland Security viz. The policy intent for enhancing potential of SMEs in indigenization and broadening the base of defence R&D is path-breaking. Experts believe that the government should look at Indian firms as real partners and not just as suppliers. Keeping in view. The foreign companies are now looking for Indian companies including SMEs who can supply them with parts. The policy seems to have operationalize the recommendations of ‘PM’s Taskforce on MSMEs’. Defence Minister had earlier indicated that his ministry was considering proposals for further expansion of the defence offsets implementation in new sectors. With the offset policy coming in force in the Indian defence procurement system. DEF+CONTRACT INDIA 2011 from 11th to 13th of March in Hyderabad. This is indeed a welcome step. there has been a big boost for the Indian companies including SMEs to be part of the supply chain to overseas supplier.Previously. had last month expanded the scope to the civil aviation. the report said. This is also evident from the fact that in the recent past several overseas suppliers and Embassies/ High Commissions have approached us requesting for profile of Indian companies who could be potential supplier/ partner. Creation of a specific fund for building such capabilities underlines the willingness of the Government to move forward. the immense potential that Indian companies now have to provide linkages to overseas suppliers and also to collaborate with them. equipment and services. These include building aero structures for next-generation aircrafts to unmanned combat air vehicles (UAV) and robots. which introduced offsets clause in global armed forces tenders in 2006 to energise the domestic defence sector. Boeing and government agencies in a bid to pick up complex engineering projects that are being outsourced. Indian SME sector is eyeing a substantial chunk from India’s defence spend. it creates the level playing field and a setting for partnerships for Indian private sector. internal security and related training sectors. The Indian government said it will outsource work to these SMEs based on the virtue of their core competencies and unique capabilities in niche areas. should give priority to SMEs’. However. India to Become Credible Aerospace SME hub .which stipulated that the ‘Offset policy of the government. For the first time. particularly in the defence and aviation sectors. which is expected to touch USD 100 billion by 2012. India. FISME and the Department of Defence Production have also initiated the process of identification for intervention to operationalize the policy for the SMEs. the defence ministry. it further added that help will be provided in every possible way. particularly for SMEs with defence PSUs and foreign suppliers.
According to an estimate by the reputed PricewaterhouseCoopers. 77 . the Department of Science and Technology and Boeing have set up the National Centre of Aerospace and Innovation Research (NCAIR) in Bombay which will carry out work on innovation and research on avionics and structures in order to build an ecosystem for the manufacture of aerospace components. the state-owned defence suppliers Bharat Earth Movers Limited (BEML) and Hindustan Aeronautics Limited (HAL). In addition. the business in the aerospace sector has been proliferating and Bangalore-based companies have been supplying machining centres for making moulds. India will spend $25 billion on commercial aircraft and $100 billion on defence until 2014. Interestingly.000 acres of land was acquired to build world class infrastructure for the aerospace industry and about 250 acres of the land is earmarked for a special economic zone (SEZ) in the aerospace hub. forging dyes and precision mechanical parts to them. These units in the SEZ will cater to domestic demand as well as the export market. So far. a large number of IT companies and presence of precision equipment manufacturers. In fact. the licensing procedure for defence manufacturing should be streamlined to encourage the entry of SMEs in the defence industry. The SMEs which supply aerospace components will gain by supplying structural parts to international firms like Airbus and Boeing as part of the offset policy. About 1. The creation of an aerospace park near the Bangalore international airport at Devanahalli on the outskirts of the city is created to attract global investments in the aerospace sector. At present. it must be the Indian government’s prerogative to mitigate the woes of the SMEs through better policies and incentives. Dynamatic Technologies and Japan’s Amada have been allotted land. India is importing passenger and military aircraft in large numbers and the SMEs are eyeing the business that the offsets policy will bring for them. Mahindra and Mahindra. In fact. SMEs will also find a role in contributing cutting tools for the machining of parts and engines of Sukhoi fighter jets manufactured by HAL. A host of units that are opening up in the southern Indian state of Karnataka where an aerospace-specific special economic zone (SEZ) is being developed will provide business for the SMEs.will arise from the offsets policy. repair and overhaul (MRO) activities will be undertaken as well. the SMEs are lacking in skills and technology to develop high-precision components. About 55 per cent of the land will be allotted to companies for setting up factories and aviation maintenance. The SMEs in the aerospace and defence industry should focus on building complementary activities and capacities and become innovative. the Indian Machine Tool Manufacturers’ Association (IMTMA) has urged the government to assist them in setting up a corpus fund to enable the adoption of new technologies. prototyping models. Since the aerospace sector requires advanced and sophisticated components. Karnataka has become a lucrative destination for aerospace companies due to the eco-system of public sector units engaged in aircraft manufacturing & development. In fact.
SME Sector Opportunity The Indian defence industrial base needs to ramp up the design and production capabilities in the following technology areas: • Thermal imaging. 78 . helping them to improve their capabilities and enhance their work profile. are working with several Indian firms in aerospace design and manufacturing. radars and early-warning systems • Wireless and mobile surveillance systems and IP surveillance solutions • GPS and GSM-based tracking systems • Interception and monitoring systems • Trajectory correction system and missile guidance • Advanced rocket technology • Active tank protection systems • Metallurgy and forging techniques for guns • Automotive technologies • Surveillance. This mainly benefits Indian IT companies engaged in designing aerospace and other defence systems. • Global aerospace majors. communication and navigation technologies • Miniaturization and nanotechnology • Networking technologies for seam-less integration • System simulators • Access control and identification and biometric-based systems The defence market potential for SMEs is expected to be driven by the following: • Offset program: Foreign companies that benefit from Indian orders for commercial and defence equipment have had to plough back outsourcing work worth 30% to 50%. of the total deal size to Indian companies. detectors. • OEMs in the aerospace and defence sectors are shifting their focus to design and systems integration from vertically integrated manufacturing. image intensification and infrared based equipment • Sensors. including Boeing and EADS.
Agro Development Organization) and Rural Industries. Dept. Ministry of Industry Handlooms Development Commissioner Ministry of Textiles (Handlooms) Sericulture Central Silk Borad Ministry of Textiles Handicrafts Development Commissioner Ministry of Textiles (Handicrafts) Coir Fibre Coir Board Dept of Small Scale.Initiatives for the Development of SME sector 8. Agro Commission and Rural Industries.1 Government’s promotional policy and framework Table 15 . Agro 79 .Administrative Structure for Governance of Small Scale Industries Industry Agency Administrative Dept.Chapter 8 . Ministry of Industry Powerlooms Textile Commissioner Ministry of Textiles Traditional Industries Khadi and Village Industries Khadi and Village Industries Dept of Small Scale./Ministry Large/Medium Industries Dept. of Industrial Policy. of Industrial Development Small Scale Industries SIDO (Small Industries Dept of Small Scale.
in pursuance of the recommendations of International Perspective Planning team (1953-54). However subsequently. industrial managers and entrepreneurs. 3. Small Industry Development Corporations (SIDCs) to develop infrastructure in the form of industrial plots and industrial sheds. 'Consultancy Development Center' (CDC) and 'Electronics Test and Design Centers' (ETDC). 2. leather manufacturing equipment etc. 'National Productivity Council' (NPC). During the last three and a half decades. the governments have set up institutions as follows : 1. 30 branch SISIs. 37 extension centers in specific products and 74 workshops as in the year 1993. some of these have been wound up due to their financial non sustainability. Technical Consultancy Organizations (TCOs) that provide technical. in the year 1978. operates 'Prototype Development and Training Centers' (PDTC) in specific fields such as machine tools. injection molding. NIESBUD) was set up to train and promote personnel. this institution has emerged as the core promotional agency at the central level with a professional staff of more than 13. 4.and Rural Industries. Ministry of Industry The central and state governments in India have together set up an elaborate 3 tier structure for promoting the small scale sector: At national level. 'Bureau of Indian Standards' (BIS). 5. conduct techno-economic surveys. These institutions provide technical and management consultancy. financial and marketing consultancy to the sector. The central financial institutions have also set up the Entrepreneurship Development Institute of India (EDII) at the national level to promote entrepreneurship.000 in the year 1993. There is 'Central Small Industries Organization' (CSIO) which has been renamed as 'Small Industries Development Organization' (SIDO). Other national level institutions that are supporting the small scale sector are 'National Research Development Corporation' (NRDC). provides marketing assistance. NISIET (now called National Institute of Entrepreneurship and Business Development i.e. organize training programs. prepare project profiles and help prepare unit specific project reports 'National Small Industries Corporation' (NSIC) is another important institution set up in 1955 that supplies primarily imported machinery on easy finance terms. At the state level. State Exports Promotion Corporations to provide marketing assistance for exports from the small scale sector. State Financial Corporations (SFCs) to provide long term credit facilities. It consists of 28 Small Industries Service Institutes (SISIs). several institutions have been set up. At District level. the central government launched a program of 80 . Center for Entrepreneurship Development (CEDs) and Institute of Entrepreneurship Development (IEDs) have been set up to promote entrepreneurship through training.
There are more than 400 such centers. organise and assist in the establishment and development of khadi and village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary. facilitate. licenses and certificates required by the small entrepreneurs.Development Commissioner.Infrastructure/Finance 3. Kolkata. Small Scale Industries At the State Level: 1.National Bank for Agriculture & Rural Development 3. At the National Level: 1. Small and Medium Enterprises (Govt. NABARD . Primary Cooperative Banks 4. Bhopal. Khadi & Village Industries Commission 6. it took over the work of former All India Khadi and Village Industries Board. it has offices in 29 states for the implementation of its various programs. Bangalore. 8. State Financial Corporations (SFCs) 2. promote.3 Khadi and Village Industries Commission (KVIC) The Khadi and Village Industries Commission (KVIC) is a statutory body formed by the Government of India. Regional Rural Banks (RRBs) 2.Branches of State level institutions & nationalised banks about 65. State Industrial Development Corporation (SIDCs) . Other than its zonal offices. Its head office is based in Mumbai. State Cooperatives Banks 4. of India). KVIC.2 Institutional Finance for SME’s The following agencies through their various schemes provide finance to small scale industries sector under the overall policies and guidelines evolved by Reserve Bank of India.establishing District Industries Centers to provide under a single roof all the support services. with its six zonal offices in Delhi. under the Act of Parliament.". District Industries Center (DIC) 8. SIDBI. 81 . DCSSI. Nationalised Banks 6. which seeks to . It is an apex organization under Ministry of Micro. NSIC."plan.Small Industries Development Bank of India 2. Khadi & Village Industries Board At Regional & District Level: 1. In April 1957.Khadi & Village Industries Commission 5. District Central Cooperative Banks 3.National Small Industries Corporation 4. 'Khadi and Village Industries Commission Act of 1956'. Mumbai and Guwahati. with regard to khadi and village industries within India. one each in a district.000 in number 5. clearances.
and the mechanization of almost all processes. Another advantage of Khadi and Village Industries is that they require little or no capital to set up. silk. or wool.Providing employment in rural areas The Economic Objective . In the wake of industrialization. and routes these to the Khadi and Village Industries Commission for the implementation of programs and schemes related to Khadi and Village Industries. which are spun into threads on a Charkha (A traditional spinning implement).It refers to handspun and hand-woven cloth. in turn. regional and rural/urban inequalities Objectives of the Commission The Commission has three main objectives which guide its functioning.Khadi. which are statutory bodies formed by the state governments within India. Village Industry .Any Industry that is located within a rural area. The Khadi and Village Industries Commission then uses these funds to implement its programs either directly . or indirectly through 33 Khadi and Village Industries Boards. The Ministry receives funds from the Central Government of India. thereby making them an economically viable option for the rural poor.85 lakh people.Through its 29 state offices. by directly funding Khadi and Village institutions and co-operatives. 5600 registered institutions. 30. Small and Medium Enterprises which is the administrative head of the programs. Schemes and Programs of the Commission 82 . where the Fixed Capital Investment per Artisan (weaver) does not exceed Rupees One Lakh The common characteristic found in both . The process of Implementation of schemes and programs starts at the Ministry of Micro. This is an important point with reference to India in view of its stark income. Khadi and Village industries are suited like no other to a labor surplus country like India.138 Cooperative societies and about 94.Khadi and Village Industries is that they are labor intensive in nature. set up for the purpose of promoting Khadi and Village Industries in their respective states. These are: • • • The Social Objective .Creating self-reliance amongst people and building up a strong rural community spirit. The raw materials may be cotton. At present the developmental programmes of the commission are executed through.Khadi was launched in 1920 as a political weapon in the Swadeshi movement of Mahatma Gandhi.Providing salable articles The Wider Objective . The commission seeks to achieve these objectives by implementing and monitoring various schemes and programs. The Khadi and Village Industries Boards. fund Khadi and Village Institutions/Cooperatives/Entrepreneurs.
Under this scheme. Interest Subsidy Eligibility Certification Scheme (ISEC) . 8.Prime Minister’s Employment Generation Program (PMEGP) .4 Non-Government Promotion Structure There are three national associations representing all type of industries. Normal rebate (10 per cent) all through the year and an additional special rebate (10 per cent) for 108 days in a year. these associations have membership of small sector as well and represent mainly the policy related interests of SSI sector. 35% for weaker sections in rural areas) which is credited after two years from the date that the loan was extended. loans are provided by the banks to the members to meet their working/fixed capital requirements.a. Rebate Scheme .Under the scheme. These are Federation of Indian Chambers of Commerce and Industries (FICCI) Confederation of Indian Industries (CII) Association of Chambers of Commerce and Industries (ASSOCHAM). However. These loans are provided at a concessional interest rate of 4% p. The remaining 90 and 95% as of the project cost. is granted by banks specified under the scheme. only members producing Khadi or Polyvastra (a type of Khadi) are eligible for this scheme. In case of Schedule Castes/Schedule Tribes and beneficiaries from other weaker sections. as the case may be. the beneficiary’s contribution is 5 per cent of the project cost.The rebate on sales of Khadi and Khadi products is made available by the Government so as to make the price of Khadi and Khadi products competitive with other textiles. small and large. The Beneficiaries under the scheme are refunded a certain amount of the loan (25% for General. They have virtually no linkages with the small industry in general and their local associations in specific. the beneficiary is required to invest his/her own contribution of 10 per cent of the project cost. The exclusively small industry related associations are diversified geographically and sectorally and are supposed to have been linked with Federation of All India Small Scale Industries (FASSI) Federation of Small and Medium Industries (FOSMI) Indian Council of Small Industries (ICSI) However these institutions are weak in character due to their working for cross purposes and lack of dynamic perspective for small scale sector growth. The difference between the actual interest rate and the concessional rate is borne by the commission under the 'grants' head of its budget. Another institution that is concerned with the small and medium enterprises is 'World Assembly of Small and 83 . These associations represent mainly the interests of large scale industries. is given to the customers. However. The rebate is allowed only on the sales made by the institutions/centers run by the Commission/State Boards and also at the sales centers run by the registered institutions which are engaged in the production of Khadi and polyvastra.
Steps for development of MSE in the eleventh plan are as follows. as the MSE sector is unorganized. The eleventh plan emphasizes on the improvement of living standard of workers and believes that only if a worker is physically and mentally sound.12. (8) Ministry of MSME has been formed for the development of Micro. 8. There are only a few of the local associations that are involved in providing specific individual level services to the small industry. However. etc. (7) Technical information will be provided to Small Industries Development Organization now known as Micro.28-391.Medium Enterprises' (WASME). Small and Medium Enterprises Development Organization which has around 3000 technicians who work in testing centres. (1) It has been targeted to raise the production of MSE units to 13. Small and Medium Industries. then will he be able to produce a good output” (3) In the eleventh plan. The plan looks at the sector as an engine for sustained and inclusive economic growth and employment. the document (VOL III p. 84 .5 Roadmap for the Development of SME sector in 11th Five Year Plan (2007-12) The limit set for investment in the micro units is a major hindrance in this era of Globalization and competitiveness.73 lakhs (2) In the MSE scheme in the eleventh plan. MSE groups have been taken as a cluster and workers have been made into a group (SHGS) so that their bargaining power is increased (5) The MSE sector gets a loan of 5 lakh for 8 % interest without any bailee will be encouraged a vehement drive will be undertaken. (6) Centre and the state govt. get their due rights. Women working in this sector. schemes and plans (4) In the eleventh plan. all the associations are involved in lobbying with the government to provide one or the other facilities or benefits to the sector.803 cores for the year 2011. tool rooms. Regarding this. Employment has been planned to be increased from 322. the plan aims at organizing it so that MSE sector gets maximum benefit of all the govt. previously the manifesto was good for all which has been turned to development.98. In the eleventh plan. for that efforts will be made. will give prime importance to the MSE sector. 203) it has been informed that "The eleventh plan approach to the MSE sector marks shift from welfare approach to that of empowerment. The limit has been increased to 5 crores. which will help develop dissemination of technology. it has been decided to establish Technology mission. to develop this sector.
are among the welfare schemes notified in Schedule 1 of the Act under the Central Government). skill development. the govt. The social security aspects relating to the unorganized sector have been sought to be addressed by the Unorganised Workers Social Security Act. 8. Schemes relating to (a) Provident Fund (b) Employment Injury Benefit (c) Housing (d) Educational Schemes for children (e) Skill Upgradation of workers 85 . providing Adequate Safety Nets to the Banks by undertaking modifications in Credit Guarantee Scheme. that these small and micro units establish their own power plants. technology. and decrease the wastage will be undertaken.5 lakh to non-farm unorganized enterprises as for agriculture and creation of a National Fund for the Unorganised Sector (NAFUS). the NCEUS (National Commission for the Enterprises in the Unorganized Sector) submitted eleven reports to the Government. include revising Priority Sector Lending Guidelines to earmark 12% of Net Bank Credit (NBC) for micro enterprises. at the cost of 850 crores. started the National Manufacturing Competitiveness Programme. design clinics. steps to increase the competitiveness of groups. for skill-related issues of the unorganized sector. RRBs. The recommendations for augmentation of credit flow. Similarly. In the eleventh plan it has been suggested. the Commission has recommended adoption of Mission Mode approach for promotion of technology in the unorganized sector. The Act provides a State Social Security Board at the state level to recommend suitable schemes in the State sector and monitor social welfare schemes for unorganized workers. same rate of interest on loans up to Rs. Under it in 5 years. the Commission has recommended launching of a National Mission for Development of Skills in the Unorganised Sector and a massive programme for employment assurance and skill formation with the aim to develop human capital through onjob-training. co-operative).6 Initiatives for the Unorganized Sector Based on the examination of the problems faced by the enterprises in the unorganized sector. Janshri Bima Yojana. National Family Benefit Scheme. The UWSSA provides for a National Social Security Board at the Central level and for welfare schemes to be formulated by the Central Government on matters relating to (a) health and disability cover (b) health and maternity benefits (c) old age protection (d) any other benefits as may be determined by the scheme (Indira Gandhi National Old Age Pension Scheme. (10) This sector faces basic problems like that of electricity. Further. NCEUS has made several recommendations for facilitating adequate access to credit. etc.(9) In the year 2006. 2008 (UWSSA). fixation of annual targets of new accounts of non-farm unorganised sector enterprises by each bank branch (of commercial. inter alia. In these reports. Rashtriya Swasthya Bima Yojana etc.
Policy Implications In addition to the growth potential of the sector and its critical role in the manufacturing and value chains. the government must take effective steps for the welfare of the workers in this sector. access to raw material. The definition of ach segment of unorganized worker will have to be clearly evolved because this will facilitate identification of workers for providing social security. On the other hand. for several reasons. This will also help in the registration of such workers. At the same time. During the past few decades. Since these schemes are meant for poorest of the poorer. almost the entire funding is by the government. The future strategy ought to focus on providing social security to the unorganised workers in the MSME sector in terms of the mandate under the UWSSA. policies/programmes for the larger sized MSMEs need to address issues relating to growth marketing. Thus. The Government policy must focus its attention to ensure support to the growth-oriented MSMEs to prosper as also to provide an enabling atmosphere for the MSMEs in the unorganised sector to flourish and progressively integrate with the organized sector. 75% of the premium is paid by the Central Government and the remainder by the States. for schemes 86 . labour related issues had focused on regulation rather than welfare. The RSBY platform can also be used for incorporating other social security schemes like Aam Admi Bima Yojana which is presently riding on an independent platform. it is 50:50. if we are to reach out to the uncovered segment we need to focus equally on regulation and welfare. The smart cards are already being issued under Rashtriya Swasthya Bima Yojana (RSBY). skill formation and credit. The policies and programmes for the micro and small enterprises in the unorganized sector would need to address their survival strategies and should be in the direction of providing livelihood alternatives such as social security. but the scheme extends to only BPL families. the heterogeneity and the unorganised nature of the Indian MSMEs are important aspects that need to be factored into policy making and programme implementation. The UWSSA provides for issuing a smart card to each of the worker. skill development and technology upgradation. There is considerable segmentation among the MSMEs in terms of their size and need tailor made policies for each size class. Therefore. However. In case of RSBY. the actual number of workers in the country provided with social security continues to be quite small in relation to the work force. (g) Old Age Homes is to be formulated and administered by the State Governments. This scheme can gradually be extended to other segments of unorganized workers as are identified in due course. In case of Aam Admi Bima Yojana.(f) Funeral assistance. Though labour welfare has taken deep roots. credit. there needs to be a convergence of schemes as far as possible on a single platform which will facilitate an easier and convenient delivery of benefits to the target group without any leakage. The existing socials security schemes incorporate a fund mechanism. not unconnected with the way industrial growth took place in our country.
Sir Sayajirao Gaekwad III.7 Initiatives taken by Bank of Baroda to support SME’s Bank of Baroda (BoB) is the third largest bank in India. founded the bank on 20 July 1908 in the princely stateof Baroda. after the State Bank of India and the Punjab National Bank and ahead of ICICI Bank.that are to be extended to non-poor workers.657 ATMs.409 branches and offices. even by the employer.452 billion as of June 30. Its total business was Rs. where employer can be identified. It plans to open 400 new branches in the coming year. BoB plans to open three outlets in the Persian Gulf region that will consist of ATMs with a couple of people.58 lakh crores. care and competence. 5. BoB is ranked 763 in Forbes Global 2000 list. along with 13 other major commercial banks of India. The bank also plans to open five branches in Africa. 87 . Besides branches. The Maharajah of Baroda. and its tenth branch in the United Kingdom. credit cards and asset management. 3. BoB has total assets in excess of Rs. The RSBY is being operated in the States through State nodal agencies which are separate legal entities that are wholly owned by the State Governments. In 2010. in Gujarat. 3. These independent institutions can be gradually assigned task of implementing the other social security schemes in respective states. the bank has 78 branches abroad and by the end of FY11 this number should climb to 90. or Rs. Mission Statement : To be a top ranking National Bank of International Standards committed to augmenting stakeholder’s value through concern. 8. New Zealand. BOB opened a branch in Auckland. a contribution can be sought from the workers and. was nationalised on 19 July 1969. As of August 2010.583 billion. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking. The bank. by the government of India. and about 1. a network of over 3.
COMPOSITE LIMIT : 4. and other entities with annual sales turnover of Rs. taking into account nature of business. 2006.e. whichever is lower. Personal Guarantees of all promoter Directors / Partners. Rs. 150/crores exclusively banking with our bank/new borrowers desirous of having sole banking arrangement with our bank. SECURITY : Exclusive charge on the assets of the enterprise. RATE OF INTEREST : As per credit rating of the borrower.crore to Rs. as defined under MSMED Act. cash flow projections. Small & Medium Enterprises. PURPOSE : To provide hassle free credit for working capital (fund based and non-fund based) as also long term requirements.100.00 Crores. Third party guarantee in case of credit line above Rs.1) Baroda SME loan Pack Baroda SME Loan Pack provides single line of credit for meeting SME borrowers’ working capital as well as long term requirements within the overall limit approved by the bank. promoter Directors. cyclical trends.5 times of borrower’s tangible net worth as per last audited Balance Sheet. Micro.00 lacs to Micro & Small Enterprises as per Regulatory definition. or. 5. wherever applicable. Charge on the unencumbered personal properties of the partners. MARGIN : 25%. 88 . i. peak time requirements and any eventuality of unforeseen spurt in the business. ELIGIBILITY : All Enterprises. 1/.
Non-Funded facilities. 3) Term Finance Under Term Finance. offers the following: Fund Based Finance for capital expenditure / acquisition of fixed assets towards starting / expanding a business or industrial unit or to swap with high cost existing debt from other bank / financial institution.e. i. Bank of Baroda. the bank provides funding and assistance to actually purchase business assets or to meet business expenses. i. Key Benefits Funded facilities.25. i. 89 . Available in both Indian as well as Foreign currency.e.00 lacs in case of other Enterprises. receivables financing. Bank of Baroda offers corporations Working Capital Finance to meet their operating expenses. purchasing inventory. Government Departments for the procurement of goods and services on credit. Non-Fund Based Finance in the form of Deferred Payment Guarantee for acquisition of fixed assets towards starting / expanding a business or industrial unit. Medium Enterprises and Enterprises based on the turnover criteria to maintain asset coverage ratio above 1. Any other collateral for the credit line above Rs. 2) Working Capital Finance A firm's working capital is the money it has available to meet current obligations (those due in less than a year) and to acquire earning assets. either by direct funding or by issuing letter of credit. 25.e. the bank can issue letters of credit or can give a guarantee on behalf of the customer to the suppliers.
To meet the financial requirements for setting up the institutions which includes construction of building.25 lacs . MARGIN . ELIGIBILITY . RATE OF INTEREST . purchase of equipment etc.50% p. Personal guarantees of the Promoters of the Institution.4) Baroda Vidyasthali Loan Baroda Vidyasthali Loan is a special scheme for financing Educational Institutions.Maximum 84 months including moratorium period of 1 year.Minimum Rs.Equitable mortgage of Land & Building (not agricultural land). Schools. Hypothecation of Instruments & Equipment acquired out of the loan and other assets of the Educational Institution.25% of the cost of the project.Base rate plus 3. 90 . for the new set up as also renovation of the existing facilities.a REPAYMENT PERIOD .Educational institutions. purchase of instruments for imparting education training to the students. depending upon the projected cash flow. Colleges and other education bodies running education activities LIMIT .10 crores SECURITY . Maximum Rs. PURPOSE .
etc. Enterprises other than individuals like Proprietorship.Rs.crores. Purchase of medical diagnostic equipments as also office equipments. Hypothecation of medicines. 150/. 6.00 crores Urban & Metro Centres . office furniture.5) Baroda Arogyadham Loan PURPOSE : To meet the financial requirements for setting up of new Nursing Home/Hospital including Pathological Laboratory. 0.50 crores Semi-Urban Centres . Charge on unencumbered assets of Promoter Directors in case of Private Limited Companies. or any other collateral by way of FDR. Personal guarantee of Promoter Directors in case of Limited Companies and Trustees in case of Trusts.e. mortgage of properties in the personal name of the relatives of Promoters. Expansion/renovation/modernization of existing Nursing Home/ Hospital including Pathological Laboratory. Higher margin if collaterals are inadequate 91 . i. Partnership firms. air conditioners. ELIGIBILITY: All entities. receivables and other chargeable current assets. LIMIT Rural Centres . Purchase of ambulance etc and to meet working capital requirements.00 crores SECURITY • • • • • Equitable mortgage of Land & Building/premises of Nursing Home/Hospital Hypothecation of medical equipment/office equipment acquired out of loan amount.Rs. MARGIN : 25%.Rs. Private Limited Companies and Trusts engaged in providing medical/pathological diagnostic services to the Society and with turnover upto Rs. computers. 12. MSMEs. viz.
Professional & Self Employed persons etc. receivables. 92 . REPAYMENT PERIOD : 35 months to 84 months including moratorium depending upon the projected cash flow. Artisans.Lakhs per borrower. MARGIN: 25%. village industries. having satisfactory track record / dealing with the bank for last 3 years. ELIGIBILE BORROWERS: All existing customers in the categories of Small Business. professionals and self employed persons etc. retail traders. Small Scale and Tiny Units.RATE OF INTEREST : As per credit rating of the borrower. 10/. as specified for existing limit. 6) Baroda Laghu Udhyami Credit Card PURPOSE: To provide hassle free credit facilities to Small business units. SECURITY: Hypothecation of stock in trade. artisans. office equipment etc. Retail Trade. Village Industries. PERIOD / VALIDITY: The limit fixed under the scheme will be valid for a period of three years subject to internal annual review based on the conduct / operations of the account. machinery. small scale industrial units and tiny units. LIMIT: Maximum upto Rs.
The scheme is implemented in rural and urban areas. 2/. MARGIN : For limits upto Rs.in a flexible and cost effective manner.but upto Rs. Beneficiaries of other Government Sponsored loan schemes will NOT be eligible for coverage under BACC scheme. Preference given to artisans registered with Development Commissioner (Handicrafts).both investment needs as well as working capital . 2 Lakhs 15% to 25% margin. SECURITY : 93 .000/.000/. Margin is subject to change as per RBI guidelines from time to time or the bank's policy in this regard. ELIGIBILE BORROWERS: All artisans involved in production / manufacturing process. 25.No margin For limits above Rs. LIMIT : Maximum Rs.Lakhs per borrower. 25.7) Baroda Artisans Credit Card (BACC) PURPOSE: To provide adequate and timely assistance to the artisans to meet their credit requirements .
8) Technology Upgradation Fund Scheme (TUFS) for Textile and Jute Industries Bank of Baroda grants loans under Technology Up-gradation Fund Scheme launched by Government of India as per guidelines received from time to time from Ministry of Textiles. 5% interest reimbursement plus 10% capital subsidy for specified processing machinery. technical textiles machinery.Hypothecation of assets financed under the scheme. or. 15% Credit Linked Capital Subsidy for Small Scale Sector and 20% for Power-loom Sector. The scheme also provides 25% capital subsidy on purchase of new machinery and equipments for the pre-loom and post-loom operations. garmenting machinery and for CAD. or. The scheme envisages 5% interest reimbursement (4 percentage for spinning industry) of the normal interest charged by the bank on the loans availed by the units from the bank for undertaking technology up-gradation/modernization. New units set up with technology as per guidelines of the scheme would also be eligible for the above benefit. Bank of Baroda is a nodal agency for determining eligibility and releasing of subsidy for the cases financed by the bank under the scheme. etc. handlooms/up-gradations of handlooms and testing and quality control equipments for handloom production units.. OBJECTIVE To provide encouragement to textile industrial units for taking up technology up-gradation and to modernize their production facilities. PROMOTERS’ CONTRIBUTION • Minimum 20% of the project cost. AMOUNT OF LOAN 94 . CAM. Design Studio.
PROGRAMME PERIOD • The scheme is in operation for a period upto 31. tyres. The Scheme is in operation for the period upto 31.crore. RATE OF SUBSIDY • 15% (Subsidy is calculated with reference to the purchase price of Plant and Machinery). 9) Credit Linked Capital Subsidy Scheme (CLCSS) Bank of Baroda participates in the Credit Linked Capital Subsidy Scheme launched by Government of India to facilitate Technology Upgradation of Tiny and SSI units in the specified products/ sub-sectors. of India by providing 15% capital subsidy for induction of proven technologies approved under the scheme. toys. OBJECTIVE To facilitate Technology Upgradation of Tiny and SSI units in the specified products/subsectors as notified by Govt.• Need based. glass and ceramic items including tiles. and stone industry (including Marble Mining Industry).3. bicycle parts. auto parts and components. electronic industry particularly relating to design and measuring. leather and leather products including footwear and garments. food processing (including ice-cream manufacturing). 1/.2012.3. Information and Technology (Hardware). viz. LIMIT • Ceiling for loan under the scheme is Rs. dyes and intermediaries. hand tools. drugs and pharmaceuticals. Bank of Baroda is one of the Nodal Agencies appointed by Government of India.2012. foundries ferrous and cast iron. 95 .
25000/. 15% . SECURITY: • Charge on assets created out of loan amount and other collateral securities as determined on the merits of each case. 96 . PERIOD OF REPAYMENT: • Minimum 3 years and maximum of 10 years (which can be extended).25% in case of composite loans above Rs. 100/. village and cottage industrial units and Micro Enterprises in Small Enterprises Sector. with initial holiday of 12 months to 18 months. and Micro/Small (Service Sector) Enterprises engaged in industrial activities only.000/-. • PURPOSE: • Fixed capital investment and / or working capital requirement.10) Composite Loans ELIGIBILITY: • Small Enterprises (Manufacturing Sector) including artisans. 25.Lakhs. MARGIN: • • Nil in case of composite loan upto Rs.Lakhs.and upto Rs. TYPE OF FACILITY : Composite loans. 100/. AMOUNT OF LOAN : Upto Rs.
100/.11) Collateral Free Loans Under Guarantee Scheme of Credit Guarantee Fund Trust for Micro & Small Enterprises PURPOSE: To provide collateral free loans upto Rs. b) Loans to Micro and Small enterprises operated and/ or owned by women.lacs to Micro & Small Enterprises.lacs and up to a limit of Rs. 5 lacs (85%).lacs extended by the Lending Institution to an eligible borrower subject to maximum guarantee cover of Rs. a charge can be created on the fixed assets of the unit even though the same are not financed by the Bank and the same will not be treated as collateral security. 100/-.e. 62. ELIGIBILITY: The coverage of the Scheme is extended to all new and existing Micro and Small Enterprises (both in the Manufacturing Sector as well as in the Service Sector) as defined under MSMED Act.100 lacs. c) All loans in North East Region including the State of Sikkim. maximum of Rs. This means if a borrower is sanctioned working capital facility only. 2006. a) Loans to Micro enterprises up to Rs. 50/. GUARANTEE FEE: Particulars One time Annual Service fee Guarantee fee 97 . MARGIN: The credit guarantee cover is available up to 75% of the amount in default in respect of credit facilities up to Rs. 50/. as defined under MSMED Act. LIMIT: The eligible loan limit under the Scheme is Rs. SECURITY: "Primary security" in respect of a credit facility shall mean the assets created out of the credit facility so extended and/or existing unencumbered assets which are directly associated with the project or business for which the credit facility has been extended. 2006. guarantee cover is available up to 80% of the amount in default.. 37. In case of following categories of borrowers.50 lacs and 50% for the facilities over Rs.50 lacs. i.
subject to a minimum of Rs. 5/. Extension of Charge on current assets for the additional facility ensuring that adequate drawing power is available.75% the State of Sikkim.25. 98 . should not be more than 10%.50% 0.50% 0. Satisfactory financial performance in terms of sales / turnover and profits. if any. 12) SME Short Term Loans PURPOSE: To meet temporary shortfall / mismatch in liquidity. 250 Lakhs.75% Applicable as per the borrowing limit as stated above.lacs.crores. Satisfactory dealings with the Bank for at least three years. should be available. 1/. Loans in North East Region including 0. for meeting genuine business requirements only. ensuring that there is a minimum asset cover of 1.crore to Rs. ENTERPRISES GROUP: Micro. Small & Medium Enterprises as per Regulatory definition and all other entities with annual sales turnover of Rs. 150/.00% 1. 10 Lakhs and maximum of Rs. 1.lacs Credit facility above Rs. Negative variance. LOAN AMOUNT: Upto 25% of the existing Fund based Working capital limits (depending on the Credit Rating). ELIGIBILITY CRITERIA Satisfactory credit rating for the last three years Latest Balance Sheet etc. 5/.Credit facility up to Rs. PERIOD: Not exceeding 180 days – minimum 90 days SECURITY First charge / Equitable mortgage of fixed assets of the company / firm or extension of existing first charge / equitable mortgage of fixed assets.
if any. should not be more than 10%. to be repaid in equal quarterly or half-yearly installments. Total Debt-equity ratio should not be higher than 4.Extension of all existing guarantees of Directors / Third party guarantees to cover the additional facility.75:1 • • LOAN AMOUNT: Upto 25% of the existing fund based Working capital limits (depending on the Credit Rating). Small & Medium Enterprises as per Regulatory definition and all other entities with annual sales turnover of Rs.months. RATE OF INTEREST: As applicable to existing working capital facilities. Average DSCR should not be less than 1. PROCESSING CHARGES: 25% concession in applicable charges. ensuring that there is a minimum asset cover of 1. PERIOD: Not exceeding –36. 150/.crores. 500 Lakhs. SECURITY: First charge / Equitable mortgage of fixed assets of the Company / firm or extension of existing first charge/ equitable mortgage of fixed assets. The facility will also be available for repayment of secured and unsecured Loans of other banks or institutions. subject to a minimum of Rs.5:1 and total Term Liability and equity ratio should not be more than 3:1. 13) SME Medium Term Loans PURPOSE: To augment enterprise’s working capital gap and to help in improvement of current ratio and also for meeting genuine business requirements.crore to Rs. 25 Lakhs and maximum of Rs.25 RATE OF INTEREST: • As per credit rating for the additional loan 99 . ELIGIBILITY CRITERIA • • Satisfactory credit rating for the last three years Satisfactory financial performance in terms of Sales/turnover and profits. but not for any purpose. Negative variance. which is not related to the enterprises activity. ENTERPRISES GROUP: Micro. 1/.
RATE OF INTEREST • As per Credit Rating and as applicable for regular Cash Credit facility. DOCUMENTATION • No additional documentation/formalities required at the time of availing facility every time as the 10% additional limit will be a part of the regular sanction. with credit rating of BOB-4 and above and enjoying working capital limits of Rs. PERIOD • 12 months to be allowed on 4 occasions during the year for a maximum period of 2 months on each occasion with a minimum gap of 15 days between two drawals. 150/.months of drawdown PROCESSING CHARGES: 25% concession in applicable charges 14) Baroda SME Gold Card Baroda SME Gold Card envisages provision of additional limit of 10% of the assessed eligible bank finance for Working Capital to Micro.crores. Small & Medium Enterprises as per Regulatory definition and all other enterprises with annual sales turnover of Rs. tax payment. PURPOSE: • To provide hassle free on the spot assistance to take care of borrowers’ emergent requirements and tie up temporary mismatch in liquidity arising out of delayed payment by buyers. execution of bulk orders. Accounts having sole banking arrangement with our bank/proposed to be financed under Sole Banking arrangement.• Prepayment penalty of 1%. 100 . ELIGIBILITY • • Accounts in Standard Category for last 2 years.crore to Rs. SECURITY • As applicable to regular Cash Credit facility. on request along with regular application for Working Capital limits to meet emergent requirements.Lakhs and above. etc. if loan is prepaid within -24. 25/. 1/.
5/. including moratorium. 1/. gives a grant of Rs.15) Schemes for Financing Energy Efficiency Projects PURPOSE: Financing SMEs for acquisition of equipments. SECURITY: a. RATE OF INTEREST: Base rate plus 4. Cost of energy audit/consultancy. 1/. Grant from IREDA (Indian Renewable Energy Development Agency): IREDA.25. Cost of structural / layout changes. if any. with the total security coverage being not less than 1. For Consortium/Multiple Banking Accounts : first charge on equipments acquired out of loan and collateral. services and adopting measures for enhancement of energy efficiency/conservation of energy.Lakhs).000/. subject to maximum of Rs. at present. Cost of alterations to existing machinery.00% p. This grant is available for the first 100 projects (SME Sectors only) approved by them. 101 .crore or below to meet partial cost of Energy Audit. ELIGIBILITY: SME units financed by bank as also other units desirous of shifting their account to Bank of Baroda. b. LIMIT: Upto 75% of the total project cost. Preparation of Detailed Project Report (DPR). 25.for projects costing Rs. Project cost may include the following: • • • • • Cost of acquisition/modification/renovation of equipment/software. (Minimum amount of loan Rs.a REPAYMENT: Maximum 5 years.crore. For Sole Banking Accounts : Extension of first charge on all fixed assets. if any.
Small & Medium Enterprises. Charge on unencumbered personal properties of the Promoter Directors. 500. PURPOSE: To provide hassle free credit to SME borrowers to meet working capital requirements/augment long term margin requirements. Third party guarantee. close relatives of the promoters.e. if available. ELIGIBILITY: All Enterprises. (viz. 50. if available.crore to Rs. 1/. and other entities with annual sales turnover of Rs. LIMIT : Minimum :Rs. Hypothecation of stocks/book debts. 2006. MARGIN: 40% of the market value of property mortgaged (valuation of the property will be carried out by the valuer on bank’s approved panel/Government approved valuer) PERIOD: 12 Months RATE OF INTEREST : 102 . as defined under MSMED Act. Micro.16) Baroda Overdraft Against Land and Building Baroda Overdraft against land and building is a unique product for financing working capital requirements/long term margin requirements of SME borrowers against the security of unencumbered land and building belonging to the unit or Promoters of the unit. 150/crores exclusively banking with our bank/new borrowers desirous of having sole banking arrangement with our bank. father. wife. or close relatives of the promoters. promoters of the unit.00 lacs (for Rural branches) Rs. or. i. mother. 25.00 lacs (for Semi-urban branches) Rs. 200.00 lacs (for Urban & Metro branches) SECURITY : Mortgage of factory land and building and/or any other property (Land & Building) belonging to the unit.00 lacs (for Rural/Semi-Urban/Urban/Metro branches) Maximum: Rs. Personal guarantees of all Promoter Directors/owners of property. son and daughter only provided they stand as guarantors).
17) Loans Under Interest Subsidy Eligibility Certificate Scheme of Khadi and Village Industries Commision (KVIC.e. Claims should be commuted on the loan amount indicated in the ISEC or an actual availment whichever is less based on the day to day transactions. i. like Guarantees. the eligible institutions may negotiate with Bank for finance assistance. Valuation of properties once in 3 years. Base rate + 4.50% p. Co-operative Societies SUBSIDY: Interest subsidy limited to the difference between the actual rate of interest charged by the Bank and 4% borne by the borrowers NOTE: Bank Finance Cell of KVIC will issue Interest Subsidy Eligibility Certificate. OTHER FEATURES : • • • • • Base rate +3. However.00% p.a. Simplified assessment methods. with annual sales turnover of Rs. allowed by earmarking Overdraft facility. Registered Institutions.For Micro & Small Enterprises in Manufacturing & Service Sector (As per Regulatory definition) For Medium Enterprises in Manufacturing & Service Sector (As per Regulatory definition) For other Enterprises. 1/crore to Rs. 103 . Submission of stock/book debts statements on half yearly basis.a.a.150/. Annual inspection of securities.ISEC) PURPOSE: To finance institutional financing agencies for lending to Khadi & Village Industries ELIGIBILITY: Institutional financing agencies – Khadi & Village Industries Commission. the final decision to accept or reject any loan to the eligible borrower is vested with the Bank.crores. Non-fund based facilities. On the strength of these Certificates. State Khadi & Village Industries Boards. Base rate + 4.25% p.
3) Sanction/Ratification a) b) c) C) d) Modifications Concessions Waivers Confirmation Reference of existing sanction Sanction no. SMELF Chandigarh 26.76 261. BANK OF BARODA.2010 (Amt in Lacs) Existing 156.03.2) Increase Fund Based Limits Fund Based Limits Non-Fund Based Limits Total 1. CHANDIGARH Name of the Account Branch Region Zone : : : : M/s TRICITY TOURS AND TRAVELS Sector 8.03.00 156.2010 on c) Reason for Short Review Not Applicable 1. REGIONAL OFFICE. a) To consider review of the existing facilities and sanction of additional term finance to the captioned firm for a period of 12 months subject to review thereafter.2010 Chief Manager. Panchkula Chandigarh Region Northern Zone SECTION I : DETAILS OF THE PROPOSAL Gist of the Proposal 1. Date Authority Due date of review To permit the firm to continue to maintain Current Account with HDFC Nil Nil Nil SMELF/F/CM/2009-10/08 26.03.00 Proposed 261.76 104 . b) Last Sanction/Review carried 26.CASE – Proposal of Tricity Tours and Travels NOTE TO THE ASSTT GENERAL MANAGER.
2. 2ND Floor. Sector.2.A.0) Basic Data:Asset Classification Bank’s Credit Rating (Present) Carried out on BOBRAM SME Services model on the basis of ABS as at 31.10. Our Bank’s Share 100% 105 . Constitution Partnership firm Date of Establishment 12.A.2010 Rating Borrower Rating Project Rating Term Finance Facility Rating Composite Rating BOB 5 P1 FR3 CR4 Description Investment Safety Investment Safety High Safety Reasonable expected Loss Grade Grade Moderate Moderate Bank’s Credit Rating (Previous) Credit Rating carried out on Rating Term Description BOBRAM offline module Loan based on Estimated Borrower MSMEB Investment Grade High Safety financials as at 31.35.2010 Rating OB3 Term Finance Facility N. NAC Manimajra Group None Segment Medium Enterprise – SME( Service).03.03.2009 Location Registered Office H.03. Industry Transport and Nature of Activity Running of Radio Autos & Taxis Exposure to Industry Sectoral Cap for Industry Bank’s Exposure Data not Available with the SMELF. Panchkula Business Premises SCO 866.2010 Standard as on 31. Chandigarh Zone’s Exposure NPA (Bank) NPA (Zone) Collaboration / Joint Venture.2009 MPBF N.NO.08.A. if any None Dealing with the Bank since 09. Rating Composite CR3 Low Expected Loss Rating External Credit Rating N.
22 lacs as at 31.6.The residual value available for the proposed exposure to the captioned firm after allocating 150% of the outstanding balance in the housing loan works out to Rs. 7.2010.2009.23 lacs by Mr.Rs.25% PRIMARY A Hypothecation of vehicles. The property has been originally mortgaged to secure housing loan of Rs.00 Lacs ( Distress value Rs. Rahul Jindal as per valuation report dated 13. / Special 106 . Auditors of the company.As such there is no mention in the report of the said account.00 Lac) as per valuation report of Er Satish Chander Chawla dated 13.2011 COLLATERAL A Extension of Equitable Mortgage of H. The said property was earlier valued at Rs.35. and Mrs.340. 330. standing in the names of Col. 6.94 lacs (12. Jagir Kaur Dhillon having market value of Rs.09.No.78% annualised) 2010 Major Inspection irregularities Internal Inspection The last branch inspection was carried out in September 2009 whereas the facilities to the captioned firm was disbursed in October 2009.Rate of Interest Security Available 4. 248.00 lacs B Personal guarantee of all the partners of the firm.67 lacs) granted to Rs. The appreciation in the value of the property is mainly on account of increase in the value of land and also on account of inclusion in the valuation of the basement which was not included in the previous valuation.25% over base rate (Base rate 8. M/s Hitesh Brij & Associates Qualification remarks of the auditors Nil Pollution Clearance Not Applicable Whether statutory dues have been Yes paid Whether the names of the Company / No Associates or Directors appear in RBI defaulters’ list and / or caution list Whether the Company / firm / No promoters and their Associates are on ECGC caution list. Mr. Equipments & Furniture Fixtures including proposed addition having estimated wdv of Rs.90 lacs (present outstanding balance Rs.03. Dhillon who are also partners in the captioned firm. 306.(Retd) Virsa Singh Dhillon & Smt.314.00% as on date) Present effective rate 12. Sector-2. Yield in the account during 2009.08. admeasuring 402 Sq Meter. Panchkula.
Jagir kaur Dhillon As per the report Mr.(Retd.) Virsa Singh Dhillion Mrs. 22.09) Business experience of Partners Col.74 2. Harbir Singh Mann 69. He is a Mechanical Engineer by profession & has handled army transport during his career in Army.74 2. of security Any reschedulement agreed (in last –3years) Name of Partners Col.04) 2.07) Name of Key Persons Col. Harbir Singh Mann: He is graduate from Panjab University. Harbir Singh Mann 2.. He is working along with Col Dhillon 107 .02) 2. Virsa Singh Dhillon Ms.05 69.) Virsa Singh hillion Sh.61 Mrs. At present he is serving with a Radio AC Cabs company as manager on honorarium basis since last three years.(Retd.(Retd. Harbir Singh Mann is sanctioned a Housing Loan of Rs.2010 and the observations are as under Mr. He is 25 year old.2010 127. Branch to ascertain the name of the Bank/ FI Sole Nil Not Applicable No Net worth in lacs as on 31. Harbir Singh Mann 2. the first in India.43 lacs as at 30. Virsa Singh Dhillon. he was serving with a Radio AC Cabs company as manager on honorarium basis for three years.08) Name of Guarantors Col.(Retd.07. CIBIL report in respect of the directors / partners /proprietor/ guarantors was obtained on 30.Approvals List. Before starting his own venture of Radio Autos. Jagir Kaur Mr.23.D.06) Banking Arrangement Loans from Financial Institutions Security/ W.) Virsa Singh Dhillion 127. As per the report there are no borrowings made by Ms. Compliance of Earlier terms and Yes (however branch to ensure) conditions including creation of charge. Harbir Singh Mann As per the report there is nil outstanding in respect of 1 Personal Loan availed by Mr.05 Mr.01 lacs with outstanding balance of Rs.2010 with nil overdues. Jagir Kaur 362.05) 2.06. Jagir kaur Dhillon Mr.) Virsa Singh Dhillion: He retired from Indian Army in 2002 after serving the country for 39 years. Jagir Kaur Dhillon: She is a house wife and is also looking after the accounts of the company Mr.08. Mrs.61 362.V.03) 2.
00 lacs. Punjab and Chandigarh UT.00 Working Capital TOTAL EXPOSURE 156.86 106. The firm after inducting 31 autos and 5 cabs changed their plans to induct more autos and proposed to induct 20 more cabs on account of the following factors The matter of granting of permission for inter city plying of autos ie between Mohali.3 Modifications To permit the firm to continue to maintain Current Account with HDFC Concessions -Rate of -interest Charges -Waivers -Confirmations -- 3. Panchkula and Chandigarh remained pending with the transport departments of Haryana.41 @ The firm is reported to have since deposited Rs. There was also delay in setting up of LPG pumps in the tricity as a result of which the refilling of the LPG took considerably long time and the firm was not able to achieve the optimum mileage envisaged by them The price of LPG sharply increased from Rs.74 Term Loan III 120.10 Term Finance Term Loan I 42. 108 .3. 26.51 6.76 148.14 35.2 3.41 Term Loan II 113. 208. The promoters had planned to introduce 50 autos along with 2 cabs in the first phase and the remaining was to be inducted into their fleet after examining the market response. As a result of which the firm had to allocate autos amongst the 3 centers.0. The firm initially proposed to introduce 100 autos along with 5 radio cabs at an estimated cost of Rs.4 4) BACKGROUND OF THE FIRM The firm was established in Aug 2009 with the object to provide round the clock radio monitored Auto service to the middle class under the branch name of “TRICITY TUK TUK” It was a new concept introduced for the first time in India.08.10 41. ISSUE FOR CONSIDERATION: 3.25 @6.00 261.1) To consider review of the existing credit facilities and sanction of fresh term loan for a period of 12 months subject to annual review thereafter (Amt in lacs) Nature of facilities Existing Proposed Outstanding Excess/ Overdue Limit Limit As on 31.00 lacs and the balance is proposed to be deposited within 10-15 days but before availment of the fresh facility. 3. They therefore would require more autos then envisaged earlier.90 per kg however the request of the firm for increase in the tariff remained pending with the local administration. 3.66 106.80 per kg to Rs.33.
0 OTHER INFORMATION: 6. The property has been originally mortgaged to secure housing loan of Rs.22 261.No. Jagir Kaur Dhillon having market value of Rs.00 lacs for part meeting of the cost. They have approached us for sanction of Term Loan of Rs.6.The residual value available for the proposed exposure to the captioned firm after allocating 150% of the outstanding balance in the housing loan works out to Rs.35. 330.00 644.26 the The dealings of the firm and conduct of their accounts has been reported to be satisfactory.2011 Total Primary Security Collateral Security Extension of Equitable Mortgage of H.(Retd) Virsa Singh Dhillon & Smt.76 2. The said property was earlier valued at Rs. admeasuring 402 Sq Meter. 5) SECURITY COVERAGE Security Detail Primary Security Hypothecation of vehicles.67 lacs) granted to Rs.22 314. Dhillon who are also partners in the captioned firm. The cost of the proposed expansion is estimated at Rs 159.In view of good response the firm has now proposes to induct 25 more cabs in their fleet.03.23 lacs by Mr. Rahul Jindal as per valuation report dated 13.00 Lacs ( Distress value Rs. standing in the names of Col.43 lacs.22 lacs as at 31.2009.314. The appreciation in the value of the property is mainly on account of increase in the value of land and also on account of inclusion in the valuation of the basement which was not included in the previous valuation.08. The firm 109 . 6.09. and Mrs.00 330.2010. Panchkula. Further the firm has been regular in servicing interest /loan instalment in respect of Term Loan II However on account of improper linkage of their Current Account with Term Loan I the instalaments and interest in respect thereof have not been recovered since April 2010 despite their being adequate turnover in the account. Mr.00 Lac) as per valuation report of Er Satish Chander Chawla dated 13. Sector-2.90 lacs (present outstanding balance Rs.00 lacs Total Collateral Security Total security Total Exposure Total Security Coverage Collateral Security Coverage 6. 306. 248. 124.46 1.340.22 330. Equipments & Furniture Fixtures including proposed addition having estimated wdv of Rs.1 Dealing and conduct of account Value in lacs 314.
2010.0 JUSTIFICATIONS FOR Review of Existing Term Loans . Comments regarding credit Credit Rating has been carried out on the basis of rating/when last done ABS as at 31. 42.3 6.8 6.7 6.Term Loan I The firm /company was sanctioned a Term Loan of Rs. The firm availed the entire loan amount of Rs.9 6. 7.6.2010 and nothing adverse has been reported in his report.2010 on SME Services Model of BOBRAM and the firm attained acceptable rating of BOB-5 Justification for proposed rate of Proposed interest is as per the rate of interest interest applicable for borrower with combined rating of CR-4 and falling to ME category under SME services (Regulatory) Whether listed firm: present No market quotation – 52 weeks high / low: Not listed subsequent to buy back of shares.12 has since deposited Rs.14 lacs and the outstanding 110 . & whether in Branch has confirmed that the existing order/enforceable documents have been verified by the Law Officer posted at RO and irregularities pointed out have been rectified. 0.76 Contingent liabilities Not Applicable Others Pre sanction inspection was carried out by Mr. Pro-rata non-fund based business Not applicable Comments regarding utilization of The existing term loans sanctioned to the firm limits have been fully utilized. 42.88 lacs each and last installment of Rs. Whether proposed limits are Yes within Bank’s prudential Single borrower/Group exposure norms.10 C&I 6.6 6.5 6.2 6.78 lacs.08.11 6. Our Bank’s investment in the Nil firm: Our Exposure (in lacs) to the captioned firm ME SMEInternational Investment Total Micro/SE (Mfg/Service s) 261.00 lacs and they have assured to clear the overdues within 10-15 days and before availament of the fresh facilities Documentation: Whether verified Not Applicable (New firm) by Legal Dept.14 lacs for purchase of 20 radio cabs. The loan was to be repaid in 48 monthly instalments with 47 installments of Rs.03.01. 0. Raza Officer attached with SME LF Chandigarh on 30.4 6.76 261. The first instalment was to commence from 01.3.
They have therefore requested for sanction of additional Term Loan of Rs. however branch has commenced recovery of instalment amount of Rs. Further the firm to also provide 12 PDC on their current account with HDFC which shall be used in case of non availability of balance in the account with the branch for recovery of instalments. satisfactory performance of the firm so far. The present outstanding balance in the account is Rs. Keeping in view satisfactory performance of the firm so far and on the recommendations of the brand we recommend for favorable consideration of their request.2010 was Rs. 79. The loan was to be repaid in 48 monthly instalments with 47 monthly installments of Rs.00 lacs.0 RECOMMENDATIONS:Based on the afore said. 152. adequate collateral security offered and 111 . The firm opened a current account with HDFC which is very near to the office of the firm. 106. Further they are reported to be extending free issuance of Drafts and cheque books.03. 113.00 lacs towards the overdue amount and the balance is proposed to be deposited within next 10 days but before availment of the fresh term loan requested.37 lacs in the account from June 2010. The first instalment was to commence 3 months after date of first disbursement.2010 and repayment of the loan was to commence from 29.07. Permit the firm to continue to maintain Current Account with HDFC.43 lacs.73 lacs. The proposed loan is to be repaid in 57 monthly instalments to commence after 3 months from the date of first disbursement. In view of the above we recommend for review of the account for a further period of 12 months. 41. The firm has since deposited Rs. 8. acceptable projections submitted as detailed in section II of this note. The firm commenced availment of the loan from 29.08. Branch has recommended for review of the facility at the existing outstanding level for a further period of 12 months which we endorse. The firm to also undertake to replenish these cheques every 9 months.74 lacs with nil overdues.40 lacs each and the last installment of Rs.6.balance as on 31. Term Loan III In view of higher margins available on plying of cabs and good response received for the cab services introduced by the firm the promoters plan to induct 25 more cabs at an estimated cost of Rs. 124.86 lacs for purchase of 25 radio cabs . 7. 3. 1.51 lacs with overdues of Rs. We recommend for favorable consideration subject to that payment of statutory dues and salary is made through their account with the branch. functional convenience and mitigation of risk of loss the firm has requested for permission to continue the account. The said bank is reported to be providing pick up services for cash deposits without any cash handling and other charges. 2. Branch to however ensure to recover the overdue amount before disbursement of the additional loan Term Loan II The firm was sanctioned a Term Loan of Rs. 2. The overdues are on account of inaccurate linkage of the current account of the firm with their loan account as a result of which the system did not recover the interest and instalment for the period April – August 2010 despite there being turnover of Rs. The cost of additional fare meters and other accessories is estimated at Rs.00 lacs in the account. In view of the proximity of the Bank to their office.2010.06 lacs.00 lacs.
2.2006. Branch to specifically confirm compliance at the time of seeking permission for disbursement. BCC:BR:98:313 dated 13.43 lacs in tandem with margin contribution for the proposed fresh loan. (LD Ahuja) Chief Manager SME LF Chandigarh Place: Chandigarh 112 . End use of funds are to be verified. 3. We also recommend for grant of permission to the firm to continue their current account with HDFC. Manager SME LF Chandigarh Place: Chandigarh Date : 13. Our lien on all the vehicles to be duly registered in the records of RTO and insurance company. 4. The loan is to be disbursed in stages directly to the supplier of the vehicles after ascertaining the discounted cost of vehicles under TAXI quota. 39. Recommended for sanction (DR Wadhwa) Sr.11. 5. • Overdue interest/instalment in respect of Term Loan-I stands recovere3d • All other terms and conditions of the sanction have been complied with including those contained in Corporate Office circular no. 6. That the loan is to be disbursed after :• The firm inducts additional capita of Rs. The repayment schedule is correctly fed into Finacle System so as to ensure recovery of correct interest and instlament on due dates.06.keeping in view the market standing and experience of key persons we recommend for sanction of the facilities as detailed under “Issue for Consideration” on the terms and conditions as detailed in Annexure D and in this note. In case of shortfall in profits the same are to be compensated by induction of additional capital so as to ensure that the projected levels are attained.2011 Comments of the sanctioning authority. However branch to further ensure that 1. Undertaking from the partners/ company that dividend/ withdrawals from accruals shall be made by them only after attaining the projected level of TNW. Undertaking from the landlords of the firm to the effect that they shall • Give intimation to the Bank before seeking eviction of the rented premises • Allow free access to the Bank staff for verification of assets financed by us 7.
New Delhi : : : Complete proposal received at SME HUB.2011 Proposal submitted to higher authorities for 13.2011 Clarifications/Last information received 13. 114 .06.06.2011 consideration Queries raised Reply Received Sent for Credit approval Put up for sanction.MOVEMENT CHART Name of the Account Branch Region Zone M/S TRICITY TOURS AND TRAVELS Sector 8.06. 9. Panchkula Chandigarh Northern .
rules and laws as applicable and required to be kept in view. rules and laws as applicable and required to be kept in view. Place: Chandigarh Date:14.06. regulations. have been complied with and all due diligence has been taken.06. Place: Chandigarh Date:13.2011 (DR Wadhwa) Chief Manager CERTIFIED THAT while exercising discretionary power for the sanction of credit facilities.2011 ( A N Mehta) Asstt. General Manager 115 . regulations. New Delhi CERTIFIED THAT while processing the proposal for the sanction of credit facility to be considered. Panchkula Chandigarh Northern . have been complied with and all due diligence has been taken. all the relevant guidelines. all the relevant guidelines.LEGAL COMPLIANCE CERTIFICATE: Name of the Account Branch Region Zone M/S TRICITY TOURS AND TRAVELS Sector 8.
78 Non Current Assets 11.47 189.66 DE Ratio (TTL/ TNW) 0.41 Quasi DE Ratio 3.37 16.05 0.63 24. Proj Year Ending 31st March 2010 2011 2012 a) Balance Sheet Data / Capital Structure Share Capital 21.75 6.28 5.55 Long Term Sources 326.40 Tangible Net worth 16.51 of which Unsecured Loans 0.48 18.23 0.28 343.75 0.70 1.92 49.35 58.53 114.88 16.FINANCIAL PARAMETERS AND ASSESSMENT Particulars Audited Esti.92 53.48 Debtor Turnover ratio days) 2 29 30 PAT / TNW % -27.77 100.16 0.17 18.12 Current Liabilities 43.55 1.00 88.96 Short Term Sources 4.00 70.68 12.36 118.09 13.27 Profitability Ratio NP/Sales % -14.00 Business Current Assets 7.90 42.24 14.75 -16. & Selling Expenses 5.75 of Which Funds Invested outside 0.77 0.13 56.83 Term Liabilities 11.29 109.43 167.54 92.83 Less: Short Term Uses 23.72 57.96 Proj 2013 87.54 57.32 74.33 0.00 0.75 0.58 52.28 0.88 Less: Long Term Uses 307.00 29.43 102.00 268.45 2.91 -45.94 22.53 30 30.SECTION II.66 255.00 Capital Employed 28.97 7.79 Surplus(+) /Short fall(-) -18.67 343.06 0.00 232.82 Adm.34 Net Block 53.00 265.19 0.70 1.00 0.54 0.98 Direct expenses 21.20 268.70 1.61 132.90 170.53 3.35 93.49 87.31 0.75 16.88 258.84 0.92 Surplus(+)/Short fall(-) 18.43 Reserves & Surplus -4.21 228.36 118.94 101.25 113.96 7.73 81.99 105.75 6.63 81.98 8.41 0.31 Net Current Assets -36.49 232.98 87.68 0.98 24.60 238.87 14.54 326.75 6.75 0.49 64.35 110.41 FACR 1.07 1.29 2.00 Net Profit before Tax -4.15 -28.68 2.28 236.11 65.05 20.12 45.01 NP/ Capital Employed % -16.95 303.60 238.53 116 .34 b) Operational Data Net Receipts 32.10 Net Profit After Tax -4.28 1.96 Proj 2014 87.00 0.20 -16.40 Depreciation 8.29 2.25 92.63 33.95 0.19 Capital Deployed 28.88 258.78 18.63 16.59 -8.56 Current Ratio 0.33 54.01 -14.13 39.58 7.73 70.67 248.71 87.29 30 25.96 65.00 0.79 DE Ratio (TOL/TNW) 3.32 74.81 0.82 2.52 31.66 Interest 1.08 16.48 82.
70 13.04 lacs for the same period.01% for 2011-12. The level of PBT is estimated at Rs.20 326. 3.10 lacs for 2011-12.80 228.68% for 2010-11 and 12. Tangible Net worth (TNW) : The level of TNW of the firm was estimated at Rs. Est.50 50.54 lacs for 2010-11 and have projected a level of Rs.335 13 13 23250 32500 32500 5000 5000 12 10 6 10 6 8 14 24800 70000 10000 26 26 26 12 12 10 Keeping in view the above the estimated / projected receipts appear to be reasonable. 32. Fresh capital of Rs. They had estimated receipt level of Rs.35 lacs. Net Profit : The level of PBT of the firm was estimated at Rs. 17.30.2009. The net profit margin works out to 2.03.09.03. 56.75 lacs after providing for depreciation of Rs.13 lacs has since been inducted upto 117 . The shortfall in the level is on account of loss suffered by the firms in the first year of operations. 8.54 84.38 218.21 lacs. The estimated /projected levels are based on the following No of Vehicles Avg KM per day running Avg rate per km Daily income in Rs. 3. the firm posted cash profits of Rs. 6.2010 and achieved a level of Rs.13 lacs for 2010-11 and is projected at Rs. 3. The receipts comprise of vehicle fare and advertisement receipts.98 lacs against estimated level of Rs. 326.54 lacs as at 31.00 7.98 2010-11 Autos 31 90 Cabs 25 100 25 100 Advertisement earnings 25 25 Total receipts 2010-11 2011-12 Autos 31 100 Cabs 50 100 Advertisement earnings 50 Total receipts 2011-12 8.2010. The level of cash profits of the firm was at Rs.2.98 lacs for 21011-12.54 77.0 COMMENTS ON FINANCIAL PERFORMANCE: Receipts: The commercial operations were launched by the firm from 09. They have based on the performance so far estimated receipt level of Rs.40 31.04 lacs without providing for any depreciation. however. The firm however attained a level of Rs.60 lacs during 2009-10 against estimated level of Rs. (-) 4. 16. 3. 228.50 lacs as at 31. Days of operations in a month 26 26 26 26 26 Operative months in a year Total Annual receipts in lacs 72.60 lacs. 28.
38 lacs and plough back part of estimated profits to attain TNW level of Rs.16 as at 31.66 134.03. Debt Equity Ratio: The level of TTL/TNW and TOL/TNW was at a comfortable level of 0.57 23. The same is considered satisfactory.00 lacs raised is proposed to be released. 4.31.03.00 As at 31.72 25 0. Keeping in view adequate fund flow estimated/ projected to meet the loan repayments the estimated/ projected level of current ratio may be accepted.34 As at 31.63 5. 4. 36.85 with a minimum of 1. 10 @ 37.2011. The estimated level of 1. Particulars No As per last sanctio n 37. estimated and projected level of FACR is at an acceptable level and is above the benchmark of 1.67 292. Current Ratio : The current ratio of the firm after accounting for term loan instalment repayable within 12 months as current liability works out to 0. 3. 11 Margin Bank Finan ce %a ge 37.2010 and is estimated at 0. 159.50 3.63 2.2010 respectively.1.07.03.67 140.41 3.29 as at 31.0 0 0 1.31 as at 31.00 4.2010 and projected levels for the subsequent years too are at comfortable levels.42 during 2010-11. FACR: The actual.07.03.07 0.70 as at 31.41 1.2010 along with unsecured loan of Rs.0 114. The cost of the Project and Means of Finance proposed is as under Project Cost Sr.70 and 3.43 lacs.10 in lacs 1 2 4 Autos Cabs Computer Soft Server Inverter TFT UPS Fare meter 37.45 4. The unsecured loan of Rs.67 10.20 29. DSCR: The average DSCR for the proposed repayment period works out to 1.00 lacs to part meet the margin requirement for the loan.03.41 27. The ratio is much below the acceptable level on account of the loan instalments being the only component of current liabilities.71 5.51 25 25 Am t 38.95 and 2. The firm proposes to induct additional capital of Rs.03.22 118 .03. 87.83 0..35 5 5. REQUIREMENT OF OTHER FACILITIES: Term Loan The firm proposes to expand their activity by inducting 25 more cabs in their business at an estimate cost of Rs.61 lacs as at 31.80 As at 31.2011. Further in this type of activity there are no current assets except cash and receivables.20 Additio ns propos ed in lacs 152.09 1.
50 208.22 -236. Fare meters 119 .94 4.09 155. for Indigo Manza Aqua Quadrajet – Dew White model for Rs.75 -42.08 lacs.86 (-)3.41 16.17 4.34 324.70 7.14 4 1 Term Loan 113.64 2. They have submitted quotation of M/s Joshi Auto Zone P Ltd. The firm is yet to decide the exact number of vehicles of each brand to be purchased and have based cost of the vehicles on the basis of the said quotation.22 200.00 3.29 8.00 159.18 0.59 Total : 208.39 1.18 0.70 43.84 66. repayments Overdue interest TL O/s Total 208.86 2 Term Loan -3 Total TL /disbursed Less Prin. TATA and Ford.75 20.00 67.00 124.37 Means of Finance Partner ‘s 52.73 (-)4.65 0.00 0.8 119.35 53.84 303.61 42.56 159.43 87.00 279.6 Furniture 7 AC Gross Block Less Dep. Comments Purchase of Cabs The firm proposes to purchase 25 cabs of various models manufactured by Maruti. Any increase in the cost of vehicles shall be borne by the promoters from their own sources.39 67..14 10.51 200. 6.56 369.91 124.50 -52. However the total assets created by the firm are more than the estimated level.37 35.14 113.00 21.56 210. Net Block 3..5 0 6 7 Advance payment for 11.14 113.00 1 Capital Internal 2 Accruals Unsecured 3 Loans Term Loan 42.56 124.09 25.84 FA/security Margin for WC 1.70 62.43 @ Branch has allowed disbursement of the loan in excess of the item wise cost as envisaged by the party in their proposal.91 49.4 0 6.01 194.40 50.43 4.00 42.48 324.0 39.91 150.
70 277.49 18.69 by10% Direct expenses 52.85 1. Based on the proposed repayment schedule the DSCR of the firm has been calculated as under.00 65.36 Proj.19 12.36 25.99 74.48 81. 6500 per piece by M/s Pricol Limited.91 65.75 343.32 308.56 18.36 120 .93 22.00 125.35 122.28 58.36 Proj.99 74.45 1.71 2015 70.63 65. 2016 343.07. Year Ending 31.10 7. 37. The average DSCR for the proposed repayment period works out to 1. SENSIVITY ANALYSIS On reducing receipts by 10% Particulars Proj. The balance amount of Rs. 2015 343.46 2016 @ 34.36 Proj.66 3.80 lacs as per offer letter of M/s Arya Omnitalk Wireless Solutions Pvt.59 120.87 14. 2013 343.63 125.00 2.22 lacs over and above the outstanding level of Rs.59 31.74 0.27 64. 31.64 lacs is proposed to be met from internal accruals.74 71.85 with a minimum of 1.65 1. 2011 Projected Receipts 228. The same is considered satisfactory.15 299.14 lacs as at 31.70 636.66 22.94 83.27 2.28 70.85 @ The fig of PAT.42 2013 57.03.94 41.32 308.58 14.08 53.17 4.48 88. Capital The firm propose to induct additional capital to the tune of Rs.19 59. Ltd.53 1.42 2012 39.The firm will require 25 additional fate meters for the new cars to be inducted into their fleet.82 Proj.42 during 2010 -11.53 Total 272.54 2014 65. MDTS (fleet tracking devices ) The firm shall also require 25 additional MDTS (fleet tracking devices ) priced at Rs. 52.03 PAT Depreciation Interest(TL) Total Interest(TL) Installment Total DSCR 2011 6.98 294.58 7.73 Proj.98 34.13 58.17 49. 2012 326.99 13.19 0.06 65. Depreciation and interest have been taken for half year on proportionate basis. 5.32 308. Repayment The fresh loan is proposed to be repaid in 57 monthly instalments with first instalment to commence 3 months after the date of first disbursement.46 1.32 308. The cost of the meter has been quoted at Rs.14 47.99 74.2010 to meet the margin requirement for the proposed expansion.35 62.54 Receipts Stressed 205.99 74. 2. 2014 343.
Adm. & Selling Expenses Depreciation Interest Net Profit Before Tax Tax Net Profit After Tax
92.25 58.49 18.94 -16.72 -16.72
113.40 64.66 22.00 23.40 7.02 16.38
118.92 53.87 14.63 47.21 14.16 33.05
118.92 49.58 7.35 58.78 17.63 41.15
118.92 47.27 2.59 65.85 19.75 46.10
118.92 50.38 0.19 65.14 19.54 45.60
Impact of 10% reduction in sales on Average DSCR 31.03 2011 2012 2013 2014 2015 PAT -16.72 16.38 33.05 41.15 46.10 Depreciation 58.49 64.66 53.87 49.58 47.27 Interest(TL) 18.94 22.00 14.63 7.35 2.59 Total 60.71 103.04 101.55 98.08 95.96 Interest(TL) Installment Total DSCR 18.94 41.28 60.22 1.01 22.00 65.48 87.48 1.18 14.63 65.48 80.11 1.27 7.35 62.74 70.09 1.40 2.59 31.98 34.57 2.78 Proj. 2013 343.32 74.36 78.08 118.92 53.87 14.63 77.82 23.34 54.48
2016 22.80 25.19 0.19 48.18 0.19 12.99 13.18 3.66 Proj. 2014 343.32 74.36 78.08 118.92 49.58 7.35 89.39 26.82 62.57
Total 142.76 299.06 65.70 555.70 65.70 277.75 343.45 1.62 Proj. 2015 343.32 74.36 78.08 118.92 47.27 2.59 96.46 28.94 67.52 Proj. 2016 343.32 74.36 78.08 118.92 50.38 0.19 95.75 28.73 67.02
On increasing Direct expenses by 5% Particulars Proj. Proj. Year Ending 31.03. 2011 2012 Receipts 228.54 326.98 Projected Direct Expenses 52.73 70.82 Direct Exp increased by 55.36 74.36 5% Adm. & Selling Expenses 92.25 113.40 Depreciation 58.49 64.66 Interest 18.94 22.00 Net Profit Before Tax 3.50 52.56 Tax 18.77 Net Profit After Tax 3.50 33.79 Impact of 5% increase 31.03 2011 PAT 3.50 Depreciation 58.49 Interest(TL) 18.94 Total 80.93 Interest(TL) 18.94
in Direct Expenses on DSCR 2012 2013 2014 2015 33.79 54.48 62.57 67.52 64.66 53.87 49.58 47.27 22.00 14.63 7.35 2.59 120.45 122.98 119.50 117.38 22.00 14.63 7.35 2.59
2016 33.51 50.38 0.19 84.08 0.19
Total 255.37 299.06 65.70 620.13 65.70
Installment Total DSCR
41.28 60.22 1.34
65.48 87.48 1.38
65.48 80.11 1.54
62.74 70.09 1.70
31.98 34.57 3.40
12.99 13.18 6.38
277.75 343.45 1.81
Stress Testing has been carried out by decreasing receipts by 10% and increasing direct expenses by 5%. It is observed that even after stressing the receipts/increasing direct cost the average DSCR decreases to1.62/1.81. However the ratio still remains over 1.50and can be considered acceptable. ASSESSMENT OF NON FUND BASED LIMITS: Any other matter which in the opinion of Branch / Zone is important to decide the proposal. Nil Nil
SECTION III- INDUSTRY PERCEPTION. INDUSTRIAL BUSINESS SCENARIO PERCEPTION: The transport industry has been growing at a steady rate over the last few years and is likely to continue on the same path. The public transport is a conventional source of destination & is used by common man. Nowadays every body wants safe & secure journey at reasonable cost. 2.0. STRENGTH, WEAKNESS, OPPORTUNITY & THREATS (SWOT):
Strength: • The partners of the firm are well experienced in this line and have a good understanding of the market. • The firm will provide round the clock cheap & safe public transport system. • Available security cover is adequate. • This concept is first time launched by any administration in India. • Ladies drivers are proposed for safe & secure service for ladies & children. • By introducing GPRS system, every movement of the vehicles will be monitored by the control room. Weakness: • It is a totally new concept for autos & no past history/data available. Opportunity: • Presently all the autos in Tricity running on diesel, as per government guidelines the same are to be converted to LPG/CNG. The total strength of the autos in Tricity is near about 3000, all are on diesel. The firm has already introduced 31 radio autos which are on LPG. GPRS system. Ladies drivers also for few autos. Fully safety equipped autos.
• • •
Threats: • • • Any change in Government policy can adversely affect the project. Competition in the market. Availability of LPG.
35.88 lacs Last instal.86 lacs 45 44 instal of Rs. The said property was earlier valued at Rs.2010. 42.00% as on date) Present effective rate 12.03.No. 2. Panchkula. 106.25% PRIMARY Hypothecation of vehicles.2011 COLLATERAL Extension of Equitable Mortgage of H.25% over base rate (Base rate 8.00% as on date) Present effective rate 12.40 lacs to 3 months after 1st disbursement 4. 2.00% as on date) Present effective rate 12.314.00 Lac) as per valuation report of Er Satish Chander Chawla dated 13.66lacs reduced from Rs. Sector-2.10 lacs reduced from Rs. Jagir Kaur Dhillon having market value of Rs.40 lacs Last instal of Rs. of Rs. Equipments & Furniture Fixtures including proposed addition having estimated wdv of Rs. 120.78 lacs 4.14 lacs 40 moths 39 instal. 1.22 lacs as at 31. admeasuring 402 Sq Meter.00 Lacs ( Distress value Rs.(Retd) Virsa Singh Dhillon & Smt. of Rs. Rahul Jindal as per valuation report dated 13. 0. 0. 306.35.2009.09. The appreciation in the value of the property is mainly on account of increase in the value of land and also on account of inclusion in the valuation of the basement which was not included in the previous 124 .25% over base rate (Base rate 8. Fare Meters and MDTs Rs. 2.25% Rs.23 lacs by Mr.06 lacs 4.ANNEXURE “D” Terms & Conditions of Sanction Term Loan I Amount Residual Period Amount of instalment Rate of interest Term Loan II Amount No of instalments Amount of instalment Rate of interest Term Loan III Purpose Amount Margin Period Moratorium period No of instalments Amount of instalment First Instalment commence from Rate of interest Security Rs.10 lacs Last instal of Rs.00 lacs 25% 60 months 3 month 57 56 instal of Rs. 248.340.08.25% over base rate (Base rate 8.25% 25 new cabs (Maruti/Ford/Tata brand). 113. standing in the names of Col.
stock register and records of vehicles and other Fixed Assets are to be maintained as per the bank’s requirements and to be made available to the bank during inspection.a. Mr. 6 7 8 9 10 11 12 13 14 125 . 4. The facilities are sanctioned for a period of 60 months subject to review after 12 months. 330. 6. The firm to convey acceptance of terms and condition of sanction in writing before documentation and release of the credit facility. revised CMA . Front end fee and Documentation charges are to be paid by the firm at the rates prescribed by the bank from time to time.00 lacs Other terms and conditions: 1. 5.67 lacs) granted to Rs.valuation. 2. Banks name to be displayed over the vehicles financed by us. Inspection charges for periodical verification of Vehicle/securities will be borne by the company/firm.Banks charge to be also got noted with RTO in respect of vehicles purchased out of bank’s finance. All securities charged to the Bank principal/collateral to be insured as per bank norms preferably under Banc assurance Scheme of our Bank. etc) should be submitted by the firm at least 3 months before the due date. execution of the prescribed documents / papers and compliance of various terms and conditions to the bank’s satisfaction. b Late payment of instalment / interest. Firm to deal exclusively with us except for maintaining a current account with HDFC Bank subject to approval of the competent authority. The terms and conditions are subject to change from time to time. c Non compliance of any of the terms and conditions of the sanction. Dhillon who are also partners in the captioned firm. The firm to deposit 12 cheques of the said current account with the branch for the loan instalment amount. and Mrs. The credit facilities will be disbursed only after regularisation of the overdue loan accounts. Processing . for which the required information (financial statements.6. All money advanced or to be advanced by the Bank will be utilized exclusively for the purpose set forth in application submitted to the Bank. Renewal of facilities will be subject to satisfactory conduct and performance of the unit. Bank’s Nameplate for lien should be displayed at the business premises of the firm. Proper books of accounts. Further an undertaking to replenish the cheque after every 9 months. The property has been originally mortgaged to secure housing loan of Rs. Valuation of property mortgaged to the bank got done once in three year The firm not to invest in any associate/sister/family concern/s without bank's prior approval.90 lacs (present outstanding balance Rs. shall be charged for any of the following defaults / irregularities: a Non/delayed submission of Balance Sheet / Profit and Loss account.The residual value available for the proposed exposure to the captioned firm after allocating 150% of the outstanding balance in the housing loan works out to Rs. The penal interest @ 2% p. In case the advance is utilized 3.
Bank reserves the right to disclose / publish the names of the promoters / directors / firm under CIBIL in case of default or through such media as the bank deem fit. The Firm to : a To raise additional capital of Rs. A suitable undertaking to keep such permissions always valid should be obtained from the Firm. The release of increased credit facilities is subject to vetting of security documents as per bank’s guidelines. Bank reserves the right to examine the books of accounts / assets offered as security of the firm at all the time. Upfront fee and pre payment penalty would be applicable as per Bank’s latest guidelines.43 lacs & retain the same in the business till continuance of bank’s credit facilities b Not to undertake any modernization / up gradation / diversification/amalgamation/ reconstruction / expansion of the existing business without prior written consent of the bank The bank reserves the right to furnish / disclose such information to RBI / CIBIL / or any other institution in connection with credit facilities granted to the firm. the Bank shall have the right to recall the entire or any part of the loan/ advance forthwith without assigning any reason thereof. ASCROM DATA INPUT SHEET 126 . The rate of interest.No . Bank reserves the right to examine the books of accounts / assets offered as security of the company at all the time. The fees for the same charged by advocate etc. margin and other charges will be subject to change as per RBI’s directive/bank’s Policy from time to time/ credit rating of the account. 39. The branch should ensure and satisfy that all the required permission / approvals/licenses/ clearance under various laws / rules have been obtained by the firm from the competent authorities and the stipulated terms /provisions/ conditions thereof are complied with / observed by the firm in totality. Undertaking from the landlords of the firm to the effect that they shall Give intimation to the Bank before seeking eviction of the rented premises Allow free access to the Bank staff for verification of assets financed by us Sr. Branch to closely monitor the performance of the unit.15 16 17 18 19 20 21 22 23 24 25 or attempted to be utilized for any other purpose or if the Bank apprehends or has reasons to believe that the said loan is being utilized for any other purpose. The bank reserves the right to recall the credit facilities at any time. are payable by the firm.
last instal.A. Term Loan I : To be repaid in 44 insal. 44.1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ( For Critical Fields Only) Zone Name Region Name Branch Borrower Name Borrower Ascrom ID Name of Field Constitution Occupation Religion Special Category Sector Scheme Activity Sanctioning Authority Northern Chandigarh Sector 8 Panchkula M/s Tricity Tours & Travels Ascrom Code 48 703 4 15 998 4517 43 Description Partnership Concern (Male) Other Service Provider Sikh N. last instal.A. N.40 lacs. 314. Lacs) N. 0. 2. of Rs.06 lacs.83 Lacs Credit Rating/ Credit Score BOBRAM BOB5 FR3 CR4 External Credit Rating Not done Repayment Mode Term Loan I : To be repaid in 39 insal.00 Lacs Appendix 1 – List of Tables 127 .40 lacs. 32.A. of Rs. 1.78 lacs. in Rs. 0.22 Lacs Value Collateral Sec Rs. Rs. of Rs. Services Bank Other Scheme Running of Radio Autos &Taxis RO-Assistant General Manager 16 Turnover Amt. last instal.21 Investment in P&M Rs. Term Loan III: To be repaid in 56 insal. Rs. Security Value Primary Sec.54 lacs Lac(proj)2010-11 Business Segment 2 SME Last Three Year Sales (in Rs. 2. Of Rs. 2. 228. of Rs. 330.88 lacs. of Rs.10 lacs.
...60 13.... Comparison of SME’s in IT industry………………………………………….3 2. Classification of Micro.…….. Capacity Wise Breakdown of Indian Paper and Pulp Mills…………………………67 15..36 8. Food Processing Clusters…………………………………………………………….. Capacity Utilization of Food Processing Plants in various segments……………….Page Number 1. Major Subsectors of SME’s……………………………………………………………..20 6. Export (% of Production) of Food Processing Segments……………………………53 11. Pharmaceutical SEZ’s in India……………………………………………………….………………………….50 10...54 12. Contribution of SME’s in different countries…………………………………………. Indian Textile Clusters…………………………………...11 5. Administrative Structure for Governance of Small Scale Industries………………. Region Wise Exports Classified as Share in Turnover in Pharma Industry…………62 14. State-Wise Distribution Of AutoComponent Clusters………………………………. Foreign Acquisitions by Indian Textile Companies…………………………………..80 Appendix 2 – List of Figures 128 ... Small and Medium Enterprises……………………………….. Percentage of SME’s in Exports of Various Goods………………………………….40 9.8 4.31 7.6 3.
... Banking Preference of AutoComponent SME’s………………………………………23 9........……………………………….....71 29.35 17..33 13....20 3.... The main uses of the sawn wood produced by the saw mills………………………. Sub-Segments of Leather Industry…………………………………………………. Distribution of Companies across Value chain in Textile Industry…………………. Segments of Auto Component Products ……………………………………………....67 28..22 8.. Ownership Pattern in Leather Industry………………………………………………72 References 129 .54 24.…………………………………35 18.21 5.. Turnover Wise Regional Distribution Food Processing SME’s……………………. Structure of Indian Food Processing Industry……………………………………….33 14 Ownership Pattern AutoComponent SME’s …………………………………………34 15. Export Destinations of AutoComponent SME’s ……………….. Ownership Pattern AutoComponent SME’s …………………………………….. Purpose of Collaboration of AutoComponent SME’s………………………………...65 27.……………………………….47 20....... Export of Auto Components…………………………………………………………25 12....52 21.Page Number 1. Banking Preference of Pharmaceutical SME’s………………………………………61 26.....22 7.... Region Wise sales to OEM’s and Replacement Market………………………………21 4.... Segment Wise SME’s in Food Processing Industry…………………………………52 22.. Food Processing Industry Segments…………………………………………………46 19. Capacity Utilization Region Wise AutoComponent SME’s ………………………… 23 10. Export Destinations of AutoComponent SME’s…………………………………….34 16. Banking Preference of Textile SME’s……………. Capacity Utilization Region Wise Pharmaceutical SME’s…………………………. Raw Material Mix of Paper Industry………………………………………………. Region Wise Companies in AutoComponent Industry based on Turnover…………. SME’s Region Wise in AutoComponent Industry . AutoComponent Product Segments…………………………………...... Capacity Utilization Region Wise Textile SME’s …………………………………..18 2.23 11..…………….. SME’s Region Wise in Food Processing Industry ...61 25.21 6.... Future Plans of Food Processing SME’s……………………………………………... SME’s Region Wise in AutoComponent Industry……………………………………..53 23.
Himalaya Publishing House Web Pages www.tradeindia.gov.msme.indiatimes.com/ www.msmefoundation.unido.spti.in www.com www.org.economywatch.org www.rbi.in/ (Dun and Bradstreet) http://en.nic. Francis Cherunilam.planningcommission.Journals/Books SEDME Journal by National Institute of Small Industry Extension Training (NISIET) Business Environment : Text and Cases.intranet.com www.in www.org 130 .wikipedia.in www.dnb.com www.bankofbaroda.in www.org www.economictimes.com www.gov.in www.co.smetimes.dcmsme.bankofbaroda.
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