Reforms in the Indian SME sector have kept pace globally for other aspects of the economy, with results there for everyone to see.

As a result of policy reforms, the Indian SME sector is in a better position to take on competition from the globalised world than ever before. This can be attributed to not only policy changes, but also a new found confidence amongst entrepreneurs who are taking a more global view of their businesses just like SMEs from many other countries including Italy, South Korea, Taiwan and China to name a few.

The idea of focusing on the SMEs as a part of the India at 60 campaign is to make sure that we do not leave (or ignore) the backbone of the Indian economy, that is a proactive agent for sustainable development & industrial prosperity.

Important of SME sector for the growth of India.

The SME sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy. It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points. 

By its less capital intensive and high labour absorption nature, SME sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. 

Benefits of The ‘Micro, Small & Medium Enterprises Development Act 2006’ (MSMED)

The enactment of the Micro, Small & Medium Enterprises Development (MSMED) Act 2006 is sure enough a reflection of the Government of India’s commitment for the growth and the development of SMEs in India.

It addresses, and streamlines at the same time, key governance & operational issues being faced by the Micro, Small & Medium industry in India and at the same time aims to promote, encourage and synthesise the MSME sector within the context of the changing world trade environment.

Hurdles faced by SMEs & steps needed to be taken to overcome them.

Apart from issues such as timely & adequate availability of finance/credit, technological innovation, trained manpower, the key challenges, are to ensure the 12 % rate of growth in real terms and enhance its contribution to the national GDP. Perhaps key steps needed to overcome these include ensuring of an enabling policy environment for such sustained, high growth rate …. Promote measures to accelerate the opening–up of SME sector to the globalised (WTO) environment…. changing role of the states in the development of a National policy for the Small industry…. and to integrate economic development of the Indian Small industry with the global economy in a truly multilateral trade regime.

How can Indian SME sector be more competitive?

Global competition is the name of the game today. Across countries, across regions there is a drive to enhance competitiveness. Competitiveness of nations, industry sectors and individual units. The pressure of competition is being felt with increasing intensity as the world opens up to trade and commerce in the post WTO regime. Nowhere is the impact being felt as hard and as harsh as the SMEs sector. 

I reiterate that it is imperative that in order to attain the desired growth rate of 12 %, and increase the GDP contribution (to 7%+) of this sector to the national economy, future focus has to be in areas of Cluster development, Finance, Technology, Operating Environment & the implementation of the Micro, Small & Medium Enterprises Development (MSMED) Act 2006. 

Exports performance of SMEs.

SME Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods.

It would surprise many to know that non-traditional products account for more than 95% of the SSI exports. The exports from SSI sector have been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garments, leather and gems and jewellery units from this sector. The product groups where the SSI sector dominates in exports are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products.

CII too has been proactive with the Ministry of SSI in fuelling the growth of exports from this sector, by actively engaging with its overseas counterparts by way of Enterprise series of Trade fairs, Buyer-Seller meets and overseas delegations. To cap this all CII has institutionalized the India Global Summit on MSMEs, that is due to be held during 30 –31 October 2007.

Steps need to be taken to make SMEs strong in terms of efficiency, quality and technology.

The present era of tough competition has necessciated two key tools - ICT (Information and Communication Technology) & IPRs (Intellectual Property Rights) – to be appropriately adapted and implemented. The role of Venture capital is equally important in promoting their usage among the SMEs.

While both ICT (Information and Communication Technology) & IPRs (Intellectual Property Rights) are gradually beginning to capture the imagination of global SMEs, however, this image has to be made more endearing.

Specific steps with regards to the following may be initiated: What are the possibilities for integration and the support needed from the Venture capitalists ? How do the Global SMEs move up the value chain without compromising on cost? Are manufacturing outfits doing enough to adapt ICT & IPRs, while leveraging their engineering capabilities? How can any entrepreneur allocate budgetary resources for both ICT & IPRs? And finally what are the ways in which systemic obstacles can be overcome to ensure deliveries on these two fronts the ICT & the IPRs?

Benefits of Cluster Approach.

Industrial clusters are very common in India and all over the world. They enjoy certain advantages arising out of co-location and sponsorships by Government and Funding agencies. Their focus has been to build a competitive advantage through clustering of resources, providing common infrastructure such as tool rooms etc and also cluster marketing. By its’ character, a cluster is designed to create a synergy for a purpose.

The probable benefits that accrue as a result of Cluster interventions, include the addressal of issues such as Non- availability of low Cost Finance, Delays in availability of Finance., Lack of Cost Competitiveness, Lack of appropriate Technology, Worker skill enhancement, Product Quality, Quality Management, Old equipment and machinery, Marketing Linkages, Marketing Tools, Competition amongst the SMEs', focus on preservation of narrow profit margins and lack of a poor shared national vision.

The more recent high growth in the manufacturing sector can be attributed to improvement initiatives over the last five to six years. Today in some of the large, medium and small sized industries there is a Quality consciousness and attitudinal change in both management and unions, that boost the economic development in general, and the SME sector, in particular.

Future Scenario

While the Manufacturing sector would continue to be the flagbearer of the SME growth, however many of sunrise industries such as Information technology (IT), Biotechnology (BT), Pharmaceuticals and Nanotechnologies along with IT enabled services that are in the service sector will also play a significant role in the growth and development of SMEs. Though the challenges confronting them are quite different from those faced by traditional manufacturing industries, however issues such as IPR protection and managing rapid up scaling of operations would be equally important. 

Some of the recent policy reforms for the SME sector in India are as follows:

• A single comprehensive legislation for the promotion, development and enhancement of the competitiveness of the MSME sector - Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 came into effect from October 2006.
• National Manufacturing Competitiveness Council (NMCC) was set up to energise and sustain the growth of the manufacturing industry. New Promotional Package for MSMEs, and focus on accelerating development of clusters.
• Revised strategy of lending and introduction of newer measures, such as the scheme to establish Small Enterprises Financial Centres (SEFC) for strategic alliance between branches of banks and SIDBI located in 388 clusters identified by ministry of SSI.
• SME Fund of US$ 2.27 billion operationalised. Proposal for doubling the credit flow to MSME sector in next 5 Yrs.
• Promotion and financial support for Credit-cum-Performance Rating in MSME sector in India, to facilitate greater and easier flow of credit from the banking sector to SMEs.
• The National Commission for Enterprises in the Unorganized Sector (NCEUS) has been set up as an advisory body and a watchdog for the informal sector to bring about improvement in the productivity of these enterprises for generation of large scale employment opportunities on a sustainable basis, particularly in the rural areas.
• Facilitation of technology transfer through the Technology Bureau for Small Enterprises (TBSE)
• Accelerating initiatives to address various developmental needs for MSMEs in the 11th Five Year Plan.
• “Scheme of Fund for Regeneration of Traditional Industries” [“SFURTI”]
• Guarantee coverage under Credit Guarantee Fund for Small Enterprises expanded substantially
• Credit Linked Capital Subsidy Scheme for Technological Upgradation.
• New legislation on Limited Liability Partnerships being worked on.
• Emphasis on bi-lateral/ multi-lateral partnerships at multiple levels.
• Merger of the Ministry of SSI with the Ministry of ARI.

CII & SMEs

The CII SME theme for 2007-08 is “Building MSMEs, Building India”. Implicit in this theme was the need for all stakeholders – Government at the Centre and in the States; industry; banks & the financial institutions and people at large, to enhance efficiency; raise productivity and move India up the ladder of competitiveness.

CII had been proactive on the two legislations – the MSMED Act, 2006 & the LLP Bill 2006, as they are expected to address and streamline at the same time, key governance & operational issues being faced by the Micro, Small & Medium industry in India. They were also the highlight of the work done initiated by the CII National SME Forum, in form of “Awareness” sessions across the country.

The SME forum also expanded its network by entering into 2 domestic (the National Small Industries Corporation – NSIC & Small and Medium Enterprises Rating Agency (SMERA) )& 2 overseas MoU’s with Japan Finance Corporation for Small & Medium Enterprises (JASME), Japan and German Association of Small and Medium Enterprises (BVMW).

With an objective to link small entrepreneurs, individual innovators with the academia, R&D institutions & businesses in UK & India, CII has also signed an MoU with the Centre for Entrepreneurial Learning (CfEL), Judge Business School, University of Cambridge.

At the same time CII continously work towards the process of tying up Small, Medium and Large industry partnerships, through Sourcing & Business Development meets.