Module 3 Small & Medium Enterprises

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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Documents

Module 3 Small & Medium Enterprises