Summer Internship Report

Present and Futuristic view of MSMEs in India At SME Networks Pvt. Ltd.

Submitted by: Showkat Wani SCMLD [2012-13]

Acknowledgement

I have taken efforts in this project. However, it would not have been possible without the kind support and help of many individuals and organizations. I would like to extend my sincere thanks to all of them. I am highly indebted to my project guide Mr. Vikash Gupta, Manager-SME Networks Pvt. Ltd. for his guidance and constant supervision as well as for providing necessary information regarding the project & also for their support in completing the project. I am extremely thankful and pay my gratitude to Mr. Vivek Kumar, Director-SME Networks Pvt. Ltd. for his valuable guidance and support on completion of this project in its presently. I extend my gratitude to Sadhana Centre for Management & Leadership Development (SCMLD), Pune for giving me an opportunity to earn and learn. I would like to express my gratitude towards my parents & member of SME Networks Pvt. Ltd. for their kind co-operation and encouragement which help me in completion of this project. My thanks and appreciations also go to my colleague Ms. Priyanka Sheoran, Relationship Executive-SME Networks Pvt. Ltd. in developing the project and people who have willingly helped me out with their abilities.

Thanking You Showkat Wani

Table of Contents

1. Background Study 2. Executive Summary 3. Objective 4. Past Record of SMEs 5. Present Scenario of SMEs 6. MSME Act, 2006 7. Future Policy Framework 8. Problems Faced by SMEs 9. Measures Taken by Government 10. Conclusion 11. Suggestions 12. Bibliography

1 7 10 11 17 29 32 37 41 47 50 53

Background Study
SMEs ARE THE BACKBONE OF INDIAN ECONOMY Small and Medium Enterprises (SMEs) have played a vital role in Indias economic growth. With over 30 million units, SMEs accounted for 17 per cent of the countrys GDP in 2011. Small & Medium Business Development Chamber of India projects the share of SMEs in the expansion of the Indian economy to increase to 22 per cent of the GDP in 2012. The estimate is backed by its assumption of 12 million additional people joining the SME sector over the period 2012-14); SME units currently employ 60 million people. The units in India are classified under the MSME (Micro, Small and Medium Enterprise) category on the basis of their investment size. Manufacturing enterprises are classified with respect to their investment in plant and machinery, while the classification of service enterprises is based on investment in equipment.

SMEs trends
According to the Ministry Of Micro, Small and Medium Enterprises, the number of MSME units in India has grown at a CAGR of 4.5 per cent during FY07 FY11, and stood at 31.2 million at the end of FY11. The cumulative investments in these units rose at a CAGR of 11.5 per cent during the same period. Strong growth in total investments in MSMEs indicates towards their expanding footprint and growing importance. The MSMEs are increasingly contributing towards employment generation in India. The number of people employed by MSME has grown to 73.2 million during FY11 recording a CAGR of 5.3 per cent since FY07. As per the fourth AllIndia Census of MSMEs (2006-07), 94 per cent of the enterprises are in the unorganised sector. The MSMEs are not concentrated in terms of rural versus urban origin. Rural areas account for 45 per cent of all MSMEs, while the remaining 55 per cent are located in urban areas. On the other hand if classified with respect to sector of operation, 67 per cent are involved in manufacturing activities and the remaining 33 per cent units are distributed in the service sector (17 per cent)
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and

repairing

and

maintenance

sector

(16.1

per

cent),

respectively.

Classification of MSMEs by sector (in per cent)*

16% 17% Service Manufacturing Repairing & maintenance 67%

*Source: Annual Report FY12 of Ministry of Micro, Small and Medium Enterprises

SMEs IN THE MANUFACTURING SECTOR

The burgeoning importance of SMEs in the manufacturing sector is due to their significant contribution to the key factors of the growing Indian economy. According to Small & Medium Business Development Chamber of India, SMEs currently contribute 45 per cent of the nations industrial output as well as 40 per cent of the total exports. SMEs form 95 per cent of the total industrial units in the country and manufacture around 8,000 quality products for the Indian as well as international markets.

Enabling SMEs to contribute more to the economic growth

The key to ensure that SMEs are able to grow in tandem with the economy in this age of increasing globalisation is to reckon the issues faced by most of them. The government recognises the importance of SMEs for the overall development of the country, and already has measures in place to harness the erupting issues associated with them.

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Financing The major hindrance in the expansion of SMEs is the unavailability of sufficient and timely funds to finance their growth plans. Measures proposed by the government would ensure availability of adequate funds to MSMEs to power their growth. Small Industries Development Bank of India (SIDBI), the countrys apex development bank, has targeted 1820 per cent YoY growth in disbursement of credit to microfinance institutions (MFIs); with this, the total credit disbursed during FY11 would total INR10 billion. In order to garner more funds for MSMEs, the government is drawing the attention of private equity (PE) firms and venture capitalists (VC) towards these units. The Ministry of Micro, Small and Medium Enterprises (MSME) has plans to network major PEs through informal meetings to invest in MSMEs. Furthermore, in July 2011, the secretary of Department of Industrial Policy and Promotion (DIPP) announced plans to offer incentives to VCs on their investments in SMEs. Also, SMEs will now have greater exposure to public funds given the recent launch of an SME exchange at the Bombay Stock Exchange (BSE). The BSE SME Exchange commenced operations in March 2012 and senior BSE officials expect about 100 companies on its trading platform by mid-FY13. The exchange is set to be a key source of low cost equity capital for SMEs to aid their growth and expansion plans.

Infrastructure issues
Policy focus on infrastructure will be instrumental in boosting growth in SMEs manufacturing activities as it brings markets closer. Government infrastructure spending is set to touch USD1 trillion under the 12th Five-Year Plan (201217), up from USD514 billion in 11th Five-Year Plan (200712). Much of this investment will be directed at the development of roads, bridges, ports, power, railways, airports and urban infrastructure, among others. Apart from spending from its own coffers, the government is keen to engage the private sector as well. Successful implementation of numerous infrastructure projects through the Public-Private Partnership (PPP) model has encouraged the government.

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Empowering SMEs to facilitate growth The main barrier in the growth of SMEs is the lack of resources. SMEs require support from government and industry bodies to overcome the limitations. In line with this, the National Manufacturing Competitiveness Council (NMCC) has announced 10 schemes for developing global competitiveness of the Indian MSMEs in the sector. These schemes cover most of the key areas related to the manufacturing activity Lean Manufacturing Competitiveness Scheme: Implemented under the Public Private Partnership (PPP) mode with 42 Lean Consultants, the project aims to reduce manufacturing waste, and increase productivity and competitiveness. Design Clinic Scheme: This is a platform to enable MSMEs to avail expert advice and cost-effective solutions for real-time design issues. The scheme includes two projects, namely Design Awareness and Design Project Funding. Marketing Assistance and Technology Upgradation: The scheme focuses on upgrading technology for increasing competitiveness in marketing. Activities include technology upgradation for packaging, competition studies and development of marketing techniques. Technology and Quality Upgradation: The scheme aims to encourage MSMEs to adopt global standards for improving the quality of goods. Promotion of Information and Communication Tools (ICT): The scheme focuses on encouraging the adoption of ICT technology by SME clusters, which have been delivering world-class products and, therefore, have potential for growth in exports. The scheme covers building E-readiness infrastructure and web portals and linking it to national level portals for reaching global markets, training MSME personnel for ICT applications, and the development of software solutions for efficient management of production at clusters, among other measures.

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Tolling and Training Centres: This includes incorporation of tool rooms and training centres as a facility to MSMEs.

Improving Quality in Products: In order to improve the product quality of the MSE (Micro and Small Enterprise) sector, this scheme covers various activities such as 1. Introduction of appropriate modules for technical institutions, 2. Organising awareness campaigns, 3. Organising competition watch (C-Watch), 4. Implementing quality management standards and quality technology tools in selected MSEs, 5. Monitoring international study missions, and 6. Impact studies of the initiatives. Awareness on Intellectual Property Rights (IPR): The scheme aims to foster Indian MSMEs to attain leading positions globally, and seeks to empower these units with the IPR tools to protect their innovations. Barcode Certification: The certification enables higher export price realisation. The adoption of Barcode certification is being encouraged among MSMEs under this scheme by reimbursing 75 per cent of the annual certification fee (recurring) in the initial three years. Nurturing Innovative Business Ideas: The Support for Entrepreneurial and Managerial Development of MSMEs through Incubators scheme is aimed at nurturing the innovative idea of an entrepreneur by providing technical assistance through various institutions. Funds up to INR 625,000 are offered per idea as assistance to commercialise the innovation and establish the enterprise through guidance by relevant associations. Currently, 76 business incubators have enabled the approval of 190 business ideas.
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The growing importance of SMEs, which account for about one-sixth of Indias total GDP, is manifesting itself in various quarters of the economy. Government is trying to push it forward with a number of plans to foster technology, innovation and quality in SMEs. Banks have joined hands with private players to create a rating agency focused on SMEs in order to improve the credit disbursal to them. Indian SMEs are increasingly organising themselves in clusters, which improve their access to business associations are technical assistance providers. It also helps in building interfirm cooperation that adds to productivity and innovation. The clusters already account for 40 per cent of the nations industrial output and 35 per cent of direct exports. The efficacy of clustering in SME space will further increase in future as clusters continue to leverage benefits of spatial proximity. Globally, successful instances of SMEs have been witnessed in Germany and Italy. Germanys SME units, called Mittelstand companies, emerged as the key contributor to the economy due to the government initiative of bringing together the companies and education institutions. This policy worked as a win-win situation for both companies who adopted concepts towards lean manufacturing and also the students enabling them to improve their technical skills from handsome experience. Indias manufacturing SME sector is well equipped to grow, and the fundamental drivers are in the right place. Continued empowerment of SMEs will enable them to attain high and sustainable growth in the long-run.

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Executive Summary
SMEs form the backbone of the Indian manufacturing sector and have become engine of economic growth in India. It is estimated that SMEs account for almost 90% of industrial units in India and 40% of value addition in the manufacturing sector. This report closely analyses the growth and development of the Indian mall scale sector from opening of the economy in 1991. Third part looks into the present scenario of SMEs and the problems they phases like lending, marketing, license raj issues in detail. The Micro, Small and Medium Enterprises Act, 2006 is intended to boost the sector. The provisions of the Act are examined closely. The final part provides some future policy framework for the sustainability of the sector. Small industry has been one of the major planks of India's economic development strategy since Independence. India accorded high priority to small and medium enterprises (SMEs) from the very beginning and pursued support policies to make these enterprises viable and vibrant and over time, these have become major contributors to the GDP. Despite numerous protection and policy measures for the past so many years, SMEs have remained mostly small, technologically backward and lacking in competitiveness. The opening of the Indian economy in 1991 added problems to the SMEs. At the beginning, small scale enterprises found it difficult to survive. In the last decade, the economic environment has changed in favour of SMEs. Presently, the SMEs in India are at a crossroad and intense debate is centered around questions like what would be the future of the small enterprises? How these enterprises can survive in the international trade arena? What role can the government play in making these SMEs more competitive? In this context, it is important to re-look into the basic issues of SMEs, past, present and future prospects, especially in the policy framework. Today, small and medium industry occupies a position of strategic importance in the Indian economic structure due to its significant contribution in terms of output, exports and employment. The small scale industry accounts for 40% of gross industrial value addition and 50% of total manufacturing exports. More than 3.2 million units are spread all over the country producing about 8000 items, from very basic to
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highly sophisticated products. The SMEs are the biggest employment-providing sectors after agriculture, providing employment to 29.4 milllion people. However SMEs, which constitute more than 90% of total number of industrial enterprises, are now facing a tough competition from their global counterparts due to liberalization, change in manufacturing strategies, technological changes, and turbulent and uncertain market scenario. This contribution is despite the sector being exposed to intensified competition since liberalisation of Indian economy in 1991.

Leading Industries: MSME Sector

Manufacturing of Fabricated Metal Products, Except Machinery and Equipment , 2.33% Manufacturing of Furniture; Manufacturing N.E.C, 3.21% Sale, Maintenance and Repair of Motor Vehicles and Motorcycles; Retail Sale of Automotive Fuel, 3.57% Hotel and Restaurants, 3.64% Manufacturing of Textiles, 2.33% Other, 19.40% Retail Trade, Except of Motor Vehicles And Motorcycles; Repair of Personal and Household Goods , 39.85%

Manufacturing of Wearing Apparel; Dressing and Dyeing , 8.75%

Other Business Activities, 3.77%

Other Service Activities, 6.20%

Manufacturing of Food Products and Beverages, 6.94%

*Source: MSME Annual Report 2012-13 Small industry in India has been confronted with an increasingly competitive environment due to: liberalisation of the investment regime in the 1990s, favouring foreign direct investment (FDI);

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the formation of the World Trade Organisation (WTO) in 1995, forcing its membercountries (including India) to drastically scale down quantitative and non-quantitative restrictions on imports, and

domestic economic reforms. The cumulative impact of all these developments is a remarkable transformation of the economic environment in which small industry operates, implying that the sector has no option but to 'compete or perish'. The definition of medium enterprises is a recent entrant in India, and part of

Governments policy focus lately. The small scale segment is a manifestation of Indias socioeconomic development model and has met with the countrys long-term expectations in terms of contribution to GDP, industrial base, employment and exports. This segment forms a major part of Indias industrial base. Recognising the importance of SMEs in the industrial development of the country, the Government has initiated a range of programmes in diverse areas, viz. financing, technology, innovation, market information, technical training and developmental assistance. These initiatives are important in facilitating the growth of SMEs. But it will be the internal dynamics of industries, and the path Indias industrial development takes, that will give a thrust to the development of SMEs.

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Objective
This report is an attempt to discuss the following questions: - Why should global and national policy developments affect small industry in India, and how? What are its implications? - How far has small industry been able to cope with the present competitive environment? - What are the future prospects of small industry in India in the era of globalisation? - What steps need to be taken to strengthen small industry to ensure its sustained contribution to Indian economy?

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PAST Record of SMEs in India

Macro-Economic Posture of Indian Economy The economic performance of India has often been equated with the slow growth rate of around 3.5 % never quite entering into the take off stage of the Rostow's model. Some economists believed, as though the nation was destined for it. At the time of India's independence in the year 1947, the nation had a plethora of serious problems to face, viz. shortage of food-grains, poor infrastructure, lack of financial resources, high rate of illiteracy and poor industrial base. To build the nation's economy, following the socialist path of development an overwhelming importance was attached to the public sector units, which the first Prime Minister of India called them "Modern Temples of India". Private sector was highly regulated: The Industrial Policy Resolution of 1948, which marked the evolution of Indian Industrial Policy, outlined the broad contours of the policy and defined the role of the state in industrial development both as an entrepreneur and a regulatory authority. In order to optimize the utilization of scarce resources and reduce the threat of re-colonization by the multinationals, centralized planning was adopted with wide ranging controls on private trade, investment, land ownership and foreign exchange. The foundations of the policy for the small scale industry were laid in the Second Five Year Plan. In 1956, the government announced its second industrial policy which unambiguously chose equity as the guiding principle for small industry development. The operative statement says: small scale industries provide immediate large scale employment, offer a method of ensuring a more equitable distribution of national income and facilitate an effective mobilization of resources of capital and skill which might otherwise remain unutilised.

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1977 Policy Statement A high watermark in the evolution of the policy for small industry was the Industrial Policy Statement of 1977. It was then that the protection of small industry touched its acme; the guarded initiatives of earlier years were cast aside by a heightened zeal for an expanded role for this sector, in particular, the reservation of products for exclusive manufacturing by the small industry, begun in 1967, was greatly extended to many more products. The important planks of the 1977 industrial policy statement were: * Whatever can be produced by small, cottage industries must only be so produced. * The number of products reserved for SSI was increased from 180 to 504 a further to 836 items in 1996. Special attention to be given to the `Tiny Sector defined as enterprises with investment in plant and machinery of upto Rs. 1 lakh and situated in towns and in villages with population less than 50,000. * Special Legislation will be introduced to give due recognition and adequate protection to the self-employed in cottage and household industries. * The focal point of development for small sector and cottage industries will be taken away from big cities and state capitals to the district headquarters. In each district, there will be one agency to deal with all requirements of small and village industries. This will be called District Industries Center. * Special arrangements for marketing of the products of Small Scale Sector will be made by providing services such as product standardization, quality control, marketing surveys, etc. 1980 Policy Statement The recognition of the importance of ancillary industry found expression in the policy statement of 1980 which laid emphasis on ancillaries. Moreover, the program for the development of rural and backward areas was accelerated.
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The Industrial Policy Statement of 1985 made incremental changes and took into account the impact of inflation. The investment ceiling for SSI was raised to Rs. 35 lakh and for ancillaries to Rs. 45 lakh. Leading to a liberal regime: The Industrial Policy of July 1991 marks a conscious shift from the regulated and controlled policy to a liberal one. Most of the medium and large industrial units, with a few exceptions, would no longer need licenses. Full foreign ownership will henceforth be possible in export oriented enterprises. Import of capital goods has been significantly made free from restrictions. Foreign equity participation is also encouraged. The openness that has come with the ongoing economic reform process during the last five years has hastened several changes and the debate has shifted from the 'whys' to 'hows' indicating high level of acceptability of the reform process. With the lifting of several trade and investment related restrictions, India is witnessing a mini-revolution in its economic growth faced with the challenges of global market and competitiveness. Impact is felt now: The impact of these reforms that were started in the year 1991-92, is now becoming clear as per the Economic Survey for 1995-96. Salient features of the economic growth in the post-liberalization era are given as under; a) Growth of GDP at factor cost during 1995-96 is estimated to be 6.2% in 1994-95 that has gone up from a level of 0.8% in the crisis year of 1991-92. b) After a low employment growth during the crisis year of 1991-92, annual total employment growth has averaged at 6.3 million jobs per year over 1992-93 to 1994-95 and has reached 7.2 million during 1994-95. The Gross domestic savings rates touched a record high of 24.4%. Real gross and capital formation also reached a record of 22.2% in 1994-95.

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c) After declining by 6.2% in the crisis year 1991-92, the growth of real wages of unskilled agricultural labor averaged 5.1% per annum in the following three years. d) Provisional estimates by the Planning Commission indicate that in 1993-94, the incidence of poverty had declined to below 19% of India's population. e) After registering a decline in the dollar value of exports in 1991-92, the country has witnessed a strong three year boom with annual export growth averaging 19% during the period 1993 to 1996. f) The country's external debt growth situation showed a marked improvement by averaging at $2.2 billion per year during the period 1991 to 1995 as against an average of $ 4.9 billion during the period from 1986 to 1991. g) The industrial sector has shown a growth of 12 % in the year 1995-96. h) The agricultural production has increased from 168 million tonnes in 1991-92 to 191 million tonnes in the year 1994-95.

Liberalisation and Impact on SMEs

The decade of the 1990s was an eventful one in terms of policy changes, nationally as well as internationally. Since the beginning of the 1990s, policy changes have been taking place at three different levels - global, national and sectoral - which have implications for small industry functioning and performance in India. The first and the foremost development is the 'globalisation' process at the international level. Globalisation would mean free movement of inputs (both labour and capital) as well as output between countries. According to Stiglitz (2002), globalisation is the closer integration of the countries and peoples of the world, which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flow of goods, services, capital, knowledge, and (to a lesser extent) people across borders. However,
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the developments that have been taking place since the early 1990s are mostly with reference to the free movement of only one of the factor inputs - capital, commonly known as FDI and free movements of goods, more from developed to developing countries. The formation of the World Trade Organisation (WTO) in 1995 has accelerated the process of scaling down of tariff and non-tariff restrictions on imports. India, as a member of the WTO, had substantially done away with its quantitative restrictions. As a result, industry has had to face much stronger international competition. The process of removal of quantitative and non-quantitative restrictions across countries has led to free movement of goods between countries including India. As a result, world exports grew in dollar terms at an average annual rate of 5.9 per cent during 1990-99 as against 5.2 per cent during 1980- 90 (MoF 2003). The reduction of restrictions on the movement of goods between countries and the subsequent increase in world exports would have benefited multinational corporations much more than small enterprises. This has to be viewed along with the process of economic reforms launched by the Indian government at the national level. This has resulted in considerable freedom for enterprises, domestic as well as foreign, to enter, expand or diversify their investments in Indian industry. India's economic reforms have seen two major outcomes, amongst others. Firstly, the growth of the public sector has declined considerably since 1991 than in the earlier period in terms of not only investment and employment but also production. The public sector has been a major customer of small enterprises in India. The relative role of the public sector as a distinct entity will decline further in the course of the Tenth Plan. This will most probably further bring down public sector demand for small industry products. The introduction of an exclusive policy for small industry, which laid emphasis on imparting more vitality and growth impetus to the sector, is the sectoral dimension of the major policy changes relevant to small industry. The policy marked: (1) the beginning of the end of protective measures for small industry, and (2) promotion of competitiveness by addressing the basic concerns of the sector, namely, technology, finance and marketing.
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Subsequently, the number of items reserved exclusively for small industry manufacturing has been gradually brought down from 842 in 1991 to 239 in 2007. Thus policy changes that have occurred at the global, national and sectoral levels have radically changed the environment for the functioning of small industry in India. The growth of small industry in the country has to be analysed against this backdrop. Small enterprises in India have come up in an unplanned, uncontrolled and haphazard manner. They have emerged anywhere and everywhere closer to the location of resources as well as markets, in clusters as well as in a dispersed manner, in industrial, commercial and residential areas. Of these, the 2000-odd small industry clusters vary in size with a population ranging from 100 to 1,000 units. Approximately, these clusters would account for 1/3 to the total small industry units in the country. A considerable majority of these clusters are based on natural and traditional skills. By and large, these clusters lack reliable and efficient infrastructural facilities such as power, road, water, transportation and communications, information and technical inputs. But the infrastructural problem is more acute in case of units that are located in a dispersed manner. The central issue of concern for the growth of small industry is how to strengthen its competitiveness. First of all, if small industry has to thrive, infrastructural bottlenecks must be overcome to enable it to compete on its inherent potential. And it is the responsibility of the government to remove any structural bottleneck in small industry performance especially when market forces are given prominence through the removal of protective elements. It is essential to provide the much-needed level playing field to small enterprises through infrastructure development. But overcoming infrastructural bottlenecks for small enterprises is easier said than done.

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The SMEs in India: Present Scenario

In the recent past, small companies have performed better than their larger counterpart. Between 2001-06, net companies with net turnover of Rs. 1 crore 50 crore had a higher growth rate of 701 per cent as compared to 169 per cent for large companies with turnover of over Rs. 1,000 crore (Business World Jan. 2007). The total SSI production, which had reached the all time high of Rs. 1,89,200 crores in 1989-90 dropped dramatically in the next 10 years and only in 2001-02 the level of production was surpassed. But after 2002, the production has risen at a faster rate. Since 2000, there is a continuous growth in number of units, production, and employment and in exports. The average annual growth in the number of units was around 4.1%. Performance of SSI / MSME Units, Employment, Investments and Gross Output
Total Working Enterprise (In Lakh) 113.95 118.59 123.42 361.76 377.37 393.7 410.82 428.77 447.73 Employment (In Lakh) 271.42 282.57 294.91 805.23 842.23 881.14 922.19 965.69 1012.59 Market Value of Fixed Assets (In Crore) 170219 178699 188113 868543.79 917437.46 971407.49 1029331.46 1094893.42 1176939.36 Gross Output (In Crore) 364547 429796 497842 1351383 1435179 1524235 1619356 1721553 1834332

Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Today, some of the SMEs are acquiring companies abroad as part of the globalisation process. Mostly, these units are ancillaries and are export oriented. The SME sector have transformed to the need of large local manufacturers and suppliers to global manufacturers like Auto Industry. Today some SMEs are investing in R&D in order to compete globally. Outsourcing from multi-national companies has played a vital role in the emergence of Indian SMEs as world leaders in specified products. The advantages in labour-intensive manufacturing

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units, lower transport costs and lose labour policies of the small scale sector have led to major outsourcing in manufacturing and services. With the elimination of Multi Fibre Agreement (MFA)in 2005, lot of opportunities have opened for the Indian textile sector. Presently, SMEs in this sector have shown an average growth rate of 32% for the past two years. The auto component sector grew at an average 35% over the past two years and expects to maintain this momentum. Besides this sector, food processing and construction have also been growing. The IT sector services are another success story of SMEs. The retail business in India has become an area of immense opportunity. In the retail sector, the SMEs will act as a supply source for the big retailers like Reliance Retail, Big Bazar, etc. The Indian experience with SMEs is common to other East Asian economies also. The SMEs are acting as entrepreneural engines of growth in the whole of Asia. About 70% of the employment growth comes from the SMEs in the Asian region. This is the case with China, Vietnam and Indonesia, which are the rising countries in East Asia. It is expected that this phenomena is also common in Europe and the US. The SMEs will provide major employment all over the world. Even when SMEs are contributing so much to employment generation and exports, the policy support and capital supply are not so encouraging in countries like India.

Area-Wise Share

Urban, 44.66% Rural, 55.34%

Urban Rural

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*Source: MSME Annual Report 2012-13

The way forward would be to create an environment of risk-taking by the government for providing a start-up capital to SMEs and to facilitate technology transfers and training in skill development. The Micro, Small and Medium Enterprises Act, 2006 is a legal framework for more capital investment in the SME sector. However, the implementation of the Act would need more precision and authority with different agencies.

Impact of Current Financial Crisis on Indian Service Sector SMEs

The global economic meltdown of 2008 had thrown the world in economic depression, which was mainly due to the subprime mortgage crisis that affected the US economy. The 2011 crisis in the US was mainly because of possible US default as the country's legal debt limit or ceiling of $14 trillion had reached 97% of its GDP ($14.5 trillion) in May 2011. Though US Congress initially disapproved to extend the ceiling, it agreed on the extension. However, the major economic shock came when Standard & Poors (S&P), global credit rating agency downgrade US ratings from AAA to AA+ which meant that US treasury bonds which were considered to be safest security in the world were rated lower than bonds issued by Britain, Germany, France and Canada. The rating downgrade also raised the cost of borrowing for American Government, companies and consumers which had direct implication on the world economy as the world largest consumer was thrown in the economic crisis. On the other hand, Euro crisis was mainly due to ever increasing public debt; however the roots of the crisis go much deeper primarily, giving up their sovereign ability to manage their own fiscal and monetary policy and leaving it to the whim of the Union; and secondly loss of competitiveness that has been associated with Euro adoption in countries like Greece, Ireland, Italy, Portugal and Spain (GIIPS). The starting point for the Euro Crisis were the Greek politicians and borrowers who played a significant role in both increasing the debt the nation as well as concealing the actual

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debt numbers. Also the loss of competitiveness amongst the GIIPS countries is attributed to sequence of events:

The adoption of Euro by GIIPS countries which led to large fall in interest rates and a surge in investors' confidence as inflation and interest rates converged to those of Europe's northern core countries.

Increase in domestic demand, thereby raising the prices of non-tradable activities relative to tradable goods and services; and wages relative to productivity.

A rapid acceleration in growth in GIIPS was primarily driven by domestic services, construction and an expanding government spending. However the exports stagnated as a share of GDP; and imports and current account deficit soared due to economic growth in GIIPS

All these factors contributed to very high debt both public and private. The Euro crisis threatens economic stability of not only Euro area alone but of the entire world. A weakened Europe implies slower export growth in emerging economies as well as the financial volatility. Emerging economies like India have been impacted by the Euro crisis through three key channels: First is the impact on the cost of sovereign debt financing for these emerging economies; Second is the trade channel which is driven by the effect of reduced growth in some European countries on import demand for goods and services from India and other emerging economies; and Third is the impact of debt crisis on the global financial sector and the consequent effect on the provision credit to regional banking and financial sectors.

Impact of the Crisis on Indian Services Sector SMEs

Indian SMEs, both manufacturing and services sector SMEs, play a pivotal role in shaping the economy of India and putting it on a high growth rate. The table below summarizes the contribution of Indian SME Sector:

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This has increased the input costs for services SMEs, who in order to maintain their competitiveness, have found it difficult to raise the cost of their services in comparison to their larger counterparts. This has led to erosion of their profitability. 1. Depreciation of Rupee: Slow growth in Europe led to subsequent depreciation of Euro against the US Dollar. Investors, rather than betting on recovery of Euro Zone found safe haven in US dollar which enabled US dollar to appreciate as compared to other currencies of the world. Dropping exports coupled with rising crude prices created upward pressures on Indian Rupee which in turn depreciated with respect to US $. Indian services SMEs engaged in providing services to their overseas clients and who had hedged against the dollar at a lower value, have witnessed reduction in profits.

2. Market Volatility: Euro Crisis has added to the volatility of global financial markets which in turn has impacted the Indian financial markets too. High rates of inflation have led to increase in interest rates by Reserve Bank of India. RBI has raised interest rates 13 times since last 20 months. Further volatility in the international markets have led to high bouts of risk aversion by the investors and they have responded by investing in relatively safer bullion market thus increasing the price of gold and silver, thereby pushing the inflation rate still higher. This has increased the cost for these small enterprises in turn affecting their profitability.

3. Credit Availability: Rise in key policy rates (Repo and Reverse Repo) by RBI in order to control the inflation has made loans costlier. This has affected the credit available to enterprises for running their operations. Rise in interest rates has also severely impacted Indian SME sector as the loans have become dearer to them by 3.5% in last 20 months, thereby impacting their input costs & profits. Also the Indian banks have been risk averse in forwarding credit to Indian service sector SMEs as banks have found service sector SMEs to be less credible than the manufacturing sector SMEs.

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4. Slowdown in the Manufacturing and Services sectors: Due to the contraction in the European and the US markets, the demand of goods and services from the emerging markets has slowed down considerably. This has slowed down Indian manufacturing and services sector. Indian SMEs operating in these sectors have got severely impacted due to this slowdown, coupled with high inflationary pressures that increased the cost of raw materials and other input costs. The inflationary pressures have forced the manufacturers and service providers to pass on the cost price rise on the end consumers, thereby increasing the cost of final product. Indian SMEs especially are losing there competitiveness to their larger counterparts due to high price of final products. Further the slowdown in manufacturing activities has further affected the services sector SMEs who depend on manufacturing sector for their business activities. Financial crisis like the ongoing US and Europe debt crisis impacts unevenly on industries, countries, regions and firms. Therefore there is neither just one way that the crisis affects the businesses nor there is any particular best way to adapt to crisis situation that are applicable to all businesses. Under such uncertain circumstances there is no particular strategy that can guarantee survival or success. Much of it depends on factors like business resources and relations with business stakeholders partners, competitors, customers, suppliers, government and others.

Current Issues
1. Lending Facilities to SMEs
The mind set of banks towards SMEs have somewhat changed in the recent past. With the entry of private banks, increased competition has led to a rush for lending to prime customers. The multiple financial options from the capital market have also compelled banks to take more risks in the case of SMEs. The increased lending to SMEs is propelled by the compulsion of the market as well as by the rapid expansion of these companies. There was no agreement among the banks on what constitutes an SME. This confusion was removed by the new Act. But private and foreign banks have their own definition of SMEs. They follow the
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International standard of turnover between Rs. 10 crore and Rs. 700 crore. The lending to the SME sector grew by 69% between 2000-01 and 2005-06. But there exists a stark disparity amongst small players and big players within the SMEs sector. Loans to bigger companies are growing at a faster pace than loans to the SSI sector. By the end of 2006, the proportion of SSI loans to total loans has remained small at 6.4 per cent. Presently, private banks are adopting new methodologies for priority lending to SMEs. In the past, loans were made without proper study of the viability of the project and mostly bankers in this sector had no expertise in handling small loans. Now private banks like ICICI and Kotak Mahindra Bank have separate SMEs division. Today, most of the lendings are concentrated on priority sectors like auto ancillaries, pharmaceuticals and IT sector where India had a proven record of competitive advantage. The SMEs sector is still facing an acute shortage of capital. It needs more pumping of money into capital investment for further growth and competitiveness of SMEs. For further growth of the SMEs, in addition of loan facilities, there is need for venture capital investment. The Small Industries Development Bank of India (SIDBI) was set up in 1990 under the Act of Indian Parliament as the principal financial institution for promotion, financing, development of industry in the small sector and coordinating the financial activities of other institutions engaged in similar activities. Since its inception, the bank is promoting SSI sector to meet the requirement of setting up of new projects, expansion, diversification and modernisation of the sector. However, after working more than 1-1/2 decades, the institution has not proved to be sufficient to meet the requirement of SMEs in India. This can be mainly attributed to the governmental clutches on the banks. The main identified sources of finance to SSI units are: Public Sector/Commercial banks State Financial Corporations Small Industries Development Bank of India

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 Informal sources Out of these financial resources, banks are a preferred source of financing by virtue of their better reach and accessibility. Two-thirds of the small entrepreneurs meet financial requirements from their own funds and informal sources. They have to resort to other sources of finance because raising finance from the financial institutions has the following draw backs: The rate of interest charged is higher Insufficient collateral Restrictive and conditional working capital limits Time consuming and cumbersome procedures Indifferent attitude of the branch manager/staff Non-availability of assistance at banks for completion of forms and formalities The terms of credit are hard Improper assessment of requirements Arbitrary curtailments of credit limits Repeated and time consuming visits to banks Release of limits sanctioned in installments

2. Marketing
Next to finance, marketing is the big problem area for small entrepreneurs. The survival of small entrepreneurs very much depends on sound marketing techniques. One of the most important tools in the hands of small entrepreneurs for promoting their sales is low prices coupled with credit to buyers, which give rise to number of problems at a later stage. Marketing as a profession has not yet developed in the SME sector. Professional agencies are not engaged by small entrepreneurs on account of paucity of funds. The concept of marketing is not known
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to the majority of small entrepreneurs. For majority, marketing means advertisement or personal contacts. There are many ad-hoc initiatives taken by the Government to promote marketing of products/services of small units but no concrete action plan has been chalked out or targets made.

3. Technological Upgradation
Modernisation, technological and quality upgradation have assumed great significance in the present day context. With the inflow of latest technology reducing the cost of production and the increasing competition from within and outside, the small scale sector will have to attach more importance and pay attention to the areas of technology upgradation and modernization. However, due to lack of information on the areas of technology upgradation, entrepreneurs who have plans for technical upgradation are not to go ahead.

4. Sickness in SSI Sector

A host of developmental schemes launched by the Government for solving the problems of small scale industries have yet to achieve their goals to arrest sickness in SSI sector. The plight of existing small scale industries is visible in many industrial complexes wherein the industrial sheds have been converted into allied activities like showrooms, banquet halls, restaurants, etc. There seems to be some lacuna in the implementation part of the developmental schemes.

5. Removal of Inspector Regime and Simplification of Procedures

One of the major grievances of the small scale sector is that the frequent inspections by multiple government agencies are a source of harassment. At present, 55 inspectors of different levels are visiting the small scale units, which is a cause of major concern to the small scale units. It is suggested that the government should stream line the inspection procedure. It should also include repeal of laws and regulations applicable to the sector that has become redundant.

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Indian SMEs are finding it difficult to sell their products in the domestic and international markets because of increasing competition. To make their products globally competitive, Indian SMEs need to up-grade their technology and put more emphasis on innovation per se. In India SSI Sector manufactures more than 7500 items. Since its inception, it continued to maintain more than 8% growth rate. At present there exist about 3.2 million registered and approximately 6. 5 million are unregistered units. Among these units 97% are tiny. These units contribute 50% of production, 40% export and 65% of labour employment in manufacturing sector. However, it is surprising to know that most of the SSIs investments are less than Rs.7 Lac. It is estimated that there are 400 modern SME and 2000 rural and artisan based clusters exist in India. These contribute to 60 % of Indias manufacturing exports. Some of the clusters are so big that they produce 70 to 80 % of the total volume of that particular product produced in India. For example, Panipat produces 75 % of the total woollen blankets produced in the country; Tirupur produces 80% of the countrys cotton hosiery.
Number of Entrepreneur Memorandum Small Medium 17,777 491 18,757 690 23,999 1,412 29,101 1,260 34,192 2,939

Year 2007-08 2008-09 2009-10 2010-11 2011-12

Micro 1,56,051 1,71,031 1,86,126 2,04,064 2,42,606

Total 1,74,319 1,93,077 2,13,894 2,37,263 2,82,496

*Source: - The States/UTs Commissionerates/Directorates of Industries. Despite its importance, the SME sector has long faceted extreme obstacles in accessing finance and markets. Some of these obstacles include inability to access finance and working capital loans from banks, inability to access capital from other sources, mistreatment by large procurement companies, difficult bureaucratic procedures for registration, and lack of management skills, etc. The increasing availability of cheap foreign imports has further hindered the development of Indian micro, small and medium enterprises. These obstacles have compelled the SME lobbies and the Government of India to develop government intervention to ensure the continued growth and success of SMEs.
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The problems faced by the SMEs, particularly in accessing technology and maintaining competitiveness have been formidable. It has been found that sharing of information at local and national clusters are mostly informal. Information regarding the latest development and competency understanding is much less. Work sharing is not seen in the local and national clusters, as it is a fight for the same customer, in the same market. Even though the product and technology used by the entrepreneurs are similar, the tendency to share is less among the cluster participants. The concept of cluster development offers new insights into the potential role of SMEs, in enhancing their access to new technology. Characteristics of a successful cluster are interfirm cooperation, cooperation blended with competition, the importance of local value systems, flexibility and innovative capacity, geographic proximity, sectoral specialization, a local pool of skilled labour and the presence of a large number of firms. It also includes willingness to work together to resolve potential clashes of interest, widespread entrepreneurial spirit and ability, promotion of a social compromise. SMEs find it difficult to match the wage rate, job security and career development opportunities, available in larger organizations and therefore are not in a position to hire skilled and competent manpower. Often, as a result a bottleneck develops in the SME organisation, it may result in just one or two people controlling the organisation, whether at the decision making level or at the operational level. Even in moderately large sized firms employing several hundred workers, these bottleneck points seem to exist. The decision makers at the bottleneck points are obviously busy people. They must handle many day-today problems that demand immediate attention, e.g., payroll, inventory, finances, personnel, suppliers, and customer demands. These problems must be solved quickly, or the company will be unable to function. Clearly, there is little chance for them to think about making major changes or risk taking, which is essentially required for innovation process. Small traditional enterprises, with poor support system and little exposure face difficulties in the new e-business environment. SMEs usually are diffident about adopting IT or solutions based on IT. Limited human resources, especially those familiar with IT or corresponding backend processes, place these SMEs in an unfavourable

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position, in an ecommerce environment where the preferred physical channels of distribution and delivery still favour large enterprises. Further, adding to the limitations of SMEs, is lack of formalized contractual relations and the reliance on cash payments. Today organizations are knowledge based and their success and survival depend on creativity, innovation, discovery and inventiveness. An effective reaction to these demands lead to innovative change in the organization, to ensure their existence. The rate of changes is accelerating rapidly, as new knowledge idea generation and global diffusion are increasing. Creativity and innovation have a bigger role in this change process for survival. Before going further, it is important to mention some of the organisations that are associated with small-scale industry/ MSMEs: 1. Small Industries Development Organisation (SIDO), 2. Small Scale Industries Board (SSIB), 3. National Small Industries Corporation Ltd. (NSIC), 4. Confederation of Indian Industry (CII), 5. Federation of Indian Chamber of Commerce and Industry (FICCI), 6. PHD Chamber of Commerce and Industry (PHDCCI), 7. Associated Chamber of Commerce and Industry of India (ASSOCHAM), 8. Federation of Indian Exporters Organisation (FIEO), 9. World Association for Small and Medium Enterprises (WASME), 10. Federation of Associations of Small Industries of India (FASII), 11. Consortium of Women Entrepreneurs of India (CWEI), 12. Laghu Udyog Bharti (LUB), 13. Indian Council of Small Industries (ICSI), 14. Indian Institute of Entrepreneurship (IIE), 15. National Institute of Small-Industry Extension Training (NISIET), 16. National Backward Caste Finance Development Corporation, 17. National Institute for Entrepreneurship and Small Business Development (NIESBUD),

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18. Small Entrepreneurs Promotion and Training Institute (SEPTI), 19. Small Industries Development Bank of India (SIDBI) etc

The Micro, Small and Medium Enterprises Act, 2006

The Government of India passed The Micro, Small and Medium Enterprises Development Act in June 2006 after wide consultation with more than 300 industry associations, different government departments and multiple stake-holders across the country. The Act is geared towards promotion and enhancing the competitiveness of Micro, Small and Medium Enterprises. The Act tries to accomplish many long standing demands of multi stakeholders in the MSME sector. The Act establishes a National Board for Micro, Small and Medium Enterprises. The main function of the Board is to oversee and regulate the development of MSMEs in India. The Boards duties include monitoring cluster development, training enterprise, development infrastructure and promoting financial access to the MSME sector in the country. The Act provides for representations from government, industry, finance, civil society organisations on the Board and Advisory Committees. The Act, first time in India, defines the MSMEs by the level of investment in plant and machinery. The new definition seems to eliminate all confusion and different categorisation by government and financial institutions.

1. Definition of SMEs
A well-debated issue, the definition of small and medium enterprises in India was very recently settled. The Micro, Small and Medium Enterprises Act, 2006, defines enterprises on the basis of investment in plant and machinery.

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According to the new Act, the MSMEs are defines as follows:

Classification Micro Small Medium Manufacturing Enterprises* Rs. 2.5 million/ Rs. 25 lakh (US$ 50,000) Rs. 50 million/ Rs. 5 crore (US$ 1 million) Rs. 100 million/ Rs. 10 crore (US$ 2 million) Service Enterprises** Rs. 1 million/ Rs. 10 lakh (US$ 20,000) Rs. 20 million/ Rs. 2 crore (US$ 40,00,000) Rs. 50 million/ Rs. 5 crore (US$ 1 million)

On the other hand, in the European Union, SMEs are defined in the Commission Recommendation of May 6, 2003. An enterprise is regarded as medium sized if it has not more than 250 employees, not more than 50 million Euro turn-over and if not more than 25% of the shares of such an enterprise are in the ownership of another enterprise (OECD, 2005). A small enterprise is with 50 employees, not more than 10 million Euro turn-over and less than 10 million Euro in balance sheets. The micro enterprises are with 10 employees, not more than 2 million Euro turnovers and less than 2 million Euro in balance sheet. Small and medium enterprises, both in size and shape, are not uniform across the globe. This asymmetry exists due to the nature of economic development in each country. The EUs definition is based mainly on the number of people employed. The UK definition is on the basis of turnover. The US definition is based both on number of employees as well as turnover. In China, the categorization is between the sectors based on number of employees and turnover. The Indian definition based only on the basis of investment in plant and machinery is not in consonance with the growth of the economy in the recent past. The Act simplifies the registration process for new MSMEs by submitting simplified Memoranda. The Act stipulates that Central Government may, from time to time, for the purpose of facilitating and promoting the competitiveness of Micro, Small and Medium Enterprises, by way of development of skills in the employees, management and entrepreneurs, provision for technology upgradation, market assistance, infrastructure facilities and cluster development with a view to strengthening backward and forward linkages which is necessary for the development of MSMEs in the rural areas. The Reserve Bank guidelines, from time to time, may ensure timely and smooth flow of credit to the enterprises, minimize the incidents of

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sickness and enhance the competitiveness of MSMEs. The Act provides for constituting a fund by the Central Government for providing necessary credits to the MSMEs. The Act sets the agenda for specific policies that it will create and implement, the procurement preference policy, which will guide Government bodies on how much of their supplies should be purchased from MSMEs. Another important policy is the closure of business or excide policy, which will regulate the liquidation of sick units. Another policy measure under the Act is penal provisions for delayed payments to Micro and Small Enterprises. The Act compels big manufacturers and buyers to make payments within 45 days. If the buyer fails to make payments in time, he will be liable to pay compound interest from the due date. Any dispute with regard to the amount or payment will be referred to Micro and Small Enterprises Facilitation Council. The Council has the powers of an Arbitrator to deal with the dispute. The State Governments have to notify the constitution of Micro and Small Enterprises Facilitation Councils in each State. The finalisation of the new Act raises many question and controversies among the industry as well as the government. First, the expansion of the investment limits extends the priority sector. Banks have to lend up-to 40% of their priority lending to this sector. Too many banks use the methodologies of Pick and Choose by looking at safest borrowers, most of which are larger companies with better financial capacity and strength. Indirectly, this will be disadvantage to small enterprises and the priority lending will go to the largest enterprises among MSMEs. Secondly, any Indian business enterprise, with net worth of less than 10 crores, cannot raise capital from the stock market. The larger companies can bargain with banks on interest rates and lower lending rates. The smaller enterprises have no other choice of finance and they will be forced to borrow on higher interest rates and some will end-up in closure and sickness. Third, the Act provides for need for procurement preference policy, which is yet to be formulated under Section 11 of the Act. The Government proposed a policy of 20% of annual value of purchases by PSEs, Central govt. departments etc. from MSMEs. Presently, 358 items,

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out of 7,500 items that are manufactured by SSI, are reserved for exclusive purchase from Micro and Small enterprises. In the new policy, this reservation is dispensed with.

2. The Proposed Procurement Policy

The Central Government Ministries, Departments, its aided institutions and public enterprises to procure at least 20% of the value of their total annual purchases from MSMEs, whether it is products or services. There is a special reservation for disadvantages section of the Society (SCs/STs/Women). At least 22.5% of the value of total annual procurement of goods and services should be procured from the above section. There is a special reservation for 10% of the value of total annual procurement of goods and services from MSMEs owned by women enterprises. The MSMEs quoting prices higher upto 15% of the lowest eligible price bid, will be given preference for procuring at least 50% of the required quantity, in case such enterprise agrees in writing to match the lowest eligible price.

Future Policy Frame Work

1. Priority Sector Lending
The target fixed for priority sector lending by domestic and foreign banks is 40% and 32% of their net bank credit (NBC) respectively. The declining share of the SSI sector in the outstanding priority sector advances of public and private sector banks since 1999-2000 is a cause for concern. The share of SSI advances in the NBC declined from 16% at the end of March 2000 to 11% at the end of March 2003 in respect of public sector banks. For the private sector banks, the share declined from 19% to about 8% in the same period. The limited access of SSI sector to funds needs to be addressed on a priority basis. Large corporates are able to access bank loans at below PLR besides accessing international markets. But, for the SSI sector, the cost of funds continues to remain high despite falling deposit rates.
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The RBI in the midyear reviews of monetary and credit policy for 2003-04 had announced a number of measures aimed at improving credit delivery to the SSI sector. These measures included raising the loan limit from Rs.1.5 million upto Rs.2.5 million without the requirement of collateral, rationalizing interest rate on the deposits of foreign banks placed with the Small Industries Development Bank of India (SIDBI) towards their priority sector shortfall (reduction of interest from 6.75% to the prevailing bank rate).

2. Price Preference for SSIs

In the past, 15% price preference was being extended to SSI units for supplies to PSUs/Government bodies. Now it is fixed as 20% and at the same time, the exclusion list will go. The price preference should be fixed on empirical data which will act as a measure of assistance to SSI units for utilizing their capacity adequately.

3. Reformation of Labour Laws

Multiplicity of labour laws is responsible to a large extent for slow growth of industry in our country. Labour laws provide too much protection to labour force by the provision of minimum wages, PF, bonus, gratuity and ESI etc. On the other hand, the employers are required to seek prior permission even for getting overtime work from labour, on payment and in spite of mutual consent. There has to be performance or productivity linked wage structure. The more efficient and hard workers may be suitably rewarded, and there should be a provision to deduct the wages for shirking and laziness. Supportive labour laws are an important prerequisite for Indian industry to face the international competition.

4. The Opportunity
Globalisation and liberalisation need not affect Indian small industry only adversely. It would have created beneficial opportunities as well. The removal of quantitative restrictions and the reduction of import duties, particularly after the setting up of WTO in 1995, have opened up foreign markets to Indian small industry as much as the Indian market has opened up to foreign goods. Many efficient and export-oriented small firms would have gained out of

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this development. Such opportunities should act as an incentive to many a small firm in India to enhance their competitiveness to penetrate the global market. This could also be achieved by small firms becoming vendors or subcontractors to foreign large scale industries. The trend is outsourcing of supplies by TNCs and they are always on the lookout for firms that could supply reliable and quality products.

5. Networking of SMEs for Competitiveness

The promotion of inter-firm linkages is another issue deserving more recognition. The increasing presence of transnational corporations (TNCs) in the country would open up new opportunities for subcontracting / outsourcing. This is because FDI has flowed into industries such as telecommunications, transportation, electrical equipment (including computer software), metallurgical industries and automobiles, among others, where opportunities for obtaining subcontracting / outsourcing are high for small industry. The potential of such outsourcing opportunities must be tapped to the maximum possible extent to the advantage of small and medium industry. Infrastructure of SME is the route to growth of world economy. Small industry in India has found itself in an intensely competitive environment since 1991, thanks to globalisation, domestic economic liberalisation and dilution of sector-specific protective measures. The international and national policy changes have thrown open new opportunities and markets for the Indian small industry. Concerted effort is needed from the government and small industry to imbibe technological dynamism. Technological upgradation and in-house technological innovations and promotion of inter-firm linkages need to be encouraged consciously and consistently. Financial infrastructure needs to be broadened and adequate inflow of credit to the sector be ensured taking into consideration the growing investment demand, including the requirements of technological transformation. Small industry should be allowed to come up only in designated industrial areas for better monitoring and periodic surveys. A technologically vibrant, internationally competitive small and medium industry should be encouraged to emerge, to make a sustainable contribution to national income, employment and exports. It is essential to take care of the sector to enable it to take care of the Indian economy.
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State-wise distribution of Estimated Number of Enterprises and Employment of MSME Sector

Number of Enterprises (lakh) Unregistered Sector Registered EC Sample Total Sector 2005* 0.15 0.12 0.48 0.01 0.24 0.33 0.04 0.55 1.88 0.5 0 0 0.01 0.04 0.04 0.01 0.03 0.2 0.43 0.18 0.2 0.23 1.07 2.3 0.01 0.02 0.87 0.46 1.36 0.03 0 1.5 1.18 1.6 9.66 0.28 2 4.87 1.75 9.14 22.34 7.48 0.06 0.25 0.16 0.44 0.1 0.26 0.47 2.14 20.8 4.25 9.77 2.78 11.5 13.03 0.01 0.04 14.45 14.9 11.12 0.56 0.01 12.94 1.68 1.16 4.32 0.2 1.51 3.46 3.74 6.96 19.82 6.72 0.1 0.15 0.21 0.43 0.16 0.7 0.38 4.28 13.41 2.32 5.76 2.19 6.76 6.46 0.04 0.03 15.31 10.6 7.7 0.27 0.01 7.69 3.01 2.87 14.46 0.49 3.74 8.66 5.52 16.64 44.03 14.7 0.17 0.41 0.39 0.91 0.29 0.98 0.88 6.62 34.64 6.75 15.73 5.2 19.33 21.78 0.06 0.09 30.63 25.96 20.19 0.86 0.02 22.13 Employment(lakh) Unregistered Sector Registered EC Sample Sector 2005* 0.9 0.65 4.16 0.12 0.8 3.82 0.58 3.42 7.55 1.48 0.01 0.05 0.16 0.2 0.26 0.23 0.13 2.11 3.6 0.75 1.73 0.75 2.98 12.45 0.26 0.26 10.89 3.83 7.89 0.33 0 6.21 2.17 2.27 14.16 0.58 3.62 8.41 5.94 15 51.76 15.97 0.56 0.82 1 1.38 0.3 0.53 1.04 4.48 54.93 8.24 21.94 4.68 17.32 21.97 0.03 0.07 24.72 35.15 22.58 0.87 0.05 26.98 2.68 1.76 8.48 0.53 2.54 6.61 13.29 12.37 33.06 10.81 0.22 0.31 0.54 0.78 0.25 0.99 0.75 7.66 27.24 3.92 9.57 4.09 13.36 13.31 0.09 0.07 34.43 31.71 16.24 0.68 0.02 16.42

Sl. No.

State/UT

Total 5.75 4.68 26.79 1.23 6.96 18.84 19.81 30.79 92.36 28.26 0.79 1.19 1.71 2.36 0.81 1.75 1.92 14.25 85.78 12.91 33.24 9.52 33.66 47.73 0.37 0.41 70.04 70.69 46.72 1.88 0.06 49.62

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Jammu and Kashmir Himachal Pradesh Punjab Chandigarh Uttarakhand Haryana Delhi Rajasthan Uttar Pradesh Bihar Sikkim Arunachal Pradesh Nagaland Manipur Mizoram Tripura Meghalaya Assam West Bengal Jharkhand Odisha Chhattisgarh Madhya Pradesh Gujarat Daman & Diu Dadar and Nagar Haveli Maharashtra Andhra Pradesh Karnataka Goa Lakshadweep Kerala 35 | P a g e

Sl. No.

State/UT

Number of Enterprises (lakh) Unregistered Sector Registered EC Sample Total Sector 2005* 2.34 0.01 0.01 15.64 18.21 0.13 0.07 198.74 12.58 0.21 0.07 147.38 33.13 0.35 0.14 361.76

Employment(lakh) Unregistered Sector Registered EC Sample Sector 2005* 14.26 0.21 0.06 93.09 38.89 0.25 0.18 408.84 27.82 0.55 0.15 303.31

Total 80.98 1.01 0.38 805.24

33 Tamil Nadu 34 Pondicherry Andaman and 35 Nicobar Islands All India

*Source: Ministry of Micro, Small and Medium Enterprises Annual Report 2012-13

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Problems Faced by SMEs in India

Small and Medium Enterprises (SMEs) contribute to economic development in various ways such as creating employment opportunities for rural and urban population, providing goods & services at affordable costs by offering innovative solutions and sustainable development to the economy as a whole. SMEs in India face a number of problems - absence of adequate and timely banking finance, non-availability of suitable technology, ineffective marketing due to limited resources and non availability of skilled manpower. Small and Medium Enterprises (SME) play an important role in the development of a country. There are around 26 million MSME units in India, of which 13 million are SMEs. SMEs contribute nearly 45% share of manufactured output, accounting for 40% in overall exports of the country and providing employment to about 32 million people. The performance of SMEs in India though impressive comes next to China where this sector provides employment to 94 million people with a network of 37 million units. India has registered a high economic growth (6-9%) consistently over the last one decade. For the sustainability of this kind of growth proper nurturing of SME sector is imperative. The need of the hour is to empower the SME Sector so that it is able to take its rightful place as the growth engine of the economy. The paper throws light on various challenges being faced by SMEs in India at present and tries to find solutions to these problems, so that the SMEs become more vibrant and are able to make forays to new un-chartered areas such as infrastructure etc. Finance Minister has proposed to provide Rs. 5,000 crore to SIDBI for refinancing incremental lending by banks to SMEs out of the shortfall of banks on priority sector lending targets. In view of the problems being faced by handloom weavers, inability to repay debts to handloom weaver cooperative societies which have become financially unviable, FM has proposed to provide Rs. 3,000 crore to NABARD. The initiative is expected to benefit 15,000 cooperative societies and about 3 lakh handloom weavers. These efforts could not bring a lot cheer to the sector as many concerns still remain.
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Though additional Rs. 1000 crore to SIDBI may help address priority sector lending concerns, but it does not stand anywhere near sufficient. This is because borrowing costs still remain high for the sector. Farming did see some relief in terms of lower interest rates on loans. SME is the foremost employment generating sector and has a significant contribution in Indian GDP. Currently, unavailability of funds plagues the growth of many SMEs and at the same time loans rates faced by them are as high as 16% and above, which affects investment decisions. The budget proposes to move the service tax from cash basis to accrual basis. This implies that businesses will have to pay tax for the money that they have not received yet, due to which liquidity will become an issue. Another important concern is that of rising input costs. This is affecting the competitiveness of SME products in domestic as well as international market. Also, it is difficult for SMEs to pass on the extra cost to consumers due to which their margins decline, making production unviable. FM did address the issue by trying to control inflation. The only problem here is that it is a very gradual process, not going to happen immediately. Small and Medium Enterprises (SMEs) are often confronted with problems that is uncommon to the larger companies and multi-national corporations. These problems include the following: Lack of IT Support IT personnel are in high demand and are often attracted to bigger companies and MNCs. It is very difficult for SMEs to attract good IT personnel. It is even more difficult to retain them. Moreover, good IT personnel are expensive and may not be affordable by most SMEs. Lack of IT Literacy Many of the employees in SMEs started from the ground up after working with the company for many years. Some of them are often holding supervisory and managerial positions. These employees may not be IT literate and often have high resistance to the changes in the working process that they are comfortable with after many years.
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Lack of Formal Procedure and Discipline Most SMEs do not have formal procedure or often these are not documented. Furthermore, there is tendency for these procedures to change frequently. This makes it difficult for third party and newcomer to understand the existing business practices and match them with the IT process. Uneven IT Awareness and Management Skill As company grows, new managers are often introduced into the company. There will also be old managers who are promoted from the rank and file. Some of these managers may not been trained in the leadership and management skill. These uneven skill among the managers often caused conflicts during the implementation. Lack of Financial Resources As a SME/SMI, financial resources are often limited. This often forces company to select a solution, which appear to be cheap initially. However, the hidden costs will start to emerge during implementation. This sometime causes the project to be abandoned or sometime sent the company into further financial crisis. Lack of Human Resources Implementations of some bigger scale IT project especially those that involve business process across different departments or require large amount of initial data entries require human resource during the implementation. Some SMEs are often in the stage of frequent fire fighting and shortage of manpower. This makes it very difficult for them to allocate time to carry out implementation. Furthermore, there is always a conflict between getting the daily routing work going and to do the "Extra" IT implementation. Lack of Experience of Using Consultants A good consultant often save time and effort, and help to prevent pitfalls during the IT projects. However, most SMEs are lacked of experience in working with consultants. The lack
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of knowledge in the field of IT makes them difficult in identifying good consultant for the projects. They often feel that the consultant costs is too high and they can handle it with their own staff. If the company has no staff that are experience and knowledgeable in t he IT project, avoiding external help often costs more to the company eventually. Small and Medium Enterprises significantly contribute to industrial, economic, technological and regional developments in all economies, developed and developing, though the definitions of SMEs may vary. In India, it is estimated that there are over 1.4 million small industries, out of which about 30 per cent may relate to manufacturing. SSI sector account for about forty percent of total industrial production, thirty five to forty percent of total exports and a significant share in employment (close to 2.5 million) and close to 8% of GDP. However SMEs or SSI sector (now called as micro, small and medium enterprises, MSMEs) are going through a transition phase including restructuring of strategies and facilities since the announcement of new policies in 1991 and thereafter progressive adoption of liberalised and globalising policies in India. We will however continue to use 'SME' nomenclature as it is more popular, and widely accepted. SMEs need to be vitalised for competitiveness and sustainable growth under new world trade rules and faster technological changes, including wider use of ICT, besides new business models. Several initiatives have been taken by the government from time to time to promote and support MSMEs, including new support measures, financing mechanisms, and gradual dereservation of items for production. Innovations and technologies are becoming more crucial for competitiveness and sustainability of SMEs, in the emerging international trade regime. MSMEs (or SMEs) need to adopt internationalisation strategies in tune with objectives and strategies and global supply chain management of transnational corporations (TNCs) or large companies. Some of the recent initiatives, key issues and best practices evolved worldwide to vitalize and internationalise SMEs, particularly from technology point of view have been discussed in this paper. It draws lessons from the studies carried out by the author recently in 2005-06 for UNESCAP, after a desk research and field surveys and visits to SME related organisations in
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select four developing countries in Asia Pacific region. (The National Manufacturing competitive Council, 2006). This study report was also discussed in an UNESCAP international workshop held at Seoul, South Korea, in Jan. 2006, in which about thirty countries and international agencies participated. The findings were further presented in another seminar at Seoul in March 2006 and a workshop at Beijing, republic of China, in Oct. 2006. Prevailing technology capability building measures and national manufacturing strategy recently announced in India have also been discussed, and some suggestions made to internationalize to improve competitiveness of SMEs in India. It is hypothesized in this paper that vitalization and internationalization of select SMEs is necessary in developing countries such as India, and technological inputs and support is a prerequisite for their growth and competitiveness; along with a comprehensive policy framework, implementation mechanisms and built evaluation systems.

MEASURES TAKEN BY GOVERNMENT OF INDIA

Ministry of Small Scale Industries is primarily responsible for promotion and development of SMEs in India, and has evolved several policies, institutional and support measures, spread all over the country, in order to enable SMEs to meet their changing needs. Small Industries Development Bank of India (SIDBI) has developed various financing schemes. Ministry of Science and Technology (DST, DBT, DSIR) has evolved several measures and programmes for technological assistance and development and transfer of technologies for SMEs. Some of the economic ministries such as Ministry of Textiles, Department of Food Processing and Department of Handicrafts etc. have also recently announced initiatives for technical assistance in various firms.

Some of the measures and new initiatives to promote SMEs include:

SME development fund

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A specialized stock exchange for SMEs Encouragement for patenting and ISO Certification SME venture capital fund National Commission for Small Industries (informal sectors) SME development bill Credit Rating Agency Promoting special venture capital companies and risk financing companies for SMEs Improve the working of credit guarantee and export promotion institutions Progressively reduce protection measures and simplify implementation policies and control mechanisms

SME Development Centres at SIDBI and IIFT Considering liberalizing FDI in SMEs and encouraging their linkages with TNCs and large companies

Promoting industrial growth centres/clusters, EOUs, district industry centres, business incubators and business parks

Market assistance and export promotion National Small Industries Corporation Small Industries Development Organization Limited Liability Partnership Bill 2006 The National Strategy for Manufacturing has recognized the need for a focused project

on advance technology products and has recommended the constitution of a special group to study the potential for manufacture and export of such products. It has also recommended the
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establishment of technology parks around institutions of higher technological learning on the lines of those existing in USA. Another important recommendation relates to setting up a "Global Technology Acquisition Fund" to enable Indian industry to acquire very high technology intensive companies abroad. (National Manufacturing Competitiveness Council, 2006) The strategy suggests a cluster approach for improving the manufacturing competence. New and innovative approach to cluster development should be adopted. Further, small scale sector should be encouraged as breeding ground of innovation and technology development where it becomes the technology sources for large companies. Towards this, government must incentivize technology development in SMEs to enhance their competitiveness. A National Manufacturing Competitiveness Programme (NMCP) is being developed which includes objectives to support SMEs. A Design Clinic approach is suggested to bring Indian manufacturing sector and design expertise on to a common platform and to provide expert advice and cost effective solution, resulting in continuous improvement and value addition for existing products. Emphasis is also laid down to enable SMEs to be competitive through quality management standards and quality technology tools. These are only some of the strategies among those suggested in the Report. NMCC seems to have prepared Rs. 1,000 crore National Manufacturing Competitiveness Programme for small and medium enterprises jointly with Ministry of Small Scale Industries. This aims to benefit over 10,000 firms in more than 500 SME Clusters. The thrust of the plan is towards technology infusion. The areas for support include "lean" manufacturing, ICT, technology and quality up gradation, increasing number of tool rooms, encouraging patents and so on.( Economic Times 2005). National Knowledge Commission has also identified SMEs as a thrust sector for education, skills upgradation, training and ICT encouragement. Various studies have shown that ICT and technology levels are higher in internationalized SMEs in sectors such as food processing, auto components, ICT, leather, to engineering, garments etc. compared to non-exporting or domestic SMEs.

Academic and R&D Organizations

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Some of the engineering and technical institutions such as IITs, National Institutes of Technology and CSIR Research Laboratories, are also providing R&D and technology related support facilities and services to the SMEs including training and skill development programs. However, access to these facilities is generally not easy, and often lacks the business needs of entrepreneurs. There are very limited start-up enterprises based on technologies or intellectual property from academic and R&D institutions. Ministry of Small Industries and Development Commissioner, have a wide network of technical, design, training, pro-type development, testing etc., facilities all over the country spread up to district levels. But, these facilities need to be modernized and tuned to emerging needs. Foreign Tie Ups and FDI Internationalization of SMEs usually refers to the SMEs engaged in international businesses, have developed cooperation, partnerships, linkages and networks with foreign companies and institutions. Imports and exports tend to enhance the efficiencies, capabilities, competitiveness and vision of SMEs. FDI is considered to be an important channel for internationalization, besides catalyzing technology flows and investments. Most countries are aiming at attracting larger FDI which poses challenges and provide opportunities to SMEs. The domestic policies therefore need to be finely tuned to take full advantage of FDI and international aid/support measures or loans. However, the SMEs need to be growth oriented and forward looking, with innovative capacities, for internationalization. A survey of over 8000 SMEs in Europe in 2003 revealed that internationalization spurs growth and competitiveness (http://ec.europa.eu). The foreign supply relationships are the most common forms of internationalization while exporting is the next and some establish foreign subsidies and branches. Access to know-how is a frequent motive for going abroad. The study has interestly revealed that smaller countries with small domestic markets are more internationalized. Further the study point to three elements as crucial for developing holistic measures with regard to internationalization.

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SMEs' managers often have limited time and management skills. A policy measure should consider providing some practical tasks to support the manager, especially in the case of SMEs with low international experience. Studies indicate that SMEs often need specific, targeted support. Such 'customized' support comprises, for instance, assistance in identifying an appropriate foreign business partner for a joint venture or collaboration. Moreover, recent studies indicate that SMEs' awareness of support measures is low due to the measures' traditional focus on export activities. The studies suggest that policy measures, in order to be effective, need to focus on the experience of the entrepreneur and on developing his/her qualifications in a broad sense. Internationalization is more than just exporting. Policy measures, whether general or company-specific, need to encompass all the different approaches to internationalization and the support to include a wide range of international activities. Foreign partnerships, foreign investments and cross boarder clustering represent new viable ways to strengthen the international business strategies of SMEs. Such diverse international activities may integrate different business functions (i.e. R&D, production and marketing) and thus involve elements across the entire value chain. Most developing countries have adopted or are adopting a liberalized FDI regime in various sectors of development, though the degree of liberalization may vary. In case of SMEs, several countries have opened up to 100% FDI while in some it is restricted, say up to 24% in India, in general. Limited studies are available (UNCTAD 1998) related to FDI flows to SMEs, especially in developing countries. A study of technology financing through FDI, for SMEs in India and other select countries, was carried out in 2004-05 at IIFT, based on the FDI approvals of the government. This study indicated that FDI approvals for SMEs accounted for about 6.0% of total approvals while the amounts were about 2% of the total amount approval. One can infer that FDI approvals were mainly perhaps intended to internationalize markets and technologies rather than investments. The extent of amounts and the number of approvals vary from sector to sector.

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The Micro, Small and Medium Enterprises (MSME) sector contributes significantly to manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for about 45 % of the manufacturing output and 40% of total exports of the country. The sector is estimated to employ about 69 million persons in over 26 million units throughout the country. There are over 6000 products ranging from traditional to hightech items which are being manufactured by MSMEs in their ranging from traditional to hightech items, which are being manufactured by MSMEs in the country. It is well known that MSME sector provides maximum opportunities for both self employment and jobs outside agriculture sector. The inclusiveness of the sector is underlined by the fact that nearly 50% of the MSMEs are owned by disadvantaged groups of the society. To make this sector to become more vibrant and significant player in development of the Indian economy the Government of India has taken various initiatives. The definition and coverage of the MSME sector was broadened MSME Development Act 2006 which recognized concept of 'enterprise' to include both manufacturing and service sector besides defining medium enterprises setting up a Board for developing policy frameworks and indicating procurement policy. A task force was constituted to identify issues that are inhibiting the economy development and growth of the MSME sector. Sequel to this about 80 recommendations was made to unshackle the Indian MSME sector. While most of the recommendations have already been implemented there are some specific issues related to policy and government support needs immediate attention.

Conclusion
Great Potential:

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SMEs sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification. By its less capital intensive and high labour absorption nature, SMEs sector has made significant contributions towards employment generation and rural industrialisation. SMEs sector in India creates largest employment opportunities for the Indian populace, next only to agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the SMEs sector generates employment for four persons. Statistics from Ministry of Micro, Small & Medium Enterprises also reflect the growth trajectory of SSI industry in India. The number of SSI units has increased from 6.79 million in 1990-91 to 13.37 million in 2007-08 providing employment to more than 32 million people in India. SMEs Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by the sector. Direct exports from the sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. The exports from SMEs sector have shown excellent growth rates in this decade. The product groups which dominate the exports from SMEs sector include sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products. The SMEs sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO. Promising Outlook: This sector is ideally suited to build on the strengths of the traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. This is the opportune time to set up projects in the sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and

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demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Government of India have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bottleneck of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation coupled with Government support will therefore, attract the infusion of these in this sector. The capability of Indian MSME products to compete in international markets is reflected in its share of about 34% in national exports. In case of items like readymade garments, leather goods, processed foods, engineering items, the performance has been commendable both in terms of value and their share within the MSME sector while in some cases like sports goods they account for 100% share to the total exports of the sector. In view of this, export promotion from the small scale sector has been accorded high priority in India's export promotion strategy which includes simplification of procedures, incentives for higher production of exports, preferential treatments to MSMEs in the market development fund, simplification of duty drawback rules, etc. Products of MSME exporters are displayed in international exhibitions free of cost under SIDO Umbrella abroad.

Need of Scientific Packaging: Role of packaging for exports has gained much significance in view of trends in the world markets. The need for better and scientific packaging for exports from small sector was recognised long back. With a view to acquaint MSME Exporters of the latest Packaging standards, techniques etc. training programmes on packaging for exports are organised in various parts of the country. These programmes are organised in association with Indian Institute of Packaging which has requisite expertise on the subject. Basic objective of these programmes is to generate the much needed consciousness in the industry and to educate the
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entrepreneurs about the scientific techniques of packaging. Technical & managerial consultancy services to the MSME manufacturers/exporters is also provided through a network of field offices of this office so as to ensure higher level of production and generation of higher exports.

Motivation In order to encourage the small scale units for producing Quality goods, National Awards for Quality Products are given to the outstanding small scale units, who have made significant contribution for improving quality of their products. The scheme is being operated since 1986. Winners of National Awards get a Trophy, a Certificate and a Cash Prize. National Awards encourage Small Scale Industries units to produce quality goods which further enable them to enter into export market. The performance of the SMEs Sector has been promising till date. If adequate assistance is provided by the Government towards marketing of SSI products, this sector will increase employment opportunities as well as earn valuable foreign exchange.

Suggestions

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According to my study and other relevant studies reports, I strongly recommend the following suggestion for the growth and development of the MSMEs in India:

Supply of Technologies: A number of appropriate technologies for the MSME sector have been developed in various sectors. While each MSME has its areas of strengths and weaknesses, therefore, it would be mutually valuable if the already developed technologies could be 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.

Constitution of a Panel of Consultants: A list of experts and consultants should be prepared, who can help the MSMEs within the region to effectively transfer the available technologies. These consultants could assist in market surveys, etc. in addition to assisting with the transfer, development and application of the technologies at a commercial level.

Conduction of Survey for Assessment of Technological Needs: Varied surveys should be conducted to analyse the available technologies. These should also assess the availability of low-cost housing technologies, and alternative technology and alternative technology etc.

Awareness creation/Information dissemination: 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 like FM radio. Decision making layers should not be more than two levels and should allow flexibility on operational issues.

Involvement of Stakeholders: There is a special need for the involvement of stakeholders at the design stage of the scheme to make the schemes demand driven, especially the schemes that are based on SPV/consortium approach. Process of

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structured need assessment will help generated content having clarity on objectives, beneficiaries; scope and coverage of schemes; role and function of implementing agency; budget advertising and technical assistance to BMOs; administrative and technical services for DPR preparations; clarity on asset ownership etc.

Implementation Vehicles: Many of the schemes, especially the ones designed on Public Private Partnership (PPP) framework, envisage creation of Special Purpose Vehicles (SPVs) to act as implementing agencies. Creation of consortium and networks is relatively a long-term process, which may involve minimum level of trust among the stakeholders.

Campaign to increase MSME awareness of Government Initiatives: There should be an information awareness campaign which identifies the Governments initiatives directed towards the assistance, schemes, contribution, etc., through exhibitions, workshops, seminars, publication, etc..

Competitiveness Assessment of MSME Sector: There is a need to make a competitiveness assessment of the MSME sector in each region of the state, with a view to assessing the gap that exists with the rest of the country. This will vary from industrial sector to sector.

MSME interaction with S&T/R&D Sectors: There is an urgent need for the MSMEs to collaborate and adopt various R&D programmes. Hence, it would be useful if there could be an exchange of views and information between the regions so as to help overcome this problem.

Venture Capital: There should be a sincere effort with a mutual exchange of views to overcome the venture capital problem. Study of venture Finance availability and performance in relation to the countrys technology development needs is obligatory. It involves the determination of the industrial investment on a sectoral basis and analysis of the role of venture capital in the investments made.

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Business Incubation Mechanisms: Each country should adopt certain appropriate mechanisms for technology business nurture in order to incubate new enterprises and provide technical advisory services to the MSMEs. Some external assistance from agencies such as UNDP, UNIDO, ESCAP should also be extended.

Capacity Building of association: The study reiterates that majority of MSME dominated BMOs suffer from several weaknesses inherent or acquired, while discharging their members; capability to positively influence the external environment affecting MSMEs and capability to plan and execute MSME development initiatives. This makes the issue of associations capacity building an important area to focus upon. On the basis of PROACTIVE STRATEGY MSME sector shall grow significantly above the

overall GDP growth in the country. Therefore the sector needs to adopt a proactive strategy approach where the government should propose a medium to long term strategy to sustain themselves in the changing economic scenario and progress beyond the current GDP growth. Only then the idea of pre-capital sector would be conceptualized in form of MSME sector. The only and only Mahamantra to concentrate and flourish with the concept of Pre-Capital sector is ENABLING SMALL BUSINESS TO GROW BIG.

Bibliography
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Reports:
1. SMEs role in Indias manufacturing sector by Indian Brand Equity Foundation (www.ibef.org) 2. Growth opportunities for Indian SMEs A report by Deloitte and CII (http://www.deloitte.com/assets/Dcom-India/) 3. Micro, Small and Medium Enterprises (MSMEs) in India: An Appraisal By Shambhu Ghatak 4. 'SIDBI's initiatives in modernization and technology upgradation of SSI sector', Small Industries Development Bank of India, 1996. 5. 'The re-emphasis on small enterprises, a review article', S. Nanjundan. 6. International Exposure Programme in Thailand & Vietnam on Financing to SMEs by College of Agricultural Banking Reserve Bank of India 7. Problems affecting the growth of small and Medium Enterprises (SMEs) in India Report by Lubina Zaidi, Faculty of Management Studies, University of Delhi.

Magazines:
8. SME World Magazine: Singular voice of MSMEs (www.smeworld.org) 9. SME Times magazine ,India asks EU to change SME definitionSME Times News Bureau(16th Aug,2012) Available at http://www.smetimes.in/smetimes/news/topstories/2012/Aug/16/india-asks-eu-tochange-sme-definition74273.html

Websites:
10. SME chamber of India (http://www.smechamberofindia.com/About_MSMEs.aspx) 11. www.rbi.org.in 12. www.msme.gov.in 13. www.smeresearch.in

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