SESSION ON

Role of MSMEs in Economic Growth

for the Post Graduate Diploma Students in Management: Business Entrepreneurship Entrepreneurship Development Institute of India, Gandhinagar on 30.11.2010

by

HC Desai Advisor (Inv. Promotion) iNDEXTb - Government of Gujarat, Gandhinagar

Points for Discussion

What

is an MSME? an MSME

Launching The

role of MSME in the Economic Growth

The MSME Industry - India Perspective The MSME Industry - Gujarat Perspective

What is an MSME?
It is governed under the Micro, Small and Medium Enterprises, Development Act, 2006 As per the provisions of this Act,

Enterprises engaged in the manufacture or production of goods pertaining to any industry specified under Schedule I of IDR Act, 1951 are classified as:
- A micro enterprise, where the investment in plant and machinery does not exceed Rs.25 lakhs. A small enterprise, where the investment in plant and machinery is more than Rs.25 lakhs but does not exceed Rs.5 crore

- A medium enterprise, where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

What is an MSME?
As per the provisions of the Act mentioned earlier, Enterprises engaged in providing or rendering of services are classified as: - A micro enterprise, where the investment in equipment does not exceed Rs.10 lakhs. A small enterprise, where the investment in equipment is more than Rs.10 lakhs but does not exceed Rs.2 crore A medium enterprise, where the investment in equipment is more than Rs.2 crore but does not exceed Rs.5 crore.

In calculating the investment in P&M, the cost of pollution control, R&D, industrial safety devices and such other items as may be specified by notification, shall be excluded.

Launching an MSME
Any person who intends to establish (a) A micro or small enterprise, or (b) A medium enterprise engaged in providing or rendering services, or (c) A medium enterprise engaged in the manufacture or production of goods, shall at his discretion, file the Entrepreneurship Memorandum of Micro, Small or as the case may be, of Medium enterprise with such authority specified by the state Government. Filing of such Memorandum however is discretionary. It is however advisable to file such a Memorandum.

Launching an MSME
Any person who before the commencement of this Act, established (a) A small scale industry and obtained a registration certificate, or (b) An industry engaged in the manufacture or production of goods having investment in P&M exceeding Rs.1 crore but not more than Rs.10 crore and having filed IEM shall within 180 days from the commencement of this Act file the Entrepreneurship Memorandum. Filing of such Memorandum however is discretionary.

The MSME Industry-India Perspective

MSMEs are regarded as the backbone of the Indian economy MSMEs contribute up to 40% to the gross industrial manufacturing value added to the economy. Around 17% to Indias GDP contributed by MSME sector and it is projected to touch 22% by 2012. More than 13 million micro, small and medium units in the country. The second largest employer after agriculture employing 42 million people.

The MSME Industry - India Perspective

Production of more than 8000 products ranging from handmade stuff to high-tech components and machines

Around 20% of the upper segment of MSMEs is a part of large domestic or global supply chains
MSMEs have been growing at the rate of 35% over the last two years and are now onwards expected to register a 40% growth rate which will be, mainly technology-driven They contribute 45% share to Indias manufacturing output. Share of MSMEs in national exports currently is estimated at around 38%, which is expected to rise to 44% in the next five years.

The MSME Industry - Gujarat Perspective

Sector Textiles Machinery and parts except electrical % Units 21.39 7.61

Metal products Food Products Chemicals & chemical Products

7.49 5.26 4.97

Wood Products Rubber & Plastic products

4.32 3.77

Major SME clusters Ahmedabad, Vadodara, Rajkot, Surat and Valsad

Sector-wise contribution of the SME Sector

Gujarat known for its strong SME sector

The strength of Gujarats manufacturing sector lies in its strong base of micro, small and medium scale enterprises MSMEs have played a pivotal role in the industrial dispersal and the overall industrial development of the state The key contribution of MSMEs has been towards value addition, employment generation and entrepreneurship development There are an estimated 3,50,000 MSME units in Gujarat spread across the State Ahmedabad houses highest number (21%) of SME units followed by Surat (15%) and Rajkot (10%)

Gujarat known for its strong SME sector

Institutional Support
a) Small Industries Service Institute (SISI)
SISI helps MSMEs to meet various needs of planning, assessment and implementation offering services in technical consultancy, industrial management, training and workshops.

b) Center for Entrepreneurship Development (CED)

CED aims to cater to potential entrepreneurs by grooming their management skills along with offering a variety of learning platforms for development of Micro, Small and Medium Enterprise.

c) Gujarat Institute of Development Research (GIDR)

It is an autonomous body engaged in research related to development issues, sector-specific development as well as development of small scale industries.

Gujarat known for its strong SME sector

Institutional Support
d) Small Industries Development Bank of India (SIDBI)
SIDBI is a national support institution for small and medium enterprises for their financial requirements and up-gradation.

e) Entrepreneurship Development Institute of India (EDI)

It is an autonomous body supported by Government of India and Government of Gujarat offering education for excellence in entrepreneurship, training and research. The institute has a mandate to promote creation of MSMEs.

f) District Industries Centers (DICs)

DICs under Industries Commisionerate support the development and economic activities of MSMEs, at the district level.

Gujarat known for its strong SME sector

Incentives for SMEs

a) Interest subsidy

Incentives to SMEs for setting up new projects, expansion, diversification or modernization. A 5% interest subsidy up to Rs. five lakhs per year for a period of five years

b) Support for technology up-gradation

Interest subsidy at 3% per annum, maximum Rs. 3 lakhs on term loan towards capital equipment Technology acquisition fund for clusters Assistance for patent registration

Gujarat known for its strong SME sector

Incentives for SMEs

c) Sponsored research subsidy

Subsidy at 50% of the project cost maximum Rs. 5 lakhs

d) Quality certification

Support for BIS certification, ISO 9000, ISO 14000, HACCP, WHO GMP and others Subsidy at 50% cost subject to a maximum of Rs. 2 lakhs

e) Marketing support
Assistance for participation in international trade fairs up to a maximum of Rs. 2 lakhs Assistance to industries associations for participation in international trade fairs up to 50% of total stall rent subject to a maximum Rs. 5 lakhs

Challenges faced by MSMEs

Financial Assistance Inadequate access to finance due to lack of information and nonformal business practices. Lack of access to private equity, venture capital and a very limited access to secondary market instruments Credit Issue

The main constraint which the MSMEs still face is the availability and high rate of credit

Delays in Compensation

MSMEs face considerable delays in the settlement of dues/ payment of bills by the large scale buyers

Challenges faced by MSMEs

Market Orientation

MSMEs face fragmented markets in respect of their inputs as well as products and are vulnerable to market fluctuations.

Accessibility to markets & technology

The access of MSMEs to technology and products innovations is limited. There is also a lack of awareness of global best practices among MSMEs

Risk capital

Venture capital firms are generally wary of investing in relatively young entrepreneurs or unproven technologies Banks too are hesitant to provide debt financing No formal mechanism for SMEs to raise investment from capital markets

Challenges faced by MSMEs

Export-driven business model

Since SMEs derive significant revenues from exports, the shifts in the exchange rate ratio has eroded into their profits. SMEs lack in-house expertise to analyse hedging options and forecast exchange rate fluctuation

In addition, competition from other south-east Asian countries has forced SMEs to re-architect their business models