W-03Problem and Prospects of MSMEs in India

Problems and Prospects of MSMEs in India

Presented BYRavi Agarwal

Vijaya Kumar Bharatha

IntroductionIt is estimated that in terms of value, the sector accounts for about 45 per cent of the manufacturing output and 40 percent of the total exports of the country. The sector is estimated to employ about 42 million persons in over 13 million units throughout the country.There are over 6000 products ranging from traditional to high-tech items, which are being manufactured by the MSMEs in India.Despite numerous protection and policy measures for the past so many years, MSMEs have remained mostly small, technologically backward and lacking in competitiveness.At the beginning, small scale enterprises found it difficult to survive. In the last decade, the economic environment has changed in favour of SMEs. In this context, it is important to re-look into the basic issues of MSMEs, past, present and future prospects, especially in the policy framework.

Definition of Micro, Small and Medium Enterprises:

SME’S IN DIFFERENT SECTORS OF INDIAN INDUSTRY:

• Food Processing• Agricultural Inputs• Chemicals & Pharmaceuticals• Engineering; Electricals; Electronics• Electro-medical equipment• Textiles and Garments• Leather and leather goods• Meat products• Bio-engineering• Sports goods• Plastics products• Computer Software, etc.

Importance of MSMEs:

• Boosting industrial growth• Inspiring Consumption and Social Change• Increased Employment Opportunities• Fuelling the local economy• Discourages migration to urban areas• Transition from Agriculture Economy to Service-

oriented one

Statistical Data Regarding MSMEs

Year wise growth of MSMEs in India(In Lakhs)

Employment in MSMEs (in Lakhs):

Fixed Investment in MSMEs Sector (In Crores)

Production in MSMEs Sector (in Crores)

Comparison of Growth rates of MSMEs and Overall Industrial Sector (in %)

Problems the MSMEs encounter include• MSMEs primarily need access to new technologies• Lack of access to timely and adequate credit. The overall credit

availability for MSMEs during 1991-1996 amounts to only 13% of the value of production (AIMA figures)

• Low levels of R&D• Insufficient Infrastructure• Poor adaptability to changing trade trends• Non-availability of technically trained human resources• Lack of management• Lack of product innovation• Environmental Issues• The other problems faced by the sector are laws relating to

controls, taxes, red tapism and compli cated procedures

Impact of Economical Crisis on MSMEs• Weak demand and tight credit are the chief pressures • creation and maintenance of productive employment

opportunities is under threat • Micro-business startups are likely to increase as laid-off workers

and returning migrant workers seek to make a living. • Employers' organizations and trade unions have added their voices

to the debate about appropriate crisis management measures.• The International Labour Organization's Five Point Crisis response :

i) rapid assesments to pinpoint the constraints felt by MSMEsii) advice through examples on managing creditiii) advice to policymakers on public procurementiv) advice and training on business development services, notably entrepreneurship and enterprise management trainingv) advice and training on supporting small business associations to take an active advocacy and support role during the crisis.

Empowering MSMEs (Govt. Initiatives)• In order to encourage R&D towards upgradation of technology for

micro, small and medium enterprise units, the RBI group pro poses that Section 10 (21) of the Income Tax Act may be amended to allow 150 per cent deduction for contribution made towards funding of R&D work in engineering institutes.

• subsidy scheme for MSMEs along the pattern of Technology Upgradation Fund Scheme for technology upgradation and for setting up new units with latest technology.

• The government needs to help them by approving stamp duty exemptions, enhancing their image globally through trade fairs, seminars and development programmes.

• The enactment of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 was a landmark initiative.

• Small Industry Development Organisa tion (SIDO) has launched Small Industry Cluster Development Programmes.

ConclusionIn order to solve these problems and develop the MSME sector, major efforts have been done in the eleventh plan. However these efforts are not enough. For the development of rural and farm group, different departments should be formed.