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ExecutivesFrom

TCS – Co Plan Countries

WELCOME

SME Development in India - Perspectives

Presentation on

by Dr. G.U. K. Rao

DirectorSchool of Enterprise Development

NATIONAL INSTITUTE FOR MICRO, SMALL AND MEDIUM ENTERPRISES (ni-msme), HYDERABAD, INDIA

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New Scheme for Technological upgradation

Competitiveness of MSME

Evolution of MSMED Act

WE WILL DISCUSS

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Importance of MSME

MSMED Act – Comparative Analysis. Measures and Implementation Plan

Accomplishments Status of MSME

Introduction - MSME• Major plank of India’s Economic Development• Strategic Importance due to contributions in terms of

Output, Export & Employment• To sustain & accelerate growth, MSME sector needs to

be thoroughly competitive

MSME’s are supported by Govt. of India FOR Modernization• Productivity• Technological Needs• Skill Development & Up gradation• Adequate & Affordable assistance in Finance

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Importance of MSME’s• Labor Intensive• Short gestation period• Lowest Administrative cost• Maximum potential for employment generation• Assist decentralization of power• Induce growth of industrially backward regions

ensuring balanced regional development

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AN OVERVIEW OF POLICIES

Roadmap & Strategies04/10/23 6

1948 – 1991Access to Bank Credit on Priority BasisReservation of Products Lines for Exclusive

ManufactureReservation of Items for Exclusive Purchase by

Govt.OrganisationsPrice preference up to 15% was allowed for

Govt.PurchaseSetting up of Industrial EstatesA Marketing Corporation (NSIC) was establishedState Financial Corporations were set up District Industries Centres were set up for Single

Window Assistance Setting up of SIDBI (Small Industries Bank of India) Establishing Training Institutes for

Entrepreneurship Development Relief on Excise for Small Scale Units

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1991 – 1999

Improving Infrastructure, Technology and Quality Testing Centres were set up for quality certification New Tool Rooms were set up Sub-Contracting Exchanges were established SIDBI has been created to accelerate finance Technology Development Fund was created for Technical Services IID Scheme was Launched to set mini-industrial estates for MSE sector

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1999 – 2006

• Strengthening of EDIs• Enhancement of Delayed Payment Act for ensuring prompt payments from large units• Subsidy for participation in International Trade Fairs• Training Programmes on Export Marketing• Credit Linked Capital Subsidy Scheme (for technology upgradation & to modernise the traditional technology)• Technology up gradation in Industry Specific Clusters• IT based initiatives for Information Sourcing• Services given enhanced importance• 15% Capital Subsidy Scheme for Technological Up gradation• Credit Guarantee Scheme for loans upto Rs 5.0 Mn particularly to the first generation entrepreneurs• Priority Sector Lending – 40% of the NBC (Net Banking Credit) – 10% for MSE

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• Prime Minister’s Rozgar Yojana for Educated Unemployed Youth

• Establishing Specialized SSE bank branches

• Reduction of Subsidies

• De-Reservation on Phased Manner

• Establishing Export Processing Zones

• Strengthen the Export Promotion Councils

• Exemption limit for relief from payment of central excise duty was raised to Rs 1 lakh

• Marketing and Procurement – 358 items have been reserved

• Establishment of Testing Centres with involvement of Industry Associations

• Introduction of Credit Cards [Rs.1.00 Mn.]

• Continuing awareness programmes on WTO/IPRs/Bar Coding /Anti-dumping

• Enhancement of investment ceiling in specific product groups

• Assistance to strengthen EDIs at State Level – Assistance up to 50% with a ceiling of Rs.1 crore (to be contd…)

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• SSI – MDA Scheme – Funds up to 90% of airfare for participation in overseas fairs/trades, funds up to 25% of cost towards publicity material and 50% funding with a ceiling of Rs.0.1 Mn for contesting anti-dumping case• SSI policy further liberalized• Revitalization of Khadi and Village Industries Commission• Raising the corpus fund for SIDBI to Rs.100,000 Mn.• ISO 9000/14001 Certification fee Reimbursement (75% of the fee subject to a maximum of Rs 1 lakh)• De-reservation from SSEs• Development of Agro and Food Processing Sectors in Rural and Semi-Urban Centres• Allowing 100% FDI in Food Processing Sector• Establishing 10 mega food parks in the country• Further investment in Basic Infrastructure including Rural areas through Bharat Nirman Scheme• Introducing Credit Rating Scheme by encouraging SSEs Ranking policy• National Manufacturing Competitiveness Programme (NMCP) – Technology, marketing and skill upgradation through PPP

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Why A New law?SSIs had no legal backing

- except 2 sections of I (D&R) Act, 1951SSIs dealt with under multiple LawsMany Committees & Associations demandedNo Statutory Consultative body existedMost important policies without statutory basis

There was Need to: Define MSME concept; Simplify Registration; Promote Services Sector; Strengthen Delayed Payments Law; Facilitate Closure

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Micro, Small and Medium Enterprises Development (MSMED) Act, 2006

[ENACTED –23rd June ’06;

IMPLEMENTED – 02nd October ’06]

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AIMTo facilitate the promotion and development and enhancing the competitiveness of micro, small and medium enterprises in the country

Achieving Achieving long term long term sustainabilisustainabili

tyty

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MAIN FEATURESEstablishment of National Micro, Small and Medium Enterprises Board

Classification of Enterprises Measures

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Establishment of National Board for Micro, Small and Medium Enterprises

Chaired by Union MSME Minister Vice Chairman: State Minister at the

cabinet State Ministers (6) Members of Parliament (3) Member Secretary - MSME Secretaries to GoI (5) UT Administration (1) RBI, SIDBI, NABARD, IBA (4) 20 representatives of MSME Associations

with not less than 3 of Micro, and not less than three of Women Enterprises.

Persons of Eminence (3) Central Trade Union Organisations (2)

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FUNCTIONSStatutory, unlike previous SSI BoardsHold mandatory Quarterly Meetings to

examine factors in MSME developmentHelps to Conduct Research Studies Review Central Policies & ProgrammesMake recommendations to Central Govt. Advise Govt. on Fund(s) for MSME

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Classification of Enterprises

NB: Not ‘Industries’ but ‘Enterprises’

Enterprises either:

(i) Manufacture Goods,

or

(ii) Provide Services

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Classification Manufacturing

Enterprises*

Service

Enterprises*Micro Up to Rs.2.5 Mn

($ 41667)

Up to Rs.1.0 Mn

($ 16667)

Small Above Rs.2.5 Mn ($ 41667) & up to Rs. 50.0 Mn ($ 0.83 Mn)

Above Rs.1.0 Mn ($ 16667) & Up to Rs. 20.0 Mn ( $ 0.33 Mn)

Medium Above Rs. 50.0 Mn ($ 0.83Mn) & Up to Rs. 100.0 Mn ( $ 1.67 Mn)

Above Rs. 20.0 Mn ($ 0.33 Mn) & Up to Rs. 50.0 Mn ($ 0.83 Mn)

Excluding Land & Building *@ $ 1 + Rs. 60 (November 2013)

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BASIS OF COMPARISON

SCENARIO: PRE ENACTMENT OF MSMED ACT

SCENARIO: POST ENACTMENT OF MSMED ACT

1 Apex statutory body

SSI Board is the apex non-statutory advisory body constituted by the Government of India to render advice on all issues pertaining to the SSI sector.

Clause 3 of the MSMED Act provides for the establishment of National MSME Board, hence, it is now a statutory body that will mandatorily have Quarterly Meetings. This Board will replace the currently existing non-statutory Small Scale Industries (SSI) Board. 46 Members on Board, with specific representation for women.

2 As an ‘entity’ Existing concept of only the ‘Industries’. i.e. the Small Scale Industries (SSI)

Clause 7(1) introduces the concept of ‘Enterprises’ as against ‘Industries’. Broadly classified into enterprises engaged in manufacture/production of goods those engaged in providing/ rendering services.

3 Classification of

Enterprises

A definition existed only for tiny and small units, however medium sized enterprises are not defined either technically or legally. No further classification as per the definition for Manufacturing & the Services sector

As per the Clause 7(1) a definition exists for Micro, Small and Medium units.

4 Establishment procedure

Two -stage registration process of Micro & Small industry in place.

As per Clause 8. Filing of memoranda optional for Micro & Small enterprises in manufacturing & services sector, for Medium enterprises in services sector but mandatory for Medium enterprises in manufacturing sector.

5 Procurement Policies

Non statutory Clause 11 provides for the notification of preference policies, by the Central or a State Govt. in respect of procurement of goods & services, produced and provided by the MSEs, by its Ministries, departments or its aided institutions and public sector companies.

6 Delayed Payments – Repayment, Penalty

Period of repayment by the supplier – 120 days. Penal interest rate is 150% (or 2 ½ times) of the PLR.

Clause 15 Period of repayment by the supplier – 45 days. Clause 16 Penal interest rate is 200% (or three times) of the Prime Lending Rate (PLR).

MSMED ACT 2006: A COMPARATIVE ANALYSIS

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BASIS OF COMPARISON

SCENARIO: PRE ENACTMENT OF MSMED ACT

SCENARIO: POST ENACTMENT OF MSMED ACT

7 Delayed Payments – Dispute Resolution

No stipulated time period for a decision on a reference made to a Industry Facilitation Council.

Reference made to the MSE Facilitation council to be decided within 90 days from the date of reference, as per the Clause 18(5)

8 Delayed Payments - Deduction under the Income Tax Act, 1961

Amount of interest payable or paid by any buyer is allowable for the purposes of computation of income under the Income Tax Act, 1961.

Clause 23 Provides to disallow, for the purposes of computation of income under the Income Tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act.

9 Closure of Business

Non existent as a statutory requirement Clause 25 provides that the Central Govt. may (within 1 year of the commencement of the Act) notify a scheme for facilitating closure of business by a micro, small and medium enterprise.

10 Promotional & Enabling provisions

Non existent as a statutory requirement Clause 9 provides for notification of programmes, guidelines or instructions for facilitating the promotion and development and enhancing the competitiveness of MSMEs, by the Central Govt. Clause 12 provides for constitution, by notification, one or more funds, by the Central Govt.. Clause 13 provides to credit (by the Central Government) to the fund or funds, such sums as the Govt. may provide after due appropriation made by Parliament by law in this behalf. Clause 14 provides to administer (by the Central Govt. ) the fund or funds for purpose mentioned in Clause 9 & coordinate and ensure timely utilization and release of sums with such criteria, as may be prescribed.

11 Provisions for facilitating Credit

Non existent as a statutory requirement Clause10 provides that the policies &practices in respect of credit to the MSMEs shall be progressive and such as may be specified in the guidelines or instructions issued by the RBI.

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POLICY MEASURES Filing of Memoranda: • No Registration Required: Only Filing of Memorandum• Memoranda Optional for all, except for Manufacturing Medium

Enterprises Central Government to notify Programmes for MSMEs: Skill Development, EDP, ESDP Technology Upgradation Marketing Assistance Infrastructure Facilities Cluster Development IPR and Export Marketing TQM

Credit: The Policies & Practices of Credit to MSMEs shall be progressive, & Specified by RBI Guidelines for:

• Ensuring smooth credit flow to MSMEs • Ensuring better competitiveness• Minimizing sickness among them

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Procurement Preference Policies: Central Govt. or State Govt. to notify: Preference Policies for procurement of Goods & Services of MSMEs Statutory for its Ministries, Departments & Aided Organizations Legal force comes in now Facilitating Closure of Business Long pending need for Exit Policy Now introduced for first time Central Govt. to Notify Policy soon

Delayed Payments Provisions • Provisions regarding Micro & Small Enterprises Strengthened• Payment period now 45 days not 120 • Interest = 3 times RBI Bank Rate & Compounded on Monthly basis• State Governments must constitute MSE Facilitation Councils (FCs)• Include MSE Associations in FCs• Jurisdiction of State Councils up to wherever buyer is located• Buyers must disclose Outstanding MSE payments in Annual Accounts• Interest paid/payable to supplier not allowed for IT deduction• 75% of F C’s decreed amount must be deposited before moving Appellate Court & Appellate Court may order part payment from deposit to the MSE04/10/23 23

The Implementation Plan Strengthening Training Institutions and

upscaling training facilitation especially in the rural and remote areas

Better marketing support to MSMEs and strengthening/creation of existing/new marketing support infrastructure/institutions

Technological support to MSMEs; Amendments in the MSMED Act, 2006 for

providing an exit mechanism to the MSMEs, making the decision of the Facilitation Council binding and final, etc.;

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Strengthening of District Industries Centres (DICs) with provision of modern IT-enabled communication facilities, across the country to improve the delivery of services at the field level;

Cluster Development Programme would be strengthened. MSME Associations would be involved in Cluster Development Programmes;

Strengthening of khadi institutions through implementation of the Khadi Reform and Development Programme;

Introduction of a Public Procurement Policy for MSMEs for assisting the MSMEs in increasing their market share;

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Encouraging corporatisation of the MSME sector;

Introducing a scheme for supporting the States to set up Rehabilitation Funds and operationalise appropriate schemes for the rehabilitation of units temporarily rendered sick due to circumstances beyond their control;

Up scaling existing schemes or evolving new schemes to assist MSMEs in acquisition, adaptation and innovation of modern clean technologies as well as creation of a Technology Bank/product specific technology centres to enable them to move up the value chain;

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Encouraging innovations through setting up of large number of business incubators in educational institutions of repute;

Expanding the outreach of the major schemes/programmes of the Ministry, including National Manufacturing Competitiveness Programme (NMCP), Prime Minister’s Employment Generation Programme (PMEGP), Scheme of Market Development Assistance (MDA) for Khadi, Micro and Small Enterprises-Cluster Development Programme (MSE-CDP), Credit Linked Capital Subsidy Scheme (CLCSS), Credit Guarantee Scheme, etc.

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Competitiveness of MSME’sTo understand competitiveness of MSME’s, one has to look at

the issue in two different areas• Competitive advantage compared to large enterprises –

because of inherent nature of MSME’s• International competitiveness – This reflects more on the

influence of policy framework

MSME’s Competitive Advantage:

• That cannot be done more efficiently by a larger unit• That requires

• Flexibility• Innovativeness• Closeness to customers

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Policy EnvironmentFor competitiveness on a global scale, the

policy environment can have a supportive or an inhibiting effect on MSME

• While competing against foreign companies that enter the home market

• While competing as a MSME in foreign markets

• While becoming part of international value chains and business relationsEconomic policy direction has changed and there is a commitment to change it further to promote and enable competitiveness among MSME’s

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New Innovative Schemes for Technology Development of MSMEs under the National Manufacturing Competitiveness Programmes (NMCP)

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Scheme Aim Achievement

1. Lean manufacturing (2009)

To reduce manufacturing waste, thereby , increasing competitiveness and productivity of the MSMEs.

Initially 100 mini clusters have been selected on pilot basis, over 70 Special Purpose Vehicles have been formed and 42 Lean consultants have been selected

2. Design Clinic Scheme for Design Expertise(2010)

Brings design experts on a common platform to access advise and cost effective solutions. It has two major parts: a) Design Awareness and b) Design Funding (60% of the project cost)

Introduced in 200 MSME Clusters, 43 seminars have been conducted in 99 clusters and 15 design projects have been approved

3. Marketing Assistance and technology Upgradation(2010)

To improve technology up-gradation in packaging, developing modern marketing techniques, state/district exhibitions, corporate governance practices, marketing hubs, etc.

10 product groups and 140 units have been identified for participation in industry fairs and exhibitions.

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Scheme Aim Achievement

4. Technology and Quality Upgradation Support(2010)

To sensitize the manufacturing MSME sector to upgrade their technologies of green-house gases, adoption of other technologies as per the global standards, improve their quality and reduce their cost of production etc., towards becoming globally competitive

The major activities planned include capacity building of MSME clusters for Energy Efficiency/Cleaner technologies, setting up carbon credit aggregation centres and encouraging MSMEs to acquire Product certification Licenses from National/ International Bodies. 20 clusters have been identified.

5. Promotion of ICT in Indian manufacturing Sector(2010)

SME clusters, which have quality production and export potential, shall be encouraged and assisted in adopting Information and Communication Tools (ICT) applications to achieve competitiveness in the national and international markets.

Activities planned: Identifying target clusters, Setting up of E-readiness infrastructure, Developing web portals, Skill development in ICT, preparation of local soft-ware solutions, construction of e-catalogue, e-commerce etc. Implemented in 100 clusters

6. Mini Tool Rooms(2009)

To develop more tool room facilities, by creating capacities in private sector for designing and manufacturing quality tools and also to provide training facilities in the related areas. It has three models: Central PPP model; State PPP model and Centre-State model

15 Mini tool rooms have been set up under PPP mode. Government support is restricted to Rs. 9 Cr up to 40% of the project cost.

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Scheme Aim Achievement

7. Quality management Standards and Quality Technology Tools(2009)

Improving the quality of the products in MSE sector and inculcates the quality consciousness in this sector

The major activities of the scheme are: a) introduction of appropriate modules for technical institutions (ITIs/Polyclinics); b) Organizing awareness campaigns; c) organizing competition watch (c-watch); d) implementation of Management Standards and Quality Technology Tools in selected MSEs; e) monitoring International Study Missions; and f) Impact Studies of the Initiatives

8. Building Awareness on Intellectual Property Rights (2009)

To attain global leadership position and to empower MSMEs in using effectively the tools of IPR of innovative projects

112 Awareness Programmes and 35 Seminars have been organized along with setting up of 18 IP Facilitation Centres

9. Marketing Support/Assistance (Bar Code) (2010)

To popularise the Bar Code Registration and motivate MSEs to adopt bar Code certification on large scale and to sell their value added products worldwide and enable higher export price realization.

75% of Annual fee of Bar Code Certification for the first 3 years are reimbursed to MSEs. About 101 MSMEs have been benefited so far.

10. Support for Entrepreneurial and management Development through Incubators(2009)

Nurturing innovative business ideas (new/ingenious technology, process, products, procedures etc.) which could be commercialised in a year.

76 Business Incubators have been set up and 190 ideas approved so far.04/10/23 32

MICRO, SMALL AND MEDIUM ENTERPRISES (MSME) SECTOR: PROFILE

Quick Estimates of 4th Census (2006-07)

Number of MSMEs 26.1 million

Number of Manufacturing Enterprises 7.3 million

Number of Service Enterprises 18.8 million

Number of Women Enterprises 2.1 million (8%)

Number of Rural Enterprises 14.2 million (54.4%)

Employment 59.7 million

Per unit employment 6.24 million

Per unit fixed investment Rs.33.78 lakhs

Per unit original value of Plant & Machinery Rs. 9.66 lakhs

Per unit gross output Rs.46.13 lakhs

Employment per one lakh fixed investment 0.19

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India’s Manufacturing Competitiveness

Proven Product

Development Capabilities

Stable Economic Policies

Large and growing domestic demand

Availability of manpower

Proximity to Proximity to

Markets

High Quality Standards

Competitive Manufacturin

g Cost

Export Potential

India as a manufacturi

ng hub

Indian Manufacturing positioned for a higher growth rate

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