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7/31/2019 Module 3 Small & Medium Enterprises
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Module - 3
SMALL AND MEDIUM
ENTERPRISE (SME)
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15 October 2012
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SMALL & MEDIUM ENTERPRISES (SME)
Role of SMEConcept and definitions of SME
Government policy and SME in India
Growth and performance of SME sector
Problems for SMEs
Sickness in SME- Criteria to identity sickness
- Symptoms
- Causes
- Consequences- Remedial measures
- Institutional support for SMEs.
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Enterprises have been classified broadly into two
categories, namely
1. The enterprises in the manufacture/ production of
goods pertain to any Industry.
2. The enterprises engaged in providing/rendering of
services.
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Types Manufacturing Services Enterprises
Micro : up to Rs. 25 lakh. up to Rs. 10 lakh.
Macro : More than Rs.25 lakh More than Rs.10 lakh
and up to Rs. 5 Crore. and up to Rs. 2 Crore.
Medium: More than R.s 5 Crore More than Rs. 2 Crore
and up to Rs. 10 Crore. and up to Rs. 5 Crore.
Enterprises have been defined in terms of investment in
plant & machinery/equipment (excluding Land & building).
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The Small Scale Industry today constitutes a very
important segment of the Indian economy. The development ofthis sector came about primarily due to the vision of our late
Prime Minister Jawaharlal Nehru who sought to develop core
industry and have a supporting sector in the form of small scale
enterprises. SSI has emerged as a dynamic and vibrant sector of the
economy.
Today, SSI accounts for nearly 35 per cent of the gross value
of output in the manufacturing sector.
In terms ofvalue added, SSI sector accounts for about 40 per
cent of the value added in the manufacturing sector.
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SSIs contribution to employment is next only to
agriculture in India. As of 2005, about 26 million rural
enterprises employed 51 million people, whereas about 16
million urban enterprises employed 49 million (Rural
Development of India web accessed on 11-10-2009).
It contributes 40 per cent ofExports.
SSI makes better use of indigenous management
capabilities and provide option of opening outlets for
enterprising independent people.
It provides opportunities for development of technology.
SSIs have been producing a wide variety of goods like
food products, beverages, cotton textiles, leather products
etc.,15 October 2012
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Finance (scarcity of capital, non availability of credit facility)
Raw Material (Poor quality, uneven supply of raw material,inadequate qty)
Technology ( not exposed to latest technology)
Infrastructure (Transport, power, communication)
Marketing (not in a position to get first hand information about themarket)
Idle Capacity ( due to underutilization)
Underutilization of Capacity (due to non availability of raw
material, power, finance) Skilled Manpower (Being in backward areas)
Project Planning (Lack Tech & Economical)
Managerial inadequacies like overdependence15 October 2012
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Over the last five decades, the small scale industries sectorhas acquired a place of prominence in the economy of the
country. It has contributed significantly to the growth of the
GDP, employment generation and exports.
During 2000-01 to 2004-05, the average annual growth in
the number of units was around 4.1 per cent while
employment grew by 4.4 per cent annually.
Further, the average annual growth in production, at currentand constant prices, was 10.6 per cent and 7.6 per cent
respectively.
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The number of industries registered has increased from 79
lakhs in 1994-95 to 118 lakhs in 2004-05.
Employment generation by this sector has recorded a 59 per
cent increase from 84.2 lakhs in 1983-84 to 134.0 lakhs in
1992-93 and it generated employment of 229 lakhs in 1990-2000 and 274 lakhs at end of March 2004.
Small scale sector accounts 92 per cent of marine products,
95 per cent of ready-made garments, 84 per cent of woolen
goods, 65 per cent leather goods, 40 per cent of engineering
goods, 45 per cent of cashew kernels and 60 percent of
chemical items.
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A sick industry is one which is not healthy.
A healthy unit is one which earns a reasonable ROCE andwhich builds up reserves after providing reasonable
depreciation.
According to RBI a sick unit is one which incurs cash
losses for one year and is likely to incur cash losses for thecurrent year as well as for the following year.
The Sick Industrial Companies Act 1985, defines a sick
industry as an industrial company which has at the end of
any financial year accumulated losses equal to orexceeding its entire net worth and has also suffered from
cash losses in such financial year immediately preceding
such financial year.
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Continuous decline in gross output compared to the
previous two financial years.
Delays in repayment of institutional loan, for more than 12months.
Erosion in the net worth to the extent of 50 per cent of the
net worth during the previous accounting year.
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Shortage of liquid funds (Cash )
Decline in capacity utilization
Inventories in excessive quantities
Deteriorating financial ratios
Irregularity in maintaining the bank accounts
Delay & default in the payment of statutory dues
Morale degradation of employees
Frequent request to banks and financial institutions for loans
Delay in the audit of annul accounts
Frequent break downs in plant & equipments
Decline in the quality of products
Frequent turnover of personnel
Continuous decline in prices of the shares
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External Causes
There may be several external factors causing a unit
sick and which may vary from time to time for industry to
industry. The important factors are
Changes in the industrial policy of government Inadequate and untimely availability of necessary inputs
Lack and shrinkage of demand for the product
Frequent industrial strikes & labour unrest Shortage of financial resources especially working capital
Natural calamities like drought, floods etc.,
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Internal Causes:
Lack of good management
Poor implementation
Marketing problems
Non-availability of raw materials
Shortfall of working capital
Labour trouble
Technical/ operational problems
Uneconomic location, inefficient method of
production etc.,
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Huge financial losses to the banks and financial
institutions
Loss to employment opportunities
Emergence of Industrial unrest
Adverse effect on perspective investors and
entrepreneurs
Wastages of Scarce resources
Loss of revenue to government
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Monitoring and nursing the sick units during infancy
Diagnostic studies [(Role of Board for Industrial & FinancialReconstruction (BIFR)]
Provide incentives to the professional managers helping in
reviving sick units
Issuing guidelines on major aspects that affect the image
of the company
Brain storm with a select group to get creative ideas for
improvement
Adopt better practices, right technology, better work
culture and professional management SSI can improve
their health as well as the economy.
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