Small and Medium Enterprises

What are SMEs?

• > 100 employees
• >50 employees
• > 500 employees
 Employment
• Largest employment opportunities.
• It has been estimated that 100,000
rupees of investment in fixed assets in
the small-scale sector generates
employment for four persons.
 Export
• 45%-50% of the Indian Exports is
contributed.
• Direct exports from the SSI Sector
account for nearly 35% of total exports
• 15% to exports indirectly
• Through merchant exporters, trading
houses and export houses.
 Opportunities are enormous
• Less Capital Intensive
• Extensive Promotion & Support by Government
• Reservation for Exclusive Manufacture by small scale sector
• Project Profiles
• Funding - Finance & Subsidies
• Machinery Procurement
• Raw Material Procurement
 Role in nation’s development
• 45% industrial outputs
• 45% exports.
• 1 million jobs every year and 8000 quality products.

• The Indian market is growing rapidly and Indian industry is making

remarkable progress in various Industries like Manufacturing, Precision
Engineering, Food Processing, Pharmaceuticals, Textile & Garments,
Retail, IT, Agro and Service sectors. SMEs are finding increasing
opportunities to enhance their business activities in core sectors.
 Incentives
• National Award for Research and
Development Effort(2001):
• In house research and development efforts for strengthening technical
soundness and promoting the spirit of innovation.
• The awards are given for the every calendar year. The Scheme
envisages three awards (First, Second & Third) comprising of a
certificate & Trophy. A Cash Prize of Rs. 25000/- 20000/- & 15000/- is
also given for First, Second & third prize winners respectively.
•
Recommendation of State Level Selection Committee and the final
selection by the National Level Awards Committee. .
• National Awards for Outstanding
MSE Entrepreneurs(1986)
• Select product group on the basis of
recommendation by the State/UT Level Selection
committee and the final selection by the National
level Selection committee. The award consists of a
trophy, a certificate and cash prize of Rs.25000/-for
Quality product in each of the product groups
• National Awards for Quality Products in MSEs Sector(1983)

• With a view to upgrading the quality of their produce, enhancing the

productivity, increasing their share both in the domestic/ export
markets, innovating new technology/design and bringing in
technological improvements.
• Recommendation by the State/UT level Selection Committee and the
final selection by the National Level Selection Committee
• of three National Awards (First, Second, and Third) and one Special
Recognition Award, for entrepreneur belonging to each State/UT. The
first, second and third prizes each carry besides a trophy and
certificate, a cash award of Rs25000/-, Rs.20000/- and Rs. 15000/-
Government Policies of small
scale industry
 Export-Import Policy for Small Scale Sector

 Exporters are eligible for grant of special Import Licence

(SIL) @ certain percentage of their FOB value of
exports/NFE.

 However, 2 percent additional SIL is granted for exports of

Products manufactured by units registered as SSI, provided
the exports of these products is more than 50% of the
exports.
Eligibility condition for Small Scale Exporters for
SIL
In case of small scale exporters holding ISO 9000 (Series)
or IS/ISO 9000 Series of quality certification, the FOB
value (excluding deemed exports) of exports for becoming
eligible for Special Import Licence (SIL) @4% of the
FOB value of exports is Rs. 3 crores and above in the
preceding licensing year or on an average FOB value of
Rs. 1 crores or above during the preceding three licensing
years instead of the limit of Rs. 5 crores and Rs. 2 crores
respectively.
 Single Window Scheme
 It is applicable to projects with cost upto Rs. 50 lakhs. The
Scheme is operated both by banks and financial
institutions.

 State Financial Corporations under Single Window Scheme

provide working capital loan along with the loan to new
tiny and small scale sector units so as to overcome the
initial difficulties and delays faced by them to start
production.
 Eligibility

New tiny and small scale units whose cost of

project (excluding working capital margin) does
not exceed Rs.10 lakhs and the total working
capital requirement at the normal level of operation
is upto Rs.5 lakhs are eligible under the scheme.
 Entrepreneurship development
programme
 The objective of the Programme is to identify persons with
entrepreneurial quality, to motivate them and to train them.
The programmes under this Scheme are:-
 Identification, selection and motivation of potential
entrepreneurs through intensive campaign and seminars at a
cost of Rs. 5000/- per programme
 A training course at an expenditure of Rs.20,000/- for 30
participants for a duration of 4 weeks. The financing pattern was
set in 1986 and an upward revision is presently under
consideration.
 Policy Of Reservation
 Reservation of products for exclusive manufacture in the SSI
Sector has been one of the important policy measures for
promoting this sector.
 This policy was initiated in 1967 with 47 items which was
enlarged to 807 items in 1978. At present 812 items are
reserved for manufacture in this sector. This Policy got a
legal backing when the I (D&R) Act was amended in March,
1984 empowering the Government to reserve items under
this Act. This Act also provided for the Constitution of an
Advisory Committee headed by Secretary (SSI & ARI).
 SIDBI
• Small Industries Development Bank of India
• An independent financial institution aimed to aid the growth and
development of micro, small and medium scale enterprises in India.
• Set up in 1990 as a wholly owned subsidiary of IDBI through an act of
parliament.
• Started as a refinancing agency to banks and state level financial
institutions for their credit to small industries
• Business domain : Small scale industrial units, that contribute significantly
to the national economy in terms of production, employment and exports.
• Other entities:
1. Credit Guarantee Fund Trust for Micro and Small Enterprises 
provides guarantees to banks for collatoral free loans extended to SME
2. SIDBI Venture Capital Ltd. is Venture Capital company focussed at
SME.
SIDBI: Services of SIDBI

• Direct finance: through 38 offices providing schemes to specific target groups.

• Indirect finance: by refinance and bills rediscounting through 894 primary
lending institutions having 65,000 outlets across the country
1. Development of Industries in the small- scale sector
2. Refinances loans given to small scale sector by primary lending institutions.
3. Discounts and rediscounts bills relating to the transaction of machinery of the
small scale sector.
4. Extends seed capital through specified agencies.
5. Assistance for export of products of small-scale sector.
6. Provides services like leasing and factoring.
7. Give financial support to purchase raw material and the sales of finished
products.Promotion
8. Co-ordinating the functions of institutions engaged in similar activities.
Financial Assistance to Small- scale Units:
1. Rupee loans to the SS units are granted at concessional rates of
interest.

2. Non –commitment charge is levied on loans up to Rs.5 lakhs to

units in the small scale sector.

3. Commitment charge at the rate of 1%is levied on all other loans

after an initial grace period of 12 months from the date of
sanction.
4.But, units located in category ‘A’ backward areas are totally exempted
from commitment charges on rupee loans.

5. And units located in category ‘B&C’ areas are eligible for 50%
concession on the commitment charges.

6.The SSI are allowed a debt- equity ratio extending up to 2.5. The
promoters contribution norm varies between 12.5% to 22.50%,
depending on the location of the project and status of the
entrepreneurs.
Credit Facilities to SSI:
1.Banking system provides mainly working capital and SFC
(Securities and Futures Commission)provides investment
capital.

2. The commercial banks are required to lend 40% of their

total loans of which 15 to 16% is required to be in the form
of direct agricultural advances and the rest can be to the
SSI and indirect agricultural loans etc.

3.Assistance is provided to new units by way of interest free

loans to fill the shortfall inequity.

4.The loans are repayable over a period of 5 to 7 years after

an initial moratorium period of 5 to 7 yrs.
Financial Assistance to Medium- Scale
Units:

1.For medium scale units located in

backward areas – 12.50%
Non- backward areas –14% of interest.

2.Commitment charges:
‘A’ backward areas --No commitment charges.
‘B&C’ backward areas – commitment charge at the rate of .5%
per annum shall be levied after allowing the normal period of
a grace of six months from the date of sanction.

3.Non backward areas - 1% as commitment charges.