Micro Small and Medium Enterprises (MSMEs) Project Report Submitted To: Prof.

Rakesh Gupta Submitted By: Section A Group Members Name: Amrita Paramanik Antara Mukherjee Naina Kamra Radhika Bhardw aj Sabyasachi Panda Vishal Goyal

MICRO-ENTERPRISE A micro-enterprise is a type of small business, often unregistered, having five or fewer employees. Micro enterprises is an enterprise where the investment in e quipment does not exceed Rs 10 lakh. They account for a substantial share of tot al employment and gross domestic product and they contribute significantly to po verty reduction. USAID defines microenterprise as a firm of 10 or fewer employees, including unpaid workers, which is owned and operated by someone who is poor. MEDIUM ENTERPRISE A medium-sized enterprise is defined as an enterprise which employs fewer than 2 50 persons. Medium enterprise is that where the investment in equipment is more than Rs 2 crore but does not exceed Rs 10 crore. SMALL ENTERPRISE A small enterprise is defined as an enterprise which employs fewer than 50 perso ns. Small enterprise is one where the investment in equipment is more than Rs 10 lakh but does not exceed Rs 5 crore. The limit for investment in plant and mach inery / equipment for manufacturing / service enterprises, as notified, vide S.O . 1642(E) dtd.29-09-2006 are as under: Manufacturing Sector Enterprises Investme nt in plant & machinery Micro Enterprises Does not exceed twenty five lakh rupee s Small Enterprises More than twenty five lakh rupees but does not exceed five c rore rupees Medium Enterprises More than five crore rupees but does not exceed t en crore rupees Service Sector Enterprises Investment in equipments Micro Enterp rises Does not exceed ten lakh rupees: Small Enterprises More than ten lakh rupe es but does not exceed two crore rupees Medium Enterprises More than two crore r upees but does not exceed five core rupees 2|P ag e

IMPORTANCE AND CONTRIBUTION OF MSME The Micro Scale and Medium Enterprises (MSMEs) play an important role in the eco nomic development of any country. MSME enterprises can be rightly called as the backbone of the GDP of India. The MSME sector in India is growing at an exceptio nally fast rate due to which it is proving to be beneficial to the Indian Econom y. However, there are some important points that need to be considered for furth er development of the MSME sector. MSME contributes in the following: Rural indu strialization Rural development and decentralization of industries Creation of e mployment opportunities and more equitable income distribution Use of indigenous resources; earning of foreign exchange (FOREXs) resources Creation of backward and forward linkages with existing industries Entrepreneurial development The de velopment of MSMEs is one of the sustainable ways of reducing the level of pover ty and improving the quality of life in household through job and wealth creatio n. According to the United Nation Development program (UNDP), MSMEs have the hig hest capital, employment ratio and are a source of income for a lot of people Wo rld over. The most important thing is that MSMEs also act as safeguard in times of economic recessions. The MSMEs constitute over 90% of total enterprises in mo st of the economies and are credited with generating the highest rates of employ ment growth and account for a major share of industrial production and exports. In India too, the MSMEs play a pivotal role in the overall industrial economy of the country. In recent years the MSME sector has consistently registered higher growth rate compared to the overall industrial sector. With its agility and dyn amism, the sector has shown admirable innovativeness and adaptability to survive the recent economic downturn and recession. As per available statistics (4th Ce nsus of MSME Sector), this sector employs an estimated 59.7 million persons spre ad over 26.1 million enterprises. It is estimated that in terms of value, MSME s ector accounts for about 45% of the manufacturing output and around 40% of the t otal export of the country. This sector contributes 8% of the countrys GDP and em ploys around 60 million people, through 26 million enterprises. MSMEs in the cou ntry manufacture over 6,000 products. 3|P ag e

Let us analyze the factors that have contributed to the growth of the MSME secto r in India. MSME units in India are being funded by foreign and local fund providers. The ad vancement in technology has also contributed highly to the MSME sector. There ar e numerous business directories and trade portals available online that contains a rich database of manufacturers, sellers and buyers To start and maintain thes e units, minimal investment is required. These MSME units are now being funded b y many government and private banks. The MSME sector is one of the greatest cont ributors of domestic production as well as the export earnings Many major mergers have taken place recently. Strengths: The MSME sector is often driven by individual creativity. Its potential for great er innovation both in terms of products and processes. Enterprises can be set up with very small amounts of investments. Location flexibility to be located anyw here in the country. There is a well-spread network at the national, state and t he local level for providing a comprehensive range of support services under mar keting, technology, finance, and infrastructure and skill development. Maximum p otential for employment generation. Lowest Administrative cost & risk is lesser. Assist decentralization of power. Induce growth of industrially backward region s ensuring balanced regional development. 4|P ag e

Weakness: Small and Medium Enterprises (MSME), have inadequate access to finance due to la ck of financial information and non-formal business practices. MSMEs also lack ac cess to private equity and venture capital and have a very limited access to sec ondary market instruments. MSMEs face fragmented markets in respect of their inpu ts as well as products are also vulnerable to market fluctuations. MSMEs lack eas y access to inter-state and international markets. There is lack of awareness of global best practices. The access of MSMEs to technology and product innovations is also limited. MSMEs face considerable delays in the settlement of dues/paymen t of bills by the large scale buyers. With the deregulation of the financial sec tor, the ability of the banks to service the credit requirements of the MSME sec tor depends on the underlying transaction costs, efficient recovery processes an d available security. There is an immediate need for the banking sector to focus on credit and finance requirements of MSMEs. suffering from low technology base resulting in low productivity and poor quality Major weakness another weakness is absence of marketing channels and brand build ing capacity f products. The lack of reliable and updated data base is another a rea of concern as it inhibits monitoring of development initiatives. There is a lack of coordination among the various organizations involved in the promotion o f MSMEs, including organizations of the State Governments and also there are poo r linkages with the institutional stakeholders in the private sector. 5|P ag e

Challenges Faced by the MSME Sector The challenges being faced by the small and medium scale sector may be briefly s et out as followsSmall and Medium Enterprises (MSME), particularly the tiny segment of the small enterprises have inadequate access to finance due to lack of financial informati on and non-formal business practices. MSMEs also lack access to private equity an d venture capital and have a very limited access to secondary market instruments . MSMEs have to face the increased cost of raw materials. MSMEs face fragmented markets in respect of their inputs as well as products and are vulnerable to mar ket fluctuations. MSMEs lack easy access to inter-state and international markets . There is lack of awareness of global best practices. The access of MSMEs to tec hnology and product innovations is also limited. In the competitive market, MSME s need protection against market manipulation and need to be given institutional support MSMEs face considerable delays in the settlement of dues/payment of bill s by the large scale buyers. With the deregulation of the financial sector, the ability of the banks to service the credit requirements of the MSME sector depen ds on the underlying transaction costs, efficient recovery processes and availab le security. There is an immediate need for the banking sector to focus on credi t and finance requirements of MSMEs. There is need of high level research and dev elopment required to develop these sectors in both the urban and rural areas The MSME units are functioning efficiently and effectively, but even now there i s lack of information regarding the inputs of these industries, like the raw mat erials, skills, machinery and equipment. Though the MSME industries are spread a ll over the urban areas, proper infrastructure needs to be developed in the rura l areas to establish these industries there. 6|P ag e

Latest Updates on MSME Budget Impact on MSME Raj Kumar Malhotra, Chairman, Export Promotion Council for Handicrafts (EPCH) lauded the Union Budget 2011-12 and termed it as a growth or iented budget for the handicraft sector. He added that the handicrafts sector ha s been given recognition in the Union Budget with a number of initiatives includ ing reduction in basic customs duty on bamboo for agarbatti from 30 per cent to 10 per cent, which according to him, an important incentive for the agarbatti ex porters since this would reduce the input costs. The development of a handicraft mega cluster would help increase the production and exports of wooden handicraf ts and other allied products from the region. (Latest updated news dated 1 march 2011) MSME ministry out to help young entrepreneurs The government is very keen to support first generation entrepreneurs and so there are schemes under Rajiv Gandhi Udyami Mitra Yojana (RGUMY), says Minister of State (Independent Charge) for Micro, Small and Medium Enterprises, Virbhadra Singh in a written reply to a question in the Lok Sabha on Thursday. He also informed that the government imp arts training to persons desirous of setting up of microenterprises including ag ro-industries, under Prime Ministers Employment Generation Programme (PMEGP). PME GP is a credit-linked subsidy scheme of the Government, implemented from 2008-09 through Khadi and Village Industries Commission (KVIC), a statutory organizatio n under this Ministry ( www.futureindia.com news updated on 25 Feb. 2011) New in itiatives for MSME New initiatives for Micro, Small and Medium Enterprise (MSME) sector will be launched shortly based on the report of the Task Force on MSME, said President Pratibha Patil. She said that the MSME sector continues to hold i ts dynamism in terms of production, employment generation and contribution to ex ports. The MSME sector contributes 8 percent of the countrys GDP, 45 percent of the manufactured output and 40 percent of its exports. The task force on the MS ME sector headed by T K A Nair, Principal Secretary to Prime Minister, Manmohan Singh, had submitted its report containing several recommendations last month. T he suggestions covered areas like easy and affordable credit, government procure ment from MSMEs and simplification of labour laws. The task force also suggested setting up of a exchange for the SMEs. On the Khadi sector, which employees ove r one crore people, she said, "The khadi sector is a very large employer, with k hadi and village units giving employment to over one crore persons. A comprehens ive Khadi Reform Programme has been launched." 7|P ag e

STRATEGIES PROPOSED FOR MSMES When we observe the general imbroglios associated with these segments of industr ies the following strategies can be proposed: NICHE MARKET STRATEGY: Launching a product into a niche market is far cheaper than launching a mass-market product . Potential customers are easier to identify and to target. Niche markets often develop as a subset of mass markets and mass marketed manufacturers choose to la unch niche products as well. So in the context of creating awareness about their product and also create a better platform to sale their products, niche market strategy would be an appropriate plan. FINANCIAL STRATEGY OPERATING CAPITAL) (CREATING SNAPSHORT OF COST, MARGIN, All small businesses need to have absolute certainty and clarity about their fix ed costs and their variable costs into the near-to medium term future and have m echanisms in place to review this on a regular basis. Cash flow management is a basic and essential business requirement. If they need to borrow money as an ove rdraft or a factoring arrangement or even off friends and family, it should be e nsured that they are getting the best terms and the maximum flexibility possible . They need to be allowed about eight weeks to arrange credit and plan according ly. Negotiations with the financial institution must include the flexibility to get out of the arrangements as their cash reserves improve. It should be decided priory whether they are going to pay individual commissions, team bonuses and s pecial privileges. Are the special deals you are offering to employees sustainab le in the longer term? All these factors must be considered. COMPETITIVE STRATEGY: Every organization faces competition and it is up to the o rganization to decide whether it uses price or effective distribution to positio n in front of the customers when there is a concern regarding the products. Here several factors like understanding customer behavior and supply chain are impor tant. 8|P ag e

ESTABLISHING A INFORMATION MAPPING STRATEGY: After going through the gamut of is sues regarding SMSE s it has been found that there is a lack of proper informati on flow among various departments particularly the workflow so a cross function application such as ERP could be implemented which would act as a storehouse of information and help the managers to take efficient decisions in future. PROCESS STRATEGY: There are indeed many options open to the SME regarding executing cha nge. This could be started from standardizing the primary functions of the organ ization like as mentioned below: Finance (billing, invoicing) HR (staff information, retention, training, incenti ves) Operations (planning, scheduling, information sharing, inventory, forecasti ng) Delivery & logistics (fulfillment, customer deliveries) Supply chain (inform ation sharing, access to production planning data, inventory replenishment, orde r tracking, forecasting) 9|P ag e

Bibliography http://msme.gov.in/msme_ http://news.franchiseindia.com/smallbusiness/MSME-contr ibutes-over-45-in-India-smanufacturing-sector-2353/ http://zambiachambers.org/in dex.php?option=com_content&view=article&id=737:msmespolicy-opportune-initiative& catid=1:latest-news&Itemid=57 http://www.business-standard.com http://www.thomex .com/trade-events/india-msme-summit-2009/index.html 10 | P a g e