They are engines of economic growth but they have not been significantly harnessed. Professor Charan Singh and his team of seven students chalk out solutions to the key problems faced by MSMEs
Professor Charan Singh and his team of seven students -- Aanatha Krishnan S, Dinesh N, Sharad Chandran R, Veerachenan G, Raghul Rajeswaran, Hariprasad Murugesan, and Mahavir Prasad Kumawat -- suggest innovative ways to meet the challenges faced by MSMEs
There are reports that the Government is planning to announce a new policy on Micro, small and medium enterprises (MSMEs). What is the importance of MSMEs in India?
MSMEs have a large potential in providing employment opportunities to the increasing number of youth in the economy. MSMEs contributes nearly 8 per cent of national GDP, employing over 8 crore people in nearly 4 crore enterprises and accounting for 45 per cent of manufactured output and 40 per cent of exports of India. The Prime Minister is making a pitch for Make in India and encouraging foreign manufacturers to set up units in India. This is an encouraging trend and would certainly boost employment, growth and development of MSMEs in India. Thus, the focus of the government on MSMEs at this juncture of economic slump is justified because these units have potential for providing growth and employment.
In view of the significance of the sector, since 1948, successive governments have been making intense efforts to encourage MSMEs. The office of development commissioner for MSMEs was set up in 1954 and a dedicated Ministry for MSMEs was established in 1999. The Small Industries Development Bank of India (SIDBI) was established in 1990 to serve as an apex body for promotion, financing and development of the MSMEs. Recently, government had announced a number of measures in its first budget announced in July 2014 and a Committee was also proposed to examine the financial architecture with a view to remove bottlenecks and create new rules and structures for the sector.
If they are so important then why have they not been contributing more to national output? What are the key problems that MSMEs suffer from?
There are reports that the Government is planning to announce a new policy on Micro, small and medium enterprises (MSMEs). What is the importance of MSMEs in India?
MSMEs have a large potential in providing employment opportunities to the increasing number of youth in the economy. MSMEs contributes nearly 8 per cent of national GDP, employing over 8 crore people in nearly 4 crore enterprises and accounting for 45 per cent of manufactured output and 40 per cent of exports of India. The Prime Minister is making a pitch for Make in India and encouraging foreign manufacturers to set up units in India. This is an encouraging trend and would certainly boost employment, growth and development of MSMEs in India. Thus, the focus of the government on MSMEs at this juncture of economic slump is justified because these units have potential for providing growth and employment.
In view of the significance of the sector, since 1948, successive governments have been making intense efforts to encourage MSMEs. The office of development commissioner for MSMEs was set up in 1954 and a dedicated Ministry for MSMEs was established in 1999. The Small Industries Development Bank of India (SIDBI) was established in 1990 to serve as an apex body for promotion, financing and development of the MSMEs. Recently, government had announced a number of measures in its first budget announced in July 2014 and a Committee was also proposed to examine the financial architecture with a view to remove bottlenecks and create new rules and structures for the sector.
If they are so important then why have they not been contributing more to national output? What are the key problems that MSMEs suffer from?
Some of the key problems faced by MSMES continue to be related to availability of technology, infrastructure, and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty, imperfect competition and the skill level of the workforce.
What are your suggestions for Skill formation?
Skill formation has to be seen from two angles - labor and entrepreneurs. For labor, there is need for having more ITIs and skill development centres. For entrepreneurs, there is need for having more incubators. Incubators play an important role in developing entrepreneurs and therefore there would be need to have an incubator in every major city. To increase the number of incubators and scale up their operations, there would be need for extra finances. In view of the shortage of finances, alternatives can be considered. Incubators need land, and constructed space, in addition to teaching faculty which would consist of academia and practitioners. The government can consider scaling up the numbers of incubators by using a portion of available land granted to IITs, IIITs, ITIs, schools and colleges, especially those established/financed by the government - both central and state. The industry can also help by establishing incubators using the provisions of CSR.
You said that Government has been initiating lots of measures for MSMEs but they have not been showing results. There is very low awareness among entrepreneurs regarding existing rules, policies, legal compliance and schemes available for MSMEs. In addition, the awareness regarding financial literacy, modern trends and best practices is also quite poor. What are the suggestions to improve awareness of MSME development schemes?
There are many things that the government can do. The MSME ministry could facilitate 24*7 TV or even internet TV exclusively for MSMEs which would help them in keeping up-to-date with the happenings in the sector. The medium of communication has to be largely local language and, if possible, local entrepreneurs should be encouraged to share their experience, and mentor the local budding entrepreneurs. Also, module-based password-protected video training in local language at a nominal fee could be considered. A separate legal counsel should be made available in all district headquarters and MSME clusters. Law institutes in each state should come up with document that has Frequently Asked Questions(FAQs) along with basic legal information specific to MSMEs in English and local language. This document should be made available online in all MSME forums like SIDBI, Development Commissioner (MSME), Chambers of Commerce, etc.
In most cases, we hear that financial issues are very important for MSMEs, especially at initial stages.
I would suggest that the government needs to build some schemes in consultation with the banks. Typically, the first 3 years are the critical years that decide the sustainability of a MSME. The collateral requirement should be removed for at least the initial three years, when evaluating the grant of loans.
As in the case of micro finance, bankers should be permitted to follow joint liability group (JLG) or Self-Help-Group (SHG) approach while extending loans for MSMEs, mainly micro institutions which need small amounts. JLG could be formed for the street where a group of few entrepreneurs would be constituted and loan extended.
To address the issue of Greenfield projects, an evaluation framework is necessary. This framework can use historical MSME data as the input. Data should include profile of the entrepreneur, profile of the unit and its financial details. A national-level MSME register having the required data have to be created and updated regularly. With the help of statistical techniques, data can be leveraged to predict the probability of success of the new project using its entrepreneurs and unit's profile.
Most importantly, loan proposal template should be made available in the native language apart from English and Hindi. Bankers, following the practice of civil servants engaged in local administration, should be provided training to learn (read, speak, write) the native language of the region/place of posting.
Many a report has mentioned that availability of raw materials and marketing of final products are major difficulties for MSMEs. Would you have any suggestions for such problems?
To address this problem, there is need to think of an Institutional Support like Food Corporation of India and NAFED for Agriculture. It would be useful to help establish a network or a chain of raw material suppliers. In China, Just-in-Time (JIT) technology is extensively useful to the MSMEs. It reduces the cost of carrying, storing and maintaining an inventory of raw materials for each entrepreneur.
To help MSMEs to exploit the very best markets for their products, some institutional support in finding good markets, domestic and international, is necessary. An institution like MMTC for trading of metals and minerals would help increase the trade of MSMEs.
Similarly, to encourage products manufactured by MSMEs, India could illustratively showcase and promote their products such as phulkari of Punjab, bamboo works of Assam and West Bengal, and cotton weaving of Tamil Nadu via galleries and museums, preferably, free of cost.
Would you have any other suggestion for the MSMEs?
In the fast changing world, it is necessary to be innovative. As MSMEs lack resources for in-house R&D, it would be useful to have large industrial houses or the government helps them with research in developing new products. Illustratively, such research and development would be useful in handicrafts, khadi, handlooms, and leather products.
Like Agriculture Universities, there may be a need to have a few MSME Universities, exclusively dedicated to research and development of MSME products. The key research departments in such a university should include R&D for products, labor issues, finance, inputs and marketing.
MSME Chairs in universities could be established to encourage research on issues and different aspects related to operations of MSMEs. These chairs can be funded by the government or Chambers of Commerce or institutions like SIDBI.
They are engines of economic growth but they have not been significantly harnessed. Professor Charan Singh and his team of seven students chalk out solutions to the key problems faced by MSMEs
Professor Charan Singh and his team of seven students -- Aanatha Krishnan S, Dinesh N, Sharad Chandran R, Veerachenan G, Raghul Rajeswaran, Hariprasad Murugesan, and Mahavir Prasad Kumawat -- suggest innovative ways to meet the challenges faced by MSMEs
There are reports that the Government is planning to announce a new policy on Micro, small and medium enterprises (MSMEs). What is the importance of MSMEs in India?
MSMEs have a large potential in providing employment opportunities to the increasing number of youth in the economy. MSMEs contributes nearly 8 per cent of national GDP, employing over 8 crore people in nearly 4 crore enterprises and accounting for 45 per cent of manufactured output and 40 per cent of exports of India. The Prime Minister is making a pitch for Make in India and encouraging foreign manufacturers to set up units in India. This is an encouraging trend and would certainly boost employment, growth and development of MSMEs in India. Thus, the focus of the government on MSMEs at this juncture of economic slump is justified because these units have potential for providing growth and employment.
In view of the significance of the sector, since 1948, successive governments have been making intense efforts to encourage MSMEs. The office of development commissioner for MSMEs was set up in 1954 and a dedicated Ministry for MSMEs was established in 1999. The Small Industries Development Bank of India (SIDBI) was established in 1990 to serve as an apex body for promotion, financing and development of the MSMEs. Recently, government had announced a number of measures in its first budget announced in July 2014 and a Committee was also proposed to examine the financial architecture with a view to remove bottlenecks and create new rules and structures for the sector.
If they are so important then why have they not been contributing more to national output? What are the key problems that MSMEs suffer from?
There are reports that the Government is planning to announce a new policy on Micro, small and medium enterprises (MSMEs). What is the importance of MSMEs in India?
MSMEs have a large potential in providing employment opportunities to the increasing number of youth in the economy. MSMEs contributes nearly 8 per cent of national GDP, employing over 8 crore people in nearly 4 crore enterprises and accounting for 45 per cent of manufactured output and 40 per cent of exports of India. The Prime Minister is making a pitch for Make in India and encouraging foreign manufacturers to set up units in India. This is an encouraging trend and would certainly boost employment, growth and development of MSMEs in India. Thus, the focus of the government on MSMEs at this juncture of economic slump is justified because these units have potential for providing growth and employment.
In view of the significance of the sector, since 1948, successive governments have been making intense efforts to encourage MSMEs. The office of development commissioner for MSMEs was set up in 1954 and a dedicated Ministry for MSMEs was established in 1999. The Small Industries Development Bank of India (SIDBI) was established in 1990 to serve as an apex body for promotion, financing and development of the MSMEs. Recently, government had announced a number of measures in its first budget announced in July 2014 and a Committee was also proposed to examine the financial architecture with a view to remove bottlenecks and create new rules and structures for the sector.
If they are so important then why have they not been contributing more to national output? What are the key problems that MSMEs suffer from?
Some of the key problems faced by MSMES continue to be related to availability of technology, infrastructure, and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty, imperfect competition and the skill level of the workforce.
What are your suggestions for Skill formation?
Skill formation has to be seen from two angles - labor and entrepreneurs. For labor, there is need for having more ITIs and skill development centres. For entrepreneurs, there is need for having more incubators. Incubators play an important role in developing entrepreneurs and therefore there would be need to have an incubator in every major city. To increase the number of incubators and scale up their operations, there would be need for extra finances. In view of the shortage of finances, alternatives can be considered. Incubators need land, and constructed space, in addition to teaching faculty which would consist of academia and practitioners. The government can consider scaling up the numbers of incubators by using a portion of available land granted to IITs, IIITs, ITIs, schools and colleges, especially those established/financed by the government - both central and state. The industry can also help by establishing incubators using the provisions of CSR.
You said that Government has been initiating lots of measures for MSMEs but they have not been showing results. There is very low awareness among entrepreneurs regarding existing rules, policies, legal compliance and schemes available for MSMEs. In addition, the awareness regarding financial literacy, modern trends and best practices is also quite poor. What are the suggestions to improve awareness of MSME development schemes?
There are many things that the government can do. The MSME ministry could facilitate 24*7 TV or even internet TV exclusively for MSMEs which would help them in keeping up-to-date with the happenings in the sector. The medium of communication has to be largely local language and, if possible, local entrepreneurs should be encouraged to share their experience, and mentor the local budding entrepreneurs. Also, module-based password-protected video training in local language at a nominal fee could be considered. A separate legal counsel should be made available in all district headquarters and MSME clusters. Law institutes in each state should come up with document that has Frequently Asked Questions(FAQs) along with basic legal information specific to MSMEs in English and local language. This document should be made available online in all MSME forums like SIDBI, Development Commissioner (MSME), Chambers of Commerce, etc.
In most cases, we hear that financial issues are very important for MSMEs, especially at initial stages.
I would suggest that the government needs to build some schemes in consultation with the banks. Typically, the first 3 years are the critical years that decide the sustainability of a MSME. The collateral requirement should be removed for at least the initial three years, when evaluating the grant of loans.
As in the case of micro finance, bankers should be permitted to follow joint liability group (JLG) or Self-Help-Group (SHG) approach while extending loans for MSMEs, mainly micro institutions which need small amounts. JLG could be formed for the street where a group of few entrepreneurs would be constituted and loan extended.
To address the issue of Greenfield projects, an evaluation framework is necessary. This framework can use historical MSME data as the input. Data should include profile of the entrepreneur, profile of the unit and its financial details. A national-level MSME register having the required data have to be created and updated regularly. With the help of statistical techniques, data can be leveraged to predict the probability of success of the new project using its entrepreneurs and unit's profile.
Most importantly, loan proposal template should be made available in the native language apart from English and Hindi. Bankers, following the practice of civil servants engaged in local administration, should be provided training to learn (read, speak, write) the native language of the region/place of posting.
Many a report has mentioned that availability of raw materials and marketing of final products are major difficulties for MSMEs. Would you have any suggestions for such problems?
To address this problem, there is need to think of an Institutional Support like Food Corporation of India and NAFED for Agriculture. It would be useful to help establish a network or a chain of raw material suppliers. In China, Just-in-Time (JIT) technology is extensively useful to the MSMEs. It reduces the cost of carrying, storing and maintaining an inventory of raw materials for each entrepreneur.
To help MSMEs to exploit the very best markets for their products, some institutional support in finding good markets, domestic and international, is necessary. An institution like MMTC for trading of metals and minerals would help increase the trade of MSMEs.
Similarly, to encourage products manufactured by MSMEs, India could illustratively showcase and promote their products such as phulkari of Punjab, bamboo works of Assam and West Bengal, and cotton weaving of Tamil Nadu via galleries and museums, preferably, free of cost.
Would you have any other suggestion for the MSMEs?
In the fast changing world, it is necessary to be innovative. As MSMEs lack resources for in-house R&D, it would be useful to have large industrial houses or the government helps them with research in developing new products. Illustratively, such research and development would be useful in handicrafts, khadi, handlooms, and leather products.
Like Agriculture Universities, there may be a need to have a few MSME Universities, exclusively dedicated to research and development of MSME products. The key research departments in such a university should include R&D for products, labor issues, finance, inputs and marketing.
MSME Chairs in universities could be established to encourage research on issues and different aspects related to operations of MSMEs. These chairs can be funded by the government or Chambers of Commerce or institutions like SIDBI.