The micro, small, and medium enterprises (MSMEs) are the backbone of Indian industry. The country is trying to make the rural areas more attractive in the international market. The MSMEs have a crucial role to play here. They contribute nearly 8% of the country’s GDP, 45% of the manufacturing output and 40% of the exports. They provide the largest share of employment after agriculture. They are the nurseries for entrepreneurship and innovation. They are widely dispersed across the country and produce a diverse range of products and services to meet the needs of the local and global markets and value chains. Central to the success of ‘Make in Rural India’ is the growth and development of MSMEs in the rural areas. These can have a chain effect on the development of the regions in which they are located by bringing in better infrastructure, job opportunities, higher income, and better lifestyle for its populace.
First, a brief look at the definition of MSME. According to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, these are enterprises engaged in the manufacture or production, processing or preservation of goods. A micro enterprise is an enterprise where investment in plant and machinery does not exceed `25 lakh. A small enterprise is an enterprise where the investment in plant and machinery is more than `25 lakh but does not exceed `5 crore. A medium enterprise is an enterprise where the investment in plant and machinery is more than `5 crore but does not exceed `10 crore. A micro enterprise is an enterprise where the investment in equipment does not exceed `10 lakh. In small enterprise, the investment in equipment is more than `10 lakh but does not exceed `2 crore; and in medium enterprise, the investment in equipment is more than `2 crore but does not exceed `5 crore.
The Centre’s “Make in India” campaign to get Indian companies and global firms to invest and partner in the manufacturing sector is highly relevant for India’s MSMEs. There are four ongoing initiatives of the MSME ministry, which are expected to play key roles in the campaign’s success. They are:
1) The Public Procurement Policy of the micro and small enterprises (MSE).
2) Cluster development programme (MSE-CDP).
3) The Prime Minister’s Employment Generation Programme (PMEGP) and skill development.
The Centre has notified the Public Procurement Policy for MSEs, which mandates that all central ministries, departments, and public sector undertakings (CPSUs) must procure a minimum of 20% of their annual requirement of goods and services (by value) from MSEs. A sub-target of 4% of this 20% must be procured from MSEs owned by SC/ST entrepreneurs.
This programme, helps financially to set up micro enterprises, which will cost up to `10 lakh in the service sector and `25 lakh in the manufacturing sector. A subsidy of up to 25% of the project cost is provided in the rural areas and 15% in the urban areas.
Support from the ministry
The ministry has implemented the “Technology and Quality up gradation support to Micro, Small and Medium Enterprises (TEQUP)” which focuses on two important aspects, namely, enhancing competitiveness of the MSME sector through Energy Efficiency and Product Quality Certification. The basic objective of the scheme is to encourage MSMEs in adopting energy efficient technologies and to improve product quality of manufacturing in MSMEs.
The TEQUP scheme envisages Product Quality Certification. The main objective of this scheme is to encourage MSMEs to Acquire Product Certification Licences from national / international bodies, thereby improving their competitiveness. The primary objective of this activity is to provide subsidy to MSME units towards the expenditure incurred by them for obtaining product certification licences from national / international standardization bodies. One MSME unit can apply only once under the scheme period.
The Ministry has the Design Clinic Scheme for Design Expertise to MSME sector to improve the design of the product to meet global challenges and compete with similar products domestically and internationally. It is to benefit the MSMEs by creating a dynamic platform to provide expert solutions to real-time design problems and add value to the existing products.
Under the National Manufacturing Competitiveness Programme (NMCP) Scheme, one component is “Enabling MSME manufacturing sector to be competitive through Quality Management Standards/Quality Technology Tools (QMS/QTT)”. The major activities are:
The ministry implements the Information and Communication Technology (ICT) scheme to encourage and assist Indian MSMEs to adopt ICT Tools and Applications in their production and business processes, and to improve their productivity and competitiveness in the market. The ministry implements the Support for Entrepreneurial and Managerial Development of SMEs through incubators.
The International Cooperation Scheme, financial assistance is provided on reimbursement basis to the state/central government organizations, industries/enterprises, associations, and registered societies/trusts and organizations associated with MSMEs for deputation of MSME business delegations to other countries for exploring new areas of MSMEs, participation by Indian MSMEs in international exhibitions, trade fairs, buyer- seller meets, and for holding international conferences and seminars, which are in the interest of MSME sectors.
The Government of India has taken many important steps to improve and strengthen the MSME sector for “Make in India”. Specific task forces and inter-ministry committees are there for regular dialogues between the stakeholders. The Micro and Small Enterprises Cluster Development Programme is being implemented by the government for the holistic and integrated development of these enterprises.
Promising Sectors for ‘Make in Rural India’
The MSME sector in India is diverse in terms of size, level of technology, range of products, and services provided and target markets. At least ten components that were used in India’s Mangalyaan (Mars Orbiter Mission probe), the Indian Space Research Organization’s (ISRO) most ambitious mission till date, came from the MSMEs.
Many international companies are interested in Indian MSMEs for strategic partnerships.With its vast resource pool of engineering talent, and high skill labour at competitive costs, India has the potential to become a significant player in the global auto industry.
There are many other opportunities that can be opted by Indian MSMEs in the foundry industry, electronics industry, chemicals, leather, textiles, agro and food processing, pharmaceuticals, transport, and tourism industries. The government’s focus on the MSME sector has increased significantly; larger investments in research and development, technological upgradation, thrust towards international collaborations and measures to boost competitiveness has contributed to this growth.
In both south and north India, there are many examples of MSMEs helping rural India to grow. Some examples can be Hero MotoCorp in Andra Pradesh, Deccan Auto in Telengana, Harley-Davidson India in Gurgaon, Volvo Buses Private Limited in Karnataka, TVS Motors in Tamil Nadu, TAFE Tractors in Kalladipatti. These have set up their plants in mostly the rural belts of India, which in turn helps the rural economy to grow and prosper.
Problems faced by MSMEs
Currently, the MSMEs are facing different types of problems. These include:
l Lack of credit from banks- The banks are not providing sufficient amount of loan to the MSMEs. The procedure of providing loans is very long and procedure-laden. The owners of the MSMEs has to produce different types of documents to prove their worthiness. The banks are providing on an average 50% total capital employed in fixed assets. The cost of credit is also high.
l Competition from multinational companies- It has become extremely difficult for MSMEs to compete with international manufacturing companies who are proving quality goods at cheapest price.
l Poor infrastructure-Though, MSMEs are developing so rapidly their infrastructure is very poor. Due to poor infrastructure, their production capacity is very low while production cost is very high.
l Unavailability of raw materials and other inputs- Absolute scarcity, poor quality and high price of raw materials are the major problems faced by MSMEs. But, ever since the emergence of modern small-scale industries manufacturing a lot of sophisticated items, the problem of raw materials has emerged as a serious problem on their production efforts. The small units that use imported raw materials face raw materials problem either on account of foreign currency or customs duty or any other reasons.
Keeping in view the problem of raw materials the government made provisions for making raw materials available to these units. But these units are not in a position to liaise with the official agencies and are left with inadequate supplies of raw materials. As a result, they have to resort to open market purchases at very high prices. This increases their cost of production and, puts them in an adverse position compared to large units. The quantity, quality and regularity of the supply of raw materials are not satisfactory. There are no quantity discounts, since they are purchased in small quantities and hence charged higher prices by vendors. They also experience difficulty in procuring semi-manufactured materials. Due to financial problems these enterprises are unable to secure raw materials in bulk in a competitive market.
l Lack of advanced technology– The owners of MSMEs are not aware of advanced technologies of production. Their methodology of production is outdated. The owners are using older methode in the field of fabricated metals and textile.
l Lack of distribution of marketing channels– One of the major problems faced by the micro and small enterprises is in the field of marketing. These units often do not possess any marketing organization. In consequence, their products compare unfavourably with the quality of the products of the large-scale industries. In order to protect micro and small enterprises from this competitive disadvantage, the Government of India has reserved certain items for the small-scale sector. The list of reserved items has continuously expanded over the period and at present stands at 824 items. Besides, the Trade Fair Authority of India and the State Trading Corporation help the small-scale industries in organizing their sales.
l Problem of under-utilization of the capacity– The major problem of under-utilization of capacity is power problem faced by micro and small enterprises. Power supply is not always available to these units, and whenever it is available, it is limited to a few hours in a day. Unlike large scale industries, the micro and small enterprises cannot afford to go in for alternatives, like installing own thermal units, because these involve heavy costs, since these units are weak in economic front, they have to manage as best as it can within their available meager means.
l Complex labour laws and red–tape– All the laws related to the all aspects of manufacturing and service concern are very complex and compliance with these laws are practically difficult .The various decisions of factory’ are depend upon the factory commissioner and inspector, so there are so many chances of red tape in the operation of MSMEs.
Suggestions for the growth and development of the MSMEs
Due to the acute power shortage, industrial units are managing only 50% of capacity and the situation has turned from bad to worse without inability to pay even workers salary. Since most of the enterprises complained about non-availability of labour, the government needs to look into this matter. It has to amend the labour laws which are contemporary and relevant to the present globalized scenario. Simple and clear policies and acts are to be made so that these enterprises can understand them and utilize as well as implement them in they business for compliance and secure benefits. There are many government schemes but from the study it was observed that most of these enterprises are not aware and do not understand how they can benefit out of them. The major problems are-
l Mutual Supply of Technologies: A number of appropriate technologies for the MSME sector have developed in various sectors. While each MSME has its areas of strengths and weaknesses, therefore, it would be mutually valuable if already developed technologies made available to each other. A comprehensive list of all sorts of technologies should be prepared and made available accordingly to the MSMEs requiring it.
l Constitution of a Panel of Consultants: For the purpose of technological advancement and guidance a panel of experts and consultants should be prepared, who can help the MSMEs within the region to effectively transfer the available technologies. The constitution of panel of these consultants could be nature wise of the activities of the MSME. At the time of constitution of panel of experts, there should be inclusion of the owners of different sectors of MSMEs.
l Determination of Technological Needs: There should be detailed survey to assess the technical and financial needs of the MSME. The proper arrangement could be make to fulfill the needs of the MSMEs.
l Training and development, awareness programmes: There must be conduction of training and development programs by the MSME ministry. The currently running programs are not so effective and sufficient. One of the important reasons for slow intake in the utilization of schemes is the lack of knowledge about schemes and their likely benefits. The current knowledge dissemination system is limited in its outreach. There is a need to develop a better communication strategy and use of new age media tools.
l Sufficient availability of the credit: Our banking system does not provide sufficient amount of credit to fulfill their requirement of establishment of MSME and also not for the operational activities. Therefore, there must be availability of credit according to the requirement at cheaper rate.
l Relaxation in labour laws and red tape: There should be relaxation in complex labour laws to avoid the inconvenience in compliance. Every effort must do to avoid the unnecessary red tape.
l Proper research and development: There should proper research and development in respect of innovative method of production and service rendering. The innovative products will provide the cheaper products and the MSMEs will be able to cope up with the situation.
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