Analysis of SMEs in India

Analysis of SMEs in IndiaWhat argon SMEs? nonaged and sensitive enterprises ( likewise SMEs, sm exclusively and mass medium businesses, SMBs, and variations thereof) atomic number 18 companies whose doubtfulnesscount or swage f alls below certain limits.The lack of a universal description for SMEs is often considered to be an obstacle for business studies and trade re face. Definitions in phthisis today define thresholds in barriers of craft, distort everyplace and assets. They similarly hold a reason up to(p) descend of flexibility around grade-to- class changes in these measures so that a business qualifying as an SME in one year can harbor a reasonable expectation of prevailing an SME in the next. The thresholds themselves, however, vary substantially amongst countries. As the SME thresholds dictate to some goal the provision of g overnment sup manner, countries in which manufacturing and labor-intensive industries ar prioritized politically guide to opt fo r much than relaxed thresholds.Definition of SMEs in Indian contextThe MSMED coif 2006, which came into force w.e.f. 02/10/2006, defines the little, ex cubicleent, and median(a) Enterprises. As per the actuate, the activities atomic number 18 classified into Manufacturing and operate Category. Initially, the MSMED Act 2006 had non defined the serve Sector and rbis guidelines were awaited. However, subsequently run batted in stick defined the break away sphere of influence and the activities that can be cover at a lower place the SME field.The following chart indicates the threshold droping levels for some(prenominal) Manufacturing orbit (INVESTMENT IN PLANT MACHINERY) and receiptss welkin (INVESTMENT IN EQUIPMENT) for the above terce categories of Manufacturing and go Enterprises While calculating the coronation in plant and machinery/equipment referred to above, the ac ascribeed price thereof shall be interpreted into account,irrespective of whether th e plant and machinery/equipment atomic number 18 clean or second hand. In ca subr protrudeine of im aired machinery/equipment, the following responsibility/charges/ woos shall be allowd in calculating their value implication Duty ( non to take on mis stallaneous expenses such(prenominal) as transportation from the port to the site of the factory, demurrage paid at the port)Shipping ChargesCustoms Clearance charges and gross revenue Tax or Value-added Tax. Cost of the following plant machinery/equipments and so onterawould be excludedequipments such as tools, jigs, dies, moulds, and sp ar activates for maintenance and the live of consumable stores inductance of plant machineryre look for and development and pollution control equipmentspower coevals set and extra transformer installed by the enterprises as per the Regulations of the State Electricity get onBank charges and Service Charges paid to the National sensitive Industries Corporation or the State micro Indust ries CorporationProcurement or Installation of cables, equip bus bars, electrical control panels ( non mounted on individual machines) crude oil circuit breakers or miniature circuit breakers which be necessarily to be used for providing electrical power to the plant and machinery or for safety measuresGas producer plantsTransportation charges (former(a) than sales agreements agreements tax or value-added tax and excise vocation) for indigeneous machinery from the place of their manufacture to the site of the enterprise)Charges paid for proficient k today-how for erection of plant machinerySuch storage tanks which store raw materials and perfect reapings only and atomic number 18 not connectednessed with the manufacturing processFire-fighting equipment andSuch former(a) items as may be specified, by notification from time to time.In expression of Service Enterprises, the fender cost to exclude furniture, fittings and different items not directly related to the run rendered. Land and Building would also not be included temporary hookup com barfing the machinery/equipments cost. SME would be believet to include micro minuscular and long suit Enterprises (MSMEs). The above renderings of Micro, piffling and Medium Enterprises would be in place of the brisk definitions of Small Medium Industries and SSSBEs/Tiny Enterprises.Micro Enterprises would include Tiny Industries also.Small Enterprises (Manufacturing) would tight Small Scale Industries (SSIs).Medium Enterprises (Manufacturing) would mean Medium Industries (MIs).Small Enterprises (Services) and Medium Enterprises(Services) would mean other Small Medium Enterprises. Thus, SME Advances would be categorised as d causestairs exclusively advances to separates viz. Micro, Small and Medium Enterprises in the Manufacturing domain irrespective of sanctioned limits, (including advances against TDRs/Govt. Securities etc for business purposes to these categories of Borrowers), andAdvance s to Services Sectors such as Professional Self-Employed, Small Business Enterprises, and Small course/Water Transport Operators and other enterprises, occupied in providing/rendering of services, conform to the above directment criteria and -enjoying borrowing/non-borrowing facilities with the Bank (including advances against TDRs/Govt. Securities etc for business purposes to these categories of Borrowers).Those enterprises exceeding the investment ceilings would be categorized as Large Enterprises and be byside the vista of SME.The sanctioned limits would no longer be the criteria de enclosureining the status as micro or nice or medium enterprises in these cases. leave Bank of India has since reviewed the definition on Priority Sector and stool issued rewrite guidelines on lending to Priority Sector vide their Master Circular go come bring out of the closet 2nd July, 2007. As per this circular Retail Trade is excluded from the activities classified as SME.(Source www. curseofindia.com) significationance of SMEsSmall and medium-sized enterprises (SMEs) atomic number 18 the backbone of all economies and argon a key source of scotch growth, dynamism and flexibility in in advance(p) alter countries, as s rise up as in emerging and ontogenesis economies. SMEs constitute the possessive form of business organization, accounting for over 95% and up to 99% of enterprises depending on the rude. They be responsible for betwixt 60-70% dinero job creations in Developing countries. Small businesses are bring outicularly definitive for bringing innovative yields or techniques to the mart. Microsoft may be a com correcter package giant today, but it started off in typical SME fashion, as a dream developed by a young student with the avail of family and friends. Only when Bill Gates and his colleagues had a saleable product were they able to take it to the securities industriousnessplace and look for investment from more traditional source s.SMEs are vital for sparingal growth and development in both(prenominal) industrialized and development countries, by bringing a key role in creating smart jobs. Financing is necessary to befriend them set up and string out their operations, develop new products, and invest in new staff or engagement facilities. Many itty-bitty businesses start out as an question from one or two people, who invest their give silver and credibly uprise to family and friends for financial help in return for a carry on in the business. But if they are successful, there comes a time for all exploitation SMEs when they need new investment to exsert or inaugurate further. That is where they often run into problems, because they find it much harder than larger businesses to obtain financial instigate from tills, capital food markets or other suppliers of ascribe.Boosting industrial growthBy enhancing lively capacities, and by delivering cost-efficient goods and services as per th e requirements of the topical anaesthetic markets, SMEs assume been capricious industrial growth. Inspiring Consumption and Social Change SMEs count a defining role by offering reasonable, yet revolutionary goods and services to cater to the changing market requirements. Currently, SMEs beget do its presence matte in subject athletic fields like education, medical care, transportation, entertainment and local radix development. footling investment SMEs need low capital investment, in terms of per unit of output Increased Employment Opportunities SMEs generate both direct and collateral use opportunities, in 2006-07, for instance, for every ten billion rupees invested by the SME field spawned use opportunities for over 150 people. However, the same sum of investment carried out by the overall economy generated consumption for just 37. 4 people. As per Government statistics in 2007-08, SMEs generated trade for 31.25 million people. Fuelling the local economy SMEs harbor use of natural resources and domestic skills to cater to the domestic market. The growth of SME sphere also helps in socio-economic upliftment as it generates employment opportunities for untapped masses, living in urban and rural regions. Discourages migration to urban areas SMEs are synonymous for entrepreneurship. And the best part cosmos setting up an SME doesnt include much risk. If SMEs generate employment opportunities in rural and semi-urban areas, migration to urban areas can be stemmed to a great tip. Transition from Agriculture Economy to Service-oriented one SMEs can play a crucial role in achieving the transition from a sovereign inelegant economy to a service oriented economy, akin to Japan. Japans awkward flirtforce has gone done from 68 percent to 4.9 percent, in case of United States, from 44 percent to 9 percent. Further, Indian agriculture vault of heaven can no longer generate extra employment opportunities to bump the requirements of t he ever-growing population. In such a situation, only SMEs can come to the nations rescue.SME in the global scenario veritable(a) in the global scenario SMEs acquit always play a crucial role in their respective kingdoms economy. International comparisons strike that SMEs create the majority of jobs.In the USA, nearly half of the private workforce is employed in piffling firms, of which one-third-fifth mystify less than five employees. In Japan, 78 percent of jobs are generated by SMEs.The same area in Korea accounts for 99 percent of all manufacturing enterprises and 69 percent of employment in this field. at that placefore, SMEs must play a central role in the countrys employment strategy. This allow require modification of policies and programmes to level the playing field, repair handiness of credit, increase productivity, raise quality consciousness and belligerentness, and enhance job quality. youthful experiences of different countries in the context of globalis ation also demonstrate that SMEs are better insulated from the pressures generated by the volatility of world trade and capital markets. They are more resistant to the stresses, and more responsive to the demands of the fast-changing technologies and entrepreneurial responses. Indeed, they are sight to be a very authorized vehicle for new engineering science adoption and entrepreneurial development. Ensuring the war-riddenness of the SMEs is important as it would help in overall growth of manufacturing sector as also the national economy.The Indian ContextThe micro, splendid and medium enterprises (MSME) sector contributes significantly to the manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for closely(predicate) 45 per cent of the manufacturing output and 40 percent of the total exports of the country. The sector is estimated to employ close 42 million persons in over 13 million units with with(predi cate)out the country. Further, this sector has systematically registered a higher growth rate than the rest of the industrial sector. there are over 6000 products ranging from traditional to high-tech items, which are being fabricate by the MSMEs in India. It is well k straightwayn that the MSMEs provide the maximum opportunities for both self employment and jobs after agriculture.Recognizing the role and possible of the sector, the definitions and coverage of the MSE sector were broadened significantly under the Micro, Small and Medium Enterprises teaching (MSMED) Act, 2006 which recognized the notion of enterprise to include both manufacturing and services sector besides, defining the medium enterprises. For collecting and compiling the data for the MSME sector (including khadi, village and coir industries), the Fourth either India Census of MSMEs with reference year 2006-07, is being conducted in the country. The Census testament provide the scratch database on the MSM E sector after the enactment of MSME phylogeny Act, 2006.PERFORMANCE OF MSEsAs per the quick estimates of 4th All-India Census of MSMEs, the number ofenterprises is estimated to be near 26 million and these provide employment to an estimated60 million persons. Of the 26 million MSMEs, only 1.5 million are in theregistered portion dapple the reposeing 24.5 million (94%) are in the unregistered element. The State-wise distribution of MSMEs acquaint that more than 55% of these enterprises are in 6 States, namely, Uttar Pradesh, Maharashtra, Tamil Nadu, west Bengal, Andhra Pradesh and Karnataka. Further, about 7% of MSMEs are owned by women and more than 94% of the MSMEs are proprietorships or partnerships. In view of the MSME sectors role in the economic and social development of the country, the Government has emphasized on its growth and development. It has taken various measures/initiatives from time to time which suck in facilitated the sectors ubiquitous growth. No word of honor on MSMEs can be complete without a full manipulation of the unorganized sector in which enterprises are typically found by own depots or specie obtained through and through non-institutional sources, they lack managerial bandwidth, do not have conventional channels for marketing and are centered around a exclusive traditional engine room. More than 94 percent of MSMEs are unregistered, with a large number set up in the informal or unorganized sector. The National Commission for Enterprises in the un combined Sector (NCEUS) defines unorganized sector as enterprise employing less than 10 workers. It has estimated such enterprises at 58 million with employment generated of 104 million persons. Of these, more than half the workers are classified as self-employed. A large atom in this universe of self-employed consists of those who are assiduous in non-farm activities. This segment predominantly consists of own account enterprises, i.e., where there are no engage wo rkers and are run by self with or without the help of pro bono family members. The own account enterprises can be distinguished into those running inwardly households and those outside the households. The household enterprises operate on the basis of family labour organizing ware on its own, acquire its own raw material, use its own machinery and tools and market its products. Apart from own account enterprises, this segment also consists of enterprises having engage workers between 2 to 9. Very often, these enterprises are located in balls but guide independently without inter-firm contactages.The Office of the DC (MSME) provides estimates in respect of various achievement parameters relating to the Sector. The time series data in respect of the Sector on various economic parameters, is incorporated in the following Table MSEs surgery Units, Investment, Production, Employment ExportsThe figures in brackets say the % growth over the previous year. communicateCOMPARISON OF THE MSE domain WITH THE OVERALL INDUSTRIAL arenaThe MSE sector has maintained a higher rate of growth vis--vis the overall industrial sector as would be clear from the comparative growth rates of exertion for both the sectors during last five years as incorporated in the Table given below Comparative Growth Rates parting OF MSEs IN THE GROSS DOMESTIC PRODUCT (GDP)EMPLOYMENT IN MSE SECTORThe total employment from the MSE sector (including SSSBEs) in the country as per the three All India Census of MSEs with reference Year 2001-02 was 249.33 lakh numbers. The units operating with strict premises are treated as MSEs. As per the estimates compiled for the year 2007-08, the employment was 322.28 lakh persons in the sector. The theatrical role of MSEs in the total employment among units engaged in manufacturing and services is around 34.93%.Challenges faced by smesMentoring Advocacy up to like a shot today, most wasted business in India are set up by start coevals entreprene urs. They often have a product or service brain, some gold, a zest to hard work but limited k directledge about markets, Government or bank procedures, cash flows or how to manage labour. This is where mentoring a hand holding live nonpluss crucial. At times, this comes from an individual such as friend, relative, an NGO or a parent unit. This is episodic and unable to neat the vast requirement which the country has. This is want to be institutionalized through extension/outreach efforts of central and allege Governments. Trained manpower is do available for this travail, right down the partition levels, to act as the friend, philosopher and guide. These resource persons guide in setting up a evit, making it commercially viable, interacting with financial institutions and understanding markets, as well as the impact of globalisation with advancements in it. in that location is a bullocky more towards linking SMEs with bigger commodity or supply chain and providing banka ble quality and delivery schedules. The Central Governments agency for the parturiency, the Small Industry ripening Organisation, has accordingly moved away from its pre-reform regulatory to a direct promotional role of hand holding, advocacy and facilitation. This encompasses the legislative support put in place, fiscal incentives and protection from unequal competition.CreditCredit is the lifeline of business. Small businesses lack access to capital and money markets. Investors are un bequeathing to invest in proprietorships, partnerships or unlisted companies. As risk perception about humbled businesses is high. So is the cost of capital, institutional credit, when available, requires collateral which in turn holds the owner of the unit even more vulnerable to foreclosure. Credit ensure bloods which assist lending institution in advancing loans or mutual fasten systems involving common guarantees from a group of people have not emerged in a significant manner. Unit finance s comes under severe stress whenever an occasional event such as a large order, rejection of consignment, inordinate delay in payment occurs. The common stump about a banker lending an umbrella in sunshine and scatty it back as soon as it rains, gets reinforced in their relations with puny enterprises. It is, therefore, not surprising, that miserable enterprises prefer to first tap own resources or loans from friends and relatives and theres look for external finance. In India, many of small manufacturing enterprises do not access bank finance and only about 16% of total bank credit finds its way to the sector. Despite being a priority sector for lending, small manufacturing enterprises get just about 8% of their annual dollar tawdriness as working capital requirements, as against prescriptive requirements of 20%. Even for this, cost of credit is high. The problem is recognized and is seek to be addressed through various waysEstablishment of ISO 9000 certified, narrow dow n SSI bank branches in districts/ clomps.Directive for working capital finance 20% of annual normative turnover.Waiver of collateral requirements upto Rs. 0.5 million.Setting up of a credit Guarantee Trust to cover loans upto Rs. 2.5 million.Composite loans from a item-by-item agency upto Rs. 2.5 million.A national equity fund for equity to SSI units at 5 percent service charge engine roomAs mentioned earlier, small enterprises are often regarded for their labour intensity and the capability to work with local resources. In the part, this has often led to less emphasis on technology. reckoning of the mill technology coupled with dish outal packaging and inadequate coating have at times led to small sector products being labeled as being of poor or substandard quality. This has a cascading impact on competitiveness. As small enterprises realize the need to link up with large ones, they are having a relook at technology options which would meliorate productivity, effectiveness and competitiveness. While sourcing technology, small business need to concentrate on the following essential issuesInformation about engineering scienceFor small units breeding about technology options is often through word of mouth or from a visit to an go unit. With the advent of inter illuminate, new vistas are possibleness up through electronic journey catalogue downloads and advanced search facilities. The technology bureau for small enterprise promoted with the assistance of the UN offers access to databases and instruction on technology. engineering science intervention in clusters offers near by units an chance for a look and feel of advanced technology entrepreneurs are also assisted to participate in overseas trade fairs to update tem with in vogue(p) worldwide. Tool rooms, testing centres, production-cum-process centres and workshops also assist in this task.Actual procurement of technologyBarriers to import technology, technology transfer issues, vendor capa bility, after sales support, import procedures impede procurement. In India, the Asia Pacific Centre to Transfer of engineering science promotes rack up making between buyer and seller and facilities procurement through escort services. Encouragement to import of capital goods has also helped.Finance for Technology upgradationSmall enterprises look to external sources of funding for upgrading technology as with potation money from business entails its own costs. In India, a technology upgradation and modernization fund and a hire purchase scheme attempts to fancy this requirement. These are however, gold at normal lending costs. A new scheme called the credit linked capital subsidy scheme, for reducing the cost of funds, has now been put into place.Market AccessIn todays world, small enterprises can hardly check the adventising support or distribution reach of a large corporation. In India, small units sell best in limited or locality markets or when they are going a low maj ority alter demand which no large player can effectively caterto. Increasingly, now the endeavour is to build the marketing activity of small units around their competitive advantage i.e., products which are labour intensive, items which cater to niche markets, low volume high margin products, sub assembly tasks, outsourcing jobs and ancillarisation. Sub-contracting exchanges are being conventional through Government and Industry associations to promote such interface. After sales service for imported products, AMCs on electronic equipment, reverse engineering (to the cessation that it is WTO compatible) are the other areas being encouraged, sophisticated marketing is a task best left to large players. Small enterprises in India are realizing that the term marketing perhaps implies different things to different people for new SME businesses, head on competition with established giants makes little sense.InfrastructureSmall units have traditionally operated from homes or a neighbor hood work shed. Slowly, they began moving out and clustering together wherever electricity, water, raw materials, markets or labour were easier to access. indemnity makers in India had anticipated the need for suitable radix five decades agone and began a programme for setting up industrial e separates. Non-assessment of economic viability, previous(a) implementation and poor maintenance due to drying up of funds bear upon these adversely. Later in the post reform period, the problem was sought to be addressed by setting up of such estates exclusively for small business. Almost 50 such estates have been set up. Because of their better infrastructure such as roads, telecommunication, power, effluent intercession plants, power, banks, watch ward, and reasonable cost, they have proved to be popular with small manufacturing for factory accommodation, allotment of sheds on hire purchase as well as outright sale etc. A concerted move has also now been initiated for upgrading breat hing estates.GlobalisationThe globalisation of trade commerce has been given a weigh by agreements in the WTO and changed the business environment. It has therefore accommodate necessary to sensitize SMEs about these changes and prepare them for the afterlife. In India, a number of steps have been taken in this regard. Apart from setting up a WTO cell in the nodal ministry, 28 sensitization workshops were conducted across the country. Workshops have also been held on intellectual property rights and bar coding. Monitoring of imports in specific sectors where SMEs hae a significant presence and initiation of anti-dumping action where dumping was noticed, are the other steps taken in this respect.ProceduresGovernment and bank procedures coupled with inspections remain a major hurdle in growth of small units. thither are over 60 central, state and local laws which regulate small businesses in the areas of labour, factory maintenance environment, municipal bye laws, taxation, power etc. These require the maintenance of as many as 116 registers and forms. To enforce these, there is an army of inspector who visit units leading to harassment, delay, obstruction and increase in cost of production. Many small units are one man shows and cannot reward the letter of the law. The streamlining of such rules and regulations has become necessary if the creative genius of Indian entrepreneurs is to be fully unleashed. Some state governments have exhibited initiative in this regard. The Central Government has initiated a study to enact a ace law for small businesses. This enactment should ease the situation considerably.Exit mechanicsLike products, Industries too have life cycles. There are persistence segments which have seen their best days. Similarly, there are individual units where no amount of additional funds forget help. Their bank loans have become good-for-naught and non performing. A sound exit policy which also safeguards labour interests has therefore, become necessary. It is anticipated that as of 1998, over Rs. 3.8 billion were locked in sick/ wanton units. An exit policy would help fresh circulation of a significant amount. The first steps in this regard have been taken recently by Indias central bank where by one time settlement of dues as on 31 March, 1997 was allowed. The results have been encouraging.Strategy Interventions for Revitalisation and Growth material charges in economic environment are being heralded in by the WTO. The removal of QRS has led to increased competition with imports. Many sectors of fabrication are facing competition from Chinese or Taiwanese imports inwardly the country or from Bangladesh Srilanka or Nepal in export markets. It is the belief of the Indian Government that promotion and not protection is the answer to the issues of survival and growth. Thus, spell reservation of items for exclusive production continues, the focus must now be on strengthening capabilities. This implies a holistic l ook at the concerns of effort. As part of this, the following strategic interventions have been initiatedEasing access to habitual creditIntroduction of options of limited partnership and factoringSubsiding cost of finance for upgrading technologyIndustry specific technology upgradation programmesFund for developing and accessing overseas markets for exportExpanding reach of infrastructure programmesUshering in a authorities of self certification in lien of inspections for various regulationsInterventions in the approaching require that hurdles to growth are removed. They must encourage a seamless movement from small to medium to large. The Indian Government, therefore, is working on a new vision for the SSI sector through a bendable approach and a motivated team. The advocacy role of Government now involves new dimensions such as building up and arguing cases in the lead the world trade body or dispute redressal for a, articulating needs of small enterprises earlier decision makers and other agencies. Credit is increasingly being made available at international rates. Technology upgrades at both the cluster and the individual level are being assisted. Cluster level technologies pass on be at Government cost with only user charges recover credit guarantee scheme has been put in place if our market has opened up to due to WTO, we need to enable our small units established foot holds in new markets opened up for then by globalisation. Thus, along with improving quality, they are being given the opportunity of over seas travel, conducting market surveys, test marketing etc. The existent industrial centres are being revamped by involving industry associations with some government assistance and in the long run a migration from sunset industries to sunrise industries is being encouraged through a comprehensive and graceful exit policy, which balances interest of labour with those of the owners.ConclusionThe uncommon contribution of SMEs is on account of their unique characteristics. Their role in economic activity is manifest in both tangible and intangible ways. If this contribution is to be sustained, then their uniqueness needs to be nurtured in an public and explicit manner. The Indian experience has shown that it is possible to design targeted interventions be they area specific like clusters or be they sector / sub-sector or product-specific. another(prenominal) countries, be they Asian or OECD, also have policies which aim at similar support. The need of the hour is for us to learn from each other, drafting upon experiences and identity best practice policies. These in turn have to meet local conditions and circumstances. A one size fits all approach depart not work. Nevertheless, there can be no two opinions about the priority that SME policies deserve for achieving the socio-economic goal of employment growth and social justice, along with the individual aspirations. new-fangled Government Policies and MeasuresIn addi tion to the growth possible of the sector and its critical role in the manufacturing and value chains, the heterogeneity and the unformed nature of the Indian MSMEs are important aspects that need to be factored into policy making anAnalysis of SMEs in IndiaAnalysis of SMEs in IndiaWhat are SMEs?Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and variations thereof) are companies whose headcount or turnover falls below certain limits.The lack of a universal definition for SMEs is often considered to be an obstacle for business studies and market research. Definitions in use today define thresholds in terms of employment, turnover and assets. They also incorporate a reasonable amount of flexibility around year-to-year changes in these measures so that a business qualifying as an SME in one year can have a reasonable expectation of remaining an SME in the next. The thresholds themselves, however, vary substantially between countries. As the SME thresholds dictate to some completion the provision of government support, countries in which manufacturing and labor-intensive industries are prioritized politically list to opt for more relaxed thresholds.Definition of SMEs in Indian contextThe MSMED Act 2006, which came into force w.e.f. 02/10/2006, defines the Micro, Small, and Medium Enterprises. As per the Act, the activities are classified into Manufacturing and Service Category. Initially, the MSMED Act 2006 had not defined the Services Sector and RBIs guidelines were awaited. However, subsequently RBI have defined the services sector and the activities that can be cover under the SME sector.The following chart indicates the threshold investment levels for both Manufacturing sector (INVESTMENT IN PLANT MACHINERY) and Services sector (INVESTMENT IN EQUIPMENT) for the above three categories of Manufacturing and Services Enterprises While calculating the investment in plant and machinery/equipment referred to above, the original price thereof shall be taken into account,irrespective of whether the plant and machinery/equipment are new or second hand. In case of imported machinery/equipment, the following duty/charges/costs shall be included in calculating their valueImport Duty (not to include miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port)Shipping ChargesCustoms Clearance charges and gross sales Tax or Value-added Tax. Cost of the following plant machinery/equipments etc would be excludedequipments such as tools, jigs, dies, moulds, and spare parts for maintenance and the cost of consumable stores founding of plant machineryresearch and development and pollution control equipmentspower generation set and extra transformer installed by the enterprises as per the Regulations of the State Electricity scorecardBank charges and Service Charges paid to the National Small Industries Corporation or the State Small Industries CorporationProcurement or Installation of cables, fit bus bars, electrical control panels (not mounted on individual machines) fossil oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measuresGas producer plantsTransportation charges (other than sales tax or value-added tax and excise duty) for indigeneous machinery from the place of their manufacture to the site of the enterprise)Charges paid for skilful know-how for erection of plant machinerySuch storage tanks which store raw materials and destroyed products only and are not linked with the manufacturing processFire-fighting equipment andSuch other items as may be specified, by notification from time to time.In case of Service Enterprises, the original cost to exclude furniture, fittings and other items not directly related to the services rendered. Land and Building would also not be included maculation computing the machinery/equipments cost. SME would be meant to include Micro Small and Medium Enterprises (MSMEs). The above definitions of Micro, Small and Medium Enterprises would be in place of the existing definitions of Small Medium Industries and SSSBEs/Tiny Enterprises.Micro Enterprises would include Tiny Industries also.Small Enterprises (Manufacturing) would mean Small Scale Industries (SSIs).Medium Enterprises (Manufacturing) would mean Medium Industries (MIs).Small Enterprises (Services) and Medium Enterprises(Services) would mean other Small Medium Enterprises. Thus, SME Advances would be categorised as underAll advances to segments viz. Micro, Small and Medium Enterprises in the Manufacturing sector irrespective of sanctioned limits, (including advances against TDRs/Govt. Securities etc for business purposes to these categories of Borrowers), andAdvances to Services Sectors such as Professional Self-Employed, Small Business Enterprises, and Small roadway/Water Transport Operators and other enterprises, engaged in providing/rendering of services, conform to the above investment criteria and -enjoying borrowing/non-borrowing facilities with the Bank (including advances against TDRs/Govt. Securities etc for business purposes to these categories of Borrowers).Those enterprises exceeding the investment ceilings would be categorized as Large Enterprises and be outside the celestial horizon of SME.The sanctioned limits would no longer be the criteria determining the status as micro or small or medium enterprises in these cases. retain Bank of India has since reviewed the definition on Priority Sector and have issued rewrite guidelines on lending to Priority Sector vide their Master Circular date 2nd July, 2007. As per this circular Retail Trade is excluded from the activities classified as SME.(Source www.bankofindia.com)Importance of SMEsSmall and medium-sized enterprises (SMEs) are the backbone of all economies and are a key source of economic growth, dynamism and flexibility i n advanced industrialized countries, as well as in emerging and developing economies. SMEs constitute the dominant form of business organization, accounting for over 95% and up to 99% of enterprises depending on the country. They are responsible for between 60-70% net job creations in Developing countries. Small businesses are particularly important for bringing innovative products or techniques to the market. Microsoft may be a software giant today, but it started off in typical SME fashion, as a dream developed by a young student with the help of family and friends. Only when Bill Gates and his colleagues had a saleable product were they able to take it to the marketplace and look for investment from more traditional sources.SMEs are vital for economic growth and development in both industrialized and developing countries, by playing a key role in creating new jobs. Financing is necessary to help them set up and expand their operations, develop new products, and invest in new staf f or production facilities. Many small businesses start out as an idea from one or two people, who invest their own money and belike turn to family and friends for financial help in return for a share in the business. But if they are successful, there comes a time for all developing SMEs when they need new investment to expand or enclose further. That is where they often run into problems, because they find it much harder than larger businesses to obtain backing from banks, capital markets or other suppliers of credit.Boosting industrial growthBy enhancing existing capacities, and by delivering cost-efficient goods and services as per the requirements of the local markets, SMEs have been parkway industrial growth. Inspiring Consumption and Social Change SMEs play a defining role by offering reasonable, yet revolutionary goods and services to cater to the changing market requirements. Currently, SMEs have made its presence entangle in areas like education, medical care, transpo rtation, entertainment and local infrastructure development. fiddling investment SMEs need low capital investment, in terms of per unit of output Increased Employment Opportunities SMEs generate both direct and substantiative employment opportunities, in 2006-07, for instance, for every ten million rupees invested by the SME sector spawned employment opportunities for over 150 people. However, the same amount of investment carried out by the overall economy generated employment for just 37. 4 people. As per Government statistics in 2007-08, SMEs generated employment for 31.25 million people. Fuelling the local economy SMEs make use of natural resources and domestic skills to cater to the domestic market. The growth of SME sector also helps in socio-economic upliftment as it generates employment opportunities for untapped masses, living in urban and rural regions. Discourages migration to urban areas SMEs are synonymous for entrepreneurship. And the best part being setting up a n SME doesnt include much risk. If SMEs generate employment opportunities in rural and semi-urban areas, migration to urban areas can be stemmed to a great extent. Transition from Agriculture Economy to Service-oriented one SMEs can play a crucial role in achieving the transition from a dominant agricultural economy to a service oriented economy, akin to Japan. Japans agricultural workforce has gone done from 68 percent to 4.9 percent, in case of United States, from 44 percent to 9 percent. Further, Indian agriculture sector can no longer generate extra employment opportunities to meet the requirements of the ever-growing population. In such a situation, only SMEs can come to the nations rescue.SME in the global scenarioEven in the global scenario SMEs have always play a crucial role in their respective countrys economy. International comparisons crack that SMEs create the majority of jobs.In the USA, nearly half of the private workforce is employed in small firms, of which thre e-fifth have less than five employees. In Japan, 78 percent of jobs are generated by SMEs.The same sector in Korea accounts for 99 percent of all manufacturing enterprises and 69 percent of employment in this sector. Therefore, SMEs must play a central role in the countrys employment strategy. This will require modification of policies and programmes to level the playing field, improve handiness of credit, increase productivity, raise quality consciousness and competitiveness, and enhance job quality.Recent experiences of different countries in the context of globalisation also demonstrate that SMEs are better insulated from the pressures generated by the volatility of world trade and capital markets. They are more resistant to the stresses, and more responsive to the demands of the fast-changing technologies and entrepreneurial responses. Indeed, they are sight to be a very important vehicle for new technology adoption and entrepreneurial development. Ensuring the competitiveness of the SMEs is important as it would help in overall growth of manufacturing sector as also the national economy.The Indian ContextThe micro, small and medium enterprises (MSME) sector contributes significantly to the manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for about 45 per cent of the manufacturing output and 40 percent of the total exports of the country. The sector is estimated to employ about 42 million persons in over 13 million units throughout the country. Further, this sector has consistently registered a higher growth rate than the rest of the industrial sector. There are over 6000 products ranging from traditional to high-tech items, which are being fabricate by the MSMEs in India. It is well known that the MSMEs provide the maximum opportunities for both self employment and jobs after agriculture.Recognizing the contribution and potential of the sector, the definitions and coverage of the M SE sector were broadened significantly under the Micro, Small and Medium Enterprises education (MSMED) Act, 2006 which recognized the construct of enterprise to include both manufacturing and services sector besides, defining the medium enterprises. For collecting and compiling the data for the MSME sector (including khadi, village and coir industries), the Fourth All India Census of MSMEs with reference year 2006-07, is being conducted in the country. The Census will provide the first database on the MSME sector after the enactment of MSME Development Act, 2006.PERFORMANCE OF MSEsAs per the quick estimates of 4th All-India Census of MSMEs, the number ofenterprises is estimated to be about 26 million and these provide employment to an estimated60 million persons. Of the 26 million MSMEs, only 1.5 million are in theregistered segment while the remaining 24.5 million (94%) are in the unregistered segment. The State-wise distribution of MSMEs show that more than 55% of these enterpris es are in 6 States, namely, Uttar Pradesh, Maharashtra, Tamil Nadu, watt Bengal, Andhra Pradesh and Karnataka. Further, about 7% of MSMEs are owned by women and more than 94% of the MSMEs are proprietorships or partnerships. In view of the MSME sectors role in the economic and social development of the country, the Government has emphasized on its growth and development. It has taken various measures/initiatives from time to time which have facilitated the sectors ubiquitous growth. No give-and-take on MSMEs can be complete without a full treatment of the unorganized sector in which enterprises are typically established through own funds or funds obtained through non-institutional sources, they lack managerial bandwidth, do not have established channels for marketing and are centered around a angiotensin-converting enzyme traditional technology. More than 94 percent of MSMEs are unregistered, with a large number established in the informal or unorganized sector. The National Comm ission for Enterprises in the nonunionised Sector (NCEUS) defines unorganized sector as enterprise employing less than 10 workers. It has estimated such enterprises at 58 million with employment generated of 104 million persons. Of these, more than half the workers are classified as self-employed. A large segment in this universe of self-employed consists of those who are engaged in non-farm activities. This segment predominantly consists of own account enterprises, i.e., where there are no hired workers and are run by self with or without the help of gratuitous family members. The own account enterprises can be distinguished into those running deep down households and those outside the households. The household enterprises operate on the basis of family labour organizing production on its own, acquire its own raw material, use its own machinery and tools and market its products. Apart from own account enterprises, this segment also consists of enterprises having hired workers b etween 2 to 9. Very often, these enterprises are located in clusters but function independently without inter-firm linkages.The Office of the DC (MSME) provides estimates in respect of various exertion parameters relating to the Sector. The time series data in respect of the Sector on various economic parameters, is incorporated in the following Table MSEs execution of instrument Units, Investment, Production, Employment ExportsThe figures in brackets show the % growth over the previous year. communicateCOMPARISON OF THE MSE SECTOR WITH THE OVERALL INDUSTRIAL SECTORThe MSE sector has maintained a higher rate of growth vis--vis the overall industrial sector as would be clear from the comparative growth rates of production for both the sectors during last five years as incorporated in the Table given below Comparative Growth Rates portion OF MSEs IN THE GROSS DOMESTIC PRODUCT (GDP)EMPLOYMENT IN MSE SECTORThe total employment from the MSE sector (including SSSBEs) in the country as p er the troika All India Census of MSEs with reference Year 2001-02 was 249.33 lakh numbers. The units operating with unflinching premises are treated as MSEs. As per the estimates compiled for the year 2007-08, the employment was 322.28 lakh persons in the sector. The share of MSEs in the total employment among units engaged in manufacturing and services is around 34.93%.Challenges faced by smesMentoring AdvocacyEven today, most small business in India are set up by first generation entrepreneurs. They often have a product or service idea, some money, a zest to hard work but limited knowledge about markets, Government or bank procedures, cash flows or how to manage labour. This is where mentoring a hand holding support becomes crucial. At times, this comes from an individual such as friend, relative, an NGO or a parent unit. This is episodic and unable to meet the vast requirement which the country has. This is sought to be institutionalized through extension/outreach efforts of central and state Governments. Trained manpower is made available for this task, right down the district levels, to act as the friend, philosopher and guide. These resource persons guide in setting up a evit, making it commercially viable, interacting with financial institutions and understanding markets, as well as the impact of globalisation with advancements in it. There is a lovesome more towards linking SMEs with bigger commodity or supply chain and providing pleasing quality and delivery schedules. The Central Governments agency for the task, the Small Industry Development Organisation, has accordingly moved away from its pre-reform regulatory to a direct promotional role of hand holding, advocacy and facilitation. This encompasses the legislative support put in place, fiscal incentives and protection from unequal competition.CreditCredit is the lifeline of business. Small businesses lack access to capital and money markets. Investors are unwilling to invest in proprietorshi ps, partnerships or unlisted companies. As risk perception about small businesses is high. So is the cost of capital, institutional credit, when available, requires collateral which in turn makes the owner of the unit even more vulnerable to foreclosure. Credit guarantee funds which assist lending institution in advancing loans or mutual guarantee systems involving common guarantees from a group of people have not emerged in a significant manner. Unit finances comes under severe stress whenever an occasional event such as a large order, rejection of consignment, inordinate delay in payment occurs. The common stereotype about a banker lending an umbrella in sunshine and scatty it back as soon as it rains, gets reinforced in their transaction with small enterprises. It is, therefore, not surprising, that small enterprises prefer to first tap own resources or loans from friends and relatives and theres look for external finance. In India, many of small manufacturing enterprises do not access bank finance and only about 16% of total bank credit finds its way to the sector. Despite being a priority sector for lending, small manufacturing enterprises get just about 8% of their annual turnover as working capital requirements, as against normative requirements of 20%. Even for this, cost of credit is high. The problem is recognized and is sought to be addressed through various waysEstablishment of ISO 9000 certified, specialised SSI bank branches in districts/clusters.Directive for working capital finance 20% of annual normative turnover.Waiver of collateral requirements upto Rs. 0.5 million.Setting up of a credit Guarantee Trust to cover loans upto Rs. 2.5 million.Composite loans from a single agency upto Rs. 2.5 million.A national equity fund for equity to SSI units at 5 percent service chargeTechnologyAs mentioned earlier, small enterprises are often regarded for their labour intensity and the capability to work with local resources. In the part, this has often led to less emphasis on technology. hemorrhage of the mill technology coupled with functional packaging and inadequate complete have at times led to small sector products being labeled as being of poor or substandard quality. This has a cascading impact on competitiveness. As small enterprises realize the need to link up with large ones, they are having a relook at technology options which would improve productivity, effectiveness and competitiveness. While sourcing technology, small business need to concentrate on the following essential issuesInformation about TechnologyFor small units info about technology options is often through word of mouth or from a visit to an advanced unit. With the advent of internet, new vistas are interruption up through electronic journey catalogue downloads and advanced search facilities. The technology bureau for small enterprise promoted with the assistance of the UN offers access to databases and discipline on technology. Technology interventi on in clusters offers near by units an opportunity for a look and feel of advanced technology entrepreneurs are also assisted to participate in overseas trade fairs to update tem with modish worldwide. Tool rooms, testing centres, production-cum-process centres and workshops also assist in this task.Actual procurement of technologyBarriers to import technology, technology transfer issues, vendor capability, after sales support, import procedures impede procurement. In India, the Asia Pacific Centre to Transfer of Technology promotes match making between buyer and seller and facilities procurement through escort services. Encouragement to import of capital goods has also helped.Finance for Technology upgradationSmall enterprises look to external sources of funding for upgrading technology as withdrawing money from business entails its own costs. In India, a technology upgradation and modernization fund and a hire purchase scheme attempts to meet this requirement. These are however, funds at normal lending costs. A new scheme called the credit linked capital subsidy scheme, for reducing the cost of funds, has now been put into place.Market AccessIn todays world, small enterprises can hardly match the adventising support or distribution reach of a large corporation. In India, small units sell best in limited or neighbourhood markets or when they are meeting a low volume specialized demand which no large player can effectively caterto. Increasingly, now the endeavour is to build the marketing activity of small units around their competitive advantage i.e., products which are labour intensive, items which cater to niche markets, low volume high margin products, sub assembly tasks, outsourcing jobs and ancillarisation. Sub-contracting exchanges are being established through Government and Industry associations to promote such interface. After sales service for imported products, AMCs on electronic equipment, reverse engineering (to the extent that it is WTO compati ble) are the other areas being encouraged, sophisticated marketing is a task best left to large players. Small enterprises in India are realizing that the term marketing perhaps implies different things to different people for new SME businesses, head on competition with established giants makes little sense.InfrastructureSmall units have traditionally operated from homes or a neighborhood work shed. Slowly, they began moving out and clustering together wherever electricity, water, raw materials, markets or labour were easier to access. polity makers in India had anticipated the need for suitable infrastructure five decades ago and began a programme for setting up industrial estates. Non-assessment of economic viability, sluggish implementation and poor maintenance due to drying up of funds moved(p) these adversely. Later in the post reform period, the problem was sought to be addressed by setting up of such estates exclusively for small business. Almost 50 such estates have been set up. Because of their better infrastructure such as roads, telecommunication, power, effluent treatment plants, power, banks, watch ward, and reasonable cost, they have proved to be popular with small manufacturing for factory accommodation, allotment of sheds on hire purchase as well as outright sale etc. A concerted move has also now been initiated for upgrading existing estates.GlobalisationThe globalisation of trade commerce has been given a zip by agreements in the WTO and changed the business environment. It has therefore become necessary to sensify SMEs about these changes and prepare them for the future. In India, a number of steps have been taken in this regard. Apart from setting up a WTO cell in the nodal ministry, 28 sensitization workshops were conducted across the country. Workshops have also been held on intellectual property rights and bar coding. Monitoring of imports in specific sectors where SMEs hae a significant presence and initiation of anti-dumping ac tion where dumping was noticed, are the other steps taken in this respect.ProceduresGovernment and bank procedures coupled with inspections remain a major hurdle in growth of small units. There are over 60 central, state and local laws which regulate small businesses in the areas of labour, factory maintenance environment, municipal bye laws, taxation, power etc. These require the maintenance of as many as 116 registers and forms. To enforce these, there is an army of inspector who visit units leading to harassment, delay, obstruction and increase in cost of production. Many small units are one man shows and cannot fit the letter of the law. The streamlining of such rules and regulations has become necessary if the creative genius of Indian entrepreneurs is to be fully unleashed. Some state governments have exhibited initiative in this regard. The Central Government has initiated a study to enact a single law for small businesses. This enactment should ease the situation considerab ly.Exit mechanismLike products, Industries too have life cycles. There are industry segments which have seen their best days. Similarly, there are individual units where no amount of additional funds will help. Their bank loans have become painful and non performing. A sound exit policy which also safeguards labour interests has therefore, become necessary. It is anticipated that as of 1998, over Rs. 3.8 billion were locked in sick/ namby-pamby units. An exit policy would help fresh circulation of a significant amount. The first steps in this regard have been taken recently by Indias central bank where by one time settlement of dues as on 31 March, 1997 was allowed. The results have been encouraging.Strategy Interventions for Revitalisation and Growth satisfying charges in economic environment are being heralded in by the WTO. The removal of QRS has led to increased competition with imports. Many sectors of industry are facing competition from Chinese or Taiwanese imports at hear t the country or from Bangladesh Srilanka or Nepal in export markets. It is the belief of the Indian Government that promotion and not protection is the answer to the issues of survival and growth. Thus, while reservation of items for exclusive production continues, the focus must now be on strengthening capabilities. This implies a holistic look at the concerns of industry. As part of this, the following strategic interventions have been initiatedEasing access to familiar creditIntroduction of options of limited partnership and factoringSubsiding cost of finance for upgrading technologyIndustry specific technology upgradation programmesFund for developing and accessing overseas markets for exportExpanding reach of infrastructure programmesUshering in a administration of self certification in lien of inspections for various regulationsInterventions in the future require that hurdles to growth are removed. They must encourage a seamless movement from small to medium to large. The I ndian Government, therefore, is working on a new vision for the SSI sector through a whippy approach and a motivated team. The advocacy role of Government now involves new dimensions such as building up and arguing cases before the world trade body or dispute redressal for a, articulating needs of small enterprises before decision makers and other agencies. Credit is increasingly being made available at international rates. Technology upgrades at both the cluster and the individual level are being assisted. Cluster level technologies will be at Government cost with only user charges vulcanised credit guarantee scheme has been put in place if our market has opened up to due to WTO, we need to enable our small units established foot holds in new markets opened up for then by globalisation. Thus, along with improving quality, they are being given the opportunity of over seas travel, conducting market surveys, test marketing etc. The existing industrial centres are being revamped by i nvolving industry associations with some government assistance and finally a migration from sunset industries to sunrise industries is being encouraged through a comprehensive and graceful exit policy, which balances interest of labour with those of the owners.ConclusionThe uneven contribution of SMEs is on account of their unique characteristics. Their role in economic activity is manifest in both tangible and intangible ways. If this contribution is to be sustained, then their uniqueness needs to be nurtured in an discernible and explicit manner. The Indian experience has shown that it is possible to design targeted interventions be they area specific like clusters or be they sector / sub-sector or product-specific. opposite countries, be they Asian or OECD, also have policies which aim at similar support. The need of the hour is for us to learn from each other, drawing upon experiences and identity best practice policies. These in turn have to meet local conditions and circums tances. A one size fits all approach will not work. Nevertheless, there can be no two opinions about the priority that SME policies deserve for achieving the socio-economic goal of employment growth and social justice, along with the individual aspirations.Recent Government Policies and MeasuresIn addition to the growth potential of the sector and its critical role in the manufacturing and value chains, the heterogeneity and the uncoordinated nature of the Indian MSMEs are important aspects that need to be factored into policy making an