INTRODUCTION

Small and medium enterprises are central to economic development, particularly in emerging markets.
They are the backbone of a country which wants to project itself as a fully developed nation with
equitable socio-economic growth. Interestingly, 95% of all registered firms across the world are
SMEs, and the number is as high as 99% for regions like Europe. SMEs therefore play an integral role
in fueling the progress of any country, especially in developing economies. In India, SMEs account
for a significant proportion of manufacturing and exports, creating around 1.3 million jobs per year
and employing about 60 million people. The SME sector's contribution equals 40% of Indias total
exports and 8% of Indias GDP. The fact that enterprises which are generally low capitalized and
which use localized resources can impact the employment scenario in such a significant manner, is
truly outstanding. The strongest differentiator for SMEs is the competitive business model, which
emphasizes the use of cost-effective and local resources, capital, processes and labor, ensuring an
effective ROI.
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic
sector of the Indian economy over the last five decades. MSMEs not only play crucial role in
providing large employment opportunities at comparatively lower capital cost than large industries
but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances,
assuring more equitable distribution of national income and wealth. MSMEs are complementary to
large industries as ancillary units and this sector contributes enormously to the socio-economic
development of the country.
MSMED Act 2006: According to Micro, Small and Medium Enterprises act the enterprises are
broadly classified in terms of activity such as enterprises engaged in the manufacturing/ production
and enterprises engaged in services. While the manufacturing enterprises were defined in terms of
investments in plant and machinery, the service enterprises are defined in terms of investment in
equipments. The Act has also defined medium scale enterprises for the first time. The enterprises are
further classified into Micro, Small and Medium categories. The investment limits of these enterprises
are shown in the Table given below.

I.

Importance of MSMEs in the Economy

The value of the small business sector is recognized in economies world-wide, irrespective of
the economys developmental stage. The contribution towards growth, job creation and social
progress is valued highly and small business is regarded as an essential element in a
successful formula for achieving economic growth. The contribution of MSMEs in their
economy in selected countrys shown in the Table given below.

Structure of the MSMEs sector

(% of all MSMEs)

MSMEs participation in economy

Country Name
Micro

Small

Medium

Per 1000
People

Employment
(% total)

Brazil

93.9

5.6

0.5

27.4

67.0

China

NA

NA

NA

6.3

78.0

India

94.0

3.3

0.3

66.9

Egypt

92.7

6.1

0.9

26.8

73.5

United Kingdom

95.4

3.9

0.7

73.8

39.6

Ghana

55.3

42.0

2.7

1.2

66.0

United States

78.8

19.7

1.5

20.0

50.9

South Africa

92.0

7.0

1.0

22.0

39.0

ROLE OF MSMES IN THE DEVELOPMENT OF INDIA:

II.

Contribution of MSMEs Towards Economic Development of India

Contribution of MSMEs to economic development is highly remarkable comparing to any

other sector of the economy. Its role towards Investment, employment generation, export,
GDP, industrial production etc in every area is highly significant. The following chart more
clearly exposes its significant towards economic development.
It is clearly indicating that MSMEs sectors registered a very high growth rate. This is mainly
due to its various advantages comparing to other sectors and Indian economy which is more
close to MSMEs environment, like cheap local resources, local talent, high demand etc.
Moreover the socio economic policies adopted by India since the industries development &
regulation Act, 1951 have laid stress more on MSMEs sectors as a vehicle to develop Indian
economy. Second five-year plan also gave more emphasis on industrial development and
adopt various policies for proper development of this sector. Investment and production are
closely linked. More investment indicate more production or more production require more

investment. Over the year investment in fixed assets by MSMEs are remarkable, which is
clear from above table. Productions of MSME sectors (in value) are going to increases over
the year. In 2001-2002 production of MSME was Rs. 2,82,270 Crore where in 2010-11 were
Rs.10,95,758 Crore, so increases in ten year are 288.19%. Percentage wise increase than the
previous year is also remarkable. MSMEss contribution towards employment generation is
remarkable comparing to any other sectors employment generation capacity. Average
employment generated by this sector in last ten years is 466.734 lakh. Growth rate in
employment
MSMES has definetly helped in growth of Indian Economy by creating oppurtunities for
Enterpreneurs and by creating a number of employment vacancies, as well as it has a very
powerful impact on Investments and Gross output also which is explained as below through
the statistics.

III.

Performance of MSMEs

The Office of the DC (MSME) provides estimates in respect of various performance

parameters relating to the sector. The time series data in respect of the sector on various
economic parameters is given in the following Table is self explanatory of the trend.

Sl.
No.

Year

Total
Working
MSMEs
(Lakh
numbers)

Fixed
Employment
Investment Average
Average
Employment
Investment
(Lakh
(Rs. crore)
persons)

Production
(Current
Price)

Average
Production

(Rs. crore)

2001-02 105.21

249.33

2.37

154349

1467.44

282270

2682.92

2002-03 109.49

260.21

2.38

162317

1482.48

314850

2875.61

2003-04 113.95

271.42

2.38

170219

1493.80

364547

3199.18

2004-05 118.59

282.57

2.38

178699

1506.86

429796

3624.22

2005-06 123.42

294.91

2.39

188113

1524.17

497842

4033.72

2006-07 261.12

595.66

2.28

500758

1918.54

709398

2717.90

2007-08 272.79

626.34

2.30

558190

2046.23

790759

2898.78

2008-09 285.16

659.35

2.31

621753

2180.37

880805

3088.81

9*

2009-10 298.08

695.38

2.33

693835

2327.52

982919

3297.28

10#

2010-11 311.52

732.17

2.35

773487

2482.94

1095758

3517.46

CONTRIBUTION OF MSME (MANUFACTURING SECTOR) IN THE

GROSS DOMESTIC PRODUCT (GDP)
Percentage Share of MSME
Year

Gross Value of Output (Rs.

in Crore)

Total Manufacturing Output

Gross Domestic Product

(GDP)

2006-07

1198817.55

42.02

7.73

2007-08

1322960.41

41.98

7.81

2008-09

1375698.60

40.79

7.52

2009-10

1488390.23

39.63

7.49

2010-11

1655580.60

38.48

7.42

2011-12*

1790804.67

37.52

7.28

RESULTS:
The Fourth All India Census of MSME 2006-07 estimated the size of MSME sector for the
first time taking data from multiple sources. The size of the sector was estimated at 361.76

lakh and 105.21 lakh as compared to Third All India Census of Small Scale Industries (SSI),
2001-02 in terms of estimated number of enterprises. The estimated employment generated
in the sector is 805.24 lakh and 249.33 lakh as compared to Third All India Census of SSI.
The estimated size of number of MSMEs as 361.76 lakh and employment as 805.23 lakh
includes enterprises relevant to MSME sector for the activities pertaining to wholesale / retail
trade, legal, educational & social services, hotel & restaurants, transports and storage &
warehousing (except cold storage) which were excluded from the coverage of both Fourth
Census of MSMEs 2006-07 and Third Census of SSI, 2001-02. For these activities, estimates
were based on data extracted from Economic Census, 2005 conducted by CSO, MOSPI and
accounted for 147.38 lakh and 303.31 lakh in terms of number of MSMEs and employment
respectively. The summary results of the exercise are given below.

GROWTH OF MSME SECTOR:

(a.)

The sector as a whole recorded a growth rate of 28.02% and 26.42% in cases of
estimated number of enterprises and employment respectively during the period 2001-02
to 2006-07.

(b.) The growth recorded during the year 2001-02 to 2006-07 in manufacturing sector was
22.46% and 18.49% for estimated number of enterprises and employment respectively.
(c) For service sector, the growth rate in estimated number of enterprises and employment
recorded was 31.21% and 34.00% respectively, during the period of 2001-02 to 2006-07.

# - In view of the fact that the activities excluded in the coverage pertaining to service sector only, there is no
change in growth rate of manufacturing sector
* - Excluding growth on account of expansion of coverage.

# - In view of the fact that the activities excluded in the coverage pertaining to service sector only, there is no
change in growth rate of manufacturing sector.
*- Excluding growth on account of expansion of coverage

Additional activities brought under the coverage of MSME Sector in 2006-07 as compared to
SSI sector of 2001-02, namely wholesale / retail trade, legal, educational & social services,
hotel & restaurants, transport and storage & warehousing (except cold storage), accounted
for 12.72% and 11.40% points in the growth rate of estimated number of enterprises and
employment respectively.

GROWTH OF

REGISTERED SECTOR:

(a) The estimated number of enterprises grew at 3.76% annually in case of manufacturing
sector and 0.47% for services sector respectively in Registered Sector during 200102 to
2006-07, as per Fourth All India Census of MSME 2006-07, Registered Sector and Third All
India Census of SSI 2001-02, Registered Sector. The growth in the estimated number of
MSMEs was 2.61% for the period referred above, taking manufacturing and services
together.
(b) The employment increased at an annual MSME 2006-07, Registered Sector and Third
growth rate of 9.84% for manufacturing sector All India Census of SSI

(c) The employment in Registered Sector as a whole grew at 8.60 % per annum during
200102 to 2006-07 as per Fourth All India Census of MSME 2006-07, Registered Sector
and Third All India Census of SSI 2001-02, Registered Sector.

GROWTH
(a)

OF

UNREGISTERED SECTOR:

The estimated number of enterprises and employment recorded growth rates of

30.05% and 30.56% respectively during the period 2001-02 to 2006-07 considering the

extended coverage of the sector. The expansion in the coverage of MSME Sector followed
enactment of Micro, Small and Medium Enterprises Act,2006. Activities pertaining to
wholesale / retail trade, legal, educational & social services, hotel & restaurants, transport
and storage & warehousing (except cold storage) which were brought under the coverage of
MSME sector accounted for 147.38 lakh and 303.31 lakh in terms of estimated number of
enterprises and employment respectively , as per data extracted from Economic Census, 2005
conducted by CSO, MOSPI for MSME relevant enterprises. The annual growth rates
recorded, excluding these additional activities, were 16.79% and 16.85% in estimated
number of enterprises and employment respectively. The expansion in the coverage of
MSME Sector was limited to service sector only. Therefore, the growth rate for
manufacturing sector is not affected and the growth rate was recorded as 25.90% and 22.57%
for estimated number of enterprises and employment respectively, during the year 2001-02 to
200607.
(b)
For service sector, the growth rate of estimated number of enterprises and
employment recorded was 32.83% and 36.11% respectively, during the period of 2001-02 to
2006-07.

# - In view of the fact that the activities excluded in the coverage pertaining to service sector only, there is no
change in growth rate of manufacturing sector.
* - Excluding growth on account of expansion of coverage.

- Excluding growth on account of expansion of coverage

SUMMARY RESULTS: FOURTH ALL INDIA CENSUS OF MSMEs.

Sl.
Characteristics
No.
I
1

II
Size of Sector
(in Lakh)

No. of Rural Units

(in Lakh)

No. of Women Enterprises (in Lakh)

Total Employment
(in Lakh)

Per Unit Employment

Total original value of Plant &

Machinery (Rs. in Lakh)

Per unit original value of Plant &

Machinery
(Rs. in Lakh)

Registered
Sector

Unregistered
Sector

EC-2005*

Total

III

IV

VI

15.64

198.74

147.38

361.76

7.07
(45.20%)

119.68
(60.22%)

73.43
(49.82%)

200.18
(55.34%)

2.15
(13.72%)

18.06
(9.09%)

6.40
(4.34%)

26.61
(7.36%)

93.09

408.84

303.31

805.24

5.95

2.06

2.06

2.23

9463960

0.48

10502461

6.72

19966421

10

Total Fixed Investment

(Rs. in Lakh)
Per Unit Fixed Investment
(Rs. in Lakh)
Total Gross Output
(Rs. in Lakh)

Economic Census 2005

44913840

24081646

28.72

1.21

70751027

36970259

68995486

107721286

The ten leading States, in terms of enterprises,

Hotels and Restaurants (13.18 lakh), Sale,

are Uttar Pradesh (44.03 lakh), West Bengal

Maintenance and Repair of Motor Vehicles and

(36.64 lakh), Tamil Nadu (33.13 lakh),

Motorcycles; Retail Sale of Automotive Fuel

Maharashtra (30.63 lakh), Andhra Pradesh

(12.92 lakh), Manufacture of Furniture &

(25.96 lakh), Kerala (22.13 lakh), Gujarat (21.78

Manufacturing not elsewhere classified (11.61

lakh), Karnataka (20.19 lakh), Madhya Pradesh

lakh), Manufacture of Fabricated

(19.33 lakh) and Rajasthan (16.64 lakh).

Metal Products, except Machinery and

Equipment (8.42 lakh) and Manufacture of

The ten leading States, in terms of employment,

Textiles (8.42 lakh).

are Uttar Pradesh (92.36 lakh), West Bengal

The ten leading industries in terms of

employment, (as per National Industry
Classification 2004 at two digit level ) are Retail
Trade except for Motor Vehicles and
Motorcycles; Repair of Personal and Household
Goods (245.48 lakh), Manufacture of Food
Products and Beverages (62.99 lakh),
Manufacture of Wearing Apparel; Dressing and
Dyeing of Fur (60.06 lakh), Other Service
Activities (37.65 lakh), Manufacture of Textiles
(35.91 lakh), Hotels and Restaurants(33.92 lakh),
Sale, Maintenance and Repair of Motor Vehicles
and Motorcycles; Retail Sale of Automotive
Fuel(30.03 lakh), Manufacture of Furniture &
Manufacturing not elsewhere classified (28.19
lakh), Other Business Activities(27.67 lakh),
Education(27.26 lakh).

(85.78 lakh), Tamil Nadu (80.98 lakh), Andhra

Pradesh (70.69 lakh), Maharashtra (70.04 lakh),
Kerala (49.62 lakh), Gujarat (47.73 lakh),
Karnataka (46.72 lakh), Madhya Pradesh (33.66
lakh) and Odisha (33.24 lakh).

The ten leading industries, in terms of

enterprises, (as per National Industrial
Classification 2004 at two digit level) are Retail
Trade except for Motor Vehicles and
Motorcycles; Repair of Personal and Household
Goods (144.15 lakh), Manufacture of Wearing
Apparel; Dressing and Dyeing of Fur (31.65
lakh), Manufacture of Food Products and
Beverages (25.12 lakh), Other Service Activities
(22.43 lakh), Other Business Activities (13.64
lakh),

Comparison of the MSME Sector with the overall Industrial Sector

The MSME sector has maintained a higher rate of growth vis--vis the overall industrial
sector as would be clear from the compound growth rates of production for both the sectors
during last five years as incorporated in the Table given below.

Table : Compound Growth Rates of MSME Sector

Year

Growth Rate of
MSME Sector (%)

Overall Industrial Sector

Growth Rate (%age)

2002-03

8.68

5.70

2003-04

9.64

6.90

2004-05

10.88

8.40

2005-06

12.32

8.00

2006-07

12.60

11.90

2007-08

13.00

8.70

2008-09

13.56

3.20

2009-10

NA

10.50

2010-11

NA

7.80

Source- M/o Statistics and PI website- http://www.mospi.nic.in

The data from Table show the growth rates of MSME sector to that of overall industrial
sector of India. 2001-02 is taken as base year. The table shows that during the year 2002-03,
the MSME sector growth rate was 8.68, where as the overall industrial growth rate was only
5.70. During 2005-06, the MSME sector growth rate increased to 12.32 while the growth rate
of overall industrial sector down by 0.40 i.e. to 8.00. Even after the merger of medium
enterprises, the MSME sector growth rate increased to 12.60. It is significant to note that
during this year the overall industrial growth rate is also considerable reaching to a maximum
of 11.90 during the 9 years period i.e. from 2002-03 to 2010-11. The overall industrial
growth rate reached to a ground level during 2008-09 due to recession. The above available
picture denotes that the growth rates of MSMEs are always ahead of overall industrial growth
of India.

Distribution of Working Enterprises by Area

Rural areas with 200.19 lakh of working enterprisess accounted for 55.34% of the total
working enterprises in MSME sector whereas urban area located 161.57 lakh working
enterprises accounted for 44.66% of the working enterprises of MSME Sector.

Nature of Activity
31.79% of the enterprises in the MSME sector were engaged in manufacturing, whereas
68.21% of the enterprises were engaged in the services

Type of Organisation
Results show that 94.41% of the enterprises in the sector were proprietory enterprises. About
1.18% of the enterprises were run by partnerships and 0.14% of the enterprises were run by
private companies. The rest were owned by co-operatives/ trusts or others.

Ownership by Social Category

According to social group category, 7.83% of the enterprises were owned by Scheduled Caste
entrepreneurs, 5.76% by Scheduled Tribe entrepreneurs and 41.94% by entrepreneurs of
Other Backward Classes.

(II) ESTIMATES OF REGISTERED SECTOR:

Distribution of Working Enterprises by Area
Urban areas with 8.57 lakh of working enterprises accounted for 54.77% of the total working
enterprises in Registered MSME sector whereas rural area located 7.07 lakh working
enterprises accounted for 45.23% of the working enterprises.

Nature of Activity
67.10% of the enterprises in the Registered MSME sector were engaged in manufacturing,
whereas 32.90% of the enterprises were engaged in the services activities.

Type of Organisation
90.08% of the enterprises in the Registered MSME sector were proprietary enterprises.
About 4.01% of the enterprises were run by partnerships and 2.78% of the enterprises were
run by private companies.

Ownership by Social Category

According to social group category, 7.60% of the enterprises were owned by Scheduled
Caste entrepreneurs, 2.87% by Scheduled Tribe entrepreneurs and 38.28% by entrepreneurs
of Other Backward Classes.

ESTIMATES OF UNREGISTERED SECTOR:

Distribution of Working Enterprises by Area
Rural areas with 193.12 lakh of working enterprises accounted for 55.79% of the total
working enterprises in Unregistered MSME sector whereas urban areas located 153 lakh
working enterprises accounted for 44.21% of the working enterprises.

Nature of Activity
69.80% of the enterprises in the Unregistered MSME sector were engaged in services,
whereas 30.20% of the enterprises were engaged in the manufacturing activities.

Type of Organisation
94.61% of the enterprises in the Unregistered MSME sector were proprietory enterprises.
About 1.06% of the enterprises were run by partnerships and 0.02% of the enterprises were
run by private companies.

Ownership by Social Category

According to social group category, 7.84% of the enterprises were owned by Scheduled
Caste entrepreneurs, 5.89% by Scheduled Tribe entrepreneurs and 42.11% by entrepreneurs
of Other Backward Classes.

Key constraints faced by Indian MSME sector:

Despite the sectors strategic importance in overall industrialisation strategy and employment
generation, as well as the opportunities that the Indian landscape presents, the MSME sector
confronts several challenges. Technological obsolescence and financing problems have been

associated with the sector since long. Also, constraints such as high cost of credit, low access
to new technology, poor adaptability to changing trends, lack of access to international
markets, lack of skilled manpower, inadequate infrastructure facilities, including power,
water, roads, etc., and regulatory issues related to taxation (statecentral), labour laws,
environmental issues etc. are also linked with its growth process.
There is a need to develop potential strategies in order to improve linkages and coordination
between the Government, Industry and Academia. There is also a need to develop an
alternate delivery channels through capacity building of the MSME Associations and the
public-private partnerships in the institutional structure as also the schemes. Given the nature
of the enterprises, there is a need to facilitate start-ups and evolve a time-bound exit
mechanism.
At present, the sector is taking limited steps in formulating growth strategies and moving
along with pace of GDP. In addition, the sector also adopts a reactive strategy approach
where the sector reacts according the current economic situation of the country. The
productivity and growth becomes limited for the moment and growth falls back again.
Therefore, the sector needs to adopt a proactive strategy approach where the government
should prepare a medium to long term strategy to sustain themselves in the changing
economic scenario and progress beyond the current GDP growth.

Key challenges:
Access to finance:
The present domestic market conditions do not provide enough opportunities for the MSME
sector for raising low cost funds. To improve the flow of credit there is a need to provide low
cost finance to the MSME sector, which has limited working capital and is dependent
exclusively on finance from public sector banks. The cost of credit in the Indian MSME
sector is higher than its international peers. A transparent credit rating system,
simplification/reduction in documentation for accessing finance, providing interest rate
subvention to the MSME sector must be taken into consideration in order to maintain the
growth of the MSME sector.
The most important issue hindering the growth, however, is the timely and adequate
availability of finance to MSMEs. According to the Prime Ministers Task Force on MSME
report, although bank credit to the sector has significantly increased from Rs. 70,787 crore

(need conversion in US$) in March 2000 to Rs. 2,69,153 crore (need conversion) in March
2009, access to credit needs to further increase given the size of the MSME sector.

in
cr
or
ee
es

The share of credit to the MSME sector in Net Bank Credit (NBC) has declined from 22.3 per
cent to 15.9 per cent during the same period. The trend has been summarised in the graph
below: The Government is taking proactive steps to ensure better access to credit. Bank
lending to the sector will grow at a rate of 20 per cent on a year-on-year (y-o-y) basis, along
with 10 per cent annual growth in number of micro enterprise accounts, with 60 per cent of
the share of MSME credit directed towards micro enterprises. These and other such measures
will ensure that credit flow to the sector, especially micro and small enterprises, is adequate.
Despite such measures banks are reluctant to lend to MSMEs due to their higher risk profile
owing to zero collateral or their limited years of operations.
In a recent study published by the Indian School of Business (ISB), it was found that large
Indian firms (the firms above the MSME threshold by the official definition) obtained about
47 per cent of their total funding from internal sources, 19 per cent from banks and financial
institutions (FIs), and 5 per cent from capital markets. The remaining 29 per cent came from
alternative sources. In case of MSMEs, only 15 per cent of funding came from internal
sources, 25 per cent from banks and FIs, and 10 per cent from capital markets. Around 50 per
cent of the funding has been sourced through alternative funding sources including friends
and family, trade credit etc. Alternative sources are typically far more expensive and are
dependent on prevailing market conditions and are rarely a guaranteed source. This clearly
implies that MSMEs face very high interest cost due to the lack of availability of adequate
credit. This can be countered well through a methodical induction of equity capital. Over the
last decade, there have been private equity investments, of all types and across a myriad of
industries. We are just entering an era where increasing number of family business owners
will be looking to partially or fully divest their ownership in firms they or a family member
founded.

25

300

280
256

249

235
20

210

206

200

186
US 15
$
bn
10

250

200
158
150

125

117
105

20
17

100

15
12
5

11

11

10
7

50

0
Q1

Q2

Q3

2008

Q4

Q1

Q2

Q3

2009

Q4

Q1

Q2

Q3

Q4

2010

PE promotes entrepreneurship and brings domain expertise from their portfolio companies,
previous industry experience and their network. In addition to internal expertise, they can
bring in external knowledge of best demonstrated practices across industries. PE improves
corporate governance by driving independence of boards and help increase transparency and
reporting standards. It could also provide access to new customers through board access,
portfolio firms or networks. The graph below clearly shows that accessing PE funding has
become the preferred mode for budding entrepreneurs to raise capital at an attractive cost.
According to Grant Thorntons Deal Tracker (Annual Edition 2010), the first quarter of 2010
had seen the maximum value and volume of deals since Q1 2006 clocking US$ 20 billion in
total M&A and PE deal values this clearly indicates the trend of strong corporate growth
which is translating to more investments.

How to attract PEs?

A company must position strongly through Differentiation, Value Proposition, Flexibility,
Scalability, Management Expertise and Performance Forecasts to leverage capital funding. A
sustainable business model is a key to success. It is a must to have a crisp business plan
which clearly defines a
companys purpose while demonstrating its value proposition.
To conclude, it can be suggested that apart from government measures as part of the task
force, adequate and timely finance needs to be available for the MSME sector. Some key
recommendations to assist the growth of MSMEs are:

encourage private equity investments this not only unlocks value for the company but
also allows the company to better structure themselves for growing rapidly;

creation of a MSME exchange this shall be a big boon for the Indian economy
resulting in both direct and indirect benefits;
pro-active measures by the Associations this is extremely crucial since the associations
can play a pivotal role in facilitating finance through relevant forums; and
cluster finance these types of mechanisms would result in reduction of transaction
costs and access to timely finance and information

Issues and concerns: FICCIs survey:

Methodology
The survey covered 67 respondents across diverse geographies including Maharashtra,
Karnataka, West Bengal, Uttar Pradesh, New Delhi, Andhra Pradesh, Tamil Nadu, Gujarat,
and Rajasthan. Over 97% of our respondents were from micro and small enterprises, i.e.
28% from micro and 69% from small to be precise, and only one respondent categorised as
large as under the definition of MSMEs. Further, more than 97% of participants were
registered enterprises, with 76% of those surveyed involved in manufacturing, 15.3 % in
trading, and the remainder in the service sector. In terms of legal structure of respondents,
44.44% were structured as private limited companies, 23.5% as partnerships, and 28.6% as
proprietorships.

Findings
As expected, banks remain a dominant source of finance for MSMEs with over 70% of
respondents accessing finance from banks. However, banks also bring their own set of
problems. More than 40% of those surveyed complained that chief problems include banks
placing too much emphasis on collaterals and the large amount of paper work involved.
Further, 18% felt that project appraisal system is un-standardised and 35% felt that
procedures for sanctions are cumbersome, and even once approved there is a delay in
disbursement of funds (28%). Other hardships faced by MSMEs include a high rate of
interest, a lack of personalised service and often a lack of justification for denial of finance.
Apart from banks however, internal sources of funds remained the most popular source of
alternate finance for 37% of respondents, closely followed by family and friends for 15% of
those surveyed. In terms of institutional sources, 17.6% accessed NBFCs for finance and
13.7% looked at private placements for meeting their funding requirements. Private equity,
however, was a viable alternative for only 10% of those surveyed. Interestingly, there were 3
companies in our survey who had no other alternate source of finance apart from their
respective banks.
There is considerable debate on why companies do not look beyond bank financing. For
example, a closer look at the reasons for private equity not being a funding option for
businesses are quite remarkable. Over 65% of our respondents, in fact, admitted that there
was actually a lack of understanding on their part on the benefits of private equity! Another
21% were afraid that private equity would lead to a dilution of control, and the remainder felt
that they felt no real need to access private equity at this point in time.
Another indicator of the lack of information in the market was our question on the extent to
which respondents felt that the governments Credit Guarantee Scheme had helped their unit

access collateral free credit from Banks. Only 18% of those surveyed felt that the scheme had
been of some help to them while around 40% of those surveyed were not even aware of the
scheme!

1.
2.
3.
4.
5.
6.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is an initiative
by the Government of India (GOI) and Small Industries Development Bank of India (SIDBI)
where the main objective is that the lender should give importance to project viability and
secure the credit facility purely on the primary security of the assets financed. These results
are, in fact, in line with the results of an earlier survey conducted by FICCI on MSMEs in
Maharashtra where it was found that 41% of our respondents found it very difficult to
access information on the scheme, and the overall experience for over 32% with respect to
this scheme was in fact negative.
Recognizing the importance of the SME sector, RBI has issued the following guidelines
Ensuring credit to the MSME sector as part of the priority sector lending by banks
Earmarking credit for micro enterprises within overall lending to micro and small
enterprises.
Opening specialized SME branches
Enhancing the limit for computation of the aggregate working capital requirements on the
basis of minimum 20% of the projected annual turnover.
Adopting a cluster-based approach for SME financing by banks.
Reviewing the progress in achieving at least 20% YoY growth in credit to SMEs by the
boards of banks.
MSME credit also allows banks to build a granular diversified portfolio, which helps in risk
mitigation and de-bulking.

Support from the government :

1.

2.
3.

4.

Continuing to be earnest in its endeavors, the government has undertaken measures to

support SME access to finance. These measures include:
Reforming existing legal/ regulatory barriers. This may involve streamlining accounting
requirements or formalizing processes for SMEs. It could also mean reducing capital
requirements in BASEL norms for SME portfolios.
Developing financial markets for SMEs.
Intervening in the market directly to jumpstart lending to SMEs. Direct government
intervention in the banking markets includes direct lending through government-owned
institutions and directed credit programs, where the government provides capital to banks
specifically for lending to SMEs. This has also strongly motivated banks to lend more.
Guaranteeing SME loans for which the government shares a portion of the credit risk. The
government operates through NABARD and
SIDBI, which run major schemes like:
a.

Credit Guarantee Trust for Micro and Small Enterprises:

The credit facilities, which are eligible to be covered under the scheme, are both term
loans and working capital facility, extended by banks up to Rs.100 lakh per borrowing
unit, without any collateral security or third party guarantee, to new or existing micro
and small enterprises, and guaranteed by the Trust up to 75%.
b. Credit Linked Capital Subsidy Scheme: 15% Back End Capital Subsidy, capped at
Rs.100 crores for technology upgradation.

The government also offers support to the MSMEs engaged in foreign trade through the
Export Credit Guarantee Corporation. It provides services which offer risk cover and
guarantees, to protect exporters and banks from inherent risks associated with the sale of
goods and services to foreign buyers.

TAX SOPS

The government seeks to encourage entrepreneurship ventures by offering tax sops.

1. General Excise Exemption
(i) Scheme of the central excise department wherein specified goods are exempted from
excise for SMEs.
2. Tax Holidays on Export Oriented Units (EOU)
a. Exemption from customs and Central Excise duties on import/local procurement of
capital goods, raw materials, consumable, spares, packing material, among others.
b. Tax holidays for various small scale industries and others like IT, food processing,
pharmaceuticals and energy.
c. Turnover threshold limits of Tax Audit raised to Rs. 60 lakhs
d. Tax holidays for MSMEs in specific under developed states and North Eastern region.

Reason for enthusiasm

1.
2.
3.

In addition to revising the guidelines for banks and announcing tax incentives, the Central
Government has introduced other promotion schemes to nurture budding entrepreneurs.
Performance and Credit Rating Scheme: 75% of Credit Rating Agency fee is provided by
the government. MSE Cluster Development Program: improved credit delivery and
marketing support, capacity building skills development. National Manufacturing
Competitiveness Program:
Scheme for
Entrepreneurship Development
Quality Management Standards: subsidies for being ISO certified
Lean Manufacturing Scheme and setting up of Mini Tool Rooms

Mirage turned to oasis

Notwithstanding any criticism, the Government has taken a bold move to attract more
investors towards venture capital, making it easier for entrepreneurs to access equity
markets.
Passing of the Micro Small and Medium Enterprises Development (MSMED) Act 2006,
FDI in MSME
Sector is free except for sectoral caps.
Implementing the Limited Liability Partnership Act 2008, to boost entrepreneurship and
startup ventures.
Setting up the SME Exchange in 2011 with SEBI for alternative sources of finance.
Venture Funds are recognized globally as the most suitable form of providing risk capital
to innovative and high technology businesses. SIDBI Venture Capital Ltd. has set up the
SME Growth Fund to meet the venture capital needs of SME units and enable them to

achieve rapid growth by taking advantage of opportunities in the emerging sectors.

Investors are assured of longterm capital appreciation. The Fund will typically invest in
companies which are in a nascent stage, as well as in those who have a track record of
proven technology or a business model that displays opportunities for growth and earning.

SME wish list

Despite the governments best efforts to patronize the MSME sector, there is scope for
improvement. The suggestions from the MSME beneficiaries resemble wish lists
encompassing tax benefits from RBI policies.
Some of the common suggested schemes and measures propagated by the SMEs are:

Tax Benefits

Differential taxation for SMEs: Categorizing SMEs in the same

bracket as large corporates often leads to SMEs under-reporting profits to save tax, which in
turn affects their ability to avail finance. Collateral requirement of banks would reduce with
better reporting, and bridging the information asymmetry. It would also mean faster
turnaround time for SME loans, as the requirements are seasonal and erratic.
Decrease in number of taxes: SMEs today have the same number of taxes as large
corporates which include Sales Tax, VAT, MAT, Excise and Income Tax. Since SMEs'
operations are run mainly by promoters themselves with little professional help, tax
planning as a business activity takes most of the time.
Credit Guarantees
CGTMSE/ECGC, routed through
SIDBI and other nodal agencies, with an 18-month cooling period, makes it impossible
for banks to finance the scheme (as banks according to RBI norms have to declare their
NPAs in 90 days). Reduction in the cooling period could incentivize banks to lend more.
Along the same lines, easing claim formalities could also lead to more lending.
Credit Rating Subsidy is again routed through NSIC which makes it cumbersome for
SMEs to claim. The same could be routed through banks which could make the subsidy
much more meaningful.

RBI policies to boost financing

Categorizing SME lending as Direct PSL instead of Indirect PSL
Better rating mechanism to be formulated jointly by RBI, banks and credit rating
agencies BASEL II does not recognize the difference in SME and large corporate
lending. Hence, SME rating takes a beating in banks. The Small and Medium Enterprises
Rating Agency (SMERA) rating is currently unacceptable in BASEL. SME rating should
include collateral, promoter net worth and vintage, since sole dependence on the balance
sheet for rating gives a lopsided view of the company.

Access to markets:
Enhancing market access for MSMEs
Need for marketing wide network
To withstand the onslaught of competition from large enterprises within and outside,
MSMEs need to respond promptly to the evolving marketing needs and innovations. The
sector needs to be provided better market access facilities in order to sustain and further
enhance its contribution towards output, employment generation and exports.
MSMEs contribution should be seen not only in terms of output, employment, income,
investment or exports but also in terms of qualitative indicators such as the synergies they
promote with large industries, their contribution towards balanced regional growth,
participation in nurturing entrepreneurial spirit, innovation and in providing a nation-wide
pool of skilled and trained manpower. Even today, most small businesses in India are set up
by first generation entrepreneurs. They often have a product or service idea and some fervor
to work hard. However, the limited market access namely capital access, brand promotion
solutions, marketing support, logistics and sales support, and information and
communication technology (ICT) support stalls the fervor to take the enterprise to next
level.
A recent study reveals that MSMEs in India are broadly unaware of technology solutions and
tools available to cater their marketing needs. According to the study, less than 6 per cent of
Indian MSMEs with access to personal computers advertise online and a majority of these
enterprises use traditional media.
Many Indian MSMEs are also unaware of the effectiveness, measurability and predictability
of using online advertising to reach the target audience.
The study highlighted that a huge opportunity exists for SMBs to reach their desired
financial goals by optimising their web presence and capabilities. It additionally pointed
out that since the majority of Indias MSMEs, especially the small businesses, generate
a large proportion of their revenue from the local market, they still rely on traditional
media like telephone directories and newspapers to reach their customer base.
Therefore, there arises a need for the sector to build capacities to develop ICT and other
tools in order to cater the growing marketing needs. An understanding of the market,
competitors, technology, marketing tools and business environment are determinants of
success of the MSME sector.
Some of the evolved marketing strategies like niche marketing, database marketing, cluster
specific marketing, guerilla marketing and relationship marketing are vital for flourishing the
business without any significant hit to the bottomline. These marketing strategies, if
implemented, can give the MSMEs a platform to go beyond the generic marketing
applications, create greater acceptance, strengthen the brand, devise a focused approach and
compete globally. Brands like Nirma, Moov, Hi-Design and Fevicol started off as MSMEs in

the recent past and have successfully reaped the benefits of strategic marketing to enter,
compete and gain market share from the likes of Unilever, GSK and P&G. In 1959, a small
time glue manufacturer thought of marketing his products to the masses and taking his
business to the next level. With successful product strategies, marketing efforts and
operational efficiencies, the brand has today created a strong foothold in the market. The
company's most successful brand Fevicol and its sub-brands such as Feviwik, Fevibond,
Fevigum, Fevistick and Fevicryl have consistently commanded over 70 per cent of the total
market share. The company has also been able to stay ahead of its competitors in both the
organised and unorganised segments. MSMEs can also use proven traditional STP marketing
strategies viz. segmentation, positioning and targeting for B2C and B2B ecosystems.
Technology tools like SMS, digital newsletter and electronic direct mail can be used
efficiently to target segmented population. Broadly classified as push marketing, these
media tools are cost efficient and easily accessible. To add to this, websites, yellow pages,
directory listings help pull the prospective buyer with rational efforts.
Trade fairs form another important platform for MSMEs to venture into new territories and
develop businesses. The sector is required to look beyond India and innovate to market their
products internationally. MSMEs possess enormous potential required to expand to
international market. To acquire a competitive edge, MSMEs must tap opportunities in the
international arena in the fields of technology and research and development and engage
themselves in international trade. .International trade fairs are an important source of market
intelligence, technological advancements and innovations. Every year, industry specific trade
fairs are held in the US, Canada, UK, Singapore and Dubai to create a meeting ground for
sellers and buyers.
Therefore, it is imperative for MSMEs to ensure that their business offerings are in sync with
the cultural, political, economic and environmental dynamics. This can be achieved by
creating an in-depth study of product feasibility and viability along with competition
mapping and facilitates MSMEs to re-engineer their products and services accordingly.
Therefore the company adopted a cohesive global strategy which enabled successful
completion of numerous diversification projects into Africa, Europe and South East Asia.

Government initiatives
The Ministry has taken several initiatives to facilitate MSMEs to enhance their market
access both within and outside the country. Various organisations under the Ministry of
MSME organise exhibitions/ fairs and buyer-seller meets across the country, providing
MSMEs with an opportunity to display their products and capabilities.
The Marketing Assistance and Technology Up-gradation Scheme for Micro Small and
Medium Enterprises, a program of MSME Ministry, envisages that some clusters of
MSMEs, which have quality production and export potential, shall be identified and
encouraged and assisted through the scheme to achieve competitiveness in the national and
international markets. The program aims at improving the marketing competitiveness of the
sector. The activities planned under the scheme include technology upgradation in
packaging, skills upgradation/ development for modern marketing techniques, competition
studies of threatened products, identification of new markets through state and district

levels, local exhibitions, trade fairs, corporate governance practices, marketing hubs and
reimbursement to ISO certification.
Under the MSE Marketing Development Assistance (MDA) Scheme, assistance is extended
to individuals for participation in overseas fairs/ exhibitions/ study tours. The Ministry of
MSME has also formulated two schemes under the National Manufacturing
Competitiveness Program (NMCP) to smoothen the marketing of MSME products. The
activities supported under these components include assistance for adoption of bar code,
technology upgradation in packaging and skill upgradation/ development for modern
marketing techniques.
Further, the National Small Industries Corporation (NSIC) has launched a B2B web portal
and established a Marketing Intelligence Cell for providing domestic and global market
information to the MSMEs. Various industry associations play a pivotal role by
undertaking sector specific market studies and also by initiating/ contesting anti-dumping
cases.
The Ministry has also formulated a public procurement policy for MSMEs, which will
provide them support in marketing their products and developing long-term relationships
in production/ service value chains with the public sector.

Innovative marketing approach and ICT exposure

In the MSME space, digital marketing plays a highly significant role by performing the lead
function of acquisition, business development and communication. Internet plays an
important role in reaching out to the prospective customers irrespective of the remoteness
and boundaries, and showcasing the products and services in the virtual world.
Internationally, web marketing tools are being extensively used by MSMEs to reach out and
generate leads. These include social networks, website syndication tools, gadgets and RSS
feeds. B2B sites have also emerged as viable platform for promoting and doing business in a
much evolved and effective way. They facilitate in establishing new business relationships
and retaining the existing ones, in what we today know as an e-marketplace. They serve as a
medium for the wholesalers, distributors, suppliers, manufacturers and retailers to conduct
business in the e-arenas. Low investment online marketing tools include sponsored links as
they establish an instant connect with laser-targeted prospects, though in-depth research and
suitable adwords are required to identify industry trends and to keep the campaign effective.

Case Study: 73 per cent of MSMEs in India have their own websites
According to a survey jointly conducted by Internet and Mobile Association of India
(IAMAI) and eStatsIndia, 73 per cent of MSMEs in India have their own websites, while
99 per cent of MSMEs use online B2B (business to business) marketplaces to generate business.
The survey found that in the domestic market last year, the surveyed companies generated 4,842 orders and business
worth Rs 50.9 crore through B2B emarketplaces, while in the international market the companies recorded business
worth Rs 15.9 crore generated from 1,428 orders through e-marketplaces.
It was also found that maximum marketing spends of the surveyed companies are made on Internet. According to the survey
report, 45 per cent of the total annual marketing budget of the MSME companies in India is spent online. Print media accounts
for 32 per cent of the total annual marketing budget of the surveyed companies.

Case Study: Router launch through Social Media saves company US$ 1,00,000
As early as 2008, networking giant company was well along in its social media evolution. For its Aggregated Services Router (ASR) launch,
the company aimed to execute entirely online leveraging social media, and in doing so, engage network engineers in a more interactive, fun
way. The company met its audience where they were in online venues and the gaming world. With this single project, the company shaved
six figures off its launch expenses and set a new precedent for future product launches. It was classified as one of the top five launches in
company history.

Second Life The Company built a stage with big-screen monitors, chairs for the audience and palm trees for its flagship launch
event entirely in a Second Life environment. It then piped in videos of executives presenting the ASR. To generate pre-launch buzz, the
team held a concert in Second Life featuring eight bands over seven hours. The new ASR was presented in a live Second Life event.

Video conferencing The companys next-generation video conferencing technology brought customers together at local offices
around the globe.
Executives back in San Jose could see the audiences facial expressions and vice versa.

Mobile A video datasheet engaged engineers on their mobile devices.

Facebook Network engineers created a companys group/ community and connected to the Internet users. The company also
assembled videos, collateral and images in a widget format and embedded it into social media news releases and launch pages. Bloggers
and others could spread the information easily with the embedded code.

Online forum The Company seeded its Networking Professionals Technology Community Forum with launch-related discussion
topics and gave customers an Ask the Expert function. The whole campaign spanned a period of three months with the launch in the
middle. During prelaunch, launch and post-launch, the company kept the audience engaged by encouraging discussions with its audience.
As compared to traditional launches of the past, the ASR launch witnessed more than 9,000 people (90 times more than past launches) from
128 countries attending virtual launch events. Without travel, the launch saved an estimated 42,000 gallons of gas. Plus, top executives spent
only about an hour recording the video presentation. Print ads were largely replaced with media coverage, including nearly three times as many
press articles as a comparable traditional launch, more than 1,000 blog posts and 40 million online impressions. The whole launch cost one-sixth
of a similar launch that used traditional outreach methods.

Case Study: Effective Utilisation of Integrated Marketing Communication

(IMC) tool by Indian Domestic Mobile Handset Company
A prime example of the effective distribution and right advertising along with a superior product
positioned at the right price is the marketing strategy adopted by one of the fastest growing mobile
brands in India. With a 360 degree advertising and marketing strategy sketched out, the company has an
optimistic outlook for the telecom consumer space. Currently present in more than 40,000 stores across
the country, the companys overall market share has increased from 0.59 per cent in 2008 to 6.24 per
cent in 2010, witnessing an increase of 125.38 per cent in handset sales from 2009 to 2010.
The companys marketing strategy focuses on the unique functionalities of products and market
innovation. For marketing its products, the company has developed a three-pronged strategy:

trying to sell more products in current markets, through the adoption of a big-bang advertising strategy
to drive the brand message through. The company is also focusing to grow its market to the untapped
potential of rural India while strengthening its presence in urban India through latest product offerings.

the company is riding on two enduring Indian obsessionssports and filmsto build its brand. After its
association with the popular Twenty20 cricket Indian Premier League (IPL), the firm has become the
title sponsor of almost all tournaments and series of which India is a part. Moreover, to push its
association with films, the firm has signed Bollywood celebrities as their brand ambassadors and also
sponsoring major film award functions.

the brand is now expanding itself into international markets where the company has already set up
shops in Nepal, Sri Lanka and Bangladesh, and is looking forward to launch operations in the MiddleEast. The company had received funding through the PE route in early 2010.

The company has indeed developed a short-term competitive advantage exhibiting a rare example of
brilliant innovation combined with common sense, making it the third-largest domestic handset company
in India.
The new wave of advertising and marketing is contextual and intertwines with the personal
and professional lives of the target audience. Targeted advertising through social networking
and blogging sites have provided the right platform for a number of companies to reach out to
its prospective customer base more cost effectively. One can create a community page One
can create a community page pertaining to the company, products and services and regularly
update it with fresh content to engage the clients and visitors continuously. Further virtual
reality platforms such a second life and the Indian version, Gojiyo.com, are examples of how
traditional products and services are test marketed to gauge reactions over these platforms.
Mobile marketing is another useful mode for SMEs to connect with their intended audience
in an effective manner

So, today, as Indian MSMEs move up the global value chain, the importance of market
access can hardly be overstated. In conclusion,
access to markets can be achieved by building and coordinating the efforts of various
institutions at state, regional and cluster levels and also by involving MSME Associations in
the country to undertake various marketing functions
new and innovative means of marketing should be utilised effectively to reduce overall
costs while still having a significant impact

market access needs to be clearly strategised with new and innovative ways explored to tap
the market as well as reach out to different countries to understand the market opportunity
the government should proactively look at strengthening its schemes like Consortia
Formation, Brand Building, E-marketing through specialised MSME portals, Assistance
in product designing & packaging, Assistance in publicity of MSME products and holding
of more domestic and international exhibitions in order to provide increased marketing
support to the micro, small and medium enterprises in the country the Ministry of MSME
could also enlarge its existing schemes relating to product designing, packaging, and setting
up of marketing hubs, etc. in order to expand their reach and coverage of larger number of
MSME units
strengthening of National Small Industries Corporation (NSIC) as an apex organisation for
coordination of marketing support programmes could be explored to ensure expansion and
sustainable growth of MSMEs
Blogs: 22 external, 475,000 views/quarter
Twitter: 108 feeds with 2 million followers
Facebook: 79 groups with 100,000 fans
YouTube: 300+ channels, 2,000+ videos, 4 million views
Second Life: 150,000 visitors, 50+ events
Flickr: 300+ photos

Access to infrastructure:
Introduction
Industries form the backbone for national development and are one of the important
components for the growth of national economy and growth of the MSME sector at a
healthy rate is crucial for the overall growth of the industry. However, lack of proper
infrastructural facilities can cause serious damages to an enterprise's value chain process,
like production, consumption and distribution of the products, Besides, lack of finance,
inadequate marketing facilities, technological obsolescence, etc that are being already
faced by MSMEs.
Hence, there is a need of infrastructural development of the industries in general and
MSMEs in particular which should include all types of infrastructural facilities like
railways, waterways, roadways and airways, proper channels of telecommunication,
adequate supply of power and other supporting facilities like Tool Rooms, Testing Labs,
Design Centers, etc.
1. Need for Proper Infrastructure
There is a need for common infrastructure projects for MSMEs. MSMEs,
through coming together and sharing the costs of infrastructure, which are
otherwise prohibitive for individual MSMEs, could benefited from economies

of scale, synergy and collective bargaining by collaborating with each other

particularly on aspects of common infrastructure, common facilities, raw
material procurement, marketing & transportation of finished goods, testing
laboratory, common tooling/machining, Research & Development etc.
2. Basic Infrastructure:
(a)

(b)

Work Space: There is lack of ample work space for industrial clusters to compete in
international markets. In order to get better economies of scale without disturbing
prevailing industrial structure the Govt. should introduce programs for integrated
work space with objective of establishing new MSME clusters and up-gradation of
existing ones. There is a need for setting-up of industrial clusters (or up-gradation of
existing one) through various SPVs formed by group of entrepreneurs in PPP mode
with facilities such as power plants, CETPs, laboratories, training centers, raw
material, banks, common marketing facilities, warehouses, administrative blocks,
warping and sizing units and processing units, etc.
Power: After introduction of Electricity Act 2003, many MSMES
individually not capable to make substantial investments, hence they joined hands and
formed SPV to set up captive power plant to meet their power requirements. In
addition many industrial clusters also set up Group Captive Power Plant to provide
quality power to their member units.

Though Electricity Act 2003 was introduced to encourage setting up of captive power
plant to ease the power supply position as well as to make them eligible for resultant
incentives, it has been working negatively unless amendment are prepared in the larger
interest of power supply position.

Case study of Scheme of Integrated Textile Parks (SITP)

In order to get better economies of scale without disturbing prevailing industry structure, the Ministry of Textiles
(MoT) introduced Scheme for Integrated Textile Parks (SITP) with objective of establishing induced textile clusters.
In Xth Five Year plan, 30 textile parks were allotted to various SPVs formed by group of entrepreneurs.
Subsequently, in XIth FY plan, other PMCs were added and 10 more parks were allotted.
In all 40 Integrated Textile Parks are in the making. Majority of these Parks are 50 to 80 acres Parks while smallest Park
is just 13 acres at Salt Lake City, Kolkata and the largest Park is 1000 acres SEZ at Visakhapatnam. These Parks have
mobilised huge investments into textile sector including FDI and provided potential employment for thousands of
people.
Following are the salient features of these Parks:
Industry associations and group of likeminded individuals have taken lead in establishing Parks
Various institutional structures such as public and private limited companies, section 25 company and cooperative
society has been used for SPV
IL&FS Clusters has assisted Parks in articulating their requirements of common amenities and common infrastructure,
prepared Detailed Project Report (DPR) and recommended the projects for grant funding under the SITP scheme
Parks have availed loans for creating infrastructure including factory sheds without any collateral or personal
guarantees from the members. This access to credit at competitive rates would have been difficult for smaller units in
their individual capacities
Parks have established facilities such as power plants, CETPs, laboratories, training centers, raw material banks,
common marketing facilities, warehouses, administrative blocks, warping and sizing units and processing units as
common facilities and common infrastructure
IL&FS Clusters has helped Parks in designing SITP brand by developing logos for these Parks which at individual level
are unique while collectively all the logos are combined by a common theme of tapestry to form a collage
Like any other common project, collection of contribution from members is issue in textile parks, particularly when
it comes to repayment of loan. This is because loan is in the name of SPV and individual members have not taken any
liability. Banks have started converting common loans to individual liabilities so that businesses of those who are
repaying their share of loan are not affected
One member within the Park offering higher wages than others was disturbing commerce of some of not so profitable
members. To avoid conflict, in some Parks, members have agreed upon a fixed salary to be offered to a new entrant for
first six months and also not to poach each others workers

Challenges:
The Group Captive Power Plants are facing following challenges:
Selection of technology, supplier and deciding number of different capacity Engines
suitable to its requirements.
Financing of investment in Power Plant by SPV as it has no past experience in running such
plant
Constant increase in Fuel cost i.e. gas, coal
Ending up paying heavy O & M charges especially to supplier of plant as it has no technical
capability
Payment of fixed charges for standby arrangement
Litigations on account of wrong interpretations
(b) Water Supply: Every manufactured product uses water during some part of the production
process. Industrial water use includes water used for such purposes as fabricating, processing,
washing, diluting, cooling, or transporting a product; incorporating water into a product; or
for sanitation needs within the manufacturing facility. Some industries that use large amounts
of water produce such commodities as food, paper, chemicals, refined petroleum, or primary
metals. Therefore ample water supply is essential for industrial clusters. Public at large
considers water is either available free from natural sources or government should provide it
at very low prices. But, In case of some industries (like paint, dyeing, etc.) use of water is a
key activity in entire value chain of theindustry. Hence, good quality water is backbone of
entire value chain for that
industry.
Water supply situation in several industrial areas is seriously affected due to contamination of
natural resources as well as ground water due to discharge of untreated effluent over decades.
Issue of proper water supply also prevails due to very scanty rainfall. Due to this water
available some industrial clusters is rendered unusable by the industry.
Now, the common practice is to fetch water by tanker from huge distances. This
transportation of water by tanker not only increases the cost of water but also results into
unwanted incidents like accidents in the nearby villages.
(c) Waste Management: The general problem of industrial waste is rapidly becoming serious
and it is important for industries to reduce their cost of environmental compliance. In this
respect, the concept of Common Effluent Treatment Plant (CETP) is an excellent example for
MSMEs in collaborating with
each other to manage the effluent and water waste.
In prevailing practice, polluting industries having similar effluent characteristics come
together to establish a Special Purpose Vehicle (SPV) company to act as an Implementing
Agency (IA). Since technically it is preferable to have effluent of similar nature, this concept
works best in industrial cluster where similar industries operate in small geographic location.

Benefits of CETP
The primary benefit of a CETP is the compliance with environmental norms which helps the
MSMEs in operations and marketing Environmental compliance obligation is externalised
and therefore industry can work free of repeated disturbance of enforcement agencies Since
in CETP, scale is larger due to collective treatment, economy of scale could be achieved to
reduce cost of treatment per cubic meter of effluent Common Problems of CETP Projects
1. Recovery of dues from member units is always an issue for majority of CETPs. Innovative
practices have been used by few SPVs. Since SPVs do not have powers for penal action
against member units, CETP SPVs tie up with State Industrial Development Corporations
(IDC) such as MIDC or GIDC for billing. In this, State IDC charges nominal collection fees

and include CETP user fees to the bill raised for other charges of IDC. Thus, by making the
user charges statutory in nature, adequate deterrent is built in against defaults.
2. Understatement of effluent volume by member units is a common tendency as contribution
towards capital as well as O&M cost is based on the volume of effluent. In realty, member
units discharge much more effluent than that declared by them thereby disturbing entire
treatment system. In order to
reduce this risk, good practices CETPs have adopted member contribution on the basis of
installed capacity of the machines. Common argument from members is that though the
installed capacity is high, actual production and hence effluent volume is not that high. In
Surat common practice is to levy
charges on the basis of number of Stenter frames. Irrespective of production, members has to
pay in proportion to the number of frames. In several clusters such as textile processing,
metal electroplating, food processing industry, effluent treatment charges are based on the
maximum
installed capacity of the plant.
3. Design and operation of CETP for chemicals and drugs industry is very difficult. This is
due to variation in effluent characteristics. It happens every season when pharmaceutical
units change their product under manufacturing.
Sometimes unexpectedly a solvent or a chemical gets mixed with the effluent and disturbs
CETP operation. In order to overcome this problem, individual units are asked to carry out
pre/ primary treatment of the effluent before it is discharged in common effluent collection
system.
ii. Supporting Infrastructure/ Common Facilities: There is a need of facilitating the MSMEs
through imparting sophisticated skills for personnel drawn from Industries, Development
organisations, Technical Institutions and the Jobseekers. Apart from basic infrastructure
MSMEs should be provided with training in Hi-Tech areas like Information Technology,
Electronics, VLSI, Management and Behavioral Science.
The training should be focused on attainment of competencies and skills to empower the
trainee to perform efficiently & better and improve the employability of job seekers. Experts
who act as facilitator have essentially worked in industry and have undergone industrial
training not only in India
but even overseas, and are well versed with the current trends and technologies.
Availability of general physical infrastructure like power, water, roads, transportation and
communication is an essential factor of production having direct impact on output, cost and
productivity. However, the contribution of cluster specific common infrastructure is more
significant than the generic infrastructure. Cluster specific common infrastructure could be
classified as physical infrastructure including Common Effluent Treatment Plants,
Environment Management Infrastructure, Inland Container Depots, Industrial Zones, etc.
and knowledge infrastructure like testing laboratories, skill development centres, R & D
facilities, technology transfer centres, product and design development common facilities,
Marketing Infrastructure, etc.
Availability of cluster parks with state of the art physical infrastructure including power,
water, effluent treatment, testing, training, etc designed as per the needs of the cluster units
which will establish manufacturing facilities in the park has benefited many clusters in terms
of capacity expansion, modernisation and export augmentation.

The Knitwear facility in Ludhiana and Central Institute for Hand Tools cluster in
Jalandhar were responsible for introducing computerised knitting and forging
technologies in respective clusters. The leather tannery units depend on specialised
infrastructure in the form of Effluent treatment and hazardous solid waste disposal
facility to meet compliance norms.

Industrial infrastructure upgradation scheme:

Taking cognizance of the importance of MSME clusters as also their need for development
of infrastructure, various infrastructure development schemes have been introduced by the
Government. The schemes are envisaged to be implemented on cluster and PPP approach.
Such infrastructure development schemes have been introduced by Ministries of Micro
Small and Medium Enterprises(MoMSME), Food Processing Industries(MoFPI),
Environment and Forests, Textiles(MoT), Commerce and Industry (MoCI) and others to
provide assistance for development of critical infrastructure projects.
1.0 Need for Cluster Infrastructure:
It would be difficult for clusters to sustain their competitiveness in the absence of
adequate infrastructure facilities. The dyeing and bleaching industry in Tirupur, tanneries
in Kanpur, Knitwear processing industry in Ludhiana, are all facing closure due to
inadequate environment management infrastructure. These industries are backbone of the
clusters which are national leaders in their respective sectors. The engineering clusters of
Punjab, auto component clusters of Haryana and many other are facing similar challenge
due to technology obsolescence. The forging technology that was introduced in late 70s
is still the most prevalent technology and decades behind modern technologies available
to competing countries like China, Taiwan, etc. The sports goods cluster in Jalandhar
produces about 15 million soccer balls each year with about 30,000 workers, in
comparison, a leading manufacturer of soccer balls in China produces 18 million balls
with about 6000 workers. The difference is due to adoption of technology which has
automated stitching to some extent. Similarly MSMEs in the auto component sector need
about 3 months for product development which can be achieved in less than 3 days with

access to technologies like Rapid Prototyping. Availability of knowledge infrastructure

can address these technology related gaps. In the leather sector, which is highly labour
intensive, total capacity of institutional infrastructure for training is less than 5000
persons per annum while the demand is for more than 50,000 additional skilled workers
for the shop floor operations alone.
1.1 Physical Infrastructure:
Historically, MSMEs are either located in industrial estates set up many decades ago or
are functioning within urban areas having come up in an unorganized manner. The state
of infrastructure, including power, water, roads, etc. in both industrial estates and such
urban areas is poor and unreliable, leading to very high transaction costs. With the
growth of the industrial sector, including MSEs (which are an integral part of the value
chain), adequate areas for extension of MSEs are simply not available. This has resulted
in crowding of MSE operations in existing areas, often in conflict with environmental
and urban regulations. The new industrial estates developed by State Infrastructure
Development Corporations are typically designed without knowing the nature of units
which would come up in those estates and infrastructure is often not in line with what
those units would require. Therefore, the problem is twofold, upgradation and
maintenance of existing industrial infrastructure and development of new industrial areas
with active participation of user industry.
For upgradation/ creation of infrastructure facilities in the new / existing industrial areas
of MSMEs, the Ministry of MSME has Integrated Infrastructural Development scheme
(now integrated into Micro and Small Enterprise Cluster Development Programme)
wherein GoI provides grant upto 60% of the project cost of RS 10 crores and the state
government is expected to mobilize the balance 40%. The eligible components are
facilities like power distribution, water, telecommunication, drainage and pollution
control faculties. As on December 2010, total of 124 projects have been sanctioned
including 95 new and 29 upgradation projects. Out of these 124 projects, 92 have been
completed (67 new and 25 upgradtion projects) and 36 are ongoing (28 new and 4 for
upgradation). Out of the total committed central grant of Rs. 209.46 crore, Rs. 157.68
crore have been released. Impact is already quite significant as it has resulted in
commissioning of almost 4000 new units creating employment for 26,500 workers.
There are other Ministries which are providing grant assistance for establishing cluster
specific physical infrastructure in the form of cluster parks or industrial estates developed
around a common sector. The Ministry of Textiles has Scheme of Integrated Textile
Parks, Ministry of Food Processing Industries has Mega Food Parks Scheme and
Department of Industrial Policy and Promotion supports Leather Parks. Most of these
schemes and policy initiatives have certain common features which have evolved based
on past experiences of the government to support industrial infrastructure development.
In the past, such industrial infrastructure development did not have user industry
participation in funding or design and ownership as also operations were with the
government agency. The result was below adequate performance of the facilities created.
There are many examples where industrial estates created were not occupied or common
facilities did not find users, etc.

These schemes are focusing more on clusters and seeking greater ownership and
participation of the cluster units. Some of the salient features of these schemes are
public-private partnership approach to establish infrastructure facility; limited funding as
grant by the government; contribution by the user private sector towards capital cost;
implementation operations and management by a Special Purpose Vehicle (SPV)
promoted by group of cluster enterprises; and meeting of operations expenses through
revenue from user charges.
On the electricity front, the Electricity Act 2003 allowed license free environment for
generation of electricity encouraging the industry to set up captive power plants to
bridge the huge gap in demand and supply of power. The Act has removed the
requirement of a license for establishing a generating station.
A Captive Generating Plant is defined as a power plant set up by any person to generate
electricity primarily for his own use and includes a power plant set up by any cooperative society or association of persons for generating electricity primarily for use of
members of such co-operative society or association. After introduction of E A 2003,
many MSMES individually not capable to make substantial investments, joined hands
and formed SPV to set up captive power plant to meet their power requirements. In
addition, many industrial clusters also set up Group Captive Power Plant to provide
quality power to their member units.
1.2 Environment Protection Infrastructure
Pollution related problem is the down side of industrial and technological progress.
There is a growing negative impact of industrialisation on the environment due to
increasing pollution levels. Untreated or improperly treated waste becomes pollution,
increasing not only private costs but also social costs. Environmental degradation often
tends to become irreversible and imposes damaging costs on the economy.
Industrialisation is on the increase, which of course is necessary but, so is the
environmental pollution due to emissions and waste generated from these industries.
There is growing concern and awareness about the downside of industrialisation. The
industrial pollution due to its nature has the potential to cause irreversible loss to the
environment and hence is being closely monitored. The tolerance levels are becoming
stringent by the day and as a result many industries especially, MSMEs which do not
have means to control or treat waste are on the brink of closure.
The Ministry of Environment and Forests has undertaken a Centrally Sponsored
Scheme for enabling the Small Scale Industries (SSI) in clusters to set-up Common Effluent
Treatment Plants in the country for installation of pollution control equipment for treatment
of effluents Common. Under the scheme, Central assistance up to 25% of the total cost of
the CETP would be provided as a grant to the Common Effluent Treatment Plant(s) on the
condition that a matching grant is sanctioned and released by the State Government. The
CETP Company should meet the remaining cost by equity contribution by the industries and
loans from financial institutions.

Assistance for establishing environment protection infrastructure is also available from the
Department of Industrial Policy and Promotion to the leather sector and SITP and Mega
Food Park scheme also have similar provisions.
1.3 Knowledge Infrastructure Common Facilities
As discussed above, the role of knowledge infrastructure is most central for sustaining
competitiveness of MSME clusters. Country is full of examples where clusters have
dramatically benefited from availability of knowledge infrastructure or have perished for
want of these facilities. The Sports Good Foundation of India (operating in Jalandhar,
Punjab) established a common facility for mechanisation of soccer ball stitching under
UNIDO assisted cluster development programme. The facility perfected the technology
for machine stitching and later served as a skill development and technology transfer
facility for the member firms. As a result, the cluster got a product competitive to China
and almost 40% of soccerball exports from the cluster are of machine stitched balls. At
the same time the Aligarh lock cluster and Moradabad handicrafts clusters have
plummeted significantly due to want of technology infusion.
Another classic example is the Hand Tools cluster of Jalandhar which benefited immensely
from the establishment of Central Institute of Hand Tools Institute (CIHT). CIHT was
established in 1983 with assistance from UNDP, Government of India and Government of
Punjab and was instrumental in transferring drop forging technology in Punjab. The institute
got it from its first set of technocrats who had worked with a large scale manufacturer having
imported forging hammers through its German collaboration. However, that was in the 80s,
now the cluster needs another infusion of technology. To remain globally competitive it
needs to adopt cold forging and pres forging technologies. These technologies are not
available at the institute. The MSME cluster firms have come together and formed a SPV to
import these technologies with partial assistance from GoI. The project is under
implementation.
Most of the MSME clusters need knowledge infrastructure in one form or the other.
Government is awake to the importance of knowledge infrastructure for MSMEs. There are
two major centrally sponsored schemes Micro and Small Enterprise Cluster Development
Programme (MSE-CDP) of Ministry of MSME and Industrial Infrastructure Upgradation
Scheme of DIPP. Under MSE-CDP, the assistance for establishing common facilities is upto
70% (90% in NE and Hill states) for a project cost of Rs 15 crores. Under IIUS, the
assistance is upto 75% (90% for NE and Hill states) with maximum grant limited to Rs 60
crores. More than 40 clusters are being assisted under IIUS having total sanctioned cost of
more than 2500 crores. The MSE-CDP is assisting about 60 clusters with sanctioned cost of
about Rs 160 crores.

Recommendations for Infrastructure Development

In the present global environment, the MSMEs have to be competitive to survive and thrive.
To ensure competitiveness of the MSMEs, it is essential that the availability of infrastructure
is in tune with the global trends and it compensates for small scale through provision of
common facilities. MSMEs located in clusters provide an effective mechanism and
environment to address such competitiveness constraints wherein benefits can reach to large
number of MSMEs. Clusters are an effective medium to augment both physical

infrastructure as well as knowledge infrastructure for infusion of technology, development

of skilled workforce, etc.
The Prime Ministers task force on MSMEs has made well founded recommendations based
on stakeholder consultations for augmentation of infrastructure for MSMEs which are
reproduced below:
1.

Local bodies may be encouraged to set aside substantial part of the collections derived
from industrial estates, to upgrade infrastructure such as roads, drainage, sewage, power
distribution, water supply distribution, etc. for the existing industrial estates.
Alternatively, industrial estates could be notified as separate local bodies as envisaged in
the Constitution and entrusted with municipal functions that shall include levy of taxes,
responsibility to maintain the infrastructure within the Industrial Estate, etc.

2.

A national programme for renewal of industrial infrastructure may be undertaken[on the

lines of Jawaharlal Nehru National Urban Renewal Mission (JNNURM)] to upgrade
infrastructure for existing industrial estates, such as roads, drainage, sewage, power
distribution (within industrial areas), water supply distribution, etc.

3.

Expand the scope of the existing Integrated Infrastructural Development (IID) scheme of
Ministry of MSME to cover the private sector

4.

Flatted Factory Complexes may be set up, particularly in and around large cities for MSEs
on PPP mode. On similar lines, dormitories for industrial workers in industrial estates
may be set up

Setting up of common facility services in the industrial estates/clusters on PPP mode be

encouraged by providing adequate assistance under various ongoing schemes of the
Ministry. The two schemes that assist such infrastructure development are IIUS and MSECDP, additional funding support should be made available to these scheme to assume the
character of a National Mission
6. Level of assistance available for CETPs from MoEF and State Governments should be
enhanced and the scope also should be expanded to include conveyance channels, SLF,
tertiary treatment, laboratories, etc
5.

7.

Funding for common captive power generation in Industrial Estates would be encouraged
through subsidies given to the SPV managing such facilities; Also, in case of power plant
set up by registered co-operative society, the conditions like capacity commitment and
equity participations should be allowed to be satisfied collectively by the members of the
co-operative society

8.

The State Governments should formulate policy for incentivising private sector for setting
up of new Industrial Estates

9.

Following best practices should be made a standard for schemes for MSME/ industrial
infrastructure development :
a.

Ownership and operations rest with the project SPV

Concept of Professional Project Management Agency(PMA) to assist the

concerned ministry during scheme implementation especially for extending
handholding support to implementing SPVs from concept to commissioning stages
of the project
c. Two stage approval process in principle and final
d. Central grant is released directly to the project SPV on meeting scheme guidelines
e. Provision of administrative expenses to cover for consultants to be
appointed as PMA as well as project managers by respective SPVs
b.

f.
IV.

Broad base representation of stakeholders on the SPV board

Access to people:

The Indian economy is now the second fastest growing economy of the world. In such a
visible growth environment, tremendous efforts are being made by SMEs (Small and
Medium Enterprises) to make their presence felt and to convert their growth plans into
reality. In essence, last few years have seen the exponential growth of SMEs. While big
players enjoy economies of scale to control prices, SMEs enjoy agility in bringing the
product faster to the market.
However, we still find many SMEs struggling to achieve expected growth and grappling
with inherent challenges of culture and scale. The promoters and entrepreneurs are exploring
ways to minimise this inertia and increasingly realising that HR and its different facets play
an important role to address the growth issues that SMEs face.
Human Resource is one of the most essential growth indicators for organisations today.
Large firms who are targeting high growth rates scour the market for talent and MSMEs can
never outplay large companies in terms of salary. The other challenge faced by MSMEs is to
preserve the horizontal structure that was prevalent when they were young. As the
organisation grows, the cohesiveness present at the start slowly starts to fade away.
People Challenges in MSMEs
MSMEs will need to ensure that they undertake effective HR planning and ensure that the
plan supports a growth aspiration, be geared to increasing the firm's flexibility and
responsiveness and help the company develop its change management capabilities. However,
there are certain challenges faced by MSMEs in achieving the above mentioned HR plan
objectives
The biggest constraint for MSMEs in talent attraction is the lack of ability to pay competitive
compensation packages and nonadequate employer branding. The SMEs often lose out to
MNCs in attracting best talent ,which typically invest substantially in their recruitment and
retention strategies.
Another key concern for MSMEs is to find talent with leadership qualities. As per Grant
Thornton India Market Attrition and Retention Study, organisations are finding it difficult
to find talent with leadership qualities across all sectors.
Talent Retention

Often MSMEs lose talent as they are unable to communicate the goal/ vision of the
organisation and fail to present a clear career path to employees. This leaves employees
directionless and disengaged. Sound induction and orientation processes and constant
dissemination of the organisations short term and long term goals is the solution to this
problem. Lack of job rotation is another key reason for attrition in MSMEs. Employees begin
to find their roles mundane after a period of time and are devoured of job rotation options
within the company which leads them to exiting from the enterprise.
Competency and Skill Development
MSMEs generally lack the understanding and ability to determine the competencies that are
required by an employee to fulfill his role and gain competencies and skills. These skill gaps
exist at various levels.
MSMEs need to be able to distinguish themselves, create their niche brand and use it to
attract talent.
Organisations need to highlight to the potential hires that MSMEs are growing organisations
and provide platform to the new incumbents to grow with the organisation. It is imperative
for MSMEs to make potential employees aware of the fact that the exposure and the level of
responsibility in a small firm is much larger than that in a big firm.
The future will see the growth of MSMEs and SMEs as a result of the growing economy. If
these small fledging businesses need to survive alongside the big giants they will need to
retain their key people and ensure that they are shown a clear vision, goal and career prospect
in order to keep contributing to the organisation for a long time. MSMEs will continue to
prefer to hire senior management candidates from large established companies. There is a
cultural problem that starts developing in the organisations. In this light, change and diversity
management are important aspects that will need to form a part of the culture of many of
these MSMEs who want to grow and want to hire the best minds in the business to do so. It
is becoming clear to business leaders/ entrepreneurs that an effective HR strategy is critical
for its long-term survival. MSMEs will need to ensure that they align the HR role in a
manner that it directly contributes to the organisations bottom line in their area of business.
If MSMEs want to ensure that the issues of talent attraction, talent retention and competency
and skill development never arise in the life cycle of the organisation, they will need to
undertake effective HR planning and institutionalise effective systems and processes.

Access to technology:Technology plays a vital role in an economy, particularly in its development phase. In this
era of globalisation, the MSME sector needs to compete not just at the local or the national
level but also at the global level. Access to modern technology is acting as a serious threat to
the growth of the sector.
The technology transfer issues pertaining to MSMEs in developing nations are very different
from those being faced in the developed countries like the US and UK. The absence of an
enabling ecosystem which is much required for facilitating an active interaction in the
technology transfer process is a major inhibitor for the sector. Other issues such as limited
interaction between technology providers and technology seekers, minimal knowledge
about upcoming technologies, and the cultural and the regional differences in the developing
nations adversely affect the productivity of the MSME sector.

The competitiveness of any economy depends on how efficiently all the resources in the
process of production are utilised and how efficiently these are marketed, hence the entire
chain of production has to be efficient. This means that the process of production has to be
cost efficient and meets quality needs of the consumers. This improvement can come
through the use of latest technology.
Though India has a vast pool of technical talent with a well developed intellectual
infrastructure, the country still scores low in the matter of developing and adapting new
technologies in the MSME sector. The MSME sector today needs an effective information
system to support and deliver information to different users. Such information systems will
be used to provide effective interface between users and computer technology and will also
provide information for managers on the day-today operations of the enterprises
Information is very a vital aspect of decision making at all levels of management in
enterprises, especially in competitive business environment where managers utilise
information as a resource to plan, organise, administer staff and control activities in ways that
achieve the enterprises objectives. The ability of MSMEs to realise their goals depends on
how well the technology is used to deliver information to the key decision makers of the
organisation.

Some of the steps taken by the Government

the Government of India has taken several measures to help small enterprises to become
globally competitive. These include schemes/ programmes for technology upgradation,
development of clusters of such industries, making collateral free bank credit available up
to US$ 1,25,000, creating awareness among these industries regarding export-related
issues, etc. The Ministry of Micro, Small & Medium Enterprises in India is also
conducting workshops on various aspects of WTO, anti-dumping seminars, IPR, etc. to
sensitise entrepreneurs and other stakeholders about the likely impact of liberalisation and
globalisation.

Small Industries Service Institute (SISI) provides technology development services to the
MSMEs

National Small Industries Corporation Ltd (NSIC) was established 1955 by the
Government of India to promote, aid and foster the growth of small scale industries in
India. It offers a number of technical services to SMEs through its Technical Services
Centres, Extension Centres, Software Technology Parks and Technology Transfer Centres

besides these, Technology Business Incubation (TBI) is one of the most recent service,
that NSIC has initiated. TBI enables technical entrepreneurs to conduct their R&D
programmes in a professional, friendly and supportive environment, while receiving the
guidance and hand holding they need in the initial phase. This facility is being offered in
Information Technology, Product
Design, Energy and Environment auditing, Bio-Technology Electronics and
Communications

the Ministry of MSME, Government of India, has set up an Intellectual Property

Facilitation Cell, which provides a range of IP related services such as prior art search,
patent landscape and interface for technology transfer

A Credit Linked Capital Subsidy Scheme (CLCSS) for technology upgradation of

MSMEs provides grant support for technological initiatives of MSMEs

Small Industry Development Organisation (SIDO), established in 1954, provides a wide

spectrum of technical services to the small industries sector. These include common
facilities for testing, tool room services, technology upgradation, modernisation, quality
improvement, training for entrepreneurship development, a number of trainings for skill
upgradation, preparation of project and product profiles, technical and managerial
consultancy, assistance for exports, pollution and energy audits etc.

Recommendations

Access to modern technology

Support for R&D
Assistance from large firms
E-governance & e-procurement

Environmental Performance of MSMEs & Improvement Strategies

MSMEs form a strong basis of the economy in developed countries and transition economies,
but unlike their larger counterparts, they often find it hard to comply with the environment
legislations. Also, availability of limited knowledge and high cost of acquiring efficient
technologies challenges MSMEs. Segments like food, drink, tobacco, printing, textiles,
leather, timber, metal articles, etc., have a significant impact on the environment as they face
major concerns regarding clean water, handling/ storage of toxic waste, preservation of
forests, air pollution, ozone depletion, recycling of materials and many such issues.
The environmental performance of MSMEs continues to remain weak in many parts of the
region and it is believed that the environmental damage caused by MSMEs will grow unless
innovative strategies are devised. MSMEs need to realise the benefits of environmental
management and how it materialises into greater efficiency, profitability, and
competitiveness for the enterprises.
MSMEs currently face a number of barriers which are hindering them from accepting and
initiating the use of environment-friendly technical know-how. But on the same hand there
are number of strategies that have been planned at the government as well as the industrial
levels and are in the pipeline for initiation. The main concern faced by enterprises is the lack
of awareness and knowledge, which make them ignorant of the existing technologies and
techniques and further increase their reliance on old and outdated technologies for their
sustenance. In the recent years, there have been numerous media campaigns and marketing

initiatives to stimulate the markets and the target segments in order to educate and promote
awareness of the existing products and techniques alongside the environmental hazard
aspect. Also, attempts to initiate local support groups and NGOs for the dissemination of
information to the enterprises across geographies could play a valuable role in overcoming
these barriers
Secondly, acute shortage of funding for MSMEs further deteriorate the situation since
acquiring the environment-friendly technologies becomes a financially non-feasible
endeavor. Further, the shortage of funds does not promote the enterprise to take part in
further research and development activities. The government, alongside commercial banks
and lending institutions, has begun programmes that provide financial services and lending
programmes to MSMEs, thereby reducing costs and risk exposure faced by these enterprises
as well the lending institutions through commercial mechanisms. Also, various R&D
programmes conducted and managed by reputed R&D organisations, along with industrial
partners dedicated to specific or general needs, would further aid the enterprises. Bringing in
consulting services would also help these organisations to acquire knowledge of systematic
operating procedures, problem identification and problem solving.
Lack of resources, namely time and human resources, has been seen as a constant hurdle by
MSMEs in order to accept and implement environment-friendly techniques and initiatives. In
order to overcome this obstacle, industrial clustering and networking is seen as a promising
measure. Partnerships and institutional arrangements for waste treatment facility and waste
exchange centres are crucial as supporting instruments that contribute to the success of the
implementation of policy while providing advantages to MSMEs in terms of cost-sharing
and supply chain management. Also, applying partnerships for inter-city technical
cooperation and through initiatives by the existing industrial associations would not only
mobilise the resources needed for the MSMEs environmental performance but create
opportunities for eco-businesses.
Another barrier faced by enterprises is the resistance to change in terms of perception and
ambiguity towards the adoption and implementation of new techniques and environmental
initiatives. Thus, a policy has been constituted by the government regarding the
implementation of the Environmental Management Systems (EMS) tool by enterprises
across. This would lay down the regulatory framework regarding environmental safety
practices and techniques wherein government agencies play the leading role in the
implementation while private consultants and NGOs, as collaborators, play an active part in
working closely with MSMEs to systematically develop the EMS in their firms.
With increased participation by various organisations contributing to the implementation of
the various strategies and initiatives discussed above, the MSME segment would soon be
able to overcome the hurdles and barriers in the course of making its operations greener and
environment friendly.

Comparative Study on MSME policies

of Indian States:
The study covers a mix of eight developed and under-developed states of India having maximum
concentration of MSME units. The study covers two states each from north, east, west and south
zone. The states are further selected on the basis of highest number of MSMEs in these zones. To be
more specific, the study covers the states like Gujarat, Maharashtra, Uttar Pradesh, Odisha, Kerala,
Tamil Nadu, Punjab and West Bengal.

STATE/UT WISE DISTRIBUTION OF ESTIMATED NUMBER OF ENTERPRISES AND EMPLOYMENT

Sl.
State/UT
No.

Number of Enterprises (Lakh)

Registered
Sector

Unregistered Sector
Sample

EC 2005*

Employment (Lakh)

Total

Registered
Sector

Unregistered Sector
Sample

EC 2005*

Total

Jammu & Kashmir

0.15

1.18

1.68

3.01

0.90

2.17

2.68

5.75

Himachal Pradesh

0.12

1.60

1.16

2.87

0.65

2.27

1.76

4.68

Punjab

0.48

9.66

4.32

14.46

4.16

14.16

8.48

26.79

Chandigarh

0.01

0.28

0.20

0.49

0.12

0.58

0.53

1.23

Uttarakhand

0.24

2.00

1.51

3.74

0.80

3.62

2.54

6.96

Haryana

0.33

4.87

3.46

8.66

3.82

8.41

6.61

18.84

Delhi

0.04

1.75

3.74

5.52

0.58

5.94

13.29

19.81

Rajasthan

0.55

9.14

6.96

16.64

3.42

15.00

12.37

30.79

Uttar Pradesh

1.88

22.34

19.82

44.03

7.55

51.76

33.06

92.36

10 Bihar

0.50

7.48

6.72

14.70

1.48

15.97

10.81

28.26

11 Sikkim

0.00

0.06

0.10

0.17

0.01

0.56

0.22

0.79

12 Arunachal Pradesh

0.00

0.25

0.15

0.41

0.05

0.82

0.31

1.19

13 Nagaland

0.01

0.16

0.21

0.39

0.16

1.00

0.54

1.71

14 Manipur

0.04

0.44

0.43

0.91

0.20

1.38

0.78

2.36

15 Mizoram

0.04

0.10

0.16

0.29

0.26

0.30

0.25

0.81

16 Tripura

0.01

0.26

0.70

0.98

0.23

0.53

0.99

1.75

17 Meghalaya

0.03

0.47

0.38

0.88

0.13

1.04

0.75

1.92

18 Assam

0.20

2.14

4.28

6.62

2.11

4.48

7.66

14.25

19 West Bengal

0.43

20.80

13.41

34.64

3.60

54.93

27.24

85.78

20 Jharkhand

0.18

4.25

2.32

6.75

0.75

8.24

3.92

12.91

21 Odisha

0.20

9.77

5.76

15.73

1.73

21.94

9.57

33.24

22 Chhattisgarh

0.23

2.78

2.19

5.20

0.75

4.68

4.09

9.52

23 Madhya Pradesh

1.07

11.50

6.76

19.33

2.98

17.32

13.36

33.66

24 Gujarat

2.30

13.03

6.46

21.78

12.45

21.97

13.31

47.73

25 Daman & Diu

0.01

0.01

0.04

0.06

0.26

0.03

0.09

0.37

26 Dadra & Nagar Haveli

0.02

0.04

0.03

0.09

0.26

0.07

0.07

0.41

27 Maharashtra

0.87

14.45

15.31

30.63

10.89

24.72

34.43

70.04

28 Andhra Pradesh

0.46

14.90

10.60

25.96

3.83

35.15

31.71

70.69

29 Karnataka

1.36

11.12

7.70

20.19

7.89

22.58

16.24

46.72

30 Goa

0.03

0.56

0.27

0.86

0.33

0.87

0.68

1.88

31 Lakshadweep

0.00

0.01

0.01

0.02

0.00

0.05

0.02

0.06

32 Kerala

1.50

12.94

7.69

22.13

6.21

26.98

16.42

49.62

33 Tamil Nadu

2.34

18.21

12.58

33.13

14.26

38.89

27.82

80.98

34 Puducherry

0.01

0.13

0.21

0.35

0.21

0.25

0.55

1.01

35 Andaman & Nicobar Islands

0.01

0.07

0.07

0.14

0.06

0.18

0.15

0.38

All India

15.64

198.74

147.38

361.76

93.09

408.84

303.31

805.24

- For activities under wholesale/retail trade, legal, education & social services, hotel & restaurants,
transport and storage & warehousing (except cold storage) excluded from the Sample survey of
Fourth All India Census of MSME Unregistered Sector, data were extracted from Economic Census
2005 (EC, 2005), conducted by Central Statistics office of Ministry of Statistics & Programme
Implementation.

STATE/UT
SECTOR

WISE DISTRIbUTION OF PRINCIPAL CHARACTERISTICS OF MSME

Sl.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35

State/UT
Jammu and Kashmir
Himachal Pradesh
Punjab
Chandigarh
Uttarakhand
Haryana
Delhi
Rajasthan
Uttar Pradesh
Bihar
Sikkim
Arunachal Pradesh
Nagaland
Manipur
Mizoram
Tripura
Meghalaya
Assam
West Bengal
Jharkhand
Odisha
Chhattisgarh
Madhya Pradesh
Gujarat
Daman & Diu
Dadra & Nagar Haveli
Maharashtra
Andhra Pradesh
Karnataka
Goa
Lakshadweep
Kerala
Tamil Nadu
Puducherry
Andaman & Nicobar Islands.
All India

Enterprises

Employment

(in Lakh)
1.33
1.72
10.14
0.29
2.23
5.20
1.78
9.68
24.21
7.98
0.07
0.25
0.18
0.49
0.13
0.28
0.50
2.34
21.23
4.43
9.97
3.01
12.57
15.32
0.02
0.06
15.32
15.36
12.49
0.59
0.01
14.44
20.55
0.14

(in Lakh)
3.07
2.92
18.31
0.70
4.42
12.23
6.52
18.42
59.30
17.45
0.57
0.88
1.17
1.58
0.56
0.76
1.17
6.58
58.53
8.99
23.67
5.43
20.30
34.42
0.28
0.34
35.61
38.98
30.48
1.20
0.05
33.20
53.16
0.46

0.07

0.23

214.38

501.93

Market Value of
Fixed Assets
(Rs. in Crore)
8475.28
5599.25
37126.69
607.05
6014.98
25998.80
10164.54
25452.90
56161.03
8405.45
72.16
937.48
1273.67
646.03
403.14
661.73
468.55
6941.15
39433.22
5020.72
12284.89
3303.41
10530.40
166753.68
1881.53
229.58
67941.24
32757.63
27161.11
3820.19
17.30
44353.53
77824.34
1135.29
96.95
689954.86

State-wise MSME productivity

The 10 leading states in terms of number of MSMEs in FY 2011-12 were Uttar Pradesh, West Bengal,
Tamil Nadu, Maharashtra, Andhra Pradesh, Kerala, Gujarat, Karnataka, Madhya Pradesh and
Rajasthan. We have covered eight of them in our study while excluding Karnataka and Rajasthan.
As observed from Table below, there is a direct relationship between the number of MSMEs and
employment generated. However, there is a significant gap in terms of the gross output.
Maharashtra produced the maximum output despite standing at 4th position in terms of number of
MSMEs. On the similar lines, Punjab was 4th best in terms of output despite having lowest number
of MSMEs among the sample states and West Bengal stood at 5th position in terms of output in
spite of 2nd position in MSME unit count.

Considering average productivity calculated as gross output divided by number of

employment, Punjab ranks the highest followed by Maharashtra, Kerala, Tamil Nadu, Uttar
Pradesh, Gujarat, West Bengal and Odisha. The average productivity in terms of Rs. Lakh per
employee is tabulated as under:
North

East

South

West

Uttar Pradesh

West Bengal

Tamil Nadu

Maharashtra

1.87

1.35

1.98

3.56

Punjab

Odisha

Kerala

Gujarat

4.46

1.23

2.25

1.61

As evident from above, Punjab fares far better in terms of productivity while Odisha has the worst
productivity. Now merely on the productivity front, we cannot jump on the conclusion that
Punjab is the best and Odisha is the worst for investment/ manufacturing setup.
Punjab, primarily an agricultural state, has various sets of problems like power shortage,
high land prices and high amount of drug/liquor usage among the youth which makes them
relatively under-productive. On the other hand, Odisha has emerged as one of the hottest
investment destination for new projects as per the data released by the Reserve Bank of India. The
states such as Maharashtra, Kerala and Tamil Nadu have a large pool of skilled workforce which is

primarily engaged in the knowledge-based industries like information technology and related
sectors. Further, the states located near the sea like Gujarat, Maharashtra, Tamil Nadu and Kerala
are major hubs of sea trade which also spur the growth of MSMEs in these regions.
States

Key MSME Industries

Uttar Pradesh

Food Processing, leather/ sports goods, tourism

West Bengal

Agro-based, textile, handicraft, sericulture

Tamil Nadu

Textile, leather, irrigation pump/ motor, agro-based,

Maharashtra

Engineering, electrical, food processing, chemicals, pharmaceuticals

Punjab

Textile, agro-based/ food processing, hosiery, energy

Odisha

Iron & steel, aluminium, handloom

Kerala

Rubber, coir, tourism, chemicals, fertilisers,

Gujarat

Textile, pharmaceutical, engineering, dyes & intermediates, diamond

processing

In order to analyse the anomaly in the MSME productivity in the sample states, we have studied the
different policies/ schemes in place in these states and divided such policies/ schemes under the
below-mentioned five categories which are imperative for sustainable growth and development of
any SME.
1. Infrastructure development
2. Business growth
3. Cluster development
4. Quality and Technological upgradation.
5. Market development

1. Infrastructure development support

As has been pointed out in many studies on MSMEs, one of the most persisting constraints facing
the sector is inadequate physical and economic infrastructure. Particularly, access to
dependable supply of electricity has emerged the most crucial issue blocking the rise of
productivity and output of small firms. To address this issue, the governments of various states have
come up with different policies in addition to the support provided by the Central Government.
The below table summarizes the type of schemes offered by each of the State governments in brief-

Infrastructure Development support

North

East

South

West

Uttar Pradesh

West Bengal

Tamil Nadu

Maharashtra

Electricity duty exemption

Capital investment subsidy

Stamp duty exemption

Refund of Value added tax

Reimbursement of Entry Tax

Refund of stamp duty and

registration fee

Refund of CST

Punjab

VAT and CST incentive for Units

with Fixed Capital Investment

Reimbursement for
modernization

Odisha
Reservation of Industrial
estates

Part-funding for approved Stamp Duty exemption,

infrastructure items
Electricity duty exemption to
Rebate on stamp duty on plots EOU/IT/BT units & Capital
subsidy for IT Parks
in certain industrial estates

Kerala

Gujarat

Part-funding for fixed capital

investment with preference

to
women, SC/ST, young
entrepreneurs

Interest subsidy for SME

Additional subsidy to youth
and women entrepreneurs

North region
Uttar Pradesh government offers exemption from Electricity duty for 10 years to all new units and
exemption from stamp duty ranging from 50 to 100% depending upon the location of the unit. In
Punjab, VAT and CST incentive (50% VAT+75% CST with maximum cumulative quantum of 50% of
fixed capital investment) shall be available to new SMEs, having fixed capital investment from Rs.1
crore to Rs.10 crore, which have obtained term loan from a Financial Institution/Bank. The
incentive shall be available only to units setup in Industrial Focal Points, Industrial Estates
and approved Industrial Parks for a maximum period of 7 years from the Date of Approval. Also,
the state government shall reimburse 50% cost for modernization of facilities.

East region
The government of West Bengal has divided the state into four zones. Depending on the zone
location, an eligible micro/ small unit will be entitled to capital Investment subsidy in the
range of 15% to 40%, subject to a ceiling of Rs.50 lakh for small enterprise, along with additional
subsidy of 20% for all enterprises wholly owned by women, SC/ST and minority community. Further,
an eligible MSME shall be given VAT refund in the range of 80-90%, for its approved project for 8
years or 75% of fixed Capital Investment whichever reached earlier as well as total refund of CST for
3 years from the date of commencement of commercial production. Also, MSMEs will be entitled to
a refund of stamp duty and registration fee paid by it for the purpose of registration of documents
within the State relating to the purchase of land and buildings for setting up of the approved project
ranging from 25% to 100%. The government will also provide reimbursement of Entry Tax on plant
and machinery available after beginning of commercial production by the unit as well as
reimbursement of entry tax on procurement of raw materials for the initial 3 years to the MSMEs.
The Odisha government has also reserved 20% of area in all industrial estates for MSMEs. Further,
Common Facility Centres (CFCs) set up by SPVs of MSME clusters shall be entitled for allotment of

land on free-of-cost basis at locations earmarked for the purpose by Odisha Industrial Infrastructure
Corporation (IDCO).

West region
Maharashtra government entitles MSMEs for 100% stamp duty exemption within the investment
period for acquiring land and for term loan purpose. Further, the electricity duty exemption is
offered to 100% EOU and IT/BT units for seven years and a capital subsidy of 20% on fixed capital
investment in IT park, subject to ceiling of Rs.20 lakh, to be available to first 10 approved SME units
in the notified IT Parks. The Government of Gujarat offers interest subsidy of upto 7% for micro
enterprises and @ 5% for small and medium enterprises. Further, 1% additional interest subsidy
shall be provided to youth having less than 35 years of age in case of the first project with a
maximum limit of Rs.25 lakh per annum, for five years. Woman entrepreneurs will be accorded
priority.

South region
Tamil Nadu government funds 20% of cost of approved infrastructure items with a maximum limit
of Rs.1 crore and offers 50% rebate on stamp duty and registration charges for privately
developed industrial estate. Further, 30% of the area shall be reserved for Micro Enterprises in
Tamil Nadu Small Industries Development Corporation Limited (TANSIDCO) Industrial Estates and
20% of the area for Micro Enterprises in State Industries Promotion Corporation of Tamil Nadu
Limited (SIPCOT) Industrial Estates. Kerala government provides 15% of fixed capital investment
upto a limit of Rs.20 lakh and 20% of fixed capital investment upto Rs.30 lakh for women, SC/ST,
young entrepreneurs.

Entrepreneurs Memorandum
Further, in order to encourage the unorganized units to register, the Ministry of MSME has
simplified the registration process (replacing the earlier two-stage registration process with a onestep filing of memorandum).
MSMEs has shown consistent growth in terms of number of Entrepreneurs Memorandum [EM-II]
filed every year. Number of EM-II filed during 2007-08 in the District Industries Centres (DICs) across
the country was 1.74 lakh which increased to 1.93, 2.14, 2.37 and 2.82 lakh during 2008-09, 200910, 2010-11 and 2011-12 respectively.

As can be witnessed above, both the states placed in extreme in terms of productivity
(Punjab and Odisha) fared lowest among the group in terms of number of EM-II filed in FY 201112. This indicates that very less number of entrepreneurs/ industrialists are interested in setting up
their business in these states. Furthermore, even on comparing the existing number of SMEs
operating in these states, Punjab and Odisha fared at the lowest rank in the group. However, as per
the report published by RBI in September 2013, in terms of the new investment proposals which got
sanctioned by banks and financial institutions during FY 2012-13, Odisha has emerged as the top
preferred destination. Odisha managed to get investors to commit to around Rs.53,000 crore
investment, a 27% share of all-India investments which was a sharp rise from just over 6% in FY
2011-12.
Not only during FY 2011-12, Tamil Nadu has received the maximum number of EM-II in the last five
years as it is one of the most industrialized state of India. It has a long coastline and is well
connected to the major trade centres. However, in terms of the annual growth rate, Gujarat is far
better wherein the number of EM-II filed has grown at a Compounded Annual Growth Rate (CAGR)
of 41% during FY 2007-08 to FY 2011-12 as against 27% in Tamil Nadu. This high growth rate has also
bridged the gap between the number of EM-II from less than half of Tamil Nadu in FY 2007-08 to
almost threefourth of Tamil Nadu and also the second best in FY 2011-12. The primary reason
behind the high entrepreneurs interest in Gujarat is the pro-active administrative set up, relatively
transparent procedure of investment, efficient power sector and diversified industrial set-up.
Though Uttar Pradesh is well placed at third position in terms of EM-II filed, its position has actually
worsened from the top state in FY 2007-08 as the growth in number of EM-II filed has remained
stagnant.
2. Business growth support
For decades, the most dominant constraint facing the MSMEs has remained access to adequate and
timely loan finance. This becomes more crucial during the growth stage of business where the
financing needs of the enterprise rises. For the purpose, the state governments offer various
incentives and funding support depending on the focus areas and industries to encourage growth of
Business.
The schemes for business growth offered by various state governments have been tabulated belowBusiness Growth Support

North

East

South

West

Uttar Pradesh

West Bengal

Tamil Nadu

Maharashtra

Part-funding for capacity

expansion

Interest subsidy

Nivesh Protsahan Yojna

Interest subsidy on term loan

Waiver on electricity duty

Power subsidy
Workforce welfare assistance

Interest subsidy for technology Industrial promotion scheme

upgradation/modernization
Power tariff subsidy
Capital subsidy on eligible P&M Interest subsidy for
with additional subsidy for electricity consumed
women, SC/ST
Additional incentive for food
Employment generation subsidy processing industry
& Subsidy on power consumption

Punjab
Design clinic scheme for
SMEs
Electricity duty exemption

Odisha
Capital investment subsidy
with additional subsidy for
women, SC/ST etc.

Kerala

Gujarat

Additional incentives for certain Interest subsidy

priority industries
Additional subsidy to youth
and women entrepreneurs

North region
Uttar Pradesh government provides funding for purchase of Plant & machinery for enhancement of
capacity and quality improvement @ 50% subject to a maximum of Rs.2 lakh and interest subsidy @
50% subject to a maximum of Rs.0.50 lakh. Also, grant of interest-free loan shall be provided to new
units having made fixed capital investment of Rs.5 crore or more in Food Processing Sector (Rs.10
crore or more in Eastern U.P. and Bundelkhand and Rs.25 crore or more in other districts) for 10
years under Nivesh Protsahan Yojna, which is repayable after 7 years. The amount of loan shall not
exceed 10% of turnover or sum of the trade tax/ vat and central sales tax paid by the units. Further,
it shall also offer scheme under which amount incurred for consultancy worldwide competition@
50% is being provided by the government, subject to a maximum of Rs.0.50 lakh.
Government of Punjab is offering a scheme focused for students wherein the Design Clinic Scheme
supports design work by reimbursing 75% of expenses incurred subject to maximum of Rs.1.5 lakh
for final year student projects done for SMEs under the supervision of parent design Institutions.
Further, 100% exemption from payment of Electricity Duty on Power, including Captive Power
consumed by the same unit or exported to Punjab State Power Corporation, shall be available to
new units for a maximum period of 7 years from the date of Approval within approved Industrial
Focal Points, Industrial Estates and Industrial Parks.

East region
The Government of West Bengal will provide an interest subsidy in the range of 6% to 7.5% to SMEs
and interest subsidy of 25% for medium enterprises (subject to a ceiling of Rs.175 lakh/year) for 5 to
7 years depending on the location of the units.
Further, an eligible micro, small or medium unit will be entitled to a waiver of electricity
duty on the electricity consumed ranging from 50% to 100% (subject to maximum of Rs.25 Lakh
per year for medium enterprise) for 5 years from the date of commencement of operation
depending on the location, with 100% waiver for units owned by women, SC/ST and minority
community. Further, Government has decided to provide a power subsidy of Rs.1.00 / Kwh for units
in Zone A & B and subsidy of Rs.1.50 / Kwh for units in Zone C & D for 5 years subject to a ceiling of
Rs.20 lakh per annum for small enterprises and Rs.30 lakh for medium enterprises. Also for
workforce welfare assisstance, MSMEs will be entitled to a reimbursement of 100% in 1st year &
75% in next remaining years of expenditure incurred by it towards Employees State Insurance (ESI)
and Employees Provident Fund (EPF). The reimbursement for Zones B will be for 5 years, Zone C for
7 years and Zone D for 9 years.
As per the policy of Odisha government, New Industrial Units belonging to MSME sector shall be
entitled to capital investment subsidy of 10% of fixed capital investment subject to an upper limit of
Rs.8 lakh only. SC, ST, PH, Women and Technical (Degree / Diploma holding) entrepreneurs shall be
entitled to capital investment subsidy of 12% of fixed capital investment subject to an upper limit
of Rs.10 lakh.

South region
Tamil Nadu Government provides subsidy to the extent of 3% of the interest on term loan obtained
for Technology upgradation/modernization scheme. Further, 15% capital subsidy is offered on the

value of eligible plant and machinery subject to a maximum of Rs.3.75 lakh and 5% of Plant &
Machinery cost as employment generation subsidy. Additional capital subsidy of 5% of Plant &
Machinery cost shall be provided to women, SC/ST and differently-abled entrepreneurs. Also, 20%
on power consumption charges for 36 months from date of new power connection shall be borne
by the government. 25% of Plant & Machinery to promote cleaner environment and 25% on the
generator sets upto 125 KVA capacity is being offered. As per the policy of Kerala Government,
certain priority industries shall get additional 10% upto Rs.10 lakh.

West region
As per Maharashtra government policy, it shall offer
i)
ii)
iii)
iv)

Incentive equal to VAT on local sales + CST payable + 20% to 100% of ITC on eligible finished
products.
Power tariff subsidy of Rs.0.50 to Rs.1 per unit shall be granted (depending upon location)
for 3 years from the date of commencement of commercial production.
Interest subsidy shall be offered of maximum @5% upto the value of electricity consumed.
In Food processing sector, eligible units would be granted additional 10% incentives.

The Government of Gujarat offers interest subsidy of upto 7% for micro enterprises and @ 5% for
small and medium enterprises. Further, 1% additional interest subsidy shall be provided to
youth having less than 35 years of age in case of first project with a maximum limit of Rs.25 lakh
per annum, for 5 years. Woman entrepreneurs will be accorded priority.

As evident from above, the leading state in terms of employment in MSMEs is Uttar Pradesh
whereas Punjab stands at last among these sample states.

State-wise Distribution of Debt Supply by Commercial Banks

The percentage share of lending to MSMEs as per the data available from RBI pertaining to year
2009-10 is as below:
State

Estimated Share (%)

Odisha

2.53

Uttar Pradesh

5.60

West Bengal

1.51

Tamil Nadu

12.82

Maharashtra

26.48

Gujarat

5.23

Kerala

3.82

Punjab

3.97

Total

61.96

These eight states comprised almost 62% of the lending extended to the MSME sector by the
commercial banks. Maharashtra and Tamil Nadu were the major beneficiaries in terms of the
lending from the banks for the MSME sector.
3. Cluster development
Cluster-based approach is increasingly being recognized as sustainable, cost-effective and an
inclusive strategy to ensure competitiveness and improvement of MSMEs. As per the study 2010,
Clusters in India undertaken by Foundation for MSME clusters (FMC), It is estimated that there are
around 6,400 clusters in India. A total number of 4,259 clusters have been mapped in its study.
These clusters have been classified under the following typology:
(i)

SME clusters 1,086

(ii)

Handloom clusters - 491

(iii)

Handicraft clusters 2,682

Considering the states selected in our study, the state of Uttar Pradesh has the largest number of
504 clusters of all types followed by 340 clusters in Orissa, 322 in West Bengal, 314 in Gujarat, 310
in Maharashtra, 225 in Tamilnadu, 181 in Kerala and 115 in Punjab . A state-wise presence of all
types of clusters is shown in the graph given below.

Source: 2010, Clusters in India by Foundation for MSME Clusters (FMC)

The list of key clusters present in the sample states is as below.

State

Key Industrial Clusters

Gujarat

Ship breaking, tile, pharma, dyes, plastic products, oil mills, diamond processing, textile processing

Kerala

Coir, rubber, powerloom, sea food processing

Maharashtra

Auto components, foundry, dal mills, readymade garments

Odisha

Rice mills, powerloom, spices

Punjab

Rice mills, footwear, auto components, machine tools

Tamil Nadu

Powerloom, rice mills, auto components

Uttar Pradesh

Leather products, powerloom, mechanical engineering equipment, electronic goods, toys

West Bengal

Wood products, handtools, artificial/real jewellery, locks

Source: List of SME Clusters in India (identified by UNIDO)

Considering the importance of MSMEs, the state governments have come up with schemes to
enable development of clusters and providing necessary assistance.
Cluster
Development
North

East

South

West

Uttar Pradesh

West Bengal

Tamil Nadu

Maharashtra

Selected 22 clusters for

support under GOIs
scheme
Punjab
No specific scheme

Financial assistance for

cluster development

Odisha

Cluster development cell

Mini Tool room

scheme

Kerala
No specific scheme

No specific scheme

Gujarat
Financial assistance for cluster
development

North region
In Uttar Pradesh, 22 clusters are selected to provide infrastructural support and technological
support under GOIs cluster development scheme which provides
i)
Diagnostic Study - Maximum cost Rs. 2.50 lakh
ii)
Soft interventions - Maximum cost of project Rs.25 lakh, with GoI contribution of 75% (90%
for Special Category States and for clusters with more than 50%
women/micro/village/SC/ST units).
iii)
Hard interventions i.e. setting up of CFCs maximum eligible project cost of Rs.15 crore
with GoI contribution of 70% (90% for Special Category States and for clusters with more
than 50% women/ micro/village/SC/ST units).
Out of 22 clusters, five are Common Facility Centre (hard intervention) at Varanasi (Glass beads),
Bhadohi (Carpet), Khurja (Pottery), Gorakhpur (Leather), and Meerut (Scissors).
In Punjab, there is no specific scheme floated by the state government to support the cluster
development and follows the GOIs cluster development scheme.

East region
As per West Bengals Policy, the State Government will provide financial assistance of up to Rs. 5
crore to establish common infrastructure facilities in industrial clusters such as road, power etc for
each micro and small industrial cluster in Zone B and C and in Zone D, i.e. the backward areas ,this
support will be upto Rs.10 crore.

In Odisha, a Cluster Development Cell is set up for the cluster development in the state. To promote
SPVs in MSME clusters, the SPVs shall be given the status of new small-scale industrial units for the
purpose of availing fiscal and nonfiscal incentives.

South region
In Tamil Nadu, mini Tool Room of 25% project cost upto Rs.1 crore shall be provided.

West region
In Gujarat, assistance of upto 80% of project cost (including assistance from GoI, with a ceiling of
Rs.10 crore shall be provided per cluster for a period of 3 to 5 years. If the assistance for
cluster development is obtained under the Cluster Development Scheme of GoI, the total
benefit under both the scheme shall not exceed 80% of the project cost.

4. Quality and Technological upgradation support

The type of schemes offered for quality and technological upgradation by each of the states are
summarized in the table belowQuality and technological upgradation support
North

East

South

West

Uttar Pradesh

West Bengal

Tamil Nadu

Maharashtra

Financial assistance
ISO/ISI certification

for Standard quality compliance

Subsidy for Intellectual property
(GI / Patent registration)

Financial assistance
for obtaining patents

Support for quality certification measures

Incentives for credit rating of MSMEs
Subsidy for technology upgradation
Financial Support for patent registration

Punjab
Financial assistance
quality certification

Odisha
for Reimbursement of technical
knowhow cost
Clean development
mechanism

Kerala
Financial assistance for
technology upgradation

Gujarat
Grant for technology acquisition
Support for quality certification & patent
registration

North region
Uttar Pradesh government provides 50% (subject to a maximum of Rs.75,000) of amount incurred
for obtaining ISO/ISI certification.
Punjab government provides 75% of expenses incurred on quality certification measures upto a
maximum of Rs.75,000.

East region
In West Bengal, a further assistance of 50% of cost upto a maximum of Rs.5 lakh will be provided for
Standard quality compliance e.g. obtaining certification/accreditation like ISO-9000, ISO-14000, ISO18000, Social Accountability Standards etc. Also, the State Government will provide consultancy and
facilitation services for identification and registration of Geographical Indicators (GI) of items
alongwith reimbursement of 50% of expenditure for obtaining patent registration subject to a
maximum of Rs.5 lakh.

In Odisha, new MSMEs are eligible for reimbursement of 50% of cost of purchase of technical knowhow up to Rs.1 lakh in case of indigenous technology and up to Rs.5 lakh in case of imported
technology. The state government shall endeavour to promote adoption of Clean Development
Mechanism (CDM) and related technologies by the MSMEs. The government subsidized consultancy
services for adoption of CDM by the MSME to the extent of 50% of the charges or Rs.25,000/whichever is less.

South region
In Tamil Nadu,
i)
ii)

Financial Assistance of upto 50% of expenditure is being provided for obtaining patents,
subject to maximum of Rs.2 lakh
Assistance is given upto 50% of expenditure incurred for obtaining trademark
subject to maximum of Rs.25,000.

In Kerala, 10% of fixed capital investment (upto Rs.10 lakh) is being provided for technology
upgradation purposes.

West region
In Maharashtra,
i)
ii)
iii)

iv)

75% of expenses incurred on quality certification measures shall be provided by the

government.
Incentives for credit rating of MSMEs shall be offered, where 75% of cost for getting a credit
rating will be subsidized
5% subsidy shall be provided for technology upgradation and 25% subsidy on
capital equipment for cleaner production measures upto ceiling of Rs.25 lakh and Rs.5
lakh respectively.
75% of expenses incurred on Patent registration shall also be provided.

In Gujarat,
i)
ii)
iii)

50% of cost of quality certificate shall be provided by the government, within overall ceiling
of Rs.6 lakh in 5 years, with maximum of three certificates in the Scheme
Grant at the rate of 50% of cost of technology acquisition shall be offered, including royalty
payments for the first two years, subject to maximum of Rs.1 crore per technology.
Financial assistance shall be provided of upto 50% of expenditure incurred for
obtaining patents, subject to maximum of Rs.10 lakh for obtaining domestic patents
and Rs.25 lakh for obtaining international patents. Maximum five patents per unit over a 5
years period will be eligible.

5. Market development support

Since most SMEs do not have easy access to capital and have to invest a larger amount of their
funds in production activities, they do not have any surplus funds left for marketing activities.
Further, even with availability of funds, the importance of marketing is not recognized by most

of them. Thus, the government provides special schemes wherein SMEs are specially provided
assistance solely for their marketing activities.

Some of the schemes provided by the governments of various states are listed belowMarket Development Support
North

East

South

West

Uttar Pradesh

West Bengal

Tamil Nadu

Maharashtra

No specific scheme

No specific scheme

Waiver on Earnest
Money Deposit

No specific scheme

Reimbursement of hall
rent for conducting
exhibition by MSME
Association
Punjab

Odisha

Dedicated annualized fund for OSIC will act as nodal

marketing, cluster development
procurement agency

Kerala
No specific scheme

Gujarat
Assistance to MSME units & industries for
participation in international fairs

Market development support

for national/State/local level
associations

North region
In Uttar Pradesh,
i)
ii)
iii)
iv)

60% of Stall charges shall be paid by government, upto maximum of Rs.1 lakh for one
fair/exhibition,
In Air Fare, 50% by economy class maximum upto Rs.50,000/- per fair for one person shall
be reimbursed.
75% of total expenses shall be reimbursed on air-freight courier for sending samples max.
assistance up to Rs.50,000/- per year.
Also, Subsidy shall be offered on freight charges.

In Punjab,
i)

ii)
iii)

dedicated annualized fund of Rs.150 crore will be created for the purpose of creation & upgradation of Industrial Infrastructure, to make contributions as a State share for the Central
Government Schemes like Cluster Development, Common Facility Centers, R & D, Marketing, etc
50% of the expenses in case of National level Associations, subject to a ceiling of Rs.2 lakh would be
met by GOIs assistance
25% of the cost would be borne by the concerned State/Regional/ Local Level Association. The
remaining 75%, subject to a ceiling of Rs.1 lakh would be met by GOIs assistance.

East region
In Odisha, Odisha Small Industries Corporation Ltd. (OSIC) will act as nodal procurement agency of
the State Government Departments and Agencies under their control. Bulk orders for procurement

of goods and services shall be routed through OSIC. While acting as a consortium leader of local
MSMEs, OSIC shall be entitled to service charges not exceeding 1% of the order value from the
concerned units. ii) The local MSEs registered with respective DICs, Khadi, Village, Cottage &
Handicraft Industries, OSIC and NSIC shall be exempted from payment of earnest money and shall
pay 25% of the prescribed security deposit while participating in tenders of Government
Departments and Agencies under its control.

South region
In Tamil Nadu,
i)
ii)

100% waiver on Earnest Money Deposit shall be provided

50% Reimbursement of hall rent shall be provided for conducting exhibition by MSME
Association.

West region
In Gujarat,
i)

ii)

Financial assistance shall be provided to MSME units for participation in International Trade
Fair outside India @ 50% of total rent of Stall or Space paid to organizer and cost of product
literature, catalogue and display material, with maximum of Rs.2 lakh.
Assistance to Industries Association for participation in international trade fair shall
also be provided as Gujarat Pavilion outside India @ 50% of total rent, with maximum of
Rs.10 lakh.

V.

Conclusion:

The factors such as the level of industrialisation, infrastructure setup and the availability of
natural resources, are the few major determinants of the type of industries in the region. The
central government as well as the state government have various schemes for promoting the
MSME sector, which is crucial to the growth of any country. However, it is difficult to determine the
effectiveness of these schemes as many SMEs are even not aware about many government policies
and even it is very difficult to get the guidelines of many government policies. Also small
entrepreneurs do not have much of expertise in various company laws and taxation policies
and also do not want to go to the legal experts or CA because of the high cost involved. Hence,
there is a need to minimize the paper work in order to pass on the benefit to the larger set of SMEs.
Further, due to lack of transparency and appropriate mechanism, it is difficult to determine the
efficiency of these states in terms of benefits being availed by MSMEs under the offered schemes.
Though each state is different from the other in terms of its employable workforce, regional
diversity, key resources etc, we observe that there is lack of focused schemes for promotion of
particular industries or schemes promoting utilization of key resources available in the state. Hence,
the state governments should concentrate on promoting the growth of MSMEs through focused
approach and assess the status and requirement of their SMEs, and offer such schemes, which
would encourage setting up more number of MSMEs and would further, help them to grow.
Further, they should strive to bring in more transparency in availability of data pertaining to
the MSMEs which would also help them as well as other policy makers in monitoring the
effectiveness of these schemes.
a significant change with gigantic high-rise residential complexes equipped with state-of-the-art
facilities, a robust infrastructure network, and retail centers that cater to global lifestyle needs. The
catalyst for this transformation is the 360 degree change in the lifestyle choices made by the
modern Indian consumer. In totality, these signs of prosperity mark Indias sustained economic
growth over the past decade.
The major contributor to this economic revolution has been the services sector which has had an
enormous impact on the depth and dimensions of the Indian economy. In 2011, services accounted
for more than 55% of the countrys GDP.1 Indias performance in the sector is not only above that of
other emerging developing economies, but also very close to that of the top developed countries.
Among the top 12 countries with the highest overall GDP in 2010, India ranked 11 in services GDP.2
In 2011-12, the services sector is expected to grow by 9.1%.3

While the global economic climate remains volatile with major concerns that the sovereign debt
crisis in Europe socio-economic changes, the Indian services sector remains confident and
buoyant.
Contributing to the Bigger Picture SMEs as Partners and Supply Chain
Links for Larger Service Providers The growth in the Indian services sector is spread across multiple
areas. Small and medium enterprises (SMEs) play a key role as part of the supply chain for larger
businesses in the sector. The fastest growing segments, with maximum involvement from large
corporates, are business services, communication and banking. Other rapidly growing services
include hospitality, education, healthcare, transport and IT. Better technology services indicate the
broader direction in which the Indian services sector is moving. However, the common factor across
these industries is that they are increasingly being supported by SMEs, either by strategic
outsourcing partners or indispensable supply chain component providers.
The IT/ITES and BPO Industry The IT/ITES and BPO industry has been one of the major driving
forces behind the growth of the Indian economy. In revenues of $88.1 billion and generated direct
employment for over 2.5 million people.4 In FY 2012, the IT-BPO revenue is expected to cross $100
billion, and by 2015, it is expected to touch $130 billion.5
At the forefront of this remarkable growth are large IT stalwarts like Infosys, Wipro, and Genpact. All
three companies were named among the top 15 global outsourcing service providers in 2011.6
However theirs is just one part of the growth story. Thousands of Micro, Small and Medium (MSME)
IT firms have grown in almost all parts of India, providing niche services for Indian as well as foreign
clients. API (Application Programming Interfacing) and software development, mobile application
development, web and cloud computing services, gaming and consulting -- the Indian IT SME has a
lot to offer.
As IT outsourcing matures, large customers are looking beyond the first wave of cost-saving and
demanding higher efficiency and effectiveness, says the CEO of Nagarro Software, a medium size
firm specializing in collaborative, cloud computing, and mobile development projects for enterprise
customers. The immense entrepreneurial energy of Indian SMEs, coupled with the fact that the
Indian IT sector has not been largely affected by the current economic uncertainty, are factors
critical to this success.
The Indian IT sector, especially software services, will do well to sustain the growth momentum as
demand for its offerings in export and domestic markets continue to be favorable despite
uncertainty, arising mainly out of the Euro crisis, says a top industry representative.7
The Healthcare Industry

In India, healthcare is one of the largest service sectors with estimated revenues of around $30
billion, constituting 5% of the GDP.8 In terms of jobs created, healthcare was among the top three
sectors in 2011, and in 2012; it is expected to add 273,571 jobs.9 Meanwhile, the expenditure on
healthcare infrastructure is projected to grow by 5.8% p.a., taking the total expenditure in 2013 to
$14.2
billion.10
The country is witnessing a surge in diagnostic centers with widespread availability of modern and
advanced equipment, previously unavailable in India. Also increasingly common are single specialty
hospitals such as eye care hospitals, heart treatment and maternity clinics, well-stocked
international and varied pharmacy brands, and daycare surgery centers with sophisticated facilities.
With the advent of decentralized healthcare delivery models which have lower initial investment
requirements, shorter payback periods, wider geographic reach, and lower business risk, firms in
the healthcare industry can easily acquire capital and financial support from private equity firms and
banks, thereby contributing to the growth of the healthcare industry.
This growth is driven by factors such as committed government initiatives for improved medical
infrastructure, focus on Public Private Partnership (PPP) models, and sharper awareness of ailments
and health amongst the urban population. This awareness has, in turn, led to increased spending on
lifestyle and health. It has also created a rising market for health insurance. Moreover, with cuttingedge treatments that offer 99.99% cure and speedy recovery, consumers feel a strong sense of
costvalidation which boosts the demand and need for common procedures such as non-invasive
day-care surgeries, dentistry, and ophthalmology treatment.
India has rapidly become a medical hub that boasts of experienced and knowledgeable doctors and
specialists offering treatments at substantiated costs. This has made the country a key attraction for
a number of medical tourists from across the world. According to a recent study conducted by the
Associated Chambers of Commerce and Industry of India (ASSOCHAM), titled Emerging Trends in
Domestic Medical Tourism Sector, The inflow of medical tourists in India is growing at a
compounded annual growth rate (CAGR) of 40% since last 3 years."7
The Travel and Hospitality Industry Indias travel, tourism and hospitality industry is one of the
fastest growing service industries in the country thanks to a burgeoning middle class, increasing
purchasing power, a rising inflow of foreign tourists, and successful government campaigns
promoting
Incredible India'. In 2011 alone, travel and tourism contributed to 6.4% of the GDP, and is forecast
to rise by 7.3% in 2012.8 In terms of employment, travel and tourism directly supported 24,975,000
jobs (5% of employment) in 2011, and is expected to rise by 3% in 2012.9 Foreign Exchange Earnings
(FEE) from tourism in 2011 were $16,564 million with a growth of 16.7% over
2010.10

Clearly, India is fast becoming a popular tourist destination world over. Between April 2000 and
December 2011, the hotel and tourism sector generated a total of $3,195.70 billion in Foreign Direct
Investment (FDI).11 In 2011 alone, the country welcomed 6.29 million foreign tourists, compared to
5.78 million in 2010.12 By 2022, international tourist arrivals are forecast to total 11,276,000,
generating an expenditure of `1,382.6
billion.13
In 2010-11, the travel and hospitality industry faced the challenge of a significant decline in
corporate travel due to serious cost cutting by global corporate houses, as well as the fear of
terrorism, and a lack of a sense of safety post the 2008 Mumbai terror attacks. However, the
hospitality sector has shown resilience, improving its security management and performance.
With the growth of budget hotels along with low cost airlines, online travel bookings, and group
travel, SMEs in the travel and tourism sector have shown rapid progress. They have been targeting
niche markets specializing in corporate travel, leisure travel, and even hitherto unheard services like
wedding travel and planning.
IATA statistics show that today, maximum business is generated in Asia. Asia and particularly India
now have a major role to play in shaping this sector while also enjoying maximum share. However,
with more disposable income, Indians prefer to travel overseas rather than within the country. We
have over 14 million Indians traveling overseas, but the figure for inbound tourism stands at a
dismal 6 million - this can definitely increase if we begin to seriously promote India as a destination
to be explored and discovered., says Vivek Dadhich, Managing Director of Noidabased Bluemoon
Travels, a new age travel company offering leisure travel and MICE - travel planning services for
Meetings, Incentives, Conventions, and Exhibitions.
The logistics and transport industry The Indian logistics market recorded revenues of about
$82.10 billion in 2010, witnessing a growth of about 9.2% over the previous year. The main drivers
fueling this growth include rapidly rising fortunes of the countrys manufacturing and retail sectors,
rising international trade, and ongoing infrastructure development initiatives by the Government of
India, such as dedicated freight corridors project, port development, building of logistics hubs and
warehouses, and technology upgrades.14
There has been a steady inflow of private equity investments in the logistics industry. The
development of basic infrastructure such as roads, airports, ports, and railways by large Indian
infrastructure companies has helped SMEs capitalize on the many opportunities that have opened
up. Today there is no dearth of courier companies, logistics solution providers, and transporters in
the SME space. Innovation and differentiation are the keys to success. SMEs in this industry are
focusing on providing logistics solutions to specific customers such as e-commerce, oil, construction
and mining companies.

Conclusion

While the global economic climate remains volatile, timely utilization of opportunities will ensure
that Indian SMEs continue on their growth trajectory in the services sector. Intelligent strategizing, a
progressive outlook, and adequate support from the government and financial institutions will prove
to be critical in helping the services sector overcome these tumultuous economic times, and pave
the way for a promising and rewarding future.