CHAPTER I

INTRODUCTION
The purpose of this chapter is to describe the problem of the study, to define its objectives, and to discuss the methodology employed. Further, the present chapter enlightens the significance of the study and explains the limitations as well.

Small and Medium Enterprises play an important role in the development of the country. However, these industries face difficulty in accessing adequate finance for their businesses. Apart from the traditional modes of financing like banks and money lenders, newer sources of financing such as venture capital investment, can take care of their financing requirements. In the case of India, the government has taken several initiatives both at the national and the international levels to improve the availability of finance. But there are still certain impediments that the SMEs face that are required to be addressed by the government.

SMEs encourage entrepreneurial development and dispersal of the industries throughout the length and breadth of the country. It also generates a lot of employment opportunities and the capital cost per employee is very minimum. With the service sector contributing a major share to the GDP and as this sector relies on the SMEs, the scope for SME finance by the commercial banks has increased tremendously. The government is also committed to give a fillip to the sector through infrastructural development, skill developmental effort, technological up gradation and by expanding the role of Small Industries Development Bank of India in SME development.

SMEs contribute nearly 9% of Indias GDP and the Reserve Bank of India has advised all commercial banks to achieve 20% annual growth in SME lending till 2010, so that the SME sector exposure to commercial banks is doubled. Public sector banks overall credit to SME sector grew by 26% in 2006 -2007, which amounted to Rs.1,85,000 cores. Among the large PSBs, state bank of Indias SMEs exposure grew by 24% and all banks are targeting SMEs credit growth of 25%.

As the small and medium enterprises (SME) sector is one of the fastest growing industrial sectors all over the world, initiatives are being taken by both the national and develop small and medium enterprises. Prominent among them are the small industries development organization (SIDO), national small industries corporation (NSIC), export promotion authorities, SIDBI, NABARD, State infrastructure corporation by the National and state level agencies in fostering the overall growth of SME sector is phenomenal. Apart from providing extension and advisory services, these agencies play a significant role to channelize financing by various institutions and intermediaries through different schemes and acting as a bridge between financial intermediates and entrepreneurs in the contest of SMEs heading towards epitome in the Market economy. In order to see that Indian economy develops fast, planners and Economists advocated development of small and medium industry.

Accordingly several institutional and non institutional strategies also have been developed to initiate and sustain the growth of small and medium industries in India. A program of instructional financing is one of the several strategies that government of India introduced to give a maximum fillip to

small scale industries through the credit facilities offered by national banks, institutions and government subsidies.

A Small scale Industry / Ancillary industry is defined as a unit whose investment in fixed assets in Plant and Machinery does not exceed Rs.3 crores. (Subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking) .The Small Scale Sector has emerged as dynamic and vibrant sector of Indian economy and it has been making significant contribution to industrial production, export and

employment generation.

In most developing countries, as also in India, Small Enterprises have been viewed as an engine of employment generation. SME Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector generates employment for four persons. Employment contribution by SMEs in Andhra Pradesh is 7.5%

SME industries form a significant part of Andhra Pradesh economy. The sector contributes around 6 per cent of GSDP and employs close to 2.5 lakh people. Many of the growth engines selected for focused development, e.g., construction and pharmaceuticals, will give rise to many opportunities for small-scale industries. The sector will thus be a major focus in the strategy to create rapid growth in the State. By 2020, Andhra Pradesh will have many dynamic and profitable small-scale industries. Propelled by technological development and capability building, small scale units will flourish all over the State. The proliferation of these industries will provide many opportunities for
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entrepreneurship and employment, leading to a significant rise in income for the States people.

The SMEs industries sector plays a vital role for the growth of the country. It contributes 40% of the gross manufacture to the Indian economy. The Small Scale Industry today constitutes a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of small scale enterprises.

It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector produces 4.62 lakhs worth of goods or services with an approximate value addition of ten percentage points.

Export contribution: SME Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. The number of small scale units that undertake direct exports would be more than 5000. Economic Indicators: The SME Industry today constitutes a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of small scale enterprises.
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The process of economic liberalization and market reforms has opened up the Indian small scale sector to the global competition. SMEs are now facing stiff competition from Multinational companies after the liberalization and globalization of Indian trade. SMEs have to revitalize their marketing strategies, promotional strategies and they require lot of support from government.

But SME in India and abroad suggests that there must be a paradigm shift in Philosophy and seeks to resolve some constraints like future of SMEs in India, fresh and further capabilities needed to equip and enable this sector to perform better, and the kind of transformation required in its structure, strategy, policy and perspectives.

ABID HUSSAIN committee on small enterprises has recommended abolition of policy of reservation for SS units and advocated Cluster Approach to small industry development. The policy of protection, subsidization, and reservation should be replaced by one of promotion, incentives and existence. He said this was necessary to prepare them for surviving in a Global Economy with competition.

With the liberalization of the Indian economy, greater emphasis was placed on meeting the credit needs of MSEs. This was manifest through the following initiatives:1. Earmarking of credit for tiny sector within overall lending to small industries. 2. Opening of specialized SSI bank branches. 3. Establishment of National Equity Fund for venture capital support.
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4. Technology Development & Modernization Fund through SIDBI. 5. Enhancement of turnover limit for assessing aggregate working capital requirement. 6. Enhancement of limit of composite loan to Rs. 10 lakhs. (Rs 1 million) 7. No collateral security for loans up to Rs. 5 lakhs. (Rs 0.5 million)

The Comprehensive Policy Package announced on 30th August 2000 took this process further. This included:1. Launch of Credit Guarantee Scheme to cover loans up to Rs. 50 lakhs. (Rs 5.0 million) 2. Launch of Credit Linked Capital Subsidy Scheme to provide for subsidy against loans taken for technology up gradation. 3. Further enhancement of ceiling composite loan limit to Rs. 25 lakhs.(Rs 2.5 million) 4. Enhancement of project cost limit under National Equity Fund to Rs. 50 lakhs.(Rs 5 million)

Many of these initiatives were based on the recommendations made by the Nayak Committee, the Kapur Committee and the Dr. S.P. Gupta Study Group.

(I) NEED FOR THE STUDY: The SME sector has become very important for many economic activities in developing countries because of its special features of capital sparing and labor intensiveness. In fact, the small and tiny sectors have a major role to play in developing nations which suffer due to low capital formation and over population Govt. of India took several measures for the promotion and smooth functioning of this sector. Besides these, Government of India carefully planned the development of small and tiny industrial sectors in the country. It was spent millions of rupees for their development during the plan periods. But to the dissatisfaction of many, including Government agencies, the sector has not been working well owing to different problems faced by them both at the promotional and operating stages.

(II) OBJECTIVES OF THE STUDY: The purpose of the study is to identify the problems encountered by SME Industrial units and thereby to suggest such measures that would resolve the problems. The objectives of the study are: 1. To examine the growth and functioning of SME industries at Guntur district and in the State of Andhra Pradesh. 2. To discuss the credit facilitates offered to the SMEs 3. To analyze governments support in obtaining credit facilities 4. To outline the financial problems faced by sample units and the role played by financial agencies with reference to commercial Banks. 5. To examine the role played by SME promoting agencies including both the central and state governments in providing credit facilities.

6. To examine the awareness of various credit schemes offered by the commercial banks in the wake or the MSMED act, 2006. 7. Finally, to suggest suitable measures based on the identified gaps in the problem areas to resolve the major financial problems of the small and medium industrial units.

(III) REVIEW OF THE LITERATURE: 1. BRAHMANADAM, G, N., RAI, H.L., DAKSHINA MURTHY, D, Financing Small Scale Sector. The Role of Banks, INDIAN BANKING TODAY AND TOMORROW, MAY, 1981- the above article was prepared on the role of

banks in financing the SMEs in the year 1981. at those times the Indian banking was not all interested in financing the SMEs , because of their credit worthiness. Later due to changes in the industrial policy of India, the commercial banks came forward and made immense help to the growth of SMEs. This article was written before the economic reforms taken place. Here is a gap for more analysis about the role of the banks in the post economic reforms. My study on this topic totally focused on the credit facilities available to the SMEs in the wake of MSME act 2006. Due the presence of the gap about the present day activities are different to those of 1980s. I made in-depth study of the bankers role in providing the credit to promote the SMEs.

2. CHOPRA, K.C., Financing for The Decentralized Sector- Small and Medium Industries THE BANKER, AUGUST, 2006 The above article prepared on the thesis, reveals the financing for the SMEs in the

decentralized sector. This article helped me in selecting the path for my study on credit facilities for SMEs. The article vividly discussed about the possible ways to finance the SMEs in the decentralized sector like Agricultural based and Artisan based SMEs. Really there is a gap between the centralized and decentralized sectors in getting the finance from the banks. The banks are very much lenient in providing loan facilities to the centralized sector. Through my study I made an attempt to study the intricacies faced by the decentralized sector SMEs in Guntur District, well known for its agricultural based industries. 3. JAILAL SAAW, Growth of Small Scale Industries in India JOURNAL OF INDUSTRY AND TRADE, April 2005- The growth of small and medium industries in India was discussed in the above article. The expected growth was not there because of lot of root causes to sickness and underdevelopment in the SME sector. This article discussed about the slow growth rate of SMEs, dues to several problems. Through my study I focused on the one problem that is financial problems faced by the SME segment. I concentrated on the credit facilities offered by the governmental agencies as well as the commercial banks. 4. JAYA PRAKASH REDDY, R., BRAHMANADAM, G.N., Small Scale Sector: Problems And Prospects YOJANA 1-15, JAN, 1987 - the above article deals with the various problems like ,marketing, raw material, labor, technical and financial problems. The focus on the finance related issue is very limited. They have given more importance to the procurement of raw

material and marketing and labor problems in SME segment. But not discussed about the credit facilities for the SMEs.

From my study I focused more on the credit facilities available to the SMEs from the Central Government and State Governments and Commercial Banks.

5. KAURA, M.V., SHARMA, G.L., Financing Small Industries Institution Should Change Their Attitudes, Procedures JOURNAL OF INDUSTRY AND TRADE, MARCH, 1999, - the above article discussed very vividly the attitudes of the financial institutions whether belong to Central Government or state Government or the Governmental Agencies promoted for this purpose. In the wake of the MSME Act, 2006 passed in the interest of the small scale sector by the Government of India, the attitude of the financial institutions towards SME sector was totally changing. The Employees of above said financial institutions are very much helpful and friendly with the promoters of the SMEs. 6. NAMBIAR, P.C.D., FINANCING for PRIORITY SECTORS S.B.I

MONTHLY REVIEW DEC16, 2007 The article on the above topic paved the way for the thinking strategy for the financing the small scale and medium scale industries by the bank officers. The government of India through its industrial policy clearly stated that the commercial banks should give priority treatment to the SMEs. The nature of the banking officials also discussed in the argicle. But that is not sufficient to promote the SME sector because the sector was totally neglected for the last

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several decades due to invention of the MNCs. By enacting the MSME act, 2006, the government of India clearly indicated the signal to the banking people to provide the credit facilities to the SMEs. This article is very much helpful in preparing the script for my thesis LEGISTATION NEEDED

7. PATNAIK,S.M.,

COMPREHENSIVE

ECONOMIC TIMES DEC 2004 in the year 2004 the author of this article expressed his grief for an enactment to safe guard the SME sector. The Government of India in the year 2006 came with the special law for the protection of SME sector. Really it is a welcome gesture for the safekeeping the SMEs. In my thesis I discussed the intricacies and the implementation of the act by the nodal agencies for the promotion of the SMEs. 8. RAMACHANDRA, K.S., REVIVING SICK UNITS, FINANCIAL EXPRESS OCT 9, 2001 the above article discussed the reviving the sick SMEs in various aspects, like providing technology, management training, skilled labor, export promotion and giving finance. the root cause for all the above problems is the financial problem. The financial institution should provide sufficient amount at an easy disbursal system to promote the SMEs. The topic which I am preparing focused more on the credit facility awareness and availability of several schemes for SMEs. 9. SAHNEY, M., BANKS ASKED TO STEM INDUSTRIAL SICKNESS INDUSTRIAL INDIA VOL 36, 12 DEC 2005. Through this article the author tries to express the need for banks intervention in the promotion of the SMEs. the officials of the banks in India are belong to middle class families
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and unaware of the industrial promotion and its need. Mere advice to the bankers is not helpful. So for that reason Srimathi Indira Gandhi Nationalized all private banks for the development of agricultural sector in 1971.The MSMEact 2006, instigates the banks to provide the credit facilities without any hesitation to the SMEs.

10. SOUNDARRAJ, FINACING SMALL SCALE INDUSTRIES, A PROFIT, RESERVE BANK OF INDIA BULLETIN 1980 APR - the reserve bank as a central bank and bankers bank and the prime lending bank to the government should take initiatives to promote the SME sector. The author is very much interested in financing the small and medium scale industries in India, because it is providing more employment than any other sector. It arrests the migration to the cities from the villages in search of better jobs and better facilities. This topic has given me the encouragement to think in this way for the betterment of village and cottage industry development.

(IV) HYPOTHESIS: In the light of this backdrop the present study has been taken up to identify the credit facilities and the problems faced by the small and medium entrepreneurs in obtaining credit from the government. It is hypothesized that the small and medium sectors are suffering from financial problem. To test the validity of the hypothesis, small and medium industries of Guntur district area are selected for study. To avoid any ambiguity in dealing with the hypothesis and to organize the survey on sound lines, the objectives of the study are clearly defined as above.

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(V) LIMITATIONS OF THE STUDY: The following are the main limitations of the study. They are 1. This study is confined only to 100 units in Guntur District. The unregistered industrial units are totally excluded from the purview of the study. 2. Though small and medium industrial units were inter related, the study is focused on more than 25 lakhs investment in P & M only. 3. There were lots of difficulties in getting the data from the Small and medium scale industries. quality aspect in the data. 4. The study is limited to time, cost and effort of the investigator. 5. Though there has been chance for bias, the investigator has taken all the steps for the reduction of bias But utmost care was taken to maintain the

(VI) SAMPLE, SOURCE AND METHODOLOGY: Selection of the sample: A systematic record of small and medium industrial units of Guntur District does not exist. As registration of units is only optional many units are found to be operating without registration. No information could be obtained about the total number of such units and their locations. The study has been confined to those small units which are registered. The record maintained by District Industries Centre is used for preparing a list of small tiny units operating in Guntur District. There were 5458 small and medium industrial units in DIC Registrar at the end of December, 2007 out of which 2,880 units presently working and remaining units were not working. 80% of units come under the tiny units

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category only. Among the Units having investment in P & M more than

Rs.

25, 00,000 are selected by using random sampling technique. . The sample is confined to 100 units in total. A structured schedule of questions was prepared for this purpose.

Methodology & Sources of data: The study is empirical in nature as it is based on data collected with the help of a schedule which can be seen in Appendix-II. A few industrial units were approached for the purpose of presenting and finalization was done by alteration of some items and addition of some other provisions in the schedule.

The researcher visited the sample units of small scale sector and collected the data from the respondents.

Both primary and secondary data are used in the study. Secondary data is collected mainly from District Industries Centre, Guntur, Hand Book of Statistics, Guntur District and Industrial Profile, Guntur District. Primary data is collected from the owners of Small Scale Industries in Guntur District. Period of study: The study covers a period of 5 year from 2002-2003 to 2007-2008. This period seems to be the normal period for the small scale industrial units owing to the absence of any serious economic fluctuations during the period. The period is considered to be a reasonable period to

analyze the various problems of small and medium scale Industrial units.

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Presentation of the study (Chapterization) The first chapter deals with the objective of the study, research methodology taken by the investigator, limitations of the study, period of study and the significance of the study and the test of Hypotheses.

In the second chapter of this study deals with the introduction to SMES, the growth of SMES, Indian and global importance, and the chapter discuss about the Industrial policy of government of India before the economic reforms and after. This chapter discuss about the contributions to Indian economy from the SMEs sector and finally the problems faced by the SMEs. The second portion of the second chapter deals with the various credit facilities available to SMEs. The promotional activities of Central government and state government in the contextual background of MSME act 2006. the active participation of the public and private commercial banks in the creation of the credit facilities to SMEs sector. Finally it deals with the promotional activates of SIDBI, SIDO and NSIC.

The third chapter deals with the analysis of the study of the sample units carefully selected from the eligible list of SMEs, situated in and around Guntur district, at different industrial estates. Finally this chapter deals with the test of hypothesis. The fourth and final chapter deals with the findings of the study and suggestions. For the findings of the study the investigator conducted a survey with a well structured schedule covering all sorts of questions relevant to the topic credit facilities for SMEs

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CHAPTER 2

Credit the lifeline of SMEs

The purpose of this chapter is to discuss the profile and development of SMEs in India. Further the chapter enlightens the problems and common characteristics of the SMEs and also deals with the emerging trends in SMEs. The main objective of this chapter is to present the availability of credit facilities to SME units in India. Besides, efforts are also made to ascertain and outline of the development and growth of SME industries in Andhra Pradesh

INDIAN PERSPECTIVE: The Small and Medium Industries occupy a very important position in any economy. Traditionally they produce certain specialized items for which they enjoy virtual monopoly of skill and expertise developed over the years. Many items produced in the small scale sector are also used as raw materials in the large scale industry and thus small scale industries contribute to large scale production in no small measure.

However, in a free economy, the small and medium scale industries will have to face stiff and challenging competition from the large scale industrial sector. In a controlled economy, the small scale industries are protected from competition from the large scale sector by means of subsidies, grants, monetary incentives from the Government, reservation of certain items of production in the small scale etc.

In a free economy, the small and medium scale industrial sector is not insulated from competition from the large scale sector and for their survival and growth; they will have to face competition from the large scale sector out of their own ingenuity and resources.
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Governments across the globe are increasingly leveraging variants of credit guarantee mechanisms to promote entrepreneurial growth in the Micro, Small and Medium Enterprises (MSMEs) sector. The experience has been rewarding both for the financial system as well as the recipient sectors of the economy...

ASIAN PERSPECTIVE: In the Asian context, credit guarantee institutions have been in existence for several decades and are an integral part of the financial framework of the respective economies. Japan, for instance, has 52 credit guarantee corporations with an apex body for re-guaranteeing the portfolio of these institutions. Korea has one of the largest Credit Guarantee Company in the world in terms of guarantees issued. It also has 9 other provincial guarantee corporations with a central re-guarantee organization. Malaysia has a unique institution which combines the roles of a credit institution, venture capital company, credit rating agency and guarantee company. Nepal, Sri Lanka, Indonesia, Thailand and other countries in the Asian region have fairly well developed and mature credit guarantee organizations operating with Governmental support. The criticality and importance of Micro, Small and Medium Enterprises (MSMEs) in driving Indias growth story need s no elaboration. There is enough evidence to suggest that a strong and vibrant Small and Medium Enterprises sector in the country is one of the key elements
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responsible for attaining financial inclusive growth. Creation of higher levels of employment per capital invested, addressing the issue of employment to a large number of the under-privileged and disadvantaged sections of society, overcoming the obstacles for rural and semi-urban prosperity, optimizing utilization of locally available resources, providing an enabling environment for the millions of young Indians to participate in the nation building task are areas of foremost concern in the Government of Indias agenda for development. The Government of India (GoI) and Small Industries Development Bank of India (SIDBI) set up the CGTMSE in August 2000 to provide guarantee support to banks and lending institutions for their exposure to the Micro, Small and Medium Enterprises (MSMEs) sector. This is the only credit guarantee institution in the country exclusively set up for the benefit of entrepreneurs in the MSME sector.

For a small fee, the credit facilities upto Rs.50 lakh extended by Member Lending Institutions (MLIs) which are not backed by collateral security and / or third party guarantee are provided guarantee cover by CGTMSE to the extent of 75% of the sanctioned credit facility (80% for women entrepreneurs, units in North Eastern Region and loans to micro entrepreneurs upto Rs.5 lakh).

MLIs are requested to utilize the CGS to increase their lending to the micro and small enterprises sector, particularly, those enterprises being set up by women, young first generation entrepreneurs and those from

disadvantaged sections of society. While generating business for their

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respective institutions, MLIs would also be directly contributing to the economic development process.

The operations of CGTMSE during the past few years have recorded sharp growth both in number and amount approved. This is indicative not only of the growing confidence amongst MLIs about the beneficial aspects of CGS but, also about the ability of CGTMSE in delivering on its commitments. Since inception, CGTMSE has been constantly endeavoring to improve its services by pushing the envelope, enriching the in-house team, setting higher performance parameters and encouraging innovative practices in all areas of operation.

To all those whom we are privileged to serve, we wish to thank you for your support and pledge to continue delivering superior performance at all times and look forward to your useful suggestions for improving our effectiveness.

The causes of sickness of SME industries are mainly as under: Diversion of funds. Dissension among partners. Shortage of power. Technological obsolescence. Overdependence on purchases by Government. Lack of awareness of credit facilities available Lack of knowledge about various credit schemes

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Problems in Recovery of Receivables The funds of many SME industrial units are blocked in receivables. As a result, recycling of funds is affected and production suffers. In a competitive environment, it must be ensured that receivable dues are realized with utmost expedition. The SME units will have to make special efforts for collection of their dues for their growth. They may have to utilize the services of factoring companies for the purpose.

The small and medium scale units must properly look after these areas to guard against sickness. India is now largely a free-enterprise economy. In India, despite a liberalized economy, the SME sector is performing well. In the year 1996-97, the production of Village and Small industries sector increased to about Rs. 4, 81,466 crores recorded in 1995-96, of which the share of SME was nearly 80 per cent. The overall growth of the sector was 9.1 per cent during 1996-97. Employment in the SME Industries Sector increased to 574 lakh persons as at March 1997 as against 5534 lakh persons as at March 1996. The sector has generated an incremental employment of nearly 20 lakh persons thereby registering growth of 3.6 per cent in employment in 1996-97.

The policies of the Government are also directed towards the growth of small and medium scale industries. The Government has since enhanced the investment limit in plant and machinery from Rs. 60 lakh (Rs. 75 lakh for ancillaries and exporting SMEs) to a common limit of Rs. 3 crores. This would encourage modernization of existing small sale industries with adoption of appropriate new technologies in the sector and stimulate the growth of new small scale units.

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The Government is also keen to provide adequate institutional credit to the SME sector by ensuring that working capital limits of small scale units are fixed by the financial institutions at a minimum of 20 per cent of their projected turnover, as prescribed by Nayak Committee. The Government has plans to educate the small and medium entrepreneurs about economies of scale, arrange for up gradation of skills and technologies and strengthen export capabilities for promotion of small scale industries. In India, the small and medium industries are, therefore, poised for growth and development provided they adopt strategies as mentioned above to overcome competition from the large scale sector.

Thus, the prospects of SME industries in a free economy are quite encouraging provided the Government plays a supportive role and adequate measures are taken to meet the challenges thrown up by the large scale sector.

The National Small Industries Corporation (NSIC). Small and medium Industries Development Corporation (SSIDC) through their export

development program are playing a vital role to promote the SME sector in exporting their products/projects in international, markets by providing following assistance to the small and medium enterprises. It provides Marketing and promotion, financial and technical assistance,

There are 28 Small Industries Service Institutes (SISI) in India. These institutes help the small scale industries entrepreneurs in providing all the guidance.

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DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN INDIA: Making the best use of the material resources by employing higher order of skill and artistic talents through traditional handicrafts, India has occupied a permanent place of pride the advent of in the world large before industrial scale mechanized

resolution. However,

modern

industry, the imposition of restrictions on Indian trade by the British rulers and deteriorating socio-economic conditions lead to the decline of Small Scale Industry. But with the provisions of permanent place in the nation's policy of economic development after the attainment of the Independence, it has staged a grand recovery and is now well entrenched on the path of progress towards great expansion.

SME has emerged into prominent sector in Indian economy in general and industry in particular. SSI sector in India has posted impressive growth in 1990's from 15% in 1991-92 to 55% in 2001-02.The growth in employment generation has been equally impressive from 3% to 45% during the same period. Employment in SME touched 19 million, just behind agriculture. Share of SSI exports crosses 40% of total exports.

Growth by itself in SME sector is impressive enough indicating a positive response to the Economic Reform process initiated in the country since 1991. --- Development of infrastructure --- Assured supply of Raw Materials --- Availability of Cheap Credit --- Concessionary Taxes and Tariffs. --- Financial subsidies
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--- Equity contributions are all the protective measures for the sector

However, there still remain a number of issues confronting SSI sector that require to be addressed through a set of policy interventions that effect the competitiveness of these enterprises.

Small and Medium Enterprises - Industrial policy:

The small and Medium industries have a specific role to play by the Industrial policy 1948 which stated that cottage and small scale industries are particularly suited for better utilization of local resources and for the achievement of local self-sufficiency in respect of certain type of essential goods.

A Small and Medium Industries Board was constituted in 1954 and a number of helping schemes such as supply of machinery on hire purchase, liberal and wider grants under the state aid to Industries Act, and price preference in government purchase were also initiated to provide support to the small sector.

The Government announced its second Industrial policy in 1956 which replaced the Industrial policy resolution of 1948. The state had followed a policy of supporting Small Scale Industries by restricting the volume of producing in the large scale sector, by differential taxation, or by direct subsidies. While such measures continue to be taken wherever necessary, the aim of the state policy is to ensure that the decentralized sector acquires sufficient vitality to be self supporting and its development is integrated with that of large scale industry. The state concentrated on measures
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designed to improve the competitive strength of the small scale producer. Besides, the Government intended to strengthen the existing arrangements to finance small scale units and make changes if necessary to ease the credit problems of the sector. The system of reservation of items for exclusive

production by small scale units would continue in future.

The Industrial policy statement of 1985 was also accorded importance to small scale sector and made some suitable policy changes. The definition of small scale unit was revised to include all manufacturing units having investment in Plant and Machinery unto Rs.35 Lakhs. In case of ancillary units, the investment ceiling was Rs.45 Lakhs. More recently the definition was relaxed to include service oriented industries and the list of industries reserved for exclusive development was increased as also the items reserved for purchase by government.

In the policy statements of 1991, the state followed a policy of supporting small enterprises in the country. Small and Medium enterprises account for 55% of industrial production, 40% of exports and above 88% of manufacturing employment. Hence, this sector is considered as dynamic and vibrant sector of the country. The relative importance tends to vary

inversely with the level of development and their contribution. Small and Medium enterprises have played a significant role in creating sufficient load and balancing economic and social developments within the country. Small and Medium enterprises have emerged as the leaders in the industrial sector.

In recognition of their significance and stature, the then government announced policy measures on August 6, 1991 for the first time in the post
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independence period. This was to promote and strengthen small, tiny and village enterprises. This is almost a U-turn in policy stimulants and structure of micro and small enterprises in the country.

CONTRIBUTION OF SMEs TO INDIAN ECONOMY: The Small and Medium sector which plays a important role in the Indian economy in terms of employment and growth has recorded a high rate of growth after independence. It is now one of the fastest growing sectors in the country. It has made steady progress during recent years. The good

performance of the small scale units is evident from their number, production, employment and foreign exchange earnings.

The root cause for unemployment in India is the over growing population which has outpaced the development of industry and agriculture. For a country like ours, with limited financial resources and huge reservoir of human resources, Small and Medium industry is the only means for solving the unemployment problem. Small and Medium industry is providing employment at an increased rate which is evident from Table.

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Table 2.1 Data on Small and Medium Industries in India in the last decade Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Fixed Investment (Rs. Crore) 93555 100351 109623 115795 123790 125750 130560 133242 135482 139982 147348 154349 162533 170726 Production
(Rs. In crore)

Employment
(lakh persons)

Export
(Rs. Crore)

63518 73072 85581 98804 122210 148290 168413 189178 212901 234255 261289 282270 311993 351427

158.34 165.99 174.84 182.64 191.40 197.93 205.16 213.16 220.55 229.10 239.09 249.09 260.13 271.36

9664 13883 17784 25307 29068 36470 39248 44442 48979 54200 69797 71244 86013 155.10

Fig.2.1 Performance of Small Scale Sector in India

400000 350000 300000 250000 200000 150000 100000 50000 0

Fixed Investment

Production (Rs. In crore)

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SME Contribution to GDP: Small and Medium Industries has been contributing significantly to Gross National Product of the Country. Table shows that the total production of small industry was 61,228 crores in 1985-1986 which rose to 6, 25,000 in 2000-01. It is important to note that the output of the small and Medium sector rose faster than that of large scale sector. The total value of production by village and small scale industries during the 10th Five year plan period is projected to rise to Rs.7, 00,000.

SMEs Contribution to exports: Small and Medium scale industries has registered a high growth in the export field by contributing substantially to the national earnings from exports. The increase in the total exports is depicted in Table. The

contribution of small scale industries to exports has gradually increased from 2,580 crores in 1984-85 to nearly 55,000 crores during 2003-2004. However, from year to year changes are significant.

A view of the progress made by the small scale sector in terms of investment, employment, production exports does bear out that it has made significant contribution to the economy.

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PROBLEMS OF SMEs: Some of the major problems are briefly as follows:

Financial problems of SMEs: . The financial problem of SMEs is the Root Cause for all the other problems faced by the SME sector. The small and medium industrialists are generally poor and there are no facilities for cheap credit. They fall into the clutches of money lender who charges very high rates of interest, or else they borrow from the dealers of their goods, who exploit them by completing them to sell their products at very low price. After the nationalization of 14 major Indian Banks in July, 1969, the Commercial banks were providing only a small proportion of SMEs financial requirements. Credit to the SME sector

continues to be non-commensurate with its contribution to the total industrial output. As against the share of the village and SME at 40% in the industrial out, its share in total credit to the industrial sector is only about 30%.

Raw Material problem of SMEs: This difficulty is experienced in a very pronounced form. The quantity, quality and regularity of the supply of raw materials are not satisfactory. There are no quantity discounts, since they are purchased in small quantities and hence charged, higher prices by suppliers. Difficulty is also experienced in procuring semi-manufactured materials. Financial weakness stands in the way of securing raw materials in bulk in a competitive market.

Production problem of SMEs: SME units suffer from inadequate work space, power, lighting and ventilation, and safety measures etc. These short comings have tended to
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endanger the health of workmen and have adversely affected the rate of production. Many units are following primitive methods of production. Adoption of modern techniques is either disliked by the entrepreneurs is not feasible. Wage rates and service conditions of small industries are not

attractive to skilled labor.

Marketing problem of SMEs: As marketing is not properly organized, the helpless artisans are completely at the mercy of middle man. The potential demand for their goods remains under developed. The SMEs have to face the competitions from large scale units in marketing their products. It causes damage to the growth and stability of SMEs. SMEs cannot afford to spend lavishly for advertisement to promote their sales. Further, SMEs produce such products which can not satisfy modern tastes. They cannot afford to have services of specialists to prepare marketing plans for penetration into domestic and foreign markets.

Managerial problem of SMEs: Small scale industries in our country have suffered from the lack of entrepreneurial ability to develop initiative and undertake risks in the unexplored industrial fields. The in efficiency in management comes first among managerial problems. The entrepreneurial ability of promoters of cottage industries and SMEs are handicapped by technical know how in the areas of production, finance, accounting and marketing management.

Sickness of SMEs: A serious problem which is hampering small and medium sector has been sickness. Many small units have fallen sick due to one problem or the
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other. Sickness is caused by two sets of factors, Internal and external factors. From among the various internal and external causes of sickness the

important ones are bud management, high rate of capital gearing, inadequacy of finance, short of raw materials, outdated plant and machinery, low labor productivity etc., Besides these factors, some aggregate economic behavior of the country such as availability of credit, volume of money supply, capital market activity or level of investment and price level

fluctuations, may have important bearing on industrial sickness in the country.

EMERGING TRENDS IN SMEs IN INDIA:

In the increasingly knowledge-driven economy, emerging trends are key consideration in day-to-day business decisions. New products,

technologies and creative designs appear almost daily on the market and are the result of continuous human innovation and creativity. Small and mediumsized enterprises (SMEs) are often the driving force behind such innovations. Their innovative and creative capacity, however, is not always fully exploited as many SMEs are not aware of how these emerging trends can help and safeguard them. To help SMEs more fully utilize the emerging trends in their business activities, they need to know more about them.

NATIONAL PROGRAMS
SIDO in collaboration with UNIDO has undertaken National programs for development of selected sectors namely Toy, Stone, Machine Tools, and Hand Tools & Lock in India. The estimated cost of these National programs is USD 6.6 Million.

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COMMON CHARACTERISTICS OF SMEs:

(a) Born out of individual initiatives & skills SME startups tend to evolve along a single entrepreneur or a small group of entrepreneurs; in many cases; leveraging on a skill set. There are other SMEs being set up purely as a means of earning livelihood. These includes many trading and retail establishments while most countries continue SMEs to manufacturing services, others adopt a broader definition and include retailing as well.

(b) Greater operational flexibility The direct involvement of owner(s), coupled with flat hierarchical structures and less number of people ensure that there is greater operational flexibility. Decision making such as changes in price mix or product mix in response to market conditions is faster.

(c) Low cost of production SMEs have lower overheads. This translates to lower cost of production, at least upto limited volumes.

(d) High propensity to adopt technology Traditionally SMEs have shown a propensity of being able to adopt and internalize the technology being used by them.

(e) High capacity to innovate export: SMEs skill in innovation, improvisation and reverse engineering are legendary. By being able to meet niche requirements, they are also able to capture export markets where volumes are not huge.

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(f) High employment orientation: SMEs are usually the prime drives of jobs, in some cases creating upto 80%. Jobs SMEs tend to be labor intensive per se and are able to generate more jobs for every unit of investment, compared to their bigger counterparts.

(g) Utilization of locally available human & material resources SMEs provide jobs locally and hence utilise manpower available locally. Since it is available for them to transport materials over long distances, they often improvise with materials which are available locally.

(h) Reduction of regional imbalances Unlike large industries where divisibility of operations is more difficult, SMEs enjoy the flexibility of location. Thus, any country, SMEs can be found spread virtually right across, even through some specific location s emerge as clusters for units of a similar kind. Nevertheless, the spread of SMEs is a fact which enhances their attraction from a national or regional policy.

CREDIT FACILITIES FOR SMEs: SME industries form a significant part of Andhra Pradesh economy. The sector contributes around 6 per cent of GSDP and employs close to 2.5 lakh people. Many of the growth engines selected for focused development, e.g., construction and pharmaceuticals, will give rise to many opportunities for SME industries. The sector will thus be a major focus in the strategy to create rapid growth in the State. By 2020, Andhra Pradesh will have many dynamic and profitable SME industries. Propelled by technological development and capability building, SMEs will flourish all over the State. The proliferation of

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these industries will provide many opportunities for entrepreneurship and employment, leading to a significant rise in income for the States people. The state of Andhra Pradesh which is popularly known as the Rice Bowl of India", is also surging ahead on the industrial front. The state has witnessed a faster transformation from agriculture to industrial advancement in the recent Past. Andhra Pradesh has rich and abundant natural resources and cheap and peaceful labor. Further, it has adequate power supply. It has also recorded a steady growth in the number of large and medium industries. Small and tiny sectors are assuming a greater role in the further industrialization of the state. The state is going towards industrialization after green revolution through the small scale and tiny sectors.

Growth of Small and medium enterprises in Andhra Pradesh: The growth of small and medium industries in Andhra Pradesh in the recent past has been significant. The District Industrial Centers, set up by the Government have greatly contributed to the promotion of small and tiny units in the rural areas. The number of Small and medium Industries significantly increased to 1, 36,175 by the end of 2003 as against only 8,090 units in 1970. This indicates that they are increased by more than 15 times in a period of 32 years. Their investment has also increased constantly. Similar growth is

observed in the case of generation of employment by the small and medium sector.

Infrastructural facilities: The available literature on the industrial front of Andhra Pradesh denotes that the state has sound infrastructural facilities.
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The facilities are

not only adequate for the existing industrial units but also sufficient to the units to be set up in the near future. By having the base, the state could full-pledged infrastructure

attain significant industrial growth in the recent past.

The state took many steps to industrialize the state with a good number of units engaged in different trades spread throughout the state. The important measures that were taken by the state are as follows: 1. Provision of outlays for the development of roads facilities. 2. Establishment of Industrial Estates. 3. Establishment of several Industrial Promotion Corporations and Agencies. 4. Promotion of subsidies and incentives for the promotion of industries in the specified backward areas of the states. 5. Development of Primary sector and there by to improve the resource Base to the agro based units. 6. Provision of consultancy in the production, marketing, financial and Managerial areas through different state agencies. and Transportation

The approach to develop SME industries by govt. will depend on, Building skills and promoting technological development. Providing infrastructure and credit. Reforming policy and simplifying procedure. Providing assistance with marketing. Encouraging the development of special categories of entrepreneurs (women, scheduled castes and tribes, backward classes, etc).

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SME PROMOTING AGENCIES:

There is a good number of industry promoting agencies functioning in the state. They are established after the formation of the state in the year 1956. They have made a mark in the development of the state industrially. In the absence of these agencies the state would have remained industrially under developed. Therefore, the role played by these agencies in the industrialization of the state in the past is very significant.

Growth and Working of Industries in Guntur District: Agriculture - the basic occupation: The district has been developing in agriculture with nearly 40% of the land put under agriculture; out of the total population, nearly 80% is living in rural areas when agriculture is the main occupation for its livelihood. Out of the total working population about 20% is engaged in agriculture sector, and the rest is in non-agricultural sector. The Principal food crops shown in the

district are paddy, bazra, jower, wheat etc. A sizeable quantity of pulses like red-grams, black-grams are also present. pride in the production of cotton in India. The district occupies a place of

Small and Medium industrial units in the district: The growth of SMEs in Guntur district is enormous. Table 3.1 gives a picture of SMEs in the district. From the table it is easy to say that upto the year 2000 there were 4,516 registered units with a capital investment of Rs.58, 577 lakhs providing employment to 85,863 persons. But afterwards the units rose to 4,738 in 2002-2003. Similarly, capital investment increased to Rs.60, 840 lakhs. The employment creation also increased and reached 89,406 persons.
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Table 2.2: Small and Medium industries in Guntur District Year Upto 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 - 2007 No. of Units Capital investment Employment 4, 561 4, 595 4, 682 4, 738 4, 837 4, 912 5, 176 5, 452 58, 577 59, 447 60, 361 60, 840 61, 101 61, 450 61, 983 62, 093 85, 863 86, 798 88, 592 89, 406 90, 043 91, 245 91, 796 92, 011

Source: SSI Register for permanent registration, DIC, Guntur.

Infrastructural facilities: Availability of power, water, transport and communications, training and education facilities, banking facilities etc, are basic necessities for industries to develop in a region. The following are the infrastructure facilities

available in the district for the growth and development of industries.

The district has a fairly adequate railway system of broad gauge. The most important broad gauge double lines from Madras to Howrah, to Delhi and to Hyderabad pass through this district, thus providing an easy access to all important places in the state and country. The double broad gauge

line between Madras and Vijayawada is electrified. The district has gained significantly after the Nadikudi Bibinagar railway line. Many long distance trains pass through Guntur now and it has become an important junction.

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The district is served by the National Highway No.5 from Chennai to Calcutta. The district is well connected with the state high ways, Zilla Parishad roads and Panchayat Samithi roads linking all the important centres.

Water requirement of Guntur town is met from the Tenali and Vijayawada, Water pumping scheme at a Point of 20 Kms from Guntur, At present, the industries on Industrial Estate and meeting their water needs from the ground water resource.

Having sufficient infrastructure facilities, the district provides an opportunity to start various categories of small and tiny units in the years to come. The district is rich in agriculture produce and natural resources. By establishing a good number of Small and Medium Units, the problems of

unemployment among working class and educated youth in the district can be brought down to a considerable extent. Thus, there is a scope for further industrialization of the district with the help of Small Scale Sector with the support of financial agencies, particularly commercial banks in the years to come.

THE VARIOUS CREDIT SCHEMES AVAILABLE TO SMEs Credit Guarantee Fund Scheme for Small and Medium Industries:There are an estimated 128.44 lakh registered and unregistered micro and small enterprises (MSEs) in the country at the end of March 2007, providing employment to an estimated 309.11 lakh persons. The MSE sector contributes about 39% of the manufacturing sector output and 33% of the nations exports. Of all the problems faced by the MSEs, non -availability of
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timely and adequate credit at reasonable interest rate is one of the most important. One of the major causes for low availability of bank finance to this sector is the high risk perception of the banks in lending to MSEs and consequent insistence on collaterals which are not easily available with these enterprises. The problem is more serious for micro enterprises requiring small loans and the first generation entrepreneurs.

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) was launched by the Government of India to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme. The Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises. The scheme was formally launched on August 30, 2000 and is operational with effect from 1st January 2000. The corpus of CGTMSE is being contributed by the Government and SIDBI in the ratio of 4:1 respectively and has contributed Rs.1346.54 crore to the corpus of the Trust up to September 30, 2007. Based on the future requirement, the corpus is likely to be raised to Rs.2500 crore. Small Scale Service & Business Enterprises (SSSBEs): SSSBEs industry related service/ business enterprises with investment upto Rs 500,000 in fixed assets, excluding land and building, are called Small

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Scale Service/ Business Enterprises (SSSBEs). This limit has been raised to Rs.1 million w.e.f. September 2000

CREDIT - THE LIFELINE OF SMEs of all the elements that go into a business, credit is perhaps the most crucial. The best of plans can come to naught if adequate finance is not available at the right time. MSEs need credit support not only for running the enterprise & operational requirements but also for diversification, modernization/ up gradation of facilities, capacity, expansion etc. In respect of MSEs, the problem of credit becomes all the more critical when ever any episodic event occurs such as a large order, rejection of consignment, inordinate delay in payment etc. In general, MSEs operate on tight budgets, often financed through owner's own contribution, loans from friends and relatives and some bank credit.

Government of India recognized the need for a focused credit policy for MSEs in the early days of promotion of MSEs. This in turn led to a credit policy with the following components:-

Priority Sector Lending: Credit to the small scale sector is ensured as part of the priority sector lending by banks. Banks are required to compulsory ensure that defined percentage (currently 40%) of their overall lending is made to priority sectors as classified by Government. These sectors include agriculture, small industries, export etc. The inclusion of small industries in this list makes them eligible for this earmarked credit.

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Improving the Credit Flow Nayak Committee (1991-92) Nayak Committee set up by the Reserve Bank of India in December 1991 (Report came in September 1992) dealt with aspects of adequacy and timeliness of credit to SMEs. Nayak Committee found that SMEs was getting working capital to the extent of 8.1% of its annual output which was less than the normative requirement of 20%. Accordingly, Nayak Committee

recommended that the SSI sector should obtain 20% of its annual projected turnover by way of working capital. Based on these, as well as other recommendations of the Nayak Committee, RBI issued a number of guidelines advising the banks to grant working capital to the extent of 20% of the projected annual turnover, timely disposal of loan applications and setting up of specialized bank branches for SME loaning in areas of higher SME concentration. This norm is applicable to units with annual turnover up to Rs. 5 crores.

Seven Point Action Plan (1995-96) As a follow up of Nayak Committee recommendations, the Union Finance Minister in the Budget Speech of 1995-96, announced a Seven Point Action Plan for improving the flow of credit to SME sector. This included: Setting up of specialized SSI bank branches; Adequate delegation of powers at branch and regional levels; Conducting sample surveys of their performing SME accounts by banks; Sanction of composite loans as far as possible; Regular meeting with SSI entrepreneurs; Sensitization of bank managers towards working of SME Sector; and
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Simplification of procedural formalities by banks. Action has been taken by banks on the above action plan.

Kapur Committee (1997-98) Reserve Bank of India (RBI) had in December 1997 appointed a One Man Committee headed by Shri S.L. Kapur, the then Member, Board for Industrial & Financial Reconstruction (BIFR), to review inter-alia: the working of credit delivery system of SME industries with a view to making the system more effective, simple and efficient to administer; and to make suggestions for simplification and improvement in system and procedures. The Committee submitted its Report to RBI on 30th June 1998, which contains 126 recommendations. Out of 126 recommendations, 103 have been examined by RBI and decision taken thereon. Banks/ Financial Institutions and other agencies have already implemented 86 recommendations. Some of the important measures taken pursuant to the Recommendations of the Committee include: Delinking of SIDBI from IDBI. Opening of more specialized branches. Enhancement in the limits of Composite Loan from Rs. 2 lakhs to Rs. 5 lakhs. Setting of DRTs. Introduction of Credit Guarantee Scheme.

The Credit Facilities from NABARD NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small41

scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with Providing refinance to lending institutions in rural areas Bringing about or promoting institutional development and Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also: Acts as a coordinator in the operations of rural credit institutions Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development Acts as regulator for cooperative banks and RRBs

Some of the milestones in NABARD's activities are: District Rural Industries Project (DRIP) has generated employment for 23.34 lakh persons with 10.95 lakh units in 105 districts. Credit functions, involving preparation of potential-linked credit plans annually for all districts of the country for identification of credit potential, monitoring the flow of ground level rural credit, issuing policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes
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Development functions, concerning reinforcement of the credit functions and making credit more productive

Supervisory functions, ensuring the proper functioning of cooperative banks and regional rural banks

Financial Inclusion
Indian economy in general and banking services in particular have made rapid strides in the recent past. However, a sizeable section of the population, particularly the vulnerable groups, such as weaker sections and low income groups, continue to remain excluded from even the most basic opportunities and services provided by the financial sector. To address the issue of such financial exclusion in a holistic manner, it is essential to ensure that a range of financial services is available to every individual. These services are: (I) A no-frills banking account for making and receiving payments, (ii) A savings product suited to the pattern of cash flows of a poor household, (iii) Money transfer facilities, (iv) Small loans and overdrafts for productive, personal and other purposes, & (v) micro-insurance (life and non-life)

In order to address the issues of financial inclusion, the Government of India constituted a Committee on Financial Inclusion under the

Chairmanship of Dr. C. Rangarajan. The Committee submitted its final report to Hon'ble Union Finance Minister on 04 January 2008.

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National Equity Fund Scheme (NEF) Purpose To meet gap in prescribed minimum promoters' contribution and/or in equity

Eligible Borrowers Small and Medium entrepreneurs for setting up new projects in tiny / small scale sector and rehabilitation of potentially viable sick SME units irrespective of the location. Existing tiny and SME industrial units and service enterprises [tiny enterprises would include all industrial units and service industries (except Road Transport Operators) satisfying the investment ceiling prescribed for tiny enterprises] undertaking expansion, modernization, technology up gradation and diversification can also be considered irrespective of the location.

Norms Scheme operated through SFCs / twin function SIDCs / Scheduled Commercial Banks / Select Urban Co-operative Banks Cost of project - Not to exceed Rs.5 million Soft Loan limit - 25% of cost of project subject to a maximum of Rs.10, 00,000 per project. Service Charges - 5% p.a. on soft loan Direct Credit Schemes
1. 2.

SSIs Service sector units with project cost upto Rs.25 crore Medium Sector Enterprises (MSE) and

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Service sector units with project cost above Rs.25 crore and upto Rs.250 crore.

Eligible Borrowers I]New or existing SSI units. ii]SSI unit graduating to medium scale, and iii] Service sector units with an overall project cost not exceeding Rs.25 crore. i] New or existing medium sector enterprises, and ii] Service sector units with an overall project cost above Rs.25 crore and upto Rs.250 crore with Bank's assistance not exceeding Rs. 50 crore.

Constitution The unit should generally be a private limited / public limited company. However, partnership firms, sole proprietorship concerns and Societies and Trusts would also be considered on a case to case basis. The unit should generally be a private limited / public limited company

Nature of assistance Term loan and other forms of assistance such as Working Capital Term Loan and bills discounting (on selective basis). Term loan and other forms of assistance such as Working Capital Term Loan, suppliers' & purchasers' bills discounting. Investment products such as debentures, optionally convertible cumulative preference shares, zero coupon bonds, etc. Currency of loan In Rupee or foreign currency In Rupee or foreign currency
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Technology Up gradation Fund Scheme for Textile Industries (TUFS) Purpose TUFS has been launched with a view to sustaining as well as improving the competitiveness and overall long term viability of the textile sector. The scheme intends to provide timely and adequate capital at internationally comparable rates of interest in order to upgrade the textile industry's technology level.

Special Features For SSIs: The borrowers can avail of any one of the following benefits: 5% interest reimbursement on the interest actually charged in respect of rupee loan or coverage of exchange rate fluctuation not exceeding 5% p.a. from the base rate or cost of forward cover premium upto 5% p.a. on the base rate of exchange in respect of foreign currency OR 12% Credit Linked Capital Subsidy on eligible investment made for modernization, for SME Textile and Jute Industries in respect of Rupee Loans; The units are permitted to make new investment eligible under TUGS upto Rs. One crore or till the unit reaches SSI limit, whichever is higher. OR 20% Credit linked Capital subsidy (CLCS @20%) on machinery cost exclusively for power loom units in SSI sector. The cost of modern weaving machinery admissible is upto Rs. 60 lakh (i.e. Subsidy ceiling is Rs. 12 lakh). For units graduating out of SSI and Medium Sector Enterprises (MSEs): The borrowers can avail 5% interest reimbursement on the interest actually charged in respect of rupee loan or coverage of exchange rate fluctuation not exceeding 5% p.a. from the base rate or cost of forward cover

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premium upto 5% p.a. on the base rate of exchange in respect of foreign currency loan.

Eligible Borrowers SME units, SME units graduating out of the sector after implementation of the scheme and MSEs in the Textile sector and Cotton Ginning and Pressing sector can be covered. Debt Equity Ratio Not to exceed 2:1 for the company/firm/concern as a whole

Direct Discounting Scheme - Equipment (DDS-E) Purpose To enable manufacturers - sellers in SME sector / service sector including construction / selling agents to offer deferred payment terms for credit sales and realize sale proceeds by discounting bills of exchange / promissory notes arise out of such sales. Eligible Borrowers Limits are sanctioned by SIDBI to well established concerns / corporate bodies buying machinery / capital equipment from SME units. Limits are also sanctioned to well established SME manufacturers - sellers Norms Usance of Bills - Normally 3-5 years Minimum transaction value - Rs.1, 00,000

Composite Loan Scheme (CLS) Purpose: Assistance for equipment and/or working capital as also for work sheds
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Eligible Borrowers: Artisans, village and cottage industries and small and medium industries

Norms: Loan Limit - Not to exceed Rs.2.5 million

Single Window Scheme (SWS)

Purpose To provide both term loan for fixed assets and loan for working capital through the same agency. The total working capital requirement of such units inclusive of all fund based facilities may be taken into account for determining the working capital facility eligible for refinance

Eligible Borrowers Entrepreneurs setting up new projects in SSI / tiny sector, new promoters acquiring unencumbered fixed assets of existing SSI concerns from PLIs, as also existing well run units undertaking modernization / technology up gradation and potentially viable sick units undertaking rehabilitation scheme

Norms Scheme operated through SFCs / twin function IDCs / scheduled commercial banks / eligible state co-operative banks / scheduled urban cooperative banks Term Loan - Not to exceed Rs.20 million

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CREDIT GUARANTEE FUND SCHEME FOR SMEs: Introduction There are an estimated 128.44 lakh registered and unregistered micro, small and medium enterprises (MSMEs) in the country at the end of March 2007, providing employment to an estimated 309.11 lakh persons. The MSME sector contributes about 39% of the manufacturing sector output and 33% of the nations exports. Of all the problems faced by the MSMEs, non -availability of timely and adequate credit at reasonable interest rate is one of the most important. One of the major causes for low availability of bank finance to this sector is the high risk perception of the banks in lending to MSMEs and consequent insistence on collaterals which are not easily available with these enterprises. The problem is more serious for micro enterprises requiring small loans and the first generation entrepreneurs. The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) was launched by the Government of India to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme. The Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises. The scheme was formally launched on August 30, 2000 and is operational with effect from 1st January 2000. The corpus of CGTMSE is being contributed by the Government and SIDBI in the ratio of 4:1 respectively and has contributed Rs.1346.54 crore to the corpus of the Trust up to

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September 30, 2007. Based on the future requirement, the corpus is likely to be raised to Rs.2500 crore.

Eligible Lending Institutions The institutions, which are eligible under the scheme, are scheduled commercial banks (Public Sector Banks/Private Sector Banks/Foreign Banks) and select Regional Rural Banks (which have been classified under Sustainable Viable category by NABARD). National Small Industries Corporation Ltd. (NSIC), North Eastern Development Finance Corporation Ltd. (NEDFi) and SIDBI have also been made eligible institutions. As on September 30, 2007, there are 62 Member Lending Institutions (MLIs) of the Trust, comprising 28 Public Sector Banks, 13 Private Sector Banks, 18 Regional Rural Banks and 3 other Institutions viz., NSIC, NEDFI and SIDBI.

Eligible Credit Facility The credit facilities which are eligible to be covered under the scheme are both term loans and working capital facility up to Rs.50 lakh per borrowing unit, extended without any collateral security or third party guarantee, to a new or existing micro and small enterprise. For those units covered under the guarantee scheme, which may become sick owing to factors beyond the control of management, rehabilitation assistance extended by the lender could also be covered under the guarantee scheme. It is noteworthy that if the credit facility exceeds Rs.50 lakh, it may still be covered under the scheme but the guarantee cover will be extended for credit assistance of Rs.50 lakh only. Another important requirement under the scheme is that the credit facility should be availed by the borrowing unit from a single lending institution.

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However, the unit already assisted by the State Level Institution/NSIC/NEDFi can be covered under the scheme for the credit facility availed from member bank, subject to fulfillment of other eligibility criteria. Any credit facility in respect of which risks are additionally covered under a scheme, operated by Government or other agencies, will not be eligible for coverage under the scheme.

Guarantee Cover The guarantee cover available under the scheme is to the extent of 75 per cent of the sanctioned amount of the credit facility. The extent of guarantee cover is 80 per cent for (i) micro enterprises for loans up to Rs.5 lakh; (ii) MSEs operated and/or owned by women; and (iii) all loans in the North-East Region. In case of default, Trust settles the claim up to 75% (or 80%) of the amount in default of the credit facility extended by the lending institution. For this purpose the amount in default is reckoned as the principal amount outstanding in the account of the borrower, in respect of term loan, and amount of outstanding working capital facilities, including interest, as on the date of the account turning Non-Performing Asset (NPA).

Tenure of Guarantee The Guarantee cover under the scheme is for the agreed tenure of the term loan/composite credit. In case of working capital, the guarantee cover is of 5 years or block of 5 years.

Fee for Guarantee The fee payable to the Trust under the scheme is one-time guarantee fee of 1.5% and annual service fee of 0.75% on the credit facilities
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sanctioned. For all loans in the North-East Region, the one-time guarantee fee is only 0.75%.

Scheme Awareness Programmes CGTMSE has adopted multi-channel approach for creating awareness about its guarantee scheme amongst banks, MSE associations,

entrepreneurs, etc. through print and electronic media, by conducting workshops/seminars, attending meetings convened at various

district/state/national forum, etc. As on 30 September 2007, 527 workshops and seminars were conducted on Credit Guarantee Scheme. Also, CGTMSE participated in 15 exhibitions and attended 165 SLBC/meetings convened by RBI/other Government offices. Posters and mailers have been circulated to banks, industry associations, and other stakeholders for promoting the scheme and creating its greater awareness. With a view to imparting training to MLIs through their training colleges, multimedia CD-ROM containing operational modalities of the scheme, was distributed to the staff training centers/colleges of the MLIs. The Trust has recently launched an advertisement campaign in 194 newspapers across the country through DAVP, which has created considerable awareness about the scheme among the target audience.

Operational Highlights of CGTMSE As on September 30, 2007, 81345 proposals from micro and small enterprises have been approved for guarantee cover for aggregate credit of Rs.2152.20 crore, extended by 44 MLIs in 35 States/UTs. As a result of increased awareness campaigns of CGTMSE and active support of all the

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stakeholders, the pace of proposals being accepted for guarantee cover has gone up significantly. A year-wise growth position is indicated in the table below:

NSIC SCHEMES Bill Financing Bills drawn by small scale units for the supplies made to the reputed and well established enterprises and duly accepted by them will be financed / discounted by NSIC for a maximum period of 90 days.

Working Capital Finance Finance for augmenting working capital of viable and well managed units, on selective basis in case of emergent requirements, to enable them to payoff their purchases of consumable stores and spares and production related overheads particularly electricity bills, statutory dues, etc. Export Development Finance Finance for export development to export oriented units for meeting their emergent requirements. Pre and post shipment finance shall also be provided to such units at usual terms & conditions.

The Equipment Leasing Scheme The object of the Leasing Scheme is to assist SSI Units to procure industrial equipment for modernization, expansion and diversification of their industries. Eligibility Exclusively for existing && financially viable SSI units including ancillary units, duly registered as SSI units with the Directorate of Industries.
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Benefits 100% financing at very liberal terms with easy repayment schedule. Simple formalities and speedy sanction. Single window system for imported equipment. The Corporation undertakes to complete formalities like procuring import license, opening of Letter of Credit etc. Tax rebate on full 5 year lease rental.

Basic Terms Lease period of 5 years extendable by another 3 years. Repayment as lease rental at the rate of Rs.24 per Rs.100 per month of the cost of machine. There is no separate interest. Minimum assistance provided is Rs.100,000 and maximum subject to SSI ceiling of Rs.6,000,000 or Rs.7,500,000 in case of an ancillary unit. The value of installed machinery at original cost including value of the machine proposed to be obtained under leasing should not exceed Rs.6,000,000 or Rs.7,500,000 in case of an ancillary unit.

The unit will have to pay the following before the order for equipment can be placed on the supplier. Amount equal to three months rental (six months rental for special equipment) and Approximately 7% cost of the equipment (8% for Imported equipment) to cover the insurance charges of the machinery for the period of lease i.e. 5 years and administrative charges of the Corporation.

The unit/party must carefully read the terms and conditions and also the list of the documents to be furnished along with the application as printed on the application form. The party will have to execute an Agreement Bond

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before delivery of machine. Payment of lease rental will start after three months of delivery of machine. The cost of the application form is Rs.25/-.

The application can be submitted to NSIC Branch Office/Regional Office of the area in which the unit is located.

MAIN SCHEMES OF SIDBI National Equity Fund Scheme which provides equity support to small entrepreneurs setting up projects in Tiny Sector.

Technology Development & Modernization Fund Scheme for providing finances to existing SSI units for technology up gradation / modernization.

Single Window Scheme to provide both term loan for fixed assets and loan for working capital through the same agency. Composite Loan Scheme for equipment and/or working capital and also for work sheds to artisans, village and cottage industries in Tiny Sector.

Mahila Udyami Nidhi (MUN) Scheme provides equity support to women entrepreneurs for setting up projects in Tiny Sector.

Equipment Finance Scheme for acquisition of machinery/equipment including Diesel Generator Sets which are not related to any specific project. Venture Capital Scheme to encourage SSI ventures/sub- contracting units to acquire capital equipment, as also requisite technology for building up of export capabilities/import substitution including cost of total quality

management and acquisition of ISO-9000 certification and for expansion of capacity.

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ISO 9000 Scheme to meet the expenses on consultancy, documentation, audit, certification fee, equipment and calibrating instruments required for obtaining ISO 9000 certification.

Micro Credit Scheme to meet the requirement of well managed Voluntary Agencies that are in existence for at least 5 years; have a good track record and have established network and experience in small savings-cum-credit programmes with Self Help Groups (SHGs) individuals.

New Schemes (i) To enhance the export capabilities of SSI units. (ii) Scheme for Marketing Assistance. (iii) Infrastructure Development Scheme. (iv) Scheme for acquisition of ISO 9000 certification. (v) Factoring Services and (vi) Bills Re-discounting Scheme against inland supply bills of SSIs.

Major Schemes Technology Development & Modernization Fund SIDBI has set up Technology Development & Modernization Fund (TDMF) scheme for direct assistance of small sale industries to encourage existing industrial units in the sector, to modernize their production facilities and adopt improved and updated technology so as to strengthen their export capabilities. Assistance under the scheme is available for meeting the expenditure on purchase of capital equipment acquisition of technical knowhow, up gradation of process technology and products with thrust on quality

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improvement, improvement in packaging and cost of TQM and acquisition of ISO-9000 series certification.

SIDBI in July 1996 had permitted SFCs and promotional banks to grant loans for modernization projects costing upto Rs. 50 lakhs. The Coverage of the TDMF scheme has been enlarged w.e.f. 1.9.1997. Non-exporting units and units which are graduating out of SSI sector are now eligible to avail assistance under this scheme.

National Equity Fund National Equity Fund (NEF) under Small Industries Development Bank of India (SIDBI) provides equity type assistance to SSI units, tiny units at five per cent service charges. The scope of this scheme was widened in 2000-01 raising the limit of loan from Rs. 6.25 lakhs to Rs. 10 lakhs and project cost limit from Rs. 25 lakhs to Rs. 50 lakhs. (a) The following are eligible for assistance under the scheme:i. New projects in tiny and small scale sectors for manufacture, preservation or processing of goods irrespective of the location (except for the units in Metropolitan areas). ii. Existing tiny and small scale industrial units and service enterprises as mentioned above (including those which have availed of NEF assistance earlier), undertaking expansion, modernization,

technology up gradation and diversification irrespective of location (except in Metropolitan areas). iii. Sick units in the tiny and small scale sectors including service enterprises as mentioned above, which are considered potentially

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viable, irrespective of the location of the units (except for the units in Metropolitan areas). iv. All industrial activities and service activities (except Road Transport Operators).

(b) Project cost (including margin money for working capital) should not exceed Rs. 50 lakhs in the case of new projects in the case of existing units and service enterprises, the outlay on expansion/modernization/technology up gradation or diversification or rehabilitation should not exceed Rs. 50 lakhs per project.

(c) There is no change in the existing level of promoters' contribution at 10% of the project cost. However, the ceiling on soft loan assistance under the Scheme has been enhanced from the present level of 15% lakh per project to 25% of the project cost subject to a maximum of Rs. 10 lakhs per project.

(d) 30% of the investment is earmarked for tiny units.

Factoring Services Factoring services make available the much needed working capital to Small Scale Enterprises and is likely to induce customers to make timely payments for fear of adverse "customer-image" in the market. Factoring services are being increasingly set up, which is a good sign. Some private factoring companies have also come up. Government of India intends to bring forward legislation to promote factoring without recourse for the SSI Sector.

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Composite Loan Scheme The Scheme envisages sanction and disbursement of working capital and term loan together from a single agency. The limit for composite loans has been enhanced to Rs. 25 lakhs in the Comprehensive Policy Package.

The Scheme is operated both by banks and financial institutions. State Financial Corporations under Single Window Scheme provide working capital loan along with term loan to new tiny and small scale sector units so as to overcome the initial difficulties and delays faced by them to start production expeditiously.

Indicative Parameters - Debt-equity Ratio 3:1 in the total venture of outlay (i.e., cost of the project plus working capital requirement) after taking into account the amount of

investment/subsidy/incentive available for the project. Promoter's Contribution As may be required to arrive at the Debt Equity ratio of 3:1 Margin for Term Loan - All backward areas in the State 25% - Other areas and Municipal limits of all cities of the state 30% Rate of Interest: (Effective) II TIER I TIER Remaining During period construction implementation/ period of term loan 12.5% 13.5%

LOAN DESCRIPTION

1.TERM LOAN a) For new units in backward area

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b)For units in non-backward area 2. WORKING CAPITAL LOANS a) All loans upto Rs 2 lakhs b) All loans exceeding Rs 2 lakhs Repayment Working Capital Component

13.5%

14.5%

15.0% 16.5%

- Not exceeding 10 years (including moratorium upto 13 years) Term Loan Component - Not exceeding 8 1/2 years (including moratorium of 18 months)

Security Corporation will have first charge on fixed assets and hypothecations of the current asset. Corporation may also ask for Collateral Security against Working Capital Loan.

Terms and Conditions Working Capital loan should be availed within one year from the date of commencement of production. The unit should open a current account with a designated bank and the amount of working capital of the loan will be credited as and when disbursed by the Corporation. The unit should route its entire transaction of the business including all the receipts and payments through this account only. The unit should repay the entire working capital loan sanctioned by the Corporation at once in case the unit approached the bank for more working capital.
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The unit should provide monthly stock statement showing the position of inventory level of the Corporation. If they fail to provide the same, the Corporation may recall the loan.

All other terms and conditions would be applicable as per details given in the General Folder of the Corporation.

The above information regarding Composite Loan Scheme is by way of indicative guidance for entrepreneurs and it is not a binding obligation on a Bank/Corporation while considering the loan and is subject to change from time to time.

Tax Holiday Scheme Direct Taxes With effect from 1st April 2000, deduction in respect of profits and gains for new SMEs is available under Sec. 80IB. The deduction allowed is 25% of profits for 10 years. For units in the NE & specified backward States, the deduction allowed is 100% for first five years & 25% for the next five years. To avail deduction under Sec. 80IB the SSI unit should commence production between 1st April 1995 and 31st March 2002.

State Governments offer incentives to SMEs in respect of Sales Tax. Some give a tax holiday for periods ranging from 5 to 10 years while others offer deferment of tax.

Tax Holiday Scheme In the Union Budget for 1993-94 a five year tax holiday has been granted for new industrial undertakings located in all of the North Eastern

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States, Jammu & Kashmir, Himachal Pradesh, Sikkim, Goa and U.T. of Andaman and Nicobar Islands, Dadar and Nagar Haveli, Daman and Diu, Lakshadweep and Pondicherry. This has now been extended to backward districts (list enclosed herewith) from the year 1994-95.

Innovative Strategies to Finance SMEs The small and medium enterprises (SME) in India are the second largest employment provider, after agriculture. In fact, it creates a on-third-of our exports and provides 40% of value addition to our manufacturing sector. In developed countries like the US and Japan this sector plays equally important role. It provides 67% and 80% employment opportunities respectively and contributes 61% and 72% manufacturing out put in those countries respectively. It would be interesting therefore, to study in what way this sector could be boosted up to provide more employment opportunities in India. SMEs all over the world lean upon external finance for their survival and growth. This depends upon availability of fund to these units at a sustainable rate, at opportune time and adequate sum. Traditionally, SMEs have suffered due to high cost of funding, inadequacy and delayed disbursements.

These have happened due to: High risk on account of poor financial and marketing management. Vulnerability to high market risk and high rate of mortality Non availability of information regarding their performance on regular basis to assess and rate their strength and weaknesses.
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High transaction costs involved in financing SMEs leading to ultimately non remunerative to borrower ass well as lender

Poor margin in transactions due to involvement of middlemen SMEs poor financial condition makes them unfit to assume market and technological risks.

RECENT INNOVATIONS In recent years some initiatives have been taken by both governments and banks of developed and developing countries to make SMEs more acceptable for funding by banks. These initiatives aim to reduce cost and risk in financing SMEs. These may be summed up as follows: Venture capital funds have been floated to share risk, cost of funding and to provide support on market and management know how. Credit guarantee and rating institutions have been floated to support banks to assume risk unhesitatingly in financing SMEs More appropriate credit instruments have been developed to help SME to have facile credit with less cost and collaterals Better information systems and training modules have been developed to make SME viable and acceptable.

Despite these recent changes, SMEs need some more hand holding to become attracitive4 and viable

Existing gaps: Delivery of finance not linked with delivery of business development. Financing institutions do not assume the role of partners to SMEs both in assuming risks and assisting in management and marketing.
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Non- existence of reliable information systems to study the risk pattern and to provide market intelligence to SMEs.

Non availability of suitable debt and equity instruments to help SMEs to raise fund from the capital market.

Innovative strategy to finance SMEs Creating partnership relationship of micro financing institutions with SMEs for risk sharing. Developing equity market and venture capital for SMEs Evolving credit cards to maintain required liquidity in operation of SMEs. Building kiosks at village centers to disseminates market intelligence and data on technological up gradation and climate. Providing facilities for securitization of debts for improving liquidity of financing Developing derivative market for price risk

Recent developments Some initiatives have been taken by commercial banks in India to make SME financing less risky. In this special mention is providing rating facility. Besides this, venture capital has been floated to assume higher risk. Lending on the merit of the project rather than on the basis of collateral is gradually evolving particularly with the help of venture capital

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Change in lending strategies, ex 1. Transaction lending technology. 2. Relationship lending technology, and 3. Mixed technology, i.e. taking risk cove and sharing the risk through marketable products.

Gradual adoption innovative strategies as enumerated above by commercial hanks in India help building suitable financial environment for sustainable development of financing model for SMEs. How ever, still these banks have miles to go to reach the desire point. To comprehend this, it would be interesting to study how developed countries like Japan have responded to the needs of SMEs by diversifying financial options. Financial institutions in Japan have adopted lending based on partnership model with securitization to mitigate risk and blocking of funds. They have also made efforts to alleviate problems faced by them due to information asymmetry in SMEs financing by using recently developed micro data on SMEs with low return on assets (ROA) and poor equity ratios are paying high interest rates and eventually defaulting. These studies also have revealed that effect of adaptation strategy works as this enable SMEs to get finance at reduced interest rate than those SMEs chosen on selection basis. The age of the firm is another factor helping improve in terms of financing. In fact it has been established to a great extent that lending based on collaterals and personal guarantee has proved to be inefficient and this need to be supplemented if not substituted by relationship banking. Hence in Japan relation banking is surging ahead and collateral and personal guarantee is complimentary substitute to relationship banking. Similarly in Japan, credit guarantee schemes has helped improving not only financing environment by also the business performance of SMEs

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NEED of the hour Most of the research studies on financing of SMEs have highlighted the need to link availability of finance to SMEs to the delivery of business development to improve its viability. It is therefore necessary to evolve a model that shall provide for a partnership in between SMEs and banks. The partnership concept takes care of sharing of risk in business proportionate to their respective financial involvement. Moreover, if we extend the partnership concept further, it would also help borrower to get more acceptable rate of interest. In fact, such partnership concept may lead to sharing of earnings instead of charging interest on loan as is prevalent in Islamic sharing of earnings instead of charging interest on loan as is prevalent in Islamic banking which of late is growing in importance due to present rise in oil prices.

Moreover, it is necessary to build reliable information on SMEs to help assess market opportunities and risk management There is also an urgent need to develop equity market for SMEs. This may be done by spreading success stories of SMEs in India. It has been the findings of many research studies that SMEs mostly depend upon external capital and this should not be only loans from banks but should be partly equity raised from the market besides the nominal equity held by the promoter. In this the supportive role of mutual funds and venture capitals could be of great help in developing capital market for SMEs. Further, securitization is another area to be developed to take care of non-performing assets (NPAs) that are blocking regular flow of funds to credit institutions catering to SMEs.

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It is obvious that in India gradually banks should adopt relationship lending technology and treat transaction lending technology as a

complimentary and not a substitute strategy. Along with this risk cover and sharing of risk may help further improving SMEs financing by banks in India/

Credit Schemes 1. General Loans All Proprietary, Partnership, Private/Public Limited Companies,

Industrial Co-operative Societies for establishing tiny, small scale and medium scale industrial units and service oriented industries For acquiring assets for setting up new units and for expansion, diversification and modernisation in case of existing units. Project cost should not exceed Rs 12.00 crores.

2. Equipment Refinance Scheme Existing well performing small and medium scale units: Assisted by the Corporation, or by any other State/Central financial institution. Bank /selfFinanced. Units should be in operation for at least 4 years from the date of commercial production earned profits/declared dividends, during immediate preceding 2 years, not defaulted in repayments to institutions / bank. For acquiring identifiable items of plant and machinery/other equipments including energy saving systems, for modernization/ expansion balancing/ replacement or any other purpose except new projects Project cost including proposed eqpt. Should not exceed Rs. 12.00 crores.

3. Modernization Schemes Existing tiny, village, small and medium scale units, which are in operation atleast for 5 years. In case of replacement/renovation, the
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machinery should have been in use in the unit for a period atleast 5 years. Mere replacement of machinery or solely for expansion of capacity are not covered. Assistance for modernization. Upgradation of process/Technology & product. Export oriented. Import-substitution, Energy Saving, Anti-pollution measures -Conservation/ Substitution of scarce raw materials. -Improvement in capacity utilization through increase in productivity and debottle necking. Improvement in material handling etc., Total Project cost: Not to exceed Rs.12 crores.

4. Schemes for Hostels / Motels / Restaurants Entrepreneurs setting up Hostels/Motels/ Restaurants projects For construction of Janata/single star/Two star/Three Star hotels, setting up of restaurants with motel projects with wayside restaurants and lodging facilities of about 10 rooms/dormitory. Assistance is considered to acquire land, building, plant & machinery, kitchen equipment, furniture & fixtures, crockery & cutlery, etc. - Approvals from Dept of Tourism, Govt. of AP and Govt. of India. - Muncipal approval for building plans. - Minimum standards fixed by State/Central governments. - For motels on par with Janata Category - Minimum land area required for: Janata Hotel :500sq.yds 1&2 Star Hotels:750sq yds. 3 star Hotels:1000 sq. yds

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5. Scheme for Tourism Related Facilities Entrepreneurs setting up Tourism Related activities For setting up of - Development of Amusement Parks - Cultural Centres/ Conventional Centres, Restaurants. - Travel, Transport and - Tourist Service Agencies Cost of project: Need-based -Approvals from Tourism Dev. Agencies.

6. Assistance to hospitals / Nursing Homes Entrepreneurs setting up Allopathic Nursing Homes/Hospitals having qualified PG Doctors(MD/MS) on full-time basis having a minimum bed strength of 10. Ayurvedic/Homeopathic/ Unani/Naturopathy Nursing Homes are not eligible. -For setting up Nursing Homes/ Hospitals. For expansion/ modernization of existing nursing homes. -Assistance for land, building, medical equipment including diagnostic and therapeutic eqpt., air-conditioners, ambulance etc. Cost of project: Need based Not exceeding Rs.12.00crores per project

7. Assistance acquiring Electro-medical eqpt. Qualified Doctors. -For acquiring Electro-medical/other related equipment medical practitioners use/Entrepreneurs employing qualified

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Cost of project: Need based Cost of equipment up to Rs. 60.00lakhs- Refinance from SIDBI. Above Rs.60.00 lakhs-Refinance from IDBI.

8. Assistance for DG sets Any existing unit -For acquiring DG sets Standard Make.

9. Scheme for acquiring Bore well Drilling Rigs All entrepreneurs who propose to acquire Bore well Drilling Rigs. -For acquiring Bore well Drilling Rigs with Transport vehicle chassis. Project cost: Need based.

10. Civil Contractors Scheme Proprietary/Partnership Firms, Private/Public Limited companies of Class I &II Civil Contractors. -For working capital to meet short term working capital (maintenance expenses) requirements. Proprietary & Partnership Firms: upto Rs.120 lakhs Private & Public Ltd Companies: upto Rs.240 lakhs.

11. Assistance for setting up Industrial Estates. Any entrepreneur interested for development of contiguous land into industrial estate/area. Minimum land required 10 acres. Proposals should include construction of industrial sheds. For purchase of land, cost of land development, cost of stamp duty etc, for development of infrastructural facility such as approach roads, drainage, water supply system, and power

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distribution lines, central effluent treatment plant, construction of industrial shed/multi-storied industrial buildings, etc., Cost of project not exceeding Rs.12.00crores.

12. Scheme for Qualified Professionals Qualified professionals in the fields of Management, Accountancy, Medicine, Engineering etc. for setting up own professional practice/ consultancy ventures and for acquiring additional equipment for existing/ established professional firms. Assistance for acquiring land, building, furniture & fixtures and related equipment. Cost of land, building should not exceed 50% of total project cost. Cost of project below Rs.20.00 lakhs.

13. Single Window Scheme New tiny and SSI units To provide term loan and Working Capital Term Loan. Venture outlay shall not exceed Rs.100.00 lakhs including working capital 14. Scheme for Technology Development and Modernization. Sole proprietary, partnership firms, Co-operative Societies, Private & Public Limited Companies of small scale industrial units including ancillary units which are going in for modernization/ technology up gradation which should be in operation for 3 years and not defaulted to institutions and banks. For purchase of capital equipment, need-based civil works, acquisition of land, acquisition of technical know-how, designs, drawing, up gradation of process technology and products, improvement in packaging, cost of TQM and acquisition of ISO 9000 series Certificate and additional/ incremental margin money for working capital.

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Project outlay not to exceed Rs.100 lakhs. Outlay on land and building should not exceed 25% of the project cost. Minimum promoters contribution 25% of the project cost.

15. Poultry Farm Scheme New and experienced promoters are eligible to set up poultry farms of layers/Broilers/Parental broilers with minimum of 15,000 birds capacity. Assistance for acquiring land, construction of civil works, machinery and initial stock of chicks, feed, medicines and vaccines. Project cost: Need based.

16. National Equity Fund Scheme New projects in tiny and SSI sectors irrespective of location. Existing tiny & SSI and service enterprises except transport operators undertaking expansion/modernization, irrespective of location. technology upgradation and diversification

Sick units in tiny & SSI sector including service

enterprises. Units in Metropolitan area, projects which avail of any margin money or seed/special capital assistance under Schemes of Central/State Governments, SFCs and other State level institutions or banks (except State investment subsidy) are not eligible for assistance. For acquiring assets to establish tiny and small scale units. Project cost: Not exceeding Rs.10.00 lakhs for new units and for existing projects including outlay on modernization /expansion etc. Promoters contribution: Minimum of 10% of project cost. Soft loan: 25% of project cost with 1% service charge. DER-1.857:1

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Other Schemes: 17. Composite Loan Scheme For setting up units in cottage, village and tiny sector and in places where the population is less than five lacs. However, the population restriction does not apply to artisans. For equipment and/or working capital as also for work sheds. Project cost not exceeding Rs.50, 000/- Promoters contributionNil

18. Scheme for SC/ST Entrepreneurs Entrepreneurs belonging to SC/ST community For setting up industrial and service units For projects less than Rs.50,000/Promoters contribution-Nil

19. Scheme for Physically handicapped persons. Physically handicapped entrepreneurs. For setting up industrial and service units For projects less than Rs. 50.000/- promoters contribution-Nil

20. Merchant Banking a) Working Capital Term loan Existing units assisted by the Corporation/units availed term loan not less than Rs.5.00 lakhs earlier and have closed the loan account/units financed by the Corporation and in operation for more than 3 completed years and have earned net profits for the last 3 years, regular in repayment to the financial institutions, should not have availed reschedulement facility more than once from the corporation.
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Assistance below Rs 150 lakhs to meet short term working capital requirements of existing units and other purposes, except for speculative purposes, except for speculative purpose. Loans above Rs.50.00 lakhs are considered for short term working capital requirements only. Total assistance to all the associated units of a group of companies shall not exceed Rs.300.00 lakhs. Loan shall be a minimum of Rs.150 lakhs Loan shall be secured by collateral security of 150% Loan repayment period: For loans upto Rs.10.00 lakhs 12 months From Rs.10.00 lakhs to Rs.25.00 lakhs 18 months From Rs.25.00 lakhs to Rs. 50.00 lakhs-24months From Rs.50.00 lakhs to Rs.150.00 lakhs-36 months above Rs.150.00 lakhs to Rs.240 lakhs repayment shall be fixed on case to case basis.

b) Bill Discounting (Purchase Bills) Only well-established and reputed companies having proven track record with a minimum 3 years of operation, earned net profits for the last 3 years, with satisfactory bankers opinion, should not have defaulted to financial institutions/banks and should not be in arrears or statutory dues. -Facility shall be extended for industrial products / components / raw materials etc., for the borrower concerns towards working capital requirement other than consumables.

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Maximum limit for sanction Rs.90.00 lakhs. The sanction limits shall be secured by collateral security of urban immovable property to the extent of 150%

c) Public Issue Appraisal Pre-issue appraisals Public issue management such as working as lead managers, Co managers, participation in equity, underwriters to the issue, Capital Structure, Loans Syndication etc.

d) Equipment Lease Industrial concerns eligible for availing term loans from the Corporation falling under categories of A++ and A+ category of Good Entrepreneurs. For acquiring new equipment form standard and reputed suppliers. The cost of the equipment shall be Rs.10.00 lakhs and above. Maximum assistance shall not exceed the value of productive equipment /machinery owned by the industrial concern. Maximum assistance is Rs.150.00 lakhs in case of Corporation /Companies, Rs.90.00 lakhs in case of partnership concerns and Rs. 60.00 lakhs in case of sole proprietary concerns. The lease period shall not be for more than 3 years.

e) Hire Purchase assistance Industrial concerns assisted by our Corporation falling under A++ and A+ categories good entrepreneurs having proven track record with a minimum 3 years of operation, earned net profits for the last 3 years, with satisfactory

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banker opinion, should not have defaulted to financial institutions/banks and should not be in arrears or statutory dues. For acquiring machinery/equipment of general purpose nature and special purpose nature having high saleability and shall be procured from standard and reputed suppliers. The cost of the equipment shall be Rs.10.00 lakhs and above. Maximum assistance shall not exceed the value of productive equipment /machinery owned by the industrial concern. Maximum assistance is Rs.150.00 lakhs in case of Corporation /companies, Rs. 90.00 lakhs in case of partnership concerns and Rs, 60.00 lakhs in case of sole proprietary concerns. The repayment period shall not be for more than 3 years.

LIST OF KEY FINANCIAL INSTITUTIONS

INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI) INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI) INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) EXPORT-IMPORT BANK OF INDIA (EXIM BANK) INDUSTRIAL RECONSTRUCTION BANK OF INDIA (IRBI) SHIPPING CREDIT AND INVESTMENT CORPORATION OF INDIA (SCICI) INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD. (IL&FS) TECHNOLOGY DEVELOPMENT AND INFORMATION CORPORATION OF INDIA LTD. (TDICI)

RISK CAPITAL AND TECHNOLOGY FINANCE CORPORATION LTD. (RCTFC) TOURISM FINANCE CORPORATION OF INDIA (TFCI) NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMENT (NABARD) 76

NATIONAL SMALL INDUSTRIES CORPRATION (NSIC) STATE FINANCIAL CORPORATIONS (SFCs) STATE INDUSTRIAL DEVELOPMENT CORPORATIONS STATE INDUSTRIAL INVESTMENT CORPORATIONS (SIICs) STATE SMALL INDUSTRIES DEVELOPMENT CORPORATIONS (SSIDCs) SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) NATIONAL CO-OPERATIVE DEVELOPMENT CORPORATION (NCDC)

A Guide to Banking and Finance How to approach financial institutions? Just like any other businesses when you get referrals from the others, it is generally easier and less stressful to have your friends and business associates introduce familiar financial institutions to you. If you do not know anyone who can refer a financial institution to you, you can consult bank branches where you maintain personal bank account. The branch manager will generally be glad to refer you to their commercial departments when their marketing professional will approach you to identify your financing needs.

Whether to choose banks or finance companies depend upon your needs. With the current development in the commercial finance sectors in Hong Kong, there are increasingly more finance companies that are providing professional financial services that can compare with banks. Many commercial finance companies have started to provide many new and more innovative financing that is not available in banks. The difference between obtaining financing from banks or finance companies is becoming smaller and

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smaller. The most important factor for you is to decide who is providing the most suitable financing solutions for your company.

Since financial institutions are risk averse, they would only finance companies that they deem are of low risks. Of course, each financial institution has a different way to evaluate risks and has different degrees of tolerance of risks. Generally speaking, financial institutions would evaluate the following areas before deciding whether to grant credit facilities to a commercial enterprise: i) Management ii) Acceptable financial conditions iii) Collateral Value iv) Sound and feasible business and plans v) Positive outlook of industry vi) Clean litigation records

Management Management is the key to the success of any organization, regardless of its size. Therefore, a financial institution will evaluate management to ensure they have the ability to operate the company in ways that the company that repays loans. Some of the key questions that you, as managers, will be judged by financial institutions. i. Is the management competent and knowledgeable about their business? ii. Is the management experienced in the business? iii. Is the management committed to the business? iv. Does the management/shareholder(s) have the resources to support the business in the event of business difficulties?
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Acceptable financial conditions Financial statements are basically one of the most important piece of information used by financial institutions in evaluating a company's credit standing. It is because decision-makers in a financial institution "Do not generally" know SME personally. Financial statement is an "Objective" report card of your business and it separates between "Dream" and "Reality " of a SME.

Having financial statements prepared and audited by an external auditor on a timely basis will help financial institutions know your financial conditions more clearly and objectively. This is especially important during the current liquidity crunch in Hong Kong.

If your fiscal year is March 31 and today is September 1, 1998, your audited financial statements as of March 31, 1997 will be too "Old" and financial institutions would not be able to ascertain your financial condition in 1998. If you are in need of heavy financing support from financial institutions, you can consider having your external auditor prepare your financial statements twice a year. With better and more timely reporting, you will be able to win stronger support from your financial institutions.

Government Funding and Schemes An entrepreneur requires a continuous flow of funds not only for setting up of his/ her business, but also for successful operation as well as regular up gradation/ modernization of the industrial unit. To meet this requirement, the Government (both at the Central and State level) has been undertaking

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several steps like setting up of banks and financial institutions; formulating various policies and schemes, etc. All such measures are specifically focused towards the promotion and development of small and medium enterprises. The public sector banks are the major source of financial assistance to the industrial sector. They extend credit support to the firms in the form of loans, advances, discounting bills, project financing, term loans, export finance, etc. Some of the major examples of such banks are:-

STATE BANK OF INDIA (SBI) provides a wide range of financial products and services that can cater to any business or market requirement. It deploys multiple channels to deliver integrated solutions for all financial challenges faced by the corporate universe. Its various funding schemes are:

Working capital finance, extended to all segments of industries and services sector.

Corporate term loans to support capital expenditures for setting up new ventures as also for expansion, renovation, etc.

Deferred payment guarantees to support purchase of capital equipments. Project finance Structured Finance The bank also provides financial assistance to agriculturists through a

network of rural and semi-urban branches. These specialized branches have been set up in different parts of the country exclusively for the development of agriculture through credit deployment. Their schemes cover a wide range of agricultural activities like crop loan, finance to horticulture, farm mechanization

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schemes, land development schemes, minor irrigation projects, agricultural term loans, etc.

BANK OF BARODA offers various products and services that meet the specific requirements of business enterprises, particularly the small scale units. Various schemes relating to the provision of loans and advances by the bank include:

Working Capital Finance Term Finance Small and Medium Enterprise (SME) Loan Pack Small Business Borrowers Traders Loan

ANDHRA BANK has also devised a host of loan schemes to meet the financial requirements of an enterprise. These particularly cater to the corporate and agricultural sector. Some of its important funding options include:

Working Capital Loans Export & Import Finance Advance against Shares Term Finance Corporate Loans Project Finance Infrastructure Project Finance Kisan Vikas Card Kisan Sampathi

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Self Help Groups-Bank Linkage Programme Kisan Green Card

GOVERNMENT FUNDING SCHEMES Small scale industries need credit support on a continuous basis for running the enterprise as well as for its diversification and modernization. Recognizing the need for a focused financial assistance to such industries, the Government of India, together with the State Governments, has formulated several policy packages including schemes and funds for their growth and development. Most of these programmes of the Central Government are implemented through two principal organizations:1. Small Industries Development Organization (SIDO) is an apex body for promotion and development of small scale industries in the country. Its major activities include:

Advising

the

Government

on

formulation

of

policies

and

programmes for the small-scale industries.

Conducting periodical census/survey of the small scale industry and generating data/reports on various important parameters/indicators of growth and development of the sector.

Maintaining close liaison with other Central Ministries, Planning Commission, State Governments, Financial Institutions and other organizations concerned with the development of small-scale industries.

Facilitating linkage of small-scale industries as ancillaries to large and medium scale industries.

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Developing human resource base through training and skill up gradation.

For achieving its objectives, SIDO has devised a comprehensive range of schemes for providing credit facilities, technology support services and marketing assistance, etc. Some of the major schemes are:

Credit Linked Capital Subsidy Scheme for Technology Up gradation Credit Guarantee Scheme ISO 9000/ISO 14001 Certification Reimbursement Scheme Integrated Infrastructure Development (IID Scheme) SSI MDA Scheme Assistance to Entrepreneurship Development Institutes Micro Finance Programme

2. National Small Industries Corporation Ltd (NSIC), has been established with the objective of promoting, aiding and fostering the growth of small scale industries in the country. It has been assisting small enterprises through a set of specially tailored schemes which facilitate marketing support, credit support, technology support and other support services.

Marketing support schemes: - sound marketing is critical for the growth and survival of small enterprises. NSIC acts as a facilitator to promote small industries products and has devised a number of schemes to support small enterprises in their marketing.

Credit support schemes:- NSIC facilitates credit requirements of small enterprises in several areas. These include:

Equipment financing:- through schemes like 'Hire Purchase' and 'Term Loan' for the procurement of equipments.

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Financing for procurement of raw material:- by facilitating bulk purchase of basic raw materials at competitive rates, import of scares raw materials, etc. NSIC also takes care of all the procedures, documentation and issue of letter of credit in case of imports.

Financing

for

marketing

activities:-

such

as

internal

marketing, exports and bill discounting, etc.

Financing through syndication with banks:- by entering into strategic alliances with commercial banks so as to facilitate fund requirement of the small enterprises. It involves an arrangement of forwarding the loan applications of the interested small enterprises to the banks.

Performance and credit rating scheme for small industries:so as to enable the small enterprises to ascertain the strengths and weaknesses of their existing operations and take corrective measures accordingly. NSIC is operating the scheme through agencies like ICRA, ONICRA, Duns & Bradstreet(D&B), CRISIL, FITCH, CARE and SMERA.

Technology support schemes:- NSIC offers small units various support services through its 'Technical Services Centres' and 'Extension Centres'. The services provided include advise on application of new techniques; material testing facilities through accredited laboratories; energy and environment services at selected centres; classroom and practical training for skill up gradation, etc.

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At the State level, various State Financial Corporations (SFCs) have been set up by the respective State Governments for providing financial assistance to the industrial units. For this purpose, these institutions have brought out several funds and schemes, from time to time. There are 18 State Financial Corporations (SFCs) in the country. For example:-

Small and Medium Enterprises in India: Facts and Figures CURRENT SCENARIO ( 2005-06 ) Total Number of SSI Units Number of Registered Units Number of Unregistered Units Number of Women Enterprises Women managed enterprises Growth Rate of SSI sector (%) Total Industrial Sector Growth Rate (%) Employment (Lakh persons) Total Employment in the Industrial sector (Lakh persons) Production (at current prices) (Rs. Cr.) Fixed Investment (Cr.) Total Exports of India (Rs. Cr.) Number of Sick Units (March 2005) 12341665 18070807 10470858 1063721 995141 12.32 8.1 294.91 1944.44 497842 181423 456417.86 138041

85

Growth in Small and Medium Scale Industries during Census Periods in India (1972, 1987-1988 and 2001-2002) Parameter Units (Nos.) Employment(Nos.) Fixed Investment(Rs. in lakh) Investment in P & M (Rs. in lakh) Production(Rs. in lakh) 1st Census 2nd Census 3rd Census 139577 1653478 79674 53696 26074 582368 3665810 929603 554258 *CARG1 *CARG2 *CARG3 (%) (%) (%) 1374974 9.99 6.33 8.21 6163479 5.45 3.78 4.64

9179207 17.80 17.77 17.78 3032868 16.84 12.91 14.92

4297205 20325462 20.55 11.74 16.22

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CHAPTER 3

ANALYSIS AND DISCUSSION

The objective of this chapter is to analyze various credit facilities available to SMEs. Attempts have been made to highlight the awareness of different schemes offered by the public, private banks and the governmental agencies like SIDBI, SFC and MSME based on the empirical evidence obtained by the researcher. Moreover, efforts are also made to analyze the reasons for the problems that are identified so as to suggest appropriate measures to resolve the problems.

It is observed during the survey that the SMEs are suffering from several problems which hamper their growth. The industries concerned are small but their problem seen to be many. It is observed that every unit is facing by one problem or other depending on its size and structure. The Root cause for all the above problems are lack of availability of credit. The entrepreneurs are lack of knowledge regarding the credit facilities available to them. Though the government and its agencies are providing all sorts of credit facilities in various forms, the small and medium enterprises are unaware of the credit facilitates offered by the industrial promotion banks and agencies

Financial Problems: As pointed out earlier, this second part of the chapter brings out the financial problems of small units. Efforts have been made to analyze the various financial problems of small sectors. The analysis is done based on the data obtained from the sample units and care is taken to draw out meaningful conclusions.

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Sources of Finance: For most of the owners in small scale sector, shortages of finance or capital is considered to be the most important factor responsible for a host of problems faced by them. Small units generally depend on two kinds of

capital, viz., 1. Own capital and 2. Borrowed capital consisting of (i) Long term capital for its investment in equipment and other capital assets and (ii) short term capital to meet current needs of the industry.

Own capital or equity capital is usually provided by

the industrialists

themselves. It is sometimes supplemented by the resources raised from friends and relatives either as partners or shareholders. Small entrepreneurs generally do not encourage equity capital from outside agencies as it involves sharing of management and control. Much of this initial capital is required for the purchase of fixed assets like land, building, plant equipment and the balance for working capital.

Owned capital may not be sufficient to meet the long term needs. In such a case, besides the own capital, long term capital is needed for expansion and renovation of plant and modernization of machinery. Short term credit is needed for working capital to buy raw materials and stores, to pay wages, to hold stocks of finished goods etc.

Financing Small and Medium Units: The facilities available for financing small and tiny units in Guntur District are reflected in the analysis of the actual amount of loans granted to them by various organized and un organized agencies, besides their own funds invested by the industrialists in their respective units.
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Table- 3.1: About Line of Activity S. No 1 2 3 Particulars Manufacturing Service Any other Total No. of Percentage Respondents (%) 59 31 10 100 59.00 31.00 10.00 100.00

Line of Activity
70 60 No. of Respondents 50 40 31 30 20 10 10 0 Manufacturing Service Line of Activity Any other 59

Out of the hundred respondents met 59% are in manufacturing activity, 31% are offering services to the customers and remaining 10% are in other areas of business. The manufacturing activities consists of producing automobile spare parts, agricultural pump sets, computer forms, textile yarn, cotton ginning mills and tobacco related products. In the service sector the SMEs are in automobile service, hospitals, and hotels etc. Guntur district is very famous for its cold storages. The cold storages comes under the purview of service sector SMEs.

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Table- 3.2: About Form of organization S. No 1 2 3 4 Particulars Sole Trader Partnership Firm Co-operative Society Private Limited Total No. of Percentage Respondents (%) 25 45 6 24 100 25.00 45.00 6.00 24.00 100.00

Form of Organization
50 45 40 No. of Respondents 35 30 25 20 15 10 5 0 Sole Trader Partnership Firm Co-operative Society Private Limited Form of Organization 6 25 24 45

From the above table and graph it shows that majority of the SMEs belongs to partnership type of organizations comes to 45%. 25% of the respondents belong to sole trader ship of business. 24% of the SMEs registered under companies act and next 6% of the firms registered under the co-operatives act. This shows clearly that the industrial organizations are very much interested in form their business under the partnership act, because the formation and dissolving the partnership is very simple. Thats why the management consultants like the chartered auditor support formation of partnership at initial stages, for its low cost operations and less obligated to government enactments and they are free from mandatory obligation put forth by the companies act.

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Table- 3.3 : Sources of Borrowed Capital S. No 1 2 3 4 5 6 No. of Percentage Respondents (%) 46 15 13 16 06 04 100 46.00 15.00 13.00 16.00 06.00 04.00 100.00

Particulars Commercial Banks State Financial Corporation Commercial banks and SFC Friends and Relatives Money Lenders APSSIDC Total

Sources of Borrowed Capital

4% 6% 16% 46% Commercial Banks State Financial Corporation Commercial banks and SFC Friends and Relatives 15% Money lenders APSSIDC

13%

From the above table and graph it is quite clear that the credit facilities are offer by the commercial banks about 46% , next comes the friends and relatives. The state financial corporation is funding around 15% of the respondents. The state financial corporation with collaboration with the commercial banks are offering credit to 13% of the respondents. Still the SMEs are depending upon the money lenders 4%. These money lenders charge more rate of interest, this is also one of the major financial problems faces by the SMEs. The state governments APSSIDC also providing minimum credit support to the 4% of the respondents.
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Table- 3.4 : Investment Outlay S. No 1 2 3 4 Particulars 10 Lakhs to 25 Lakhs 25 Lakhs to 2 Crores 2 Crores to 5 Crores 5 Crores to 10 Crores Total No. of Percentage Respondents (%) 59 24 15 2 100 59.00 24.00 15.00 2.00 100.00

Investment Outlay
70 60 No. of Respondents 50 40 30 20 10 0 10 Lakhs to 25 Lakhs 25 Lakhs to 2 Crores 2 Crores to 5 Crores 5 Crores to 10 Crores Investment Outlay 24 15 2 59

From the study it was observed that 59% of the respondents are investing in between Rs10 25 lakhs in their business, 24 % respondents are investing in between Rs25 lakhs 2 crores. 15% of the respondents are investing in between Rs 2 crores to 5 crores and 2% of the respondents investment is in between Rs5 10 crores in their business. so from the above table it is clear that most of the respondents investment in their business is in between Rs10 25 lakhs

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Table- 3.5 : Working Capital Vs Fixed Assets S. No. of Percentage Particulars No Respondents (%) 1 2 3 4 50 50% 40 60% 30 70% 20 80% Total 10 20 15 55 100 10.00 20.00 15.00 55.00 100.00

Working Capital - Fixed Assets

60 50 No. of Respondents 40 30 20 20 10 10 0 50 - 50% 40 - 60% 30 - 70% 20 - 80% 15 55

From the above table it is clear that the no of respondents with 50- 50% composition of fixed assets to working capital are 10. The no of respondents with 40 60% composition of fixed assets to working capital are 20. The no of respondents with 30 70% composition of fixed assets to working capital are 15. The no of respondents with 20 80% composition of fixed assets to working capital are 55.

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Table- 3.6 : Categories of Units S. No 1 2 3 4 Particulars Small Scale Medium Scale Micro Scale Public Private Participation Total No. of Percentage Respondents (%) 24 15 59 2 100 24.00 15.00 59.00 2.00 100.00

About Scheme of Unit

70 60 No. of Respondents 50 40 30 20 10 0 Small Scale Medium Sclae Scheme Micro Scale PPF 24 15 2 59

59% of the units are under micro scale category, followed by 24% of the units are under small scale , 15% of the units come under medium scale and remaining 2% comes under public private participations. The Guntur district municipal corporation entered into joint ventures with Ramky group of Hyderabad to produce electricity through BIO-Mass gas plat and village water treatment plants erection and maintaining with TEAM company of Tamil Nadu.

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Table- 3.7 : Sources of Borrowed Capital S. No 1 2 3 4 5 6 Particulars Commercial Banks State Financial Corporation Commercial banks and SFC Friends and Relatives Money Lenders APSSIDC and other Govt agencies Total No. of Percentage Respondents (%) 46 15 13 16 06 04 100 46.00 15.00 13.00 16.00 06.00 04.00 100.00

Sources of Borrowed Capital

4% 6% 16% 46% Commercial Banks State Financial Corporation Commercial banks and SFC Friends and Relatives 15% Money lenders APSSIDC

13%

From the above it is clear that 46% of the respondents are obtaining the loan from commercial banks. 15% of the respondents are obtaining the loan from state financial corporation. 13% of the respondents are obtaining the loan from both commercial banks and state financial corporation. 16% of the respondents are obtaining loan from friends and relatives. 6% of the respondents are obtaining the loan from money lenders. Remaining 4% of the respondents are obtaining loan from other Governmental agencies

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Table- 3.8 : Problems faced by the SMEs in obtaining the credit S. No 1 2 3 4 Particulars Non Eligibility of Credit Rise in Interest Rate Delay in process Heavy Documentation Total No. of Percentage Respondents (%) 39 15 21 25 100 39.00 15.00 21.00 25.00 100.00

Type of problem
15% 25% 21%

39%

Heavy documentaion

Delay in process

Non Eligibility to credit

Charging more intrest

From above table and graph it is revealed that 32% of the respondents dont have the eligibility to obtain credit facility from the banks. 15% of the respondents had a problem because of raise in the interest rates. 21% of the respondents feel that there is much delay in offering them to the entrepreneurs from the government side. 25% of the respondents feel that the government is going for heavy documentations. however the entrepreneurs who are involved in producing products are still unaware of the credit facilities provide by the governmental agencies

96

Table- 3.9 : Agencies help in solving Financial Problems S. No 1 2 3 4 5 Particulars SIDBI MSME SFC SBI Andhra Bank Total No. of Percentage Respondents (%) 5 5 25 40 25 100 5.00 5.00 25.00 40.00 25.00 100.00

About Scheme of Unit

45 40 No. of Respondents 35 30 25 20 15 10 5 0 SIDBI MSME SFC Scheme SBI Andhra Bank 5 5 25 25 40

From the above table it is clear that 5% of the respondents are helped by the SIDBI. 5% of the respondents approached MSME to solve their financial problems. 25% of the respondents took the help of SFC to solve their financial problems. SBI helped maximum 40% of the respondents followed by A.B which helped 25% of the respondents in their financial problems, especially In Guntur district.

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Table- 3.10: Problems experience in securing loans S. No 1 2 3 4 5 Particulars Delay in sanction Security problem No. of visits paid up & followed up Incidental expenses Any other problem Total
45 40 35 No. of Respondents 30 25 20 15 10 5 0 5 20 20 15

No. of Percentage Respondents (%) 40 20 20 15 5 100 40.00 20.00 20.00 15.00 5.00 100.00

40

Delay in sanction

Security problem

No. of visits paid up & followed up

Incidental expenses

Any other problem

Majority of the entrepreneurs are experiencing the problem of delay in approval and sanction of their loans from the banks and credit agencies. Next comes the security problem, the SMEs who is approaching the banks are not in a position to supply the required collateral guarantee to the banks. Another problem is the no of visits paid and followed up with the banks for the sanction of the loan. There are some peculiar problems like the political leaders are putting their legs to stop the sectioning of the loan to the eligible owners of the SMEs.

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Table- 3.11: utilization of the credit S. No 1 2 3 4 Particulars Increase the production Increase the working capital Purchase raw material Modernization Total No. of Percentage Respondents (%) 55 10 25 10 100 55.00 10.00 25.00 10.00 100.00

About Invest the Credit

60 No. of Respondents 50 40 30 20 10 10 0 Increase the production Increase the working capital Purchase raw material Moderniztion 10 25 55

From the above table and graph 55% of the respondents are taking the credit to increase their production capacities. 10% of the respondents are taking the credit to increase their working capital. 25% of the respondents are taking the credit to purchased raw material. Another 10% of the respondents taking loan for the modernization of their existing units. The utilization of the credit almost related to improving functioning of the unit, with modernization, stocking the raw material to avoid unforeseen demand.

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Table- 3.12: Types of Subsidy enjoyed by the SMEs S. No. of Percentage Particulars No Respondents (%) 1 2 3 4 5 Full Partial Nominal 40/60 Nil Subsidy Total 18 12 24 6 40 60 18.00 12.00 24.00 6.00 40.00 100.00

45 40 40 35 No. of Respondents 30 25 20 15 10 5 0 Full Partial Nominal 40/60 Nil Subsidy 18 12 6 24

From the above table it is clear that 18% of the respondents got full subsidy from the government. 12 % of the respondents felt that they got partial subsidy. 24% respondents are of the opinion that they got nominal subsidy. 6% of the respondent s felt that they enjoyed 40:60 subsidy from the government. 40% of the respondents felt that they did not got any subsidy from the government.

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Table- 3.13: Quick Disbursal of Credit from various commercial banks S. No. of Percentage Particulars No Respondents (%) 1 2 3 4 HDFC ICICI Fullerton SBI Total 30 50 5 15 100 30.00 50.00 5.00 15.00 100.00

60 50 50 No. of Respondents 40 30 30

20 10 0 HDFC ICICI Fullerton

15 5

SBI

From the above table and graph it depicts that 50% of the respondents feel that ICICI Bank is quick at granting the credit. 30% of the respondents feel that HDFC Bank is at second position in offering credit. 15% of the respondent feels that SBI at third position in offering loan. 5% of the Respondent fees that Fullerton is taking more tin\me than any o0ther commercial bank in dispersing the credit facility.

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Table- 3.14 : Behavior of Financial Agencies in granting loan S. No 1 2 3 4 Particulars Friendly Helpful Neglecting Non-cooperative Total No. of Percentage Respondents (%) 20 30 10 40 100 20.00 30.00 10.00 40.00 100.00

45 40 40 35 No. of Respondents 30 30 25 20 20 15 10 10 5 0

Friendly

Helpful

Neglecting

Non-Cooperative

From the above table and graph, 20% of the respondents feel that employees working in financial agencies are friendly in nature. 30% respondents fees that employees are heopful.10% of the respondents fees that employees are neglecting them. 40% of the respondents feel that employees of financial agencies are non co-operative.the governmental agencies are giving importance to political influence and background.

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Table- 3.15 : Amount Sanctioned S. Percentage of No. of Percentage No Loan amount sanctioned Respondents (%) 1 2 3 4 100% 75% 50% 25% Total 10 30 40 20 100 10.00 30.00 40.00 20.00 100.00

45 40 40 35 No. of Respondents 30 30 25 20 20 15 10 10 5 0

100%

75%

50%

25%

From above table it is clear that 10 out of the sample of the respondents feel that their entire loan amount was sanctioned. 30 out of the sample of the respondents are at the opinion that 75% of the loan is sanctioned. 40 out the sample of the respondents are at the opinion that 50% of the loan is sanctioned and 20 out of the sample of respondents feels that only 25% of the loan is sanctioned

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Table- 3.16: Time taken for sanction S. No 1 2 3 4 Particulars 1 Week to 1 Month 1 Month to 2 Months 2 Months to 4 Months 4 Months to 6 Months Total No. of Percentage Respondents (%) 10 25 25 40 100 10.00 25.00 25.00 40.00 100.00

45 40 40 35 No. of Respondents 30 25 25 20 15 10 10 5 0 25

1 Week to 1 Month

1 Month to 2 Months

2 Months to 4 Months

4 Months to 6 Months

From the above table it is clear that 10 respondent feels that their loan has been sanctioned in less than one month. 25 respondents feel that their loan amount has been sanctioned within 2 months. Another 25 respondent feels that their loan amount has been sanctioned within 4 months. 40 respondents feel that their loan amount has been sanctioned within 6 months, due to so many parameters and heavy documentations.

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Table- 3.17: Facilities provided by them to repay the loan S. No 1 2 3 4 Particulars Interest Holiday Deferred payments E.M.I Interest charged on yearly basis Total
70 60 No. of Respondents 50 40 30 20 10 1 0 19 15

No. of Percentage Respondents (%) 1 15 65 19 100

65

1.00 15.00 65.00 19.00 100.00

Interest Holiday Deferred payments

E.M.I

Interest charged on yearly basis

The SME entrepreneurs feel that the banks and the governmental agencies are giving some sort of help in repayment of their loans. 65% of the respondents feel that the institutions are giving chance to convert their loan amount into monthly equated installments for easy and regular payments. 19% of the respondents feel that instead of charging compound interest they charging simple annual interest. 15% felt that they enjoying the mode of deferred payment from the financial institutions. In some cases the banks are deferring the credit amount for 1 to 3 years. Least among all the facilities is the interest holiday announced by the government to some SME sector industries. These units are enjoying the interest holiday for 1 to 3 years , this can be treated as one of the subsidies provided by the government of India in the promotion of small and medium sector industries

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Table- 3.18: Awareness of credit facilities given by government S. No. of Percentage Particulars No Respondents (%) 1 2 Yes No Total 60 40 100 60 40 100.00

40%

60%

Yes No

From above table it is clear that 60 respondents are of the opinion that they are aware of various credit facilities available.40 respondents are of the opinion that they dont have any information about the availability of the credit facilities. The SME sector is suffering from lack of knowledge about credit facilities given by the government through the nodal agencies. All the SME unit owners are requesting to provide the awareness programs of the different schemes through regular counseling sessions.

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Table- 3.19: Amount that you looking from the Government

S. No 1 2 3 4

Particulars 1 5 Lakhs 5 10 Lakhs 10 20 Lakhs Above 20 Lakhs Total

No. of Percentage Respondents (%) 10 30 40 20 100 10.00 30.00 40.00 20.00 100.00

45 40 40 35 No. of Respondents 30 30 25 20 20 15 10 10 5 0

1 5 Lakhs

5 10 Lakhs

10 20 Lakhs

Above 20 Lakhs

The SMEs are very much interested to take the loan from the banks the amount ranging from Rs10-20laks, the reason behind this is almost 90% of the SMEs in Guntur district are seasonal and they operate hardly for 4 to 6 months in a year. To run the business in the season they need Rs10- 20 lakh. But some of the bigger units like cold storages are interested in taking the loan for more than Rs20 lakh to 1crore. The tobacco companies need more capital investment in the form of purchase of raw material in the season for export. The raw material is purchased from the auction centers on cash and carry basis.30% of the respondents insisted on borrowings from Rs5-10lakhs and 10% of them are interested in borrowing Rs1-5lakhs, because of their size of operations.
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Table- 3.20: Payback period opted by you S. No 1 2 3 4 Particulars 1 5 Years 5 10 Years 10 15 Years 15 20 Years Total No. of Percentage Respondents (%) 10 25 20 45 100 10.00 25.00 20.00 45.00 100.00

50 45 45 40 No. of Respondents 35 30 25 25 20 20 15 10 10 5 0

1 5 Years

5 10 Years

10 15 Years

15 20 Years

From above table it is clear that 10 respondents opted less than 5 years as the payback period. 25 respondents opted less than 1d0 years as the payback period. 20 respondents opted less than 15 years as the payback period. And 45 respondents opted less than 20years. Generally the operators in SME segment likes longer payback period for their loan amounts because turnaround in these units are limited and the within the short span of time it is not possible for them to pay the credit amount

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Table- 3.21 : Capacity Utilization S. No 1 2 3 4 Particulars Under utilization of the capacity Over utilization of the capacity Installed capacity utilization Not utilizing the installed capacity Total No. of Percentage Respondents (%) 85 5 8 2 100 85.00 5.00 8.00 2.00 100.00

90 80 70 No. of Respondents 60 50 40 30 20 10 0

85

8 2

Under utilization of Over utilization of the capacity the capacity

Installed capacity utilization

Not utilizing the installed capacity

From the above table and graph 85% of the units are under utilizing their installed capacity. 5% of the respondents are not utilizing the installed capacity.2% of the respondents are over utilizing the unit capacity and 8% of the respondents are utilizing installed capacity of production from their units. The under utilization and not utilization of the units, they have reasons to explain. Those causes for the under utilization are discussed in the below table. the machinery what they are using in producing the products are very old in nature , some units have second hand and used machinery , due to this mechanical and maintenance also they are suffering .

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Table- 3.22 : Causes for under Utilization S. No 1 2 3 4 Particulars Due to financial problem Due to labour problem Due to marketing problem Due to raw material problem Total No. of Percentage Respondents (%) 85 5 8 2 100 85.00 5.00 8.00 2.00 100.00

90 80 70 No. of Respondents 60 50 40 30 20 10 0

85

8 2

Due to financial problem

Due to labour problem

Due to marketing Due to raw material problem problem

From the above table and graph it is quiet evident that 85% of the SMEs are suffering from the financial problem. Because of unawareness of proper channels of credit schemes offered by the commercial banks and the governmental agencies and the neglecting attitude of the government and bank officials the SMEs are facing funds crunch and this leads them to all sorts of production problems. In the opinion of the industrialists, if they got sufficient money, all other problems like labor, marketing and raw material and maintenance of machinery are trivial in nature

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Table- 3.23 : Awareness of SIDBI; SIDO; NSIC; SFC; NABARD S. No 1 2 3 4 5 Particulars Any One Organisation Any Two Organisations Any Three Organisations Any Four Organisations All organizations Total No. of Percentage Respondents (%) 70 12 8 6 4 100 70.00 12.00 8.00 6.00 4.00 100.00

80 70 70 60 No. of Respondents 50 40 30 20 10 0 12

Any One Organisation

Any Two Any Three Any Four All Organisations Organisations Organisations organizations

From the above table and graph it is quiet clear and assumable that the majority of the SME segment operators are unaware of the credit agencies, which are promoted by the central Government. According to our survey the Promoters of the SMEs have little knowledge about the various institutions offering credit facilities to the SMEs. Only 8%of the respondents know all the five important governmental institutions. 70% of the respondents are aware of the any one of the organization. 12%of the respondents are aware of the only any two organizations. The remaining knows the any three or four of the above credit granting organizations. It is clear evidence that the SMEs sector needs more awareness from the nodal agencies about the credit institutions.
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Table- 3.24 : Awareness of below Schemes

a) Bill discounting Scheme; b) Hire purchase and equipment leasing scheme c) Composite term loan scheme; d) General excise exemption schemes

S. No 1 2 3 4

Particulars All Schemes 3 Schemes 1 or 2 Schemes None Total

No. of Respondents 10 30 45 15 100

Percentage (%) 10.00 30.00 45.00 15.00 100.00

50 45 45 40 No. of Respondents 35 30 30 25 20 15 15 10 10 5 0

All Schemes

3 Schemes

1 or 2 Schemes

None

From the above table and graph it vividly clear that only 10% of the respondents know all schemes. 30% of the respondents know only few schemes and remaining owners are not aware of such schemes. They have not shown interest to learn about those schemes. Because they have very bad experience with the governmental agencies granting the loans. Whenever they applied for the loan the banks or the credit granting agencies made hassle with the officials of the banks. Generally they are not interested to go fro bank loans ad depending on the friends and relatives and money lenders for their source of credit.
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Table- 3.25 : Suggestions S. No 1 2 3 4 5 Particulars Create awareness about the credit facilities Quick disbursal of credit Regular interaction with the entrepreneurs Redress our grievances effectively Any other (Please specify) Total No. of Percentage Respondents (%) 30 40 20 10 100 30.00 40.00 20.00 10.00 100.00

45 40 40 35 No. of Respondents 30 30 25 20 20 15 10 10 5 0

Create awareness Quick disbursal of Regular interaction about the credit credit with the facilities entrepreneurs

Redress our grievances effectively

From the above table and graph it is clear that 30 respondents feel that awareness should be increased about the credit facilities available for the enterprises. 40 respondents are of the opinion that the agencies should focus on quick dispersal of credit. 20 respondents feel that the government employees should have interaction to the entrepreneurs at regular intervals to know their grievances. 10 respondents feel that their grievances should be redressed effectively.

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Testing of Hypothesis: It is observed from the study that SMEs suffer from several problems which hamper their growth. It is found that no single unit is free from

problems and that every unit is hit by some problem or the other based on its size and structure

The shortage of finance is considered to be the most important problem responsible for a host of problems in small units. Small units require two types of capital, fixed capital and working capital. The sources of capital are self finance and borrowed funds. The important sources of borrowed funds are commercial banks. The problems of security, delays in sanction

and release of funds, inadequate financing etc., were experienced by the sample units while dealing with commercial banks which happened to be the important source of borrowed funds. Because of these problems a few units could not approach commercial banks for financial assistance.

Before starting the study of this project the hypothesis is that the SMEs are facing severe and acute finance problems. But after conducting the study the H0 formed is rejected, because the government and the commercial banks in public and private sector are providing very good service to the SMEs. The main problem lies in the perception of the entrepreneurs about the banks and governmental agencies. Still the promoters of the SMEs thinking that the above institutions are not helping them in getting the credit facilities. But in my study I came to know that the banks and other financial institutions are very much ready to offer and extend the credit facilities to the small and medium enterprises, if they come with proper documentations and ready to
114

fulfill the minimum parameters to avail the credit facilities from those institutions. Entire my study was focused on the various credit facilities available to the SMEs from the government and commercial banks. To my surprise I came across the new enactment of MSMED act 2006, especially for the promotion and protection of the small and medium enterprises.

The Government of India identified the need for the more credit facilities for the SMEs in the wake of invasion of MNCs and TNCs in India. The post economic reforms period is a testing time for the SME sector. All the MNCs entering into India are capturing the products which were once produced by the small and medium scale industries. The intrinsic problems of the SMEs are that they cannot compete with the amount of investment and technology of the MNCs.

So many key financial institutions are providing sector wise credit facilities to the SMEs. The entrepreneurs are unaware of the schemes and struggling from the financial crunch. More ever all the promoters are not highly qualified to run the business strategically. They are ailing from low education and traditional methods of production methods. The SMEs are still following the traditional and conventional system of manufacturing. This is the main cause for their underdevelopment. The government should create the awareness and change their attitude to sustain and continue in the operations. For ex, the handloom industry giving more employment than any other SME segments are still using the conventional methods in producing the cotton material for dhotis and saris. It causes the low production with more labor.
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Contribution by the national and state level agencies in fostering the overall growth of the SME sector is phenomenal. Currently even public private partnerships (ppp) have become models to hasten the process of SMEs development. Apart from providing extension, advisory services, these agencies play a significant role to channelize financing by various institutions and intermediaries through different schemes and acting as a bridge between financial intermediaries and entrepreneurs in the context of SMEs heading towards epitome in the market economy. These institutions are also instrumental mopping up of foreign institutional investments indifference sector, which is considered to be note worthy. Financial strengthening of these enterprises particularly in bringing in technological advancement in the production and operations process is considered most crucial in the context of with standing the global competition. These agencies are considered to play a pioneering role in coordinating the efforts of the governments with those of the financial intermediaries, which will go a long in taking India into the ranks of highly developed nations.

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CHAPTER - 4

FINDINGS, SUGGESTIONS AND CONCLUSIONS

All efforts were made by the researcher to make the study as scientific as possible.

Findings: 1. The growth of small scale industries in Andhra Pradesh in the recent past has been significant. The available literature on the industrial front of Andhra Pradesh denotes that the state has a sound infra structural facilities. 2. There is a good number of industry promoting agencies functioning in the state. In the absence of these agencies the state would have remained industrially undeveloped. 3. It is found that difference in the size of total capital exist not only between different types of industries but also among different units in the same industry. 4. The capital base of small industries is very poor. 5. It is found that investment in fixed capital constitutes a greater proportion of total capital in small scale industries. 6. It is observed that small industries are suffering from shortage of working capital. 7. The important problems experienced by them at different stages are related to production, labor, marketing and finance. 8. It is found that many units have been suffering production problems due to the shortages of inputs like credit. In the case of Regal, a Foot ware
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manufacturing unit at Guntur could not produce quality foot wares because they dont have adequate f unds to purchase latest machinery to get quality out put. 9. Many units have suffered in marketing their output because of non availability of cash to invest in marketing their products. The out door campaign and canvassing material is very costly. There is a classical example, in Guntur the JOCIL co., manufacturing good quality soaps with a brand name JOY. But due to lack of product promotional activity it was gradually suppressed by the MNCs who already exist in the market. From the own voice of the managing director of JOCIL, they withdraw the JOY only due to cut throat competition posed by the MNCs. If they have credit facility for promotional activities then they would have succeed in the market. It is also found that units are demand based but there is no sufficient demand to meet their output. 10. Shortage of finance is considered to be the most important problem responsible for a host of problems in small scale sector.

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SUGGESTIONS: The following suggestions are made to resolve the various issues of Small Scale Sector. 1. The industry promoting agencies should take care of the well being of small scale sector and they should initiate such measures which would result in the further promotion of small scale units in the state of Andhra Pradesh and in Guntur District. 2. It is right time to adopt the idea of limited partnership with a view to boost up the financial resources in small scale sector and to encourage small entrepreneurs to bear the risk. 3. Timely finance should make available to the small units keeping in view their needs. 4. The borrowings should be made cheaper by lowering the rate of interest on landings of commercial banks. 5. The re-orientation program, workshops and seminars should be organized at district level to provide latest information to the small entrepreneurs. 6. Banks should also provide consultancy services and professional guidance at the time of setting up for considering the long-term and shortterm financial requirements of a small unit for lending purposes. 7. Small entrepreneurs should make feasibility studies before they finalize their projects. They should undertake only such projects which are technically, operationally and economically and financially viable. 8. The process followed by the government in sanctioning the loan is cumbersome; hence it is suggested to make the process easier in sectioning the credit facilities to the SMES.

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9. the entrepreneurs are of the opinion that , the funding institutions are taking much time in sanctioning the loan. Hence it is suggested that the funding institutions should take less time in offering credit to the entrepreneurs. 10. The Entrepreneurs are of the opinion that they are not getting proper assistance from the Government employees in documentation to obtain the loan from the funding institutions. Hence it is suggested that the government employees should be very cooperative and help the entrepreneurs in documentation for obtaining the credit

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CONCLUSIONS: From the above major findings of the study the following conclusions are drawn: 1. The growth of small and medium scale industries in Andhra Pradesh has been significant in the recent past. 2. Guntur District is moving towards industrialization through Small and medium Scale Sector. 3. Industrial promoting agencies have made a mark in state as well as the district industrially. 4. Capital base of small units is very poor and they are facing several financial crisis. 5. Shortage of finance is the main problem responsible for a host of problems. 6. The SMEs are not aware of the credit schemes offered by the commercial banks and nodal agencies. 7. The delays in sanctioning of the loan and the neglecting attitude of the bank officials are the main causes behind the bad perception of SMEs towards the banks. 8. The Central Government should take the initiative in propagating the credit facilities for the SMEs through the channel of NGOs. 9. Financial problems are the root cause for all the problems faced by the SMEs. The State Government should encourage this segment through its Finance Corporation. 10. The entrepreneurs should be motivated to run successfully of their units by taking the advantage of various credit facilities the development of

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SUGGESTIONS FOR FURTHER RESEARCH: In recent years some initiatives have been taken by both governments and banks of developed and developed countries to make SMEs more acceptable for funding by banks. These initiatives aim to reduce cost and risk in financing SMEs.

These may be summed up as follows: Venture capital funds have been floated to share risk, cost of funding and to provide support on market and management know how. Credit guarantee and rating institutions have floated to support banks to assume risk unhesitatingly in financing SMEs More appropriate credit instruments have been developed to help SME to have facile credit with less cost and collaterals Better information systems and training have been developed to make SME viable and acceptable. Despite these recent changes, SMEs need some more hand holding to become attractive and viable.
Existing gaps:

Delivery of finance not linked with delivery of business development. Financing institutions do not assume the role of partners to SMEs both in assuming risks and assisting in management and marketing.

Non- existence of reliable information systems to study the risk pattern and to provide market intelligence to SMEs.

Non availability of suitable debt and equity instruments to help SMEs to raise fund from the capital market.
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Innovative strategy to finance SMEs Creating partnership relationship of micro financing institutions with SMEs for risk sharing. Developing equity market and venture capital for SMEs Evolving credit cards to maintain required liquidity in operation of SMEs. Building kiosks at village centers to disseminates market intelligence and data on technological up gradation and climate. Providing facilities for securitization of debts for improving liquidity of financing Developing derivative market for price risk The study on credit facilities for SMWs is a comprehensive in nature and highlighting the credit facilities available for SMEs. But there still exits some gaps like To study the perception of the SMEs towards commercial banks. To study the perception of the SMEs towards the central and state governments. To study the perception of the SMEs towards the promotional institutions like SIDBI. SIDO, NSIC and SFCs. To study how to protect the SMEs from the existing competitions from the MNCs and TNCs. To study viable financial management strategies to implement in SMEs.

SME financing has gained momentum in the last few years, because of their contribution to the GDP growth, Employment opportunities, and

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their Export potential. In line with the RBI directives, Commercial Banks, especially private sector banks have relaxed the lending norms to accelerate the credit flow. The crux of the issue in financing SMEs is to find all the managerial, entrepreneurial qualities required to start and to meet the challenges posed in a competitive scenario. Besides the central and state governments, the financial institutions also have launched entrepreneurial development schemes, on going trainings and redressal mechanisms, so that entrepreneurial skills are fully exploited for the growth of the economy. Hence financial opportunities are a plenty to an entrepreneurs with zeal and enthusiasm.

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BIBLIOGRAPHY

1. Beyond Old Equations - Small Enterprise Experience and perspectives in India - P.M. Mathew, Kanishka Publishers, New Delhi, 2002. 2. Business Environment, Francis Cherunilam, Himalaya Publications,2002. 3. Essentials of Environment, K.Ashwathappa, Himalaya Publications,2002. 4. Economic Environment of Business, M. Adhikary, S.Chand & sons, 2002. 5. Indian Economy, Ruddar Datt & K.P.M.Sundharam, S.Chand & Sons, 2002. 6. SSI & Entrepreneurship : Vasant Desai, Himalaya Publications, 2002. 7. SSI & Entrepreneurship Development : C.S.V. Murthy 8. Role of Small Industries in India's Economic Development, Asia Publications, Mumbai 9. Cottage & Small Scale Industries and Planned Economy, Sterling Publications, Mumbai, R.V. Rao 10. Small Industry Extension Training Institute Publication. Developing Entrepreneurship issues and problems. 11. M.U.Deshpande, Entrepreneurship of SSI: Deep & Deep Publications, New Delhi, 1982 12. Small Manufacturing Enterprises - World Bank Report. 13. Economic Survey : Government of India Publications 14. Report on currency & Finance : RBI, Mumbai 15. Policy Measures for promoting & Strengthening Small, Tiny & Enterprises, New Delhi, of Industry, GOI, 1991. 16. SSIs in India: Opportunities in the small sector, 1994, Government of India, New Delhi.
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Village

17. Report of the committee on Financial System: Narasimham Committee, 1991. 18. Nayak Committee Report, 1993. Report of the committee to review appraisal norms of Small Industries 19. Goswami Committee Report on Industrial Sickness, 1993.

ARTICLES 1. Development of SSI in Assam, Dr.S.S.Khanka, Yojana, Sep, 1998, P.4144. 2. Small Scale Industry: Lease Financing by Banks, J, Halayudha Rao, Management Accountant, Dec, 1981, Vol16.No.12, P.589 3. Financing of SSIs in a notified Backward Division, Dr. S.Skhanka, Finance India, Vol.IV, NO.1, Mar, 1990, P.17-28 4. Survival of Small Industry, The Hindu, Tues, Feb,4, 1997,P.27 5. SSI Reservations over New Guidelines, The Hindu, Tues, Mar, 2003,97 6. Financing Small Industries - Some Recent changes, Dr. C.S.Prasad, Yojana, Feb 1-28, 1995, P.8-11. 7. SSIs in India, A Policy perspective, B. Yerram Raju, ASCI Journal of Management. 8. Business Development Services for Small Enterprises: A case study of Hyd, India, Sri Ram. M.S., Phansalkar S.J. Small Enterprise Development, Vol.12, June, 2001. 9. Stock Market for the small and medium industries: Is the Market informally efficient with respect to money - supply growth? M.S. Habibullah &

A.Z.BaharumShaH, Finance India, Vol. IX, NO.3, Sep'95.

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10. Need for easy capital to make SSI's Viable, Indian Express, 1998, Jul,26, P.5. 11. Abolition of Reservation for SSIs : Panel moots cluster approach, Indian Express, Jan, 29, Wednes,1997. 12. An evaluation of credit to SSIs by Nationalised Commercial Banks, An Econometric Study, Dr.C.K. Mukhopadhyay. 13. Efficacy & effectiveness of single window scheme of SIDBI for working capital finance of Tiny & Small Industrial Units in Karnataka. Dr. S.S. Hugar. 14. Export orientation for small and medium enterprises: Yojana, Sep, 2000. 15. Khadi & Village Industries Programme: An Employment Evaluation. D. Das, Yojana, Vol.45, Oct, 2001, P.24 to 34. 16. Small Industries: An overview, Raju B.Y. Yojana, Vol.39, 1995. 17. Modern Small Industry in India: Problems & Prospects Ram K. Vepa 18. Place & Problems of SSI, S.K. Basu 19. Financing of Small Industries, Balakrishnan.G. 20. Manchoo N.N.: Growth of Entrepreneurship - Vital Role of Small Industries 21. An article on Small Scale Industries Prospects in a Free Economy by Shilpa Bichitra

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ANNEXURE - 1 MICRO, SMALL AND MEDIUM, ENTERPRISES DEVELOPMENT (MSMED) ACT, 2006 SALIENT FEATURES Salient features of the Micro, Small and Medium Enterprises Development Act, 2006 passed by the Parliament in 2006, and became operational from October 2006 are as follows:

1. Need for a New Law SSIs earlier dealt only in two sections of ID&R Act, 1951 Different issues related to SSIs dealt by multiple laws Need for a single legislation pointed out by different committees and voiced by industry associations Absence of any statutory consultative and recommendatory body Most of the policies such as purchase preference policy, registration of SSI, etc., not having statutory basis Need to strengthen laws to check delayed payments Need to provide a statutory basis to credit availability for the sector Simplification of registration process Need to define the MSME concept Need to promote the service sector Need for facilitating closure

2. Classification of Enterprises The earlier concept of' Industries' has been changed to 'Enterprises'. Enterprises have been classified broadly into: (i) Enterprises engaged in the manufacture I production of goods pertaining to any industry; & (ii) Enterprises engaged in providing I rendering of services. Manufacturing enterprises have been defined in terms of investment in plant and machinery (excluding land and buildings), and further classified into: (i) Micro Enterprises - investment up to Rs.25 lakh (ii) Small Enterprises - investment above Rs.25 lakh & up to Rs.5 crore
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(iii) Medium Enterprises - investment above Rs.5 crore & up to Rs.I 0 crore. Service enterprises have been defined in terms of their investment in equipment (excluding land & buildings), and further classified into: Micro Enterprises - investment up to Rs.l 0 lakh. Small Enterprises - investment above Rs.1 0 lakh & up to Rs.2 crore Medium Enterprises - investment above Rs.2 crore & up to 5 crore.

3. Filing of Memoranda by MSMEs Process of two-stage registration of Micro & Small Enterprises dispensed with & replaced by filing of memoranda. Filing of memorandum is optional for all Micro & Small Enterprises. Filing of memorandum is optional for Service Sector Medium Enterprises. Filing of memorandum mandatory for Manufacturing Sector Medium Enterprises.

4. Apex Consultative Body with Wide Representation of Stakeholders Constitution of Board National Board for Micro, Small and Medium Enterprises (MSME) to be headed by the Central Minister Vc of MSMEs, and consisting of 46 members from among MPs and Representatives of Central Ministries State Governments UT Administration, RBI, SIDBI, NABARD Associations ofMSMEs, including of women Persons of eminence, and Central Trade Union Organisations National Board to be now statutory, as against non-statutory SSI Board. Quarterly meetings of National Board made mandatory.

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Functions of the National Board Examine the factors affecting the promotion and development of MSMEs, and review the policies and programmes of Central Government in this regard. Make recommendations on matters referred to as above or any other matter referred to it by the Central Government. Advise the Central Government on the use of Fund or Funds constituted under section 12.

5. Advisory Committee Headed by Central Government Secretary Vs of MSMEs, and including: . Not more than five officers of the Central Government; Not more than three representatives of State Governments; & One representative each of the Associations of Micro, Small and Medium Enterprises.

Functions of the Advisory Committee to examine the matters referred to it by the National Board; to advise Central Government on matters specified in clauses 7( 1), 9,10,11,12 or 14; & to advice State Governments on matters specified in the rules under Clause 32.

6. Promotional and Enabling Provisions Central Government to notify programmes, guidelines or instructions for facilitating the promotion and development, and enhancing the

competitiveness of MSMEs. Central Government to constitute, by notification, one or more Funds. Central Government to credit to the Fund or Funds, such sums as the Government may provide after due appropriation made by Parliament by Law in this behalf. Central Government to administer the Fund or Funds for purpose mentioned in section 9, and coordinate and ensure timely utilisation and release of sums with such criteria, as may be prescribed.
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7. Credit The policies and practices in respeCt of credit to the MSMEs shall be progressive, and such as may be specified in the guidelines or instructions issued by the Reserve Bank of India with the aims of: Ensuring smooth credit flow to the MSMEs, Minimising sickness among them, and Ensuring enhancement of their competitiveness.

8. Procurement Policies Central Government or a State Government to notify preference policies in respect of procurement of goods and services, produced and provided by MSEs, by its Ministries, Departments or its aided institutions, and public sector enterprises (non-statutory till now). Valid only for micro and small enterprises, and not for medium enterprises. Services also covered.

9. Provisions to check Delayed Payments Provisions related to delayed payments to micro and small enterprises (MSEs) strengthened. Period of payment to MSEs by the buyers reduced to 45 days. Rate of interest on outstanding amount increased to 3 times the prevailing Bank rate of Reserve Bank of India compounded on monthly basis. Constitution Government. Provision for inclusion of one or more representatives of MSE Associations in the Facilitation Council. Jurisdiction of the council in a State to cover wherever the buyer may be located. . MSE Facilitation Council may utilise the services of any Institution or Centre for conciliation and alternate dispute resolution services. Reference made to the Council to be decided within 90 days from the
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ofMSE

Facilitation

Council(s)

mandatory

for

State

date of reference. Declaration of payment outstanding to MSE supplier mandatory for buyers in their annual statement of accounts Interest (paid or payable to supplier) disallowed for deduction for Income Tax purposes. No appeal against order of the Facilitation Council to be entertained by any court without deposit of75 per cent of the decreed amount payable by Buyer. Appellate Court may order payment of a part of the deposit to the supplier MSE.

10. Facilitating the Closure of Business Central Government may (within one year of the commencement of the Act) notify a scheme for facilitating closure of business by a micro, small or medium enterprise.

Source: "Micro, Small and Medium Enterprises Development (MSMED) Act, 2006", Laghu Udyog Samachar, 30 (9-12), April- July 2006, pp. 3-5.

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ANNEXURE 2 MINISTRY OF SMALL SCALE INDUSTRIES AND AGRO & RURAL INDUTRIES PACKAGE FOR PROMOTION OF MICRO AND SMALL ENTERPRISES (ANNOUNCED BY SHRI MAHABIR PRASAD, MINISTER OF SMALL SCALE INDUSTRIES AND AGRO AND RURAL INDUSTRIES IN LOK SABHA ON 27 FEBRUARY 2007 STATEMENT ALSO MADE BY THE MINISTER IN RAJYA SABHA ON 2 MARCH 2007)

I. INTRODUCTION 1. Among the six basic principles of governance underlying the National Common Minimum Programme (NCMP) of the Government, sustained economic growth in a manner that generates employment has a pride of place. The NCMP also describes the small scale industries as the most employment-intensive segment. 2. This is indeed so. The small scale industries of India (including the tiny industries and small scale service and business entities) have a long history of promoting economic growth that is employment-oriented and spatially widespread, and hence inclusive. At the beginning of the X Plan (2002-03), the segment provided gainful employment to 24.9 million people in the rural and urban areas of the country through 10.5 million units, engaged in manufacturing and providing a wide range of goods and services. Over the next four years (end 2005-06), they have grown to 12.3 million units providing employment to 29.5 million persons. This represents an average annual growth rate of 4.33 per cent in the number of these units and, what is more important, that of 4.57 per cent in employment. If the units in the khadi, village industries and coir industries are also taken into account, the employment is well over 332 million. This is thus rightly called the segment which provides employment next only to agriculture. A simple analysis shows that the employment intensity of the segment (registered units) is 1 person for Page 1 of 10 every 1.49 lakh of rupees invested in fixed assets, as against 1 person per Rs. 5.56 lakh in the large
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organised sector. And, the rate of growth of employment in this segment is well above that of the population of India (1.5 per cent) or, that in the large industries segment (0.85 per cent).

3. The contribution of this segment to the economic sinews of the country is no less significant. Nearly 39 per cent of the gross manufacturing output and 34 per cent of the exports of India arise from these enterprises. During the last four years of the X Plan, the output of the segment has recorded a real growth rate of 8.87 per cent annually. Over six thousand products manufactured by these include several sophisticated items used in high technology areas like nuclear power, missile and space programmes, information technology, biotechnology, etc. The level of exports by this segment also testifies to its overall competitiveness in the global markets.

4. Yet, the segment does not constitute a homogeneous universe and a large majority of the units faces several challenges. In order to assist them in fully harnessing their potential by availing of the increasing opportunities generated by trade liberalisation, it is necessary to build not only an enabling policy environment but also supplement the former with a specific set of measures to address the continuing challenges. The NCMP declares, therefore, that a major promotional package will be announced for this segment to provide full support in the areas of credit, technological upgradation, marketing and infrastructural upgradation in major industrial infrastructure.

II. RECENT INITIATIVES 1. By enacting the Micro, Small and Medium Enterprises Development Act, 2006, the Government has recently fulfilled one of the needs felt and articulated by this segment for long. This Act seeks to facilitate promotion and development and enhancing competitiveness of these enterprises. It provides the first-ever legal framework for recognition of the concept of enterprise (comprising both manufacturing and services) and integrating the three tiers of these enterprises, namely, micro, small and medium. Apart from clearer and more progressive classification of each category of
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enterprises, particularly the small, the Act provides for a statutory consultative mechanism at the national level with wide representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions. Establishment of specific Funds for the promotion, development and enhancing competitiveness of these enterprises, notification of schemes/programmes for this purpose, progressive credit policies and practices, preference in Government procurements to products and services of the micro and small enterprises, more effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and simplification of the process of closure of business by all three categories of enterprises are some of the other features of this legislation. 2. The Government has also announced a Policy Package for Stepping up Credit to Small and Medium Enterprises assuring, inter alia, a 20 per cent year-on-year growth in credit flow. 3. Significant improvements have also been made in the Credit Linked Capital Subsidy Scheme for Technological Upgradation, leading to a spurt in the number of units availing of its benefits.

III. PROMOTIONAL PACKAGE In fulfillment of the assurance in the NCMP, the following Package is now announced. 1. LEGISLATION 1.1 With a view to facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, the Micro, Small and Medium Enterprises Development Bill, 2006 has recently been passed. The Government will take up effective and expeditious implementation of this legislation in close collaboration with all stakeholders. 1.2 The Government will also soon enact a law on Limited Liability Partnerships covering, among others, micro, small and medium enterprises, with a view, inter alia, to facilitating infusion of equity and venture capital funding in these enterprises.
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2. CREDIT SUPPORT 2.1 In line with the Policy Package for Stepping up Credit to Small and Medium Enterprises(SME), the Reserve Bank of India (RBI) has already issued guidelines to the public sector banks to ensure 20 per cent yearonyear growth in credit to the SME. Action has also been initiated to operationalise other elements of the said Policy Package. Implementation of these measures will be closely monitored by the RBI and the Government.

2.2 The Small Industries Development Bank of India (SIDBI) will scale up and strengthen its credit operations for micro enterprises and cover 50 lakh additional beneficiaries over five years beginning 2006-07. Government will provide grant to SIDBI to augment SIDBIs Portfolio Risk Fund for this purpose.

2.3 Government will also provide grant to SIDBI to enable it to create a Risk Capital Fund (as a pilot scheme in 2006-07) so as to provide, directly or through intermediaries, demand-based small loans to micro enterprises. 2.4 SIDBIs direct lending operations will be expanded by increasing the number of branches from 56 to 100 in two years beginning 2006-07, with a view to catering to the credit needs of more clusters of micro and small enterprises (MSEs).

2.5.1 The eligible loan limit under the Credit Guarantee Fund Scheme will be raised to Rs.50 lakh. The credit guarantee cover will be raised from 75 per cent to 80 per cent for micro enterprises for loans up to Rs.5 lakh. Accordingly, to strengthen the Credit Guarantee Fund, the corpus of the Fund will be raised from Rs.1189 crore as on 01 April 2006 to Rs.2500 crore over a period of five years (with contribution by the Government and SIDBI in the existing ratio of 4:1).

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2.5.2 Moreover, to encourage public sector banks and public financial institutions to contribute to the corpus of the Fund, the feasibility of allowing deduction of their contributions to the Fund for income tax purposes would be examined.

2.5.3 The Fund will continue to be maintained with and managed by the Credit Guarantee Fund Trust for Small Industries (CGTSI). The Trust will be renamed as Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

3. FISCAL SUPPORT Taking into consideration all the relevant factors, including the new definition of small manufacturing enterprises, under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the Government will examine the feasibility of:

3.1 increase in the General Excise Exemption (GEE) limit and the existing eligibility limit for GEE; 3.2 extending the time limit for payment of excise duty by micro and small enterprises; and 3.3 extending the GEE benefits to small enterprises on their graduation to medium enterprises for a limited period.

4. SUPPORT FOR CLUSTER BASED DEVELOPMENT For comprehensive and speedier development of clusters of micro and small enterprises, the existing guidelines of the Small Industries Cluster Development Programme (SICDP, to be renamed as Micro and Small Enterprises Cluster Development Programme - MSECDP) will be reviewed during 2006-07 to accelerate holistic development of clusters, including provision of Common Facility Centres, developed sites for new enterprises, upgradation of existing industrial infrastructure and provision of Exhibition Grounds/Halls and also for creation and management of infrastructure-related assets in the public-private partnership mode. The ceiling on project cost will be raised to Rs.10 crore.
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5. TECHNOLOGIES AND QUALITY UPGRADATION SUPPORT 5.1 Four Training-cum-Product Development Centres (TPDCs) for agro & food processing industries would be set up at identified existing Small Industries Service Institutes (SISIs) to facilitate promotion and development of micro and small enterprises in the food processing sector.

5.2 The two existing Central Footwear Training Institutes (CFTIs) (at Chennai and Agra) will be further strengthened to expand their outreach and assist the MSE in upgrading their technology.

5.3 Vertical Shaft Brick Kiln (VSBK) Technology would be promoted for adoption by MSEs engaged in manufacturing bricks to make them energy efficient and eco-friendly. For this, one-time capital subsidy (limited to 30 per cent of the cost or Rs.2 lakh, whichever is less) will be provided to micro and small brick manufacturing enterprises.

5.4 With a view to promoting energy efficiency in electrical pumps and motors manufactured by MSEs, a special programme of assistance will be launched after a detailed technical study.

5.5 The existing scheme of assisting the attainment of ISO 9000 and 14001 standards will be operated as a continuing scheme during the 11th Five Year Plan.

5.6 The scope of the above-mentioned scheme will be expanded to cover Hazard Analysis and Critical Control Points (HACCP) Certification obtained by MSE.

5.7 A Technology Mission will be established with a view to assisting micro, small and medium enterprises (MSMEs) in technology upgradation, energy conservation and pollution mitigation.

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6. MARKETING SUPPORT The National Manufacturing Competitiveness Programme (NMCP) announced in the Budget Speech of 2006-07 will include components relating to marketing support to MSE. Implementation of the NMCP will be taken up soon.

7. SUPPORTS FOR ENTREPRENEURIAL AND MANAGERIAL DEVELOPMENT

7.1 20 per cent of the entrepreneurship development programmes (EDP) will be organised for SC/ST, women and physically challenged persons with a stipend of Rs.500 per capita per month for the duration of the training.

7.2 50,000 entrepreneurs will be trained in information technology, catering, agro and food processing, pharmaceuticals, biotechnology, etc., through specialised courses run by SISIs, over the period coterminous with the XI Plan.

7.3 A new scheme will be formulated to provide financial assistance to select management/business schools and technical institutes, to conduct tailor-made courses for new as well as existing micro and small entrepreneurs.

7.4 A new scheme will also be formulated to provide financial assistance to 5 select universities/ colleges to run 1200 entrepreneurial clubs.

7.5 A new scheme will be launched for capacity building, strengthening of database and advocacy by Industry/ Enterprise Associations, after

consultation with the Associations and States.

7.6 A comprehensive study will be conducted to assess the needs and scope of Government intervention required for enhancing the competitiveness of micro and small enterprises in the service/ business sector.

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8. EMPOWERMENT OF WOMEN ONED ENTERPRISES 8.1 Under the Credit Guarantee Fund Scheme, 80 per cent guarantee cover will be provided to micro and small enterprises operated and/or owned by women.

8.2 Under the SICDP/MSECDP financial assistance of up to 90 per cent of the cost, subject to ceiling of Rs. 9 crore, will be provided for clusters developed exclusively for micro and small enterprises operated and/or owned by women.

8.3 Associations of women entrepreneurs will be assisted under the SICDP/MSECDP in establishing exhibition centres at central places for display and sale of products of women- owned micro and small enterprises.

8.4 To encourage entrepreneurship among women, 50 per cent concession in fees would be given to women candidates in entrepreneurship/ management development programmes conducted by SISIs.

8.5 To facilitate export by women entrepreneurs, the National Small Industries Corporation Ltd. (NSIC) will assist them to participate in 25 exhibitions over the period co-terminus with the XI Plan. 9. STRENGTHENING OF PRIME MINISTERS ROZGAR YOJANA (PMRY) 9.1 The Prime Ministers Rozgar Yojana (PMRY), introduced in 1993, has been one of the important credit-linked subsidy schemes to generate selfemployment opportunities for the educated youth by assisting them in setting up viable micro enterprises. By the end of 2005-06, it is estimated to have provided self-employment opportunities to 38.09 lakh persons. A recent review has, however, established the need to improve its effectiveness as a measure for self-employment through this route. 9.2 The design parameters of the PMRY, in terms of family income limits for eligibility, project cost ceilings, corresponding ceilings of subsidy, rates of assistance to States towards training of beneficiaries before and after selection, etc., will be improved with effect from 2007- 08, keeping in view the findings of the review.
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10. STRENGTHENING OF DATA BASE FOR MSME SECTOR 10.1 To strengthen the data base for the MSME sector, statistics and information will be collected in respect of number of units, employment, rate of growth, share of GDP, value of production, extent of sickness/closure and all other relevant parameters of micro, small and medium enterprises, including khadi and village industry units set up under Rural Employment Generation Programme and Prime Ministers Rozgar Yojana as well as coir units, through annual sample surveys and quinquennial census.

10.2 The quinquennial census and annual sample surveys of MSMEs will also collect data on women-owned and/or managed enterprises.

10.3 A scheme will also be formulated and implemented to regularly collect data on exports of products/services manufactured/provided by micro, small and medium enterprises, including khadi and village industries.

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APPENDIX - II List of Sample Industrial units covered under the study

1. B. Srinivasa Rao Power Constructions Pvt., Ltd., Tenali 2. Rayalaseema Power Projects Ltd., Muppalla 3. M/s. Noble Industrial Corporation, Autonagar, Guntur. 4. Sai Ram Traders, Guntur. 5. V.S.Engineering (P) Ltd., Guntur. 6. Radhakrishna Rice Mill, Repalle. 7. Jaya Lakshmi Mills Stores, Tenali 8. Nayagara Tiles, Repalle 9. Annapurna Paper Works, Repalle. 10. Sri Srinivasa Cotton & Ginning Mill, Pulladigunta. 11. Venkateswara Dal Mill, Guntur. 12. Sri Venkata Sai Teja Cotton Ginning Mill, Pulladigunta. 13. Pavan Cotton Products Pvt. Ltd., Pulladigunta. 14. Pavan Enterprises, Pulladigunta. 15. Sri Siva Rama Krishna Ginning Mill, Pulladigunta. 16. Sri Lakshmi Cotton Ginning & Pressing Mill, Kurnuthala & Pulladigunta. 17. Y.S.R. Spinning & Weaving Pvt. Ltd., Ganapavaram. 18. T.S.R. Spinning Mills Pvt Ltd., Guntur. 19. Sri Teja Spinner Pvt Ltd., Ganapavaram. 20. Sri Venkateswara Cotton Company, Narasaraopet. 21. Jaya Lakshmi Cotton Mills, Guntur. 22. Southern Cotton Trading Company, Guntur. 23. Ushodaya Cotton Traders, Guntur.
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24. Jaya Lakshmi Cotton Traders, Guntur. 25. Maha Lakshmi Oils Pvt Ltd., Sangadigunta. 26. Vijayakrishna Dall Mill, Industrial Estate, Guntur. 27. Sri Gowri Sankar Engineering Works, Tenali. 28. Raghavendra Metal Industries, Tenali. 29. Sankar Sai Consumer Product, Angalakuduru, Tenali. 30. Sitar Spices (P) Ltd., Nallapadu. 31. Vijaya Lakshmi Industries, Industrial Estate, Guntur. 32. Dhulipalla Milk Line, Vadlamudi. 33. Vigneswara Modern Rice Mill, Guntur. 34. Vamsi Krishna Modern Rice Mill, Guntur. 35. Sri Venkata Srinivasa Traders, Ganapavaram. 36. Swathi Cottons Pvt Ltd., Ganapavaram. 37. Balaji Par Raw Rice Mill, Guntur. 38. Safe Formulations, Gollapadu. 39. Safe Pharmaceuticals (P) Ltd., Gollapdu. 40. Hindustan Agro Insecticides, Gorantla. 41. K.V.M. Organic Products, Satulur. 42. Sri Satyanarayana Furniture works, Gorantla. 43. Padmalaya Packaging Industries, Angalakuduru. 44. Sri Rama Bindary Works, Lalapet, Guntur. 45. Vishnusree paper Board, Dokiparru. 46. Spun Pipes & Cement, Jonnalagadda. 47. Safe Pharmaceuticals, Gollapdu. 48. Lakshmi Nut powder, Ponnur. 49. Sri Dhana Lakshmi Rice Mills, Ganapavaram.
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50. Bashyam Publishers, Lakshmipuram. 51. Sundaram Tobacco, Guntur. 52. Jaya Home pipes (P) Ltd., Obulnaidupalem. 53. Kommineni Spinning Mills, Industrial Estates, Guntur. 54. Lakshmi Industries, Guntur. 55. Associated Rubber Industries, Guntur. 56. Premier Shoe Mart, Narasaraopet. 57. Rajendra Oil Products (P) Ltd., Nallapadu. 58. Srinivasa Cotton Traders, Ganapavaram. 59. Omkarnath cotton Ginning Mill, Guntur. 60. Standard Metal Industries, Autonagar. 61. G.A.R. Bottling Industries, Guntur. 62. Prasuna Ginning Mill, Ganapavaram. 63. Sri Kanyaka Metal Rolling Mills, Industrial Estate, Guntur. 64. Aruna Tobacco Company, Ganapavaram. 65. Anveshana Poly Products, Tenali. 66. Marturi Plastics & Engineering Pvt., Ltd., Pedakakani. 67. Vigneswara Modern Rice Mill, Amaravathi Road, Guntur. 68. Nico Agro Oils Products (P) Ltd., Perecharla. 69. V.S.P. Rabar Industries, Amaravathi Road, Guntur. 70. Vijaya Sarathi Wire Helting Works, Sangadigunta. 71. Kallam Oil (P) Ltd., Perecherla. 72. Sri Venkata Kanaka Durga Ice Industry, Guntur. 73. Vijaya Sri Cotton Ginning Mill, Gorantla. 74. Sri Dhana Lakshmi cotton Traders, Ganapavaram. 75. Idupulapadu cotton Mills (P) Ltd.,Ganapavaram.
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76. Kumar Cotex Ltd., Dokiparru. 77. Sri Venkateswara Cotton Traders, Guntur. 78. Srinivasa Industry, Guntur. 79. Sri Manjunatha Polymers, Amaravathi Road, Guntur. 80. Padmavathi cotton Syndicate, Amarvathi Road, Guntur. 81. Vijaya Lakshmi Industries, Satuluru. 82. Venkateswara Swami Dals & Oil Producers, Jonnalagadda. 83. Hemalatha Oil Producers Ltd., 84. Sri Lakshmi Ganapathi Dal Mill, Jonnalagadda. 85. Sri Lakshmi Srinivas Stone Crushers, Perecherla. 86. Arunodaya Metal Industries, Guntur. 87. Sri Ravi Teja Polymers, Guntur. 88. Kishore Granites (P) Ltd., Guntur. 89. M. Govind & Sons, Guntur. 90. Vijaya Krishna Poly Packs, Tenali. 91. Sai Ginning Mills, Amaravathi Road, Guntur. 92. Pardha Sarathi Stone Crushers, Perecherla. 93. Kishore Rocks, Ganapavaram. 94. Sai Raghavendra Stone Crushers, Perecherla. 95. B.P.S. Polish Slabs & Marble Industries, Guntur. 96. Chakradhar Granites, Guntur. 97. UNO Designer Tiles, Guntur. 98. Sri Shirdi Sai Dall Mill, Guntur. 99. M.S.R. Rice Industries, Guntur. 100.Rajeswari Nut Powder Works, Repalle.

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