Challenges and problems

faced by MSMEs
Introduction:

 The term small and medium-sized businesses or SMBs is predominantly used

in the USA and then EU has started standardized the concept.

USA EU
Micro -- <50 Micro -- <10
employees employees

Small --
Small -- <50
<100
employees
employees

Medium -- Medium
<500 --<250
employees
Contribution to economy:

 In Indian economy, the MSME sector is the second largest contributor

in terms of GDP after agriculture sector. It provides almost 80-90 % of
employment to the Indian population and has 45% share in production
and 35% in exports. In the year 2006, the MSME Act generated huge
employment opportunities for the common people.

 The major advantage of the sector is its employment potential at low

capital cost. As per available statistics, this sector employs an estimated
31 million persons .

 Indian SMEs are making tremendous progress in Industry, Service,

Retail, IT, Agro and Food Processing, Pharmaceuticals, Precision
Engineering and Manufacturing Sectors.
 The Government portfolios on MSMEs:

Measures for promotion and development:

Programmes for development of skills in the employees, management
and entrepreneurs, provisioning for technological upgradation,
providing marketing assistance or infrastructure facilities.

Credit Facilities:
Credit facilities are provided to minimize the incidence of sickness
among and enhance the competitiveness of such enterprises.
Cont….

Procurement preference policy:

Procurement policies in respect of procurement of goods and services.
Funds:
Grants are made by the Central Government under section 13.
Issues faced by MSMEs:

 Inadequate industrial infrastructure :

1. Land or space has been converted into Engineering Medical/
Management institutes and
2. Also for the song of SEZ(exports).
3. Moreover, MSMEs are expected to buy the land at market rates. So
the land is being very much unafforable.

 Access to Electricity:
1. Inadequate electricity
2. Adverse effect on productivity and competitiveness.
Cont….

 VAT in UP:
1. VAT has been suddenly raised for Transformers, Cables &
conductors, switchgears etc have been hiked from 4% to 12.5%.
2. incentive for them to buy these products from other states at CST
rates i.e. 2%.
Cont….

 Payments delayed:
1. By large buyers of MSMEs and even Government/ PSUs; almost held
up during recession.

 Impediments in Exports:
1. In claiming refund of taxes
2. Makes exports uncompetitive
3. Hardly 0.5% of MSMEs are in exports.

 Government/ Public Procurement:

1. In India the public procurement (Central govt.) is less than 1%.
Cont….

 Commodity Crash:
1. suffered heavy losses in imports.

 Access to funds for new projects/ start-ups:

1. loan proposals are not acknowledged or are not disposed; but delayed
at branch level.
Cont….

1. Banks continue to discourage Credit Guarantee cover in lieu of

collateral
2. Banks have deposited more money under SLR/CRR than what is
required instead of lending

 Interest Rates and service charges:

1. higher charges for all types of chargeable services particularly non-
fund based limits such as bank guarantees
2. RBI instructions not passed out to MSMEs.

 Excess Collateral:
Cont….

 Third party credit rating:

1. Credit Rating requirement under BASAL II for loans portfolio above
Rs. 10 cr has unnecessarily burdened SMEs.

Taxation:
1. Location based Tax breaks create distortions in economy. Have
induced artificial un-competitiveness for MSMEs
2. Stamp Duties
3. FBT is a retrograde step in direction of tax reforms and has proved to
be the biggest nuisance tax
Suggestions to the above issues:

 Earmarking of space in SEZs for MSMEs without export obligations.

 Support collective SME initiatives for distribution of electricity in

geographical concentrations, industrial areas and clusters.

 VAT rates of products consumed by industry should not be tinkered

owing their cascading effect.
Cont….

 Clear instructions need to be issued to Government Departments and

PSUs for timely payment with penalty clauses for noncompliance.

 An advertisement campaign’ for sensitizing buyers as well as auditors

on the provisions against delayed payments.

 Need a comprehensive long-term SME export support promotion

programme to increase SME participation in exports from current
levels of 0.5% of registered SMEs.
Cont….

 As promised through the MSMED Act, there is a need to set-aside 20%

of all public procurement for Micro and Small enterprises.

 E-procurement should be encouraged.

Cont….

 Invite foreign SME dedicated funds and provide them suitable fiscal
incentives for equity providers.

 RBI should constitute a Committee for issuing guidelines on extent of

collateral requirement.
Cont….

 Location based Tax breaks should be immediately revoked

 High stamp duties on transfer of property and on commercial

transactions should be minimized.
Tools to the issues: BoB SME Factory editions

 IT implementation to integrate supply chains and databases:

Level I--- ERP: For one department
Level II– ERP : For two or more functional areas
Level III- ERP : Customization for integration business intelligence,
data warehousing, data mining, and supply chain management.
Level IV – ERP: Level III along with the CRM and SCM modules.

 Tap the Export potentials:

Export Credit Guarantee Corporation of India (ECGCI)
Export Credit Insurance Policies
Cont….

Material handling Equipments:

AS/RS include rack structure, storage, and retrieval machines, and pick
and deposit transfer station.

 Standardised packaging material:

I. Active and Smart Packaging -Technology that controls the oxygen
and moisture content in the food packet.
II. Green Packaging -Some of the available green packaging solution in
the market are Polypropylene and High barrier tray, Foamed
Polypropylene and High barrier tray etc.
Cont….

Waste management and Lean manufacturing

practices:
I. Networked material flow.
II. WMC (Waste Management Circle).
III. Defect deduction using Computerised Condition Monitoring (CM).
Quick Facts:

 Indian SMEs providing IT solutions to remain unfazed by US policy on

outsourcing.
 The power shortage and under utilization of the production capacity
would not be any major problem for the SMEs based at Kanpur. This is
to due to the proposal of the IIA to setup the power plant under PPP
model to serve the problem.
 Indian Government and MSMEs initiative for lean manufacturing
implementation and can get the grant for the same. 
THANK YOU