Msme Word Docs - Copy

8/3/2019 Msme Word Docs - Copy

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Submitted By:

Ravi Kant Khandelwal



MSME:

An MSME (Micro, Small and Medium Enterprise) is defined by RBI/GOI differently for the

Manufacturing and the Services Sector, as follows:

MANUFACTURING SECTOR:

Manufacturing sector refers to enterprises engaged in manufacture or production, processing

or preservation of goods. The definition of Micro, Small and Medium Enterprises under the

manufacturing sector is based on the Investment in plant and machinery [original cost

excluding land and building] and the items specified by the Ministry of Small Scale Industries.

SERVICES SECTOR:

Services sector refers to enterprises engaged in providing or rendering of services. These will

include small road & water transport operators (owning a fleet of vehicles not exceeding ten

vehicles), small business (whose original cost price of the equipment used for the purpose of

business does not exceed Rs.20 lakh) and professional & self-employed persons (whose

borrowing limits do not exceed Rs.10 lakh of which not more than Rs.2 lakh should be for

working capital requirements except in case of professionally qualified medical practitioners

setting up of practice in semi-urban and rural areas, the borrowing limits should not exceed

Rs.15 lakh with a sub-ceiling of Rs.3 lakh for working capital requirements). The definition of

Micro, Small and Medium Enterprises under the services sector is based on the enterprises

investment in equipments. Service sector is having the highest contribution in the GDP of the

country around 52% and it is one of the fastest growing sectors, so creation of more and more

opportunities in this sector is very important task for Indian government.



The President under Notification dated 9th May 2007 has amended the Government of India

(Allocation of Business) Rules, 1961. Pursuant to this amendment, Ministry of Agro and Rural

Industries and Ministry of Small Scale Industries have been merged into a single Ministry,

namely, MINISTRY OF MICRO, SMALL AND MEDIUM INDUSTRIES.

IMPORTANCE AND CONTRIBUTION:

MSMEs have an important role to play in the present context given their greater resource use

efficiency, capacity for employment generation, technological innovation, promoting inter-

sectorial linkages, raising exports and developing entrepreneurial skills. Their location flexibility

is an important advantage in reducing regional imbalances.

Small and Medium Enterprises play a vital role for the growth of Indian economy by

contributing 45% of the industrial output, 40% of exports, 59 million in employment in over 26

million units, create one million jobs every year and produces more than 6000 quality products

for the Indian and international markets. As a result, MSMEs are today exposed to greater

opportunities for expansion and diversification across the sectors.



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.

As it is clear from the above pie chart almost 36% are the products of the category which

includes medical, hygienic products, marine products etc. Almost all the products produced in

MSMEs are of day to day utility and since we are the worlds second largest population so

reach of the products in every household is still not there. There are large number of

employment opportunities in this sector.

INVESTMENTMENTS AND EXPORTS:

As the investments in the agriculture and industrial sector have seen a growing trend so the investments

in MSME have also been increasing and reached Rs. 621753 Crore in FY ending 2009 showing a 11.39

percent increase. As MSME largely relates to the manufacturing and agriculture it plays a very important

role in exports of the country. MSMEs have been showing a growing trend in the amount of exports

made. In year 2008 the amount of exports made was Rs. 202017 crore showing a growth of 10.67

percent.



EMPLOYMENT:

As per the 4th census with respect to year 2006-2007, there were about 261 lakh enterprises providing

employment to 595 lakh people. The projected corresponding figure for year 2008-09 was 285 lakh

enterprises providing employment to 659 lakh people. The following chart depicts the trends of

employment shown by MSMEs.

The contribution made my MSMEs show the importance of such enterprise for the economy. The

following points can be derived:

y MSMEs play a major role in the country's economic development through their contribution in

the following: rural industrialization; rural development and decentralization of industries;

creation of employment opportunities and more equitable income distribution; use of

indigenous resources; earning of foreign exchange (forex) resources; creation of backward and

forward linkages with existing industries; and entrepreneurial development.

y They are vital in dispersing new industries to the countryside and stimulating gainful

employment. A country like the India where labor is abundant has much to gain from

entrepreneurial activities. MSMEs are more likely to be labor-intensive. Thus, they generate jobs

in the locality where they are situated. In this sense, they bring about a more balanced

economic growth and equity in income distribution. MSMEs are quick in assimilating new

design trends, developing contemporary products, and bringing them to the marketplace ahead

of the competition. MSMEs tend to be far more innovative in developing indigenous or

appropriate technology, which may be grown later into pioneering technological breakthroughs.



y They are able to effectively increase the local content or the value added in final goods that are

processed and marketed by large manufacturing firms.

y MSMEs are notably skillful in maximizing the use of scarce capital resources and are able to

partner with large firms by supplying locally available raw materials in unprocessed or semi-

processed forms.

y MSMEs can act as the seedbed for the development of entrepreneurial skills and innovation.

They play an important part in the provision of services in the community. They can make an

important contribution to regional development programs.

STRENGTHS AND WEAKNESS:

MSME possess various strengths and weaknesses give below.

STRENGTHS:

y The MSME sector is often driven by individual creativity. A major strength of the sector is its

potential for greater innovation both in terms of products and processes.

y An inherent strength of the sector is that these enterprises can be set up with very small

amounts of investments and have the locational flexibility to be located anywhere in the

country.

y Their employment potential is higher compared to large enterprises and are presently estimated

to employ 6 crore persons. They are amenable to ancilliarisation and thus have natural linkages

with large enterprises.

y There exists a strong institutional structure at the State and Central level for the promotion and

development of the sector. There is a well-spread network at the National, State and the local

level for providing a comprehensive range of support services under marketing, technology,

finance, and infrastructure and skill development.

y The existing schemes/programs of the Central and State Governments span across major areas

of operations of MSMEs. These are administered by a workforce who are qualified but can be

upgraded with additional inputs.

y An apex consultative body has been set up at the national level, namely, National Board forMSMEs, comprising of representatives of all sections of stakeholders for providing

guidance/inputs in policy formulation and program implementation.

y At every district level they have set up DICs(District



WEAKNESSES:

y Of the 2.6 crore enterprises, a predominant number is in the unorganized sector, often located

in non-conforming urban zones. The sector is heterogeneous with pockets of high technology

enterprises but majority suffering from low technology base resulting in low productivity and

poor quality of products. The units being small in size also have poor access to equity and credit.

y Most of the time, the equity is coming from savings and loans from friends and relatives rather

than through banking systems. Very often, the credit is coming from operations or domestic

savings rather than established systems of cheap banking credit for working capital. This

problem is particularly acute for the village industries as well as the lower end of micro

industries.

y While we have large pool of human resources, this sector continues to face shortage of skilled

manpower due to lack of paying capacity and poor managerial capabilities. Another major

weakness is absence of marketing channels and brand building capacity.

y The present structure also suffers from poor delivery of services at the field level. The schemes

and program have limited outreach with a large number of very small schemes. There is a lack of

coordination among the various organizations involved in the promotion of MSMEs, including

organizations of the State/UT Governments and poor linkages with the institutional

stakeholders in the private sector. Absence of a suitable exit mechanism is a major constraint for

the higher end entrepreneurs of the MSME sector.

y A major weakness is a heritage weakness. Due to the protectionist, subsidy- driven, reservation

based regime, the mindset of the sector continues to demand similar legacy treatments.

CHALLENGES:

Despite its commendable contribution to the Nation's economy, SME Sector does not get the required

support from the concerned Government Departments, Banks, Financial Institutions and Corporate,

which is a handicap in becoming more competitive in the National and International Markets.

The MSMEs face problems at every stage of their operation. These industries are therefore not in a

position to secure the internal and external economies of scale.

The major problems confronting the sector have been identified as:

y ABSENCE OF ADEQUATE AND TIMELY BANKING FINANCE:

All kinds of business enterprises require sufficient funds in order to meet their fixed as well as working

capital requirements. Finance is one of the critical inputs for growth and development of the micro,

small and medium enterprises. They need credit support not only for running the enterprise and

operational requirements but also for diversification, modernization/upgradation of facilities, capacity

expansion, etc.



Inadequate access to credit is a major problem facing micro, small and medium enterprises. Generally,

such enterprises operate on tight budgets, often financed through owner's own contribution, loans from

friends and relatives and some bank credit. They are often unable to procure adequate financial

resources for the purchase of machinery, equipment and raw materials as well as for meeting day-to-

day expenses. This is because, on account of their low goodwill and little fixed investment, they find it

difficult to borrow at reasonable interest rates. As a result, they have to depend largely on internal

resources.

NON AVAILABILITY OF HIGHLY SKILLED LABOR AT AFFORDABLE COST:

There is lack of trained and experienced employees because small firms cannot pay high salaries and

cannot spend much on training their employees. Small scale firms find it difficult to recruit and motivate

skilled managerial and technical personnel as they look for better opportunities in the large scale

industries. Therefore, they get the second rate talent or have to depend on family members who do not

have diversified skills.

INEFFECTIVE MARKETING STRATEGY:

Small scale units have to face several difficulties in the marketing and distribution of their products.

Most of them do not have their own marketing network. They find it difficult to sell their output at

remunerative prices due to higher cost of production and non-standardized quality of products. They

cannot afford to spend much on advertising, sales, promotion, marketing research, etc. They have to sell

their products at throwaway prices due to weak bargaining power and immediate need for money. They

also face stiff competition from large firms.



NON-AVAILABILITY OF SUITABLE TECHNOLOGY:

Majority of the small scale units use old techniques of production and outdated machinery and

equipment. Upgradation of the technology and achieving economies of scale is one of the major

problems facing the sector. They cannot afford new machines and equipment and are therefore not in aposition to use the latest techniques of production.With liberalization of the economy, the MSMEs are

facing stiff competition from imports and need technological upgradation in order to produce better

quality products at cheap rates.



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Msme Word Docs - Copy