Competitive Business Strategy for Sustainable Development of
MSME Sector in India


By

P. Jerlin Rupa
Asst. Prof & Head
Department of Business Administration
Arul Anandar College
Karumathur
 


Abstract:

The present article deals with micro, small and medium enterprises and their role in economic growth and employment generation in the Indian context. There is a growing and worldwide appreciation that the Micro, Small and Medium Enterprises play a catalytic role in the development process of most economies. This position gets reflected in the form of their increasing number and rising proportion in the overall product manufacturing, exports, manpower employment, technical innovations and promotion of entrepreneurial skills. Despite their high enthusiasm and inherent capabilities to grow, SMEs in India are also facing a number of problems like sub-optimal scale of operation, technological obsolescence, supply chain inefficiencies, increasing domestic and global competition, fund shortages, change in manufacturing strategies and turbulent and uncertain market scenario. To survive with such issues and compete with large and global enterprises, SMEs need to adopt innovative approaches in their operations.

Key words:

MSME (Micro, Small and Medium Enterprises), MSE (Micro and Small Enterprises), SME (small and medium enterprises), SSI (Small Scale Industry)

Introduction:

The concept of SSI sector has undergone drastic changes over the year. The government of India have adopted investment limit in the value of plant and machinery items of an industrial unit as the sole criteria for defining the SSI sector. In the pursuit to help the sector to grow further the investment of the SSI sector has been raised from time to time ranging from 5 lakhs in plant machinery during 1960, rest 7.5 lakhs during 1996, Rs.10 lakhs during 1975, Rs.20 lakhs during 1980, Rs.35 lakhs during 1985, Rs.60lakh during 1991, Rs.300 lakhs during 1997 and to Rs.500 lakhs during 2006, Government of India in its recent enactment of the Micro Small and Medium Enterprise development Act 2006 has changed SSI sector into SME sector giving due importance to the enterprise segment and at the same time bring or emerging the medium sector into fold.

The Micro, Small and Medium Enterprises (MSMEs) 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 percent of the manufacturing output and 40 percent of the total exports of the country.

The sector is estimated to employ about 595 lakhs persons in over 261 lakhs enterprises 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 manufactured by the MSMEs in India. It is well known that the MSMEs provide good opportunities for both self employment and wage employment.

Definition of Micro, Small and Medium Enterprises in India:

There exists several definitions of the term small and medium enterprises (SMEs), varying from country to country and varying between the sources reporting SME statistics. The commonly used criteria at the international level to define SMEs are the number of employees, total net assets, sales and investment level. If employment is the criterion to define, then there exists variation in defining the upper and lower size limit of a SME.

(a) a micro enterprise is where the investment in equipment does not exceed ten lakh rupees.

(b) a small enterprise is where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees.

(c) a medium enterprise is where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

According to the Ministry of Micro, Small and Medium Enterprises, recent ceilings on investment for enterprises to be classified as micro, smalland medium enterprises are as follows:

Exhibit: 1

Classification

Manufacturing Enterprises*

Service Entreprises**

Micro

Rs. 2.5 million/ Rs. 25 lakh (US$ 50,000)

Rs.1 million/ Rs. 10 lakh (US$ 20,000)

Small

Rs. 50 million/ Rs. 5 crore (US$ 1 million)

Rs. 20 million/ Rs. 2 crore (US$ 40,00,000)

Medium

Rs. 100 million/ Rs. 10 crore (US$ 2 millions)

Rs. 50 million/ Rs. 5 crore (US$ 1million)


* Investment limit in Plant & Machinery
** Investment limit in equipments
*** Rs 50 = 1 USD

Performance of MSMEs

The performance of MSME sector is assessed by its contribution to exports, employment and economic growth, production and investment growth and contribution to GDP and National Income etc.

Product of MSMEs

There are over 6000 products ranging from handloom sarees, carpets and soaps papads to pickles, and machine parts for large industries.

Exhibit: 2 Products of MSMEs


Exhibit: 3 Production and Investment Growth of MSMEs


Exhibit: 4 Employment Growth of MSMEs

Year

Number
(in Million)

Employment
(in Million)

Production
(Crore)

2000-01

10.11

23.87

261297

2001-02

10.52

24.93

282270

2002-03

10.95

26.02

314850

2003-04

11.36

27.14

364547

2004-05

11.86

28.26

429796

2005-06

12.34

29.49

497842

2006-07

26.10

59.46

709398

2007-08

27.28

62.63

790759

2008-09

28.52

65.94

880805

2009-10

29.81

69.54

982919

2010-11

31.15

73.22

1095758


Comparison of the MSME Sector with the overall industrial sector

The MSE sector has maintained a higher rate of growth vis-a-vis the overall industrial sector.

Exhibit: 5 Contribution of MSME to GDP

Year

Total Industrial Production

Gross Domestic Product

2004 05

38.62

5.84

2005 06

38.56

5.83

2006 07

45.62

7.20

2007 08

45.24

8.00

2008 09

44.86

8.72

2009 10

63.04

9.02


*The data for the period 2005 06 is for small scale industries.

Problem of MSME Sector:

1. Due to the unorganized nature of the sector, entrepreneurs and workers face difficulties in accessing government schemes. Consequently, the workers engaged in the MSME sector and these are often the most vulnerable and poor have very little bargaining power and are exploited by the middlemen, unit owners, and big business houses.

2. Unable to take up aggressive marketing, like big industries, they cannot find markets despite good quality and competent prices.

3. The dispersed, unorganized nature of the industry also raises issues of quality, bulk production and inability of meeting big orders. Often individual units lack packing facilities. As a result, markets, especially for traditional MSEs are shrinking and workers are experiencing a dip in wages. Moreover, as most non-traditional MSEs serve as 'captive units"for big industries , often workers, especially women's do not get paid until the product is picked up. The situation is same for the traditional sectors where payments are made by traders and even government cooperation's only often the stock is sold. Thus money is held up, further impoverishing the workers.

4. The MSEs engaged in manufacturing of products such as paints, dyes and chemical explosives, minerals, leathers and leather goods, etc., pollute  the environment. These nits have to obtain non pollution certification from the concerned pollution control agencies of the state.

5. Different segments of the MSM sector are dominated by different social groups. Women are mostly found in the unregistered sector- food processing enterprises, manufacturing enterprises and weaving-and often work part time in the family enterprises.

6. Non availability of quality raw materials such as dyes and yarn (especially for handlooms and power looms); vital inputs such as power (for power looms, handicrafts, other industrial MSMs); and proper packaging facilities continue to be a major bottleneck .

7. Tough competition and financial strain have made SME realize that they need a uniform Assessment system to pit their strength against the competitors.

Solution for the problem in MSME sector:

1. upgraded technology coupled with adequate and timely credit was necessary for the sector growth.

2. Innovation and marketing initiatives and skill development a required for the growth of MSME in a economy set to growth in double digit.

3. Financial institution should shift themselves to an approach of investing in entrepreneurship than on big enterprises.

4. Entrepreneurship education and training are the methods of brining them in to mainstream.

5. E-cluster model is necessary to beat challenges of globalization and faster penetration of innovation idea for inclusive market growth.

6. The government shall create policies to facilitate competitive outcome in the market.

Conclusion:

In order to achieve 11.8% economic growth by 2013, MSME should come out with workable policies to help the government to announce suitable measures during the forthcoming budget session. A technology vibrant, internationally competitive small and medium industry should be encouraged to emerge, to take a sustainable contribution to national income, employment and exports. It is essential to take care of the sector to enable it to take care of the Indian economy government should spent more research to come up with a workable long-term plan to lead human resources of the community at every region. Those activities will assist to build capacity of the country and maintain their long time sustainability, at the minimum.

References:

1. Annual report MSME 2011-2012
2. International trade statistics, WTO
3. Economic survey 2009-2010 unleashing India's Innovation: Toward sustainable and inclusive growth,
mark A. dutz,
4. World bank publication, 2007.
5. www.msme.gov.in
6. www.dcmsme.gov.in
7. www.socialsciences-ejournal.org
8. www.mopsi.nic.in
9. www.ibef.org
10. www.planningcommission.nic.in
11. www.legalpundits.com
12. www.smechamberofindia.com
13. www.mxmindia.com
 


P. Jerlin Rupa
Asst. Prof & Head
Department of Business Administration
Arul Anandar College
Karumathur
 

Source: E-mail August 13, 2013

          

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