Micro, Small & Medium

Enterprises (MSME’S)
Definition:-

In Indian context, a small scale enterprise is

broadly defined in terms of the value of investment
in plant & machinery. A small scale enterprise is the
one in which the investment in fixed assets in plant
and machinery, whether held on ownership terms, on
lease, or in hire purchase, is shown below……
Types Manufacturing Service

Micro Enterprises Rs. 1 Lakh to 25 Rs. 10 Lakhs

Lakhs

Small Enterprises Rs. 25 Lakhs to 5 Rs. 10 Lakhs to Rs. 2

Crores Crores

Medium Enterprises Rs. 5 Crores to 10 Rs. 2 Crores to Rs. 5

Crores Crores
 Production output in small quantities

Informal management style Small no. of workers & Employe

resent in the form of family business Lowest possible capital investment in P

Have
local resources & produces goods lower gestation
& services
Characteristics period & are easy to set up in
of SSI

he units is not owned, controlled or subsidiary of any other industrial undertaki

 To increase employment opportunities through labour intensive process

te a decentralized pattern of ownership To address the needs of local ma

To stimulate growth of local entrepr

e standard of living for the local population

Objectives of SSI

products particularly to cater to the localToneeds

foster diversification of economic a
 Why Being Small is
Efficient?

Economies of scale for certain trades

Lower transaction cost in small entity
More flexibility
Innovation – often possible in small
flexible units
 Role of MSME’s in Economic
Development
Ø In India, MSME’s account for almost 45% of the total
industrial production.
Ø MSME’s also contributes 40% of the Exports of the
country.
Ø They manufacture over 6,000 products of the
country.
Ø The MSME’s is the second largest employer in India
after agriculture.
Ø The total jobs in the MSME’s in India goes up to 650
lakh ( Acc to 11th 5 year Plan).
Ø It provides opportunities for development of
technology.
Government Support for MSME’s
During 11th Five Years Plan (2007-
2012)
Ø The 11th plan’s approach to the MSE sector marks a shift from the
welfare approach to that of empowerment. The strategy is two
pronged it focuses on livelihood and social security.

Ø Policy initiatives are proposed to incentivize MSE’s to achieve

economies of scale by expanding production. One possibility could
be to allow them to retain the benefit of excise duty exemption up
to the prescribed limit even after they graduate into MSE’s.

Ø The MSE sector, including handlooms and handicrafts, presents an

opportunity for exports. The effort during the plan period will
therefore be to organize this sector, to create clusters of
weavers/artisans to improve their bargaining power, and enable
them to pool resources.

Ø Banks will be encouraged to ensure that all loans up to 5 lakh to

Supporting Agencies of
Government For MSME’s
MSME Board
MSME Development Organization
MSME Development Institutions
MSME Technology Development Centers
MSME Testing Centers and MSME Testing Stations
MSME Tool Rooms/Tool Design Institutes
Entrepreneurship Development Institutes
National Small Industries Corporation
Small Industrial Development Bank of India (SIDBI)
Khadi & Village Industries Commission (KVIC)
For


Modernization
Productivity
Technological Needs
Skill Development &
Up gradation
Adequate &
Affordable
assistance in
Finance

 Problems of Small scale
industries
Finance (scarcity of capital, non availability of credit
facility)
Raw Material (Poor quality, uneven supply of raw
material, inadequate qty)
Technology ( not exposed to latest technology)
Idle Capacity( due to underutilization)
Infrastructure (Transport,power,communication)
Marketing (not in a position to get first hand
information about the market)
Underutilization of Capacity (due to non availability of
raw material, power, finance)
Skilled Manpower (Being in backward areas)
Project Planning (Lack Tech& Economical)
Managerial inadequacies like overdependence
 Common Causes of Failure
Choosing a business that isn't very profitable.
Inadequate cash reserves.
Failure to clearly define and understand your market, your
customers, and your customers' buying habits.
Failure to price your product or service correctly.
Failure to adequately anticipate cash flow.
Failure to anticipate or react to competition, technology, or other
changes in the marketplace.
Overgeneralization.
Overdependence on a single customer
Uncontrolled growth.
Believing you can do everything yourself.
Putting up with inadequate management.
PEST ANALYSIS
 Political Factors
Ecological/environmental issues
Current legislation home market
Future legislation
International legislation
Regulatory bodies and processes
Government policies
Government term and change
Trading policies
Funding, grants and initiatives
Home market lobbying/pressure groups
International pressure groups
Wars and conflicts
 Economical Factors


Home economy trends

Overseas economies and trends
General taxation issues
Taxation specific to product/services
Seasonality/weather issues
Market and trade cycles
Specific industry factors
Market routes and distribution trends
Customer/end-user drivers
Interest and exchange rates
International trade/monetary issues
 Social Factors
Lifestyle trends
Demographics
Consumer attitudes and opinions
Media views
Law changes affecting social factors
Brand, company, technology image
Consumer buying patterns
Major events and influences
Buying access and trends
Ethnic/religious factors
Advertising and publicity
Ethical issues
 Technological
Factors
Competing technology development
Research funding
Associated/dependent technologies
Replacement technology/solutions
Maturity of technology
Manufacturing maturity and capacity
Information and communications
Consumer buying mechanisms/technology
Technology legislation
Innovation potential
Technology access, licensing, patents
Intellectual property issues
Global communications
SWOT ANALYSIS
 Strengths
 1 Gut feeling  & Quick decision making ability
 
2. Equally well, execution will and power
 
3. Risk taking ability
 
4. Self motivated to earn profit
 
5. Creating self sustaining business model
 
6. Business location or product exclusivity
 
7. Macro level knowledge on banking, accounting, taxation, purchase
etc.
 
8. Strong emotional bonding with self created business/ company
goodwill
 
9. Self developed leadership values
 10. Patents or proprietary goods
 11. An established distribution channel
 Weaknesses
   1. Attitude towards marketing the business
 
2. Aptitude to restrict spending for long term objectives
 
3. Always looking at price/cost and never value
 
4. Diverting business profit in stocks and other to earn quick money
 
5. Investing capital to purchase properties and luxuries beyond business
 
6. To postpone things that’s not convenient & comfortable to execute
 
7. Ignore importance of innovation when investment in R&D is required
 
8. Believe marketing/branding is expense and not investment
 
10. Limited human resources and staff
 11. High cost of production
 12. Products or service similar to competitors

 Opportunities

• Government regulation softening

• Development of new technology
• Growing trend and customer base
 Threats
• New substitute products emerging
• Price competition
• Economic pressure
 Sickness in SME
In common parlance , a sick industry is one which is not healthy.
A healthy unit is one which earns a reasonable return on capital
employed and which builds up reserves after providing
reasonable depreciation.

According to RBI “a sick unit is one which incurs cash losses for
one year and is likely to incur cash losses for the current year as
well as for the following year”.

The Sick Industrial Companies Act 1985, defines a sick industry

as “an industrial company which has at the end of any financial
year accumulated losses equal to or exceeding its entire net
worth and has also suffered from cash losses in such financial
year immediately preceding such financial year.
 Criteria to identify sickness
Continuous decline in gross output compared to the previous
two financial years.


Delays in repayment of institutional loan, for more than 12

months.


Erosion in the net worth to the extent of 50 per cent of the net
worth during the previous accounting year.
Signals of industrial sickness
Decline in capacity utilization
Shortage of liquid funds
Inventories in excessive quantities
Irregularity in maintaining the bank accounts
Frequent break downs in plant & equipments
Decline in the quality of products
Frequent turnover of personnel
Technical deficiency
 Symptoms of Industrial
Sickness
ü Shortage of cash
ü Deteriorating financial ratios
ü Widespread use of creative accounting
ü Continuous decline in prices of the shares
ü Delay & default in the payment of statutory dues
ü Morale degradation of employees
ü Frequent request to banks & financial institutions
for loans
ü Delay in the audit of annul accounts
 Consequences
Ø Huge financial losses to the banks & financial
institutions
Ø Loss to employment opportunities
Ø Emergence of Industrial unrest
Ø Adverse effect on perspective investors and
entrepreneurs
Ø Wastages of Scarce resources
Ø Loss of revenue to government

 Remedial Measures
Monitoring and nursing the sick units during infancy
Diagnostic studies (Role of BIFR)
Incentives should be provided to professional managers
helping in reviving sick units
Issuing guidelines on major aspects that affect the
image of the company
Brain storm with a select group to get creative ideas
for improvement
Adopt better practices, right technology, better work
culture and professional management SSI can improve
their health as well as the economy.
 RBI guide lines…
RBI has constituted a standing coordination committee
to consider issues relating to coordination between
commercial banks and lending institutions.


A special cell has been set up within the

rehabilitation finance division of IDBI to attend
the case of sickness.


RBI has issued suitable guidelines to the banks to

ensure the potentially viable sick units receive
attention and timely support from banks.


RBI has clarified that units becoming sick on account

of willful management, willful default should not be
considered for rehabilitation.
NATIONAL MANUFACTURING ACOMPETITIVENESS
PROGRAMME
( NMCP )
With a view to build the capacity of the Indian Micro, Small
and Medium Manufacturing Enterprises for overcoming
competition in the global markets and facing challenges
being posed by the entry of the multi-nationals in the
domestic markets, the Government of India has announced the
National Manufacturing Competitiveness Programme (NMCP)
during the budget speech 2005-06.

The objective of NMCP with can be truly regarded as

‘National Strategy for Manufacturing’ is to ensure healthy
growth of the MSME Sector. The 10 components of the
Programme dealing with the firm level competitiveness
against global challenges are being implemented in the
Public Private Partnership (PPP) mode.
Sl. No Component Short Name

1 Marketing Support / Assistance to MSMEs BAR CODE

2 Support for Entrepreneurial and Managerial Development of INCUBATOR
MSMEs
3 Setting up Mini Tool Room & Training Centres MTR
4 Building Awareness on Intellectual Property Rights IPR

5 National Programme for Application of Lean Manufacturing LEAN

6 Enabling Manufacturing Sector to be Competitive through QMS/QTT

Quality Management Standards and Quality Technology Tools

7 Energy Efficiency and Quality Certification Support for ENERGY

MSMEs

8 Marketing Assistance for SMEs and Technology Up gradation MARKETING

Activities
9 Promotion of ICT in Indian Manufacturing Sector ICT

10 Design Clinic Scheme to bring Design expertise to the DESIGN

Manufacturing sector
 Assistance and Support Services for

Indian SMEs
Domestic Trade, Export, Import and Business enquiries
Information on marketing strategy & investment
opportunities
Business Matchmaking and Buyer-Seller Meets
Preparation of company profile, project reports &
product design
Assistance and support for revival of sick units
Design, Development and Launch of products
Acquire latest technology & to set up new
manufacturing units
Guidance to obtain trade & project finance and credit
rating
Quality Assurance and packaging improvements to meet
Guidance for upgrading skills & knowledge of entrepreneurs
Source & import quality products, machinery, equipments &
hand tools, raw materials and hi-tech products
Preparation of documentation for obtaining joint ventures,
technology transfer, contract manufacturing and
preparation of other
business and financial documents
Indian products and services permanent display centre in
various countries
Liaise with Government Departments & Agencies, Overseas
Organisations
Arrange study tours & visits to factories / industrial
plants / trade fairs / exhibitions in India and abroad
Arrange business / trade delegations and missions
Assistance to represent and participate in exhibitions,
trade fairs, seminars and conferences
Products Of
MSME’s
 Contribution of MSE (%) at 1999-
2000 prices in
Year
Total Industrial Gross Domestic
Production Product (GDP)
1999-00 39.74 5.86
2000-01 39.71 6.04

2001-02 39.12 5.77

2002-03 38.89 5.91

2003-04 38.74 5.79

2004-05 38.62 5.84

2005-06 38.56 5.83

2006-07 38.57 5.94

 Comparative Growth Rates .
Year Growth Rate Overall
of MSE Sector Industrial
(%) Sector (%)

2002-03 8.68 5.70

2003-04 9.64 6.90

2004-05 10.88 8.40

2005-06 12.32 8.10

2006-07 12.60 11.5

2007-08* 13.00* 8.00