sidbi report on msme sector, 2010

2 0 1 0

SIDBI Report on

Micro, Small and Medium Enterprises Sector

Published by Small Industries Development Bank of India'SIDBI' Tower, 15, Ashok Marg, Lucknow – 226001, India.Website : http://www.sidbi.inReprint : April, 2010

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of Small Industries Development Bank of India.

The views expressed, judgements made in this volume do not necessarily reflect the views of the Bank. The Bank does not guarantee accuracy of the data as they have been obtained from multiple sources, both primary and secondary, and included in this publication. It also does not accept any responsibility whatsoever for any consequence arising from the use of the information contained in the document.

Team for the preparation of

SIDBI Report on Micro, Small and Medium Enterprises Sector, 2010

"This publication is supported under the Technical Assistance of , United Kingdom, under the MSME Financing &

Development Project which is being implemented by The views expressed are not necessarily those of DFID."

Project Direction

Shri R M Malla

Chairman and Managing Director, SIDBI

Steering Committee

Shri Rakesh Rewari

Deputy Managing Director, SIDBI

Shri N K Maini

Executive Director, SIDBI

Shri N Raman

Executive Director, SIDBI

Shri K G Alai

Chief General Manager, SIDBI

Project Consultant

Rajiv Gandhi Institute for Contemporary Studies

Project Team at SIDBI

Shri General Manager (Project Team Leader)

R K Das

Shri Amit SethiManager

Shri M B L KhanAssistant Manager

This publication is printed on Recycled papers except the covers.

Dr Mohammad Saqib

Dr C S Prasad

Shri R C Jhamtani

Shri P K Goyal

Shri Anchit Goel

Foreword v

Preface vii

Executive Summary ix

1. General Economic Overview.1.1 The 2000s: The Economic Growth So Far 11.2 Industrial Sector 31.3 Money, Credit and Inflation 41.4 Fiscal Deficit Trends 61.5 External Sector 81.6 Economic Outlook 11

2. Status of MSMEs 2.1 Historical facts leading to evolution of MSME sector 132.2 Evolution of MSME Sector 152.3 MSME Definitions in Select Foreign Countries 162.4 Overall MSME growth trend in MSMEs & Structural Transformation 182.5 Growth Trend of MSMEs 212.6 Contribution of MSMEs at National Level 392.7 MSME Sector - Exports/Imports 412.8 Growth pattern, Productivity and Efficiency of MSME sector vis-à-vis Large Industries sector in India 432.9 Comparative experience – MSMEs in other countries; Analysis of Growth Pattern of Indian MSMEs and MSMEs overseas 452.10 MSME Clusters 46

3. Government Policy Support for MSMEs 3.1 Background 553.2 Government Policy Support 56

4. Institutional Support for MSMEs4.1 Introduction 1054.2 Development Support Institutions 1064.3 Financial Support Institutions 129

5. Credit Dispensation to MSME Sector5.1 International Financial Crisis 2009 133 5.2 Impact on Indian Financial System 1345.3 Impact on MSME sector 1345.4 Crisis Related Policy Measures 1355.5 Pre-crisis Committees / Working Groups Relating to MSME Credit 1395.6 Status of Credit Flow to MSME Sector 154 5.7 Credit to MSE Sector other than SCBs 1565.8 Emerging Sources of Finance for MSMEs 1615.9 Government Schemes relating to Credit 1635.10 Status of NPAs and Sickness in MSE Sector

6. StatusofMicrofinanceinIndiaandSelectInternationalExperience6.1 Introduction 171

contents

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6.2 Indian Scenario 1716.3 Micro Finance in India – Impact 1866.4 Micro Financing – International Experiences 190

7. Role of Small Industries Development Bank of India7.1 Origin 1997.2 SIDBI’s role in the holistic development of MSME sector 2007.3 Financial Assistance 2037.4 Overall Operations 2117.5 Promotional And Developmental (P&D) Activities 2127.6 SIDBI’s Initiative for North Eastern Region 2167.7 Coordination 2177.8 Policy Advocacy 2177.9 SIDBI and the Millennium Development Goals 2177.10 Nodal Agency for Government Schemes 2207.11 Information Dissemination 2207.12 Initiatives relating to State Financial Corporations (SFCs) 2217.13 Awards & Recognition 2227.14 New Initiatives 2227.15 Institutions Building 223

8. Sustainability and MSME Sector8.1 Sustainability 2318.2 Demand Side Drivers 2318.3 Supply Side Forces 2318.4 Pressures Points 2328.5 Environment Issues 2338.6 Energy Efficiency Issues 2348.7 Energy Efficiency Programme of Ministry of MSME 2348.8 National Action Plan on Climate Change 2398.9 Way Forward 242

9. Issues and Prospects9.1 MSME Sector Issues 2499.2 Outlook 255

10. List of Appendix10.1 List of Industrially Backwards Districts in the Country 25910.2 State wise Coverage of SSI/MSME Units 26010.3 State/UT wise Distribution of working (regd.) MSMEs 26110.4 Industry Group (At 3-Digit Level of NIC -2004) Wise Distribution of Enterprises 26210.5 Industry Group (At 3-Digit Level of NIC -2004) Wise Distribution of Employment 26710.6 State/UT wise Major Products Manufactured 27210.7 Major Crafts Practices in Different States 27410.8 Registration of power looms and employment 27510.9 India’s export of textiles (including jute, coir & handicrafts) 27610.10 Production of fabrics in different sectors 27710.11 Export of Textile Items 27810.12 Specialised Training Institutes 27910.13 Name of Research Institutions and Laboratories of CSIR 28010.14 Sectoral Deployment of Gross Bank Credit - Outstanding (Rs. Crores) 28210.15 Key Environmental Legislations In India 283

11. List of Abbreviations 285

Holistic development of the MSME sector has been a priority of the Government of India due to its significant contribution towards economic growth, employment generation, balanced regional development and overall poverty reduction. This sector, comprising more than 26 million units, accounts for more than 45% of the total manufacturing output over 33% percent of the total exports of the country and forms the second largest source of employment with more than 60 million persons. Over the years, MSME sector has emerged as an important vehicle for attaining inclusive growth in the country.

Given the national significance of the MSME sector, it is imperative to provide comprehensive information to the MSME stakeholders, to enable them to effectively manage and tackle the emerging challenges to ensure sustained long term growth and increased productivity of the sector.

Small Industries Development Bank of India (SIDBI), being the Principal Financial Institution for the MSME sector, has been continuously taking various developmental initiatives to empower the sector and improve its informational efficiency by bringing out various thematic publications to highlight the sector’s performance and the critical issue which need to be suitably addressed.

We are pleased to share with you SIDBI’s Report on the MSME Sector 2010. The Report contains comprehensive information and in-depth analysis of the status, structure, policy initiatives, institutional support, credit dispensation, prospects and outlook of the sector. The Report intends to address informational and knowledge capacity building needs of the MSME stakeholders.

In order to provide a systematic coverage of various aspects pertaining to the sector, the Report has been divided into nine chapters, each covering a strategic facet of the sector. Chapter One gives a General Economic Overview, covering information on prevailing trends and prospects of the Indian economy and other macro economic indicators, such as, GDP growth, monetary conditions, inflation, fiscal deficit, etc. The Second Chapter presents an all-inclusive status of the MSME sector in India and MSMEs in select economies including comparison of MSME experience in other countries along with Analysis of Growth Pattern of Indian MSMEs and MSMEs overseas with special focus on China. It also addresses the theme of Cluster Development.

Chapters Three and Four cover the various Government Policy Initiatives and Institutional support mechanism for MSMEs, respectively. In depth coverage of flow of credit to the sector at all levels is provided in Chapter Five. Chapter Six covers the status of micro finance in India with select international experiences. Chapter Seven sheds light on the role of SIDBI in the promotion, financing

FOREWORD

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and development of the Indian MSME Sector. Chapter Eight discusses the issue of sustainability and the MSME sector. The concluding Chapter Nine discusses the expedient issues, policy recommendations and outlook.

We take this opportunity to thank the team at the Rajiv Gandhi Institute for Contemporary Studies led by Dr. Mohammad Saqib for being associated with the preparation of the Report.

This Report, reflecting the Policy Advocacy role of SIDBI, has been sponsored by the Department for International Development (DFID), UK, under our on-going MSME Financing and Development Project (MSMEFDP) being implemented by SIDBI. We take this opportunity to express our sincere thanks to DFID for their support in the publication of this Report.

With the objective of guiding the Report preparation, a Steering Committee was constituted under the Chairmanship of Shri Rakesh Rewari, Deputy Managing Director. Other members of the Committee were Shri N. Raman, Executive Director, Shri N K Maini, Executive Director and Shri K G Alai, Chief General Manager. I am extremely thankful to the Committee members for their valuable contributions. I would also like to place on record my sincere appreciation to the Project Team, led by Shri R K Das, General Manager, for their diligence and dedication which has enabled the Bank to bring out the Report in time.

I would also like to express my appreciation for the co-operation extended to SIDBI by our international partners, banks, state level institutions, Micro Finance Institutions, industry associations and other stakeholders engaged in the promotion and development of the MSME sector in India.

Most importantly, I am deeply grateful to Government of India and the Reserve Bank of India for their continuous timely and valuable support in our endeavour to create an enabling environment for the MSME sector.

We sincerely hope that the Report achieves its objective and serves as a useful source for policy makers and a trusted point of reference for all stakeholders. We solicit your feedback and suggestions on this Report to bring in further improvement in our future editions.

(R M Malla) Chairman & Managing Director

The Micro, Small and Medium Enterprise (MSME) sector has emerged as a strong pillar of Indian economy. Our MSMEs have, since the opening up of the economy, undergone significant transformation to become a dynamic and versatile set of enterprises comprising a vital segment of our fast-growing economy. Their adaptability, resilience and ability to make cost-effective products and services, with a high degree of flexibility have made them a force to reckon with at the domestic and international levels.

The contributions of the MSME sector have been significant in terms of industrial output and exports of the country. The sector is also the second largest source of employment. The MSMEs offer a unique win-win proposition for a country like ours. They not only enable creation of jobs at lower capital costs relative to other sectors, but also require smaller capital investment and effectively utilize local resources and talent.

As the principal financial institution for the MSME sector in India, SIDBI has constantly endeavored to meet the financial and non-financial needs of the MSMEs. From being primarily a provider of credit, SIDBI has expanded its bouquet of offerings to include a number of services like Micro-finance, Risk Capital, Promotional and Developmental Support, Capacity Building Measures, Credit Guarantee, Credit Rating, Technology Transfer and Match-Making and Asset Reconstruction to serve India’s MSMEs and help in making them internationally competitive.

We, at SIDBI, believe that the growth of the MSME sector is contingent upon, amongst others, their awareness of and access to the right information at the right time. Timely information to MSMEs on all aspects of their operations is a crucial necessity for their strong growth and prosperity. As an enabling initiative, it is important to generate informed discussions and provide appropriate insights to MSMEs so as to enhance their informational efficiency and knowledge base, along with those of all its key stakeholders.

SIDBI is pleased to present to all its stakeholders the ‘SIDBI Report on Micro, Small and Medium Enterprises Sector, 2010’. This Report presents a holistic outlook of the MSME sector across various parameters including status, structure, ownership pattern, policy initiatives and their impact, institutional support, credit dispensation, prospects and outlook.

PREFACE

viii SIDBI Report on MSME Sector

This Report is a part of our continuous efforts towards building the knowledge base and addressing the informational asymmetry prevailing in the MSME sector and its stakeholders. I hope this Report will be a useful tool for policy makers, researchers, national and international development practitioners involved with the MSME sector and help in furthering the progress of this most critical and promising sector of our economy.

(Rakesh Rewari) Deputy Managing Director

General Economic Overview

1. The Indian economy has grown at fairly impressive growth rate in average range of 7-8 percent during last ten years with moderate inflation and macroeconomic stability, before encountering the contagion from the global economic crisis in FY 2008-09. Between FY 2002-03 and FY 2004-05, the economy grew at the rate of 8 percent, followed by an even more impressive growth rate of above 9 percent between FY 2004-05 and FY 2007-08. Agriculture and allied services sector recorded growth of 2.5 percent, while the industrial and services sectors grew at 9.2 percent and 9.4 percent, respectively, in the Tenth Plan period. While some segments, especially the export-oriented industries, suffered during the second half of FY 2008-09, the Indian economy has withstood the adverse global economic situation and posted a growth rate of 6.7 per cent in FY 2008-09.

2. The monetary and credit conditions have remained stable. In view of the financial crisis, RBI facilitated monetary expansion through decreases in the Credit Reserve Ratio (CRR), Repo Ratio (RR), Reverse Repo Rate and Statutory Liquidity Ratio (SLR). Bank credit of Scheduled Commercial Banks (SCBs), comprising food and non-food credit, grew at CAGR of 25 percent in FY 2008-09. The inflation rate as measured by Wholesale Price Index (WPI) showed modest increase during FY 2002-03 and FY 2007-08 from 3.4 percent to 4.7 percent; whereas, there onwards, it increased to 8.4 percent in FY 2008-09.

3. The direction and composition of India’s exports and imports has changed significantly during the decade. Exports had grown from US$ 52.7 billion in FY 2002-03 to US$ 185.29 billion in FY 2008-09, whereas imports had grown from US$ 61.4 billion to US$ 303.6 billion during the same period. During FY 2005-06 to FY 2008-09, FDI flows have assumed greater significance. FDI increased from US$ 5 billion in FY 2002-03 to US$ 35.27 billion in FY 2008-09. The foreign exchange reserves have also increased substantially and the external debt position has been within the comfort zone. The foreign exchange reserves stood at US$ 252.0 billion, while external debt stood at US$ 229.9 billion, at end of March 2009.

4. With strong economic fundamentals and high domestic demand, the growth prospects of Indian economy are positive. Agriculture and rural demand continue to be strong and agriculture production prospects are normal. The Prime Minister’s Economic Advisory Council (PMEAC) expects the economy to grow at 6.5 percent in FY 2009-10, and even touch 6.75 percent. With improved farm output and strong industrial growth, the PMEAC revised the growth target to 7.2% in February 2010. PMEAC estimates economy to grow at 8.2 percent in FY 2010-11 and by 9.0 percent in FY 2011-12.

ExEcutivE summary

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Status of MSMEs

5. Since the introduction of economic reforms and enactment of the MSMED Act 2006, the Indian MSME Sector has undergone several structural changes. Based on the results of the Fourth Census of MSMEs in 2006-07, the number of MSMEs was estimated at 261 lakh, employment at 597.29 lakh persons and 72 percent and 28 percent of the MSMEs are manufacturing enterprises and service enterprises respectively. In terms of size of the enterprise, 94.67 percent are micro enterprises, 5.05 percent are small enterprises and the rest 0.25 percent are medium enterprises.

6. The Report amply covers the history of the various definitions of the small scale industries and its constituents which were evolved during the course of last 50 years, before the MSMED Act was enunciated in October 2006 to provide legal backing to the definitions of micro, small and medium enterprises. Attempts have been made to chart out definitions of MSMEs as prevalent in select countries of Asia, Europe, America and Australia. References have also been made to cover some of the important schemes launched by the Ministry of MSME to provide boost to employment generation through development of manufacturing/service oriented enterprises, including those exclusively meant for women empowerment. Analysis has also depicted as to how ownership pattern of the MSEs/MSMEs has changed over the years. In terms of ownership pattern, 13.48 percent of the registered enterprises and 7.83 percent of unregistered enterprises were managed by women in FY 2007-08.

7. A trend analysis reveals a growth in both, numbers of employment generating avenues as well as employment opportunities in the states of North Eastern Region (NER) except for Sikkim and Manipur. This is certainly an extremely positive reflection on the hard work done by the institutions of the Ministry of MSMEs and financial institutions for alleviating problems of poverty in NER through industrial development. Besides providing contribution of states/UTs in creating employment generating avenues and employment opportunities, reference has also been made towards major products/services being contributed by states/UTs. Going further, the Report has also provided an insight into the contribution of MSMEs at national and individual state/UT level to provide details of gross value added.

8. Exports have played a very important role in enhancing contribution of MSMEs to our national economy, with an average annual growth rate of over 20 percent in rupee terms since FY 1991-92. In a span of over three decades, i.e. from FY 1973-74 to FY 2006-07, exports from MSME sector has increased by more than 514 times. The percentage share of exports by MSME sector in India’s overall exports has increased from 15.58 percent in FY 1973-74 to 31.06 percent in FY 2006-07.

9. Comparison of efficiency of this sector vis-à-vis the efficiency of the overall manufacturing sector as reflected by the data available from Annual Survey of India (ASI) reveals that the MSME sector is better employment generating sector. The organized industrial sector requires an investment of Rs. 6.66 lakh to generate employment to one person, whereas the MSME sector generates employment to 1.27 persons with the same investment. SWOT analysis of the various parameters

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affecting growth of the sector vis-à-vis employment creating avenues, employment opportunities, access to technology, marketing, exports, etc. has been done in the chapter.

10. In India, industrial clusters are found in most of the states and many of them are located in rural areas. It is estimated that there are over 6400 clusters in India, of which approximately 6000 are micro enterprise clusters and termed as ‘low tech’. Detailed analysis of cluster development programme enunciated by Govt. of India, UNIDO and the state governments for expediting the growth of MSMEs and the economy of the country has been done. All aspects relating to evolution of cluster development policies, classification of clusters, definitions of clusters and issues for consideration of competent authorities in central and state governments have been highlighted along with possible solutions.

Government Policy Support to MSME Sector

11. The rationale and justification for an effective policy and programmatic support is driven by the need to internalize the externalities, which has enabled the MSME sector to co-exist with large scale enterprises. This chapter deals with the brief synopsis of the existing policy framework at the Central and State Government levels. The Central Government policies include the MSMED Act 2006, MSME Promotional Package 2007, Eleventh Five Year Plan Working Group on SME sector, National Manufacturing Competitiveness Programme (NMCP), PM Task Force, Policy of Reservation, Sector Specific Initiative, Policy for Under Developed Regions, New Initiative by KVIC and Coir Board, Policy for FDI and Environment Related Policies.

12. The Micro Small & Medium Enterprise Development (MSMED) Act of 2006 was an important landmark. It was framed with the objectives of promoting and developing the MSME sector, enhance its competitiveness and extend the scope of benefits from SSI undertaking and ancillary industries to MSMEs. This was a progressive move, where the concept of an ‘enterprise’ was adopted rather than that of an ‘industry’. The rapidly growing service sector was included in the new definition. The MSE Promotional Package of 2007 provided legislation, credit, fiscal, technology upgradation and marketing support for the MSE sector. It also provided support for cluster based development and empowerment of women owned enterprises. For the Eleventh Five Year Plan, the Planning Commission constituted the Working Group, along with eight Sub-groups, on the important aspect of the promotion and development of MSMEs, including Agro and Rural Industries like Khadi, Village and Coir Industries. The gist of recommendations of the Working Group is provided in the chapter.

13. To build capacity of the MSMEs for overcoming competition in the global market and facing challenges by entering of MNCs in the domestic markets, the Government of India announced the National Manufacturing Competitiveness Programme (NMCP) in FY 2005-06. The Hon’ble Prime Minister constituted a Task Force on Micro, Small and Medium Enterprises to review the problems of the MSME sector. The Task Force had set up seven Sub-groups in the areas of credit,

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marketing, infrastructure/technology/skilled development, labour, exit policy, taxation and matters relating to special package for North-Eastern Region (NER) and Jammu and Kashmir. The Task Force has made wide-ranging recommendations for various MSME sector specific initiatives in the areas of technology, marketing and procurement, skilled development, export promotion, women entrepreneurs and entrepreneurship development.

14. The policy for under-developed regions focuses on development of industrial infrastructure and providing necessary support services for the MSME sector in North-Eastern Region (NER), and Jammu and Kashmir, Uttarakhand and Himachal Pradesh. Special incentives and subsidies are provided to new industrial units and their substantial expansion in this region. The Central and State Pollution Control Board conduct environmental audits and provide allowance for installation of pollution control devices. Several custom duty and excise duty exemptions are also provided on manufactured goods that are used for pollution control.

15. Government involvement at the State and UT level is also crucial for the growth and development of the MSME Sector. State policies are directed at developing physical and social infrastructure, zoning of industries, subsidy disbursement and identifying thrust areas corresponding to local resource endowments and strengths and capacities of the population. The state-wise listing of various support for MSME sector is provided in the chapter.

Institutional Support for MSMEs

16. The chapter presents an overview of the Institutional support available for MSMEs in the present day. The institutional support for MSMEs can be classified under two frameworks. First framework pertains to Development Support Institutions, which includes Advisory Set-ups and Policy Set-ups.

• Advisory Set-ups, comprising of distinguished professionals and intellectuals serving in their individual capacities, and include Prime Minister’s Office (PMO), Planning Commission, National Board for MSMEs and National Manufacturing Competitiveness Council (NMCC). The functions of these bodies are discussed in brief.

• Policy Set-ups: Institutions under this head include the Reserve Bank of India, the country’s apex Banking Institution entrusted with setting the monetary policy viz. Interest Rates, Credit supply, etc. The Ministry of Small & Medium Enterprises is responsible for initiating appropriate policy measures, programmes and schemes for the promotion of MSMEs, and rendering assistance to provide a comprehensive range of services and common facilities to the sector. The roles and functions of the Office of the Development Commissioner (MSME), major R & D Programmes, and services such as exhibitions, buyer-seller meets, and measures like the Rajiv Gandhi Udyami Mitra Yogna are covered in the chapter. The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce has several roles and functions, such as the Formulation and implementation of industrial policy and strategies for industrial development in conformity

xiiiExecutive Summary

with the development needs and national objectives; Monitoring the industrial growth, and the Formulation of Foreign Direct Investment (FDI) Policy and promotion, approval and facilitation of FDI. The Ministry of Textiles is responsible for policy formulation, planning, development export promotion and trade regulation in respect of the textile sector. The Ministry of Food Processing Industries is responsible for developing a strong and vibrant food processing sector; with a view to create increased job opportunities in rural areas, enable the farmers to reap benefit from modern technology, create surplus for exports and stimulating demand for processed food. The Ministry of Women and Child Development had been set to give the much needed impetus to the holistic development of women and children. The schemes of the Ministry like Swashakti, Swayamsidha, STEP and Swawlamban enable economic empowerment of the women.

17. The second framework includes Financial Support Institutions, which can be further divided into National Level and State Level Institutions.

• National Level Institutions include Commercial Banks, Regional Rural Banks, Cooperative Banks, Refinancing Institutions (Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB) and other Institutions Khadi and Village Industries Commission (KVIC), National Small Industries Corporation (NSIC) and North Eastern Development Finance Corporation Ltd. (NEDFi). Their activities, incentive schemes and measures are discussed in the chapter.

• State Level Institutions include State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs)/The State Small Industries Development Corporations (SSIDCs). The 18 SFCs across the country provide financial assistance by way of term loans to MSMEs. At present, there are 28 SIDCs in the country, of which 11 also function as SFCs and are, therefore, termed as Twin-Function IDCs.

Credit Dispensation to MSME Sector

18. In order to help MSMEs to weather the challenges of global financial crisis and economic slowdown, the Government of India, the Reserve Bank of India and the Indian Banks’ Association have taken several immediate measures to limit the spread of ‘contagion effect’, control the damage and stimulate economic activities. Measures by Government of India included extension in credit guarantee cover from Rs. 50 lakh to Rs. 1 crore with increased guarantee cover of 85 percent for loans upto Rs. 5 lakh and reduction in lock-in period to 18 months for loans under credit guarantee scheme, pre- shipment and post-shipment export credit for labour extensive exports, refund of service tax on foreign agent commissions upto 10 percent of FOB value of exports paid by exporters, refinance support to SIDBI, etc. In February 2009, the Government reduced excise duty by 4 percent points and also reduced the general rate of central excise duty and central excise duty on bulk cement from 10 percent to 8 percent.

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19. The RBI also took a number of monetary easing and liquidity enhancing measures aimed at providing adequate liquidity to compensate for the squeeze emanating from foreign financial markets and improving foreign exchange liquidity. RBI advised banks to consider restructuring the dues of MSMEs and issue prudential guidelines on restructuring of advances. RBI provided refinance of an amount of Rs. 7,000 crore to SIDBI to enhance credit delivery to employment intensive MSE sector. RBI also advised banks to contribute an aggregate amount of Rs. 2,000 crore to MSME Refinance Fund with SIDBI, in advance, on basis of short fall in achievement of sub-target of 10 percent for lending to weaker section category as on the last reporting Friday of March 2009. The RBI provided relief by reducing margin on receivables and relaxing the cash margins on letter of credits/guarantee.

20. The Government of India had earlier announced ‘Policy Package for stepping up credit to Small and Medium Enterprises (SMEs)’ on August 10, 2005 and a ‘Policy package for Micro and Small Enterprises’ on February 27, 2007. Due to the measures taken by the banks in adherence to these packages, there has been growth of credit by over 20 percent. The doubling of credit to the MSME sector as announced by Hon’ble Finance Minister in August 2005, over a period of 5 years lending by FY 2009-10, was achieved earlier by FY 2007-08. The commercial banks continue to be the major institutions meeting over 90 percent of the institutional credit needs of this sector. A notable trend is doubling of share of MSE credit in priorities sector credit from 17.9 percent in FY 2006-07 to 35.4 percent in November 2009. With Government of India supporting a target of doubling the credit flow to the sector by FY 2011-12, this trend is likely to continue.

21. Apart from SCBs, Regional Rural Banks (RRBs) have also become another source of credit for the MSEs and rural artisans, due to the proximity of RRBs to rural India. Several RRBs have achieved remarkable growth in their credit to MSE sector, especially during FY 2007-08 and FY 2008-09. Credit to small enterprises by Urban Cooperative Banks (UCBs) recorded a sizeable growth of 41.7 percent during FY 2008-09 despite concerns following the global financial crisis. The financial assistance by SIDBI has also increased substantially in the last ten years, with increase in outstanding credit from Rs. 14,571 crore in FY 2000-01 to Rs. 30,886 crore in FY 2008-09.

22. NABARD, as an apex development bank, facilitates credit flow for promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts. The disbursements by NABARD increased from Rs. 6,158 crore in FY 2000-01 to Rs. 10,535 crore in FY 2008-09. The funds released by KVIC has increased from Rs. 340.55 crore in FY 2002-03 to Rs. 1,104.94 crore in FY 2008-09. NEDFi has sanctioned total amount of Rs. 1,294.32 crore from FY 2000-01 to FY 2008-09 for enterprises and infrastructure projects in the North-Eastern region of India.

23. At the State level, State Financial Corporations (SFCs) have also played an important role for financing the MSMEs in the respective states. The outstanding credit by SFCs stood at Rs. 8,225 crore in FY 2008-09. The financial assistance by State Industrial Development Corporations (SIDCs)/

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State Industrial Investment Corporations (SIICs) has also played a role, with disbursements of Rs. 38.56 crore in FY 2007-08 and of Rs.31.03 crore in FY 2008-09.

24. In recent years, MSMEs have begun to move from bank credit to a variety of other specialized financial services and options. The MSME sector is estimated to have received funds from such emerging sources like venture capital and private equity, external commercial borrowings, factoring services, etc. to the tune of Rs. 12,000 crore by the end of March 2007, i.e. more than 5 percent of total credit needs.

25. The Government schemes relating to credit include Credit Linked Capital Subsidy Scheme (CLCSS), Technology Upgradation Fund Scheme for Textile Industry (TUFS), Integrated Development of Leather Sector Scheme (IDLSS), Scheme of Technology Upgradation/Setting up/Modernisation/Expansion of Food Processing Industries, Cluster Development Programme of Ministry of MSMEs, Prime Minister Employment Generation Programme (PMEGP) launched in August 2008 by Ministry of MSMEs and Scheme of Fund for Regeneration of Traditional Industries (SFURTI) launched by Khadi and Village Industries Commission (KVIC) in October 2005. The progress of each scheme is discussed in detail in the chapter. The Chapter also discusses ‘Performance and Credit Rating Scheme’ for MSEs launched in April 2005 by Ministry of MSMEs, and implemented by NSIC through seven credit rating agencies, i.e. CARE, CRISIL, D&B, FITCH, ICRA, ONICRA and SMERA. During FY 2008-09, a total of 4900 units have been rated under the scheme, as against 3850 units rated during 2007-08.

26. The number of sick units has declined from 3,04,235 at end of March 2000 to 85,186 at end of March 2008. As on March 2008, only 4,210 units out of the total sick units were identified as potentially viable by the banks. There has also been a decline in the NPA levels of the MSME sector in the recent years. For SCBs, the NPA of MSME sector has declined from 17.2% to 3.0% during the same period.

Status of Microfinance in India and Select International Experiences

27. Microfinance has emerged as an important instrument of financial inclusion for the poor in almost all parts of the world. Within Asia, India has emerged as the largest microfinance destination, thanks to the size and proportion of the poor. The microfinance movement started in India with the introduction of SHG Bank Linkage Programme (SBLP) launched by NABARD in 1992 with policy support from the Reserve Bank of India to facilitate collective decision making by the poor and providing ‘doorstep’ banking. While SBLP has emerged as the most important model, of delivery of microfinance, the other model, i.e. Micro Finance Institutions (MFIs) has also emerged as popular.

28. Several policy initiatives have been taken by RBI to promote spread of micro finance services in the country. RBI had earlier issued comprehensive guidelines to banks for mainstreaming micro credit and enhancing the outreach of micro credit providers. NABARD has also been playing

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crucial developmental role for the micro finance sector in India. NABARD has launched various funds for providing financial assistance to SHGs and has been organizing training programmes and exposure visits for the benefit of bank officials, NGOs, SHGs and Government agencies. NABARD has launched special programmes to popularize microfinance in 13 highly financially excluded states of the country. As against 1.15 lakh SHGs in March 2000, the number of SHGs by the end of March 2009 grew to 42.24 lakh and volume of credit increased from Rs. 193 crore to over Rs. 22,679 crore during the same period under the SBLP route. The impact has been impressive in terms of improvement in income of the poor and empowerment of the women.

29. The MFI-SHG Linkage Program (MSLP) has been pioneered by SIDBI. The Bank provides fund assistance to select well managed NGOs for on-lending to the poor for setting up micro enterprises, and provides need based financial assistance by way of loans to partner MFIs. As on January 31, 2010, SIDBI has disbursed more than Rs. 5,000 crore under its micro finance programme which is estimated to have benefited more than 2 crore poor clients, mostly women. The MFI model has also gained momentum in the recent past with total loans outstanding of Rs. 5,009.09 crore to 1915 MFIs as on March 31, 2009.

30. In terms of international experience, no doubt that Bangladesh took a lead in this direction through “Grameen Bank”, the brainchild of Prof. Muhammad Yunus. The pioneering effort aimed at provision of thrift, credit and other financial services to the poor to raise their income levels brought Nobel Peace Prize to Professor Yunus in 2006. The example set by this Bangladeshi banker to the world’s poor citizens has proved that even in very difficult environments, providing very small loans to poor farmers and other entrepreneurs can be very profitable. Hence, it is not a matter of surprise that microfinance has been adopted as an effective instrument of poverty elimination and financial inclusion. Though some variation exists in the internal structure and operational mechanism in almost all countries, everywhere it has been guided by core principles of reaching to the poorest, empowering the women, building up financial self-sufficient institutions and ensuring positive measurable impacts on the lives of clients and their families.

Role of Small Industries Development Bank of India (SIDBI)

31. SIDBI was set up on April 2, 1990 under an Act of Indian Parliament and functions as the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector and Co-ordination of the functions of the institutions engaged in similar activities. Financial support is provided by way of (a) refinance to eligible Primary Lending Institutions (PLIs) such as banks, State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs), Micro Finance Institutions (MFIs) etc. for onward lending to MSMEs and (b) direct assistance to MSMEs which is channelised through the Bank’s network of 103 branch offices reaching out to more than 600 MSME clusters.

32. The business operations of SIDBI have moved on an upward trajectory. As on December 31, 2009, the Bank has made cumulative disbursement of Rs. 1,47,704 crore to the MSME sector. It has

xviiExecutive Summary

always provided the required support to the MSME sector with the full commitment towards the holistic development of the sector. SIDBI’s operations have reached out to 216.5 lakh beneficiaries by way of: (a) 214.5 lakh beneficiaries through financial assistance (indirect, direct and micro finance); and (b) 2 lakh beneficiaries through Promotional & Developmental support.

33. SIDBI is primarily a Refinancing Institution. It provides refinance to augment the resource position of Primary Lending Institutions (PLIs) so as to enable them to provide greater flow of credit to MSME sector. SIDBI also provides direct finance to supplement the efforts of banks / SFCs etc. for higher credit dispensation to MSMEs. Over the years, SIDBI has launched several innovative and customised products and services designed as per the needs and aspirations of the MSMEs. SIDBI is also providing micro finance as an “Institutional Answer” to the huge unmet demand by the disadvantaged sections of society. The credit operations of SIDBI are supplemented with Promotional & Developmental (P&D) activities, which are designed to support enterprise creation in the MSME sector and strengthening of the existing MSMEs to overcome the emerging challenges of intense competition and increasing internationalisation. SIDBI has consistently been attending to requirements of cluster centric MSME development.

34. SIDBI extends Nodal Agency services to the Govt of India for schemes sponsored by various Ministries for encouraging implementation of modernisation and technology upgradation by manufacturing units in the MSME sector.

35. SIDBI is implementing a multiactivity, multi-agency MSME Financing and Development Project (MSMEFDP) aimed at making MSME lending an attractive and viable financing option as also to facilitate increased turnover and employment in the MSME sector. The objective of the Project is to attend to demand and supply side issues of MSME sector through financial and non-financial services. Principal partners for the project are World Bank; Department for International Development, UK; KfW and GTZ, Germany.

36. The Bank accords priority to the development of North Eastern Region (NER) through its activities under micro finance, rural industrialisation, handicraft cluster development, entrepreneurship development, marketing support, etc.

37. With the objective of all-round development of MSME sector, SIDBI coordinates with a number of accredited technical and management institutions to synergise their services to MSME sector.

38. SIDBI has also been constantly working on building various institutional mechanisms to cater to the emerging needs of the MSME sector and has set-up various subsidiaries / associates which include SIDBI Venture Capital Ltd. (SVCL) for venture capital, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for collateral free loans , SME Rating Agency of India Ltd. (SMERA) for credit rating, India SME Technology Services Limited (ISTSL) for technology transfer and India SME Asset Reconstruction Company Ltd. (ISARC) for asset reconstruction.

xviii SIDBI Report on MSME Sector

39. SIDBI has been playing a significant role in attending to key policy issues that are critical in establishing a facilitating framework that promotes Indian MSME sector.

40. SIDBI’s thrust on financing, development and promotion for the holistic development of the MSMEs has an important bearing towards the achievements of eight MDGs,

Sustainability and MSME Sector

41. In the recent years, the principles of sustainable development have become an important aspect of all industrial and commercial sectors, especially in the financial sector. There is an increasing awareness about incorporating principles of sustainability in the bank operations and outlook. Several demand side and supply side forces are driving the paradigm shift in favour of sustainability. Demand side forces include the increasing demand for green and energy efficient products in the emerging markets, while the supply side forces include production cost advantage of green consumer products and services as compared to their conventional substitutes. The pressure points are internal pressures by The Environment Protection Act (1986) and the supporting institutions of Ministry of Environment and Forests (MoEF), Central Pollution Control Boards (CPCB), State Pollution Control Boards (SPCBs) and Pollution Control Committees; and the external pressure by the global issue of Climate Change and green earth.

42. In India, environmental pollution by industries has become an important issue in certain geographical regions of India. A recently released report by the CPCB titled “Comprehensive Industrial Assessment of Industrial Clusters” points out that 43 out of the 88 industrial clusters studied are critically polluted with respect to one or more environmental components viz. Air, land, water etc. According to another World Bank Report (2007) titled “Strengthening Institutions for Sustainable Growth-Country Environmental Analysis”, an estimated 70% of the total industrial pollution load is attributed to Small & Medium Enterprises (SMEs) many of which continue to use obsolete technology with primitive pollution control methods.

43. The efficient use of energy has thus become one of the most important sustainable solutions for economic growth. Several international and national agencies, such as, Bureau of Energy Efficiency (BEE), Ministry of MSMEs, SIDBI, The World Bank, UNIDO, KfW, Germany and Japan International Cooperation Agency (JICA) are working towards energy efficiency and energy conservation in MSME sector. Programme activities by BEE include energy use and technology audits, capacity building and information dissemination workshops and clusters, introduction of energy efficient technologies in clusters development, and facilitation of financing energy efficiency projects. The Ministry of MSMEs has formulated a scheme in the name of ‘Energy Efficiency and Quality Certification Support for MSME’ under the National Manufacturing Competitiveness Program (NMCP), with SIDBI as one of the private partners.

xixExecutive Summary

44. SIDBI has collaborated with JICA for providing financial assistance to energy saving products in MSME sector. A line of credit of Euro 50 million has been signed with KfW (Germany) for financing energy efficiency proposals of MSME sector. SIDBI has signed an MoU with BEE for financing energy efficient measures, awareness creation and capacity building of local BDS providers for implementing energy efficient technologies. The World Bank, in association with SIDBI and BEE, is gearing up to implement the Global Environment Facility (GEF) program for increasing awareness / investment, knowledge management and project management of energy efficiency projects in various industrial clusters.

45. In response to one of the most pressing issue of our generation, i.e. Climatic Change, India has formulated a National Action Plan on Climate Change (NAPCC) on July 30, 2008. The NAPCC advocates a strategy that promotes, firstly, the adaptation to climate change and secondly, further enhancement of the ecological sustainability of India’s development path. It contains eight missions, namely, National Solar Mission, National Mission for Enhanced Energy Efficiency, National Mission for Sustainable Habitat, National Water Mission, National Mission for Sustaining the Himalayan Ecosystem, National Mission for a Green India, National Mission for Sustainable Agriculture, and finally, National Mission on Strategic Knowledge for Climate Change. The National Missions are to be institutionalized by the respective Ministries and are to be organized through inter-sectoral groups. Appropriate mechanisms including public-private partnerships and civil society actions will be devised, as suited, for effective delivery of each individual Mission’s objectives. The work is to be coordinated by the Ministry of Environment and Forests.

46. Energy conservation provides an intrinsic advantage to the MSME sector. There is a need to extend Government support to fund the viability gap in appropriate interventions for modernization, technology upgradation and substitution of conventional forms of energy with cleaner and greener renewable sources, such as, solar wind, bio-mass, etc. The creation of an enabling policy for Energy Service Companies (ESCOs) is advocated. ESCOs operate on the fundamental premise of performance guaranteed savings from energy conservation measures and sharing these between the client and the ESCO. It is suggested that sustainability index and rating system based on it should be evolved in the context of MSME units with a view to linking Government incentives with performance of MSME units/clusters on sustainability index.

Prospects and Outlook

47. Despite playing a strategic role, the MSME sector continue to face challenges. The MSE sector in India is heterogeneous, dispersed, and mostly unorganized, because of which entrepreneurs and artisans/workers face difficulties in accessing to various government schemes and the benefits.

xx SIDBI Report on MSME Sector

48. A primary survey of 200 MSMEs had been conducted at key industrial clusters, including Chandigarh, Hyderabad, Rajkot and Jamshedpur to further understand the issues faced by MSMEs on ground and their various demands. Based on the results of the survey and study of secondary literature, expedient issues, which can contribute to the competitive advantages of the sector, are infrastructural bottlenecks, inadequate capital/financial support, issues related to delayed payment, technology upgradation, informational inefficiency, inadequate R&D support, marketing issues and access to global markets.

49. With regard to the outlook and forecast of growth of the sector, the growth rates of some parameters like production and employment by MSMEs has been projected to be positive. The Eleventh Plan by Planning Commission expects the production of MSEs to grow at a CAGR of 19.65 percent from Rs. 6,82,613 crore in FY 2007-08 to Rs. 13,98,803 crore in FY 2011-12. Various strategies of the Eleventh Plan to promote MSEs and achieve these physical targets have also been detailed in the chapter.

General economic overview

1.1 The 2000s: The Economic Growth So Far

Indian economy has grown at fairly impressive growth

rate in the average range of 7-8 percent during last ten years. The economy crossed the US$ 1 trillion mark in terms of Gross Domestic Product (GDP) in FY 2007-08, when it emerged as the fourth largest economy in the world in terms of purchasing power parity. Except the period belonging to the financial crisis, Indian economy largely benefited from the strong demand in foreign and domestic markets. Between FY 2002-03 and FY 2004-05, the Indian economy grew at an average rate of 8 percent, which followed an even more impressive growth rate of above 9 percent between FY 2004-05 and FY 2007-08. There was acceleration in domestic investment and savings rates to drive growth and provide the resources for meeting the 9 percent (average) GDP growth target of the Eleventh Five-Year Plan. Macroeconomic fundamentals continued to inspire confidence and

promoted investment. During the FY 2008 - 09, part of which witnessed the financial crises, growth equivalent to 6.7 percent was observed in total GDP of India. Growth rates of last two years reveal that India has been able to withstand the pressure of global economic slowdown. The annual GDP growth rates for the years FY 2002-03 to FY 2008-09 are shown in Fig 1.1.

Agriculture

A closer look at the sectoral growth rates of GDP reveals that average growth in agriculture and allied sector recorded a 2.5 percent in the Tenth Plan

period (Table 1.1). Notably, in years FY 2002-03 and FY 2004-05, growth rates were observed at negative 7.2 and zero percent, respectively. The growth decelerated from 4.7 percent in FY 2007-08 to 1.6 percent in FY 2008-09, mainly on account of a fall in the production of non-food crops including oilseeds, cotton, sugarcane and jute. The production of wheat

was also marginally lower than in FY 2007-08.

IndustryIndustrial sector growth rate in mining sector during FY 2008-09 was observed at 3.9 percent

2 SIDBI Report on MSME Sector

vis-à-vis 9.2 percent in Tenth plan and 4.3 percent in Ninth plan. The manufacturing, electricity and construction sectors decelerated to 3.2, 3.9 and 5.9 percent, respectively, during FY 2008-09 from 10.3, 8.5 and 10.0 percent, respectively, in FY 2007-08. The slowdown in manufacturing could be attributed to the combined impact of fall in exports followed by decline in domestic demand, especially in the second half of the year. The electricity sector continued to be hampered by capacity constraints and the availability of coal, particularly during the first half of the year. Similar trends have been observed in the growth rates of construction sector, which consists of different segments like housing, infrastructure, industrial construction, commercial real estate, etc. While the construction industry went through a boom phase with growth as high as 16.2 percent in FY 2005-06 and continued to grow thereafter (albeit with moderation), the increase in the costs of construction due to a rise in the prices of inputs like steel and cement besides interest costs had started impacting the industry.

Services

The service sector which has been India’s economic driver for well over a decade has continued to grow rapidly. As against a growth of 9.8 percent

in FY 2008-09, it grew at 8.7 percent in FY 2009-10. The trade and hotel sector has registered lower growth rate of 5.3 percent during FY 2008-09, whereas during FY 2007-08, this sector was able to observe a growth rate of 9.5 percent vis-à-vis 9.1 percent in Tenth plan and 7.5 percent in Ninth plan. The higher growth in community, social and personal services during 2008-09 reflected the demand side of GDP as higher growth of Government consumption expenditure.

In FY 2008-09, the Indian economy was confronted with one of the severest external shocks in the form of a global financial crisis coupled with global recession, but exhibited notable resilience, with GDP growth at 6.7 percent. Reflecting the contraction in global demand, exports declined. Domestic aggregate demand also moderated due to sharp deceleration in the growth of private consumption demand. However, on account

Table 1.1: Sectoral GDP Growth Rates at factor cost at 1999-2000 (percent)

S.No.

Sectoral GDP NinthPlan

(1997-98to

2001-02)

2002-03

2003-04

2004-05

2005-06

2006-07

TenthPlan

(2002-03 to2006-

07)

2007-08

2008-09

1. Agriculture and AlliedSector

2.3 -7.2 10.0 0.0 5.8 4.0 2.5 4.7 1.6

2. Industrial Sector

4.3 7.1 7.4 10.3 10.2 11.0 9.2 9.5 3.9

Mining &Quarring

4.0 8.8 3.1 8.2 4.9 8.8 6.8 3.9 1.6

Manufacturing 3.3 6.8 6.6 8.7 9.1 11.8 8.6 10.3 3.2

Electricity 4.8 4.7 4.8 7.9 5.1 6.0 5.7 8.5 3.9

Construction 7.1 7.9 12.0 16.1 16.2 11.8 12.8 10.0 5.9

3. ServicesSector

7.9 7.5 8.5 9.1 10.6 11.2 9.4 10.5 9.8

Trade andhotels

7.5 6.9 10.1 7.7 10.3 10.4 9.1 9.5 5.3

Transport &communica-tion

8.9 14.1 15.3 15.6 14.9 16.3 15.24 13.0 11.6

Financing, realest,housing

8.0 8.0 5.6 8.7 11.4 13.8 9.5 13.2 10.1

CommunityServices

7.7 3.9 5.4 6.8 7.1 5.7 5.78 6.7 13.9

GDP 5.5 3.8 8.5 7.5 9.5 9.7 9.0 9.2 6.7

Source: Central Statistical Organisation, Government of India

3General Economic Overview

of the sound macroeconomic and financial sector policy environment that had been put in place, the economy is witnessing a V-Shaped recovery with GDP growth rate declining from 7.5 percent during first half of FY 2008-09 to 5.8 percent during second half but recovering further to 7.0 percent during the first half of FY 2009-10. As per the latest report available, the third quarter growth rate for FY 2009-10 was 6 percent.

1.2 Industrial SectorIn terms of use-based categories of Index of Industrial Production (IIP), growth signals were mixed (Figure 1.2 and Table 1.2). On an average basis, during FY 2002-03 to FY 2008-09, while capital goods sector grew at 13.8 percent, in the basic, intermediate and consumer goods sectors, there was a growth of 6.0 percent, 5.3 percent and 8.3 percent, respectively.

A further insight into the disaggregated figures reveals the following:

During this period, the basic ♦and intermediate goods industries grew fastest in FY 2006-07 at 10.3 and 12 percent, respectively. The growth in basic goods is closely aligned to that in electricity and mining, while the intermediate goods are a more dispersed group dominated by chemical, textile, rubber and metal product intermediates.

The intermediate goods ♦sector showed a negative growth of 1.9 percent in FY 2008-09, as compared to 8.9 and 12 percent in FY 2007-08 and FY 2006-07, respectively, which was even better than the overall industrial growth in those years. However, during April-November FY 2009-10, the basic goods sectors grew by 6.1 percent and intermediate goods sector by 11.4 percent as compared to growth of 3.6 percent and a decline of 0.7

Table 1.2: Growth Rate of Index Industrial Production (IIP) - Use-based Classification (percent)(Base 1993-94=100)

Industry Group Weight(%)

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(April-Nov)

Basic Goods 35.6 4.8 5.4 5.5 6.7 10.3 7.0 2.5 6.1

Capital Goods 9.3 10.5 13.6 13.9 15.7 18.2 18.0 7.3 7.0

Intermediate Goods 26.5 3.9 6.4 6.1 2.5 12.0 8.9 -1.9 11.4

Consumer Goods 28.7 7.1 7.2 11.7 12.0 10.1 6.1 4.7 6.3

Consumer Durables 5.4 -6.3 11.6 14.3 15.3 9.2 -1.0 4.5 21.7

Consumer Non-Durables 23.3 12.0 5.8 10.8 10.9 10.4 8.5 4.8 1.1

All Index of Ind. Prod. (IIP) 100 5.7 6.9 8.2 8.0 11.4 8.2 2.5 7.6

Source: Economic Surveys for various years, Government of India


percent, respectively, during the same period in previous year.

Growth in production of ♦capital goods has continued at a robust pace due to high growth in machinery and equipments, reflecting perhaps the high investment rates. In FY 2006-07, capital goods grew at a pace of 18.2 percent, over a high base attained in the previous years, which augured well for the required industrial capacity addition. However, the sector witnessed a decline in growth rate to 7.3 percent during FY 2008-09 as compared to 18 percent in previous year, mainly due to average performance of transport equipments. During April-November, FY 2009-10, the capital goods sector grew by 7.0 percent as compared to growth of 8.4 percent during the same period in previous year.

The overall IIP growth rate ♦was further supported by the consumer goods sector, which has maintained a positive growth rate during the period. Consumer goods comprise consumer durables and consumer non-durables, which grew at an average growth rate of 6.8 and 9 percent, respectively, during FY 2002-03 to FY 2008-09. The growth in consumer non-durables has been boosted by the high growth in beverages and tobacco

products. However, the consumer durables basket showed a negative growth in FY 2002-03 and FY 2007-08, thereby resulting in the decline in the growth of the total consumer goods basket, despite reasonable growth in the non-durables. During April-November, FY 2009-10, the consumer durables sector grew at 21.7 percent, while the consumer non-durables sector grew at 1.1 percent as compared to growth of 5.1 percent and 7.3 percent, respectively, during the same period in preceding year.

1.3 Money, Credit and Inflation

Monetary Conditions

The recent changes in the domestic and global economy emanating from globalisation and slowdown, impacted the price level and financial stability, thereby posing challenges in the conduct of monetary policy. The broad objectives of monetary policy have been- (a) To regulate monetary expansion so as to maintain a reasonable degree of price stability; and (b) To ensure adequate expansion in credit to assist economic growth. The emphasis between the two objectives has changed from year to year depending upon the conditions prevailing during a particular period.

The monetary policy of the Reserve Bank of India (RBI) for

the financial year 2008-09 aimed at striking an optimal balance between preserving financial stability, maintaining price stability, anchoring inflationary expectations and at the same time, sustaining the growth momentum.

During the first six months of the financial year 2008-09, RBI consciously endeavoured to control monetary expansion through increases in CRR (Cash Reserve Ratio, the portion of deposits which banks have to keep with RBI) by 150 basis points in six tranches from 7.50 percent (before April 26, 2008) to 9.0 percent w.e.f. August 30, 2008. These changes were made to control monetary expansion and double-digit inflation in the economy. The subsequent six months of the financial year 2008-09 witnessed tight liquidity situation in the economy. In view of this, RBI facilitated monetary expansion through decreases in the CRR, RR (Repo Rate, the rate at which RBI lends money to banks), R-RR (Reverse Repo Rate, the rate at which banks park their short term excess liquidity with RBI) and SLR (Statutory Liquidity Ratio, the minimum percentage of deposits which the banks have to maintain in the form of gold, cash or other approved securities). The CRR was lowered by 400 basis points in four tranches from 9.0 (as of August 30, 2008) to 5.0 percent w.e.f. January 17, 2009. However, as a part of inflation control measures, CRR was increased


by 75 basis points with effect from February 2010. The RR was also reduced in the wake of emerging liquidity crunch, by 400 basis points in five tranches from 9.0 (as of September 30, 2008) to 4.75 percent w.e.f. April 21, 2009. The R-RR was lowered by 250 basis points in three tranches from 6.0 (as it was prevalent in November 2008) to 3.25 percent w.e.f. April 21, 2009. However, the RBI increased both RR and R-RR to 5 percent and 3.5 percent, respectively, w.e.f. March 19, 2010.

Reserve Money (M0, RBI’s holdings of foreign exchange reserves and Indian government bonds) increased by Rs. 5,70,904 crore from Rs. 3,43,060 crore in FY 2002-03 to Rs. 9,13,964 in FY 2008-09. This translated into a growth of 166.4 percent during the same period. During FY 2009-10, M0 increased by 3.8 percent (up to January 15, 2010), as against a decline of 3.7 percent during the corresponding period of the preceding year.

Narrow Money (M1, Currency with the public plus deposit money of the public) grew at a CAGR of 17.61 percent during the period FY 2002-03 to FY 2008-09. During FY 2009-10, M1 increased by 7.8 percent on a financial-year basis (up to January 15, 2010) as against a decline of 1.1 percent during the corresponding period of the previous year. On year-on-year basis, as on January 15,

2010, M1 growth accelerated to 18.2 percent as compared to 8.6 percent a year ago.

Broad Money (M3 includes currency in circulation plus demand deposits with banks plus term deposits with banks) during the period FY 2002-03 to FY 2008-09 grew at a CAGR of 18.53 percent. During FY 2009-10, up to January 15, 2010, the growth in M3 was 10.8 percent as compared to 12.8 percent during the corresponding period of the previous year. On year-on-year basis, M3 grew by 16.5 percent as on January 15, 2010, as compared to 19.1 percent on the corresponding date of the previous year.

Bank Credit

Bank credit of scheduled commercial banks (SCBs), comprising food and non-food credit, grew at CAGR of 25 percent to Rs. 27,75,549 crore in FY 2008-09 as compared to

Rs. 7,29,215 crore in FY 2002-03. Non-food credit also grew at CAGR of 26 percent from Rs. 6,79,736 crore in FY 2002-03 to Rs. 27,29,338 crore in FY 2008-09. However, food credit declined by 1.13 percent from Rs. 49,479 crore in FY 2002-03 to Rs. 46,211 crore during FY 2008-09 (Figure 1.3).

In FY 2008-09, the adverse international developments had affected the credit markets to some extent. Due to high capital outflows and increase in risk aversion, there was a substantial shrinkage of non-bank sources of funding in India, such as, from domestic capital markets, NBFCs and mutual funds, etc. Accordingly, there was a sudden rush for bank credit from various sectors of the economy. This was compounded by the large demand for credit from petroleum and fertiliser companies. In response, number of steps were taken by the RBI to


make available adequate rupee and foreign exchange liquidity while emphasizing the need to ensure adequate flow of credit to the productive sectors of the economy. The growth in overall credit in FY 2008-09, thus, was lower than that of the previous year, mainly on account of the slowdown in the growth momentum of the economy during the second half of the year.

During FY 2009-10, growth in bank credit extended by scheduled commercial banks (SCBs) stood at 8.4 percent (end March 2009 to January 15, 2010), as compared to 11.9 percent during the corresponding period in FY 2008-09. The year-on-year growth in bank credit as on January 15, 2010 was 13.9 percent as against 22.0 percent on the corresponding date of the previous year. Growth in non-food credit so far in FY 2009-10 on financial-year basis and on year-on-year basis was lower than the previous year’s levels.

Inflation

The inflation rate as measured by the Wholesale Price Index (WPI) on 52-weeks average basis showed modest increase during FY 2002-03 and FY 2007-08 from 3.4 to 4.7 percent; whereas, there onwards, it increased to 8.4 in FY 2008-09. Amongst the sub-categories as shown in the Table 1.3, primary articles registered maximum change in WPI from 3.3 percent in FY 2002-03 to 10.1

percent in FY 2008-09, which is a change of 6.8 percentage points as opposed to 2 percentage points for fuel, power, light and lubricants (FPL&L) and 5.5 percentage points for manufactured products during FY 2002-03 and FY 2008-09.

The FY 2009-10 gives an interesting picture with overall average inflation (April to December) being low at 1.6 percent and average inflation in the primary and fuel groups being 8.8 percent and - 6.4 percent, respectively (Table 1.3).

1.4 FiscalDeficitTrends

As mentioned earlier, during FY 2002-03 and FY 2008-09, the Indian economy posted an impressive average growth which underscored the

importance of the real growth potential of fiscal consolidation. The Economic Survey 2008-09 notes that: “the fiscal space so generated enabled the Government to put in place the first comprehensive social safety net assuring statutory guarantee for 100 days of employment in a year for people in the rural districts under the National Rural Employment Guarantee Scheme (NREGS) and fund higher levels of plan expenditure”.

Noting the key trends in fiscal consolidation, the Survey observes that Central Government’s fiscal deficit at 2.6 percent of GDP in FY 2007-08 signified the attainment of Fiscal Responsibility Budget Management Act (FRBMA) terminal year target, albeit on cash basis. However, there

Table1.3:AnnualAverageInflationBasedonWPI(FY2003-FY2010)(Percent)

FY PrimaryArticles(22.02%)

Fuel,Power,

LightandLubricants(14.23%)

ManufacturedProducts(63.75%)

AllCommodities(100%)

2002-03 3.3 5.5 2.6 3.4

2003-04 4.3 6.4 5.7 5.5

2004-05 3.7 10.1 6.3 6.5

2005-06 2.9 9.5 3.1 4.4

2006-07 7.9 5.6 4.4 5.4

2007-08 7.6 0.9 5 4.7

2008-09 10.1 7.5 8.1 8.4

2008-09 (Apr.-Dec.) 10.9 11.3 9.4 10.2

2009-10 (Apr.-Dec.) 8.8 -6.4 1.8 1.63

Source: Economic Survey 2009-2010, Government of India P: ProvisionalNote: Figures in parantheses represent Weights.


was deterioration in the fiscal position in FY 2008-09 which was caused by the Government’s response to certain endogenous and exogenous factors, which manifested in the FY 2008-09. As the FY 2008-09 progressed, the Indian economy was impacted by the twin global shocks – increase in the global commodity prices in the first half of the year and the ripple effects of the deepening of the global financial crisis in the second half. This led to conscious fiscal expansion, composed of both tax cuts and expenditure hikes.

As per the Budget Estimates (BE) for FY 2009-10, fiscal and revenue deficits of the Centre were placed at 6.5 percent and 4.6 percent of GDP, respectively. The quality of fiscal deficit indicated by the proportion of revenue deficit to fiscal deficit, which improved to reach a level of 41.4 percent in FY 2007-08 also deteriorated to 74.8 percent in FY 2008-09 owing to the emerging economic situation, which required fiscal stimuli. In comparison, the record of fiscal consolidation by states collectively has been impressive with a revenue surplus in FY 2006-07 from a level of fiscal deficit of 2.5 percent of

GDP in FY 2005-06. As a result, combined gross fiscal deficit of the Centre and States fell from a high level of 8.5 percent of GDP in FY 2003-04 to a level of

Table 1.4: Trends in Deficits of Central Government(As percent of GDP)

FY RevenueDeficit

Primary Deficit

Fiscal Deficit

Revenue Deficit as percentof Fiscal Deficit

2002-03 4.4 1.1 5.9 74.6

Enactment of FRBM2003-04 3.6 0.0 4.5 79.7

2004-05 2.4 0.0 3.9 62.3

2005-06 2.5 0.4 4.0 63.0

2006-07 1.9 -0.2 3.3 56.7

2007-08 1.1 -0.9 2.6 41.4

2008-09(Prov.)*

4.4 2.5 5.9 74.8

2009-10 BE

4.6 2.8 6.5 70.5

BE: Budget Estimate* Provisional and unaudited as reported by Controller General of Accounts, Department of Expenditure, Ministry of Finance.Note: 1. The ratios to GDP at current market prices are based on CSO’s National Accounts 1999- 2000 series.2. Fiscal deficit excludes transfer of states’ share in small savings collections.Source: Union Budget documents, Government of India

5.2 percent of GDP in FY 2007-08. The strong performance by states was expected to continue as evidenced by the BE for states (Table 1.4 and Figure 1.4).


1.5 External Sector

International Trade

The direction and composition of India’s exports and imports has changed significantly during the decade. Rising imports surpassed the growth in exports of India. Exports had grown from US$ 52.7 bln in FY 2002-03 to US$ 185.29 bln FY 2008-09, whereas imports had grown from US$ 61.4 bln to US$ 303.6 bln during the same period. The CAGR for India’s merchandise exports for five-year period FY 2004-05 to FY 2008-09 increased to 17.27 percent from 17.80 percent of the preceding five-year period. Cumulative value of exports for the period April-December, 2009 was US$ 117.58 bln, showing a negative growth of 20.3 percent over the same period last year. Cumulative value of imports for the period April- December, FY 2009 was US $ 193.83 bln registering a negative growth of 23.6 percent over the same period last year (Figure 1.5). However, recent months have been witness to recovery in the external sector, with both imports and exports recording a positive year-on-year performance in the months of December and January FY 2010.

India has witnessed an increasing trade deficit trend in its current account during FY

2002-03 and FY 2008-09. This trade deficit had increased from US$ 8.69 bln to US$ 118.3 bln during FY 2002-03 and FY 2008-09, respectively (Fig 1.6). However, trade deficit fell by 28.2 percent to US$ 76.2 bln (as per customs data) in FY 2009-10 (April–December) from US$ 106 bln in the corresponding period of the previous year.

During this timeframe, India’s engagement in Free

Trade Agreements (FTAs) gained momentum. As of now, India has trade agreements with Nepal, Sri Lanka, South Asian Countries (SAFTA), Afghanistan, Asia Pacific Trade Agreement (Bangkok Agreement), MERCOSUR (Latin American Group comprising Brazil, Argentina, Uruguay and Paraguay), Thailand, Chile, and Singapore. In 2009, trade agreements have been signed


Table 1.5: India’s Engagement in Free Trade Agreements (November, 2009)

Proposed

Under Negotiation ConcludedFramework

Agreement signed and FTA being

currentlyNegotiated

CECA/CEPAs Under Negotiation

Concluded but not Implemented Notifications issued

1 2 3 4 51. New Zealand-

India Free Trade Agreement

2. India-Australia Free Trade Agree-ment

3. Malaysia-India Comprehensive Economic Cooper-ation Agreement

4. India-Venezuela Preferential Trading Arrangement

5. India-Uruguay Preferential Trading Arrangement

6. India-Russian Federation Comprehensive Economic Cooperation Agreement

7. India-Israel Preferential Trade Agreement

8. India-Indonesia Comprehensive Economic Coop-eration Arrange-ment (CECA)

9. China-India Regional Trading Arrangement

10. India-Colombia Preferential Trading Arrangement

11. India – European Free Trade Area (EFTA) CECA

1. India-Thai land Free Trade Area

2. A S E A N - I n d i a Regional Trade and Investment Area1

3. Bay of Bengal Initiative for M u l t i - S e c t o r a l Technical and E c o n o m i c C o o p e r a t i o n (BIMSTEC) Free Trade Area

4. I n d i a - G u l f C o o p e r a t i o n Council Free Trade Area

5. I n d i a -M E R C O S U R -SACU CECA

1. Japan-India Economic Partnership Agreement

2. India-Mauritius CEPA

3. India-Egypt Preferential Trade Agreement

4. India-European Union Trade and Investment Agreement

1. India-Korea CEPA

2. ASEAN-India Free Trade Agree-ment

1. Asia-Pacific Trade Agreement

2. India-Singapore Comprehensive Eco-nomic Cooperation Agreement

3. India-Sri Lanka Free Trade Agreement

4. Indo-Nepal Treaty of Trade

5. South Asian Free Trade Area

6. Early Harvest List of India – Thailand CECA

7. India-Chile Preferen-tial Trading Agree-ment

8. India-Afghanistan Preferential Trading Agreement

9. India -MERCOSUR Preferential Trade Agreement

1India – ASEAN have concluded negotiations on a partial trade agreement covering goods only.

with ASEAN and South Korea. A summary of India’s engagement in FTAs has been given in Table 1.5.

Foreign Investment

The foreign investment comprises Foreign Direct Investment (FDI) and portfolio

investment. FDI is considered to be the most attractive type of capital flow for emerging economies as it is expected to


bring latest technology and enhance production capabilities of the economy. Portfolio investment includes foreign institutional investors (FIIs) investment, issue of Global Depository Receipts (GDRs)/American Depository Receipts (ADRs) and offshore funds.

During FY 2005-06 to FY 2008-09, FDI flows have assumed greater significance. High inflows indicate India as an attractive investment destination as a consequence of its liberalised investment climate, stable and sound economic and political base, opportunities for economic growth, while capital investment abroad reflects the growing global competitiveness of the Indian corporate sector. The two-way flow of FDI, therefore, means that while the world is taking note of India’s market potential, Indian companies are also constantly looking for synergistic acquisitions abroad.

FDI increased from US$ 5,035 mln in FY 2002-03 to US$ 35,168 mln in FY 2008-09; whereas portfolio investments registered a fluctuating trend including a negative trend in FY 2008-09. In terms of overall scenario, foreign investments were observed at US $ 21,313 mln in FY 2008-09 as oppose to US$ 6,014 mln in FY 2002-03. A significant outflow is reflected during last one year (Figure 1.7). During April-September 2009, net inward FDI into India stood at US$ 21.0 bln as compared to

US $ 20.7 bln during the same period in previous year, reflecting better growth performance of the Indian economy.

Foreign Exchange Reserves

Foreign exchange reserves are an important component of the balance of payments and an essential element in the analysis of an economy’s external position. The level of India’s foreign exchange reserves comprising foreign currency assets (FCA), gold, SDRs and reserve tranche position (RTP) in the IMF, which had touched a low of US$ 5.8 bln at end-March 1991, peaked at US$ 314.6 bln at end-May 2008. The reserves declined thereafter to US$ 247.7 bln at the end of November 2008 and were at US$ 252.0 bln at the end of March 2009 (Figure 1.8). Fallout of the global crisis and strengthening of the US dollar vis-à-vis other international

currencies were been responsible for the decline. During FY 2009-10, foreign exchange reserves increased by US$ 31.5 bln from US$ 252.0 bln in end March 2009 to US$ 283.5 bln in end-December, 2009.

Exchange Rates

The deepening of the global financial crisis in September 2008 and reversal of portfolio flows from India during FY 2008-09 due to sale of equity stakes by FIIs to replenish overseas cash balances, had an adverse effect on the stock market and the exchange rates through creating supply demand imbalance in the foreign exchange market. All these factors have resulted in decline in the value of Rupee from an average of Rs 40.02 per US$ in April 2008 to Rs. 51.23 in March 2009, reflecting 21.88 percent depreciation in


rupee. As the economy started recovering, the exchange rate started appreciating during FY 2009-10 when the value of rupee improved to Rs.46.63 as on December 31, 2009, an appreciation of 9.9% over March 2009.

External Debt

India’s external debt stood at US$ 98.8 bln at end-March 2002, which rose to US$ 133 bln at end of March-2005 due to increase in external commercial borrowings and rise in trade credit for oil and non-oil imports (Figure 1.9). At end-March 2009, the external debt stood at US $ 229.9 bln (Rs. 1,169,575 crore), which was higher by US$ 5.3 bln or 2.4 percent over previous year’s level of US$ 224.6 bln. The moderate increase was due to the valuation effect of

appreciation of the US dollar vis-à-vis major international currencies and the slowdown in external borrowings. In Rupee terms, however, external debt recorded a rise of 30.2 percent due to the depreciation of Indian rupee against the US dollar and other major international currencies, except the Japanese Yen. The ratio of

foreign exchange reserves to total external debt stood at 109.5 percent at end- December 2009. The ratio of short term debt to total debt, which rose to 13.3 percent at end-March 2005 from 2.8 percent at end-March 2002, further increased to 21.5 percent at end-March 2009. Cross country comparison based on the data given in World Bank’s Global Development Finance, 2009 showed that India ranked fifth in 2007 in terms of total external debt stock among developing countries. However, in terms of debt to Gross National Income (GNI) ratio, India’s position was the sixth, with China having the lowest ratio.

1.6 Economic Outlook

The Indian economy weathered the financial turbulence well and grew at 6.7 percent in FY 2008-09. As per the economic


outlook for FY 2009-10 issued by Prime Minister’s Economic Advisory Council (PMEAC) in October 2009 (Table 1.6), the Indian economy is likely to grow by about 6.5 percent in FY 2009-10. It is unlikely that growth will be lower than 6.25 percent but possible that it could reach 6.75 percent. However, with improved farm output and strong industrial growth during the third and fourth quarter of FY 2009-10, the PMEAC in its review of the economy for FY 2009-10, presented in February 2010, revised the growth target to 7.2% with an upward bias as predicted by the Central Statistical Organisation (CSO). PMEAC also estimated that the economy would grow by 8.2 percent in FY 2010-11 and by 9.0 percent in FY 2011-12. The non-farm sector is expected to grow by 8.8 percent in FY 2010-11 and 9.8 percent in FY

2011-12, compared to 8.5 percent in FY 2009-10.

The PMEAC expects that the agriculture sector may not perform well with a negative growth of 2 percent and the food grain production might shrink to 223 metric tonnes (MT) from the existing 234 MT, due to a deficient monsoon. The sharp increase in the price of food grains, especially rice and pulses, other primary food products and of sugar is a major policy concern. The Second Advance Estimate released on February 12, 2010, shows that food grain production in FY 2009-10 is likely to be 216.9 MT, which is 17.6 MT lower than the output in FY 2008-09.

The Council expects strong growth in second half of 2009-10 with exports to reach US$ 188.9 bln in FY 2009-10 as against US$ 175.2 bln in FY 2008-09.

The current account deficit for FY 2009-10 is estimated at little under US$ 30 bln or 2.2 percent of GDP which is an increase in absolute terms from US$ 29 bln recorded last year but a small decline in terms of ratio to GDP (from 2.4 percent in FY 2008-09).

On the capital account side, Foreign Direct Investment (FDI) on a net basis in the first half of FY 2009-10 was at US$ 14.1 bln. In the second half of FY 2009-10, it is estimated that gross inflows will be about US$ 15.0 bln. Thus, on a net basis, there would be an increase in FDI inflow. For the year as a whole, total net FDI inflow is assessed at US$ 20.1 bln, slightly higher than the US$ 17.5 bln recorded in the previous year.

Table 1.6: Economic Outlook for FY 2009-10Projected Growth 6.75%Agriculture (-)2%Foodgrain Production 223MTIndustrial Growth 8.20%Services 8.20%Savings Rate 34.50%Current A/C Deficit (-)2%Exports Projected $188.9BnCapital Inflows $57.3BnSource: Economic Outlook for 2009-2010, Government of India(Prime Minister’s Economic Advisory Council)

StatuS of MSMEs

2.1 Historical facts leading to evolution of MSME sector

After India won its independence on August

15, 1947, the founding fathers of free India came out with the First Industrial Policy Resolution on April 6, 1948, through which the importance of small-scale sector was demonstrated for better utilization of local resources & achievement of the local self-sufficiency. The earliest definition of Small Scale Industries in 1950 was on the basis of the twin criteria of gross investment in fixed assets and work force. The limit of investment in fixed assets was Rs. 5 lakh and number of workers employed was 50/100 with/ without power. In 1960, the condition stipulating employment was deleted, while the investment limit in fixed assets remained pegged at Rs. 5 lakh. In 1966, the limit of investment in fixed assets was replaced by limit of investment (original value) in Plant & machinery (P&m) and the same

was fixed at Rs. 7.5 lakh. This was further raised to Rs.10 lakh in 1975.

In 1980 an upward revision in the investment limit in (P&m)to Rs. 20 lakh (original value) whether held on ownership basis or on lease or on hire purchase was made and a provison was added to the definition stating, “Provided further that no undertaking referred to as Small Scale Industrial undertaking (SSIUs) shall be a subsidiary of, or owned or controlled by any other undertaking”. The main reason for adding such a proviso was to prevent medium/large Industrial undertakings from taking away the special benefits exclusively meant for SSIUs including the reservation of certain items being manufactured by small-scale Industrial undertakings. By adding this provision, Government of India (GoI) closely linked the question of ownership by providing backing that SSIUs cannot be owned or controlled or be a subsidiary of any other Industrial undertaking(s).

Accordingly, combined investments made in P&m in one or more industrial undertakings set-up by common proprietor/ partner (s) / director (s) in case of proprietary / partnership/ private limited/ Public ltd. Industrial undertakings were to be clubbed together and if the same exceeded the limit of investment fixed for SSIUs, all such Industrial undertakings would cease to hold the status of small scale industrial undertaking. The provision, therefore, restricted the entry of medium/ large industrial undertakings from obtaining various fiscal & other concessions under the garb of setting up separate entities as SSIUs. Since there were further changes in the price indices, emerging needs of the industry calling for additional investments in P&m laboratory equipments etc., the investment limit in P&m was further raised to Rs. 35 lakh in 1985.

The advent of liberalization in year 1991 brought in further enhancement in the P&m


investment limit and the same was raised to Rs. 60 lakh. Further added was a proviso, according to which 24% equity in the SSIUs was allowed by any other industrial undertaking(s) without calling for the clubbing criterion. The year 1997 saw a steep hike in the investment limit of SSIUs and the same was enhanced to Rs. 300 lakh. Such a steep hike in the investment limit attracted concerns from small scale industries associations all over the country since majority of SSIUs had investment in P&m less than Rs.25 lakh. The GoI, therefore, brought back the investment limit to Rs.100 lakh in 1999.

2.1.1 Ancillary Industrial Undertaking

The concept of ancillary industrial undertaking was introduced in 1960 for the classification of industries that manufacture parts, components, tools, or intermediaries or render services. An ancillary unit has been defined as ‘an industrial undertaking which is engaged or proposes to be engaged in the manufacture of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services and undertaking supplies or renders or proposes to supply or render not less than 50 percent of its production or services, as the case may be, to one or more

industrial undertakings. The investment limit stipulated in 1960 was Rs. 10 lakh in Plant & machinery. This cut-off limit was increased along with the increase in the cut-off limit of SSIUs.

In 1984, there was an amendment in ID&R Act 1951, which was the governing Act for all definitions of small scale & ancillary industrial undertakings. The amendment added section 11B in the act through which the proviso stating, “………….not less than 50 percent of its production or services………………” was inadvertently changed to read as, “………….not more than 50 percent of its production or services……………”. Accordingly, the definition of Ancillary industrial undertakings after the 1984 amendment read as, “An Industrial undertaking which is engaged or proposes to be engaged in the manufacture of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services and undertaking supplies or renders or proposes to supply or render not more than 50 percent of its production or services as the case may be, to one or more Industrial undertakings and whose investment in fixed assets in Plant & machinery whether held on ownership

basis or on lease or on hire purchase does not exceed Rs. 25 lakh, provided further that no undertaking referred to as small scale industrial undertaking shall be a subsidiary of, or, owned or controlled by any other undertaking (definition in 1984)”. As stated above, the investment limit was enhanced to Rs. 45 lakh in 1985 & Rs. 75 lakh in 1991. The provisos added to the definition of Small Scale Industrial Undertaking in 1980 relating to ownership and in 1991 relating to 24 % equity were also made applicable to the definition of ancillary industrial undertaking.

This inadvertently introduced amendment of “NOT MORE THAN 50 %” made the definition of ancillary industrial undertakings almost infructuous. Therefore, there was no difference in the investment limit for ancillary industrial undertakings in 1997 & 1999 and it remained as Rs. 300 lakh (Rs. 30 million) and Rs.100 lakh (Rs. 10 million) respectively.

2.1.2 Tiny Units

The concept of tiny unit referred to those units, which had an investment ceiling in P&m up to Rs. 1 lakh and located in villages and towns with a population of less than 50,000. Later, in 1991, the manufacturing enterprises were treated as tiny units in

15Status of MSMEs

which investment in P&m and machinery did not exceed Rs. 5 lakh, irrespective of the location of the unit & afterwards to Rs.25 lakh (referred to as micro enterprises since October 02, 2006).

2.1.3 Women Entrepreneurs

Women Entrepreneur was termed as an SSI unit/ industry-related service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns, or in which she/ they individually or jointly have a share capital of not less than 51 percent as partners / shareholders / directors of private limited companies/ members of a co-operative society. This definition was also introduced by an Executive order in 1991.

2.1.4 Small Scale and Business (industry related) Enterprises

In the year 1985, the concept of Small Scale Service Business Enterprises (SSSBEs) was introduced. In 1991, it was merged with the concept of small-scale service & business (industry related) enterprises. An industry related service/ business enterprise with an investment up to Rs. 10 lakh in fixed assets, excluding land

and building, was treated as small scale service and business (industry related) enterprise (SSSBE).

2.1.5 Export-Oriented Units

The concept of Export oriented Units (EOU) was introduced among SSIs in the year 1991. A unit with an obligation to export at least 30 percent of its annual production by the end of the third year of commencement of production and having an investment ceiling of Rs. 100 lakh was termed as an export-oriented SSI unit.

The definition of SSI sector and the investment criterion have undergone changes from time to time. Table 2.1 depicts the dynamic changes that took place in the investment

limits for small-scale industrial undertakings and ancillary industrial undertakings from time to time.

2.2 Evolution of MSME Sector

The Parliament enacted the MSME Development (MSMED) Act, which came into effect on October 2, 2006. The Act has introduced the concept of ‘Enterprise’ as opposed to the earlier concept of industrial undertaking. According to the Act, MSMEs are classified into the following: (i) enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and Regulation Act 1951) and (ii) enterprises

Table 2.1 : Investment Ceilings in Plant and Machinery(Rs. lakh)

YearSSI Ancillary

Nominal Real* Nominal Real*

1966-67 7.5 117.55 10.0 156.74

1975-76 10.0 63.45 15.0 95.18

1980-81 20.0 91.49 25.0 114.36

1985-86 35.0 103.70 45.0 133.33

1991-92 60.0 104.80 75.0 131.00

1997-98 300.0 357.70 300.0 357.70

1999-2000 100.0 115.27 100.0 115.272006-07 500.0 500.0 - -

Note: * The real asset values have been estimated by deflating the WPI for machinery and transport equipment at FY 2006-07 prices.


engaged in providing or rendering services. Table 2.2 defines the MSMEs in both these sectors:

While calculating the investment in plant and machinery referred to above, the original price thereof, irrespective of the fact whether the plant and machinery is new or second hand, be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely:

(i) Import duty (excluding miscellaneous expenses such as transportation from the port to the site of factory, demurrage paid at the port);

(ii) Shipping charges;

(iii) Customs clearance charges; and

(iv) Sales tax or value added tax.

MSME sector, apart from including the constituents of SSI/MSE sector, has also added in its fold, the enterprises falling under the Khadi Village Industries Commission (KVIC/KVIB) the CoIR Board, the Handloom, the Handicrafts, Retail trade etc.

2.3MSME Definitions inSelect Foreign Countries

Globally, there is no accepted definition of MSMEs. Different countries use different criterion. The definitions, mostly, are based on investment ceiling & employment. The way they are

defined also depends on the state of economic development and broad policy purposes for which the definition is used. According to a World Bank study, there are more than 60 definitions of small and medium industries used in 75 countries.

In most of the countries around the world, MSMEs, in a large majority, start as proprietorships, become small business units and then grow to medium size units. It is revealed that 99.7% of all enterprises in the world are SMEs and balance 0.30%, are large. They account for nearly 80% each of the employment and value addition within the economy, directly and indirectly. In India, MSMEs contribute 8 per cent of the country’s GDP, 45 per cent of the manufactured output and 40 per cent of its exports. It would be pertinent to mention that according to a World Bank research paper, 54 countries define SMEs as enterprises employing not more than 200-300 people. These include 13 low income, 24 middle income and 17 high income countries. most African Countries used a cut-off of 200 employees; Japan uses 300 employees.

Table 2.3 describes the MSME definitions in various countries falling in continents of America (North Latin), Europe, Asia and Australia.

Table2.2:DefinitionofMSMEsinIndiaManufacturing SectorInvestment in plant and machinery (original cost excluding land and building and the items specified by Ministry of MSME, the then Ministry of Small Scale Industries, vide its notification No. S. O. 1722 (E) dated October 5, 2006)micro enterprises does not exceed Rs. 25 lakhSmall enterprises More than Rs. 25 lakh but does not exceed

Rs. 5 croremedium enterprises More than Rs. 5 crore but does not exceed

Rs. 10 crore

Service SectorInvestment in equipmentsmicro enterprises does not exceed Rs. 10 lakhSmall enterprises More than Rs. 10 lakh but does not exceed

Rs. 2 croremedium enterprises More than Rs. 2 crore but does not exceed

Rs. 5 croreSource: Micro, Small and Medium enterprises Development Act, 2006

17Status of MSMEs

Table2.3:SMEdefinitionsinVariousCountriesinAmerica(NorthLatin),Europe,AsiaandAustraliaCountries Category of

IndustriesCriteriaofdefinitions Basisofdefinitions

USA

Very small enteprises <20 employees

EmploymentSmall enterprises 20-99 employees

medium enterprises 100-499 employees

Canada manufacturing Independent firms having <200 employees Employment

Mexico

micro <15 employees and gross income / sales US $ 175,000

Employment & Gross income/sales

Small 15-99 employees, gross income/sales <US$175,000

medium 100-249 employees, gross income/ sales <US$ 3,500, 000

Denmark manufacturing <500 employees. Production unit more than 5 employees. Employment

France SME 10-499 employees Employment

Germany SME <500 employees Employment

Holland

All Pvt.-Enterprises exclud-ing agriculture and fishery <100 employees

EmploymentSmall Enterprises <10 employees

Medium Enterprises 10-100 employees

Ireland SME <500 employees Employment

Italy Small Enterprises <200 employees Employment

Spain Small Enterprises <200 employeesEmployment

Medium Enterprises <500 employees

Sweden SME Autonomous firms with <200 employees Employment

Indonesia SME <100 employees Employment

Japan manufacturing <300 employees or asset capitalisation <100 Million Yen

Employment & AssetsWholesale Trade <50 employees or asset capitalisation <30 Million Yen

Retail Trade & Services <50 employees or asset capitalisation <10 Million Yen

Korea manufacturing Services

<300 employees<20 employees Employment

malaysia SMIs <75 full time workers or with share holder fund of <RM 2.5 Million

Employment and share holder fund

SIs Manufacturing establishments employing between 5-50 employees or with share holder fund upto RM 500,000

mIs Manufacturing establishment employing between 50-75 full time employees or with share holder fund between RM 500,000 to RM 2.5 million

Philippines SME <200 employees<40 Million Revenue (Peso) Employment

Pakistan Small units <10 Million Rupee Investment and Assets (As per Punjab, Directorate of Industries)medium units <10 Million – 100 Million Rupee

Small units <20 Million Rupee Assets (As per Punjab Small Industries Corp)medium units =20 Million Rupee

Singapore manufacturing <S$12 Million fixed assets Fixed Assets

Services <100 employees Employment

Thailand labour intensive sectors <200 employeesEmployment

Capital intensive sectors <100 employees

Vietnam SME No fixed definition, generally <200 employees Employment

Brunei SME 02-100 employees Employment

Australia manufacturing services Small enterprises ≤100 employees Medium enterprises ≤20 employees Employment

Sources: 1. Handbook of FDI by SME – Lessons from Asia, UNCTAD GENEVA 19982. Globalization and Small and Medium Enterprises (SMEs) – Vol. I Synthesis Report, OECD.3. Small and Medium Business Administration, Government of Korea.4. Small and Medium Enterprises in Global Perspective by Dr. C.S. Prasad


2.4 Overall MSME growth trend in MSMEs & Structural TransformationThe data obtained during the first All India Census of small-scale industrial undertakings, (reference period 1973-74)depicted that the share of small-scale industrial undertakings was more than 99% and share of ancillary industries undertakings was less than 1%. The concept of small-scale service enterprises was not in existence.

The second All India Census, (reference period 1987-88) reflected that the share of small-scale industrial undertakings was reduced to 96.24%. The share of Ancillary Industrial undertakings was 0.52% while the rest 3.24% was the share of small scale service establishments. The sample survey data collected by the office of DC (SSI) [now DC (MSME)] for the reference year 1992-93 showed that the share of SSIs was reduced to 87.28%, while the share of ancillary industrial undertakings & small-scale service & business enterprises rose to 1.57% & 11.15%, respectively.

The Third All India Census of small-scale sector (reference period FY 2001-02) further saw a declining share of small-scale industrial undertakings. Out of the total 13,74,974 industrial undertakings in the registered SSI sector, 65.55%, were SSIUs,

which also included a share of 3.3% of ancillary industrial undertakings. The remaining 34.45% was the share of small scale service & business enterprises which showed an increase of approximate 300% in the share of small scale service establishments in comparison to their share in the last (Second) census. It was also observed that the percentage of tiny units (Investment in Plant & machinery up to Rs. 25 lakh) amongst the SSIUs stood at 97.9%. The number of women managed enterprises was found to be 1,37,534 roughly of the order of 10% of the total SSI sector.

The Third All India Census for the first time had collected separate data for the unregistered sector. According to the compiled data of the unregistered sector, its size was found to be 91,46,216 industrial undertakings. Out of that, the share of SSIUs was of the order of 38.75%. Aggregating, the registered & unregistered sector, the average overall share of SSIUs worked out to be 42.26%. The contribution of SSSBEs was 61.25% for the unregistered sector. Aggregating the two sectors, the contribution of SSSBEs was of the order of 57.74% which was nearly 50% more than the last census figures. Ancillary industrial undertakings amongst the overall SSI sector (Registered and unregistered) were of the order of 2.98%, a decline. The

overall contribution of women managed enterprises of the total sector was 9.46%.

Following the enactment of the MSMED Act 2006, launching of the Fourth All India Census had become a necessity since there was a hike in the investment limits as well as inclusion of medium sector undertakings, both in manufacturing as well as in the service sector beside retail & other business establishments. The Fourth census was conducted keeping in view the inclusion of various enterprises in the fold of MSME under the Act.

In the Fourth Census also, complete data for the registered as well as unregistered sectors were compiled & collated on the various economic parameters. According to Fourth census data, total number of MSMEs are estimated at 261 lakh of which, registered MSMEs are of the order of 15.28 lakh i.e. 5.9% and unregistered MSMEs account for 94.1% of the whole MSME sector (Table2.4). Aggregating the registered & unregistered MSMEs, the manufacturing enterprises are of the order of 28.03% while the remaining 71.97% belong to service sector. The no. of women managed enterprises reached a figure of 21.30 lakh against 10.63 lakh as recorded in the Third Census.

The economic parameters of the MSME sector have undergone significant structural transformations. Comparison

19Status of MSMEs

of the economic parameters that were made available by the subsequent All India reports from First Census to Second, Third & Fourth MSME census (Table 2.5) have brought out interesting facts:

The proportion of working ♦units, which almost remained between 61% to 63% during the First, Second & Third Census have shown a growth of 9% and stand at 70.48% as per the Fourth Census Compilations.

The closure of units which ♦had gone up to 52% as per Second Census data is on continuous decline (an encouraging entrepreneurial achievement) to 39.23% as per third census & further down to 21.6% as per the results of Fourth census.

The domination of ♦manufacturing MSME

Table 2.4: MSMEs Performance: Enterprises, Investment, Production and Employment

(As per quick results of Fourth All India Census of MSMEs year 2006-07)

Status of enterprises

Total MSMEs (lakh)

Fixed Investment (Rs. crore)

Production (Rs. crore)

Employment (lakh person)

R e g i s t e r e d enterprises

15.28 5,22,285 7,08,073.21 94.72

Un-registered enterprises

245.72 NA NA 502.57

Total 261.00 NA NA 597.29Note: The data provided in Ministry of MSME’s Annual Report FY 2008-09 in Table 2.5 is not comparable to the data revealed by quick study of the Fourth All India Census (FY 2006-07) because of changes in the composition of the sector from MSE to MSME in which all enterprises pertaining to KVIC/KVIB, COIR BOARD, RETAIL TRADE, MEDIUM SCALE INDUSTRIAL & SERVICE ENTERPRISES have been included in addition to MSEs/Industrial Undertakings, besides all round enhancement in Investment limits.

enterprises has gone down from 96.75% to 65.55% from second census to third census and further to 61.96% as per the data of fourth census. This has been mainly due to increase in the number of enterprises engaged in the service sector and retail trade.

The service enterprises ♦registered a growth from 3.24% in FY 1987-88 to 34.45% in FY 2001-02 and 38.04% in FY 2006-07 vis-à-vis the total working units in those identified years, thus adding to increased avenues

Table 2.5: Structural Transformation of Registered Enterprises S.

No.Parameters First

CensusSecond Census

Third Census

Fourth Census

1. Percentage of working enterprise 61.8 62.75 60.77 70.482. Per Unit Gross output (Rs. lakh) 3.46 7.38 14.78 46.143. Percentage of Manufacturing enterprises

vis-à-vis total no. of working unit. 100% 96.76 65.55 61.96

4. Percentage of service enterprises vis-à-vis total no. of working units.

- 3.24 34.45 38.04

5. Per unit Employment 12 6 4.48 6.24

6. Percentage working enterprises in rural areas

35 42.20 44.33 44.47

7. Employment per Rs 1 lakh investment in fixed assets

20.75 3.94 0.67 0.19

8. Percentage of closure of enterprises 38.2 52 39.23 21.69. Fixed investment per enterprise in

Rs lakh0.57 1.6 6.68 33.78

10. Percentage No. of enterprises managed by SCs NA 6.84 7.85 7.80STs NA 1.70 3.53 2.90Women NA 7.69 8.32 13.48

11. Percentage age Sickness NA NA 13.98 14.4712. Type of organisations

Proprietary NA 80.48% 88.86% 90.67%Partnership NA 16.84% 7.21% 3.74%Pvt. Ltd. Company NA 2.01% 2.42% 2.63%Public limited Co. NA - - 0.49%Cooperatives NA - 0.34% 0.29%Others NA 0.67% 1.17% 2.18%


of employment as is evident from the employment per unit scenario .

The per unit employment ♦which stood at 12 in 1973-74 (First census) had gone down to 6 in 1987-88 (Second Census) perhaps due to automation of many working systems. However, the same has gone up to 6.24 due to inclusion of retail trade and service enterprises which has recorded substantial increase in their population.

Per working enterprise, the ♦fixed investment which was Rs. 1.60 lakh in 87-88 (Second census) went up to 6.68 lakh (Third census) & further to Rs 33.78 lakh (Fourth census). The drastic increase in fixed investment per enterprise is mainly due to growing trend of modernisation in the MSME sector & inclusion of Medium enterprises.

Gross output per enterprise ♦increased from Rs 7.6 lakh (1987-88) to Rs 14.78 lakh (FY 2001-02) & to Rs 46.13 lakh (FY 2006-07) again because of increased efficiency & productivity. Also mainly because of inclusion of 70038 enterprises registered under section 2m(i) & 2m(ii) of the Factory Act due enhancement in the investment limit of plant & machinery (original valve) from Rs. 1 crore to Rs 10 crore.

Sickness in MSMEs has ♦increased marginally from 13.98% to 14.47% not much difference to worry.

Percentage of working units ♦in rural areas have increased from 35% in 73-74 to 42.2% in 87-88, to 44.33% in FY 2001-02 & finally to 44.47% in FY 2006-07 indicating that awakening & facilities in rural areas are improving.

Percentage of units ♦managed by SC, ST & women entrepreneurs has shown an increasing trend from the available data of Second, Third & Fourth census. This is a positive reflection on the various policies & programmes vigorously implemented & monitored by Central/State

Governments & Financial institutions.

There is a steep growth even ♦in the aggregate registered & unregistered sector. Here also service sector has outpaced the manufacturing sector which is spreading fast in urban areas.

Structural transformation with respect to aggregate registered and un-registered sectors is given in Table 2.6. As per the Fourth Census compilation, about 72% of the MSMEs are manufacturing enterprises, whereas 28% are service enterprises. In terms of size of enterprise, 94.67% are micro enterprises, 5.05% are small enterprises and the rest 0.25% are medium enterprises.

Table 2.6: Structural Transformation(Registered & Un-registered Enterprises)

Parameters Third Census (2001-02)

Fourth Census (2006-07)*

1. Total No. of enterprises (lakh) 105 261

2. No. of manufacturing enterprises (lakh)

44.46 (57.74%)

73.15 (28.03%)

3. No. of services enterprises (lakh)

60.75 (57.74%)

187.85 (71.97%)

4. Employment (lakh person) 249.33 597.29

5. Percentage rural enterprises 55 54.38

Note: - The data of 3rd and 4th KVIB census are not comparable be-cause of inclusion of additional constituents, that is KVIC/KVIB enter-prises, Coir Board enterprises, Handloom and Handicraft enterprises, Retail Trade enterprises etc. in the MSME sector which were not part of MSEs earlier.

21Status of MSMEs

2.5 Growth Trend of MSMEs

2.5.1 Growth Trend

The micro, small and medium enterprises (MSME) sector contributes significantly to the manufacturing output,

employment and exports of the country. Analysis of the data in Table 2.7 reveals that during the Ninth (FY 1997-98 to FY 2001-02) and Tenth Plan period (FY 2002-03 to FY 2007-08), the average annual growth in the number of units & employment has

been to the tune of 4% & 4.1%, respectively. 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.

Table 2.7: Performance and Growth Trend of MSME SectorSl. No. FY Total MSEs

(lakh)Fixed

Investment (Rs. crore)

Production (Rs. crore)

Employment (lakh person)

Exports (Rs. crore)

Current Prices Constant Prices

(1993-94)1. 1990-91 67.87 93555 78802 84728 158.34 9664

2. 1991-9270.63 100351 80615 87355 165.99 13883

(4.07)* (7.26) (2.30) (3.1) (4.83) (43.66)

3. 1992-9373.51 109623 84413 92246 174.83 17784(4.07) (9.24) (4.71) (5.6) (5.33) (28.10)

4. 1993-9476.49 115795 98796 98796 182.64 25307(4.07) (5.63) (17.04) (7.1) (4.46) (42.30)

5. 1994-9579.60 123790 122154 108774 191.40 29068(4.07) (6.9) (23.64) (10.1) (4.79) (14.86)

6. 1995-968284 125750 147712 121175 197.93 36470(4.07) (1.58) (20.92) (11.40) (3.42) (25.46)

7. 1996-9786.21 130560 167805 134892 205.86 39248(4.07) (3.82) (13.60) (11.32) (4.00) (7.62)

8. 1997-9889.71 133242 187217 146262.9 213.16 44442(4.07) (2.05) (11.57) (8.43) (3.55) (13.23)

9. 1998-9993.36 135482 210454 157525.1 220.55 48979(4.07) (1.68) (12.41) (7.7) (3.46) (10.21)

10 1999-0097.15 139982 233760 170379.2 229.10 54200(4.07) (3.32) (11.07) (8.16) (3.88) (10.66)

11. 2000-01101.1 146845 261297 184401.4 238.73 69797(4.07) (4.90) (11.78) (8.23) (4.21) (28.78)

12. 2001-02105.21 154349 282270 195613 249.33 71244(4.07) (5.11) (8.03) (6.06) (4.44) (2.07)

At 2001-02 prices

13. 2002-03109.49 1623317 314850 306771 260.21 86013(4.07) (5.16) (11.54) (8.68) (4.36) (20.73)

14. 2003-04113.95 170219 364547 336344 271.42 97644(4.07) (4.87) 15.78) (9.64) (4.31) (13.52)

15. 2004-05118.59 178699 429796 372938 282.57 124417(4.07) (4.98) (17.90) (10.88) (4.11) (27.42)

16. 2005-06123.42 188113 497886 418884 299.85 150242(4.07) (5.27) (15.83) (12.32) (4.44) (20.76)

17. 2006-07128.44 213219 585112 471663 312.52 177600(4.07) (,.68) (17.53) (12.60) (4.23) 24.54

18. 2007-08**133.68 238975 695126 532979 322.28

NA(4.08) (12.08) (18.80) (13.00) (3.12)*The figures in brackets show the % growth over the previous year, ** Projected.Source: Ministry of MSME Annual Report 2008-09.


There are more than 6000 products ranging from trad-itional to high-tech items, which are being manufactured by the MSME in India (Fig 2.1). It is well known that the MSMEs provide the maximum opportunities for both self-employment and jobs after agriculture.

2.5.2 Comparison of the MSE Sector with the Overall Industrial Sector

The MSME Sector has consistently registered a higher growth rate than that of industrial sector. Table 2.8 and Figure 2.2 depict the comparative annual growth rates of production in the MSE segment vis-à-vis that of the industrial sector as a whole since 1997 – 98. It is pertinent to note that the annual growth rate of MSE sector has consistently outpaced that of the industrial sector during the Ninth and Tenth Plans.

2.5.3 Employment in MSE Sector

The total employment of the MSE sector (including SSSBEs) in the country as per the Third All India Census of MSEs with Reference Year FY 2001-02 was 249.33 lakh numbers. As per the

estimates the employment was 322.28 lakh persons in the sector (Figure 2.3). The share of MSEs in the total employment among units engaged in manufacturing and services is around 34.93%.

The employment as per the Fourth all India Census (quick results) grew to 597.29 lakh, up from 249.33 lakh as was reported from the Third Census data. This was mainly because of inclusion of enterprises, falling under KVIC/KVIB, Handloom, Handicraft, Retail Trade sector etc. besides an overall enhancement in the investment limits (plant and machinery) of the constituents of the sector.

Table 2.8 : Growth Trend “MSE and overall Industrial Sector”

FY MSE Sector (percentage growth over

previous year)

Industrial Sector (percentage growth over

previous year)

Ninth Plan1997-98 8.43 6.71998-99 7.70 4.11999-00 8.16 6.72000-01 8.23 5.02001-02 6.06 2.0

Tenth Plan2002-03 8.68 5.72003-04 9.64 7.02004-05 10.88 8.42005-06 12.32 8.22006-07 12.60 11.5

23Status of MSMEs

According to the Eleventh Plan document, “the MSE sector in India has grown significantly since 1960, when there were only 12,376 MSEs providing employment to 10 lakh people of which, direct employment was 1.85 lakh; annual production level was Rs 875 crore. At the beginning of the Tenth Plan, 249 lakh people in the rural and urban areas were employed in 105.21 lakh MSEs. This has increased to 295 lakh people in 128 lakh units now; an average annual growth rate of 4.4% in the number of these units and 4.62%

in employment. If the units in the khadi, village, and coir sector are taken into account, the employment is estimated to be over 332 lakh. With the inclusion of handlooms, handicrafts, wool, and sericulture, the total job in the MSE sector in India goes up to 650 lakh. The employment intensity of the registered units indicates that an investment of Rs 0.72 lakh is required for creating one employment in MSME sector as against Rs. 5.56 lakh in the large organized sector”.

2.5.4 Rural and Urban area distribution of MSME

The data obtained through the Third All India Census revealed that the total registered and working small scale industrial undertaking including the small scale service and business enterprises were of the order of 13,74,974. Out of it, the share of rural industrial undertakings was of the order of 6,09,537 i.e. 44.33%. The balance 55.67% industrial undertakings includ-ing SSSBEs were located in urban area.

The Fourth Census however revealed that 6, 80,000 registered MSMEs (working) were located in the rural areas i.e. 44.47% of the total working units, thus recording a marginal increase. The remaining 55.53% were located in urban areas. As far as, the unregistered sector is concerned, the rural areas had a concentration of 51,98,822 working industrial undertaking i.e. 56.8% as per the Third Census data while the Fourth Census revealed that the number of unregistered enterprises as a whole were of the order of 13,51,300, i.e. 51.88% of all the unregistered enterprise in the country. The contribution of unregistered sector in the urban area as per the Third and Fourth Census data accounted for 43.2% and 48.12% respectively.


Table 2.9 below gives the comparison between rural and urban concentration of working units/enterprises as per third and Fourth Census reports.

Figure 2.4 shows that there is an all round increase in the number of rural /urban industrial undertakings/enterprises both in the registered as well as unregistered sectors. This all round increase in numbers in rural/urban industrial u n d e r t a k i n g / e n t e r p r i s e s (manufacturing & services) is a positive reflection of the various policies and programs designed, developed and implemented by Government of India through the Ministry of MSME, RBI, Ministry of Rural Development etc. to

boost rural Industrialization in order to check the migration of rural work force to urban areas. These schemes, inter-alia, include:

1. The Prime Minister’s Employment Generation Program (PMEGP), a replacement of PMRY (for rural and urban) and Rural Employment Generation Programs (REGP).

Objectives of the Scheme are :

(i) To generate employment opportunities in rural as well as urban areas;

(ii) To bring together widely dispersed traditional artisans/ rural and urban unemployed youth and

give them self-employment opportunities to the extent possible, at their place;

(iii) To provide continuous and sustainable employment to a large segment of traditional and prospective artisans and rural & urban unemployed youth; and

(iv) Increasing the wage earning capacity of artisans.

Salient Features of the Scheme

(i) Any individual, above 18 years of age, is eligible.

(ii) No income ceiling for assistance.

(iii) For setting up of project costing above Rs. 10 lakh in the manufacturing sector and above Rs. 5 lakh in the business /service sector, the beneficiaries should possess at least VIII standard pass educational qualification.

(iv) Assistance under the Scheme is available only for new projects sanctioned.

(v) Self Help Groups (including those belonging to BPL if they have not availed benefits under any other Scheme) are also eligible for assistance.

(vi) The borrower is required to invest own contribution of 10 per cent of the project cost. In the case of beneficiaries belonging to SC/ST and borrowers from other weaker sections, the beneficiary’s contribution is 5 per cent of the project cost.

Table 2.9 : Rural/Urban Concentration of Working UnitsSector Third Census Fourth Census

Registered Sector (Rural)

44.33% (6,09,537) 44.47% (6,80,000)

Registered Sector (Urban)

55.67% (7,65,437) 55.53% (8,48,000)

Unregistered Sec-tor (Rural)

56.8% (51,98,822) 51.88% (13,51,300)

Unregistered Sec-tor (Urban)

43.2% (39,47,394) 48.12% (11,05,9000)

25Status of MSMEs

(vii) Banks will sanction loan of 90 per cent of the project cost in the case of general category borrowers and 95 per cent of the project cost in the case of weaker section beneficiaries. After the sanction of the credit facility by the Bank, eligible amount of margin money will be kept in term deposit of three years in the account of the borrower at the lending bank branch, which will be credited to the borrower’s loan account after a period of two years from the date of first disbursement of loan.

(viii) The permissible margin money assistance has been enhanced from the levels of both PMRY and REGP as detailed in the Table 2.10 below:

2. Workshed Scheme for Khadi Artisans (Rural)

In order to facilitate and empower khadi spinners and weavers to chart out a sustainable path for growth, income generation and better work environment and to enable them to carry out their spinning and weaving work effectively, ‘Workshed Scheme

for Khadi Artisans’ has been introduced in May 2008. Under this Scheme, financial assistance for construction of worksheds is provided to khadi artisans belonging to BPl category through the khadi institutions which the khadi artisans are associated with. The quantum of assistance is given at Table 2.11 as under:

Under this Scheme, more than 38,000 worksheds are targeted to be constructed at a total cost of Rs. 127 crore (approx.), involving financial assistance of Rs. 95 crore as grant to KVIC from the Government’s budgetary sources. Against the target of providing assistance to 10000 work sheds, assistance to 11,076 work sheds (provisional) was provided up to march, 2009. Proposal exists to assist 6000 khadi artisans for setting up their work sheds under this scheme during FY 2009-10.

Table 2.10 : Assistance under PMEGP

Categoriesofbeneficiariesunder PMEGP

Beneficia-ry’s Contri-

bution(of project

cost)

Rate of Subsidy(of project cost)

Area (location of project/unit)

Urban Rural

General Category 10% 15% 25%

Special Category (including SC / ST / OBC /Minorities/Women, Ex-servicemen, Physically handicapped, NER, Hill and Border areas etc.)

0.5% 25% 35%

Note: (1) The maximum cost of the project/unit admissible under manufacturing sector is Rs. 25 lakh.

(2) The maximum cost of the project/unit admissible under busi-ness/service sector is Rs. 10 lakh.

(3) The balance amount of the total project cost is provided by Banks as term loan.

Table 2.11 : Quantum of Assistance for Construction of Worksheds

Component Area per unit Amount of Assistance Individual Work-shed

20 Square meters (approximately)

Rs. 25,000/- or 75% of the cost of the work shed, whichever is less.

Group Worksheds (for a group of minimum 5 and maximum 15 kha-di artisans)

15 Square meters per beneficiary (approximately)

Rs. 15,000/- per beneficiary of the group or 75% of the total cost of the project, whichever is less.


3. Scheme for Enhancing Productivity and Competitiveness for Khadi Industries and Artisans (Mainly rural)The Scheme aims at making Khadi industry more competitive with more market-driven, profitable production and sustained employment for Khadi artisans and related service providers through replacement of obsolete and old machinery and equipment and repairs /renovation of existing/operational machinery/ equipment. The Ministry has introduced the ‘Scheme for Enhancing Productivity and Competitiveness of Khadi Industries and Artisans’ through KVIC with effect from July 2008. The Scheme would provide financial assistance to 200 of the ‘A+’ and ‘A’ category Khadi institutions of which, 50 institutions would be those which are managed exclusively by beneficiaries belonging to Scheduled Castes (SCs)/ Scheduled Tribes (STs) at a total cost of Rs. 84 crore involving financial assistance of Rs. 71.14 crore as grants to KVIC from the Government’s budgetary sources between FY 2008-09 to FY 2011-12.

4. Interest Subsidy Eligibility Certification(ISEC) Scheme The Interest Subsidy Eligibility Certificate (ISEC) Scheme is the major source of funding

for the khadi programme. It was introduced in may 1977 to mobilise funds from banking institutions for filling the gap between the actual fund requirements and availability of funds from budgetary sources.

Under the ISEC Scheme, credit at a concessional rate of interest of 4 % per annum for capital expenditure as well as working capital, is made available as per the requirement of the institutions. The difference between the actual lending rate and 4 % is paid by the Central Government through KVIC to the lending banks and funds for this purpose are provided under the khadi grants head to KVIC. The extent of credit flow to the Khadi and Polyvastra institutions under the scheme has increased from Rs. 233.63 crore in FY 2006-07 to Rs. 244.85 in FY 2008-09.

5. Rural Industries Service CentersAnother small scale intervention called “Rural Industries Service Centre (RISC)” Scheme from FY 2004-05 onwards for providing infrastructural support and services to selected units with a view to upgrading their production capacity; skill up gradation and market promotion. RISC, inter alia, provides testing facilities by establishing laboratories for ensuring quality of products; improved machinery/equipment to be utilised

as common utility facilities through nearby units /artisans for enhancing production capacity or value addition of the product; attractive and appropriate packaging facilities and machinery to the local units/artisans for better marketing of their products; training facilities for upgrading artisans’ skills in order to increase their earnings and new design, product and diversified product in consultation with the experts /agencies for value addition of rural manufacturing units. This Scheme is being implemented through KVIC/KVIBs; National / State level Khadi and VI Federations; Khadi and VI Institutions affiliated to KVIC and KVIBs and NGos which have already worked for the implementation of the programmes relating to rural industries. Under this scheme, financial assistance for establishing projects upto Rs.5 lakh is provided to KVI units. Each RISC programme upto Rs. 5 lakh should provide benefit to 25 individuals. A total of 203 KVI projects have been assisted by RSIC from FY 2006-07 to FY 2008-09.

2.5.5 Ownership pattern (Including Women Entrepreneurs)

MSMEs broadly classified are as under.

1. Proprietary /HUF enter-prises

2. Partnership enterprises

27Status of MSMEs

3. Private limited enterprises

4. Public limited enterprises

5. Cooperative societies

6. Others (Including Trusts etc)

The data pertaining to ownership pattern of registered industrial undertakings/enterprises that have emanated from First, Second, Third and Fourth All India census conducted by the office of DC (SSI) and now DC (MSME) have been summarized in the Table 2.12.

Since data for unregistered sector was collected only during Third and Fourth Census, the comparison of ownership pattern for unregistered sector is given at Table 2.13.

Besides the above, the pattern of registered and unregistered enterprises has also been culled based on ownership managed by SC/ST/OBC and other Entrepreneurs. The data was collated during the Second, Third and Fourth All India Census and is given in Table 2.14.

Apart from ownership pattern of registered industrial undertakings/enterprises , data was also collected for unregistered industrial under-taking/enterprises during the Third and Fourth Census. The ownership pattern of SC/ST/OBC/Others entrepreneurs

Table 2.12 : Ownership Pattern of SSI Undertaking/ MSMEs (Registered) (Percentage)

Ownership First All India

Census (1972-73)

Second All India Census

(1987-88)

Third All India Census

(2001-02)

Fourth All India Census

(2006-07)Proprietary 61.00 80.48 88.85 91.57Partnership 35.00 16.84 7.21 4.08Co-opera-tive

0.70 0.29 2.42 0.30

l i m i t e d Companies

3.00 2.11 0.34 0.47

other 0.30 0.28 1.17 1.65Source: Office of DC (MSME), Ministry of MSME, Government of India

Table 2.13 : Ownership Pattern of SSI/Undertaking/MSMEs (Un-Registered) (Percentage)

Ownership Third All India Census (2001-02)

Fourth All India Census (2006-07)

Proprietary 96.90 94.67

Partnership 1.13 0.47

Co-operative 0.11 0.88

limited Companies 0.42 0.41

other 1.44 3.49Source: Office of DC (MSME), Ministry of MSME, Government of IndiaNote : The above data is not comparable since the data collected for Fourth census also included the data on enterprises pertaining to KVIC/KVIB, Handloom, and Handicraft, medium. (Manufacturing and Service) sector and retail trade etc. whereas the data of Third Census was only for small scale industrial undertakings including SSSBEs.

Table 2.14 : Ownership Pattern in percentage of SSI/Undertaking/MSMEs (Registered) (Percentage)

Ownership Second All India Census

(1987-88)

Third All India Census (2001-

02)

Fourth All India Census

(2006-07)

SC 6.84 7.85 (1,07,934) 7.73 (1,19,209)

ST 1.7 3.53 (48,560) 3.03 (44,780)

oBC - 38.50 (5,29,460) 38.70 (5,96,198)

others 91.46 50.12 (6,89,074) 50.54 (7,68,134)

Source: Office of DC (MSME), Ministry of MSME, Government of IndiaNote: Figures in Parantheses are numbers.


managed industrial undertakings/enterprises is as under at Table 2.15:-

The above would show that unregistered enterprises managed by socially backward entrepreneurs, during Third Census were 57.18% of the total number of working unregistered units but this figure came down to 51.38% in the Fourth Census. In case of registered enterprises, the decline in the percentage of SC/ST/OBC managed enterprises was marginal; however, the numerical number of the enterprises managed by socially backward entrepreneurs, both in registered and unregistered sector has increased. The overall increase in no. of SC/ST/oBC managed enterprises as revealed in the Fourth Census report is mainly due to inclusion of additional constituents as described earlier in MSME fold as well as enhancement of investment limits from Rs.

100 lakh to Rs. 500 lakh for small enterprises and Rs 1000 Lakh for medium enterprises.

The limit of investment for service enterprises has also been hiked. Besides the above, the policies and programs launched by Ministry of MSME, RBI, Banking institutions etc. are also responsible for the overall increase since extra benefits to entrepreneurs of socially backward category are provided which, inter-alia, include exemption/Concession for participating in training programmes, 0-5% reduction in one’s own contribution as margin money for loans from financial institutions, etc.

2.5.5.1 Industrial Undertak-ings/Enterprises managed by Women Entrepreneurs

Policies and programmes announced from time to time by Government of India have been laying considerable stress

& emphasis on promoting entrepreneurship amongst women, more particularly to encourage first generation women entrepreneurs through various training and support services. Special attention is be-ing given by organizing exclusive Entrepreneurship Development Programmes (EDPs) for women. The field institutes of the Office of DC (MSME) conduct need based Entrepreneurship/skill Development Programmes for existing and prospective women entrepreneurs. No fee is being charged from women participants for undergoing Entrepreneurship Development Programmes (EDPs), Entrepreneurship Skill Development Programmes (ESDPs). Instead, a stipend of Rs. 500/- per month is given to the women candidates in the above programmes under the Promotional Package to encourage entrepreneurship amongst women. In the management Development Programme (MDPs), a 50% concession in the fees is given to the women candidates.

Tables 2.16 and 2.17 depicts the details of women managed enterprises obtained from the data made available by the compilations of Second, Third & Fourth All India Census as far as registered industrial undertakings including service enterprises (SSSBEs) & registered manufacturing and service enterprises are concerned.

Table 2.15 : Ownership Pattern of SSI/Undertaking/MSMEs (Un-Registered) (Percentage)

Ownership Third All India Census (2001-02)

Fourth All India Census (2006-07)

SC 10.32 (9,43,969) 7.89 (19,44,000)

ST 5.19 (4,74,271) 3.18 (7,81,000)

oBC 41.67 (38,11,372) 40.31 (99,02,000)

others 42.82 (39,16,604) 43.48 (119,45,000)

Source: Office of DC (MSME), Ministry of MSME, Government of IndiaNote: The above data is not comparable since the data collected for Fourth census also included the data on enterprises pertaining to KVIC/KVIB, Handloom, and Handicraft, medium. (Manufacturing and Service) sector and retail trade etc. whereas the data of Third Census was only for SS industrial undertakings including SSSBEs.

29Status of MSMEs

However, one thing is notable that in every case the number of women entrepreneurs in the period FY 2001-02 to FY 2006-07 has recorded a substantial increase in the registered as well as unregistered sector. The increase in the number of enterprises managed by women entrepreneurs is an indication of the success of definite measures taken by Government of India to empower women. The Central/State Governments have adopted a special strategy of ‘Women Component Plan’ through which funds have been earmarked to assist women to take up self employment ventures. All States/UTs have been advised to setup Women Development Corporations (WDCs) to provide both forward and backward linkages for obtaining credit and

marketing facilities to women entrepreneurs. The growth in the number of women enterprises is also due to the introduction of successful programmes and schemes devised by ministry of MSME. Such programmes/schemes, inter-alia, includes the following:-

Training through Entre-preneurship/Management Development Programmes (EDPs,ESDPs&MDPs)

To sharpen the entrepreneurial skills of women as also to inculcate managerial skills amongst them to ensure that they setup self-managed m a n u f a c t u r i n g / s e r v i c e s oriented ventures, the ministry of MSME through the office of DC (MSME) has been organizing various product/process oriented Entrepreneurship

Development Programmes (EDPs), besides Management Development Programmes (MDPs), Entrepreneurship Skill Development Programmes (ESDPs), etc. of varying durations throughout the country and providing women participants a monthly stipend of Rs. 500/- under the Promotional Package. For the Management Development Programme (MDPs), a 50% concession in the fees is given to the women candidates.

Trade Related Entrepreneur-ship Assistance and Development (TREAD) Scheme for Women

The scheme envisages economic empowerment of women through the development of their entrepreneurial skills in non-farm activities. There are three major components of the scheme. The Government’s grant up to 30% of the total project cost is provided to the Non-Government organisations (NGos) for promoting entrepreneurship amongst women. The remaining 70% of the project cost is financed by the lending agency as loan for undertaking activities as envisaged in the project. Further, the Government’s grant up to Rs.1 lakh per programme is provided to training institutions / NGOs for imparting training to the women entrepreneurs. Canara Bank, State Bank of India, Allahabad Bank, Syndicate Bank,

Table 2.17 : Women managed Industrial undertaking/Enterprises (Un-Registered) (Percentage)

Third Census (2001-02)

Fourth Census (2006-07)

10.13 (9,26,187) 7. 83 (19,24,000)

Figures in bracket indicate numbersNote: The figures of Third and Fourth Census described above are not comparable both for registered and unregistered industrial undertaking/enterprises since the III census pertained to MSEs while the figures of IV census pertained to quick results of the Fourth All India Census of MSMEs.

Table 2.16 : Women managed Industrial undertaking/enterprises (Registered) (Percentage)

Second Census (1987-88)



7.69 (44,784) 10 (1,37,534) 13.48 (2,06,000)

Figures in bracket indicate numbers


Indian Bank, Dena Bank, Indian overseas Bank, Bank of Baroda, oriental Bank of Commerce, uCo Bank have already signed MoUs to support this scheme. The scheme has been well received by NGos as given in the Table 2.18.

Micro & Small Enterprises Cluster Development Programme (MSE-CDP)

The assistance under the Scheme is available for setting up new clusters/ industrial estates. The Scheme envisages assistance up to 90% of the cost (subject to a ceiling of Rs. 9 crore) for Clusters developed exclusively for MSEs operated and/or owned by women. Assistance to be made available to Associations of Women Entrepreneurs for establishing Exhibition centres at central places for displaying and promoting sale of products of women-owned MSEs. It also provides for upgradation/strengthening of the infrastructural facilities in

the existing Industrial Estates. In line with the objectives this Scheme, Association of Lady Entrepreneurs of Andhra Pradesh (ALEAP), NGo comprising women members, has successfully completed an IID project at village Gajularamaram, Distt. Rangareddy, A.P. In this, 75 units have been established generating employment for 1500, out of the total project cost of Rs. 347 lakh, Govt. of India provided grant to the tune of Rs. 139 lakh. Another IID project at Vijayawada, Distt. Krishna, A.P. completed by ALEAP, 59 units have been established providing employment to 900 women. Out of the total project cost of Rs. 370 lakh, Govt. of India has released central grant of Rs. 147.19 lakh.

Prime Minister’s Employment Generation Programme (PMEGP)

A new scheme titled ‘Prime Minister’s Employment Generation Programme

(PMEGP)’ has been approved in August 2008 through merging existing PMRY and REGP schemes of this ministry with a total plan outlay of Rs. 4735 crore including Rs. 250 crore for backward and forward linkages. Under the Scheme, relaxations provided to women, beneficiaries under PMEGP are as under:

(i) For urban women beneficiaries, capital subsidy in the form of margin money is provided at the rate of 25 per cent (for general category it is 15 per cent) of the project cost while it is 35 per cent for women in rural areas (25 per cent for general category).

(ii) In case of women entrepreneurs, borrower’s contribution is 5 per cent of the project cost while in the case of general category; it is 10 per cent of the project.

Bank finance in the form of loan is 95 per cent of the project cost in case of women and other weaker section borrowers and 90 per cent of the project cost in case of general category.

Mahila Coir Yojana

The Scheme was launched on November 24, 1994. It is the first women oriented self employment scheme in the coir industry which provides self employment opportunities to the rural women artisans in

Table 2.18 :Year-Wise Performance of Tread Scheme

Year GoI Grant (Rs. lakh) Released

No. of NGOs/Institutions Benefited

No. of Women Benefited

2004-05 25.67 3 185

2005-06 41.93 10 1600

2006-07 46.55 13 754

2007-08 51.65 13 1765

2008-092009-10 (Till October)

66.05 10 3418

Source: Office of DC(MSME), Ministry of MSME, Government of India.

31Status of MSMEs

regions producing coir fibre. The Scheme envisages distribution of motorised ratts for spinning coir yarn to women artisans after giving training. One artisan per household is eligible to receive assistance under the Scheme. Women spinners are trained for two months in spinning coir yarn on motorised ratt at the Coir Board’s Training Centers. A stipend of Rs.500/- is also paid to the trainees which has now been raised to Rs. 750/-. Coir Board provides motorised ratts/motorised traditional ratts at 75% cost subsidy subject to a maximum ceiling of Rs. 7,500/- for motorised ratts and Rs. 2,965/- for motorised traditional ratts whichever is less. The remaining 25% has to be raised by the beneficiary. Under the Scheme, in FY 2006-07, 2909 ratts were distributed and Rs. 58.12 lakh was sanctioned; in FY 2007-08, 2,509 ratts were distributed and Rs. 64.29 lakh was sanctioned and in FY 2007-08, 3009 ratts were distributed and Rs. 85.80 lakh was sanctioned

Scheme for Participation in International Fairs

In order to enhance share of women managed enterprises in export market, the Office of DC (MSME) has been participating

in international fairs to promote the products of MSMEs. Over a period of five years (2007-12), the Office of DC (MSME) is to participate in 25 important international fairs. Women entrepreneurs are provided a display area of 6x9 square. metre free of space rent besides 100% economy class air fare on reimbursement basis for one representative of the women’s managed enterprises as well as reimbursement of shipping charges of products to fair sites, within an overall ceiling of Rs.1.25 lakh.

Rajiv Gandhi Udyami Mitra Yojna (RGUMY)

Rajiv Gandhi udyami mitra Yojana (RGumY) provides handholding support and assistance to first generation entrepreneurs, through the selected lead agencies i.e. ‘Udyami Mitras’, in the establishment and management of the new enterprises, completion of various formalities required for setting up and running of the enterprises and in dealing with various procedural and legal hurdles.

The Udyami Mitras are paid handholding charges under the Scheme, including nominal contribution of the concerned

entrepreneur. However, the beneficiaries belonging to SC/ST/Physically handicapped/Women and beneficiaries from NER are not required to pay any contribution to udyami mitra for availing the handholding support. Besides the above, encouragement has also been provided to setup women cooperatives through self help groups assistance programmes of Rashtriya mahila Kosh, the programmes of National Bank of Agriculture and Rural Development, (NABARD), schemes of Council for Advancement of People’s Action and Rural Technology (CAPART).

2.5.6 Growth trend of MSMEs (State/Union Territory wise)

State wise information on MSEs & MSMEs, data has been collected after critical perusal of the reports of First, Second, Third & Fourth All India Census by the office of erstwhile DC (SSI) & now renamed as office of DC (MSME). Efforts have been made to present the data with respect to number of SSIUs and MSMEs as well as Employment opportunities provided by them both for registered & un-registered sector as given in Table 2.19 in next page.


Table 2.19 :State/UT -wise distribution of working MSEs/MSMEs (Registered) with Directorate of Industries/District Industries Centers

Sl. No. Name of the State/UT

No.ofEnterprises,Percentagesharein()vis-à-vistotalno.ofenterprises(Rs. crore)

First Census Second Census Third Census Fourth Census

01 uttar Pradesh 12851 (9.21) 53282 (9.14) 162938 (11.85) 187176 (12.24)

02 maharashtra 15358 (11) 29856 (5.12) 83098 (6.04) 86528 (5.67)

03 West Bengal 13931 (9.98) 45954 (7.9) 42148 (3.06) 41019 (2.68)04 Tamil Nadu 16002 (11.46) 57213 (9.8) 180032 (13.09) 233815 (15.30)05 Andhra Pradesh 8091 (5.80) 39210 (6.73) 62917 (4.57) 11432 *06 Karnataka 5618 (4.03) 40525 (6.84) 110487 (8.04) 140195 (9.17)07 Kerala 6205 (4.45) 25717 (4.41) 146988 (10.69) 149013 (9.74)08 Rajasthan 7062 (5.06) 29043 (4.99) 43145 (3.13) 55110 (3.61)09 madhya Pradesh 7701 (5.52) 73892 (12.69) 101939 (7.41) 108810 (7.12)10 orissa 1799 (1.29) 8237 (1.4) 12366 (0.90) 19556 (1.28)11 Bihar 5260 (3.77) 34822 (5.98) 52107 (3.79) 52233 (3.43)12 Gujarat 9904 (7.10) 34453 (5.91) 138537 (10.08) 229728 (15.03)13 Punjab 13675 (9.80) 45339 (7.8) 65015 (4.73) 50127 (3.29)14 Delhi 5102 (3.66) 10038 (1.72) 7360 (0.53) 56*15 Assam 1648 (1.18) 4430 (0.84) 14453 (1.05) 18684 (1.22)16 Haryana 4591 (3.29) 23356 (4.01) 39584 (2.88) 33787 (2.21)17 Jharkhand Was part of Bihar Was part of Bihar 18322 (1.33) 18176 (1.19)18 Chhattisgarh Was part of mP Was part of mP 33909 (2.46) 26345 (1.72)19 Jammu & Kashmir 1039 (0.74) 9080 (1.56) 14625 (1.06) 10430 (0.68)20 uttarakhand Was part of uP Was part of uP 15285 (1.11) 23692 (1.55)21 Himachal Pradesh 1495 (1.07) 6983 (1.2) 10891 (0.79) 11835 (0.77)22 Tripura 246 (0.18) 809 (0.13) 959 (0.07) 1056 (0.07)23 manipur 485 (0.11) 2078 (0.35) 4599 (0.33) 4507 (0.29)24 Goa 637 (0.46) 2772 (0.47) 2139 (0.15) 3139 (0.20)25 meghalaya 164 (0.12) 587 (0.10) 1939 (0.14) 3063 (0.20)26 Pondicherry 294 (0.21) 1221 (0.21) 1721 (0.125) 2109 (0.14)27 Chandigarh 284 (0.20) 1310 (0.22) 1281 (0.09) 968 (0.06)28 Nagaland 38 (0.03) 183 (0.03) 568 (0.04) 1315 (0.08)29 Arunachal Pradesh 11 (0.01) 326 (0.056) 255 (0.018) 451 (0.03)30 mizoram 61 (0.04) 917 (0.16) 2733 (0.2) 3110 (0.2)31 Sikkim Not Available 66 (0.01) 174 (0.01) 116 (0.007)32 Andaman & Nico-

bar Islands Not Available 323 (0.055) 673 (0.05) 467 (0.03)

33 Daman & Diu Fig. under Goa 147 (0.025) 1026 (0.074) 292*34 Dadra & Nagar

Haveli25 (0.02) 149 (0.025) 693 (0.05) 2*

35 lakshadweep Not Available Not Available 68 (0.0) 1*All India 139577 582368 1374974 1528347

* Data about no. of registered enterprises from Andhra Pradesh, NCT Delhi, Damn & Diu, Dadra & Nagar Haveli and Jammu & Kashmir has not been received in totality for framing the complete picture regarding no. of enterprises in those states/UTs

2.5.6.1 Growth in Registered Sector

Perusal of the Fourth Census data, reference period FY 2006-

07 (Table 2.19) reveals the number of States having a share of 89.92% of the total registered enterprises in the country in

terms of number of registered & working enterprises. Their contribution in order of merit is as given in Table 2.20.

33Status of MSMEs

Calculating the growth of employment creating avenues (registered MSMEs) in FY 2006-07 over the one provided by registered SSIUs/MSEs, (Third Census FY 2001-02 data) Gujarat has made an impressive growth of 65.82%, far ahead of Tamil Nadu which recorded a growth of such registered employment creating avenues to the tune of 29.8% in the corresponding period. The comparison, however, is not on an even wicket since MSMEs have additional constituents to SSIUs/MSEs as stated earlier.

Rajasthan recorded a growth of 27.73%, while Karnataka & uttar Pradesh registered a gain in employment creating avenues to the tune of 26.88% & 14.80%, respectively. Next to follow is madhya Pradesh which gained

by 6.74% over such opportunities provided by SSIUs/MSEs. maharashtra, though having large pockets of giant industrial houses viz. Bajaj Auto, Larsen & Tubro, Mahindra & Mahindra, Videocon, etc. remained restricted to a growth of only 4.12% of over the Third census data but is ahead of Kerala at 1.38% & Bihar at 0.24%.

The results that came from the Quick Results of the MSME census (FY 2006-07) are from the state known as granary of India, the land of five rivers, Punjab, which recorded a heavy decline in the population of MSMEs. It reported a negative growth of 22.90% over the registered SSIUs/MSEs data, of Third Census.

The surprising fact is that while SSIUs including SSSBEs which as per Third Census stood at 65015 (Punjab), the Fourth Census’s record showed only 50127 MSMEs. Such a scenario presents a dilemma that the number of MSMEs declined in spite of the fact that the scope of MSMEs has became much wider as compared to the fold of SSIUs/MSEs. It is not only in Punjab, the neighbouring state Haryana is also in the same league. As per the Third census, the state of Haryana had 39584 SSIUs/MSEs where as Fourth census recorded only 33787 enterprises, a decline of 14.64% over a period of five years. Some other States/UTs that have recorded negative growth from FY 2001-02 to FY 2006-07, are Lakshadweep 98%, Sikkim 33.3%, Andaman & Nicobar Islands 30.45%, Jammu & Kashmir 28.6%, Chhattisgarh 22.3%, Manipur 2% and Jharkhand 0.8% in the corresponding period. Such a scenario may call for a deeper study to dig out reasons of declining trend in the registered enterprises.

However, an interesting feature of the MSME census is the growth indicated by states in the North Eastern Region (NER) barring Sikkim & Manipur; Tripura recorded a growth of 10.1% over its strength of SSIUs of Third census. Meghalaya gained by 58%, Nagaland by 131.5% & Mizoram by 76.86%.

Table 2.20 : Share of States in Number of Registered and Working Enterprises

State Percentage of MSMEs to the total no. of

registered MSMEs

No. of MSMEs

Tamil Nadu 15.33 2,33,815

Gujarat 15.07 2,29,728

uttar Pradesh 12.27 1,87,176

Kerala 9.72 1,49,013

Karnataka 9.17 1,40,195

madhya Pradesh 7.49 1,08,810

maharashtra 5.66 86,528

Rajasthan 3.61 55,110

Bihar 3.41 52,233

Punjab 3.29 50,127

West Bengal 2.68 41,019

Haryana 2.22 33,787


Another interesting fact that has been brought out by the latest MSME census is that the North Eastern Region (NER) as a whole has made a definite growth to an extent of 25.37%. Such an overall growth in employment creating avenues (enterprises) in the NER speaks highly of the various polices & programmes pursued by the ministry of MSME & other Government of India organizations.

The overall growth could have been much higher but for closure of many registered enterprises for various reasons which, interalia, include availability of credit, stiff market competition non-availability of power for longer periods, increased labour unrest and industrial recession etc. As per the data made available by the quick results of the 4th All India Census, the percentage of closed registered units in states

are Tamil Nadu (17.03%), Uttar Pradesh (16.15%), Karnataka (9.03%), Maharashtra (8.01%), Madhya Pradesh (7.49%), Gujarat (7.46%), Kerala (7.35%), Punjab (4.82%), Rajasthan (3.40%), Bihar (3.23%), Haryana (2.27%) and West Bengal (1.90%) contributing to 88.15% of total closed units (Figure 2.5).

2.5.6.2 Growth in Un-Registered Sector

As stated earlier, census of un-registered SSIUs was conducted for the first time during the Third All India census (FY 2001-02). While conducting the Fourth All India MSME census, all out efforts were made to collect data of unregistered MSMEs throughout the country. The State/UT wise distribution of unregistered SSIUs based on Third census data and that of MSMEs based on Fourth All India Census is given in Table 2.21.

Perusal of the Fourth census data of unregistered MSMEs reveals that in terms of working enterprises, twelve states viz Uttar Pradesh (11.90%), Maharashtra (10.61 %), West Bengal (10.06 %), Tamil Nadu (9.61%), Andhra Pradesh (8.11%), Karnataka (5.99 %), Kerala (5.37%),Rajasthan (4.95%), Madhya Pradesh (4.81%), Orissa (4.24%), Bihar (3.86%) and Gujarat (3.53%) have a total share of 82.60 %. Out of the 2,45,72,450 unregistered enterprises, only 25.92% are manufacturing enterprises and the rest are service enterprises.

Data of unregistered enterprises provided by the Third and Fourth All India Census are not comparable because of obvious reasons explained earlier. However, an attempt has been made to see as to whether the overall growth of employment creating

35Status of MSMEs

avenues has registered growth or not (since few states/UTs of registered MSMEs have shown negative growth in spite of the

Table 2.21 : State/UT wise Distribution of Unregistered MSMEs

S. No.

Name of the State/UT



01 uttar Pradesh 1545039 (16.89) 2926140 (11.90)02 maharashtra 720470 (7.88) 2496342 (10.16)03 West Bengal 729240 (7.97) 2472284 (10.06)04 Tamil Nadu 607933 (6.65) 2361312 (9.61)05 Andhra Pradesh 812513 (8.88) 1993612 (8.11)06 Karnataka 548334 (6.00) 1471460 (5.99)07 Kerala 305838 (3.34) 1319091 (5.37)08 Rajasthan 398427 (4.36) 1216353 (4.95)09 madhya Pradesh 691613 (7.56) 1181726 (4.81)10 orissa 375911 (4.11) 1042131 (4.24)11 Bihar 467244 (5.11) 950026 (3.86)12 Gujarat 391777 (4.28) 867373 (3.53)13 Punjab 311811 (3.41) 753858 (3.06)14 Delhi 169720 (1.86) 617151 (2.51)15 Assam 179926 (1.97) 584857 (2.38)16 Haryana 183710 (2.01) 570308 (2.32)17 Jharkhand 114124 (1.25) 357456 (1.45)18 Chhattisgarh 229991 (2.51) 338205 (1.37)19 Jammu & Kashmir 58500 (0.64) 250907 (1.02)20 uttarakhand 91199 (1.00) 202821 (0.82)21 Himachal Pradesh 65307 (0.71) 173015 (0.70)22 Tripura 23393 (0.26) 108610 (0.44)23 manipur 43400 (0.47) 60295 (0.24)24 Goa 4958 (0.05) 48353 (0.19)25 meghalaya 20581 (0.23) 45627 (0.18)26 Pondicherry 7139 (0.08) 32300 (0.13)27 Chandigarh 20966 (0.23) 30778 (0.12)28 Nagaland 13293 (0.15) 25823 (0.10)29 Arunachal Pradesh 997 (0.01) 19972 (0.08)30 mizoram 8383 (0.09) 19269 (0.078)31 Sikkim 194 (0.00) 11722 (0.05)32 Andaman & Nico-

bar Islands 2530 (0.03) 9023 (0.037)

33 Daman & Diu 1291 (0.01)

6940 (0.03)34 Dadra & Nagar

Haveli6125 (0.024)

35 lakshadweep 464 (0.01) 1185 (0.004)All India 9146216 24572450Source: 3rd Census Data and Quick Results of 4th Census, Ministry of MSMeNote: Figures in the parantheses represent percentage share.

fact that the fold of MSMEs have additional constituents).

Calculating the growth over the results of Third census, it would

be seen that due to natural growth of small-scale manufacturing enterprises and addition of other constituents of MSMEs, Tamil Nadu has recorded a growth of 288.4% in employment creating avenues. Gujarat 121.4%, Uttar Pradesh 89.4%, Kerala 331.3%, Maharashtra 246.5%, Karnataka 168.35%. Besides, the above, Punjab which has exhibited a negative growth of registered MSMEs, showed a positive growth in case of unregistered enterprises to the extent of 141.76% over the SSIUs/MSEs reported in the Third All India Census. The neighbouring state Haryana too in this case reported a growth of 210.44% where as in case of registered enterprises; the state showed a negative growth.

Table 2.22 gives details of percentage share of registered and unregistered enterprises (Leading States) as well as percentage growth of registered and unregistered MSMEs over the Third census registered and unregistered SSIUs/MSEs.

Perusal of the above Table shows that all the major states making a contribution of (75.72%) of total unreserved MSMEs have achieved growth. As regards other states/UTs that had recorded negative growth in case of registered MSMEs have also shown positive growth as per as unregistered MSMEs are concerned over the data Third census data of SSIUs/MSEs, viz. Chhattisgarh (42.8%), J&K


(329%), Jharkhand (213%), Manipur (38.92%), Sikkim (5942%) Andaman & Nicobar Islands (38.9%) & Lakshadweep (155.38%).

The overall growth of

unregistered MSMEs tend to show that unregistered service enterprises far more exceed the number of unregistered manufacturing enterprises, as shown in Fig 2.6.

2.5.7 Growth in Employment by MSMEs

2.5.7.1 Growth in Employment by Registered Sector

The employment in the MSME sector has recorded a substantial increase. Per unit employment has gone up from 4.48% in Third Census to 6.24% in the Fourth Census of registered MSMEs.

Per unit employment (%) : 6.24Manufacturing sector : 8.38Service sector : 2.86

About 94.72 lakh persons are employed in the registered working MSMEs, comprising 82.79% in manufacturing sector and 17.21% in service sector. The employment per rupee one lakh fixed investment was 0.185 persons, whereas, in manufacturing and services sectors it was 0.182 persons and 0.198 persons respectively. The distribution of employment among MSMEs and states/UTs are given at Table 2.23 and Table 2.24.

Employment per one lakhfixedinvestment:0.185Manufacturing sector : 0.182Service sector : 0.198

Perusal of data in Table 2.23 & Table 2.24 (registered enterprises and employment) will show that, the number of registered enterprises in Haryana have gone down as compared to Third census data of SSIUs/MSEs, while the employment over the Third census data has

Table 2.22 : Percentage Share of States in Registered and Un-registered Enterprises

State/UT Percentage share of

registered MSMEs vis-

a-vis total registered MSMEs

Percentage share of

unregistered MSMEs vis-

a-vis total registered MSMEs

Percentage growth of registered MSMEs (Fourth

census) over registered

SSIUs/MSEs (indicated by Third-Census)

Percent-age growth of unreg-

istered MSMEs

(4th census) over un-

registered SSIUs/MSEs

(indicated by Third Census)

Tamil Nadu 15.33 (233815) 9.61 (2361312) 29.71 288.4Gujarat 15.07 (229728) 3.53 (867373) 65.82 121.4uttar Pradesh 12.27 (187176) 11.9 (2926140) 14.87 89.40madhya Pradesh

7.49 (1.08810) 4.81 (1181726) 6.74 70.86

Kerala 9.72 (149013) 5.37 (1319091) 1.38 331.30Karnataka 9.17 (140195) 5.99 (1471460) 26.88 168.35

maharashtra 5.66 (86528) 10.61 (2496342) 4.12 247.50Rajasthan 3.61 (55110) 4.95 (1216353) 27.33 11.82Bihar 3.41 (52233) 3.86 (950026) 0.24 103.32Punjab 3.29 (50127) 3.06 (617151) -22.90 141.76West Bengal 2.65 (41019) 10.06 (2472284) -2.67 239Haryana 2.22 (33787) 2.32 (670308) -14.64 210.44

Source: Third Census Data and Quick Results of Fourth Census, Ministry of MSMe

37Status of MSMEs

Table 2.23 : Distribution of employment among MSMEsDetails of Employment Micro Small Medium Total

manufacturing enterprises 5211496 1962263 668269 7842028

Service enterprises 1291040 290907 47895 1629842

Total employment in MSMEs 6502536 2253170 716164 9471870

Percentage distribution of Employment

68.65 23.79 7.56 100.00

Source : Fourth Census Quick results, Ministry of MSME, Government of India

Table 2.24 : State/UT wise Distribution of employment (Registered)Sl. No. Name of the State/

UTEmployment,Percentagesharevis-à-vistotalnumberofEmployees

First Census Second Census Third Census Fourth Census

01 uttar Pradesh 160027 (9.68) 348908 (9.52) 581810 (9.44) 845709 (8.93)

02 maharashtra 239770 (14.5) 355900 (9.71) 630570 (10.23) 1140016 (12.04)03 West Bengal 176198 (10.65) 311838 (8.51) 254809 (4.13) 362227 (3.82)04 Tamil Nadu 215182 (13.01) 536381 (14.63) 882083 (14.31) 1486291 (15.70)05 Andhra Pradesh 78673 (4.76) 276127 (7.53) 383335 (6.21) 83287*06 Karnataka 64385 (3.89) 244039 (6.65) 477284 (7.74) 836624 (8.84)07 Kerala 126514 (7.65) 169309 (4.62) 540260 (8.76) 630088 (6.66)08 Rajasthan 45860 (2.77) 122550 (3.34) 199676 (3.24) 395195 (4.18)09 madhya Pradesh 59612 (3.6) 158808 (4.33) 249467 (4.04) 324294 (3.43)10 orissa 18624 (1.12) 69305 (1.89) 80888 (1.31) 171849 (1.81)11 Bihar 61465 (3.72) 181781 (4.95) 136914 (2.22) 216007 (2.28)12 Gujarat 114500 (6.92) 276955 (5.92) 578764 (9.40) 1218099 (12.86)13 Punjab 123544 (7.47) 206209 (5.625) 337443 (5.47) 496953 (5.25)14 Delhi 64880 (3.92) 121972 (3.32) 86479 (1.40) 635*15 Assam 19652 (1.19) 34475 (0.94) 64623 (1.04) 157058 (1.66)16 Haryana 48503 (2.93) 105656 (2.88) 241171 (3.91) 465024 (4.91)17 Jharkhand Part of Bihar Part of Bihar 71071 (1.15) 85601 (0.90)18 Chhattisgarh Part of mP Part of mP 91000 (1.47) 72290 (0.76)19 Jammu & Kashmir 9598 (0.58) 40655 (1.11) 50707 (0.82) 106122 (1.12)20 uttarakhand Part of uP Part of uP 40853 (0.66) 89075 (0.94)21 Himachal Pradesh 5851 (0.35) 25536 (0.70) 37660 (0.61) 70123 (0.74)22 Tripura 1698 (0.10) 10069 (0.27) 11666 (0.19) 26794 (0.28)23 manipur 3409 (0.20) 10216 (0.28) 19626 (0.32) 19638 (0.20)24 Goa 7253 (0.44) 19935 (0.54) 16664 (0.27) 27807 (0.29)25 meghalaya 1188 (0.07) 3780 (0.10) 10734 (0.17) 12810 (0.13)26 Pondicherry 2570 (0.15) 8721 (0.24) 19739 (0.32) 62486 (0.66)27 Chandigarh 2882 (0.17) 10579 (0.29) 10563 (0.17) 10977 (0.11)28 Nagaland 448 (0.027) 3059 (0.08) 4967 (0.08) 12922 (0.13)29 Arunachal Pradesh 181 (0.01) 2771 (0.07) 1481 (0.024) 5809 (0.06)30 mizoram 36 (0.00) 42233 (0.11) 9061 (0.15) 23267 (0.24)31 Sikkim Not Available 1033 (0.03) 959 (0.015) 1037 (0.01)32 Andaman & Nicobar

Islands Not Available 1672 (0.05) 2594 (0.04) 14406 (0.15)

33 Daman & Diu Part of Goa 1233 (0.03) 25385 (0.41) 1334*34 Dadra & Nagar

Haveli381 (0.02) 2115 (0.06) 12918 (0.20) *

35 lakshadweep Not Available Not Available 253 (0.004) *All India 1653178 3665810 6163479 9471186

* Complete data has not been received from respective states/UTs.Note: Figures in the parantheses represent percentage share.


recorded a substantial increase in the MSMEs census. This can be attributed to the fact that places like Gurgaon in the state of Haryana has a large concentration of IT Call Centers (IT centers have taken over land and building of many SSIUs to build their own complexes) which are employing a large no of educated and other employees thus resulting either in closure or shifting of such SSIUs/MSEs to other adjoining states viz Rajasthan/Himachal Pradesh. The other reason is the massive residential construction coming up in many areas of the state because of their proximately to capital of India. The construction industry is also offering large-scale employment opportunities. The premises of many SSIUEs/MSEs have been taken over by IT Companies/ builders to create giant IT and residential Complexes as well as shopping malls etc. The situation in Punjab is perhaps the same, where numbers of MSMEs have declined in comparison to the number of SSIUs/MSMEs while there is considerable growth in employment. This may be again due to construction activity, IT activity, etc.

2.5.7.2 Employment Growth in Un-registered Sector

Data for unregistered SSIUS/MSEs was collected for the first time during the Third census and was repeated while conducting Fourth All India Census

Table 2.25 : State/UT wise Distribution of Employment for Un-registered Sector

Name of the State/UT Employment,Percentagesharevis-à-vistotalnumberof Employees

SSIUs/MSEs as per Third Census

MSMEs as per Fourth Census

Jammu & Kashmir 101992 (0.54) 328441 (0.65)Himachal Pradesh 92510 (0.49) 242134 (0.48)Punjab 571133 (3.05) 1290650 (2.57)Chandigarh 37689 (0.20) 82760 (0.16)uttarakhand 154480 (0.82) 317115 (0.63)Haryana 312288 (1.67) 971848 (1.93)Delhi 466920 (2.49) 2800294 (5.57)Rajasthan 667932 (3.57) 2066855 (4.11)uttar Pradesh 3420564 (18.22) 5014363 (9.98)Bihar 945771 (5.05) 1477621 (2.94)Sikkim 363 (0.00) 23867 (0.05)Arunachal Pradesh 2206 (0.01) 35698 (0.07)Nagaland 51828 (0.28) 53836 (0.11)manipur 117185 (0.62) 100229 (0.20)mizoram 15789 (0.08) 11624 (0.02)Tripura 45296 (0.24) 146879 (0.30)meghalaya 54852 (0.29) 89589 (0.18)Assam 364380 (1.94) 1100795 (2.2)West Bengal 1914296 (10.23) 5466337 (10.88)Jharkhand 204999 (1.09) 637065 (1.27)orissa 842288 (4.50) 1755087 (3.49)Chhattisgarh 440766 (2.35) 652802 (1.30)madhya Pradesh 1095117 (5.85) 2294540 (4.56)Gujarat 687912 (3.68) 1815918 (3.61)Daman & Diu

3709 (0.02)50770 (0.10)

Dadra & Nagar Haveli 54712 (0.11)maharashtra 1420924 (7.60) 5370908 (10.68)Andhra Pradesh 175642 (9.39) 5754068 (11.45)Karnataka 1161419 (6.18) 2895439 (5.76)Goa 12647 (0.06) 99874 (0.20)lakshadweep Nil 2239 (0.00)Kerala 574401 (3.07) 2401184 (4.78)Tamil Nadu 1136054 (6.07) 4794581 (9.54)Pondicherry 15470 (0.08) 50471 (0.10)Andaman & Nicobar 4885 (0.02) 6445 (0.01)All INDIA 18694433 50257039

including employment data for unregistered MSMEs. However, as stated earlier, comparison cannot be made since MSMEs have additional constituents over are above SSIUs/MSEs data which was collected during the 3rd All India census. Still efforts have been made to present the employment data for

unregistered SSIUs & MSMEs to understand employment scenario.

The unregistered MSMEs are estimated to be 2,45,72,450 providing employment to the tune of 5,02,57,039 persons in the country ( Table 2.25). The average employment was 2.05, whereas in manufacturing and services

39Status of MSMEs

sector it stood at 2.32 and 1.95 respectively. 29.36% persons are engaged in manufacturing and 70.64% persons in the service enterprises.

2.5.8 Products by MSMEs

The MSMEs are involved in production of over 6000 products, from simple consumer goods, such as leather articles, plastics and rubber goods, fabrics and ready-made garments, cosmetics, utensils,

sheet metal components, soaps and detergents etc. to highly precision and sophisticated end-products, such as television sets, electronic desk calculators, microwave components, air conditioning equipment, electric motors, auto-parts, drugs and pharmaceuticals. MSMEs located in different cities/states/regions specialize in manufacture of different kinds, which depends on the availability of skilled manpower and raw material required to

manufacture that product. Table 2.26, provides list of various products manufactured by MSMEs in different states.

2.6 Contribution of MSMEs atNationalLevel

MSMEs including khadi and village/rural enterprises constitute an important segment of Indian economy in terms of their contribution to country’s industrial production, exports, employment and creation of an

Table 2.26 : Major Products Manufactured State/UT WiseStates/UTs Major Products Manufactured

uttar Pradesh Processed Food Products, Brass Utensils/Brass wares, Bangles, Handicrafts, Hand woven carpets, Diesel Engines, Leather Products, Glass wares, Chiken & Zari work Sarees, Foundry & Forged Products, Bamboo & Wooden furni-ture, Hosiery & other garments, Pottery, Flavors & Fragrance, Film processing & Editing.

maharashtra Entertainment & Engineering Electronics, Textile & Textile Products, Chemical & Chemical Products, IT (Hardware & Soft ware), Auto components, M/C Tools & Components, Gems & Jewelry, Leather Products, Garments, Rubber & Plastic Products, Marine Products, Foam Products, Construction Industries, Film processing & Editing.

West Bengal Leather Product, Foundry castings (light & heavy) Rubber and Plastic products, Small arms, Paper Products, General Engineering Products & Machinery parts, Handloom & Power loom Products, Hosiery Products, Marine Products, Film processing & Editing.

Tamil Nadu Hosiery Products, Sericulture, Leather Tanneries & Leather products, Handicrafts, Brass wares, General Engineer-ing, Cotton & Silk Textiles, Matches & Fireworks, Marine Products IT (Hardware & Soft ware) spices & agro prod-ucts, Wind power generation, Film processing & Editing.

Andhra Pradesh

Non-ferrous metal products, Pearls & Jewelry, Marine products, Coir products, edible oils, Processed food products, Electrical & Electronic goods, Film Processing & Editing

Karnataka Electronics, IT (Software & Hardware), Cotton & Silk Handloom Products, Agro based Industries including seri-culture, Telecom & Telecom Products, Marine Products, Sandal Oil & Sandal Carvings, Ivory & Wood Handicraft, Construction Industries Tiles etc.

Kerala Coir & Coir Products, Marine Products, Cashew, Handloom, Light Engineering, Rubber & Rubber Products, Pro-cessed food products & Spices.

Rajasthan Processed food & spices, Pickles, Stone cutting & Stone Handicrafts, Edible Oils, Wooden Handicrafts & Furniture, Textiles.

madhya Pradesh

Pulse processing, Engineering goods, Leather Toys, Cotton Ginning, Cattle Feed, Handloom & Power Loom.

orissa Handloom Cotton/Silk Sarees, Marine Product, Handicraft (Metal & Silver), Processed food items, Engineering products, Wood based item including boats.

Bihar Textiles, Processed food products, Handloom Products, Shellac, and Agro based products.Gujarat Diamond cutting & Diamond Jewelry, Processed food products, Engineering Plants, Synthetic & Silken Textiles,

Chemical Industries, dyes & Intermediates, Hosiery, Garments, Engineering Industries. Punjab Food Products, Hosiery, Garments M/C tools & Components, Rolled steel products, Cycle & Cycle parts, Sewing

Machinery parts, Milk Products, Basic metal industries, Woolen Blankets & Knitwear, Builder’s Hardware.Delhi Garments, Entertainment Electronics, Paper & Paper Products, General Engineering Industries, Machine tools &

Other machinery. Assam Sericulture, Tea processing, Food Products, Agro Product Processing, Auto Servicing, Construction Industries, Tiles,

Bricks. Haryana Construction Industry, Builder’s Hardware, Plywood, Agriculture implements, Agro based Industry. IT (Software

& Hardware) Jharkhand General Engineering, Auto components, Industrial Fasteners Repair & Maintenance, Shellac. Chhattisgarh Agro Products, Fabrication, Food Products.


Table 2.26 : Major Products Manufactured State/UT Wise (Contd...)States/UTs Major Products Manufactured

J & K Processed Food & Fruits Products, Honey, Woolen show to & Woolen garments, Walnut Furniture & Handicrafts, Handloom Products, Leather Products, and Mineral based industries, Cricket bats, Wickets, Agro based Industries.

uttarakhand Allopathic & Ayurvedic Drugs, Engineering Products, Auto Products, Electrical & Electronic Products, Survey & Drawing Instruments, Agro based Products, Tea Processing, and Tourism.

Himachal Pradesh

Food Products, Auto Parts and accessories Wood Products, Herbal Products, Ayurvedic Medicines, Electrical & Electronic Products, Tourism.

Tripura Food Processing Industry, Tea Processing, Handicrafts & Handlooms, Iron & Steel Fabrications, Rubber Based industry, Forest based industry

manipur Handicrafts, Paper Products, Processed food products, Metal Products, Garments.

Goa Marine Products, Pharmaceuticals, IT (Software) Electronic goods, Cashews, Hosiery, Garments, Tourism.

meghalaya Processed food & Fruit Products, Wood furniture, Garment, Paper & Painting, Handicrafts, Cyber Café.

Pondicherry Chemical products, Cotton, Food products, Rubber products & Leather products, Plant products.

Chandigarh General Engineering, Industrial fasteners, Steel furniture, Auto parts, Steel fabrication.

Nagaland Sericulture, Mineral Industry, Food processing industry, Agro based industry, Handicraft, Tourism, Cyber cafés.

Arunachal Pradesh

Tea processing, Spices, Cane & Bamboo products, Timber products, Rubber product, Carpets, Handicrafts.

mizoram Handicrafts, Came & Bamboo products, STD & ISD Cyber cafes booth, Food & Fruit processing industry, Wooden furniture, Handloom.

Sikkim Tea processing, Fruits preservation, Agro based industries, Breweries, Handicrafts.

Andaman & Nicobar Island

Handicrafts, Wheat floor, Soft drinks, Fabrication work, Camera Film processing & Photo developing, Steel & wooden furniture, Marine products.

Daman & Diu Plastics & Plastic products, Fabrication industries, Wooden furniture.

Dadra & Nagar Haveli

Plastics products, Engineering items, Paper products, Textiles, Electrical & Electronic goods, Fabrication industry.

lakshadweep Sea boats, coconut oil

Source : Office of DC MSME, Ministry of MSME, Government of India

entrepreneurial base. The 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 per cent of the manufacturing output and 40 percent of the total exports of the country. The sector is estimated to employ about 60 million persons in over 26 million units throughout the country. Further, this sector has consistently registered a higher growth rate than the rest of the industrial sector.

The contribution of this segment to the economic of the country is no less significant as

over six thousand products are manufactured by the MSME sector which include several sophisticated items used in high technology areas like nuclear power, missile and space programmes, information technology, biotechnology, etc. The level of exports by this segment also testifies to its

overall competitiveness in the global markets. MSMEs have been maintaining a steady contribution to National Gross Domestic Product (GDP) close to 6% at 1999-2000 prices.

Table 2.27 below provides the details of percentage of MSME (registered) contribution based in the Fourth Census

Table 2.27 : Contribution of MSMEs in total Industrial production and their contribution in GDP (as per quick result of

Fourth All India Census at FY 2006-07 prices)Year Contribution of MSMEs (%) at FY 2006-07 prices

Total Industrial Production Gross Domestic Product (GDP)

FY 2006-07 44.1 %* 7.2 %*

* This estimate is for the registered MSMes and can increase further by 2 to 3 percentage points after the data of gross output & gross value added (GVA) of unregistered enter-prises becomes available from the 4th all India Census of MSMes.

41Status of MSMEs

over total industrial production of the country as well as its contribution to GDP.

2.7 MSME Sector-Exports/Imports

2.7.1 Export

The immense potential of the MSME Sector in improving upon country’s share in the world market and making it a dominant economic player in the 21st Century can be gauged from its past performance as exporting sector of the economy.

Exports from MSE/MSME Sector have been registering an average annual growth rate of over 20 percent in rupee terms since 1991-92. If one traces the growth of exports from SSI (later MSE & MSME) since 1973-74, one may realize the great potential of this sector in boosting the overall exports. The growth performance of direct exports from this sector from 1973-74, to FY 2007-08 is presented in Table 2.28.

In a span of over three decades, i.e. from FY 1973-74 to

FY 2007-08, total exports from the country increased by more than 259 times, while that from MSE/MSME Sector increased by more than 514 times. During last 10 years, total exports from the country increased by 5.19 times whereas exports from MSE/MSME sector registered an increase of more then 4.55 times.

The MSE/MSME sector also contributes towards indirect exports through merchant exports, export houses, trading

Table 2.28: Exports by SSIUs/MSEs: FY 1973-74 to FY 2007-08 (Rs. crore)

FY All India SSI Sector Share of SSI in All India (In percent)

1973-74 2523 393 15.58

1983-84 9771 2164 22.15

1991-92 44041 13883 31.5

1992-93 53688 17784 33.1

1993-94 69751 25307 36.4

1994-95 82674 29068 35.4

1995-96 106465 36470 34.3

1996-97 117524 39248 33.4

1997-98 126286 44442 35.2

1998-99 141604 48979 34.6

1999-00 159161 54200 34.0

2000-01 202510 69797 34.4

2001-02 207746 71244 34.3

2002-03 252790 86012 34.0

2003-04 293367 97644 33.65

2004-05 375340 124417 33.15

2005-06 456418 150242 32.92

2006-07 571780 182538 31.92

2007-08 655864 202017 30.08

Source: Office of DC (MSME), Ministry of MSME, Government of India


houses or from exports of large units in the form of finished products or parts or sub-assemblies in which components manufactured by MSEs/MSMEs have been used. Examples of such cases, Maruti, Hyundai, etc. exporting four Wheelers which

have quite a large contribution of parts & components emanating from MSEs/MSMEs and is roughly of the order of 15% to 20% of direct exports. Tables 2.29 and 2.30 provide details for Total exports from India vis-à-vis exports from MSE/MSME

sector for the period FY 2005-06, FY 2006-07 & FY 2007-08. The overall exports from India have been clubbed under 16 broad heads and so are the exports from MSEs/MSMEs.

Export performance during FY 2005-06 Export performance during FY 2006-071. Total Exports of the country* (Rs.crore) 4,56,417.87 1. Total Exports of the country* (Rs.crore) 5,71,779.27

2. Exports from MSME Sector** (Rs.crore) 1,50,242.02 2. Exports from MSME Sector** (Rs.crore) 1,82,537.853. Share of MSMEs in Total Exports of the

Country (Percentage)32.92 3. Share of MSMEs in Total Exports of the

Country (Percentage)31.92

4. Growth of MSME Exports over the previous year (Percentage)

20.76 4. Growth of MSME Exports over the previ-ous year (Percentage)

21.50

5. Growth of Total Exports of the Country (Percentage)

21.60 5. Growth of Total Exports of the Country (Percentage)

25.28

*Source: Ministry of Commerce & Industry **Office of DC (MSME), Ministry of MSME, Government of India

Table 2.29 : Statement of Export Performance of Small Scale Industries/MSME in Country’sTotal Exports (Rs.Crore)

S. No.

Product Group Total Exports

Share of MSMEs Sector

Percentage share of MSMEs to total exports

Total Exports


Percent-age-

share of MSMEs to total exports

2005-06 2006-0701. Agricultural & Processed Food

Products17,880.38 12,516.26 70.00 21,805.94 15,264.15 70.00

02. Basic Chemical, Pharmaceutical & Cosmetic Products

18,920.00 8,421.29 44.51 23,408.00 6,554.00 28.00

03. Cashew & Cashew nut Shell 2,514.86 2,514.86 100.00 2,465.44 2,465.44 100.00

04. Chemical & Allied Products 41,422.63 17,604.62 42.50 48,419.33 19,367.73 40.00

05. Electronics & Computers Soft-ware

114,625.00 21,698.51 18.93 1,58,500.00 30,004.05 18.93

06. Engineering Goods 90,106.00 30,097.00 33.40 1,25,772.58 42,887.00 34.10

07. lac Based Products 159.62 159.62 100.00 165.62 165.62 100.00

08. leather & leather Products 11,763.01 8,344.86 70.94 14,339.16 10,049.51 70.08

09. marine Products 7,245.30 3,372.02 46.54 8,363.53 8,362.52 99.99

10. Plastic Products 11,717.91 4,882.85 41.67 11,717.91 1,633.20 13.94

11. Processed Tobacco, Bidi & Snuff 1,413.47 907.99 64.24 1,723.42 1,024.19 59.4312. Readymade Garments 38,193.09 34,373.78 90.00 40,280.27 36,252.24 90.00

13. Spices & Spice Products 2,295.25 663.26 28.90 3,575.75 1,650.50 46.16

14. Sports Goods 456.97 456.97 100.00 509.04 509.04 100.00

15. Synthetic & Rayon Textiles 10,649.31 2,129.86 20.00 11,844.00 2,368.80 20.00

16. Wool & Wool Blended Products 2,098.27 2,098.27 100.00 1,919.36 1,919.36 100.00

Total - 150,242.02 - - 182,537.85 -

43Status of MSMEs

2.7.2 Imports

MSEs/MSMEs data on its total/individual, state wise or on national level imports of raw material, components, sub assemblies etc. is not available. However, the only available data is that of import bill of small scale units/MSEs which is available from the publication of Reserve Bank of India (RBI) entitled, “Basic Statistical Returns of Scheduled Commercial Banks

in India” for the period ending March 2007 (latest publication). The publication has stated that MSEs obtained advances against import bills to the extent of Rs 71 crore at the end of March 2007 (Out-standing). This shows that, the total import content for the production coming from this sector (SSI) was rather negligible which may also be true for the MSME sector.

2.8Growthpattern,Prod-uctivity andEfficiency ofMSME sector vis-à-vislarge industries sector in India

2.8.1 Growth PatternThe data made available by Annual Report FY 2008-09 of the Ministry of MSME indicates that since FY 1990-91 to FY 2006-07, the number of SSIUs/MSEs grew from 67.87 lakh to 128.44 lakh i.e. the sector has grown at an annual growth rate of 4.07%.

The employment has gone up from 158.34 lakh to 312.52 lakh i.e. at an average growth rate of 4.17%. The average employment per MSE works out to be 2.43. However, the actual nos. of MSMEs (registered and unregistered) as detailed by quick results of Fourth census are of the order of 261.00 lakh & the employment stand at 597.29 lakh i.e. employment per enterprises is 2.29. The actual nos. of registered MSMEs are 15.49 lakh offering employment to 99.48 lakh person i.e. employment per registered enterprises stand at 6.42. Exports from small scale sector are growing at an average rate of over 20% while its average share in overall export from the country is approximately 34% to 35%. The sector also contribute nearly 15% to 20% of our direct exports through merchant exports, export houses and through exports of large organisations, thus making overall export from MSEs almost touching the figure of 40% of India’s total exports.

Table 2.30 Statement of Export Performance/Share of MSEs in Country’s Total Exports during FY 2007-08 (Rs. crore)

S. No.

Product Group Total Exports


Percent-age share

of MSMEs to total exports

1. Agricultural & Processed Food Products

31,870.60 22,309.41 70.00

2. Basic Chemical, Pharmaceutical & Cosmetic Products

25,869.00 7,221.60 27.92

3. Cashew & Cashew nut Shell 2,300.87 2,300.87 100.00

4. Chemical & Allied Products 54,778.75 21,911.50 40.005. Electronics & Computers Software 1,88,200.00 35,626.26 18.936. Engineering Goods 1,41,534.44 46,613.00 32.93

7. lac Based Products 124.87 124.87 100.008. leather & leather Products 14,937.85 10,390.57 69.569. marine Products 7,620.92 7,620.92 100.00

10. Plastic Products 14,032.60 4,099.83 29.2211. Processed Tobacco, Bidi & Snuff 2,022.78 1,188.09 58.7412. Readymade Garments 39,027.68 35,124.91 90.0013. Spices & Spice Products 4,435.50 2,005.75 45.2214. Sports Goods 519.26 519.26 100.0015. Synthetic & Rayon Textiles 13,413.00 2,682.60 20.00

16. Wool & Wool Blended Products 1,800.62 1,800.62 100.00 Total - 202,017.46 -

Export performance during FY 2007-081. Total Exports of the country* (Rs. crore) 6,55,863.52

2. Exports from MSMEs Sector** (Rs. crore) 2,02,017.463. Share of MSMEs in Total Exports of the Coun-

try (Percentage)30.80

4. Growth of MSME Exports over the previous year (Percentage)

10.67

5. Growth of Total Exports of the Country (Percentage)

14.71

Source: *Ministry of Commerce & Industry **Office of DC/MSME, GoI


2.8.2EfficiencyofMSE/MSMESector

The MSE/MSME sector has shown resilience in spite of heavy competition over the years and recession in some of the years and it has also grown from strength to strength. One of the interesting aspects would be to see as to how the MSE/MSME sector compares with the large scale sector.

The Central Statistical Organisation (CSO) in the Ministry of Statistics and Programme Implementation has been conducting a survey every year on organised manufacturing activities. This survey is called ‘Annual Survey of Industries (ASI)’. The ASI covers, inter alia, all the units registered under sections 2 (m) (i) and 2 (m) (ii) of the Factories Act. The coverage under the ASI includes manufacturing and repair and maintenance activities. Services sector is not covered in ASI.

The results of Fourth census registered of MSMEs in respect of manufacturing and repair and maintenance activities are compared with the ASI results in the following Table No. 2.31. The latest final results available of ASI are for FY 2005-06 and covered information on number of units, employment and output

which could be compared with Fourth Census.

The comparison of MSME sector with large scale manufacturing sector covered through ASI reveals that the MSME sector is a better employment generating sector. The Fourth census showed that the employment generated by the MSME sector per Rs. 1 lakh investment is 0.19, as against 0.15 in respect of ASI. This means that the organised sector requires an investment of Rs. 6.66 lakh to generate employment to one person, whereas, the MSME sector generates employment

for 1.27 persons with the same investment. With regard to investment – output ratio, the MSME sector fared almost at 50% that of the organised sector. The Table No. 2.31 shows that fixed investment of about Rs. 32,000 was required in the organised sector to generate an output worth Rs. 1 lakh, whereas in MSME sector’s, fixed-investment of Rs. 67000 would be required to generate the same amount of output. However, since the ASI and MSME data have different reference years, the comparison may not be on realistic basis.

Table 2.31 : Comparison of MSME Sector with organised sectorCharacteristic ASI**

as per year 2005-06

4th Census of MSMEs*** (Registered

(2006-07)

1. No. of units 140160 1163394

2. Employment 9038523 8615140

3. Output (Rs. lakh) 190835548 66174150

4. Fixed capital (Rs. lakh) 60694028 44590846

5. Per unit employment 64.48 7.41

6. Per unit output (Rs. lakh) 1361.55 56.88

7. Per unit investment (Rs. lakh) 433.03 38.33

8. Employment per Rs. One lakh investment 0.15 0.19

9. Output per employee 21.11 7.68

10. Investment to output (Rs. lakh) 0.32 0.67

**Source: ASI website mospi.gov.in. The website provides the latest figures for the year FY 2005-06.***Quick results Fourth All India Census.

45Status of MSMEs

2.9 Comparative experi-ence – MSMEs in other countries; Analysis of Growth Pattern of Indian MSMEs and MSMEs over-seas

2.9.1 MSMEs in India

The MSE sector in India has grown significantly since 1960, when there were only 12,376 MSEs providing employment to 10 lakh persons, of which, direct employment was 1.85 lakh persons; annual production level was Rs 875 crore. At the beginning of the Tenth Plan, 249 lakh persons in the rural and urban areas were employed in 105.21 lakh MSEs. This has increased to 322 lakh persons in 133 lakh units; in FY 2007-08 an average annual growth rate of 4.4% in the number of these units and 4.62% in employment. If the units in the Khadi industries, village industries, and coir industries are taken into account, the employment is estimated to be over 332 lakh. With the inclusion of handlooms, handicrafts, wool, and sericulture, the total job in the MSE sector in India goes up to 650 lakh. The employment intensity of the registered units indicates that an investment of Rs 0.72 lakh is required for creating one employment in MSME sector as against Rs. 5.56 lakh in the large organized sector.

It is estimated that an investment of Rs 10 lakh in fixed assets in the small sector produces goods or services worth Rs 46.23 lakh with an approximate value addition of 10 percentage points. In FY 2003-04, the contribution of SSI sector alone to the GDP was 6.71%. In the last decade, the growth rate of MSEs has been consistently higher than the overall growth rate of the industrial sector, crossing the 12% mark in the terminal year of the Tenth Plan. Table 2.32, gives the five year plan outlays of the Eighth, Ninth, Tenth and Eleventh plans for the MSME, Textile and FPI sector.

The MSEs are, however, more than just GDP earners; they are instruments of inclusive growth which touch upon the lives of the most vulnerable, the most marginalized women, Muslims, SCs, and STs. Being the largest source of employment after agriculture, the MSE sector in India enables 650 lakh men, women, and children living in urban slums, upcoming towns, remote villages and isolated hamlets to use

indigenous knowledge, cultural wisdom, dexterous hands, and entrepreneurial skills for the sustenance of their lives and livelihoods. A subset of the MSE sector is what can be termed as ‘cultural and creative industries’. India’s cultural diversity and heritage is capable of giving the country a strong presence in the global market for products from such industries.

2.9.2 Role of MSMEs in Global Economy: International Scenario

The overall contribution of small firms-formal and informal-to the GDP and employment remain about the same across low, middle and high income group countries. As income increases, the share of the informal sector decreases and that of the formal SME sector increases.

In Brazil, MSEs represent 20% of the total GDP. Of the country’s 4.7 million registered businesses, 96.8% are MSEs and-along with the other 9.5 million informal enterprises, they employ 59% of the economically active population. Similarly,

Table2.32:PlanoutlaysforFiveYearPlansforVillageandSmall Enterprises Sector (Rs. crore)

Sector Eighth Plan Period

Ninth Plan Period

Tenth Plan Period

Eleventh Plan Period

MSME 1629.55 4303.85 5534.00 10430.00

Textiles 1157.00 1270.00 1600.00 12378.00

FPI 146.00 235.04 650.00 3564.00

Source: Ninth, Tenth and Eleventh Plan of Planning Commission


informal and micro enterprises account for 39% of labour force and contribute to 24% of the GDP in South Africa; SMEs employ 27% of the labour force and contribute 32% to the GDP; while large enterprises employ 34% people and account for 44% of GDP. SMEs comprise over 90% of all industrial units in Bangladesh contributing between 80% and 85% of the industrial employment and 23% of the total civilian employment (SEDF, 2003). They contribute three-quarters of the household income in both the urban and the rural areas. In Japan, SMEs employ more than 70% of the wage earners, contributing over 55% of value added in the manufacturing sector. In Thailand, SMEs play an integral role in the economy of the country. In 2003, there were 2006528 enterprises of which 99.5% were SMEs. These SMEs generated products worth 38.1% of GDP in 2003 and they employed 60.7% of Thailand’s working population. According to an Australian Economist Chris Hall, the SMEs contribute about 70% of net new jobs across the globe, while larger firms tend to be job destroyers. It further states that as countries develop, the share of agriculture in providing employment and in GDP decreases. (Source/Reference: Page 196-197, Chapter 7, 11th Five Year Plan document)

2.10 MSME Clusters

2.10.1 Evolution of Clusters

Clusters, whether industrial or artisanal, are our national heritage. Several of them have been in existence for many decades and centuries. The locations of these clusters have been synonymous with the products and the historical patronage of satisfied consumers running through generations. However, Government recognition to such clusters for support is rather visible over the last decade and a half.

It was perhaps based on the Italian experience of unprecedented growth after seventies that Policy makers in India also thought of replicating the Italian strategy. Until 1950 Italy, like India was also a peasant based economy. However, the rise of cluster based MSME sector in the Italian economy became the major contributory factor for its spectacular growth after 1980s.

Today, Italy is one of the topmost economies in the world and is considered as the Japan of Europe. Cluster development as a strategy of economic development in rather a new concept in India. Abid Hussain Committee report on small & medium enterprises in India (1996-97) was the first official document that had strongly recommended, Cluster

as the focus of small enterprise development.

As a follow up measure to the recommendations of the Abid Hussain Committee report, the then Ministry of SSI & ARI, Govt. of India laid special emphasis for development of clusters and launched a scheme for technology up-gradation and management in 1998 called Uptech. The scheme was certainly cluster oriented for the development of MSEs. It had mainly focused on improving the then applicable technology. The modus-operandi was to conduct a diagnostic study, setting up a demonstration Plant, organising workshops, seminars, etc. for percolating the technology across the cluster of SSIUs/MSEs. Simultaneously, the Ministry also extended close co-operation to uNIDo, which through its own Cluster Development Programme (CDP) compiled the first partial compendium of 138 industrial clusters. In FY 2001-02, SMEs of various specialised clusters in Italy have played a crucial role for emergence as the world’s largest exporter of clothing and textile, second largest exporter of footwear (after Taiwan) and the 3rd largest exporter of machine tools (after West Germany and Japan) in the aftermath of 1980. All that had become possible because MSMEs in the clusters did have

47Status of MSMEs

the advantage of economies of scale through fragmentation of production and high degree of inter-firm cooperation, reduced transaction costs, innovation and technological development arising from local interaction as also reduced costs through learning by imitation/emulation, etc.

It was because of all this learning and the fact that UPTECH scheme had not made much impact, a policy change resulted in renaming UPTECH (2003) to Small Industries Cluster Development programme (SICDP). The newly evolved programme was made broad based by adopting a holistic pattern of development of clusters encompassing marketing, exports, skill development, setting up common facility centers & technology upgradation of the cluster enterprises.

In India, industrial clusters are found in most of the states and many of them are located in rural areas. Many of such industrial clusters have evolved over a long period of time. These include traditional and modern industries. Most of the traditional clusters were established naturally by activities of local communities.

The evolution of clusters in India is, therefore, the result of a conjunction of various factors such as, access to certain raw

materials, formation of skills, development of skills and crafts or large scale modern industries. The recent report (MSME foundation 2007) gives us an idea that out of 6400 clusters, approximately 6000 are micro enterprises and are termed as ‘low tech’. 99% of such enterprises operate in industrial clusters, whereas only relatively very small number of clusters can be classified as ‘high tech’.

2.10.2 Definition

micro, small and medium enterprises operating in the same or inter-related industrial sectors tend to concentrate in specific geographic locations. This phenomenon has been observed in all parts of the world. Micro and small enterprises operating in such clusters derive a clear and competitive advantage because of

Proximity to sources of raw ♦materials and other inputs,

The availability of suitably ♦customised business development services (BDS),

The abundance of clients ♦attracted by the cluster tradition; and

The presence of a skilled ♦labour force.

A ‘cluster’ may, therefore, be �defined as the agglomeration of MSMEs producing same/similar products/services or engaged in the same line

of manufacturing activities or services, located within an identifiable and, as far as practicable, contiguous area.

Porter (2000) defines �cluster as a geographically proximate group of interconnected enterprises and associated institutions in a particular field, linked by commonality and complementarity. Thus, a cluster may include suppliers of inputs, or extend downstream to regular buyers or exporters, government institutions, business associations, providers of business services, and agencies that support clustered enterprises in such fields as product developments, production process improvement, technology, marketing information and vocational training.

UNIDO has defined �“Cluster” as a sectoral and geographical concentration of enterprises, in particular small scale enterprises, faced with common opportunities and threats which can:-

Give rise to external ♦economies (i.e., specialised suppliers of raw materials, components and machinery, sector specific skills etc.)


Favour the emergence ♦of specialised technical, administrative and financial services; and

Create a conducive ♦environment for the development of inter-firm co-operation and specialisation as well co-operation among public and private local institutions to promote local production, innovation and collective learning.

2.10.3 Classification ofClustersClusters can be classified in number of ways, which inter-alia include

• Historical

• Traditional

• Modern

Historical Clusters include Rattan furniture (Indonesia), Towels (Turkey), Surgical Instruments (Pakistan) as far as international examples are concerned. Indian historical clusters, inter-alia, include, leather & leather products (Chennai), Woolen Knit wears, (Ludhiana), Hosiery (Kolkatta), Brass ware (moradabad), Glass ware (Firozabad), Such clusters, developed mainly because of the availability of local skills in respective area and not the raw material.

Traditional Clusters inter-alia include those trades which were established naturally as

tradition activities of caste-based skills & crafts of local communities such as Hand-looms (Sholapur, Maharashtra), Leather Shoes (Agra, UP), Bangles (Firozabad, uP), Kohlapuri Chappels (Kohlapur, maharashtra), Ceramic Potteries (Khurza & Chinhat, UP).

Modern or Active Clusters are those which have grown rapidly in terms of skills improvement, technological upgradation & successful penetration of domestic and export markets. Such clusters may include those which have come up lately. Few examples are Cotton Knit Wear (Tirupur), Machine Tools (Ludhiana), Auto Components (Gurgaon), Garments (Ahmedabad), etc.

Clusters can also be broadly classified in the following categories, considering the traditional strengths of the Indian economy around MSMEs.

• Industrial

• Artisanal

• Services

Industrial Clusters, inter-alia, include power loom clusters (murad Nagar, Philkhwa near Ghaziabad (U.P.) Ancillary SME clusters around large units, such as, Auto Components in Gurgaon (for maruti), mumbai (for mahindra & mahindra), Pune (for Bajaj auto) etc, Exports clusters, viz. Tirupur (garments & hosiery), ludhiana (woolen

knit-wear) are also industrial clusters .

Artisanal Clusters: They are dominant clusters in India. Such clusters display many characteristics of informal sector, with levels of productivity and wages being much lower than those. They, inter-alia, include Pathni Handloom clusters (Auragabad), Ceramic Pottery, (Chinhat, UP), Textile printing, (Sanganer, Rajasthan) Puppets, (Jaislmer, Rajasthan), Glass Bangles, (Ferozabad), etc.

Services Clusters consist of those enterprises which are engaged in purely providing services of any kind. Such clusters are fast growing & having a higher potential for contributing to Indian economy. These clusters, inter-alia, include IT Call Centers (Gurgaon, Haryana), IT Soft ware Complex (Bangluru, Gurgoan and Noida etc.), Transport Complexes in various metros and large cities.

UNIDO classification ofclusters• Horizontal Clusters

• Vertical IntegratedClusters

• MixedClusters

Horizontal Clusters are those where cluster constituents (enterprises) process raw materials to produce and subsequently market the products themselves. Woolen

49Status of MSMEs

blankets of Panipat, Shoes at Agra & Jute weaver clusters Kolkatta are some examples of horizontal clusters.

Vertical Integrated Clusters are those where the operations required in producing a finished product are divided and carried out by different enterprises most of which are SMEs. The Tirupur garments cluster, the leather clusters of Chennai, Ambur Vaniambadi in Tamil Nadu are examples of such vertical integration within the cluster as a whole.

Mixed Clusters are those where all sizes of enterprises co-exist. In fact, such clusters can be distinguished as large enterprise based clusters, i.e. a cluster established around a large enterprise or a few large enterprises with sub-contracting or ancillarisation linkages between small and large enterprises. The automobile cluster at Gurgaon (Haryana) is an example of such a cluster.

uNIDo conducted a detailed survey of 138 clusters and found that 76 were horizontal clusters, of which 72 were artisanal and craft type, seven were large enterprises based clusters and the remaining consisted of linkages between large & small enterprises of different degrees.

Another type of simple classification may be

Small or large clusters ♦depending upon number of enterprises

Exporting clusters ♦

Product specific cluster such ♦as food, plastics, garments etc.

2.10.4 Cluster Development Programmes

Cluster development as a strategy of economic development is a new concept in India. As mentioned earlier, Abid Hussain Committee Report on SMEs in India (1996-97) was the first official document strongly recommending cluster as focus of small enterprises development. Clustering as an engine of growth was noticed internationally in well networked clusters in developed countries. This realisation has led to increased interest and research in clustering as well as attempts to replicate the process through planned interventions in developing countries, including India.

The aim of the cluster development programmes (CDPs) is to contribute to the overall performance and collective efficiency of MSME clusters for sustainable development by assisting selected local communities

of enterprises and associated institutions in the clusters. This entails the implementation of cluster support initiative in selected pilot clusters as well as assistance to central and local institutions in their programmes of cluster modernisation and restructuring.

Various institutions engaged in CDPs are:

Central Government

Development Commissioner �(MSME), Ministry of MSME.

National Small Industries �Corporation Ltd (NSIC)

Development Commissioner �(Handicrafts), Ministry of Textiles

Department of Science & �Technology, Ministry of Science & Technology

Textiles Committee of India, �Ministry of Textiles

Khadi and Village Industries �Commission (KVIC)

Coir Board �

National Support Institutions

Small Industries ♦Development Bank of India (SIDBI)

State Bank of India (SBI) ♦

National Bank for ♦Agriculture & Rural Development (NABARD)


Other Institutions Industry Associations. ♦

International organizations ♦like UNIDO.

Central/State governments as well as NGos mentioned above have their own cluster development programme. However, five major prog-rammes designed and Implemented by important institutions are mentioned below:-

Industrial infrastructure ♦upgradation programmes (IIUS) by Department of Industrial Policy & Programmes (DIPP), ministry of Commerce and Industries.

Micro and Small Enterprises ♦Cluster Development Programme (MSE CDP) by DC (MSME), Ministry of MSME

Scheme for Integrated ♦Textile Park (SITP) by Ministry of Textiles.

AYUSH Cluster ♦Development Programme by Ministry of Health

Scheme for Fund for ♦Regeneration of Traditional Industries (SFURTI) by Ministry of MSME.

out of the above, four largest programmes are MSE CDP, IIUS, SFURTI and SITP. Three major programmes i.e.

MSE CDP run by DC (MSME), SFURTI by Ministry of MSME and IIUS run by DIPP, Ministry of Commerce and Industries are detailed below:

2.10.4.1 Micro and Small Enterprises Cluster Development Programme (MSECDP)

The UPTECH programme, launched in 1998 was replaced by a more comprehensive ‘Small Industry Cluster Development Programme in 2006. The programme was further renamed as Micro and Small Enterprise Cluster Development Programme following the promotional Package for micro and Small Enterprises (MSEs) in 2007. Based on the concept of cluster development principles, the programme aims at enhancing the productivity and competitiveness of the micro and small enterprises situated in clusters.

The objective of the scheme are to support the sustainability and growth of MSEs by addressing common issues, such as, improvement of technology, skills and quality, market access, access to capital etc. , to create/upgrade infrastructural facilities in the new/existing industrial areas/clusters of MSEs, to set up Common Facility Centres (CFC) etc.

MSEs are the beneficiaries of the assistance under this programme. The implementing agency for diagnostic study, soft interventions, setting up of CFC are offices of the Ministry of MSME, Office of State Government, national and international institutions engaged in the development of the MSE sector, any other institution/agency approved by the Ministry of MSME. Infrastructure development projects are being implemented by State/UT Government through an appropriate state government agency with a good track record.

The programme provides assistance for soft and hard interventions. Soft interventions pertains to activities aimed at capacity building of the enterprises whereas hard interventions are primarily aimed at creating permanent assets, such as, Common Facility Centres (CFCs) for various purposes.

- Soft interventions – under the soft intervention, the maximum limit for project cost would be Rs. 25 lakh per cluster. GoI grant will be 75% of the project cost (90% in case of Micro enterprises /village, women owned, SC/ST units etc.). Soft Intervention may include:

1. S e m i n a r s / W o r k s h o p /Study tours

51Status of MSMEs

2. External consultants

3. Publications

4. Trainings

5. Costs of implementing agency

6. Technical equipments for demonstration

- Hard Interventions (setting up of common facility centres)- under the hard interventions, financial assistance is provided upto 70% of the Project cost (90% for North Eastern Region/Micro enterprises /women owned /SC, STs etc.) with a ceiling of Rs. 15 crore per project, depending upon the category of the CFC. The grant is restricted to 60% of the cost of the project of Rs. 10 crore (80% for North Eastern Region/Micro/women owned /SC, STs etc.) in case of infrastructure development.

- Cost of land, building and other physical infrastructure, equipments, preliminary and pre-operative expenses are included in the project cost.

- Dovetailing of funds from other Schemes of the Ministry of MSME and of other Ministries/Departments or State Governments impermissible. However, beneficiaries must contribute at least 10% of the project cost.

- Though Government assistance is provided as

percentage of the project cost, Government assistance is only to be utilized towards the exact cost of plant & machinery only.

- land and building is to be provided by beneficiary/State Government.

Approval and screening of proposals.

- The proposals under the Scheme will be considered for approval by the Steering Committee of the MSECDP which is chaired by Secretary, Ministry of MSME.

- Hard interventions (CFC) and infrastructure development projects will be in two stages i.e. in –principle approval and final approval.

- Till FY 2008-09, more than 400 projects have been sanctioned from the time UPTECH Scheme (1998) was launched. These projects aimed to bring in soft interventions, hard interventions or a mix of both. The programmes have covered more than 400 clusters in a period of 10 years or so.

- out of the sanctioned projects under this programme more than 50% have not gone beyond the diagnostic study level.

2.10.4.2 Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

The Ministry of MSME launched a scheme titled “Scheme of Fund for Regeneration of Traditional Industries (SFURTI)” for development of around 100 clusters in khadi, village and coir sectors with a total cost of Rs. 97.25 crore over a period of 5 years (beginning FY 2005-06) to make industries in KVI and coir sectors more productive and competitive with a view to increasing the self-employment/employment opportunities in rural areas of the country. The Scheme is targeted to cover an estimated 50,000 beneficiary families.

The objective of scheme is to establish a regenerated, holistic, sustainable and replicable model of integrated cluster-based development of traditional industries in KVI and coir sectors.

Support measures for selected clusters:

Replacement of charkhas ♦and looms in Khadi sector.

Setting up of Common ♦Facility Centers (CFCs).

Development of new ♦products, and designs for various khadi and village industry products, new/improved packaging, etc.


Market promotion activities. ♦

Capacity building activities, ♦such as exposure visits to other clusters and institutions, need-based training, support for establishment of cluster level networks (industry associations) and other need based support.

Other activities identified by ♦the Implementing Agency (IA) as necessary for the development of the cluster as part of the diagnostic study and included in the Annual Action Plan for the cluster.

KVIC and Coir Board are the Nodal Agencies (NAs) for implementation of the scheme and also responsible for holding and disbursement of funds to the identified IAs besides monitoring the Scheme under the overall supervision of a Steering Committee (SC). Secretary (MSME) is the Chairman of SC with representatives of the Planning Commission; State Bank of India; Indian Bank Association; National Bank for Agriculture and Rural Development (NABARD) as its members.

Implementing Agencies under SFURTI are non-Govern-mental organizations (NGos), institutions of the Central and State Governments and semi -

Government institutions with suitable expertise for taking up cluster development. Gener-ally, one IA has been assigned only one cluster. The selection criteria of IAs, is based on their regional reputation and experi-ence of working at the grass-root level.

So far, 17 reputed national level institutions with expertise in cluster development methodology have been appointed as Technical Agencies (TAs) to provide technical support to the NAs and the IAs. The responsibilities of the TAs also include assisting the NAs in identification of clusters, conducting training of the Cluster Development Executives (CDEs) and other officials of the IAs and NAs, validation of cluster action plans, monitoring and evaluation, etc.

Cluster Development Executives (CDEs) have been appointed exclusively for each cluster that are located in the cluster on full time basis and are responsible for implementation of the Scheme in the assigned cluster. CDEs have to undergo prescribed training in cluster development methodology to be organized by the NA through the TA. The responsibilities of CDE inter-alia include conducting the diagnostic study; preparation

and implementation of the annual action plans of the cluster; promoting linkages with institutions; building the local governance framework.

Progress of SFURTI: By the end of FY 2008-09, 118 clusters (32 – khadi, 60 - village industries and 26 – coir) including 13 reserved clusters covering all the States have been approved by the SSC for their development under SFURTI. other activities pertaining to development of clusters like consent of State Government; training to NAs, IAs, CDEs, etc.; diagnostic study report and annual action plan, etc. in most of the cases, have been completed.

Release of funds under this scheme is cluster specific. Funds are released directly to the Nodal Agencies, who are also responsible for holding and disbursing the funds, on receipt of utilization certificate and depending upon actual physical progress. Funds for development of clusters will be kept in a separate account by the Nodal Agencies which will be audited.

SFURTI is the first organized and systematic attempt at introducing cluster based development approach in rural and traditional sector of KVI and coir. Out of 105 clusters to

53Status of MSMEs

be developed under SFURTI, 70 KVI clusters (29 Khadi and 41 VI) and 25 coir clusters have been operationalised by the end of March 2009. It is reported that wages of artisans engaged in clusters that are functional have increased by 40 to 60 per cent.

2.10.4.3 Industrial Infrastruc-ture Up-gradation Scheme (IIUS)

The Scheme for this programme was launched in 2003 with an objective to enhance international competitiveness of domestic industry to benefit existing industrial clusters/ industrial estates predominated by small industry which have potential to grow by providing quality infrastructure through Public Private Partnership (PPP) approach in selected MSE clusters/locations. The scheme has since been revised in Feb. 2009. Enterprises operating in industrial clusters in a collective manner can avail the benefits under this programme.

Eligible Interventions for Funding

The scheme provides assistance for infrastructure creation as well as upgradation of existing industrial clusters/industrial estates. The interventions under the scheme, inter-alia, include:-

1. Physical infrastructure like water supply, roads,

sewerage, ETPs, power, workers’ hostel etc.

2. Quality certification & benchmarking centre.

3. Common Facilities Centre

4. ICT Infrastructure

5. R&D Infrastructure

6. ICT-induction and process re-engineering and management consultancy service centre.

7. Information dispersal/International marketing Infrastructure

Funding Assistance

Central assistance for the ♦above can be provided by of one time grant-in-aid to the SPV for development of the infrastructure.

The assistance is restricted ♦to 75% of the project cost subject to a ceiling of Rs. 60 crore as grant. The remaining 25% to be financed by other stakeholders of the respective cluster/location with a minimum beneficiary industrial cluster’s/industrial state’s contribution of 15% of total project cost.

Government funding is ♦confined to creation of durable assets and activities relating to productivity enhancement.

Recurring expenditure not ♦to be funded under the scheme and administrative expenses limited to the extent of 5% of the project cost while expenditures on physical infrastructure not to exceed 25% of project cost.

The scheme encourages ♦dovetailing of funds from schemes of other Ministries/Departments or State Governments. However, beneficiaries must contribute at least 15% of the Project cost.

Approval process

Approvals under the ♦scheme are based on a detailed project report to be submitted by industry associations giving details of the cluster, its importance, potential etc and complete details of the proposed project including business plan and sustainability factors supported by data, surveys etc.

The extent of assistance to ♦be decided on a case to case basis based on the merits of the proposal adhering to the overall permissible limits under the scheme.


Patterns of release of funds

30% of project cost on final ♦approval.

2 instalments of 30% each ♦upon utilization of 80% of the first fund release.

Balance 10% on completion. ♦

IIUS: Performance

30 projects have been sanctioned upto March 31, 2009 under this scheme. The scheme has been extended for Eleventh plan period (Table 2.33).

Table 2.33: State wise distribution of approvals by IIUS

State Number of projects sanctioned

Tamilnadu 5

Gujarat 4

maharashtra 3

madhya Pradesh 3

West Bengal 3

Andhra Pradesh 2

Karnataka 2

Rajasthan 1

Chhattisgarh 1

Jharkhand 1

orissa 1

Haryana 1 (Cancelled later)

uttar Pradesh 1

Punjab 1

Kerala 1

Total 30-1= 29

Memo Items: Status of sanctioned projects

State of completion No of projects

Almost completed 5

Completed 50% of activities 9

At initial stages 7

At various stages of implementation 8

Total Sanctioned30,cancelled1

Source: Ministry of Commerce and Industries (DIPP),GoI

Government Policy SuPPort for mSmes

3.1 Background

The First Five Year Plan (1951-56), which

was presented to the Indian Parliament on December 08, 1951, sought to get Indian economy out of the cycle of poverty. It is significant in the context that it gave special emphasis on the village, cottage and small scale industries (SSI). It emphasized that employment is a weighty consideration. Solid foundation of protection to the SSI sector was laid through two main instruments: Reservation and State Procurement Policy.

Set in context of the Industrial Policy Resolution, 1956, the focus of the Second Five Year Plan (1956-61) was on industry, especially heavy industry. Socialistic pattern of the society was the underlying theme. Development of small scale industries in rural areas fitted eminently in this vision as it extended work opportunities, raised rural incomes and

standard of living for a balanced and integrated economy.

The Third Five Year Plan (1961-66) visualized this sector as sub-serving the objective of creating immediate and permanent employment on large scale at low capital cost, while at the same time, meeting the substantial demand for consumer and simpler producer goods. The Plan was, however, interceded by the Sino-Indian war in 1962, which shifted its focus and priorities to defence and price stabilization.

The Fourth Five Year Plan (1969-74) ushered in the Green Revolution, nationalization of 14 major Indian banks, etc. The Plan advocated supply-side assistance for village and small industry sector liberal credit policies, adequate supply of scarce raw materials, technical assistance, tax concessions and differential excise duties. Ancilliarization was also introduced as a promotional instrument for the small scale sector.

The Fifth Five Year Plan (1974-79) stressed on employment generation, poverty alleviation, equity and justice. The Plan called for high priority being accorded to labour intensive household and small industry.

The Sixth Five Year Plan (1980-85) aimed at rapid industrial development, especially of Information Technology (IT) industry. It marked the beginning of economic liberalization. Investment limits on small scale sector were raised to Rs. 20 lakh (Rs. 25 lakh for ancillary units). The Industrial Policy Statement (1980) paid special tribute to this sector recognizing its favourable capital output ratio, high employment intensity and the decentralized character.

The Seventh Five Year Plan (1985-89) stressed on improving productivity level of industries by technology upgradation. The Plan recognized the spectrum of Indian industries


as extending from the organised large and medium industries to modern small scale industries and unorganized traditional industries. It defined the Village and Small Industries (VSI) sector with great clarity as comprising khadi, village industries, handloom, sericulture, handicrafts, coir, small scale industry and powerloom. The investment ceiling was raised from Rs. 20 lakh to Rs. 35 lakh for SSI (for ancillaries from Rs. 25 lakh to Rs. 45 lakh).

The period from 1989 to 1991 was marked by political instability and no five year plan was implemented. Between 1990 and 1992, there were only annual plans. In 1991, India faced a crisis in foreign exchange reserves. The country initiated big reforms which marked a turning point in India’s economic history. It also witnessed introduction of free market reforms that brought back the Nation from the edge of financial crisis and marked the beginning of privatization and liberalization.

The Eighth Five Year Plan (1992-97) laid great emphasis on modernization of industries. India became a member of WTO on January 01, 1995. Investment limits had already been raised w.e.f April 02, 1991 to Rs. 60 lakh (Rs. 75 lakh for export oriented units and ancillaries). A policy

package was also announced in August 1991 with the objective of imparting more vitality and growth impetus to the small scale sector which was expanded to include services and business enterprises. Equity participation by the extent of 24% by other industrial units including foreign collaboration was also permitted with a view to modernization and technology upgradation.

The Ninth Five Year Plan (1997-2002) aimed at speedy industrialization and full scale employment. Cluster approach was its distinct contribution.

The Tenth Five Year Plan (2002-07) noted that although the issue of regional balance had been an integral component of almost every five year plan, there had been perceptible increase in regional imbalance over the years. National targets did not get translated into balanced regional development due to constraints that existed at the State-level, despite the development potential. Hence, it brought out a separate volume to reflect the importance of the role of the States in development potential. The Plan considered the removal of quantitative restrictions on imports as an important step in opening the economy to foreign competition. It advocated

further reduction in tariff levels to align them with East Asian Levels with prior indication to industry to effect appropriate adjustments. The Plan also called for reconsideration of SSI reservation policy on economic grounds. The Micro, Small and Medium Enterprises (MSMEs)Development Act came into being on October 2, 2006. During the Tenth Five Year Plan the number of reserved items was reduced from 675 to 114 and ceiling on investment was significantly raised to Rs. 10 crore for MSME.

The Eleventh Five Year Plan (2008-12) themed on inclusive growth, describes MSME, as instruments of inclusion. It argued the need for flexibility in labour laws. The plan also noted that the ability to sustain labour intensive growth process depended on the expansion of skill development capabilities. The Eleventh Plan supported integration of the three tiers – micro, small and medium enterprises.

3.2 Government Policy Support

The rationale and justification for effective policy and programmatic support is driven by the need to internalize the externalities, which has enabled

57Government Policy Support for MSMEs

the MSME sector to coexist with the large scale industries. That is why Government accords preferential treatment to the Micro and Small segment in relation to larger players. The Chapter reviews the present policy frame at:

i. Central Government levelii. State Government level

3.2.1 Central Government Policies

I. Policy since Independence- Brief History

II. MSMED Act, 2006

III. MSME Promotional Package, 2007

IV. Eleventh Five-Year Plan Working Group on SME Sector

V. NMCP

VI. PM Task Force

VII. Policy of Reservation

VIII. Specific Initiatives

a. Technology

b. Marketing and

Procurement

c. Skill Development

d. Export Promotion

e. Cluster Development

f. Women Entrepreneurs

g. Entrepreneurship

Development Programme

IX. Policy for Underdeveloped Regions

a. North Eastern Region

b. Jammu and Kashmir

Uttarakhand, Himachal

Pradesh

X. New Initiatives by KVIC

XI. New Initiatives of Coir Board

XII. Policy for FDI

XIII. Environment Related Policies

3.2.1.1 Policy since Independence - Brief History

The evolution of the policy framework and support measures of the Government can be broadly grouped into the following three periods:

1948 - 1991 : Regulated Development PhaseIn all the Policy Resolutions from 1948 to 1991, recognition was given to the village, tiny and small industries as an effective tool to expand employment opportunities, help ensure equitable distribution of the national income and facilitate effective mobilisation of private sector resources of capital and skills. The Office of DC (MSME) [earlier known as Small Industries Development Organisation (SIDO)] was set up in 1954 as an apex body for sustained and organised growth of village, tiny and small industries. Within the next

two years, the National Small Industries Corporation (NSIC), the Khadi and Village Industries Commission (KVIC) and the Coir Board were also set up. Small Industries Development Bank of India (SIDBI) was set up in 1990 as the principle financial institution for MSMEs. The era provided the supportive measures that were required to nurture MSEs, in the form of reservation of items for their exclusive manufacture, access to bank credit on priority through the Priority Sector Lending Programme of commercial banks, excise exemption, reservation under the Government Purchase Programme and 15% price preference in purchases, infrastructure development and establishment of institutes for entrepreneurial and skill development. MSME- Development Institutes (earlier known as Small Industries Service Institute (SISI) were set up all over India to train youth in skills/entrepreneurship and Tool Rooms were established with German and Danish assistance for providing technical services essential to MSEs as also for skill-training. At the state level, District Industries Centers were set up all over the country.


1991-1999: Phase I of Liberali-sation

The August 1991 policies for village, tiny and small industries laid the framework for Government support in the context of liberalisation, which sought to replace protection with competitiveness to infuse more vitality and growth to MSEs in the face of foreign competition and open market. Supportive measures concentrated on improving infrastructure, technology and quality. Testing centres were set up for quality certification and new Tool Rooms as well as Sub-Contracting Exchanges were established. A Technology Development and Modernisation Fund was created to accelerate finance and technical services to the sector. A Delayed Payment Act was enacted to facilitate prompt payment of dues to small industries and an Industrial Infrastructure Development (IID) scheme was launched to set up mini industrial estates for small industries.

1999 onwards: Phase II of Liberalisation

The Ministry of MSME (earlier known as Ministry of Small Scale Industries and Agro & Rural Industries (SSI & ARI)) came into being from 1999 to

provide focused attention to the development and promotion of the sector. The new Policy Package announced in August 2000 sought to address the persisting problems relating to credit, infrastructure, technology and marketing more effectively. A Credit Linked Capital Subsidy Scheme was launched to encourage technology upgradation in the Micro and Small Enterprises (MSEs) sector and a Credit Guarantee Scheme under Credit Guarantee Fund Trust for Micro and Small Enterprises was started to provide collateral-free loans to the micro and small entrepreneurs, particularly the first generation entrepreneurs. The exemption limit for relief from payment of Central Excise duty was raised to Rs. 1 crore and a Market Development Assistance Scheme for MSEs was introduced. At the same time, consultations were held with stakeholders and the list of products reserved for production in the MSE sector was gradually reduced each year. In 2006, the Parliament passed the Micro, Small and Medium Enterprises Development Act. In February, 2007, a third package for the promotion of MSEs was announced which comprised the proposals/schemes having direct impact on the promotion and

development of the micro and small enterprises, particularly in view of the fast changing economic environment, wherein to be competitive is the key to success.

3.2.1.2 Micro, Small and Medium Enterprises Development Act, 2006

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 seeks to facilitate the development of these enterprises and also enhance their competitiveness.

Objective of the Act

The MSMED Act was framed with the following objectives:

To facilitate the promotion ♦and development of Micro, Small and Medium Enterprises (MSMEs);

To enhance the ♦competitiveness of MSMEs;

To concentrate on the related ♦matters of MSMEs;

To extend the scope ♦of benefits from SSI undertaking and ancillary industries to MSMEs.

Legal Framework

Prior to the enactment of MSMED Act, the principal Act for the promotion of the Small Scale Industries (SSI) was the Industries (Development and Regulation) Act, 1951(IDRA), which provided the basic


framework for the promotional measures of small-scale industries. The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 supported the IDRA to ensure timely payments to the SSIs. However, the need was felt for comprehensive framework for SSIs. Consequently, the Central Government enacted the MSMED Act, 2006 which provides for registration, promotion, development, confirmation of timely payment and even the exit route of MSMEs.

Difference between previous SSI provisions and MSMED Act

The MSMED Act is superior as compared to the provisions for SSIs under the IDRA in many ways. The scope of the promotion and protection measures under the IDRA was restricted only to SSIs. However, during last 60 years of Independence, the norms for the promotion and development have changed and the requirement to motivate the higher and different versions of SSIs has been felt.

Another major highlight of the MSMED Act is that the MSM enterprises in the service sector are also covered under the Act. Separate investment limit for

Plant & Machinery (P&M)has been prescribed for MSM enterprises in the service sector.

The investment made in the plant and machinery of the undertaking is the key indicator for determining the enterprise as micro, small or medium. The investment limit at upper cap applicable to medium enterprise has been revised from existing Rs. 2 crore to Rs. 10 crore for an undertaking in the manufacturing sector.

Before the enactment of MSMED Act, the legal framework for the SSIs, was spread over different Acts such as IDRA, the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 along with the Industrial policies that are periodically released by the Government. The enactment of MSMED Act has ensured that all the related regulations are covered under single head and the users need not refer to any other Act / Policy for the purpose.

The MSMED Act has an inbuilt mechanism that works on the principles of arbitration and conciliation. A separate forum called ‘Micro and Small Enterprises Facilitation Council’ (MSEFC) takes exclusive care of dispute redressal relating to the MSM enterprises.

The highlights of the MSMED Act are as follows:

The focus is on ‘Enterprise ♦approach’ rather than ‘Industrial Approach’

The term ‘Enterprise’ under ♦the MSMED Act is much wider than the ‘Industrial Undertaking’ which was used under the IDRA. An enterprise may be an industrial establishment, business concern, or any other establishment.

Small Sector benefits are ♦extended to the enterprises engaged in providing or rendering services. This is an acknowledgement of increasing portion of the service industry since last decade.

The MSMED Act extends its ♦benefits to the manufacturing / production sector that are covered in the Scheduled Industries.

The MSMED Act has ♦divided the term Small Scale Industrial Undertakings and Ancillary Industrial Undertakings into three categories, viz. Micro, Small and Medium enterprises. This division helps the Government to identify and concentrate individually on all undertakings of different sizes.


As in the past, the ♦classification of the enterprises was based on the investment in P&M / investment in equipments. However, investment ceiling is not the sole criteria envisaged under the MSMED Act. If the Advisory Committee so recommends, a combination of investment ceiling, number of employees and turnover ceilings may be considered for covering the various enterprises under MSMED Act. The concept is borrowed from the European Union practice where such combinations determine the industrial benefits to be extended.

Implementation of the Act

The MSME Development Act, 2006 came into being w.e.f. 2nd October 2006. Subsequently, both the Central and State Governments have taken effective measures towards implementation of the Act. While the Central Government has framed a number of Rules and issued Notifications in respect of the Act, different State Governments have also issued notifications under the Act as detailed below: -

i. Notification for Authority for receiving Memoranda for Micro and Small Enterprises (MSEs): All States & UTs except

Meghalaya, Mizoram and Lakshadweep have issued the Notifications nominating authority for receiving Entrepreneurs Memorandum for MSEs.

ii. Notification of Rules of MSEFC: All States & UTs with the exception of Arunachal Pradesh, Assam, Goa, Jharkhand, Manipur, Meghalaya, Mizoram, Nagaland, Rajasthan, Tripura, Uttarakhand, Chandigarh and Lakshadweep have also issued the Notifications providing for Rules of Micro and Small Enterprises Facilitation Council (MSEFC).

iii. Notification of Constitution of Micro and Small Enterprises Facilitation Council (MSEFC): All States & UTs except Arunachal Pradesh, Assam, Goa, Jammu & Kashmir, Jharkhand, Manipur, Maharashtra, Meghalaya, Mizoram, Nagaland, Rajasthan, Sikkim, Tripura, Uttarakhand, Chandigarh and Lakshadweep have issued the Notifications for constitution of Micro and Small Enterprises Facilita-tion Council (MSEFC).

Issues Pertaining to Delayed Payments for MSEs

With a view to strengthen the mechanism available for avoiding delay in payments to MSEs, the following further steps have been taken in this direction: -

(i) A total of 23 States/UTs have notified the Rules for MSEFC & 20 states/UTs have constituted MSEFCs;

(ii) The Notification No. G.S.R. 719 (E) dated November 16, 2007, has been issued by the Ministry of Corporate Affairs, which contains an amendment to Schedule VI of the Companies Act, 1956. It specifies the format of the Balance Sheet and Profit & Loss Account of the companies and incorporate the amount due to MSEs Suppliers and the interest accrued there on;

(iii) Notification No. S.O.961 (E) dated April 13, 2009, has been issued by the Central Board of Direct Taxes (CBDT), Ministry of Finance whereby Income-tax Rules, 1962, in Form No. 3CD have been amended providing for inadmissibility of the amount of interest under Section 23 of the Micro, Small and Medium Enterprises Development Act, 2006;


(iv) At the initiative of the O/o DC (MSME), the Ministry of Heavy Industries and Public Enterprises, Govt. of India has instructed all Central Public Sector Enterprises to ensure prompt payment of bills of MSEs. State Governments have also been requested to issue suitable instructions to the State Public Sector Enterprises and Electricity Boards to make prompt payment of bills of MSMEs with a view to improving their liquidity position.

3.2.1.3 MSE Promotional Package, 2007

The Government of India announced Package for promotion of Micro and Small Enterprises on February 27, 2007, the salient features of the Package are as follows :

Legislation

With a view to facilitating ♦the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, the Micro, Small and Medium Enterprises Development Bill, 2006 has been passed. The Government will take up effective and expeditious implementation of this legislation in close

collaboration with all stakeholders.

The Government will also ♦soon enact a law on Limited Liability Partnerships covering, among others, micro, small and medium enterprises, with a view, inter alia, to facilitating infusion of equity and venture capital funding in these enterprises. Limited Liability Act has already been notified on March 31, 2009.

Credit Support

In line with the Policy ♦Package for Stepping up Credit to Small and Medium Enterprises (SMEs), the Reserve Bank of India (RBI) has already issued guidelines to the public sector banks to ensure 20 per cent year-on-year growth in credit to the SMEs. Action has also been initiated to operationalise other elements of the said Policy Package. Implementation of these measures will be closely monitored by the RBI and the Government.

The Small Industries ♦Development Bank of India (SIDBI) will scale up and strengthen its credit operations for micro enterprises and cover 50 lakh additional beneficiaries

over five years beginning 2006-07. Government will provide grant to SIDBI to augment its’s Portfolio Risk Fund for this purpose. SIDBI has also scaled up its micro finance operations to the cumulative disbursement level of Rs. 5000 crore reaching out to more than 200 lakh beneficiaries.

Government will also ♦provide grant to SIDBI to enable it to create a Risk Capital Fund (as a pilot scheme in 2006-07) so as to provide, directly or through intermediaries, demand-based small loans to micro enterprises. SIDBI has set up a separate department called “SIDBI Foundation for Risk Capital” to provide risk capital assistance to the MSME sector.

SIDBI’s direct lending ♦operations will be expanded by increasing the number of branches from 56 to 100 in two years beginning 2006-07, with a view to catering to the credit needs of more clusters of micro and small enterprises (MSEs). As on February 28, 2010, the total branches of SIDBI are 103.

The eligible loan limit under ♦the Credit Guarantee Fund Scheme will be raised to Rs. 50 lakh. The credit guarantee


cover will be raised from 75 per cent to 80 per cent for micro enterprises for loans up to Rs.5 lakh. Accordingly, to strengthen the Credit Guarantee Fund, the corpus of the Fund will be raised from Rs.1189 crore as on 01 April 2006 to Rs.2500 crore over a period of five years (with contribution by the Government and SIDBI in the existing ratio of 4:1). The eligible loan limit under the scheme has now raised to Rs. 100 lakh. The guarantee cover for loans upto Rs. 5 lakh has been raised to 85% and the corpus of the fund has also raised to Rs. 2500 crore.

Moreover, to encourage ♦public sector banks and public financial institutions to contribute to the corpus of the Fund, the feasibility of allowing deduction of their contributions to the Fund for income tax purposes would be examined.

The Fund will continue to ♦be maintained with and managed by the Credit Guarantee Fund Trust for Small Industries (CGTSI). The Trust will be renamed as “Credit Guarantee Fund Trust for Micro and Small Enterprises” (CGTMSE). The trust is now renamed

as “Credit Guarantee Fund Trust for Micro and Small Enterprises”(CGTMSE).

Fiscal Support

Taking into consideration all the relevant factors, including the new definition of small manufacturing enterprises, under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the Government will examine the feasibility of:

Increasing the General ♦Excise Exemption (GEE) limit and relaxing the existing eligibility limit for GEE;

Extending the time limit for ♦payment of excise duty by micro and small enterprises; and

Extending the GEE benefits ♦to small enterprises on their graduation to medium enterprises for a limited period.

Support for Cluster based Development

For comprehensive and speedier development of clusters of micro and small enterprises, the existing guidelines of the Small Industries Cluster Development Programme (SICDP), [to be renamed as “Micro and Small Enterprises Cluster Develop-ment Programme” (MSECDP)] will be reviewed during

2006-07 to accelerate holistic development of clusters, including provision of Common Facility Centres, developed sites for new enterprises, upgradation of existing industrial infrastructure and provision of Exhibition Grounds/Halls and also for creation and management of infrastructure-related assets in the public-private partnership mode. The ceiling on project cost will be raised to Rs.10 crore.

Technology and Quality Upgradation Support

Four Training-cum-Product ♦Development Centers (TPDCs) for agro & food processing industries would be set up at identified existing Small Industries Service Institutes (SISIs) to facilitate promotion and development of micro and small enterprises in the food processing sector.

The two existing Central ♦Footwear Training Institutes (CFTIs) (at Chennai and Agra) will be further strengthened to expand their outreach and assist the MSEs in upgrading their technology.

Vertical Shaft Brick Kiln ♦(VSBK) Technology would be promoted for adoption by MSEs engaged in manufacturing bricks to


make them energy efficient and eco-friendly. For this, one-time capital subsidy (limited to 30 per cent of the cost or Rs.2 lakh, whichever is less) will be provided to micro and small brick manufacturing enterprises.

With a view to promoting ♦energy efficiency in electrical pumps and motors manufactured by MSEs, a special programme of assistance will be launched after a detailed technical study.

The existing scheme of ♦assisting the attainment of ISO 9000 and 14001 standards will be operated as a continuing scheme during the Eleventh Five Year Plan period.

The scope of the above- ♦mentioned scheme will be expanded to cover “Hazard Analysis and Critical Control Points” (HACCP) Certification obtained by MSEs.

A Technology Mission will ♦be established with a view to assisting micro, small and medium enterprises (MSMEs) in technology upgradation, energy conservation and pollution mitigation.

Marketing Support

The National Manufacturing ♦Competitiveness Prog-ramme (NMCP) announced in the Budget Speech of 2006-07 will include components relating to marketing support to MSEs. Implementation of the NMCP will be taken up soon.

Support for Entrepren- ♦eurial and Managerial Development

20 per cent of the ♦entrepreneurship deve-lopment programmes (EDP) will be organised for SC/ST, women and physically challenged persons with a stipend of Rs.500 per capita per month for the duration of the training.

50,000 entrepreneurs will ♦be trained in information technology, catering, agro and food processing, pharmaceuticals, biotech-nology, etc., through specialized courses run by SISIs, over the period co-terminus with the Eleventh Plan.

A new scheme will be ♦formulated to provide financial assistance to select m a n a g e m e n t / b u s i n e s s schools and technical institutes, to conduct tailor-

made courses for new as well as existing micro and small entrepreneurs.

A new scheme will also ♦be formulated to provide financial assistance to 5 select universities/ colleges to run 1200 entrepreneurial clubs.

A new scheme will be ♦launched for capacity building, strengthening of database and advocacy by Industry/ Enterprise Associations, after consultation with the Associations and States.

A comprehensive study ♦will be conducted to assess the needs and scope of Government intervention required for enhancing the competitiveness of micro and small enterprises in the service/ business sector.

Empowerment of Women Owned Enterprises

Under the Credit Guarantee ♦Fund Scheme, 80 per cent guarantee cover will be provided to micro and small enterprises operated and/or owned by women.

Under the SICDP/MSECDP ♦financial assistance up to 90 per cent of the cost, subject to ceiling of Rs. 9 crore, will be provided for clusters


developed exclusively for micro and small enterprises operated and/or owned by women.

Associations of women ♦entrepreneurs will be assisted under the SICDP/MSECDP in establishing exhibition centers at central places for display and sale of products of women- owned micro and small enterprises.

To encourage entrepreneur- ♦ship among women, 50 per cent concession in fees would be given to women candi-dates in entrepreneurship/ management development programmes conducted by SISIs.

To facilitate export by ♦women entrepreneurs, the National Small Industries Corporation Ltd. (NSIC) will assist them to participate in 25 exhibitions over the period co-terminus with the Eleventh Plan.

Strengthening of Prime Minister’s Rozgar Yojana (PMRY)

The Prime Minister’s ♦Rozgar Yojana (PMRY), introduced in 1993, has been one of the important credit-linked subsidy schemes to generate self-employment

opportunities for the educated youth by assisting them in setting up viable micro enterprises. By the end of 2005-06, it is estimated to have provided self-employment opportunities to 38.09 lakh persons. A recent review has, however, established the need to improve its effectiveness as a measure for self-employment through this route.

The design parameters of ♦the PMRY, in terms of family income limits for eligibility, project cost ceilings, corresponding ceilings of subsidy, rates of assistance to States towards training of beneficiaries before and after selection, etc., will be improved with effect from 2007-08, keeping in view the findings of the review.

Strengthening of Database for MSME Sector

To strengthen the data ♦base for the MSME sector, statistics and information will be collected in respect of number of units, employment, rate of growth, share of GDP, value of production, extent of sickness/closure and all other relevant parameters

of micro, small and medium enterprises, including khadi and village industry units set up under Rural Employment Generation Programme and Prime Minister’s Rozgar Yojana as well as coir units, through annual sample surveys and quinquennial census.

The quinquennial census ♦and annual sample surveys of MSMEs will also collect data on women-owned and/or managed enterprises.

A scheme will also be ♦formulated and imple-mented to regularly collect data on exports of products/services manufactured/provided by micro, small and medium enterprises, including khadi and village industries.

3.2.1.4 Eleventh Five Year Plan Working Group

By its order of June 08, 2006, the Planning Commission constituted the Working Group on Micro, Small Scale Enterprises and Agro & Rural Industries for the Eleventh Five Year Plan (2007-2012), consisting of traditionally defined small scale industries and small scale service and business entities, on the one hand, and khadi, village


S u b -Group

Terms of Reference

I Legal Framework, Regulations, Policies and Global Environment; Impact of WTO Agreements and Harnessing the Opportunities; and Sector-wise issues of Employment Expansion, Enhancing Competitiveness in the Context of Globalisation, Existing Labour Laws, Safeguarding Labour Welfare, Graduation of Enterprises up the Pyramid and Other Changes against the Backdrop of the Micro, Small and Medium Enterprises De-velopment (MSMED) Act, 2006 and the Approach to the Eleventh Plan.

II Credit and Fiscal Policies: Measures of Delivery; and Issues of Sickness/Closure and Rehabilitation across all Segments of MSEs, including Kha-di, Village and Coir Industries.

III Role of Central and State Governments, Industry Associations and other Civil Society Organisations in Promotion and Development of Micro, Small and Medium Service Enterprises and Manufacturing Medium En-terprises, in the context of the MSMED Act, 2006.

IV Strategies, Policies and Programmes for Modernisation and Technol-ogy Upgradation (for attaining globally benchmarked quality standards through better access to improved tools, equipment and processes, pro-vision of common facilities and appropriate R&D), Training for Skill De-velopment and Entrepreneurial Development, Encouraging Innovation and Attracting Venture Capital.

V Strategies, Policies and Programmes for Cluster Development, including Strengthening of Infrastructure.

VI Marketing Strategies and Export Promotion, with Emphasis on Public Private Partnership.

VII Khadi and Village Industries – Strategies, Policies, and Programmes for Modernisation, Technology Upgradation, Marketing (including Export), and Employment Expansion.

VIII Coir Industries - Strategies, Policies, and Programmes for Modernisa-tion, Technology Upgradation, Marketing (including Export), and Em-ployment Expansion.

and coir industries, on the other, under the chairmanship of Secretary to the Government of India, Ministry of Small Scale Industries and the Ministry of Agro & Rural Industries {Secretary (SSI & ARI)}.

The Working Group held its first meeting on 28 August 2006 and after deliberation constituted eight Sub-groups

on the important aspects of the promotion and development of Micro, Small and Medium Enterprises, including Agro and Rural Industries like Khadi, Village and Coir Industries. The terms of reference of the sub-groups are summarized in table below:-

The gist of recommendations of the Working Group is as under:

Implementation of the MSMED Act, 2006

The enactment of the �MSMED Act, 2006 has created the first-ever legal framework for the MSME continuum, to facilitate their holistic development by way of optimisation of their capacities, attaining economies of scale, technological upgradation, vertical growth of MSEs and the like, in line with the global best practices. However, the representatives of micro enterprises, the preponderant majority and the most employment-intensive segment of the MSME continuum, apprehend that the inclusion of the “medium enterprises” within the ambit of the Act and raising the investment ceilings for small enterprises may lead to the larger of the SMEs cornering disproportionately large benefits, to the exclusion of micro & small enterprises.

While the Working Group is �deeply conscious of the need to emphasize the role of this preponderant majority of micro and smaller of


the small enterprises, the apprehension voiced by the Sub-Group is, in the view of the Working Group, misplaced and a throwback on the era of “protectionism” that characterised the initial policies and support measures for the SSI. There is no economic or social premium on continuing to be “micro” for all times in these days of globalisation — in fact, such sequestering is more likely to sap the dynamism of the micro enterprises that they have so far displayed in the face of constraints. The micro must (and be enabled to) grow to small and medium and the small to medium and large and so on and make space for the new micro and small to enter the market. There is enough room for all to grow and prosper.

In any case, due care has �been taken in the MSMED Act, 2006 for this purpose. Section 9 of the Act provides specially for various measures for the MSEs. Specific scheme only for the MSEs for preference in Government procurement and strengthened measures to check delayed payment are cardinal features of the new Act and fully reflect

the will of the Parliament in favour of the MSEs. The recently approved Package for Promotion of Micro and Small Enterprises is another example of the thrust of public policy with regard to the MSEs.

In the framework of the Act, �the “service” and “medium” enterprises are new entrants. The Working Group, therefore, recommended that comprehensive studies through competent professional organisations be undertaken to assess the existing status of these enterprises vis-à-vis their counterparts in other comparable developing countries as well as those in developed countries. Based on these studies, a White Paper should be brought out on the “State of the Indian Medium and Service Enterprises against Global Backdrop —Options for Policy and Intervention Measures for Growth” within the first year (2007-08) of the Eleventh Plan and widely disseminated for discussion and comments. This will then facilitate informed policy initiatives to foster the promotion and development of these enterprises and helping the

micro and small enterprises to also graduate to these larger enterprises. Necessary schemes can and should be drawn up thereafter and accommodated as part of the mid-term review of the Eleventh Plan.

A programme needs �to be chalked out to urgently sensitise the stakeholders, including State Governments/UT Administrations on the implications of the MSMED Act 2006 and to closely review the progress of its implementation.

State Governments/UT �Administrations should incentivise and encourage voluntary filling (in physical form as well as online) of Entrepreneur’s Memorandum by the Micro and Small Enterprises as well as by the Medium (Service) Enterprises. The Central Government should offer suitable performance-based financial assistance (Plan) to States/UTs and Enterprise Associations for this purpose.

Although the Delayed �Payments Act was promulgated in 1993 and subsequently amended in 1998, it did not yield the


desired results in arresting the problem of delayed payments. The MSMED Act, 2006 provides for strengthened provisions to deal with the situation. State Governments/UT Administrations need to constitute their Micro & Small Enterprises Facilita-tion Councils (MSEFC) urgently in accordance with the mandatory provisions of the Act. The Central Government should also monitor the implementation of these provisions closely, unlike in the past.

In the context of �classification of enterprises under the MSMED Act and the relevant notifications of the Department of Industrial Policy and Promotion under the Industries (Development and Regulation) Act, the Central Government needs to provide guidelines on equity investment in MSMEs, (need, if any, for) licensing, (clearer definition of) equipment (for determining the status of service enterprises) and other related matters so that there is no ambiguity/problems to the implementing authorities. The permissible limit of

equity participation (both by domestic and foreign enterprises) in the MSMEs needs to be reviewed, keeping in view the global scenario and inducing stronger linkages among/between small, medium and large establishments. A crucial query that needs to be addressed in this context pertains to the effectiveness of any such restriction on equity participation by others in the liberalised system of filing of memoranda based on self-disclosure. There is no need to prescribe any restriction on equity participation in MSMEs by entities with other (subsisting) industrial interest.

There should be institutional �arrangements for constant review/monitoring of all issues concerning implementation of the new Act at the Central level. This function can be discharged effectively through regular periodical meetings of the National Board for MSMEs and the Advisory Committee, as mandated in the Act. Readily accessible database on the enterprises of all categories that have filed their memoranda should be built both at the State and

Central levels and hosted on the respective websites.

The MSMED Act envisages �an effective role of enterprise associations in decision-making. There is, therefore, a strong need for capacity building of associations so as to make them more effective at ground level and strengthen them to become effective partners in the promotion and development of the micro and small enterprises. The Package for Promotion of MSEs includes a scheme for this purpose, which would need to be utilised effectively.

De-reservation

The currently available document on Approach to the Eleventh Five Year Plan notes the adverse implications of reservation of products for exclusive manufacture by the SSI and recommends that the policy of progressive dereservation after due consultation with the Industry Associations would continue in the Eleventh Plan. The Government has, during 2004-06, taken 373 items off the list of reserved items, after detailed consultations with the stakeholders, including the Industry Associations concerned, and on the basis of consensus evolved in the


process. This has paved the way for additional investment, employment generation and export in/by the segment. The Ministry of Small Scale Industries has held further consultations during 2006-07 with many groups of stakeholders/Associat ions and is hopeful of generating consensus to further trim this list. It is expected that the MSEs manufacturing the remaining reserved items and their Associations would themselves realise the negative impact of continuing reservation in an open, globally competitive economy and assist the Government in de-reserving the remaining products in the near term. However, the Working Group recommends that it would be necessary to provide safety measures to support the units that may be adversely affected in terms of loss of income and employment because of this process, particularly in the States where the manufacture of such reserved items is substantial, both in terms of the number of MSEs involved and the value of production. Such measures could include higher support under the Credit Linked Capital Subsidy Scheme and targeted technical interventions under the Small Industries Cluster Development Programme in clusters of such units.

Procurement Preference

An effective scheme of preferential procurement of goods/services produced/rendered by MSEs both at the Central and State/UT levels, based on section 12 of the MSMED Act and global best practices (like that under the Small Business Administration Act of the USA and some other countries), should be formulated expeditiously. The scheme need not have any provision for price preference to MSEs. However, each Ministry/Department, CPSU, etc., should make specific mention of the compliance of the preference policy in its Annual Report to be tabled in Parliament. The scheme should involve progressive Associations of MSEs in monitoring the implementation and suggesting appropriate steps for effective implementation from time to time.

Labour Laws

In their application to the MSMEs, labour laws should be simplified and harmonised and, if possible, self-certification should be promoted. The Approach to the Eleventh Plan states in this context, “Labour intensive mass manufacturing based on relatively lower skill levels provides an opportunity to expand employment in the industrial sector. A key issue

in this context is whether some of our labour laws may be discouraging the creation of employment opportunities in the organised manufacturing sector, inducing capital-intensive rather than labour-intensive industrial dev-elopment. There are different views on the actual impact of these laws on employment, and the fact is that outsourcing has been growing rapidly and permission to downsize have been fairly easily accorded to existing enterprises in the past few years. Nonetheless, many potential new entrants into large-scale manufacturing see these discretionary provisions as a major disincentive. It is not being suggested that the entire gamut of labour laws need to be reviewed or that an automatic hire and fire system should be introduced. The National Common Minimum Programme recognises that some changes in labour laws may be needed but this requires legislation and therefore sufficient consensus. A few amendments in the laws mentioned above, with concomitant changes to improve worker welfare as a whole, should therefore be proposed for discussion with stakeholders with view to bringing in early legislation within this framework. This could stimulate investment and fuel


the creation of jobs. Similarly, although small enterprises are particularly burdened by multiple inspections and the need to submit many reports and maintain a large number of registers, workers in this sector have virtually no security. There is, therefore, a case to relax legal requirements on SMEs if State Governments adopt a comprehensive social security scheme for workers, say, along the lines proposed recently by the National Commission for Enterprises in the Unorganised Sector. For example, State Governments that put in place such a scheme could be empowered to exempt SMEs from the application of some laws like the Employer’s Liability Act, Weekly Holidays Act, Employment Exchange (Compulsory Notification of Vacancies) Act and the Apprentices Act.”

Pradhan Mantri Rozgar Yojana (PMRY)

To improve the effectiveness of PMRY as a measure for self-employment, the design parameters of the scheme, in terms of family income limits for eligibility, project cost ceiling, corresponding ceilings of subsidy, rates of assistance of States towards training of beneficiaries before and after selection, etc., as envisaged in

the “Package for Promotion of Micro and Small Enterprises (MSEs)” is a welcome step. The strengthening of PMRY could prove fruitful only if the said measures are implemented well in time and constant review to have the impact of these measures is ensured on a regular basis.

Database

Strengthening of database pertaining to the MSMEs is a crying need of the hour. The proposal in the package for promotion of MSEs for conducting quinquennial census & annual surveys should be implemented effectively.

“Medium and Service” Enterprises

One of the major implications of the MSMED Act, 2006 has been the introduction of (i) an unfettered class of service enterprises and (ii) medium enterprises of manufacturing and servicing variety. This warrants an immediate restructuring of the authorized implementing agencies at the Central and State/UT level, both in terms of expertise and resources, which should be undertaken immediately through a High Level Expert Committee at the Union Level, comprising membership from State/UT level, etc.

National Manufacturing Competitiveness Programme

The implementation of the National Manufacturing Competitiveness Programme (NMCP) needs to be speedy and monitored properly to produce the desired results. A special cell in the SIDO should be set up to look after the implementation of the NMCP and other programmes suggested by the National Manufacturing Competitiveness Council (NMCC).

Technology Mission

Obsolete technology is a major handicap (second only to timely and easy availability of credit). To mitigate this problem, the Package for Promotion of MSEs proposes the constitution of a Technology Mission. It is important to ensure that the Mission is constituted at the earliest to utilise its benefits in the Xlth Plan period.

Cluster Development

Cluster development has ♦been acknowledged as one of the most preferred options for integrated and focused development of MSMEs in areas where they have come up organically (on their own) or developed over a relatively long period. The on-going Cluster Development Programme


for MSEs (SICDP) needs to be strengthened.

In order to make the SICDP ♦broad-based, the scope of the Programme should be enlarged by incorporating the essential features of other schemes operated by the Ministry that have collective approach for development, viz., Integrated Infrastructure Development scheme, schemes for Setting up of Testing Centres by Associations, Information & Communication Technologies (ICT) intervention, etc.

In view of the fact that ♦cluster development prog-rammes are implemented by a number of Ministries/Departments in the Government of India, concerted efforts need to be made for building synergy and converging the benefits of these programmes on the target group, most of which are MSEs. This will ensure optimal utilisation of available resources and multiply the outcome manifold. An Empowered Group of Ministers (EGOM) has, therefore, been constituted to harmonise the policies and practices of cluster development programmes of various

Ministries and monitoring their implementation. It is expected that the revised SICDP & the SFURTI of the Ministry would be implemented effectively with Central assistance (on terms and conditions at par with the best among the cluster development programmes of all Ministries), inclusion of infrastructural up-gradation as an essential component and enhanced assistance to clusters of women’s enterprises.

Studies

Supportive measures for vertical growth of micro, small and medium enterprises into corresponding higher levels need to be formulated. The studies being conducted should also suggest measures in this regard.

Skill Development

Skill development of owners and employees of micro and small enterprises, on the one hand, and those of unemployed youth (including women), on the other, needs to be encouraged to improve the productivity of operating enterprises and also to equip the youth to either opt for self-employment or seek selected areas of organised sector employment where the need for

appropriately skilled manpower is increasing. This could be achieved by the joint efforts of the Government, professional agencies and industry associations. Government should provide budgetary support for this purpose in the PPP mode.

Export and Marketing

The on-going schemes of Export Promotion and Marketing Assistance are sub-optimal in their outcome and need comprehensive review, aimed at better interlinking, targeted selection of events and corresponding beneficiary MSEs and cost-sharing with the MSEs to become more demand- driven and productive. Involvement of the MSE associations and the Indian Missions abroad would be desirable.

Credit-related Measures

In order to facilitate greater ♦credit flow, banks need to be encouraged to enhance credit to MSEs up to 15% of the amount under Priority Sector lending, in a phased manner, during the 11th Plan. At the same time, all-out efforts need to be made by the banks to achieve the stipulated 60% of the priority sector (MSE) lending to the micro enterprises (the erstwhile Tiny industries).


The Reserve Bank of India may be requested to have the existing monitoring mechanism studied once again, in consultation with the Ministry of MSME, MSE associations and banks, and make it more efficacious.

For enhancing the outreach ♦of institutional finance, all commercial banks should make efforts to cover at least 5 new micro, small and medium enterprises by each of its branches in urban / semi-urban areas, as announced in the Policy Package by the Government.

The problem of collateral ♦remains one of the major hindrances in augmenting the credit flow to MSEs. The banks / financial institutions need to take advantage of the existing Credit Guarantee Scheme. For strengthening the Credit Guarantee Scheme, it is suggested that:

(a) The size of the corpus fund should be enhanced to Rs. 2,500 crore expeditiously;

(b) The loan limit under the scheme should be enhanced to Rs. 50 lakh; and

(c) New products should be introduced under the

scheme for increasing the leverage under the corpus fund.

The current guidelines of the ♦RBI require banks to meet the general credit needs of the exporting enterprises promptly. It is suggested that banks may deal with such loan applications of MSEs within 15 to 21 days, depending on the quantum of loan.

Considering the limited ♦ability of the export-oriented MSEs to bring in sufficient equity/promoter’s contribution, a flexible debt-equity ratio may be adopted by banks while sanctioning export credit to exporting MSEs.

The process and ♦requirements of renewal of working capital limits for MSEs may be made simpler and less time-consuming. Additional limit may be sanctioned in time and on the basis of documents supporting the additional amount, instead of de novo examination of the entire limit.

The interest rate on the ♦working capital loans to MSEs may preferably be pegged at PLR of the respective banks.

Micro finance has emerged ♦as the only effective means of credit delivery to the bottom-most layer of the MEs, consisting mainly of the tiniest unorganized self-organised enterprises and self-help groups of the disadvantaged sections of the society. Special programmes require to be designed for a vast expansion of the delivery of micro finance for promotion of micro enterprises, including self-help groups of artisans, women, other disadvantaged sections of the society, etc.

One way of rationalising ♦the pricing of credit is to efficiently measure the enterprise’s credit risk. SIDBI, with its long experience of term financing, has developed an advanced but simplified, technology-based rating model for MSMEs called Credit Appraisal and Rating Tool (CART). This model for credit rating up to Rs. 50 lakh has been duly recognised by RBl, which has recommended its adoption and implementation by banks. SIDBI may give this CART model, free of cost, to all the banks/DFls, which would facilitate expanding its application across the


financial sector. Once this model is put in place, banks can easily assess the credit worthiness of even the smallest of the MSEs and accordingly decide the quantum and price of the loans.

For the MSEs rated under ♦the Performance and Credit Rating Scheme, implemented through NSIC, RBI may advise the banks and FIs to launch a special support scheme under which credit may be extended to the well-rated MSEs at relatively lower interest rates. The band of reduction may range from 25 basis points to 150 basis points, depending on the level of rating under the scheme.

To popularise the rating ♦scheme, subsidy on rating fees may be extended to MEs both for the first rating and its renewal, the latter being on a tapered scale for the first three renewals.

A most promising way of ♦channelising credit to MSMEs is to rate the MSME clusters. Once these clusters are rated, based on internationally accepted parameters, the credit flow to the clusters will increase not only from domestic sources but also from abroad.

Initiatives for Enterprises in the Unorganised Sector

(I) The National Commission on Enterprises in the Unorganised Sector (NCEUS) has prepared the initial draft papers on the concept of “Growth Poles”, based on industry/service clusters and skill formation in the unorganised sector. These papers have been discussed with various stakeholders as well as the agencies, which have programmatic interventions in these domains. The proposal of the Commission on pilot projects for ‘Growth Poles’, applying the PURA (Provision of Urban Amenities in Rural Areas) principles, is being finalised.

(II) The Commission has also decided to constitute Task Forces to make recommendations on the following issues identified for immediate intervention:

Growth Poles for ♦Promotion of Unorganised Enterprises:

Legal and Administrative ♦Problems before Unorganised Enterprises;

Improving the Access of ♦Unorganised Enterprises to Finance;

Social Security for ♦Unorganised Sector Workers;

Statistical Issues in the ♦Unorganised/Informal Sector

Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation

It is one of the most beneficial on-going schemes for technological upgradation of MSEs and has generated considerable interest in the last year-and-a-half. In order to widen the scope and applicability of the CLCSS, it is suggested that:

a. The scheme may be made applicable to all manufactured products and extended to manufacturing medium enterprises with subsidy limited to 10 per cent of the project cost;

b. The rate of subsidy for micro enterprises may be enhanced from 15% to 30%;

c. The ceiling on loan for availing of subsidy may be enhanced to Rs. 3 crore, keeping in view the current ceiling of Rs. 5 crore on investment for manufacturing small enterprises; and

d. The Scheme may be continued during the Eleventh Plan.

Khadi and Village Industries

There is urgent need to rejuvenate the khadi programme. For this purpose,


it is necessary to open up the sector by enlisting new khadi institutions by removing the restrictions on the registration where ever necessary and feasible in this regard particularly in general areas. The defunct or dormant societies / institutions under the ‘D’ category should be revived. This is of utmost necessity in order to expand the base of khadi production at grass root level. Unlike other organized activities, khadi is an such area, where production cannot be multiplied by overnight planning, since it is a labour intensive hand operative process. Any proposal to enhance the production during Eleventh Plan requires a long- term perspective planning instead of ad-hoc decision.

The Government of India provides rebate to the KVIC for Khadi & Polivastra on a year to year basis. The sub group is of the view that the Government may consider to allocate the necessary funds under non plan head of KVIC instead of Plan so that planned expenditure would not suffer. It is, however, recommended that the present system may continue till an alternative scheme of Marketing Development Assistance (MDA) is accepted by the Khadi institutions. In this regard, KVIC has introduced Market-ing Development Assistance

Scheme in place of khadi sales rebate in a few selected khadi institutions on pilot basis. KVIC should take adequate promotional measures to popularize MDA scheme so that it becomes acceptable in place of present rebate scheme over the years.

The Group recommends up-gradation of existing training centres, establishment of new training centres and redesigning of existing training courses to make the training contemporary, more effective and utilitarian.

The following new schemes are recommended for availing financial assistance during Xl Plan.

Package for Infrastructure ♦Development and Diversification of activities to VI programmes by Khadi Institutions’ including Nursing Fund for weak institutions, with the principal objective of replacement of charkhas and looms, which have not been replaced for more then ten years. It is also proposed to distribute the charkhas to new spinners and looms to new weavers who would be identified through a special drive. Nursing fund would be utilized to support weak category ‘0’ khadi institutions and revive them.

Scheme for Enhancing ♦Productivity and Competitiveness of Traditional Khadi Industries and Artisans’ with objective of achieving increased value addition to khadi products, readymade garments and muslin khadi by expanding the approach already approved under SFURTI.

Workshed-cum-housing for ♦khadi artisans/workers/spinners’ is a scheme which is identical to the scheme in operation in the Ministry of Textiles. Though KVIC had attempted to get ‘khadi’ included for availing assistance from the Ministry of Textiles, they have not succeeded. Hence it is now proposed as an independent scheme for KVIC but on exactly similar lines of the Ministry of Textiles. In this context, it is not entirely a new scheme.

‘Linking PMRY and REGP ♦for increased employment’ by enabling the beneficiaries of PMRY to graduate to higher scale of operations and projects that is possible with assistance under REGP. This would enable micro enterprises to graduate to small and medium enterprises, in course of time.


Mahatma Gandhi Institute ♦for Rural Industrialization (MGIRI), Wardha would be a National Institute of its kind and would provide the best possible scientific, technology and management inputs which would strengthen rural industrialization and enhance the opportunities of meaningful and productive employment in rural areas in KVI Sector.

Coir Industries

Under the Mahila Coir Yojana (recommended for continuing during eleventh Plan under Skill Up-gradation and Quality Improvement Scheme) it is proposed to provide a forward linkage by bringing Anugraha and Anupam Looms (compact metallic looms capable of being handled by the women artisans) under its purview and to provide training in weaving to the women artisans. In the case of SC/ST beneficiaries the percentage of subsidy proposed is at 80% as against 75% provided to all under the present scheme.

In the case of Development of Production Infrastructure Scheme, financial assistance is granted only to the Brown Fibre sector. The benefits would need to be extended to the White fibre sector including the cooperative sector too. Further,

it is also recommended to bring the spinning households and small scale manufacturing sector under the umbrella of this scheme and making them eligible for financial assistance for construction of loom shed, raft shed, repairing handlooms, retrofitting the existing rafts etc. Under the scheme Export Market Promotion, the Sub-Group recommended introduction of Technology Up-gradation Fund and establishment of a Design Clinic as also Coir External Market Assistance Scheme with funding support through Extra Budgetary Resources. While the Design Clinic appears well thought out and prima facie justified, the Coir External Market Assistance Scheme seeks to provide 4 per cent assistance on FOB value of Export to registered exporters of Coir and Coir products. The latter scheme however is not justified as Exports and External Markets need to be developed through schemes on the pattern of Market Access Initiative of the Department of Commerce, reverse Buyer-Seller Meets and more effective canvassing publicity of Coir and Coir products through our missions abroad and the Embassies of targeted countries with potential for export located in our own country.

In the case of Welfare Measures apart from the

existing insurance coverage provided to the coir workers against accidents at work place, it is proposed to give medical care and assistance for education of children of coir workers through appropriate programme. Further, the Group recommends continuation of Production Enhancement Linked Coir Workers’ Welfare Scheme, which was introduced in the coir sector on an experimental basis during 2005-06.

Sub-Group has recommended 2 new Schemes namely: Coir Industrial Technology Upgradation Scheme (CITUS) and Rejuven-ation of Coir Sector and Modernization Programme for Coir Industry. Scheme of CITUS, however, is not recommended as an exclusive or new scheme as it is an amplified attempt at replicating the approach under SFURTI. However, the essential components have been proposed for inclusion in the other new scheme of ‘Rejuvenation of Coir Sector and Modernization Programme for Coir Industry’ which is recommended for implementation during Eleventh Plan.

The Scheme of ‘Rejuvenation and Modernization of Coir Industry’ envisages replacement of outdated drudgery prone machinery and other ancillary


Components of NMCP and Current Status

S. No.

Component Short Name Current StatusAs on

December, 2009

1. Marketing Support / Assistance to MSMEs BAR CODE

BAR CODE Operational

2. Support for Entrepreneurial and Managerial Development of MSMEs through Incubators

INCUBATOR Operational

3. Setting up Mini Tool Room & Training Centres

MTR Operational

4. Building Awareness on Intellectual Property Rights (IPRs) for MSMEs

IPR Operational

5. National Programme for Application of Lean Manufacturing Competitiveness

LEAN Operational

6. Enabling Manufacturing Sector to be Competitive through Quality Management Standards and Quality Technology Tools

QMS/QTT Operational

7. Technology and Quality Upgradation Scheme for MSMEs

Quality Operational

8. Marketing Assistance for SMEs and Technology Upgradation Activities

MARKETING Under Approval

9. Promotion of ICT in Indian Manufacturing Sector

ICT Under Approval

10. Design Clinic Scheme to bring Design expertise to the Manufacturing sector

DESIGN Operational

equipments, strengthening of Common Facility Centres and mechanization of modern machinery for exporters. 60 per cent projects would be taken up in Kerala under this scheme and 40 per cent of the projects in other coir producing States. Expected achievement with implementation of the projects are Increased utilisation of husk, better conversion rate of husk, improvement in quality, productivity, better prices, creation of 50000 additional employment opportunities per year.

Technological Upgradation: Total outlay of this project is Rs. 50 crore (Rs. 10 crore every year) Project is to be implemented in five mega clusters one each in Kerala, Tamilnadu, Andhra Pradesh, Orissa and Karnataka through SPV consisting of representatives from Coir Board, State Government, lead banks and beneficiaries.

3.2.1.5 National Manufact-uring Competitiveness Programme (NMCP)

Providing competitive edge to the units in the Sector in the global environment has been one of the important cornerstones of the policies being pursued by the Government for sustenance of the sector. 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 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. The 10 components of NMCP address the entire gamut of manufacturing in the sector. The details of the components of the Programme and the status of their implementation are shown in the following Table: -


Details of the various programmes are as follows:

I. Bar Coding

Bar Coding has emerged as an important marketing tool having wide global acceptability. In order to encourage units in the sector to adopt Bar Coding, a provision for reimbursement of 75% of one-time Registration Fee (w.e.f. January 1, 2002) and Annual Fees for the first three years (w.e.f. June 1, 2007) paid to GS1 India (formally EAN India), by MSEs for adoption of Bar Coding has been made under SSI-MDA Scheme. Besides, there is a provision for organising a one-day Sensitisation/ Awareness Programmes and preparation of publicity material for MSEs and other stakeholders concerned.

II. Support for Entrepreneurial and Managerial Development of MSMEs (INCUBATOR)

The concept of Business Incubation is a relatively new concept for MSMEs. The “Support for Entrepreneurial and Managerial Development of MSMEs” (INCUBATOR) Scheme of the NMCP makes available a new window for supporting and nourishing businesses based on new ideas. Under the Scheme, Knowledge Institutions like Engineering Colleges,

Research Labs etc. are provided a financial assistance upto Rs.6.25 lakh for incubating each of the new ideas. The Incubator provides technology guidance, workshop and lab support and linkages with other agencies for successful launching of the business and guides the entrepreneurs in running the business for the next 2-3 years. The approved Plan expenditure under the Scheme is Rs. 135 crore with a mission to incubate 2000 ideas during Eleventh Five year Plan.

III. Setting up Mini Tool Room (MTR) & Training Centres under PPP Mode

The M/o MSME, Government of India will be implementing a Scheme called “Setting up Mini Tool Room & Training Centres under the PPP Mode”, through rendering financial

assistance to Private Partners/States/State Agencies during XI Five Year Plan. The Tool Room facilities are the backbone of manufacturing sector as these create dies, tools, moulds, jigs, fixtures, gauges and precision components in the absence of which production units cannot operate at all. The objective of the Scheme is to develop more tool room facilities for providing greater technological support to MSMEs, through creation of capacities in the private sector for designing and manufacturing quality tools and provision of training facilities in the related areas. The total project cost for the Scheme is Rs. 210 crore including the Government of India’s contribution of Rs. 135 crore. The scheme will be implemented through the following 3 models in order of preference: -

Model Model Tool Room to be Set-up and Managed by

Quantum of Financial Assis-tance by Government of India

I. Private Partner, i.e., an individual, firm, company, association, NGO or society (Central PPP Model)

Restricted to 40% of the project cost or Rs. 9.00 crore whichever is less.

II. SPVs set up by the States in partnership with private partners. (State PPP Model)

90% of the cost of machinery and equipments restricted to Rs. 9.00 crore.

III. State Govt. or State Agencies, other than NGOs (Centre-State model)

90% of the cost of machinery and equipments restricted to Rs. 9.00 crore.


IV. Building Awareness on Intellectual Property Rights (IPRs)

One of the components of the NMCP is “Building Awareness on Intellectual Property Rights (IPRs)” for the MSMEs. The objective here is to create and enhance awareness about Intellectual Property Rights (IPRs) among the units in the Sector so as to enable them to take appropriate measure for protecting their ideas and business strategies and also avoiding infringement of the intellectual property belonging to others.

The scheme is under implementation during Eleventh Five-year Plan. The scheme provides financial assistance for taking up the following identified initiatives:

(1) Awareness/ Sensitisation Programmes on IPRs;

(2) Pilot Studies for Selected Clusters/ Groups of Industries;

(3) Interactive Seminars/Workshops;

(4) Specialized Training;

(5) Assistance for Grant of Patent/ GI Registration;

(6) Setting up of IP Facilitation Centre and

(7) Interaction with International Agencies.

These initiatives are being developed through Public-Private Partnership (PPP) mode for encouraging economically sustainable models for overall development of MSMEs. The eligible applicants/beneficiaries contribute a minimum of 10% of the Central financial assistance. The Project Implementation Committee (PIC) responsible for the day-to-day implementation of the programmes and making recommendations approval of specific proposals, has approved organizing of 23 Awareness/Sensitisation Programmes on IPRs to be organised by different organisations throughout the country; setting up of a IP Facilitation Centre specially for Bio-tech Units; organizing of four Workshops on IPRs for Leather Cluster / IT Cluster and a Pilot Study for the Bamboo Cluster.

V. National Programme for Application of Lean Manufacturing

The main objective of the Lean Manufacturing Competitiveness Scheme (LMCS) is to bring the manufacturing competitiveness in the MSME Sector. Lean Manufacturing (LM) involves applying Lean Techniques (e.g. Total Productive Maintenance (TPM), 5S, Visual control, Standard Operation Procedures,

Just in Time, Kanban System, Cellular Layout, Poka Yoke, etc.) to identify and eliminate waste and streamline a system. The focus is on making the entire process flow, not improving only a few operations. Worker empowerment is also emphasized throughout the effort.

The approach involves engagement of Lean Manufacturing Consultants (LMCs) to assess the existing manufacturing system of member units of the Mini Cluster(s) and stipulate detailed step by step procedures and schedules for implementing and achieving of lean techniques. A Special Purpose Vehicle (SPV) will be formed in each cluster. It is expected that once MSMEs are introduced to the benefits and savings that accrue from LM techniques, they would themselves continue the Scheme from the second year onwards at their own expense. A three tier implementing structure is in place with a group of 10 or so MSMEs (SPV) at the lowest local-tier and a Lean Manufacturing Screening and Steering Committee (LMSSC) under DC (MSME) at the highest tier. The intermediate tier, National Monitoring and Implementing Unit (NMIU) is responsible for facilitating implementation and monitoring of the Scheme.


For the Pilot phase of 100 Mini Clusters, it is envisaged that NPC (National Productivity Council) would function as NMIU.

A financial support by the Government of India upto a maximum of 80% of the Consultant fees for each Mini Cluster will be provided. Remaining 20% is to be borne by the beneficiaries MSME units. Interested industry associations / Group of approx. 10 MSME units which qualify under MSME-Development Act, 2006 willing to form SPV (Mini Cluster) can apply for this.

VI. Enabling Manufacturing Sector to be Competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTT)

During the year 2008-09, the Government of India launched a scheme under National Manufacturing Competitiveness Programme (NMCP) called “Enabling Manufacturing Sector to be Competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTT). A budgetary are provision of Rs. 40 crore for 4 years, has been made under the Scheme. The scheme aims at improving the quality of the products in the MSME sector and inculcating quality consciousness among units of

the sector. The major activities to be undertaken under this scheme are: -

Introduction of Appropriate ♦Modules for Technical Institutions with target coverage of 2000 technical institutions;

Organising 100 Awareness ♦Campaigns every year for Micro and Small Enterprises;

Organising Competition- ♦Watch (C-Watch) every year in two sectors;

Implementation of Quality ♦Management Standards and Quality Technology Tools in 100 Selected Micro and Small Enterprises every year; and

Monitoring at least 2 ♦International Study Missions per year.

VII. Energy Efficiency and Quality Certification Support for MSMEs

The objective of the Scheme is to sensitize the manufacturing (MSME) sector in India to upgrade their technologies, usage of energy efficient technologies to reduce emissions of Green House Gases, adoption of other technologies mandated as per the global standards, improve their quality and reduce cost of production etc. towards becoming globally competitive.

The objectives will be achieved through the following major activities:

Capacity Building of ♦MSME Clusters for Energy Efficiency/Clean Development Interventions and other technologies mandated as per the global standards

Implementation of Energy ♦Efficient Technologies in MSME sector

Setting up of Carbon ♦credit aggregation centres for introducing and popularising clean development mechanism in MSME clusters

Encouraging MSMEs to ♦acquire product certification licences from National/International bodies and adopt other technologies mandated as per the global standards

Under the Scheme, awareness about Energy efficient and environment friendly technologies will be created in at least 60 MSME Clusters, Energy Efficient technologies will be introduced in 390 MSMEs, Clean Development Mechanism (CDM) will be introduced in at least 16 MSME Clusters, Support product certification to National / International Standards,


including Energy Efficiency and Safety Standards in at least 4000 MSMEs etc. The Scheme is targeted to achieve at least 15% reduction in consumption of conventional fuels in the identified Energy Intensive Clusters leading to reduction of carbon Footprints and enhancing environmental sustenance.

VIII. Marketing Assistance for SMEs and Technology Upgradation Activities

The objective of this programme envisages that some of those clusters of MSMEs, which have quality production and export potential, shall be identified & encouraged and assisted through this scheme to achieve competitiveness in the national and international markets. The programme aims at improving the marketing competitiveness of MSME sector by improving their techniques and technologies’ promotion of exports and to provide a check on imports also.

The broad activities planned under the scheme include Technology up gradation in Packaging, Skills up gradation/Development for Modern Marketing Techniques, Competition Studies of threatened products, Special components for North Eastern

Region (NER), Identification of new markets through state/district level, local exhibitions/trade fairs, Corporate Governance Practices, Market-ing Hubs and Reimbursement to ISO 18000/22000/27000 Certification. The scheme will be implemented in a Public Private Partnership (PPP) Mode. The scheme is under final stage of approval.

IX. Promotion of ICT in Indian Manufacturing Sector

The objective of this programme envisages that some of those cluster of MSMEs, which quality production and export potential, shall be identified & encouraged and assisted in adopting ICT application to achieve competitiveness in National & International markets. The total GOI contribution during 11th Plan is stipulated as Rs 160 crore (approximately) for the scheme. The broad activities planned under the scheme include, identifying target cluster for ICT intervention, setting up of E-readiness infrastructure, developing web portals for clusters, skill development of MSME staff in ICT application, preparation of local software solution for MSMEs to enhance their competitiveness, construction of e-catalogue, e-commerce etc. and networking

MSME cluster portal on to National level Portal in order to outreach MSMEs into global markets. 200 potential clusters across the country will reap the benefit from the scheme.

X. Design Clinic Scheme to bring Design expertise to the Manufacturing sector

The main objective of the Design Clinic is to bring the MSME sector and design expertise into a common platform, to provide expert advice and solutions on real time design problems, resulting in continuous improvement and value addition for existing products. It also aims at value added cost effective solutions. These Design Clinics in clusters of the country are to usher in a continuous competitive advantage to the MSMEs. The broad activities planned under the scheme include creation of Design Clinics Centre along with four regional centres for intervention on the design needs of the MSME Sector. Further, these centres will have linkages with engineering, management, design institutes of the country. The scheme will be implemented in a Public Private Partnership (PPP) Mode. The scheme is under final stage of approval.


3.2.1.6 PM Task Force

The Hon’ble Prime Minister has constituted a Task Force on Micro, Small & Medium Enterprises to review the problems of the MSME Sector. The Task force is chaired by the Prime Minister’s Principal Secretary along with Member, Planning Commission, Finance Secretary, Ministry of Finance, Secretary MSME, Ministry of MSME, Secretary Labour, Ministry of Labour and Employment, Deputy Governor, RBI, CMD, SIDBI, and Development Commissioner, MSME, Ministry of MSME and select representatives of MSME Associations as Members.

The composition of the Task Force addresses the core issues raised by MSME bodies. The Task Force has set up seven sub-groups in the areas of credit, marketing, Infrastrcture / Technology / Skill Development, Exit Policy, Labour, Taxation, matters relating to Special Package for North East and Jammu & Kashmir. The major recommendations of the PM’s Task Force are:

Credit

The Task force made the following recommendations for enhancing the flow of credit to MSMEs:

All the � scheduled commercial banks should

achieve a 20% growth in credit year-on-year to micro and small enterprises and strictly adhere to the allocation of 60% thereof to micro enterprises to ensure enhanced credit flow. From April 01, 2010, shortfall of any bank against the already accepted target of 60% to micro enterprises (of the total lending to MSEs) may be put into an appropriately named corpus with the Small Industries Development Bank of India (SIDBI). This would facilitate additional credit flow of over Rs.3 lakh crore to micro enterprises from the scheduled commercial banks over a period of 5 years.

A target of 15% annual �growth in number of micro enterprise accounts may be stipulated for all scheduled commercial banks till financial inclusion has been substantially achieved. Reserve Bank of India (RBI) may issue necessary instructions in this regard. This would help in covering an additional 30 lakh micro enterprises under institutional credit in a period of 5 years.

The stimulus package �announced by the government/RBI/IBA may be extended upto March

31, 2011 including special refinance facility of Rs.7,000 crore provided to SIDBI.

A Committee under the �chairmanship of Member (Industry), Planning Commission, with the Secretary, Department of Financial Services, Chairman, Indian Banks’ Association and representative of the industry as Members and the Secretary, Ministry of MSME as its Member Secretary may be constit-uted. The Committee may (i) Monitor the overall credit flow to the MSME sector at regular intervals; (ii) Look into the existing interest subvention schemes for the agriculture and housing sectors to examine the extent of replicability for the MSEs; (iii) Identify institutional bottlenecks in the flow of credit to the sector; and (iv) Suggest policy measures for augmenting credit flow to the MSME sector.

The ability of MSMEs (espe- �cially those involving inno-vations and new technolo-gies) to access alternative sources of capital like angel funds/risk capital needs to be enhanced considerably. For this purpose, removing fiscal/regulatory impedi-ments to use such funds by


the MSMEs should be con-sidered on priority.

SIDBI may constitute an �Advisory Group comprising members from M/o MSME, D/o Financial Services and representatives of MSME Associations for monitoring the operations of Special Cell set up to provide refinance for micro/unorganised sector enterprises. The Group may periodically meet to resolve any problems relating to lending of funds earmarked for micro enterprises. The Group may also review the effectiveness of this arrangement after a year to decide on the need for a separate body for this purpose.

Securities and Exchange �Board of India (SEBI) may expedite the process of setting up of SME Exchanges in consultation with all the stakeholders.

The recommendations of �the High Level Committee to review the Lead Bank Scheme under Smt. Usha Thorat, Deputy Governor, RBI may be implemented on priority basis to facilitate banking penetration and to strengthen the monitoring systems at State/District level.

The Task Force noted that a �Working Group under the chairmanship of Executive Director, RBI is looking into the issues regarding: (a) Enhancement of the collateral-free loan limit for MSEs from Rs.5 lakh to Rs.10 lakh; and (ii) Absorption of the one-time guarantee fee and annual service charges by the banks under the Credit Guarantee Scheme to facilitate higher flow of credit to MSEs without collateral/third party guarantee. The Working Group may submit its report within 3 months.

The Task Force noted that �the RBI has constituted a Working Group on ‘Securitization of Trade Credit Receivables’ to examine various options for liquidating the receivables before maturity. This process need to be expedited for larger benefits to MSMEs. Further, the D/o Financial Services may look into the issue of evolving a suitable legal framework for promotion of factoring services without recourse in the country for MSMEs.

Banks should approve �project loans (comprising of both term loan and working capital) for MSEs to avoid delay in tying up of

funds by the MSEs. The RBI may consider making this mandatory for the banks.

Banks may be encouraged �to use scoring model so as to have speedy disposal of loan applications of micro and small enterprises.

In order to simplify �the process of credit dispensation to micro enterprises, a uniform loan application form for loans up to Rs.25 lakh should be devised by the IBA that should be applicable to all the banks. The D/o Financial Services may bring out a model form within 3 months.

All the banks may adopt �Banking Code for MSEs to bring about uniformity in operations. Department of Financial Services, Ministry of Finance may examine this issue through RBI.

Banks should be encouraged �to participate in organizing joint programmes relating to entrepreneurship and skill development. RUDSETI, which is promoted by the banks, should also impart entrepreneurship and skill development training for different MSME clusters.

Taking into account the �recent experience during the economic slowdown,


banks may extend liberal moratorium on their term loans and working capital to MSEs by including interest during first 6-12 months of operation as part of the long term funding of the projects.

Banks may put in place �an electronic tracking system for ensuring timely approval/rejection of loan applications of MSEs and they should be informed about the reasons for rejection of their loan application within a definite period. For this purpose, Banks may have a dedicated cell at the Regional Office level to monitor the progress of applications received till its final disposal. RBI may suitably advise the Banks in this regard.

The Lead Bank in association �with the District Industries Centre should prepare a shelf of project profiles on a periodic basis for different viable activities which have a good potential. The progress in this regard may be monitored at the District, State and Central level.

Each lead bank of a district �may adopt at least one MSE cluster and banks should open more MSE focused branch offices at different

MSE clusters which can also act as Counseling Centres for MSEs.

While loans up to Rs.50,000 �are covered under micro finance, banks are generally not inclined to provide loans below Rs.5 lakh due to a high risk perception and transaction costs. Banks may lend to pool of micro entrepreneurs who have been financed by Micro Finance Institutions and are now ready for borrowing at higher levels in the missing middle segment of Rs. 50,000 to Rs. 5 lakh by covering them under the Credit Guarantee Scheme.

Banks should encourage �their officials to undergo specialized certificate course run by Indian Institute of Banking and Finance on the subject of SME Finance for Bankers by suitably incentivising them. The Task Force noted that an incentive scheme already exists in the Banks.

The Ministry of MSME may �set up an ‘MSME Helpline’ after detailed discussions with the Departments/agencies having similar ‘Helplines’ to ensure that the same is successfully implemented.

Rehabilitation and Exit Policy

MSMEs get continuously created and destroyed. Even temporary disruptions can render them sick. The Task Force made the following recommendations for their rehabilitation and exit.

The Limited Liability �Partnership Act 2008 (LLP) provides for enabling schemes of revival as well as liquidation and winding up. The Ministry of Corporate Affairs has also introduced the Companies Bill 2009 which includes a provision for a ‘one person company (OPC)’. The MSMEs need to be encouraged/ incentivised to convert to these forms through: (a) increasing awareness by organizing awareness campaigns across the country; (b) introducing a graded corporate tax structure with base rates lower than the income tax slab rates in terms of the new Direct Tax Code; and (c) keeping registration and transaction costs low for adopting the LLP or OPC mode.

Banks have existing �mechanism/ procedures for rehabilitation/ restructuring of potentially viable sick MSMEs. However, as the


track record of the sick units is generally poor, the bankers are often reluctant to rehabilitate such units. Consequently, very few units are being rehabilitated by banks. Moreover, these mechanisms do not provide protection from statutory dues or other creditor action. There is, therefore, a need for an alternate mechanism to re-examine the viability of such units and implement a rehabilitation package in a time bound manner. It is suggested that for MSME units found to be unviable by the banks, an administrative mechanism may be put in place at district level, under the GM (DIC) to reexamine the viability and implement a rehabilitation package, wherever necessary. The rehabilitation package may comprise, besides additional lending by banks, of relief and concessions in statutory dues by the State Governments/autonomous bodies, Power Supply Company etc. Since the promoters often find it difficult to infuse fresh funds to the extent required by the Banks, Rehabilitation funds specially set up by the State Governments could part-finance promoters

margin money requirement. The Central Government may support the setting up of rehabilitation funds in the States to facilitate and encourage rehabilitation of potentially viable sick units. An appropriate scheme should be formulated by Ministry of MSME with an estimated outlay of Rs.1,000 crore. District Level Committees will be convened by GM, DIC and comprise of representatives of leading banks, representatives of SIDBI and SFC/SIDC, state government officials including representat-ives of power supply company (whether Government or private) and MSME Associations. The rehabilitation Cell set up in DICs will form the Secretariat of these committees. It will receive and monitor the applications and will also draw up a panel of Technical Officers/ Chartered Accountants to provide assistance in the preparation of the rehabilitation packages. The Rehabilitation cell in consultation with the entrepreneur shall prepare the rehabilitation packages and place before the Committee for approval.

The entire process of preparation of rehabilitation plan to finalization of the rehabilitation package should be completed in 2 months time. Till the rehabilitation package is finalized, all statutory and bank payments will be kept in abeyance. This will be binding on all parties by issuance of Government order by the State Government. In order to incentivize quick sanction and implementation of the rehabilitation packages, RBI may permit the asset classification of the account to be retained as prevailing on the date of reference provided the scheme is implemented within 90 days of the reference without taking cognizance of the restructuring/ reschedulement that may have been allowed by the banks earlier. The banks should devise a liberal OTS policy for small enterprises particularly micro enterprises found unviable by the District level Committee.

In place of the outdated Pro- �vincial Insolvency Act, 1920, action may be initiated to formulate and circulate a model Insolvency Act with-in 6 months which will have


enabling provisions for time bound revival and exit for the unincorporated firms. The model Act should take into consideration the fol-lowing 4 critical elements: (a) a specialized quasi-judi-cial body, to appraise viabil-ity and set up time bound revival/ closure plans; (b) enabling provisions for a holding period for revival; (c) segregation of business assets from personal assets based on reasonable norms; and (d) speedy winding up in case the business is deter-mined as nonrevivable.

Taxation Matters

The Department of Revenue in collaboration with MSME Asso-ciations (including CII)shall organize seminars/workshops on GST, with special sessions for MSMEs, for widerdebate and allaying the appre-hensions of the MSMEs about GST.

Department of Revenue �to convene separate pre-Budget meetings for discussing issues relating to MSMEs.

To evaluate the impact of �not allowing exemptions for MSMEs under GST, the Federation of Industries in the North East Region (FINER) will undertake

studies of specific products produced in both MSME and large sectors analyzing the cost impact of taxes on MSMEs vis-à-vis large enterprises.

Department of Revenue �may examine the suggestion regarding raising the limit for tax audit from Rs. 40 lakh to Rs.1 crore in 3 months time.

The scope of presumptive �taxation has been extended to all small businesses with a turnover of Rs. 40 lakh, which provides the option to all such taxpayers to declare their income from business at the rate of 8% of their turnover and simultan-eously enjoy exemption from the compliance burden of maintaining books of accounts. The Department of Revenue and the Ministry of MSME may jointly organize awareness programmes on presumptive taxation for MSMEs.

MSME Associations will �take steps to guide their members in the facility of e-filing of IT returns through interactive workshops.

Labour Issues

Recognising that the transaction cost for compliance of labour laws is disproportionately high

for the MSMEs, the Task Force made the following recommen-dations:

All out efforts may be �taken to get the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Amendment Bill passed. The amendment will increase the coverage of the Act to existing 16 Acts and ‘small’ establishments will cover employees between 10 to 40 workers as against 19 in the Principal Act. Further, the Ministries of Labour and Employment and MSME may jointly examine the feasibility and desirability of a separate legislation (single & comprehensive) for MSE Sector.

The ESIC and EPF Acts may �be examined by the Ministry of Labour & Employment in consultation with stakeholders with a view to find if the social security objectives under these Acts could be met through other mechanisms. Further, the Ministry may also examine ways of utilizing Rs.5000 crore lying unclaimed with EPFO for the welfare of workers and bring it for approval within 3 months.


To reduce compliance costs, �merger of ESIC and EPFO forms into a single form with separate entries for ESIC and EPFO and payment through a single cheque in respect of the deposits against three EPF Schemes may be done within 30 days.

The Task Force noted that �computerization of the activities of ESIC and EPFO is in process. The same needs to be expedited.

The amendments in the �Factories Act, 1948 may be undertaken in consultation with the Ministry of MSME and MSME Associations.

Infrastructure/ Technology/Skill Development/Institutional Structures

Infrastructure

Local bodies may be encouraged to set aside substantial part of the collections derived from industrial estates, to upgrade infrastructure such as roads, drainage, sewage, power distribution, water supply distribution, etc. for the existing industrial estates. Alternatively, industrial estates could be notified as separate local bodies as envisaged in the Constitution and entrusted with municipal functions that shall include levy of taxes, responsibility to maintain

the infrastructure within the Industrial Estate, etc. As this may involve some reforms/changes in the existing laws/administrative arrangements, a suitable reforms-cum-financial package (tentatively estimated at Rs 500 crore) may be evolved to incentivise the State Governments, within 3 months.

Expand the scope of the �existing Integrated Infra-structural Development (IID) scheme of Ministry of MSME to cover the private sector.

For new industrial parks/ �areas being developed un-der various programmes of different Ministries, where there is no specific provision for locating MSEs, it may be made mandatory to earmark at least 40-45% (preferably 60%) of available land for MSEs.

Flatted Factory Complexes �may be set up, particularly in and around large cities for MSEs on PPP mode. On similar lines, dormitories for industrial workers in indus-trial estates may be set up.

Setting up of common fa- �cility services in the indus-trial estates/clusters on PPP mode be encouraged by pro-viding adequate assistance under various on-going schemes of the Ministry.

Encourage setting up/ear- �marking of at least one in-dustrial estate in each block for MSEs. Wherever possi-ble, private sector participa-tion may be encouraged.

TechnologySet up a mechanism in the Ministry of Defence to ensure that the offsets under defence purchases are suitably focused to support the small and medium enterprises in upgrading theircapacities, capabilities and technology. Ministry of MSME may be associated in this exercise.

The Offset Policy for other departments under consideration should also give priority for extending on the benefits under the off-set policies to the MSMEs in the country. The mechanism for review should include a representative of the MSME.

The initiatives taken under �National Manufacturing C o m p e t i t i v e n e s s Programme (NMCP) by the Ministry of MSME for technology upgradation and competitiveness, such as Application of Lean Manufacturing, Implementation of quality management system and quality technology tools, Design Interventions for MSME sector, Scheme for Marketing Assistance, etc.,


be further strengthened and the required flexibility in operationalising such initiatives should be encouraged. The adoption of ICT (Information and Communication Technology) for MSMEs be encouraged on highest priority to enable SMEs to compete in global market.

A coordinating body (to �function as a Technology Bank) be established for continuous interaction with various agencies engaged in development of new technologies for the MSMEs like Department of Science and Technology, Department of Scientific and Industrial Research, Depart-ment of Bio-Technology, Council of Scientific and Industrial Research, etc., for dissemination of information on appropriate technologies among the MSMEs. This body may also have representatives of MSME Associations.

A symbiotic relationship �between the MSME clusters and the Technical Institut-ions be developed by linking each cluster with a Technical Institution to solve the technical and design related problems of the MSMEs.

All stakeholders should �extend financial support to engineering/technical institutes for undertaking research for technological upgradation in MSMEs. To encourage such research, 150% deduction be allowed for contribution made towards funding of R&D work in the engineering/technical institutes under section 10 (21) of Income Tax Act.

Funding to about 1,000 �e n g i n e e r i n g / t e c h n i c a l institutes located across the country be provided for setting up of Business Incubators. Schemes of Department of Science and Technology/MSME may be upgraded and enhanced for this purpose with an additional investment of Rs 1000 crore. For supporting innovations and technology advancement in rural areas, the Council for Advancement of People’s Action and Rural Technology (CAPART) under the Ministry of Rural Development should play a more active role and should come out with specific schemes in this regard.

A Technology Acquisition/ �Development Fund or an

appropriate scheme be for-mulated in consultation with the Planning Com-mission and others within 3 months to support MSMEs to undertake technology acquisition, adaptation and innovation to enable them to move up the value chain and effectively meet the challenges of a competitive environment. The funds for this purpose, estimated at Rs 1500 crore, may be made available through budget-ary sources. A substantial part of the fund should go towards promotion of clean technologies among MSMEs so as to meet our national commitment to reduce emis-sion intensity by about 20% between 2005 & 2020.

To strengthen the �infrastructure of existing product-specific technology development centres and set up new such centres in different parts of the country in collaboration with MSME Associations/Industry, a scheme may be evolved in consultation with the Planning Commission. Setting up of new institutions in collaboration with MSME Associations/Industry may be actively encouraged.


Skill Development

The Task Force noted that the Government has already put in place a comprehensive institutional structure for Skill Development. This consist of (i) National Council on Skill Development headed by the Prime Minister of India - to lay down broad policy objectives, financing, governance models and strategies; (ii) National Skill Development Coordination Board in the Planning Commission - to implement the decisions of the National Council and develop approp-riate operational guidelines and instructions; and (iii) National Skill Development Corporation - to enable the corporate sector to initiate major steps in skill development. The PM’s National Council has set a target to train 500 million people by 2022. Further, the Government has also approved the National Policy on Skill Development with the objective to create a workforce empowered with improved skills, knowledge andinternationally recognized qualifications to gain access to decent employment and ensure India’s competitiveness in the dynamic global labour market. The Task Force was of the view that skill development initiatives for MSMEs would have to be dovetailed with the overall national framework of

the skill development. Under these overarching objectives, the Task Force recommended the following:

The Prime Minister had �recommended that State Government may make available the existing Government infrastructure like school/college buildings, etc. to the private sector for running entrepreneurship/ski l l development courses. The recommendation of the Prime Minister should be pursued. The Ministry of MSME may take up the matter with the Ministry of HRD and the State Governments.

To integrate entrepreneur- �ship/skill development with the secondary, intermediate and university level education, appropriate course curricula be designed and developed by a central entrepreneurship/ski l l development organisation and included in the curricula of the education system all over the country.

Linkages between industry �and entrepreneurship/skill development centres be strengthened by incentivis-ing Industry Chambers /Associations to set up skill development centres.

Existing Entrepreneurship/ �Skill Development Centres (both public and private) should give special thrust on training of trainers to ensure a cascading effect. For this purpose, the Ministry of MSME may develop course modules for ‘Training of Trainers Programme’ through its National Entrepreneurship Development Institutes.

The Ministry of MSME �should expand the cover-age under its existing en-trepreneurship and skill de-velopment programmes by adopting innovative models like tieups with NGOs, edu-cational and technical insti-tutions, Entrepreneurship Development Institutes and e-learning. Infrastructure of specialized entrepreneur-ship/skill development in-stitutions in government sector may also be suitably scaled up for this purpose.

Setting up of �entrepreneurship/ski l l development in private sector be encouraged through various programmes/schemes of the Ministry of MSME. For this purpose, the Ministry of MSME may evolve a system to part compensate the cost of training through financial assistance to trainees. This


could either be a new scheme or a component under any of the existing schemes for skill and entrepreneurship development.

To establish a strong �relationship between the students of ITIs, poly-technics, engineering and other institutes, the Apprenticeship Act should be reviewed and, if possible, enlarged so that MSEs are encouraged to provide on-the-job training. Draft amendments should be prepared in consultation with Member, Planning Commission and others within 3 months.

The local Panchayati Raj �Institutions should be involved in imparting the required training to the artisans and village industry workforce. The Ministry of MSME may firm up the proposal in consultation with the Ministry of Panchayati Raj/Rural Development.

Awareness for innovative/ �new vocations based on the requirements of industry in domestic as well as international markets should be created to encourage youth in undertaking such activities.

The above initiatives may �require additional funding

of Rs. 500 crore for existing and new schemes.

Institutional Structures

There are multiple Government agencies engaged in the formulation of policy for the MSMEs and its implementation, often with overlapping schemes. While the Ministry of MSME has the overall mandate for promotion and development of MSMEs in the country, different ministries have their own policies and programs for the MSMEs in their sectors or functional areas. There is a need for a co-ordinated and comprehensive institutional framework for maximizing results of the various initiatives taken by the government. This framework also needs to be extended to the point of delivery with appropriate structures at the district level. The Task Force recommended the following.

Government should �set up an independent body at the national level for the promotion and development of MSMEs. This body may provide financial and managerial support for setting up of industrial estates/common facilities in partnership with the private sector, administer schemes for the unorganized sector, promote technology

deve-lopment (including clean technologies), provide marketing support and coordinate & disseminate information relevant to MSMEs. Currently, the Development Commissioner (MSME) is the focal point for all policy matters, formulation of various promotional and developmental schemes as well as channelizing certain incentives and subsidies to the MSME sector, the Small Industries Development Bank of India (SIDBI) is the principal financial institution for financing and related promotional and development work for MSMEs, while the National Small Industries Corporation Limited (NSIC) has been set up to facilitate MSMEs in procurement of raw material and helping in marketing of their products. In addition, various Ministries/Departments of the Government have promotional policies and developmental schemes for the MSMEs in their specific sector. The proposed independent body could use the existing structures of aforesaid organizations with appropriate changes in their charter and mandate. The experience of other countries


with such institutions (such as the Small Business Administration, in the United States) may be considered while deciding on the mandate and structure of the National level institution.

As institutional re-building �is an intricate task, an Ex-pert Group may reflect on this and come up with suit-able recommendations on the structure and mandate of this body within a time-frame of three months and submit these to the Prime Minister. This Expert Group may be headed by Member, Planning Commission, and comprise of Deputy Gover-nor, RBI; Secretary (MSME); DC (MSME); CMD SIDBI; and CMD NSIC.

At the district level, concrete �steps will be taken to revamp the District Industries Centres (DICs) and ensure that they emerge as genuine agencies for the promotion of the sector. The DICs should be strengthened for providing comprehensive information on policies/schemes, project profiles on viable activities in the District, marketing support through organizing exhibitions, etc. A cell may be

set up in DICs for facilitating revival/rehabilitation of sick MSMEs. The infrastructure of DICs should be used for running entrepreneurship and skill development courses. The DICs should also assist MSMEs in obtaining credit facilities as well as monitor the credit flow to MSMEs from the financial institutions.

A well thought out, properly �funded Centrally Sponsored Scheme may be prepared to enable DICs to play a more active role in advocacy and capacity building for potential and existing entrepreneurs. This requires not only the strengthening of the DICs with provision of modern IT enabled communication facilities but also re-training of the human resources available with these institutions. Wherever viable, active involvement of the private sector for revamping the DIC network should be considered. Such re-engineering of the DICs may be supported by the Central Government by a grant of up to Rs. 1 crore per DIC.

Marketing

Implementation of a Public Procurement Policy for Micro & Small Enterprises

The Task Force was informed that Section 11 of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 includes a provision on ‘procurement preference policy’ to facilitate procurement of goods and services produced and provided by Micro and Small Enterprises by the Ministries and Departments of Central and State Governments, its aided institutions and Public Sector Enterprises. Further, internationally the MSEs are provided governmental support through targeted benefits/facilities such as earmarking of a specific percentage of government procurement for exclusive purchase from MSEs and assistance in marketing development, export promotion, etc. For instance, in USA, the Small Business Administration assigns annual goals for procurement by federal departments in consultation with them, for ensuring compliance of the legislated minimum procurement of 23 per cent from small businesses. Similarly, in South Africa, the 2000 Preferential Procurement Policy Framework Act provides that a preference point system must


be followed in awarding public contracts, in order to promote the advancement of people historically disadvantaged by unfair discrimination on the basis of race, gender or disability. A policy for public procurement from MSEs has been prepared by the Ministry of MSME after several rounds of consultation with the procuring Departments. This envisages an annual goal of procuring a minimum of 20 per cent of the total value of goods/services purchased by the Government from the MSEs. The policy would cover procurements by the Central Ministries/Departments, Central Public Sector Undertakings, Government projects as well as PPP projects. It was also informed that several procuring departments and agencies impose restrictive conditions such as minimum turnover criteria, availability of specific machines, procurement of specific brands, etc. These result in ousting MSEs from the bidding process. Based on the discussions held, the Task Force recommended that:

The Ministry of MSME may �bring up the policy before the Committee of Secretaries at the first instance. Further, the policy should include a mechanism for redressing the grievances of MSEs faced by them in Government

procurement, including imposition of unreasonable conditions in the tenders. Further, a joint exercise with Ministry of Corporate Affairs may be carried out to evolve norms of procurement for the private sector units.

Marketing facilitation to Micro, Small & Medium Enterprises (MSMEs)

The Task Force noted the Sub-Group recommendations with regard to strengthening of schemes like ‘Consortia For-mation’, ‘Brand Building’, ‘E-marketing through specialized MSME portals’, ‘Assistance in product designing & packag-ing’, ‘Assistance in publicity ofMSME products’ and holding of more domestic & international exhibitions in order to provide increased marketing support to the micro, small & medium en-terprises in the country. It was also noted that some of the exist-ing schemes being implemented by the Ministry of MSME are already catering to the needs of MSMEs in the areas of packag-ing, consortia formations and brand building, domestic and international exhibitions, etc. Based on the discussions held, the Task Force recommended that:

The Ministry of MSME �may further strengthen and enlarge its existing schemes relating to product

designing, packaging, setting up of marketing hubs, etc. in order to expand their reach and coverage of larger number of MSME units.

National Small Industries �Corporation (NSIC) may increase its operations un-der Consortia Formation and Brand Building to 4 – 5 times of its existing level of activity once the next three years.

NSIC to set up a special- �ized Cell to collect and dis-seminate both domestic and international marketing in-telligence in coordination with other relevant depart-ments/agencies like Min-istry of Commerce, India Trade Promotion Organiza-tion (ITPO), Federation of Indian Export Organization (FIEO), export promotion councils etc.

The NSIC may organize �at least 6 sector-specific International level trade fairs in metropolitan cities each year, wherein MSMEs may be provided built-up space at concessional rates to transact B2B business. Further, ITPO may organize product-specific special international exhibitions for MSMEs with involvement of NGOs and MSME Associations.


Distribution of Industrial Raw Materials to MSMEs

It was reported that MSME units have been facing difficulties in getting certain critical items of raw materials like iron & steel, aluminum, copper, zinc, plastic granules, bitumen, packaging paper etc., due to sharp fluc-tuations in market prices, non-availability of small quantities of such materials at reasonable prices and non-availability of some of the materials in time. NSIC and other State Corpora-tions have helped bridge the gap in the distribution of these raw materials which is substantially helping the MSMEs in making their operations competitive. Based on the discussions held, the Task Force recommended that:

NSIC should develop a �workable system for distri-bution of raw material to MSMEs in consultation with the MSME Associations and State agencies engaged in such activities.

Equity Support to NSIC

The Task Force noted that NSIC would require additional financial resources to implement the schemes / activities mentioned above. While NSIC could mobilize resources from the banks, it would require additional equity support to

leverage its net-worth and raise additional market borrowings. Based on the discussions held, the Task Force recommends that:

National Small Industries �Corporation (NSIC) should be strengthened and made the apex organization for coordination of marketing support programmes for MSMEs. For this purpose, the Government may pro-vide an equity support of Rs. 300 crore to NSIC.

Special Measures for North-East Region and Jammu & Kashmir

North-East Region

To develop synergies �among the various schemes of different Ministries/De-partments w.r.t. MSME, a Committee under the Chief Secretary and comprising of representatives of different Central Ministries/ Depart-ments may be constituted in consultation with M/o DONER.

The development focus to �shift on thrust areas with promising prospects, such as handicrafts, horticulture (including bamboo and bamboo application), textiles, live stock development, leather and food processing by pursuing

the cluster development approach more vigorously.

NSIC may evolve a scheme �in consultation with DONER and the State Governments to organize exhibitions of NER products in major State capitals. Suitable incentives may be worked out to neutralize the cost of transport and travel.

The infrastructure �of Indian Institute of E n t r e p r e n e u r s h i p , Guwahati be strengthened and its branches be opened in all the NE States with participation of the Central Government, State Governments and the industry.

The recommendations of the �Usha Thorat Committee Re-port on the Financial Sector Plan for NER, which are yet to be implemented or need further up scaling, action be undertaken expeditiously.

The Department of Financial �Services to encourage banks/FIs to promote micro finance culture and the capacity building in NER.

The Task Force noticed �the disparity in the utiliza-tion of subsidy under the NEIIPP- 2007 between the States. The respective State Governments may look into the reasons and work out re-medial measures.


Under the NEIIPP-2007, in- �centives may be allowed for subsequent expansion also in the case of existing MSMEs. However, there will be a ceiling of investment in plant and machinery/equip-ment of Rs.10 crore and Rs.5 crore for manufacturing and services respectively.

Under the Growth Centre �Scheme implemented by DIPP, release of funds amounting to Rs. 33.35 crore for 5 functional centres is pending. Since the scheme has been discontinued from April 1, 2009, the Ministry of MSME may honour these commitments by providing funds from the Micro and Small Enterprises-Cluster Development Programme (MSE-CDP).

Jammu & Kashmir

The special package for J&K �is similar to the package for the NER under NEIIPP- 2007 in respect of Interest Subsidy Scheme and Comprehensive Insurance Scheme. However, under Capital Investment Scheme, the subsidy provided under J&K package is 15% of the investment in Plant & Machinery subject to a maximum of Rs.30 lakh, whereas under NEIIPP-2007 it is provided @ 30%

of the investment in Plant & Machinery and there is no upper limit for claiming subsidy. For the MSME sector in J&K, the Capital Investment Subsidy Scheme may be implemented on the same terms and conditions as applicable to the North East Region under NEIIPP, 2007 after modification. Further, specifically for the MSME sector, subsidy may be allowed for first and subsequent expansion till the total investment in plant and machinery reaches the upper ceiling of Rs.10 crore (manufacturing/Rs.5 crore(services) as per MSME norms.

Presently in J&K the �definition of ‘new unit’ and ‘existing unit’ is based on ‘date of taking effective steps for setting up of a unit.’ On lines of NEIIPP-2007, units in the MSME sector commencing commercial production after 14.6.2002 may be treated as new units irrespective of whether effective steps to set up these units were taken prior to 14.6.2002.

With regard to 410 sick �units, which became sick due to disturbed conditions in the state, the financing pattern of the restructuring/rehabilitation packages

may include 70% as loan component from banks, 20% would be the interest free margin money from the Government and the balance 10% would be promoter’s own contribution. A Rs.100 crore fund may be set up for this purpose from the Plan resources of the DIPP. The Funds may be provided to Jammu & Kashmir Development Finance Corporation (JKDFC) for channelising the same to the banks concerned.

JKDFC may become more �active in the State since JKSFC is not providing loans. Further, JKDFC may be made member lending institution under CGTMSE.

Under the Growth Centre �Scheme implemented by DIPP, release of funds amounting to Rs.5.75 crore for 1 functional centre is pending. Since the scheme has been discontinued from 1.4.2009, the Ministry of MSME may honour these commitments by providing funds from the Micro and Small Enterprises-Cluster Development Programme.

Regarding revival of JKSFC, �the State Government should come out with definite plan for this purpose which should be examined by DFS.


Both NER & J&K

T � o meet the genuine subsidy claims, the Department of Industrial Policy and Promotion may indicate the amount of pending claims and estimate the approximate provisions required for the current year. The Task Force makes a special recommendation for providing adequate budgetary provisions in RE 2009-10 for meeting all claims pending as on 31.3.2009.

Regarding the particular �demands of MSME Associations like refund of central excise, taxation of incentives, abolition of minimum alternative tax, exemption from income and service tax, etc., a Group in the Prime Minister Economic Advisory Council may be requested to examine these issues vis-à-vis the proposed GST system and suggest measures to mitigate the concerns of the MSMEs and their Associations within a month.

3.2.1.7 Policy of Reservation

The Policy of Reservation of Products for Exclusive Manufacture in SSI (now MSEs) was initiated in 1967 with the objective of achieving socio-

economic development, through development and promotion of small units all over the country. This was expected to counter the challenges of regional industrial imbalances, employment generation through self-employment ventures, increased productivity, etc. However, with the gradual opening up of the economy, de-reservation had to be resorted to for providing opportunities to MSEs for technological up-gradation; promotion of exports and achieving economies of scale. Accordingly, the MSEs are being encouraged for modernization for enhancing their competitiveness for facing the challenges of liberalization and globalisation of the economy.

The items are reserved/de-reserved in accordance with Section 29(B) of the Industries (Development & Regulation) Act, 1951, which, inter-alia, provides for the constitution of an Advisory Committee headed by the Secretary (MSME). The Advisory Committee makes its recommendations for reservation/de-reservation in light of the factors like economies of scale; level of employment; possibility of encouraging and diffusing entrepreneurship in industry; prevention of concentration of

economic power to the detriment of the common interest and any other factor which the Committee may think appropriate. A total of 14 items have been de-reserved on October 10, 2008. At present, only 21 items are reserved for exclusive manufacture in micro and small enterprise sector.

3.2.1.8 Sector Specific Initiatives

a) Technology

Competitive Technology

In today’s fast paced global business scenario, technology has become more vital than ever before. With a view to foster the growth of MSME sector in the country, the Government has set up ten state-of-the-art Tool Rooms and Training Centres. These Tool Rooms provide invaluable service to the Indian industry by way of precision tooling and providing well trained craftsmen in the area of tool and die making. These Tool Rooms are highly proficient in mould and die making technology and promote precision and quality in the development and manufacture of sophisticated moulds, dies and tools. The Tool Rooms are not only equipped with the best technology but are also abreast with the latest advancements like CAD/CAM, CNC machining for tooling,


Vacuum Heat Treatment, Rapid Prototyping etc. The Tool Room and Training Centres also offer various training programmes to meet the wide spectrum technical manpower required in the manufacturing sector. The training programmes are designed with optimum blend of theory and practice giving the trainees exposure on actual jobs and hands-on working experience. The Tool Rooms have also developed special training programmes to meet the requirements at international level, which are attended by participants from all over the globe. The Ministry of MSME implements the following schemes and programmes for the upgradation of technology of MSMEs:

(i) ISO 9000/14001 Certification Fee Reimbursement Scheme:

To enhance the competitive strength of the MSEs, the Government introduced a scheme to incentivise technological upgradation, quality improvement and better environment management by the MSEs. The scheme reimburses 75% of the fees, subject to a maximum of Rs. 75,000, for acquiring Quality Management System (QMS) ISO 9000 certification and/or Environment Management System (EMS) ISO 14001 certification by the MSEs.

(ii) Micro and Small Enterprise Cluster Development Programme:

The Micro and Small Enterprise Cluster Development Programme (MSECDP) is implemented for holistic development of clusters of MSEs. The programme envisages measures for capacity building, skill development, technology upgradation of the enterprises, improved credit delivery, marketing support, setting up of common facility centers, etc., based on diagnostic studies carried out in consulta-tion with cluster units and their collectives and management of cluster-wide facilities by the cluster collectives. This is, in fact, the flagship scheme of the Ministry of MSME and it attempts to cover (in phases) all or most of the “Clusters of Micro & Small Enterprises” scattered throughout the country. It aims at a focused programme of upgrading skills and technologies that exist in these clusters through various stages, like proper diagnostic studies; interaction with the existing enterprises (on the recommendation of the study); exposing the entrepreneurs/workers to better products, processes & practices; upgrading the existing skills

available that finally lead to the creation of ‘Common Facility Centres’ (CFCs) that these enterprises could utilize. These CFCs can be in the form of processing facilities, finishing or packaging centres, tool rooms, testing/certifying laboratories, training centres and so on. Till October 2007, the Ministry of MSME has undertaken the development of over 400 clusters of village, micro and small enterprises; while 8 other Ministries and agencies of the federal government have also undertaken similar interventions in about 800 more clusters. India has now acquired considerable expertise in “Cluster Development Programme” and UNIDO as well as many developing countries are eager to learn about the Indian success story.

(iii) Credit Linked Capital Subsidy Scheme (CLCSS)

This programme specifically aims at assisting individual micro & small enterprises to replace their existing machinery with more modern and efficient ones, with State assistance of 15% of the bank credit required to finance the new purchases. The Ministry of MSME has assisted many micro enterprises in India.


(iv) Infrastructure Develop-ment

For setting of the industrial estates and to develop infrastructural facilities like power distribution network, water, telecommunication, drainage and pollution control facilities, roads, raw materials, banks. Storage and marketing outlets, common services, etc. for MSMEs, the integrated infrastructural Development (IID) Scheme was launched in 1994. The scheme covers rural as well as urban areas with a provision of 50 per cent industrial plots are to be reserved for the micro enterprises. The Scheme also provides for upgradation/strengthening of the infrastructural facilities in the existing industrial estates. The estimated cost (excluding cost of land) to set up an IID Centre is Rs. 5 crores. Central Government provides 40 per cent in case of other states and upto 80 per cent for North East Region (including Sikkim). J & K, H.P. and Uttarakhand, as grant and remaining amount could be loan from SIDBI/Banks/Financial Institutions or the State funds; the IID Scheme has been subsumed under the Micro and Small Enterprise Cluster Development Programme (MSECDP). All the features of the IID Scheme have been retained

and will be covered as “New Clusters” under MSECDP.

b ) M a r k e t i n g a n d P r o c u r e m e n t

The marketing assistance to the small scale units through preferential purchase by the Central and State Purchase Organisations was emphasised in the comprehensive programme for the development of MSME sector drawn in early 50’s in pursuance of Industrial Policy Resolution of 1984. The emphasis was reiterated in the Government Policy in 1991.

Purchase Preference Policy

The policy of reservation of items for exclusive purchase has been in vogue since late 60’s as a measure of market support to the MSME sector. The Stores Purchase Policy of the Government prior to 1989 was in the form of categorization of items in six major groups as detailed below:-

Group-I: Items which are of no interest to small scale units and can be solely procured only from large scale units (128 items)

Group-II: Items which can be purchased solely from large scale units but where it is possible for the large scale units to job contract accessories and components to MSME units (159 items).

Group-III: Items which can be purchased both from small scale and large scale industrial units.

Group-IV: Items which are reserved for exclusive purchase from small scale units (409 items).

Group-V: Items which are to be purchased from MSME to the extent of 75% of the requirement (13 items).

Group-VI: Items which are to be procured exclusively from the MSME units to the extent of 50% of the requirement (28 items)

However, with effect from July 28, 1989, the Purchase Policy of the Government was modified in a major way and the categorization of the items was reduced to the following two major groups, viz.

Items of stores reserved ♦for exclusive purchase from KVIC/Women’s Development Corporations/Small Scale units and

Others not so reserved. ♦

The first group comprised 409 items earlier reserved for exclusive purchase from the small scale sector. The list of 409 items reserved for purchase from the MSME sector was reviewed and after deleting items having common nomenclature and making the entries more generic as well as addition of new items,


a revised list of 358 items was approved by the Committee (set up to consider the question of inclusion of additional items) which also includes 8 handicraft items reserved for purchase from the Handicraft Sector.

Price Preference Policy

Assistance under Government Stores Purchase Programme in the form of reservation of products for exclusive purchase from small scale sector and price preference is one of the major instruments for providing marketing support to the small scale industries. The Director General of Supplies and Disposals, the Central Purchasing Organisation of Government of India provide a number of facilities to small scale industries under its Government Stores Purchase Programmes. These include reservation of certain products for exclusive purchase from the small scale sector and price preference upto 15% in case of selected items which are produced in both large scale as well as small scale units. The Single Point Registration Scheme of NSIC was launched as a market support measure for the MSME Sector. Under the Scheme, the following benefits are given to MSME units which

get themselves registered with the NSIC:-

Availability of Tender sets ♦free of cost;

Exemption from payment of ♦Earnest Money Deposit;

Exemption from payment of ♦Security Deposit;

Price preference upto 15% ♦over the lowest quotation of the large scale units (on merits)

The NSIC while registering a unit under this scheme is required to undertake capacity assessment of the applicant through the institutional set up of the SISIs in the country. They are also required to obtain confidential report from the bankers of the manufacturers about the credit worthiness/financial standing of the same. The units registered with NSIC under this scheme are given a registration certificate indicating items for which registered and monetary limit upto which registered. The Policy of the Price Preference of 15% is a critical benefit available to the MSME sector. The benefit is available to compensate them on account of non-availability of economies of scale, poor resource base, poor access to raw-material etc. as compared to the large scale sector. The policy of the Price Preference of 15% is an independent policy and is

in no way linked with the price preference of 10% to the PSUs and other purchasers.

To assist the MSEs in marketing of their products, Section 12 of the new MSMED Act enjoins the formulation of a scheme of preferential procurement of goods/services produced/rendered by MSEs both at the Central and State/UT levels. Once formulated, the procurement scheme may be more effective in providing the much needed marketing support that MSEs seek so desperately. Each Ministry/Department, CPSU, etc., would have to make specific mention of the compliance of the preference policy in its Annual Report to be tabled in Parliament.

c) Skill Development

The Ministry of MSME has taken up several initiatives to develop skills in different trades/disciplines. For skill develop-ment of the entrepreneurs and their employees, the MSME – Development Institutes, Regional Testing Centres, Field Testing Stations and autonomous bodies like Tool Rooms, Product-cum-Process Development Centres (PPDCs) and Central Footwear Training Institutes (CFTIs) conduct long term, short term, trade/field-specific and industry-specific tailor-made


courses as well as vocational training programmes. The effort helps in skill development and in creation of self-employment opportunities. The Ministry is at present training more than 1,10,000 persons per annum both for business and technical skill development, which is among the largest programme by any single Ministry in India. The Ministry is also focusing on socially backward groups and on least developed areas under its ‘Outreach Programme’. The Package for Promotion of Micro and Small Enterprises announced recently provides for training of 50,000 entrepreneurs through specialized course run by MSME – Development Institutes for new as well as existing micro and small entrepreneurs and provide financial assistance to 5 select universities/ colleges to run 1200 entrepreneurial clubs.

d) Export Promotion

Export promotion from the MSE sector has been accorded a high priority. To help MSEs in exporting their products, the following facilities/incentives are provided: (i) Products of MSE exporters are displayed in international exhibitions and the expenditure incurred is reimbursed by the Government; (ii) To acquaint MSE exporters with latest packaging standards, techniques, etc., training

programme on packaging for exporters are organised in various parts of the country in association with the Indian Institute of Packaging; (iii) Under the MSE Marketing Development Assistance (MDA) Scheme, assistance is provided to individuals for participation in overseas fairs/exhibitions, overseas study tours, or tours of individuals as member of a trade delegation going abroad. The Scheme also offers assistance for (a) sector specific market study by MSE Associations/Export Promotion Councils/Federation of Indian Export Organisation; (b) Initiating/contesting anti-dumping cases by MSE Associations; and (c) reimbursement of 75 per cent of the onetime registration fee and annual fee (recurring for first three years) charged by GS1 India (formerly EAN India) for adoption of Bar Coding.

e) Women Entrepreneurs

Women entrepreneurs have achieved remarkable success. The Micro, Small & Medium Enterprises Development Organisation (MSME-DO), the various State Small Industries Development Corporations (SSIDCs), the nationalised banks and even NGOs are conducting various programmes including Entrepreneurship Development Programmes (EDPs). To cater

to the needs of potential women entrepreneurs, who may not have adequate educational background and skills, MSME-DO has introduced process/product oriented EDPs in areas like TV repairing, printed circuit boards, leather goods, screen printing etc. A special prize to “Outstanding Women Entrepreneur” of the year is being given to recognise achievements made by and to provide incentives to women entrepreneurs. The Office of DC (MSME) has also opened a Women Cell to provide coordination and assistance to women entrepreneurs facing specific problems.

There are also several other schemes of the government like the Income Generating Scheme, implemented by the Department of Women and Child Development, which provides assistance for setting up training-cum-income generating activities for needy women to make them economically independent. Grant for setting up a production unit is also available under Socio-Economic Programme of Central Social Welfare Board.

f) E n t r e p r e n e u r s h i p Development Programme

Entrepreneurship is one of the pillars of economic growth. Development of economy is


impacted by the entrepreneurial level of the country. The myth that entrepreneurs are born, no more holds good, rather it is well recognised now that the entrepreneurs can be created and nurtured through appropriate interventions in the form of entrepreneurship development programmes. In the era of liberalisation, privatisation and globalisation along with ongoing IT revolution, capable entrepreneurs are making use of the opportunities emerging from the evolving scenario. However, a large segment of the population, particularly in the industrially backward regions/rural areas generally lags behind in taking advantage of these opportunities. Therefore, there is a need to provide skill development and entrepreneurship development training to such people in order to mainstream them in the ongoing process of economic growth.

E n t r e p r e n e u r s h i p development and training is, thus, one of the key elements for development of micro, small and medium enterprises (MSMEs), particularly, the first generation entrepreneurs. To undertake this task on regular basis, the Ministry has set up three national-level Entrepreneurship Development Institutes (EDIs). These are, the National Institute

for Micro, Small and Medium Enterprises (NI-MSME), Hyderabad; the Indian Institute of Entrepreneurship (IIE), Guwahati and the National Institute for Entrepreneurship and Small Business Develop-ment (NIESBUD), NOIDA. Further, the Ministry has been implementing {in addition to the Schemes of O/o DC (MSME)} Schemes for strengthening the infrastructure for EDIs as well as providing handholding support to first generation entrepreneurs.

Outside of the Government, National Entrepreneurship Network (NEN), Wadhwani Foundation at Indian School of Business (ISB), Hyderabad, Centre for Innovation and Entrepreneurship at Indian Institute of Management, Ahmedabad and several other platforms offer incubation and mentorship to start-ups.

3.2.1.9 Policy for Under-developed Regionsa) North Eastern Region (NER)In view of the continuing backwardness of North Eastern Region (NER), the need for a new and synergetic incentive package was widely felt to stimulate development of industries in this region. Expert groups/committees were constituted by the Ministry of Industry and the Planning

Commission to concretize the initiatives. Subsequently, Inter Departmental Meetings were held under the Chairmanship of Member Secretary (Planning Commission) to consider the recommendations and finalise the proposals. Based on these proposals, Government approved the new Industrial Policy and Other Concessions in the North Eastern Region which, inter-alia, envisage the following:-

I. Development of Industrial Infrastructure

Currently, the funding ♦pattern for the growth centres envisages a Central assistance of Rs. 10 crores for each centre and balance amount to be raised by the State Government. Government has approved that entire expenditure on the growth centres would be provided as Central assistance, subject to a ceiling of Rs 15 crores.

In respect of the IID centres, the lending pattern would be changed from 2:3 between GOI and SIDBI to 4:1 and the GOI funds would be a grant.

II. Fiscal Incentives to New Industrial Units and their Substantial Expansion

Government has approved ♦converting the growth centres and IIDCs into total


tax free zones for the next 10 years. All industrial activity in these zones would be free from income tax, excise, for a period of 10 years from the commencement of production. State Governments would be requested to grant exemptions in respect of Sales Tax and Municipal Tax.

Industries located in the ♦growth centres would also be given capital investment subsidy at the rate of 15% of their investment in plant and machinery, subject to a maximum ceiling of Rs 30 lakhs.

The commercial banks and ♦the North East Development Financial Corporation (NEDFi) will have dedicated branches / counters to process applications for term loans and working capital in these centres. While sanctioning assistance NEDFi and commercial banks would take a liberal view of the debt: equity ratio.

An interest subsidy of 3% ♦on the working capital loans would be provided for a period of ten years after the commencement of production. The working capital requirements would

be worked out as per the Nayak Committee.

Similar benefits would also ♦be extended to the new industrial units or their substantial expansion in other Growth centres or IIDCs or industrial estates/parks/export promotion zones set up by the States in the NE region New industrial units or their substantial expansion in the specified industries located outside these growth centres and other identified locations would also be eligible for the similar fiscal incentives.

III. Relaxation of PMRY Norms

The PMRY would be expanded in scope to cover areas of horticulture, piggery, poultry, fishing, small tea gardens, etc. so as to cover all economically viable activities. PMRY would have a family income ceiling of Rs. 40,000 per annum for each beneficiary along with his/her spouse and upper age limit will be relaxed to 40 years. Projects costing upto Rs 2 lakh in other than business sectors will be eligible for assistance. No collateral will be insisted for projects costing upto Rs 1 lakh. Group financing upto Rs 5 lakhs will be eligible. Scheme will have a subsidy component @ 15% with an upper ceiling of Rs. 15,000. The

margin money may vary from 5% to 12.5% of the project cost to make the subsidy and margin contribution at 20% of the project cost. PMRY would continue to have Entrepreneurship Training Component as per the existing rate.

IV. Other Incentives Proposed

A comprehensive insurance ♦scheme for industrial units in the North East will be designed in consultation with General Insurance Corporation of India Ltd and 100% premium for a period of 10 years would be-subsidized by Central Government.

A onetime grant of Rs.20 ♦crores will be provided to the North East Development Financial Corporation (NEDFi) by the Central Government through NEC to fund techno-economic studies for industries and infrastructure best suited to this region

State Government may ♦consider setting up of a “Debt Purchase Window” by the NEDFi which buys the debt of the manufacturing units particularly in respect of the supplies made to the Government Departments so as to reduce the problem of blocking of funds for these units.


Assistance for restructuring ♦State PSUs from National Renewal Fund may be considered.

The community pattern of land holding on large parts of NE region does not lend itself to providing collateral security as required under conventional bank lending. RBI has constituted a committee to look into this issue. An appropriate system of “guarantees” will be evolved for NE region.

V. Procedure for Release of Assistance under the New Initiatives

The transport subsidy budget may be released by a designated agency on the basis of the recommendations of the S.L.C. It is proposed that NEDFi may be designated as the nodal agency for release of transport subsidy in N.E. States. NEDFi may be paid administrative expenses for this service which may be decided in consultation with IDBI.

VI. Development of Village and Small Industries (VSI) Sector

Weavers’ Service Centres (WSCs) in NE region and Indian Institute of Handloom Technology at Guwahati would

be suitably strengthened to provide technology and training support to the weavers. National Handloom Development Corporation will give priority in supply of hank yarn to the NE region. All the four varities of silk would be covered under the Mill Gate Price Scheme. Priority would be given to the N.E. region in scheme of setting up of market complexes and permanent exhibition facilities. A new design centre for development of handicraft would be setup in NE region. To upgrade the skills of artisans, advanced training programmes through master craftsmen would be organised. New emporia will be set up and financial assistance for renovation of existing emporia will be provided. The Central Silk Board will give priority to NE region in implementation of its schemes.

b) Jammu and Kashmir, Uttarakhand, Himachal Pradesh

In order to encourage industrial development, Government of India announced a package of incentives comprising relief on excise duties, income tax and central sales tax. While this package has been helpful, the flow of investment info J&K is far less enthusiastic then that

into Uttarakhand and Himachal Pradesh which enjoy similar incentives. The reasons for this poor response are obvious. First, perceptions of security inhibit potential investors. Second, skill levels are low. Third, land is not readily available. Even though the State Government has relaxed the land lease policy, information regarding this has not disseminated widely. Finally, the power situation in the state hardly inspires investor confidence.

New Industrial Units & existing industrial units on their substantial expansion as defined are entitled to

(i) 100% outright excise duty exemption for a period of 10 years from the date of commencement of commercial production.

(ii) 100% Income Tax exemption for initial period of 5 years and thereafter 30% for companies and 25% for other companies for a further period of 5 years.

(iii) All New Industries are eligible for Capital Investment Subsidy @ 15% of their investment in plant and machinery subject to a ceiling of Rs. 30 lakhs. Same applies to existing units on their substantial expansion.


c) Others

Package of incentives for industrialization of north-east including Sikkim

The forerunner to all area development schemes is the original package which was given by the Central Govern-ment to North-East and later extended to Sikkim. It provides for fiscal incentives in the form of income tax exemption, excise duty etc.

3.2.1.10 New Initia-tives by KVIC

With a view to increasing the effectiveness and thus contribute substantially to the employment generation, the Prime Minister’s Employment Generation Programme (PMEGP) has been introduced in August 2008, merging the erstwhile PMRY and REGP Schemes of this Ministry. The new Scheme has a total plan outlay of Rs. 4735 crore including Rs. 250 crore for backward and forward linkages.

In khadi sector, two new Schemes have been launched namely Workshed Scheme for Khadi Artisans with a view to providing assistance for construction of workshed for khadi artisans for ensuring better work environment and the Scheme for enhancing Productivity & Competitiveness of Khadi Industries and Artisans

to assist 200 khadi institutions to make khadi industry competitive, market driven and profit oriented through replacement of obsolete and old machinery & equipment. Another Scheme namely ‘Strengthening of Infrastructure of Existing Weak Khadi Institutions and Assistance for Marketing Infrastructure’ which envisages renovation of 30 selected khadi Sales Outlets and providing assistance towards strengthening of infrastructure of existing 100 selected institutions is under consideration.

The Department of Economic Affairs, Ministry of Finance has tied up financial aid from the Asian Development Bank (ADB) amounting to US$150 million over a period of three years for implementing a comprehensive Khadi Reform Programme. This Reform Programme aims at revitalizing the khadi sector for enhanced sustainability of khadi; increasing incomes for spinners and weavers; increasing employment; enhanced artisans welfare and gradually enabling khadi institutions to stand on their own feet. Initially, the programme is expected to be introduced in 300 khadi institutions keeping in view the considerations of regional balance, geographical spread and inclusion of backward

areas. The programme is awaiting formal approval of the competent authority.

Following the recommenda-tions made in the Expert Com-mittee Report, 2004 and sugges-tions made by the Ministry of Finance and the M/o MSME, the Market Development As-sistance (MDA) Scheme (based on ‘Production of Khadi’ as an alternative to ‘Rebate on Sale’ of khadi and khadi products) is under consideration.

In order to strengthen the R & D activities in khadi and village industry sectors, a national level institute namely ‘Mahatma Gandhi Institute for Rural Industrialization (MGIRI) has been established at Wardha, Maharashtra in association with IIT, Delhi by revamping the erstwhile Jamnalal Bajaj Central Research Institute.

3.2.1.11 New Initiatives by Coir Board

With a view to strengthening the coir industry, the Ministry, through Coir Board, introduced a new Central Sector Scheme titled ‘Scheme for Rejuvenation, Modernisation and Technological Upgradation of Coir Industry’ in March 2008 for assisting spinners and tiny household sector. Under this Scheme, assistance is provided to groups of spinners and tiny sector workers for replacement


of outdated ratts/looms and for constructing worksheds so as to increase production and earnings of such workers.

3.2.1.12 Policy for FDI

According to the Foreign Direct Investment Approval Policy, an industrial undertaking, i.e., a company with interests in industry can invest upto 24% equity in an MSME. If the equity goes beyond 24%, the industrial unit loses its MSME status. For foreign investment outside the automatic route, clearance has to be obtained from Foreign Investment Promotion Board (FIPB). Under automatic procedures, foreign technology agreements are being permitted in respect of industries that are designated as high priority industries. The use of foreign brand names and / or trade mark of goods is also now being permitted freely.

Foreign Investment Promotion Board (FIPB)

Government of India has established a Special Empowered Board called Foreign Investment Promotion Board in the Ministry of Industry, to negotiate with large international firms and to approve direct foreign investment in selected areas. The objective of this Board will be to invite and facilitate investment

in India by international companies in projects which are considered to be of benefit to the Indian economy and do not fall within the parameters of the existing policy for clearance of foreign investment proposals. The functions of the Board are:

Expeditious clearance of ♦proposals;

Establishment of contact ♦with and inviting selected international companies to invest in India in appropriate ventures; and

To periodically review the ♦implementation of projects cleared by the Board. The Board will provide a single window clearance for all aspects of project proposals considered by it. No formal application forms are prescribed; the entrepreneur can directly correspond with the Board.

NRI Investment Approval

A policy for permitting investment of upto 100% equity with full repatriation facilities in industrial ventures in high priority industries by Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) has been announced. There is no restriction on the extent of equity that can be held by a Non-Resident Indian (NRI) as an individual/partner in a SSI unit.

3.2.1.13 Environment Related PoliciesEnvironmental Audits

All enterprises seeking consent under the Water or Air Acts or Authorisation under the Hazardous Wastes (Manage-ment & Handling) Rules, beginning 1993, are required to submit environmental statements for the period ending 31 March on or before 30 September every year to the concerned SPCB. The Central and State Pollution Control Boards are responsible for enforcing legal action against polluters. Detailed below are the different fiscal benefits for environment protection:

Depreciation allowance at ♦the rate of 100 per cent for installing pollution control devices.

Customs duty at reduced ♦rates of 35 per cent plus 5 per cent auxiliary charges levied on imported equipment and spares for pollution control.

Customs duty at the reduced ♦rate of 25 per cent and full exemption from auxiliary charges for kits required for conversion of petrol driven vehicles to compressed natural gas driven vehicles.

Excise duty at the reduced ♦rate of 5 per cent on manufactured goods that are used for pollution control.


Excise duty exemption ♦for bricks and blocks manufactured from fly ash and phospho-gypsum.

Exemption under section ♦35 CCB of the Income Tax Act is given to assess who incurs expenditure by way of payments on any sum towards association or institutions which carry out programmes for conservation of natural resources.

Financial assistance towards ♦capital investment up to 25 per cent or Rs. 50 lakh, whichever is less, is given as subsidy to industrialists from the small scale sector for setting up common effluent treatment facilities.

Incentives in terms of rebate ♦on water cess payable under the Water (Prevention & Control of Pollution) Cess Amendment Act, 1991.

Provision of loans at reduced ♦rates of interest by financial institutions for installing pollution control devices, for example:

Industrial pollution control ♦projects funded by the World Bank; the Bank offers loans on concessional terms which is received by the MOEF and disbursed through different financial institutions.

Environment Clearance Procedures

Under the Environment (Protection) Act, 1986, 24 categories of projects and industries will require environmental clearance from the Central Government. In addition, any project proposed to be located within 10 Km of the boundary of a reserved forest or a designated ecologically sensitive area or within 25 Km of the boundary of a national park or sanctuary will require environmental clearance from the Central Government.

Environmental clearances procedure for small scale industries have been rationalised and simplified except in the case of 17 hazardous industries. Now a mere acknowledgment of the application by the State Environment Board would be sufficient. Seventeen hazardous items include Fertilizer Nitrogen/Phosphate), Sugar, Cement, Fermentation and Distillery, Aluminum, Petro-chemicals, Thermal power, Oil refinery, Sulphuric acid, Tanneries, Copper Smelter, Zinc Smelter, Iron and Steel, Pulp and Paper, Dye and Dye intermediaries, Pesticides manufacturing and formulation, Basic Drugs and Pharmaceuticals.

Adoption of Pollution Control Measures

The Government had decided that in order to encourage adoption of pollution control processes by the industrial undertakings which have the potential to utilise the waste products and effluents for manufacture of new items, they may be allowed to do so by suitable endorsement in the existing Industrial Licences or issued new Industrial Licences for such recoverable items which may be reserved for the small scale sector, without necessarily stipulating the mandatory export obligation.

3.2.2 State Government Policies

The role of the State Governments is critical to the growth and development of MSME Sector. The policy and programmatic support which States provide is wide-ranging spanning across physical infrastructure, such as, land for industries and social sheds, roads, electricity, water, telecommunication, effluent treatment, container depot, workers housing, zoning of industries etc. by way of social infrastructure many states also provide training institutes, incubation centers


etc. Specific market based economic instruments are also employed. These include capital investment, subsidy, exemption from electricity duty on captive power, one time settlement scheme, flexible working hours, venture funding entrepreneurship development, etc. Each State has its own preference for certain industry segments depending on local resource endowments. These are declared as thrust areas. Knowledge industries, such as, Information Technology and Bio-Technology are universally encouraged.

InstItutIonal support for MsMEs

4.1 Introduction

The Institutional support structure for MSME sector

has increased over the years, encompassing policy advocacy and measures, various industry specific schemes as well as grass-root level infrastructural support. The support institutions can be classified under two frameworks. First framework pertains to Development Support Institutions, which includes Advisory Set-ups and Policy Set-ups. Advisory Set-ups include Prime Minister’s Office (PMO), Planning Commission, National Board for MSMEs and National Manufacturing Competitiveness Council (NMCC). Policy Set-ups include Reserve Bank of India (RBI)/Ministry of Finance, Ministry of MSME, Ministry of Commerce and Industry, Ministry of Textiles, Ministry of Chemicals and Fertilisers, Ministry of Food Processing Industries and Ministry of Women and Child Development (Figure 4.1).

The second framework includes Financial Support

Institutions, which can be further divided into National Level and State Level Institutions. National Level Institutions include Commercial Banks, Regional Rural Banks, Cooperative Banks, Refinancing Institutions

[Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB)] and other Institutions Khadi and Village Industries Commission (KVIC), National Small Industries Corporation (NSIC) and North Eastern


Development Finance Corpora-tion Ltd. (NEDFi). State Level Institutions include State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs)/The State Small Industries Develop-ment Corporations (SSIDCs) (Figure 4.2).

4.2 Development Support Institutions4.2.1 Advisory Setups

Advisory Council type intellectual structures have been set up by Governments from time to time as an interface with Civil Society in regard to the formulation and implementation of the MSME policies and measures. These comprise distinguished professionals drawn from diverse fields of development activity who serve in their individual capacities. Through these platforms, the Government has access not only to their expertise and experience but also to a larger network of Research Organizations, NGOs and Social Action and Advocacy Groups. The Council makes detailed recommendations to the Government in the areas of priority and provides independent feedback on the impact of action initiated in various sectors.

4.2.1.1 PrimeMinister’sOffice(PMO)

Based on representations received from the interest groups, PMO sets up appropriate task

force to reconcile competitive interests and forces pulling in different directions. Recently, the PMO had set up a Task Force under the Chairmanship of the Principal Secretary to the Prime Minister to examine various issues relating to the MSME sector. The Task Force has made many far-reaching recommendations, which are mentioned in Chapter 3.

4.2.1.2 Planning Commission

The Planning Commission was set up by a Resolution of the Government of India in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of

the resources of the country, increasing production and offering opportunities to all for employment in the service of the community. The Planning Commission was assigned with the responsibility of making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities. The economic planning has always been according special thrust to the MSME sector.

4.2.1.3 National Board for MSMEs

The Central Government established the National Board for Micro, Small and Medium

107Institutional Support for MSMEs

Enterprises as per the provisions of the MSMED Act, 2006. The Minister for MSME is the Ex-officio Chairman of the Board. The Board shall perform all or any of the following functions, namely:-

Examine the factors ♦affecting the promotion and development of micro, small and medium enterprises and review the policies and programmes of the Central Government in regard to facilitating the promotion and development and enhancing the competitiveness of such enterprises and the impact thereof on such enterprises;

Make recommendations on ♦matters referred above or by the Central Government which, in the opinion of that Government, is necessary or expedient for facilitating the promotion and development and enhancing the competitiveness of the micro, small and medium enterprises; and

Advise the Central ♦Government on the use of the Fund or Funds constituted by way of grants for the purposes of the MSMED Act, 2006.

4.2.1.4 National Manufacturing Competitiveness Council

The National Manufacturing Competitiveness Council (NMCC) was set up by the

Government in October 2004 to provide a continuing forum for policy dialogue to energize and sustain the growth of manufacturing industries in India. The NMCC looks into the total area of manufacturing activities in the context of increasing need for employment opportunities and to unlock the full potential of Indian Industry.

To achieve its objectives, NMCC is adopting the twin approach of drawing a National Strategy for Manufacturing which attempts to identify the areas of policy interventions and outlines the strategic directions that need to be pursued in order to realize higher levels of growth and employment and simultaneously concentrate on certain sub sectors of manufacturing where immediate policy interventions can unleash higher growth rates and expansion of markets. The NMCC has recommended a national level as well as sector level/ industry level specific policy initiatives as is required for augmenting the growth of manufacturing sector. Ten elements have been identified for attention by the NMCC as a part of its long term manufacturing strategy.

These are:-

Enhance Government ♦focus on manufacturing competitiveness

Creating conditions for ♦investment in and growth of the manufacturing sector

Lowering the cost of ♦manufacturing

Investing in innovations ♦

Strengthening education ♦and training at all levels

Adoption of global best ♦practices in manufacturing

Right market framework, ♦competition and regulation

Issues relating to ♦competitiveness in small and medium industries

Competitiveness of public ♦sector manufacturing industries

Infrastructure development ♦

The NMCC has finalized a five-year National Manufacturing Competitiveness Programme, which was announced by the Finance Minister in his Budget Speech on February 28, 2006. In the Programme, ten schemes have been drawn up at a cost of Rs. 956 crore including schemes for promotion of ICT, mini tool rooms, design clinics and marketing support for SMEs. Implementation will be on the basis of Public Private Partnership (PPP) model.

The programme finalized by the NMCC and implemented through the Ministry of MSME mainly deals with firm level competitiveness.


It is designed to address the issues of competitiveness in the background of global challenges. The important components of the scheme include a National Programme on Application of Lean Manufacturing for the MSMEs, Promotion of ICT among the MSMEs, Technology and Quality Upgradation Support for MSMEs, Support for Entrepreneurial and Managerial Development of MSMEs, Enabling MSMEs to become Competitive through Quality Management Standards, Enhanced use of Design Expertise and Intellectual Property Rights in the manufacturing sector and necessary Marketing Support/Assistance to MSMEs.

4.2.1.5 National Commission for Enterprises in the Unorganized Sector (NCEUS)

The National Commission for Enterprises in the Unorganized Sector (NCEUS) had been set up as an advisory body 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. The Commission has recommended appropriate measures to enhance the competitiveness of the sector in the emerging global environment and link the sector with the institutional framework in areas such as credit, raw material,

infrastructure, technology up gradation and marketing. Very valuable recommendation for Micro, Small and Medium Enterprises for the informal sector have also been made by the Commission, some of which have already been accepted and implemented. The Commission has since been wound up on April 30, 2009.

4.2.2 Policy Setups4.2.2.1 Reserve Bank of India

Reserve Bank of India is the central bank and monetary authority of India, which sets the monetary policy on Interest rates , Credit supply, Foreign exchange regulation etc. Its priority sector lending policy and guidelines with regard to rehabilitation of sick industries, viability norm, definition of sick industries, directly impacts the MSME sector. In numerous other ways, RBI indirectly and directly controls credit and finance issues relating to MSMEs. A Standing Advisory Committee of the RBI on MSME Sector constantly looks into the credit related problems of the MSME Sector.

4.2.2.2 Ministry of Micro, Small & Medium Enterprises

The President under Notification dated May 09, 2007 had amended the Government of

India (Allocation of Business) Rules, 1961. Pursuant to this amendment, Ministry of Agro and Rural Industries and Ministry of Small Scale Industries were merged into a single Ministry, called the Ministry of Micro, Small and Medium Enterprise. This Ministry initiates appropriate policy measures, programmes and schemes for the promotion of MSMEs, which include the setting up of network of institution at the field level to render assistance and to provide a comprehensive range of services and common facilities for MSMEs. These are supported by a host of other central / state government departments, promotional agencies, non - governmental organization, autonomous organizations, etc., which provide support to MSMEs in different ways. The Ministry also coordinates with other ministries / departments and different organizations in the interest and welfare of the MSME sector.

The range of services covers tech-economic and managerial aspects, training, testing facilities and marketing assistance through the agencies created for the specified functions. These activities are carried out through attached offices/organisations, namely, Office of Development Commissioner, MSME [DC


(MSME)], Khadi and Village Industries Commission (KVIC), Coir Board and National Small Industries Corporation (NSIC). The objectives, role and functions of these departments/organisations are given below:

A. Development Commis-sioner (MSMEs)

The Office of DC (MSME) was established as Small Industries Development Organization (SIDO) in 1954 on the basis of the recommendations of the Ford Foundation. Over the years, it has witnessed its role to evolve into an agency for advocacy, handholding and facilitation of the MSME sector. The organisation provides economic information services and also advises Government in policy formulation for the promotion and development of MSME sector. Recognizing the dynamics of the new environment in which these units were operating, the Office of the DC (MSME) now focuses on providing support in the fields of credit, marketing, technology and infrastructure. The emerging global trends and national developments have transformed the role of the organization into that of catalyst of growth of MSMEs in the country. The main services rendered by the organization are: -

Advising the Government ♦in policy formulation for the promotion and development of MSME Sector

Providing techno-economic ♦and managerial consultancy, common facilities and extension services to the MSME Sector

Making Available facilities ♦for technology upgradation, modernization, quality improvement and infrastructure

Developing Human ♦Resources through training and skill upgradation

Providing economic ♦information services

Maintaining a close liaison ♦with the Central Ministries, Planning Commission, State Governments, Financial Institutions and other organisations concerned with development of MSME Sector

Evolving and coordinating ♦Policies and Programmes for development of the Sector as ancillaries to large industries

The organisation has a network of 30 MSME Development Institutes (MSME

-DIs); 28 Branch MSME-DIs; 4 MSME Testing Centres (MSME-TCs); 7 Field Testing Stations (MSME-TSs); 18 Autonomous Bodies – which include 10 MSME Tool Rooms (MSME-TRs); 6 MSME Technology Development Centres (MSME-TDCs) and 2 MSME Footwear Training Institutes (MSME-TDC-CFTIs). There are also 2 Departmental Training Institutes (MSME-TIs) and one departmental Hand Tools Development Centre (MSME-TDC Hand Tools). (Figure 4.3)

MSME Development Insti-tutes:

The network of 30 MSME Development Institutes (MSME - DIs) and 28 Branch MSME Development Institutes set up in the State capitals and other industrial cities all over the country mainly performs the following functions:-

Organising Entrepreneur- ♦ship, Management and Skill Development Programmes


Assistance / Consultancy ♦to prospective and existing entrepreneurs

Preparing State and District ♦Industrial Profiles

Formulating Project Profiles ♦of Products / Industries suitable and feasible in the MSME Sector

Conducting Energy ♦Conservation, Pollution Control, Quality Control & Upgradation

Assisting Ancillary ♦Development

Making Available Common ♦Facility Services in Workshop/Laboratories

The MSME Development Institutes (MSME-DIs), also have Common Facility Workshops in various trades. There are at present 42 such Common Facility Workshops with MSME-DIs. MSME-DIs are inter-alia providing techno-managerial consultancy assistance to MSMEs through conducting different activities like Seminars, Industrial Campaigns, Preparation of Feasibility Reports & Area Survey Reports, In-plant Studies, EDPs, and Common Facility Workshop, etc. MSME-DIs are also coordinating with the State Governments, Directorate of Industries (DICs), Industry Associations, etc. for the overall development of MSME Sector.

MSME Testing Centres (TCs) and MSME Testing Stations (TSs)

The Office of the DC (MSME) is operating four MSME Testing Centres located at New Delhi, Mumbai, Chennai and Kolkata. These Testing Centres provide testing and calibration facilities to industries in general and MSEs in particular for raw materials; semi finished and finished products, manufactured by them. These Centers are equipped with the state-of-the art indigenous and imported equipments in the disciplines of Chemical, Mechanical, Metallurgical and Electrical Engineering for undertaking Performance Test, Type Test and Acceptance Test of semi-finished, finished products, etc. The Centres also undertake calibration works for Measuring Instruments and Equipments conforming to international standards. These Centers are accredited by internationally recognized National Accreditation Board of Testing & Calibration Laboratories (NABL) Certification as per ISO 17025.

These also provide consultancy services in testing and quality management and in process quality system to MSMEs. Besides, in order to adequately cope up with the emerging manpower requirements in the industry. These Testing Centres

organize training in testing of the products for young persons so as to enable them secure gainful employment in Quality Control Laboratories of various industries, and also assist different Government Departments in testing the materials procured by them.

MSME Tool Rooms (MSME-TRs)

The 10 MSME-TRs setup as a result of Indo-German and Indo-Danish collaborations assist MSMEs in technical upgradation and provide good quality tooling through designing and producing tools, moulds, jigs & fixtures, components, etc. These also provide training and consultancy for tool and die makers.

These are located at:-

MSME-Tool Room (Central ♦Tool Room), Ludhiana;

MSME-Tool Room (Indo ♦German Tool Room), Ahmedabad;

MSME-Tool Room (Indo ♦German Tool Room), Indore;

MSME-Tool Room (Indo ♦German Tool Room), Aurangabad;

MSME-Tool Room (Central ♦Tool Room & Training Centre), Kolkata;

MSME-Tool Room (Central ♦Tool Room & Training Centre), Bhubaneshwar;


MSME-Tool Room (Indo ♦Danish Tool Room), Jamshedpur;

MSME-Tool Room (Tool ♦Room & Training Centre), Jalandhar;

MSME-Tool Room (Central ♦Institute of Tool Design), Hyderabad and

MSME-Tool Room (Tool ♦Room & Training Centre), Guwahati

These Tool Rooms are providing services in the area of tool design and manufacture; precision machining; heat treatment; technical training and consultancy to metal working industry; in general and micro & small enterprises in particular so as to improve the quality and productivity of such units. These Tool Rooms were set up for fulfilling the tooling and training requirements of the MSMEs in the fields of tool design and manufacture and training of technical personnel in these fields.

These institutions organize different long-term ‘Post-graduate Diploma in Tool Design and CAD CAM’ Course and Vocational Training Programmes for school dropouts.

MSME Technology Develop-ment Centres (MSME TDCs)

MSME Technology Develop-ment Centres (MSME TDCs) are product specific Centres

for looking into their specific problems and rendering technical services, developing and upgrading technologies and manpower development & training in specific product groups like Foundry & Forging; Electronics; Fragrance & Flavour; Sport Shoes; Electrical Measuring Instruments and Glass. MSME TDCs include the Electronics Service & Training Centre (ESTC), Ramanagar; Institute for Design of Electrical Measuring Instruments (IDEMI), Mumbai; Fragrance & Flavour Development Centre (FFDC), Kannauj; Centre for Development of Glass Industry (CDGI), Firozabad; Central Institute of Tool Design (CITD), Hyderabad; Process-cum-Product Development Centre (PPDC), Agra and Process-cum- Product Development Centre (PPDC), Meerut.

The main objective of these TDCs is to develop human resources for meeting the requirements for transfer of technology in different fields, viz. electronic items, instrumentation industries, sport goods; to promote and modernise the glass industry, foundry and forge industries and technological upgradation of essential oils, aroma chemicals, fragrance and flavour industry in the country. These Centres are also running training courses on repair and

maintenance of CNC machines; addition of fibre optics testing facilities; tailor-made training modules designed as per the requirements of the industry with emphasis on hands-on training. The CDGI, Firozabad provides technical support to micro and small glass units through promoting installation of energy efficient glass melting furnaces, auxiliary furnaces, introduction of new types of glasses & their standardization, introduction of developed techniques for the decoration of glasswares, etc.

MSME – Training Institutes

MSME – Training Institutes (Central Footwear Training Institutes, MSME-TICFTI) at Agra and Chennai are engaged in developing designs for accelerating exports and providing training for manpower in footwear industry.

The basic objective of these institutes is to develop human resources for footwear and allied industries through various training programmes on footwear technology and allied services. These institutes conduct long term, short term and part-time training courses on different subjects of footwear technology. Besides, these institutes provide technical support services to the user industry through making their facilities available to them. The institutes also provide


services for development of new products and patterns as per given sample or concept.

Some of the significant achievements of these MSME – Technology Development Centers (Central Footwear Training Institutes, MSME-TDC-CFTI) are as under:

Central Footwear Training Institute (CFTI), Agra:

The Training Programmes ♦of two months’ duration, on “Upper Closing” were regularly conducted during the year, in association with the Agra Footwear Manufacturers & Exporters Chamber, Agra.

Similarly, the Training ♦Programmes of one-month duration on “Shoe Making” were regularly conducted in the backward area of the Agra District exclusively for SC candidates without charging any fee from the participants.

A series of each Workshops ♦of one week duration on “Upgradation of Skill” were conducted in the Cluster Area of the Agra District. The Workshops were attended by a large number of tiny & cottage artisans.

A Hand Book (Hindi) on ♦“Juta Banana Sheekho” (Learn How to Make Shoe, published by CFTI, Agra)

alongwith a Shoe Measuring Scale were distributed free of cost among the artisans.

Central Footwear Training Institute (CFTI), Chennai:

The trainees of the Centre ♦submitted various designs pertaining to gents, ladies and kids shoes for the International Footwear Design Competition, 2009.

UNIDO selected the ♦Institute for dissemination of knowledge for helping capacity building of more MSMEs in Chennai Clusters.

This Institute provided ♦secondary level training to 331 factory workers at Ambur and Chennai under HRD Mission.

Schemes and Programmes

Office of Development Commissioner operates a number of schemes for the MSME sector. At a glance, these are:-

Credit Linked Capital Subsidy Scheme for Technology Upgradation

The Scheme was launched in October 2000 and revised with effect from September 29, 2005. The revised scheme aims at facilitating Technology Upgradation of MSMEs by providing 15% capital subsidy (12% prior to 2005) on institutional finance availed

by them for induction of well established and improved technology in approved sub-sectors/products. The admissible capital subsidy under the revised scheme is calculated with reference to purchase price of Plant and Machinery. Maximum limit of eligible loan for calculation of subsidy under the revised scheme is also been raised from Rs. 40 lakh to Rs. 100 lakh with effect from September 29, 2005. The Scheme is implemented through a number of Nodal Agencies, viz. Small Industries Development Bank of India (SIDBI); National Bank for Agricultural and Rural Development (NABARD); State Bank of India; Canara Bank; Bank of Baroda; Punjab National Bank; Bank of India; Andhra Bank; State Bank of Bikaner & Jaipur and Tamil Nadu Industrial Investment Corporation Limited.

Credit Guarantee Scheme

The Government of India launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises in August, 2000, with the objective of making available credit to micro and small enterprises (MSEs), particularly micro enterprises, without collateral/third party guarantees. The Scheme is being operated through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)


set up jointly by the Government of India and SIDBI.

The Scheme covers collateral-free credit facility (term loan and/or working capital including non-fund based working capital) extended by the eligible lending institutions to new and existing micro and small enterprises upto Rs. 100 lakh per borrowing unit. The guarantee cover is upto 75% of the credit sanctioned and 85% for loans upto Rs. 5 lakh.

Scheme of Micro Finance Programme

The Ministry has been operating the Scheme of Micro Finance Programme, since 2003-04, which has been tied up with the existing Micro Credit Scheme of SIDBI. Under the Scheme, the Government of India provides funds to SIDBI under a ‘Portfolio Risk Fund’ (PRF), which is utilised for security deposit requirement of the loan amount from the MFIs/NGOs. At present, SIDBI takes fixed deposit equal to 10% of the loan amount. Under the PRF, the share of MFIs/ NGOs is 2.5% of the loan amount (i.e. 25% of security deposit) and balance 7.5% (i.e. 75% of security deposit) is adjusted from the Funds provided by the Government under the Scheme.

The Funds under PRF are to be utilized for extending loans in the under-served States like

NE States including Sikkim, Bihar, Jharkhand, West Bengal, Orissa, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, Jammu & Kashmir, Rajasthan and Uttarakhand and the under-served pockets/ districts of other States.

Micro and Small Enterprises Cluster Development Programme (MSE-CDP)

The Scheme of MSE-CDP provides for taking up the Diagnostic Study; Resourcing of Technology, facilitating the Transfer of Technology from producer to end user; Setting up of Common Facility Centre/Demonstration Plant; organizing of R&D Facilities; conducting of Seminars; imparting Training and organizing Study Visits for quicker diffusion of technology across the cluster of small enterprises as and when needed. The two kinds of interventions which are undertaken in cluster development are Soft Interventions and Hard Interventions. While the former includes the activities directed towards creation of general awareness; counseling; motivation and trust building; exposure visit; market development; seminar/workshop/training related to methodology of cluster development etc., the hard interventions mainly comprise

setting up of Common Facility Centres technology related interventions directed towards improvement in manufacturing practices); quality control techniques; design and drawing of product; equipment & furnaces; testing methods; energy conservation; pollution control etc.

The contribution of the Ministry of MSME is restricted to 80% of the total project cost, subject to a ceiling of Rs. 10 crore per project including Rs. 10 lakh earmarked for soft activities i.e. capacity building activities in the cluster involving non acquisition/creation of any fixed asset. A total of 411 Clusters spread over 28 States in the country have so far been taken up for Diagnostic Studies, Soft Interventions and Hard Interventions under the MSE-CDP.

As the Cluster Development Programmes are being implemented by several Ministries and Agencies, the Government with a view to formulate a holistic integrated approach in this regard set up an Empowered Group of Ministries (EGoMs) for further strengthening the Cluster Development Programme in the country. The M/o MSME is acting as the nodal Ministry for servicing the Empowered Group of Ministers (EGoM).


ISO-9000/ ISO-14001/HACCP Certification ReimbursementScheme

The Scheme, which is being administered through MSME-DIs provides incentive to the micro & small enterprises for acquiring ISO certifications. The Scheme envisages one-time reimbursement of charges for acquiring ISO-9000/14001/HACCP (or its equivalent) certification, to the extent of 75% of the total cost subject to a maximum of Rs. 75,000/-. The amount of subsidy/ financial support if already received from the State Government /financial institution on this account is adjusted against the amount of reimbursement under this Scheme.

Training Programmes (IMCs, EDPs, ESDPs & MDPs, etc.) conducted by MSME-DIs

MSME-DIs, organize a large number of training programmes for providing training to potential first generation entrepreneurs for dissemination of their techno/ managerial knowledge and skills with the objective of encouraging more and more of them to take up entrepreneurial ventures besides, organizing training activities for the existing entrepreneurs aimed at improving/upgrading their knowledge and skills for effective management of their units. The training activities of

these MSME-DIs fall into the following categories: -

Industrial Motivation �Campaigns (IMCs)

E n t r e p r e n e u r s h i p �Development Programmes (EDPs) for nurturing the latent qualities of the youth through familiarizing them about various aspects of setting up and running micro enterprises. The course contents of these Programmes are so designed as to provide in-depth knowledge to the participants about product/process design; manufacturing practices; testing and quality control; selection and usage of appropriate machinery and equipments; preparation of project profile; marketing avenues / techniques; product / service pricing; export opportunities; infrastructure facilities available incentives; sources of finance and financial institutions etc.

Entrepreneurship-cum-Skill �Development Programme (ESDPs) organized with the objective of providing comprehensive training aimed at upgrading existing skills and creating new skills in workers and technicians of MSMEs. ESDPs on Herbal Cosmetics, High Fashion Garments, Hosiery, Food & Fruit Processing Industries,

Information Technology, Hardware Maintenance, Soap and Detergents, Leather Products/ Novelties, Servicing of Household Electrical Appliances and Electronic Gadgets, Gem Cutting & Polishing, Engineering Plastics, Tour Operators, Mobile Repairing, Beautician, CAD/CAM, etc. are being organized for development of the skills socially among disadvantaged groups in far and inaccessible areas of different States/U.Ts.

Management Development �Programmes (MDPs) are organized for imparting training in management subjects, improving the decision-making capabilities resulting into higher productivity and profitability of the existing and potential entrepreneurs and thus, assisting in developing new enterprises. These short duration programmes cover a variety of topics about managerial functions with instructions being imparted by the experts, aiming at dissemination of knowledge of scientific/ modern management trends/practices.

Business Skill Development �Programmes (BSDPs) for prospective and budding entrepreneurs


through the auspices of select Business Schools/ Technical Institutions, etc. The programmes have been designed to encourage educated unemployed youth especially from Business Schools/Technical Institutes to start self-employment ventures.

Scheme to Support 5 Selected Universities/Colleges to Run 1200 Entrepreneurship Club

The Scheme is to support 5 Universities for running Entrepreneurship Clubs (one each from Northern, Western, Southern and North East region). Each University will be running 240 Clubs per year with membership of each club going upto 50 entrepreneurs. Thus in a period of 5 years, 3 lakh entrepreneurs will be benefited from the Clubs.

Financial Assistance for using Global Standards (GS1) in Barcoding

With a view to popularize adoption of Bar Coding which of late has emerged as tool of marketing having wider acceptability by both overseas buyers and domestic purchasers, a provision for reimbursement of 75% of one-time Registration Fee (w.e.f. January 1, 2002) and Annual Fees for the first three years (w.e.f. June 1, 2007) paid to GS1 India (formally EAN India)

by the micro & small enterprises (MSEs) for adoption of Bar Coding has been made under SSIMDA Scheme. Besides, there is a provision for organising one-day Sensitization/ Awareness Programmes and preparation of publicity material for concerned MSEs and other stakeholders.

Scheme of National Award

The MSMEs have registered tremendous growth as also progress in terms of quality production, exports, innovation, product development and import substitution, very much beyond the expected objectives of setting up MSMEs by the planners of industrial production base in the country. To recognize the success of the MSMEs and promote further development, various award schemes have been implemented. These include:

National Awards for ♦Research & Development Efforts in Micro, Small and Medium Enterprises are given for encouraging in-house R&D efforts and promoting this spirit in the larger interest of qualitative development in MSME Sector. Under this, two Awards each for Micro & Small Enterprises and for Medium Enterprises are conferred upon deserving registered MSMEs which may be in continuous

production for the last 4 years.

National Awards ♦for Outstanding Entrepreneurship Efforts are given to MSMEs engaged in manufacturing Sector and two awards for MSMEs rendering Services.

National Awards for Quality ♦Products in Micro & Small Enterprises (MSEs) are given by selecting certain products under this scheme every year. One National Award is given for each category of the selected products.

National Awards to Banks ♦for Excellence in MSE Lending and Excellence in Lending to Micro Enterprises are given to encourage the Banks for taking effective steps for enhancing flow of credit to the MSE sector and in recognition of their outstanding performance in financing the micro and small enterprises.

Vendor Development Programme (VDP) for Ancilliarisation

The Vendor Development Programmes (VDPs) are being organized by the MSME-DIs to provide common platform for institutional and large organizations for interacting with suppliers (MSMEs) with a view to identifying the demands of the buyer organizations while


simultaneously providing an opportunity for displaying the capabilities of the MSMEs. Such programmes have proved to be of immense help in locating suitable entrepreneurs, which could meet the demands of buying organizations including the Public Sector Enterprises in the fields Defence, Railways and others. This has also helped these buying organizations in indigenising a number of products, which hitherto were being imported at astronomical costs. MSME-DIs also organize Global Vendor Programmes & Industrial Fairs all over the India in association with NSIC, KVIC, State Industries Department & Industries Associations.

SENET (Small Enterprises Network)

The Office of DC (MSME) took upon itself the challenge of providing networking system to the MSME sector way back in 1997 and thus created the SENET. Since then, SENET has been providing access to critical information to institutions, associations and MSMEs. Under the SENET, a wide network within the Office of DC (MSME) as well as its organizations across the country, has been created. The data flow within the organization helps in formulating appropriate policies for the MSME sector. The wide usages and application of e-governance

including e-tender, e-lekha (accounting system) have been introduced leading to efficient working models. With the gradual creation of reasonable infrastructure and database in the information technology system, SENET is now limited to maintenance of the existing Hardware and Software of the Office of DC (MSME) and its field organizations.

Information & Facilitation Counter (IFC)

The Information and Facilitation Counter (IFC) provides speedy and easy access to information to the public on the services and activities of Ministry of MSME and its oganisations. Copies of important brochures, pamphlets, books, etc. are also made available to the entrepreneurs by the IFC. The other important activities of IFC include: -

Providing counseling, ♦guidance & information on How to set up an Enterprise;

Disseminating information ♦on technical schemes, project report and details of various programmes implemented by the Ministry of MSME and Office of the DC (MSME), etc.

Making available ♦information relating to policies concerning MSMEs and schemes of various State Governments for promotion of MSMEs;

Providing information about ♦filing of Memorandum and other different provisions of the Micro, Small and Medium Enterprises Development Act, 2006 and supplying information about credit policies of the Government; statistics related to micro, small and medium enterprises; technical and marketing aspects concerning MSMEs and Reservation/De-reservation in MSMEs, etc.

Collection of Statistics of MSMEs

The Statistics and Data Bank Division of the Office of DC (MSME) collects, compiles and disseminates statistical information on various economic parameters like number of MSEs, employment and production in the MSE Sector under the centrally sponsored scheme of “Collection of Statistics”. The Scheme is implemented through State Directorates of Industries (SDIs) and their respective District Industries Centres (DICs). The coverage of the Scheme has been extended to collect data on the medium enterprises also besides micro and small enterprises.

B. Khadi and Village Industries Commission

The Khadi and Village Industries Commission (KVIC) is a statutory body established by an Act of


Parliament (No. 61 of 1956, as amended by Act no. 12 of 1987 and Act No.10 of 2006). In April 1957, it took over the functions of former All India Khadi and Village Industries Board. The various roles and functions of KVIC are as follows:

The KVIC is charged �with the planning, promotion, organization and implementation of programmes for the development of Khadi and other Village Industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary.

Its functions also comprise �building up of a reserve of raw materials and implements for supply to producers, creation of common service facilities for processing of raw materials as semi-finished goods and provisions of facilities for marketing of KVI products apart from organization of training of artisans engaged in these industries and encouragement of co-operative efforts amongst them. To promote the sale and marketing of khadi and/or products of village industries or handicrafts, the KVIC may forge linkages with established marketing agencies wherever feasible and necessary.

The KVIC is also charged �with the responsibility of encouraging and promoting research in the production techniques and equipment employed in the Khadi and Village Industries sector and providing facilities for the study of the problems relating to it, including the use of non-conventional energy and electric power with a view to increasing productivity, eliminating drudgery and otherwise enhancing their competitive capacity and arranging for dissemination of salient results obtained from such research.

Further, the KVIC is �entrusted with the task of providing financial assistance to institutions and individuals for development and operation of Khadi and village industries and guiding them through supply of designs, prototypes and other technical information.

In implementing KVI �activities, the KVIC may take such steps as to ensure genuineness of the products and to set standards of quality and ensure that the products of Khadi and village industries do conform to the standards.

The KVIC may also �undertake directly or through other agencies

studies concerning the problems of Khadi and/or village industries besides research or establishing pilot projects for the development of Khadi and village industries.

The KVIC is authorized �to establish and maintain separate organisations for the purpose of carrying out any or all of the above matters besides carrying out any other matters incidental to its activities.

Khadi and Village Industries (KVI) programmes are implemented through 33 State/Union Territories (UTs) Khadi and Village Industries Boards (KVIBs); 5,000 registered institutions; 30,129 cooperative societies and banks/financial institutions. The Khadi programme is implemented through institutions registered either with KVIC or State/UT KVIBs.

Schemes of KVIC

Prime Minister’s Employment Generation Programme

The Ministry was implementing two employment generation credit linked schemes namely, Prime Minister’s Rozgar Yojana (PMRY) and Rural Employment Generation Programme (REGP) since October, 1993 and April, 1995 respectively. By the end of March 2008, the Ministry was able to generate an


estimated 49.44 lakh and 46.62 lakh additional employment opportunities under REGP and PMRY, respectively. However, keeping in view that both the schemes targeted almost the same set of beneficiaries in rural areas, low recovery rates under PMRY as compared to REGP and the existence of employment generation schemes being implemented by many States with more attractive benefits/ assistance/ interventions, it was decided to discontinue these two schemes from 2008-09. The Ministry introduced a new credit linked subsidy scheme titled Prime Minister’s Employment Generation Programme (PMEGP) through merger of the erstwhile schemes of PMRY and REGP. It is a significant initiative with a higher level of subsidy than that available under PMRY and REGP. This Scheme is being implemented through KVIC at national level.

Workshed Scheme for Khadi Artisans

Workshed Scheme for Khadi Artisans was introduced in May 2008 to provide financial assistance, for construction of worksheds, to khadi artisans belonging to BPL category through the khadi institutions which the khadi artisans are associated with. Under this Scheme, more than 38,000 worksheds are targeted to be constructed at a total cost of

about Rs. 127 crore, involving financial assistance of Rs. 95 crore as grant to KVIC from the Government’s budgetary sources.

Scheme for Enhancing Productivity & Competitive-ness of Khadi Industries and Artisans

The Ministry has introduced the ‘Scheme for Enhancing productivity and Competitiveness of Khadi Industries and Artisans’ through KVIC with effect from July 2008. The Scheme provides financial assistance for replacement of obsolete and old machinery and equipment and repairs /renovation of existing/operational machinery/equipment. The Scheme would provide financial assistance to 200 of the ‘A+’ and ‘A’ category khadi institutions of which 50 institutions would be those which are managed exclusively by beneficiaries belonging to Scheduled Castes (SCs)/ Scheduled Tribes (STs) at a total cost of Rs. 84 crore involving financial assistance of Rs. 71.14 crore as grants to KVIC from the Government’s budgetary sources between 2008-09 to 2011-12.

Interest Subsidy Eligibility CertificationScheme

The Interest Subsidy Eligibility Certificate (ISEC) Scheme is the major source of funding for the khadi programme. It

was introduced in May 1977 to mobilise funds from banking institutions for filling the gap between the actual fund requirements and availability of funds from budgetary sources.

Under the ISEC Scheme, credit at the concessional rate of interest of 4 % per annum for capital expenditure as well as working capital, is made available as per the requirement of the institutions. The difference between the actual lending rate and 4 % is paid by the Central Government through KVIC to the lending banks and funds for this purpose are provided under the grants head to KVIC.

The Institutions registered with the KVIC/State Khadi and Village Industries Boards (KVIBs) can avail of financing under the ISEC Scheme. The Scheme supports only the khadi and the polyvastra sector. However, all VI units existing as on March 31, 1995, have been allowed to avail of this facility for the amount of bank finance availed as on that date or actual, whichever is less provided they are functional fully and funds for this purpose are provided under the grant head.

Rebate Scheme

In order to make the price of khadi competitive with other textiles, the Government makes available a normal rebate (10 per cent) all over the year and an


additional special rebate (10 per cent) for 108 days in a year to the customers from the funds made available through budgetary support of the Ministry.

Rebate is allowed on the sales made by institutions/centers run by the KVIC/State KVIBs and also by the Sales Centres run by the institutions registered with KVIC/State KVIBs which are engaged in the production of khadi and polyvastra.

While conveying their approval to continuation of the Rebate Scheme during 2008-09, the Ministry of Finance indicated that the expenditure under the Scheme including all variant should be maintained at the level of Rs. 100 crore and that it be replaced with MDA or Market Development Assistance. In view of the Report of the Expert Committee, 2004 and suggestion of the Ministry of Finance, the Ministry proposed to introduce a Market Development Assistance (MDA) Scheme in place of Rebate Scheme early.

Product Development, Design Intervention and Packaging

The Product Development, Design Intervention and Packaging (PRODIP) Scheme was launched in November 2002 as a small intervention with a view to selectively improving the quality of khadi products and also to diversify into new

products. It also seeks to uplift the marketability of khadi by enlisting the support of professional designers approved by the National Institute of Design (NID).

Under this Scheme, financial assistance is provided to the institutions or entrepreneurs affiliated to the KVIC or State KVIBs upto Rs. 2 lakh per project per year or 75 per cent of the project cost whichever is less. In the case of individual entrepreneurs, the quantum of assistance is upto Rs. 1 lakh or 75 per cent of the project cost whichever is less. The internal studies conducted by KVIC have indicated that production and sales have increased approximately by 13 per cent and 21 per cent, respectively, in the case of the projects taken up under PRODIP.

Rural Industries Service Centres

Rural Industries Service Centers (RISC) Scheme was taken up from 2004-05 onwards for providing infrastructural support and services to selected units with a view to upgrading their production capacity; skill upgradation and market promotion. RISC, inter alia, provides testing facilities by establishing laboratories for ensuring quality of products; improved machinery/ equipment to be utilized

as common utility facilities through nearby units/artisans for enhancing production capacity or value addition of the product; attractive and appropriate packaging facilities and machinery to the local units/artisans for better marketing of their products; training facilities for upgrading artisans’ skills in order to increase their earnings and new design, product and diversified product in consultation with the experts /agencies for value addition of rural manufacturing units.

This Scheme is being implemented through KVIC/KVIBs; National level/ State level Khadi and VI Federations; Khadi and VI Institutions affiliated to KVIC and KVIBs and NGOs which have already worked for the implementation of the programmes relating to rural industries. Under this scheme, financial assistance for establishing projects upto Rs.5 lakh is provided to KVI units. Each RISC programme upto Rs. 5 lakh should provide benefit to 25 individuals.

Khadi Karigar Janashree Bima Yojana

In order to provide insurance cover to khadi artisans, a Group Insurance Scheme under the name of Khadi Karigar Janashree Bima Yojana (JBY) was launched on August 15, 2003. The Scheme was formulated by KVIC


in association with the Life Insurance Corporation of India (LIC) with annual premium of Rs. 200/- per beneficiary. The Commission has prevailed upon LIC to reduce the premium to Rs. 100/- from 2005- 06 which is shared “Rs. 50/- by the Central Government Social Security Fund, Rs. 25/- by Khadi Institution and Rs. 12.50/- each by Khadi Artisan and KVIC.”

The compensation under the Scheme has also been increased by 50 per cent which stands as follows: In case of Natural death : Rs. 30,000/- In case of Accidental death : Rs. 75,000/- In case of full permanent disability due to accident : Rs. 75,000/-In case of part permanent disability due to accident : Rs. 37,500/-. As an ‘add-on’ benefit without any additional premium, two school going children of insured artisans studying in Class Nine to Twelve are eligible for a scholarship of Rs. 100/- each per month.

Quality Control and Brand Promotion

In order to increase the handcrafted quality of khadi, KVIC has made arrangements with the National Institute of Design (NID), Ahmedabad; ‘Dastakar’, Andhra Pradesh; IIT, Delhi and Textiles Committee, Mumbai. The Memorandum of Understanding (MoU) signed between KVIC and the Textiles

Committee, a statutory body under the Ministry of Textiles continued during 2008-09. Under the MoU, facilities of 13 laboratories of the Committee situated across the country are being used for testing khadi and polyvastra. The quality of khadi is expected to receive a fillip and thus further increase its marketability. A number of khadi institutions took benefit of this arrangement.

Exhibitions

Besides promoting sale of khadi and village industries’ products through its network of Khadi Gramodyog Bhavans (KGB) and Retail Sales Outlets, efforts are made to organise a number of exhibitions, in different parts of the country, as a cost effective publicity and market promotion instrument.

Besides, KVIC has been granted the status of ‘deemed’ Export Promotion Council (EPC) by the Ministry of Commerce and Industry for availing assistance on the pattern of an umbrella EPC like Federation of Indian Export Organisations (FIEO).

Research and Development

KVIC undertakes research and development activities through in-house research and also by sponsoring projects to other R&D organisations. The main objectives of the

R&D programme are: increase in productivity and wages of the workers; improvement in quality; efficient use of local skills and local raw materials and reduction of human drudgery. In addition to the Mahatma Gandhi Institute for Rural Industrialization (MGIRI), Wardha, the Commission undertakes R&D activities through Central Bee Research and Training Institute (CBRTI), Pune; Dr. Ambedkar Institute of Rural Technology and Management (AIRTM), Nashik; Kumarappa National Handmade Paper Institute (KNHPI), Sanganer, Jaipur; Central Village Pottery Institute (CVPI), Khanapur, Karnataka and Khadi Gramodyog Prayog Samiti (KGPS), Ahmedabad.

Other Initiatives to Develop Khadi and Village Industries Sectors

MOU with Technical Interface Institutes

MGIRI follows up various outsourcing interfaces at the following Engineering and Technological Institutes of repute for meeting perceived needs of KVI sector to make the products more marketable either through design interventions or quality assurance system:

(i) Vishweshwarayya National Institute of Technology (VNIT), Nagpur, Maharashtra.


(ii) Birla Institute of Technology (BIT), Ranchi, Jharkhand.

(iii) NER Institute of Science and Technology (NERIST), Nirjuli, Arunachal Pradesh.

(iv) College of Technology and Engineering (CTAE), Udaipur, Rajasthan.

(v) Indian Institute of Science (IISc.), Bangalore, Karnataka.

(vi) Indian Institute of Technology (IIT), Roorkee, Uttarakhand.

(vii) National Institute of Technology (NIT), Rourkela, Orissa.

(viii) Indian Institute of Technol-ogy (IIT), Kharagpur, West Bengal.

(ix) Indian Institute of Technol-ogy (IIT), Kanpur, Uttar Pradesh.

(x) Indian Institute of Technology (IIT), Mumbai, Maharashtra.

(xi) Indian Institute of Technology (IIT), Guwahati, Assam.

(xii) National Institute of Tech-nology (NIT), Kozhikode, Kerala.

Categorization of Institutions

In order to streamline the payment of rebate, release of interest subsidy, supply of raw materials, etc., khadi institutions are categorized as A+, A, B,

C and D on the basis of their performance in production, sales, marketing, etc.

Rural Industries Consultancy Service

KVIC launched a Rural Industries Consultancy Service (RICS) for providing guidance, technical and managerial support to the prospective entrepreneurs in the areas of preparation of projects; liaison with banks/other agencies/ organisation/ local authorities in respect of the project; assistance and support for implementing the project; procurement of raw materials; machinery; installation; quality control for acceptability and reliability; packaging and design for better marketing; marketing support for sustainability of the unit, etc. As on March 31, 2009, 73 such RICS have been opened in various parts of the country.

Government Supply

KVIC has been supplying its products under the ‘Rate Contract’ of Director General of Supplies and Disposal (DGS &D) to various Government Departments/Agencies. Based upon DGS&D Rate Contract, the items like dasuti khadi, dungari cloth, dusters, long cloth, bunting cloth and sheeting cloth, etc., are being supplied to Government Agencies and bed rolls, curtains, pillow covers, “kulhars”, etc., are being made available to the Indian Railways.

Khadi Artisans Welfare Trust Fund

Khadi Artisans Welfare Trust Fund (KAWTF) is conceptually meant to be run on the lines of a Provident Fund. The Membership of KAWTF is mandatory for all khadi and polyvastra producing institutions affiliated to KVIC and State KVIBs. All the Institutions categorized as A+, A, B and C are eligible to join the Trust Fund. This Trust Fund has been functioning in 20 States and the concerned State Government manages this Trust Fund. A total of 1534 khadi institutions have became its members and the cumulative balance under the Trust Funds, as on March 31, 2009 was Rs. 4207.15 lakh.

National Flag Production Centre

Khadi is the pride and joy of our Nation and this can be easily understood from the fact that the Bureau of Indian Standards (BIS) gave it the first place by way of national flag specifications. As per BIS, khadi is the only fabric that is to be used for production of India’s National Flag. Accordingly, one National Flag Production Project has been started in consultation with the South Indian Textile Research Association (SITRA) at Karnataka Khadi Gramodyog Samyukta Sangh, an NGO of KVIC at Bengeri, Hubli


(Karnataka) at an estimated cost of Rs. 51.10 lakh.

The National Flag Production Unit has been awarded BIS certification on February 17, 2006. The Unit has also installed the dyeing, processing and finishing equipment envisaged in the second phase of the programme of National Flag Production Centre. The Unit has the capacity to produce around 5000 National Flags of different sizes per day.

Khadi ‘Ready-to-Use Mission’

KVIC has initiated a “Ready-to-Use” Mission during 2005-06 for khadi products. Under this project, a major khadi institution works as a lead institution where facilities for production of garments including covering, designing, finishing, packaging, etc. are installed. Other institutions working in nearby areas are associated in a concentric manner with the activities of the lead institution. As a result, all of them are able to upgrade their product quality by sharing their experiences and common facilities installed at the lead institution. The National Institute of Fashion Technology (NIFT), Kolkata and Chennai have been engaged as Service Providers for conceptualization and development of project; identification of location; installation of machinery; training; commissioning of

projects and post installation support. 2 projects {one each at Murshidabad (West Bengal) and Padiyur (Tamil Nadu)} have already started during 2005-06. The NIFT, Kolkata and Chennai have been enlisted by KVIC to also provide hand-holding support in the areas of design inputs and training.

Central Sliver Plants (CSPs)

Khadi institutions and State KVI Boards are implementing khadi programmes of the Commission. 25 per cent of the working capital given to them is meant for raw material. In order to ensure that khadi institutions maintain regular spinning work for artisans and to improve the quality of raw material in khadi sector, KVIC continued to operate its 6 Central Sliver Plants at Kuttur, Chitradurga, Sehore, Raibareilly, Etah and Hajipur during the year.

Setting up of Raw Material Godowns

In order to facilitate continuous off-take of slivers/rovings by the khadi institutions facing resource crunch, KVIC continued operation of 9 local godowns during 2008-09.

People Education Programme (PEP)

As a part of its publicity programme aimed at informing the people through direct

interaction between KVIC on the one hand and people on the other, the Commission held 21 PEP events during 2008-09 at the field level. Besides dissemination of the policies and schemes of KVIC on rural industrialization, essay competition; debates and seminars drew a good deal of participation from academic institutions, students, Panchayati Raj Institutions, NGOs, etc. on issues of topical interest concerning Khadi and Village Industries. KVIC provides financial assistance for the purpose through budgetary allocation.

Credit Guarantee Fund Trust for Micro and Small Enterprises

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) approved extension of the credit guarantee to loans advanced by the banks under the KVIC/PMEGP Schemes under its Credit Guarantee Fund Scheme. KVIC has taken steps to publicize this Scheme in association with the Trust and the participating Banks.

New Initiatives

Following specific interventions have been conceived / initiated for the Eleventh Plan:

Providing worksheds to ♦khadi spinners, on a limited basis.

Enhancing productivity of ♦khadi industry and artisans


through a comprehensive backward-forward linkage, exposure visits, capacity building, common facilities, etc., in 200 selected khadi institutions (of which 50 will be those managed by SC/ST).

Introduction of e-charkha to ♦enable spinners to spin yarn and generate power to light up their homes.

Memorandum of ♦Understanding (MoU) signed between Confederation of Indian Industry (CII) and KVIC to converge the efforts under Rural Business Hub (RBH) initiatives of the Ministry of Panchayati Raj and Memorandum of Cooperation (MoC) between the Ministry of Panchayati Raj and KVIC to promote khadi and village industry in rural areas through increased role to the Panchayats.

Distribution of Awards to ♦the successful micro, small and medium enterprises and the banks for achieving excellency in MSE lending.

Proposal for introduction ♦of Strengthening of Infrastructure of existing Weak Khadi Institutions and Assistance for Marketing Infrastructure’ which envisages renovation of selected 30 khadi sales outlets and providing assistance for strengthening of

infrastructure of existing 100 selected weak institutions.

Proposal for arranging ♦financial assistance/loan from the Asian Development Bank amounting to US$150 million to KVIC over a period of three years for implementing the comprehensive Khadi Reform Programme to revitalize the khadi sector with enhanced sustainability of khadi; increased incomes and employment; increased artisans welfare and to enable KVIC to stand on its own with reducing dependence on Government Grants.

Proposal for introduction ♦of Market Development Assistance (MDA) Scheme in place of the existing Rebate Scheme, on ‘Production of Khadi’ as a possible alternative to ‘Rebate on Sale’.

C. COIR Board

Coir Board is a statutory body established by the Government of India under a legislation enacted by the Parliament , viz.Coir Industry Act, 1953 (45 of 1953) for the promotion and development of Coir Industry in India as a whole. The main functions of the Board as laid down in Section-10 of the Coir Industry Act are given below:

It shall be the duty of the �Board to promote by such

measures as it thinks fit the development, under the control of the Central Government, of the Coir Industry.

Without prejudice to the �generality of the provisions of Sub-Section (l) the measures referred to therein may relate to:

Promoting exports of coir �yarn and coir products and carrying on propaganda for that purpose;

Regulating under the �supervision of the Central Government the production of husks, coir yarn and coir products by registering coir spindles and looms for manufacturing coir products as also manufacturers of coir products, licensing exporters of coir yarn and coir products and taking such other appropriate steps as may be prescribed;

Undertaking, assisting �or encouraging scientific, technological and economic research and maintaining and assisting in the maintenance of one or more research institutes;

Collecting statistics from �manufacturers of, and dealers in, coir products and from such other persons as may be prescribed, on any matter relating to the coir industry, the publication of statistics so collected or


portions thereof or extracts therefrom;

Fixing grade standards and �arranging when necessary for inspection of coir fibre, coir yarn and coir products;

Improving the marketing �of coconut husk, coir fibre, coir yarn and coir products in India and elsewhere and preventing unfair competition;

Setting up or assisting in the �setting up of factories for the producers of coir products with the aid of power;

Promoting cooperative �organisation among producers of husks, coir fibre and coir yarn and manufacturers of coir products;

Ensuring remunerative �returns to producers of husks, coir fibre and coir yarn and manufacturers of coir products;

Licensing of retting places �and warehouses and otherwise regulating the stocking and sale of coir fibre, coir yarn and coir products both for the internal market and for exports;

Advising on all matters �relating to the development of the coir industry;

Such other matters as may �be prescribed.

Activities of Coir Board

Research and Development in Coir Technology

Central Coir Research Institute (CCRI), Kalavoor, Alappuzha and Central Institute of Coir Technology (CICT), Bangalore, undertake research activities for the different aspects of coir industry beginning with the method of extraction of fibre to the processing and manufacture of end products. Identification of new user areas for potential utilisation of coir, coir waste, coir pith and improvements in processing for better quality, are the areas of special focus. The Coir Testing Laboratories have been set up at Pollachi, Tamil Nadu and Bhubaneswar, Orissa to cater to the testing requirements of the industry.

Modernisation of Extraction and Processing of Coir Fibre

The following activities were undertaken during the year 2008-09 under the modernization of extraction and processing of coir fibre programme of the Coir Board:-

Pilot Scale Laboratory: ♦The facilities of the Pilot Scale Laboratory set up at CCRI were extended to coir entrepreneurs. In this laboratory, 150 kg of COIRRET and 4800 kg of PITHPLUS were produced during 2008-09.

Research Activities: ♦Experimental studies on the treatment of phenolytic strain of bacteria Mycoplana bullatta and lygnolytic strains, Phenerochaete chrysosporium and Coriolus versicolor were applied on coir fibre for biobleaching and bio-softening. The activity of lignolytic enzymes, viz. lignin peroxides and manganese peroxide, were studied during different stages of composting coir pith. Lyophilisation of ‘COIRRET’ was carried out and the powdered version subjected to treatment on coir fibre. Studies on the subject are being continued for standardization of dosage for brown/green husk fibre. The installation of the Scanning Electron Microscope; Gas Chromatograph; Spectrophotometer HPLC; UV-VIS Spectrophotometer; C,H,N,S(O) Analyser; Atomic Absorption Spectrophotometer and Lyophiliser were completed during the period. Analysis for coir pith testing is being carried out on the new equipment. This would lead to economic utilization of brown fibre produced in the nontraditional coconut growing States of India.

Training: Training ♦sessions to disseminate details of the Research &


Development activities in CCRI viz. Coirret/Pithplus/L i g n o s u l p h o n a t e s /COCOLAWN were conducted for the benefit of candidates from different States, viz. Assam, Sikkim, Tripura, Tamil Nadu, Andhra Pradesh, Karnataka, etc., who were undergoing Entrepreneurship Develop-ment Programmes (EDPs).

Testing: As per the requests ♦received from different coir entrepreneurs, analysis of coir pith samples was carried out in the laboratories of Coir Board for Nitrogen, Phosphorus, Potassium (NPK), PH, Salinity, Organic Carbon, Lignin and phyto-sanitary certification for the presence of E. Coli and Salmonella in the laboratory.

Product Development and Diversification

The activities undertaken under this programme of the Coir Board are as under:

The development of ♦blended yarn of coir fibre and sisal fibre (80:20) and manufacturing of new products with blended yarn and weaving mats on power loom, jacquard and semi mechanised loom with new patterns, continued to be a thrust area for R&D activities of the Coir Board as part of

its product development and diversification efforts. Altogether 229 different blends of coir products were developed with the blended yarn. Besides, implementation of the 3rd phase of coir geotextiles project in association with IIM, Kozhikode has been completed and the process has been documented.

For manufacturing coir ♦structural composites, i.e. door frame, a design of compression moulding machine has been developed at Central Institute of Coir Technology (CICT), Bangalore. The new technology aims at using the waste coir fibre for making coir structural composites. The waste coir fibre will be separated from the coir pith and will be impregnated in the special mixer machine designed and then hot cured under pressure and temperature.

Testing and Service Facility

Technical staff have been deputed in the field for popularisation of research products such as application of vegetable oil in water emulsion to unsoaked green husk fibre, PITHPLUS, COIRRET, etc. and also for the utilisation of Coir Bhoovastra (geo-textile) for soil erosion control. During the

year, CCRI undertook testing of different type of coir products as per the requirements of the Bureau of Indian Standards (BIS) and exporters and tested the samples as per the standards formulated by BIS and ASTM. A total of 144 samples of coir and coir products have been tested in the Physical Testing Laboratory and ASTM Laboratory of CCRI and CICT during the year.

D. National Small Industries Corporation (NSIC)

National Small Industries Corporation (NSIC), set up in 1955, has been working to fulfill its mission of promoting, aiding and fostering the growth of MSME sector in the country. NSIC operates through 9 Zonal Offices, 33 Branch Offices, 14 Sub Offices, 10 NSIC Business Development Extension Offices, 5 Technical Services Centres, 3 Extension Centres and 2 Software Technology Parks supported by a team of over 500 professionals spread across the country. To manage operations in African countries, NSIC operates from its office in Johannesburg.

NSIC carries forward its mission to assist MSMEs with a set of specially tailored schemes designed to put them in a competitive and advantageous position.


4.2.2.3 Ministry of Commerce and Industry

Department of Industrial Policy & Promotion

The Department of Industrial Policy & Promotion was established in 1995 and has been reconstituted in the year 2000 with the merger of the Department of Industrial Development. Department of Industrial Policy & Promotion is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view the national priorities and socio-economic objectives. The major roles and functions of the Department of Industrial Policy and Promotion include:

Formulation and ♦implementation of industrial policy and strategies for industrial development in conformity with the development needs and national objectives;

Monitoring the industrial ♦growth, in general, and performance of industries specifically assigned to it, in particular, including advice on all industrial and technical matters;

Formulation of Foreign ♦Direct Investment (FDI) Policy and promotion, approval and facilitation of FDI;

Encouragement to foreign ♦technology collaborations at enterprise level and formulating policy parameters for the same;

Formulation of policies ♦relating to Intellectual Property Rights in the fields of Patents, Trademarks, Industrial Designs and Geographical Indications of Goods and administration of regulations, rules made there under;

Administration of Industries ♦(Development & Regulation) Act, 1951

Promoting industrial ♦development of industrially backward areas and the North Eastern Region including International Co-operation for industrial partnerships and

Promotion of productivity, ♦quality and technical cooperation

Industrial Policy

Main features: Objectives of the Industrial Policy of the Government are –

To maintain a sustained ♦growth in productivity;

To enhance gainful ♦employment;

To achieve optimal utilisation ♦of human resources;

To attain international ♦competitiveness and

To transform India into a ♦major partner and player in the global arena.

Policy focus is on –

Deregulating Indian ♦industry;

Allowing the industry ♦freedom and flexibility in responding to market forces and

Providing a policy regime ♦that facilitates and fosters growth of Indian industry

4.2.2.4 Ministry of Textiles

The Ministry of Textiles is responsible for policy formulation, planning, development export promotion and trade regulation in respect of the textile sector. This included all natural and manmade cellulosic fibers that go into the making of textiles, clothing and handicrafts.

The developmental activities of the Ministry are oriented towards making adequate quantities of raw material available to all sectors of the textile industry and augmenting the production of fabrics at reasonable prices from the organized and decentralized sectors of the industry. Towards this objective, the Ministry lays down guidelines for a planned and harmonious growth of various sectors of the industry. Special emphasis is given to the


development of handlooms in view of its large employment potential. The Ministry monitors the techno-economic status of the industry and provides the requisite policy framework for modernization and rehabilitation. The Ministry coordinates the activities of Textiles Research Associations and lends financial support to them for undertaking research and development.

Some Schemes of the Ministry

Development of Mega Powerlooms, Handlooms and Handicrafts Clusters Scheme

The main objective of setting up these mega clusters is to assist the entrepreneurs to set up world-class units with modern infrastructure, latest technology, and adequate training and Human Resource Development (HRD) inputs along with appropriate market linkages. Nature and level of assistance to the clusters will be need based and would include the components that are necessary for meeting the objectives. Illustrative list of permissible activities include - Technology Upgradation, Product Diversification, Raw Material Bank, Credit, Market Development, Forward & Backward Linkages, Human Resource & Skill Development, Social Security, Physical Infrastructure, Export & Marketing, Margin Money for

Working Capital, Corpus Fund for Yarn Depot.

Technology Upgradation Fund Scheme

Technology Upgradation Fund Scheme (TUFS) was introduced on April 01, 1999 and has been playing a crucial role in attaining higher level of infrastructure creation for modernization of textiles sector. In recognition of the potential of garmenting, technical textiles and processing segments for high value addition and employment generation, high priority has been accorded by the Government to decentralized powerlooms segment in Small and Medium Enterprises dominated textiles economy for employment generation and capacity building. Hence, the Government has further continued the Technology Upgradation Fund Scheme for the textiles & jute industries with effect from April 01, 2007 upto March 31, 2012. Financial assistance under the scheme is provided as follows:

Reimbursement of 5 ♦percentage points on the interest charged by the lending agency on a project of technology upgradation, for the spinning machinery the reimbursement will be four percentage points.

Cover for foreign exchange ♦rate fluctuation not

exceeding 5%, for the spinning machinery the coverage will be 4%.

Option is provided to the ♦powerlooms units to avail of 20% Margin Money subsidy under TUFS in lieu of 5% interest reimbursement on investment in TUF compatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy Rs.20 lakh. A minimum of 15% equity contribution from beneficiaries will be ensured.

The Scheme provides 15% ♦Margin Money subsidy for SSI textile and jute sector in lieu of 5% interest reimbursement on investment in TUF compatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy Rs.15 lakh. A minimum of 15% equity contribution from beneficiaries will be ensured.

5% interest reimbursement ♦plus 10% capital subsidy for specified processing machinery.

5% interest reimbursement ♦plus 10% capital subsidy for specified machinery required in manufacture of technical textiles and garmenting machineries.


25% capital subsidy on ♦purchase of the new machinery and equipments for the pre-loom & post-loom operations, handlooms/up-gradation of handlooms and testing & Quality Control equipments, for handloom production units.

Other investments, ♦such as, energy saving devices, effluent treatment plant, in-house R&D, IT including ERP, TQM including adoption of ISO/BIS standards, CPP, etc. (including non-conventional sources) are eligible for benefits of the scheme only upto 25% of the cost of machinery.

Modified Group WorkshedScheme

The prime objective of the scheme is to facilitate the establishment of Worksheds for modern looms in an existing or new cluster, which will provide required scale of economy for business operations. The Worksheds under the schemes includes the space required for setting up of modern machine looms, weaving preparatory & sectional warping machines and other functional requirement. Under the Scheme, subsidy for construction of Powerloom building would be limited to 40% of the unit cost of construction subject total

maximum of Rs. 120/- per sq.ft. The maximum permissible subsidy per beneficiary shall be restricted to Rs. 12.00 lakh.

Integrated Scheme for Powerloom Cluster Development

In order to achieve the overall development of the powerloom sector, the Government has announced the Integrated Scheme for Powerloom Cluster Development during 2007. The Scheme has the following components:-

Marketing Development ♦programme for Powerloom Sector in association with Powerloom Development & Export Council (PDEXCIL) and other agencies.

Exposure visit of Powerloom ♦Sector to other developed cluster to become familiar with the working upgraded skills, the products manu-factured and the marketing techniques adopted in those clusters.

Survey of the Powerloom ♦Sector to help in planning the growth of the industry.

Powerloom Cluster Devel- ♦opment to facilitate the sustainable development of powerloom industry located in identified clusters in a holistic manner to wean out the weak cluster from

producing the low-end value product at one hand and product innovation and other diversification on the other hand.

Development and up- ♦gradation of skills by establishing various Powerloom Service Center at Powerloom clusters for providing training to weavers for improvement in the efficiency, skill and productivity, test-ing facilitation, design development and consultancy to local Powerloom Industry.

4.2.2.5 Ministry of Food Processing Industries

The Ministry of Food Processing Industries, set up in July 1988, is the main central agency of the Government responsible for developing a strong and vibrant food processing sector; with a view to create increased job opportunities in rural areas, enable the farmers to reap benefit from modern technology, create surplus for exports and stimulating demand for processed food. It is concerned with the formulation & implementation of policies and plans for all the industries under its domain within the overall national priorities and objectives. Its main focus areas include -- development of


infrastructure, technological up gradation, development of backward linkages, enforcement of quality standards and expanding domestic as well as export markets for processed food products. The functions of the Ministry can be broadly classified as follows:

Policy Support

Formulation and ♦implementation of policies for food processing industries within overall national priorities and objectives

Facilitating the creation ♦of a conducive policy environment for healthy growth of the food-processing sector

Promoting rationalization of ♦tariffs and duties relating to food processing sector

Developmental

Assistance under various ♦plan schemes

Widening the R&D base ♦in food processing by involvement of various R&D institutes and support to various R&D activities relating to development of product, process and packaging with special emphasis on traditional technologies

Human resource develop- ♦ment both for entrepreneurs

as well as workers engaged in the food processing industry by up gradation of their skills

Assistance for setting up ♦analytical and testing laboratories, active particip-ation in the laying down of food standards as well as their harmonization with international standards

Promotional

Assistance for organization ♦of workshops, seminars, exhibitions and fairs etc

Assistance for studies / ♦surveys etc

Publications and films ♦

Regulatory

Implementation of Fruit ♦Products Order (FPO)

4.2.2.6 Ministry of Women and Child Development

The Department of Women and Child Development was set up in the year 1985 as a part of the Ministry of Human Resource Development to give the much needed impetus to the holistic development of women and children. With effect from 30.01.2006, the Department has been upgraded to a Ministry. The schemes of the Ministry like Swashakti, Swayamsidha, STEP and Swawlamban enable economic empowerment of

the women. The Ministry also supports autonomous bodies like National Commission, Central Social Welfare Board and Rashtriya Mahila Kosh which work for the welfare and development of women.

4.3 Financial Support Institutions

India has a vast formal network of institutions consisting of Scheduled Commercial Banks (Public Sector Banks, Private Sector Banks and Foreign Banks) including Regional Rural Banks, Cooperative Banks (Particularly Urban Cooperative Banks), State Financial Corporations, Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD) to provide Financial support to Micro, Small and Medium Enterprises (MSME) and other Non-farm sector enterprises. The overall regulation of the monetary policy which includes credit to MSME sector is in the hands of the Reserve Bank of India (RBI).

4.3.1 National Level

4.3.1.1 Banking Institutions

Commercial Banks

The commercial banks with about 82000 branches have been playing an important role in financing the working capital


and term loan requirements of micro, small and medium enterprise sector. Besides providing short-term and long-term assistance to MSM enterprises, these banks also support non-farm enterprises, through loans for Industrial estates, small road and water transport operators, Retail trade, Small business, Housing loans, Advances to self-help groups, etc. under their priority sector lending programme.

Regional Rural Banks (RRBs)

RRBs were created jointly by a group of public sector commercial banks, to promote agriculture, trade, commerce and industry in rural areas and thereby to improve the rural economy. With over 14000 branches, they also support micro / tiny, and artisan-based units and village industries located in the rural areas. Most of the NABARD’s schemes for non-farm unorganized enterprises are operated through RRBs. These banks function like local banks and there is a strong case to strengthen them and increase their number in many parts of the country.

Urban Cooperative Banks

The Urban Cooperative Banks (UCBs) finance, apart from

agriculture and related primary sector activities handlooms, powerlooms, coir and village industries as many of them function on a cooperative basis. There are 1853 branches of UCBs which play an important role in meeting the working capital needs of the cottage and tiny industries.

4.3.1.2 RefinancingInstitutions(RFIs)

Small Industries Development Bank of India

Small Industries Development Bank of India (SIDBI) was established on April 02, 1990 as the principal financial institution for the promotion, financing and development of the MSME sector and to coordinate the functions of other institutions engaged in similar activities. It is primarily a Refinancing Institution (RFI) with refinance constituting 78% of the total credit outstanding as on December 31, 2009. As regards indirect assistance, SIDBI provides refinance to Primary Lending Institutions (PLIs) like banks, SFCs, SIDCs, MFIs, etc. for onward lending to MSMEs in the areas of setting up of new ventures, availability of working capital, expansion, modernization and diversification of existing units for all activities. The direct

assistance comprises loans for new ventures, diversification, technology upgradation, expansion of well-run MSMEs, foreign currency loans for import of equipment to export-oriented MSME and venture capital assistance to innovative entrepreneurs.

National Bank for Agriculture and Rural Development

Established on July 12, 1982, National Bank for Agriculture and Rural Development (NABARD) is an apex institution accredited with all matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas. It provides investment and production credit for promoting the various developmental activities in rural areas. Other functions of NABARD are:

It takes measures towards ♦institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.

It co-ordinates the rural ♦financing activities of all the institutions engaged in


developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation.

It prepares, on annual ♦basis, rural credit plans for all districts in the country; these plans form the base for annual credit plans of all rural financial institutions.

It undertakes monitoring ♦and evaluation of projects refinanced by it.

It promotes research in ♦the fields of rural banking, agriculture and rural development.

4.3.1.3 Micro Finance Institutions

Micro Finance Institutions (MFIs) have emerged as important players in the microfinance space in India. MFIs differ from one another in terms of lending model, loan repayment structure, mode of interest rate calculation, product offerings, and legal structure. MFIs are dependent on borrowings from banks and FIs and do not raise debt from the capital market. Banks categorize their lending to MFIs

as priority sector advances which has helped MFIs raise timely resources. The large and mid-sized MFIs and NBFCs primarily borrow from public, private and foreign banks, while the smaller MFIs borrow mainly from private banks and apex lenders.

4.3.1.4 Non-Banking Financial Companies

In India, there are two broad categories of Non-Banking Financial Companies (NBFCs), viz., Non-Banking Financial Company – Deposit Taking (NBFC-D) and Non-Banking Financial Company – Non-Deposit Taking (NBFC-ND). The NBFCs provide lending to MSMEs and also provide them training, advisory and other ancillary services. NBFCs have strong channels, efficient recovery, good risk management systems, dedicated infrastructure and fast collection systems. They also work in clusters.

4.3.1.5 Others FIs

North Eastern Development Finance Corporation Ltd.

The main objectives pursued by North Eastern Development Finance Corporation Ltd. (NEDFi) as per its Memorandum of Association are: to carry

on and transact the business of providing credit and other facilities for promotion, expansion and modernisation of industrial enterprises and infrastructure projects in the North Eastern Region of India, also carry on and transact business of providing credit and other facilities for promotion of agri-horticultural plantation, medicinal plantation, sericulture plantation, aquaculture, poultry, dairy and animal husbandry development in order to initiate large involvement of rural population in the economic upsurge of the society and faster economic growth of different parts of the North Eastern Region.

4.3.2 State Level

4.3.2.1 State Financial Corpora-tions

The State Financial Corporations (SFCs), set up under the SFC Act 1951, have the main objective of promoting regional growth in the country through the development of MSMEs. The 18 SFCs across the country provide financial assistance by way of term loans to MSMEs at reasonable rates for their capital expenditure. The working and operations of SFCs are given in Chapter 5.


4.3.2.2 State Industrial Devel-opment Corporations

State Industrial Development Corporations (SIDCs) were set up under the Companies Act, 1956 as wholly owned undertakings of the State Governments to act as catalyst for industrial development in their respective States. At present, there are 28 SIDCs in the country, of which 11 also function as Twin-Function IDCs which also act as SFcs in their respective State and are, therefore, termed as Twin-Function IDCs. SIDCs develop land and provide the entire necessary industrial infrastructure, with roads, power, water supply, drainage and other amenities. Set up primarily for assistance to medium and large industries, SIDCs also extend assistance to the Micro and Small Enterprises by way of term loans, bridge loans, equipment loans, etc.

Credit dispensation to MsMe seCtor

5.1 International Financial Crisis 2009

The sub-prime crisis that started getting deep-rooted

around August 2007 had affected financial institutions in the United States and Europe including the shadow banking system comprising inter alia investment banks, hedge funds, private equity and structured investment vehicles. The collapse of the Lehman Brothers in mid-September 2008 further aggravated the situation leading to a crisis of confidence in the financial markets. The resulting heightened uncertainty cascaded into a full-blown financial crisis of global dimensions that stymied prospects of an early recovery.

The effect on the Indian economy was not significant in the beginning. In fact, the initial effect of the sub-prime crisis was positive, as the country received accelerated Foreign Investment (FI) inflows during September 2007 to January 2008. But ultimately, India could not insulate itself from

the adverse developments in the international financial markets, despite having a strong banking and financial system that had little to do with investments in structured financial instruments carved out of sub-prime mortgages.

This contributed to the debate on “decoupling”, where it was believed that the emerging economies could remain largely insulated from the crisis and provide an alternative engine of growth to the world economy. The argument soon proved unfounded as the global crisis intensified and spread to the emerging economies through capital and current account of their balance of payments (BoP). The net portfolio inflows to India soon turned negative as Foreign Institutional Investors (FIIs) rushed to sell equity stakes in a bid to replenish overseas cash balances. This had a knock-on effect on the stock market and the exchange rates through creating the supply-demand imbalance in the foreign exchange market. The current account was affected mainly after September 2008

through slowdown in exports. Despite setbacks, however, the BoP situation of the country continues to remain resilient.

The global crisis also meant that the economy experienced volatility in terms of fluctuations in stock market prices, exchange rates and inflation levels during a short duration, necessitating reversal of policy to deal with emergent situations.

Before the onset of the financial crisis, the main concern of the policymakers was excessive capital inflows, which increased from 3.1 per cent of GDP in 2005-06 to 9.3 per cent in 2007-08. While this led to increase in foreign exchange reserves from US$ 151.6 million at end-March 2006 to US$ 309.7 billion at end-March 2008, it also contributed to monetary expansion, which fuelled liquidity growth. Inflation, as measured by Wholesale Price Index (WPI), reached a trough of 3.1 per cent in October 2007, a month before global commodity price inflation increased to double digits from low single digits. The rising oil and

SIDBI Report on MSME Sector134

commodity prices, contributed to a significant rise in prices, with annual WPI peaking at 12.8 per cent in August 2008. The monetary policy stance of the Reserve Bank of India (RBI) during the first half of 2008-09 was, therefore, oriented towards controlling monetary expansion, in view of the apparent link between monetary expansion and inflationary expectations, partly due to the perceived liquidity overhang.

5.2 Impact on Indian Financial SystemWith the eruption of financial crisis in the USA which spread rapidly to the rest of the global financial markets, there was sudden squeeze of international liquidity due to resultant ‘crisis of confidence’ among the banking community. As the liquidity in international markets dried up, it resulted in the break-down of the payments chain, resulting in the increased demand for bank credit. Additional pressure was built on Indian banks as Indian companies which were supposed to mobilize ECBs, had to turn back to domestic banks for credit as liquidity in international market declined.

Besides the banks, NBFCs also faced liquidity crisis as their main source of funds, i.e. Mutual Funds witnessed heavy redemption by large corporate. It may be noted that many large

corporate which had invested in Mutual Funds, started liquidating their investments since they could not mobilize resources from foreign markets as well as from domestic markets and banks.

As financial crisis spread to real sector, Indian banks became cautious, not restrictive – a pause in lending. This was a period of uncertainty as everyone was trying to decipher the magnitude of crisis and the severity and longevity of the impact across the countries.

Global financial crisis has resulted in increase in the liquidity risk for the Capital Market in India by raising the element of uncertainty in the market. As a result, the Indian capital market experienced instability due to equity sell-off by FIIs and also by Indian companies and public. Capital reversal became clearly visible during the second half of FY 2008-09, which resulted in:

Decline in net capital inflows • from USD 108 billion in FY 2007-08 to just USD 9.1 billion during the second half of FY 2008-09.

Net FFI investment in equity • turned negative to US$ 2.5 billion.

Reduction in net investment • in equities by Mutual Funds to Rs. 6,983 as compared to

Rs. 16,306 crore during the corresponding period of FY 2007-08.

Forex market came under increased volatility due to reversal in capital flow. With FIIs taking money back, falling remittances, non-fructification of ECBs and decline in exports, dollar was subject to increased demand which led to depreciation of rupee. During the second half of FY 2008-09, exchange rate depreciated by 8.9%. At the same time, the forex reserves declined from USD 292 billion in September 2008 to USD 252 billion in March 2009.

5.3 Impact on MSME sector

The economic crisis exerted • significant pressure on the Indian MSMEs, both directly in the form of the export market being hit by slowdown in demand and difficult commercial terms, viz. delay in payment realization. The main reason being either export dependence of the select MSMEs or their being part of a large – corporate supply chain / contract manufacturers. MSME exports are nearly one-third of total Indian exports. In times of the economic downturn, both foreign and domestic buyers had cut down order volumes.

Credit Dispensation to MSME Sector 135

At the same time, the • MSMEs were also reported to have been crowded out from the credit market as they had to compete with large corporates in credit mobilization from banks/FIs.

Many MSMEs started • experiencing stagnation / slowdown in their production. As a result, a large number of MSMEs started postponing their expansion plans and avoiding the immediate capital expenditure with more cautious approach.

Rupee volatility also • adversely affected a lot of export oriented MSMEs as several of their foreign purchasers (importers) have either held back committed orders or sought (20-25%) discounts in view of Rupee depreciation. This has impacted the MSMEs who have stocked inventory at higher prices in Rupee. The textile sector (especially Synthetics) has been affected significantly.

Due to high volatility in • prices of base metals (steel, copper, etc) and other industrial commodities like synthetic yarn, the MSMEs found it difficult to close deals with overseas buyers.

5.4 Crisis Related Policy MeasuresWith the onset of global financial crisis and economic slowdown, the Government of India, Reserve bank of India and Indian Banks’ Association took immediate measures to limit the spread of ‘contagion effect’, control the damage and stimulate economic activities. Such MSME related measures as then announced were:

A. Government of India Measures:

December 07, 2008 Measures

To boost collateral free • lending, the guarantee cover under Credit Guarantee Scheme for Micro and Small enterprises on loans was extended from Rs.50 lakh to Rs.1 crore with guarantee cover of 50 percent for the portion beyond 50 lakh.

The lock in period for loans • covered under the existing credit guarantee scheme was reduced from 24 to 18 months, to encourage banks to cover more loans under the guarantee scheme.

Government issued an • advisory to Central Public Sector Enterprises and request State Public Sector Enterprises to ensure prompt payment of bills of MSMEs.

An additional allocation of • Rs.1400 crore be made to

clear the entire backlog in TUF Scheme.

All items of handicrafts were • included under ‘Vishesh Krishi & Gram Udyog Yojana’.

Pre- and post-shipment • export credit for labour intensive exports, i.e., textiles (including handlooms, carpets and handicrafts), leather, gems & jewellery, marine products and SME sector were made more attractive by providing an interest subvention of 2 percent upto 31/3/2009 subject to minimum rate of interest of 7 percent per annum.

Additional funds of Rs.1100 • crore were provided to ensure full refund of Terminal Excise duty/CST.

An additional allocation for • export incentive schemes of Rs.350 crore will be made.

Government back-up • guarantee be made available to ECGC to the extent of Rs.350 crore to enable it to provide guarantees for exports to difficult markets/products.

Exporters be allowed refund • of service tax on foreign agent commissions of upto 10 percent of FOB value of exports. They will also be allowed refund of service


tax on output services while availing of benefits under Duty Drawback Scheme.

January 02, 2009 Measures

Credit targets of Public • Sector Banks were revised upward to reflect the needs of the economy in the present difficult situation. Government will closely monitor, on a fortnightly basis, the provision of sectoral credit by public sector banks.

Special monthly meetings • of State Level Bankers’ Committees would be held to oversee the resolution of credit issues of micro, small and medium enterprises by banks. Department of MSME and Department of Financial Services will jointly set up a Cell to monitor progress on this front. Matters of MSMEs remaining unresolved with the Banks- SME Helpline for more than a fortnight may be brought to the notice of this Cell.

In order to enhance flow of • credit to micro enterprises, it was further decided to increase the guarantee cover extended by Credit Guarantee Fund Trust to 85% for credit facility upto Rs.5 lakh.

Taking into account the • fact that the rupee has appreciated nearly four

per cent against the dollar since November 2008, it was decided to restore DEPB rates to those prevailing prior to November 2008. In order to provide predictability and stability of regime in the short term for future contracts, the DEPB Scheme would be extended till 31.12.2009.

Duty drawback benefits • on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn are being enhanced. These changes to take effect retrospectively from September 1, 2008.

Exporters had raised a • number of procedural issues where modification of procedures could reduce delays faced by exporters. To consider these and similar problems, Government has decided to constitute a Committee under the chairmanship of the Finance Secretary including Secretaries of the Departments of Revenue and Commerce to look into and resolve these issues on a fast-track basis.

EXIM Bank had obtained • from RBI a line of credit of Rs.5000 crore and would provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.

February 24, 2009 Measures

General reduction in Excise • Duty rates by 4 per cent points was made with effect from 7.12.2008. It was extended beyond 31 March, 2009. In addition, it has now been decided to:

reduce the general rate of • Central Excise duty from 10 per cent to 8 per cent.

retain the rate of central • excise duty on goods currently attracting ad valorem rates of 8 per cent and 4 per cent respectively.reduce the rate of central • excise duty on bulk cement from 10 per cent or Rs. 290 PMT, whichever is higher to 8 per cent or Rs.230 PMT, whichever is higher.

Section 10 AA of the Income • Tax provides for exemption in respect of export profits of a unit located in a Special Economic Zone (SEZ). The export profits are required to be computed with reference to the total turn over of the assessee. This has resulted in discriminatory treatment of assessees having units located both in SEZ and the Domestic Tariff Area (DTA) vis-à-vis assessees having units located only within the SEZs. It has now been decided to remove this anomaly through necessary changes in the Act.


Union Budget 2009-10 Measures on July 06, 2009

Interest subvention of 2 • per cent on pre-shipment credit for seven employment oriented export sectors extended beyond the current deadline of September 30, 2009 to March 31, 2010.

To facilitate flow of • credit at reasonable rates, Rs.4,000 crore provided as special fund out of Rural Infrastructure Development Fund (RIDF) to Small Industries Development Bank of India (SIDBI). This will incentivise Banks and State Finance Corporations (SFCs) to lend to Micro and Small Enterprises (MSEs) by refinancing 50 per cent of incremental lending to MSEs during the current financial year.

B. Reserve Bank of India Measures

To manage the impact of the crisis, the Reserve Bank of India has taken a number of monetary easing and liquidity enhancing measures which were aimed at providing adequate liquidity to compensate for the squeeze emanating from foreign financial markets and improving foreign exchange liquidity. At the same time, it was necessary to ensure that the financial contagion arising from the global financial crisis did not permeate the Indian banking system. These measures

were, therefore, supplemented by sector-specific credit measures for exports, housing, micro and small enterprises and infrastructure. The salient MSME focused policy measures are given below:

RBI has advised banks to • consider restructuring the dues of MSMEs where warranted and also continue to disburse loans against the sanctioned limits.

Prudential guidelines on • restructuring of advances which harmonise the prudential norms over all categories of debt restructuring mechanisms (other than those restructured on account of natural calamities) have been issued.

To face the problems arising • out of the current economic downturn, as a one time measure, the second restructuring by banks of exposures (other than exposures to commercial real estate, capital market exposures and personal / consumer loans) up to June 30, 2009, will also be eligible for exceptional regulatory treatment.

In order that the problems • faced by the MSE sector are addressed proactively by banks and steps taken for timely restructuring, holding on operations and additional facilities etc. RBI advised

that SLBC Convenors to immediately organise special meetings of SLBC where representatives of MSE sector are to be invited to facilitate exchange of views and arrive at concrete measures in the interest of the sector and the banking system.

Further, RBI has advised banks that:

While sanctioning/ ºrenewing credit limits to their large corporate borrowers (i.e. borrowers enjoying working capital limits of Rs. 10 crore and above from the banking system), banks should fix separate sub-limits, within the overall limits, specifically for meeting payment obligations in respect of purchases from SSIs either on cash basis or on bill basis.

The size of such sub- ºlimits to be decided taking into account the projected purchases by corporate borrowers from the SSIs during a year in relation to their total purchases and other relevant factors.

Further, with a view to ºensuring availability of adequate balance in the account for meeting the payment obligations to SSI units, banks were


advised to ensure that sale proceeds/other receipts of the borrower are credited to this account on a pro rata basis.

The SLBC convenor banks • were also advised that they may further take up, with the concerned authorities, issues which are not credit related but which may be deterrent for smooth flow of credit to the MSE sector. Every Regional Office/Zonal Office of all banks are to closely monitor the flow of credit to MSEs and also institute a Help Desk at key centres.

Banks were advised to • contribute an aggregate amount of Rs. 2000 crore to the Micro, Small & Medium Enterprises (MSME) (Refinance) Fund with SIDBI in advance on the basis of the banks’ projected shortfall in achievement of sub-target of 10 per cent for lending to weaker section category as on the last reporting Friday of March 2009.

In view of the need to • enhance credit delivery to the employment-intensive micro and small enterprises (MSE) sector, it was decided to provide refinance of an amount of Rs. 7,000 crore to the Small Industries Development Bank of India (SIDBI) under the provisions

of Section 17(4H) of the Reserve Bank of India Act, 1934. This refinance will be available against: (i) the SIDBI’s incremental direct lending to MSE; and (ii) the SIDBI’s loans to banks, NBFCs and State Financial Corporations (SFCs) against the latter’s incremental loans and advances to MSEs. The incremental loans and advances will be computed with reference to outstandings as on September 30, 2008. The facility will be available at the prevailing repo rate under the LAF for a period of 90 days. During this 90-day period, the amount can be flexibly drawn and repaid. At the end of the 90-day period, the drawal can also be rolled over. This refinance facility will be available up to March 31, 2010.

C. Measures by Indian Banks’ Association

Public Sector Banks to grant • need based ad hoc working capital Demand Loans upto 20 percent of the existing fund based limits in respect of units having overall fund based credit facility up to Rs.10 crore. The loan will be repayable in one year with a provision of moratorium of six months during which only interest will have to be serviced.

I• n the current stretched shipment and receivables situation resulting in elongated operating cycle of business, banks to be pro-active and forthcoming in sanctioning adequate increase in working capital limits.

Relief to be granted by • reducing margin on receivables. Further, receivables up to six months to be reckoned for book debt financing.

Cash margins on letters of • credit/guarantee to also be relaxed, based on needs.

Moratorium period to be • extended in respect of loans availed by MSMEs where project implementation has been delayed due to the current scenario.

For units unable to repay • term loan obligations on time, suitable reschedulement /rephasement of instalments on a case-to-case basis within the overall loan policy of the respective banks.

Finance for purchase of • gensets to be made available on soft terms.

Banks to take up second • restructuring of MSME accounts on a case-to-case basis.

Interest rates for borrowings • by Micro Industries were reduced by 100 basis points


for all existing and new loans. In respect of Small and Medium Enterprises where banks have fund based exposures up to Rs.10 crore, interest rates were reduced by 50 basis points. The reduction in these rates of interest were to be with reference to the rates of interest prevailing on 30.11.2008.

D. SIDBI MeasuresSIDBI had initiated a number of supportive measures to meet the diverse credit needs of the MSME sector in a timely, adequate and affordable manner as given below.

MSME (Refinance)• Fund- Following the Budget announcement by the Hon’ble Union Finance Minister, RBI had set up an MSME Refinance Fund with a corpus of Rs. 1600 crore, which was subsequently enlarged to Rs. 3600 crore. The fund is to be utilized for refinancing of the incremental lending to Micro and Small Enterprises (MSEs) by banks and State Financial Corporations (SFCs).

Ad-hoc assistance under •Direct Credit Scheme - Under the Scheme, SIDBI offered one-time assistance to the extent of 15% of existing outstanding of its

clients on liberal terms. The ad-hoc assistance has helped MSMEs sustain the slow down and ease their tight liquidity position.

Scheme for One-Time •Liquidity Support upto 15% of WC limits - The special dispensation was offered under the One-Time Liquidity Support to existing working capital clients upto 15% of their existing limit with SIDBI to overcome the liquidity crisis.

Receivable Finance •Scheme - Delayed payment from corporates is a problem being faced by MSMEs which was further aggravated due to slow down in the production, cancellation of orders and sluggish market conditions. SIDBI’s Receivable Finance Scheme (RFS), provides for discounting of bills raised by MSMEs in respect of their supplies to larger corporate entities and thus considerably addresses the problem being faced by MSMEs for quick realization of receivables from large corporates. In order to enhance the credit flow and enable corporates to increase procurements from MSMEs, SIDBI extended grant of additional limit of 15% to all existing RFS clients, prima-

facie eligible for additional exposure and within the overall scheme exposure available.

Restructuring of Loan •Accounts - As per the RBI guidelines, SIDBI has rescheduled/ restructured the loan accounts of its MSME clients affected by global slowdown / low offtake and delayed payments for their supplies.

Measures under Credit •Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)- Loan amount eligible for guarantee under collateral free guarantee scheme of CGTMSE has been increased from Rs.50 lakh to Rs.100 lakh, lock-in period has been reduced to 18 months and guarantee coverage for loans upto Rs. 5 lakh has been increased to 85% of the loan amount.

5.5 Pre-crisis Committees / Working Groups Relating to MSME Credit

A. Working Group on Flow of Credit to SSI Sector (May, 2004)-ASGangulyAs per the announcement made by the Governor, Reserve Bank of India, in the Mid-Term Review of the Monetary and Credit Policy 2003-2004, a “Working Group on Flow of Credit to


SSI sector” was constituted under the Chairmanship of Dr. A S Ganguly in 2004. Major recommendations of the Group were:

Definition of the SME ♦Sector. Though the definitions are not part of the terms of reference for the Working Group, a clearer definition of the SME sector vis-à-vis conventional SSI and Tiny sectors was felt necessary.

(a) A separate category of medium enterprises (ME) needs to be recognized. While ME may not qualify for priority sector lending, it must be seen as contiguous with SSI.

(b) Adoption of turnover as a measure for defining the SME sector may be considered.

Priority Sector Lending ♦Targets

An uniform target in priority sector lending (including SSI) at 40% of Net Bank credit (NBC) for all domestic and foreign banks was recommended to provide a level playing field for all the banks and ensure active participation in the faster development of the priority sector.

Risk Assessment ♦Mechanism

With growing opportunities for banks to extend credit to SMEs,

it is essential for banks to put in place proper risk assessment mechanisms. This would facilitate objective and speedy decisions based on better client information. This will also help in improving quality of credit portfolio. In order to utilize risk assessment, the following methods may be adopted:

● Lending to SME Clusters: A full-service approach to cater to the diverse needs of the SME sector may be achieved through extending banking services to recognized SME clusters by adopting a 4-C approach, namely, Customer focus, Cost control, Cross sell and Contain risk.

● In order to enable the lending institutions to take more objective decisions, an appropriate rating mechanism for designated industrial clusters may be put in place. Accordingly, a scheme may be designed jointly by CRISIL, IBA, SIDBI and SSI Associations.

● Formulating and institutionalizing rating for clusters or stand-alone SMEs (through techniques, such as, balanced scorecard or appropriate software) is a key to rapid deployment of cost-effective credit. It is important to encourage SSI Associations to take initiatives which would

enable their SSI members to be rated individually or as clusters, by banks or rating agencies.

● There is a strong evidence that SSIs which are linked as suppliers, service providers, etc. to successful large industries are usually successful in their ventures, in India as well as in many other countries. Such successful SSI/large industry linkages provide examples of best practices which can be aggressively extended. There are a number of corporates in India who adopt Corporate-linked SME cluster models to gain competitive advantage in local as well as global markets and derive mutual benefits. Corporate-linked SME cluster models need to be actively promoted by banks and FIs. Banks linked to large corporate houses can play a catalytic role in promoting this model.

● Financing SMEs linked to large corporates, covering suppliers, ancillary units, dealers, etc. would also enhance competitiveness of the corporates as well as the SME participants.

● Though the Government of India has enacted “Interest on Delayed Payment to Small Scale and Ancillary


Industrial Undertakings Act” in order to ensure that the small scale units receive prompt and timely payment of their dues, implementation of the provisions of the Act remains ineffective. The Government needs to take urgent steps to enforce the provisions of the Act especially in public sector enterprises.

● Adoption of “Best Practices Code” for large corporates dealing with the SME sector on the lines of “Code for Payments for large industries/corporates”, formulated by CII, would greatly help the sector regarding timely payment to SMEs. This may also enable SMEs to access better technology as well as complying with quality and environmental standards. In this regard, the RBI “Guidelines on Fair Practices Code for Lenders” is particularly noteworthy. The guidelines need to be reinforced for their use and application.

Shortfall in Priority ♦Sector Lending

● The tenure of the deposits representing shortfall in lending to the priority sector by foreign banks

with SIDBI, be increased to a period of three years in order to enable SIDBI to better manage disbursal to SME sector.

● Risk sharing mechanisms between foreign banks and SIDBI needs to be worked out, on credit extended to the SME sector by SIDBI and

● Interest rate payable by SIDBI to foreign banks on priority sector lending shortfall deposits, may be pegged at a rate which does not act as an incentive for the foreign banks to keep the deposit with SIDBI, rather than directly meeting the credit needs of the SME sector.

Venture Financing ♦A dedicated National level SME Development Fund should be established. SIDBI may promote an NBFC (non–public deposit taking) exclusively for undertaking venture and other development financing activities for SMEs. Banks could also contribute to the corpus created by SIDBI (on risk sharing basis) or alternatively, set up their own venture financing instruments

♦ Technology Transfer through Technology Bank

In the current scenario, the growth and success of SMEs will be primarily determined by market forces rather than

by reservation, preferential treatment, etc. The SMEs have become identified with low-technology, poor quality and weak management. In the current scenario for the SME sector to achieve economic efficiency and international quality standards, there is imminent need in many instances to upgrade technology. This will help the sector to break away from the protected environment of the past and to adapt and innovate in tune with changing market forces. Liberalization and globalisation requires technological upgradation, improved marketing and better infrastructure in SMEs. In order to facilitate technology access, transfer and absorption, the Technology Bureau of Small Enterprises (TBSE) was established in 1995 as a collaborative initiative between SIDBI and United Nations-Asia and Pacific Center for Transfer of Technology. This was meant to help SSI units to attain international competitiveness through transfer of latest technology both from within and outside the country. Conversion of TBSE into an independent Technology Bank for the SMEs to facilitate technology transfer may be considered. The proposed Technology Bank may also provide services, such as, project evaluation, risk assessment and risk mitigation


SSI entrepreneurs. The scheme needs to be revisited to make it more affordable for the intended users. SSI Associations, banks and the CGTSI should actively encourage SSI entrepreneurs to cover their loans under the Scheme.

Extending micro finance ♦coverage

The traditional sources of credit flow to the SME sectors (through public sector banks, specialised SSI Branches, etc.) are unlikely to improve their services, at least, in the short and medium term. While public sector banks have inherent problems in extending credit to many SMEs, due to historical reasons, it is necessary to explore ways to overcome such traditional problems, by the banks, promoting and financing Special Purpose Vehicles (SPVs) in the form of micro credit agencies dedicated to servicing SME clusters. Banks should extend wholesale financial assistance to NGOs/MFIs and work out innovative models for securitisation of the MFI receivable portfolio on the pattern of models in vogue the in the USA and other countries. Such SPVs may be extended necessary support through various fiscal/taxation measures by the Government.

Such micro credit intermediaries, say, in the form of NBFCs (funded by

measures to the SMEs adopting new technologies. Such a service would improve the credit accessibility of the SMEs as well. Such a Technology Bank would facilitate building stronger linkage between R&D institutions and the SME sector for enhancing their productivity and competitiveness. Besides SIDBI, banks may also contribute to the corpus of the proposed Technology Bank to ensure its commercial viability and play an active role in enhancing the capabilities and credit worthiness of the SME sector. The cost involved in providing technology support should be recoverable over a period of time from the successful ventures.

Credit Guarantee Scheme ♦for Small Industries

The Working Group strongly feels that the banks should have the freedom to decide the terms of lending (with or without collaterals) depending on the risk perception of any proposal. However, till such time the policy relating to collateral-free lending is reviewed, as a prudent measure, the existing Credit Guarantee Scheme (CGS) may continue. The Credit Guarantee Fund Trust for Small Industries (CGTSI) [now known as Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)], however, must play a more proactive role to assist

individual or a group of banks but not permitted to accept public deposits) could credit-rate and risk assess and serve as instruments for extending quick credit to SME clusters, accredited to them.

Finally, in the scheme envisaged by the Working Group, large banks can directly extend credit and banking services to (i) SMEs linked to large corporates and (ii) identified SME clusters which are credit rated. The micro credit intermediary (SME-specific NBFC) funded by banks (individually or in groups) could be an alternate source to speed up credit access to stand-alone clusters of product/service specific SMEs. The Working Group recognizes the acute problems faced by SMEs, tiny and village industry sectors, particularly in the North East region of the country. Special instruments, besides NBFCs, etc. need to be tailored, dedicated and funded for these regions in order to generate economic activity and employment.

There are 25-30 very active and successful NGOs in South India and some other states, who have an outstanding record of successful micro credit management. They provide ideal role models for training and development of groups and individuals in other parts of the country. Besides NGOs, there are other successful micro-


credit institutions who service small, tiny and individual entrepreneurs in Tamilnadu, Andhra Pradesh and Karnataka. SIDBI and Lead Banks should make use of these successful models to encourage the adoption of their work practices in other states, by sponsoring specific projects as well widely publicizing the successful working models.

Special Dispensation for ♦North Eastern Region and other Backward Regions

Regional imbalances exist on account of geographical locations, lack of infrastructure, political environment and other historical/ social factors, etc. This has led to inadequate response from the banking system to the needs of SMEs in this region. Special dispensation is required for promotion and development of SMEs in the North East Region as well as other backward regions/areas in the country. Some of the ways of approaching this problem are as follows:

The North East entrepreneurs • have a major problem in providing collaterals. The Model of Mutual Credit Guarantee may be able to address the problem of collateral. There is a need for private initiative to provide mutual credit guarantee. In the states of North Eastern

Region, due to peculiar land tenure system, (in most of states, the land is owned by the community, thereby making it difficult to provide individual collateral for availing credit), the issue of alternative to land mortgage for availing bank loan could be addressed if Deputy Commissioners can provide guarantee for the loans in their capacity as Chairman of Village Development Boards (e.g. Nagaland).

As the number of SSI units • are widely dispersed in these regions/areas, all SSI units without a ceiling (of Rs.25 lakh) may be covered under the CGTSI scheme. The guarantee cover may also be extended to the extent of 90% of the credit.

Farm sector projects and • tiny sector projects where Village Council guarantee is available, should also be covered under CGTSI scheme.

Hilly terrain and frequent • flood causes hindrance in the transportation system in these areas, and as a result supply chain gets frequently disrupted. Because of this the SMEs have to maintain high levels of inventory requiring high working capital. Higher working capital limits need to be taken into account while extending credit to such units.

• Growth of rural industry would be the key to significant growth in GDP as well as in creating employment over time. While the traditional means of financing rural sector has been on decline, banks have not reached adequately in rural areas. Micro-finance partially addresses this issue, but not adequately. New instruments need to be explored for promoting rural industry and to improve the flow of credit to rural artisans, industries and rural entrepreneurs.

Revival of SFCs ♦

During the ‘nineties’, there was a decline in the activity of SFCs, due to a number of factors. The downturn coincided with the SFCs’ inability to raise resources on competitive terms and deterioration of their functioning on commercial lines. The poor financial health of SFCs were exacerbated by poor recoveries, rising NPAs and growing provisions, due to tightening of provisioning norms. As a result, the share capital of several SFCs has eroded over the last few years. It may be emphasized that unless the SFCs that are performing poorly, improve their working and become entrepreneurial in their business transaction, they will be unable to provide appropriate financial


Shri C.S.Murthy, to review all circulars and guidelines issued by Reserve Bank in the past regarding financing of SSI and MEs, to suggest appropriate terms for restructuring of the borrowal accounts of SSI/Medium Enterprises, to examine the guidelines issued by Reserve Bank for nursing sick SSIs and to suggest suitable relaxation and liberalization of these norms. The salient recommendations of the Group are as under:

Definition: ♦ Current SSI/tiny definition may continue. Units with investment in plant and machinery in excess of SSI limit and up to Rs.10 crore may be treated as Medium Enterprises (ME). The definition may be reviewed after enactment of the Small and Medium Enterprises Development Bill. Only SSI financing will be included in Priority Sector.

Fixing of targets & sub- ♦targetsforSMEfinancing:The existing instructions to banks to fix self-set targets for financing SSI may be made in respect of financing SME. However, they may so fix the targets as to reflect a higher disbursement over the immediately preceding year. The sub-targets for financing tiny units and smaller units to the extent of 40% and 20% respectively

assistance and guidance to SMEs and the tiny sector. Some of the recommendations in this regard were:

SFCs Act needs be repealed • in order to enable them to become effective vehicles for the promotion of SMEs and tiny sector;

Commercially viable SFCs • may be restructured which could become effective vehicles for banks/financial institutions to fund the SME and tiny sector;

Restructuring of SFCs could • be facilitated by their NPAs being transferred to appropriate Asset Reconstruction Companies;

State Government stake in • SFCs may be taken over by SIDBI or individual banks as may be appropriate;

Individual SFCs or groups of • SFCs may be reconstituted under the Companies Act in order to enhance their functioning;

SIDBI and banks either • individually or jointly would be ideally placed to initiate the privatization of SFCs.

B. The RBI Internal Group to Review Guidelines on Credit Flow to SME Sector (April2005)–CSMurthy

An ‘Internal Group’ was constituted on February 2, 2005 under the Chairmanship of

may continue. Similarly, the banks may also fix self-set target for financing of Medium Enterprises.

♦ I n s t i t u t i o n a l Arrangements:

(i) The existing institutional arrangements for review of credit to SSI sector like the Standing Advisory Committee, cells at the bank head office level and at important regional centres may continue. However, they may review flow of credit to SME sector.

(ii) At the Regional offices of the Reserve Bank, empowered committees may be constituted with the Regional Director of the Reserve Bank as the Chairman and the SLBC Convenor, senior level officers from two banks having predominant share in SME financing in the state, representative of SIDBI Regional Office, the Director of Industries of the State Government, one or two senior level representatives from the SME/SSI Associations in the state, and a senior level officer from SFC/SIDC as members. The Committee will meet periodically and review the progress in SME financing. It will also coordinate with other banks/financial institutions and the state government


in removing bottlenecks, if any, to ensure smooth flow of credit to the sector. The committees may decide the need to have similar committees at cluster/district levels.

(iii) The banks may open specialized SME branches in identified clusters/centres with preponderance of ME units to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop the requisite expertise. The existing specialized SSI branches may, if need be, redesignated as SME branches. Though their core competence will be utilized for extending credit and other services to SME sector, they will have operational flexibility to extend finance/render other services to other sectors/borrowers.

(iv) The Boards of banks may review the progress in achieving the self-set targets as also rehabilitation and restructuring of SME accounts on a quarterly basis to ensure that the required emphasis at the highest forum of the banks is given to this sector. Accordingly, the banks may collect statistics relating to SME financing on a quarterly basis.

(v) At the branch level, the name of the nodal officer to help the SME entrepreneurs in complying with the bank’s formalities may prominently be displayed.

(vi) For wider dissemination and easy accessibility, the policy guidelines formulated by Boards of banks as well as instructions/guidelines issued by Reserve Bank may be displayed on a centralized web-site.

Withdrawal of RBI’s ♦circular instructions: The boards of banks may be empowered to frame their own policies in regard to SME financing. While formulating this policy, the boards may, inter alia, cover the following aspects:

limits up to which collateral • free loans can be granted, taking into consideration the availability of guarantee facility under Credit Guarantee Trust for Small Industries for collateral-free loans up to Rs.25 lakh;

limits up to which composite • loans can be granted through a single window;

basis for working out the • term loan and working loan components;

time limits within which the • loan applications have to be disposed of;

• limits up to which officers at different levels can sanction different types of loans; and

charges to be levied for • different services, keeping in view the need to service small entrepreneurs.

The Group recommends withdrawing the instructions contained in six circulars of the Bank. It is expected that the policies formulated by banks will be more liberal than the existing policies. Till the Boards formulate their policies, the Reserve Bank guidelines will continue to be applicable to them.

Restructuring of borrowal ♦accounts:

Coverage: i) The revised • restructuring mechanism will be applicable to all SME units, excepting corporate SME having aggregate credit limits of Rs.10 crore or more under multiple/consortium banking arrangements,

ii) It is proposed to leave the matter regarding formulation of rehabilitation/debt restructuring policies in respect of SMEs having credit limits from a single bank to the banks concerned with the approval of their Board of directors. It is expected that the policies formulated by banks will be simple to comprehend and more liberal than the existing policies.


iii) In case of corporate borrowers in SME sector having credit limits of up to Rs.10 crore under multiple banking arrangements as also non-corporate borrowers having any credit limits under multiple banking arrangements, the bank with the maximum share in the limits, in association with the bank having second largest share may work out restructuring packages, provided the units are potentially viable.

iii) The restructuring may be done suo motu by the bank or on receipt of a request to that effect from the borrowing units.

iv) All accounts except those classified as ‘loss assets’ will be eligible for restructuring.

Viability criteria:• The Boards of banks may decide on the acceptable viability benchmarks in such a way that the restructured amount together with interest thereon is recovered over a period of 7-10 years.

Time frame:• While the bank should decide upon the eligibility of the unit and work out a restructuring package within a maximum period of 60 days, the sanctioned package should be implemented within a period of 30 days thereafter.

The Boards of banks may consider fixing shorter time frame depending upon level of expertise within the bank.

Restructuring of accounts •of corporate SME units with multiple banking arrangements: The Special Group to Review Corporate Debt Restructuring (CDR) Mechanism (Chairperson: Smt. S. Gopinath) has recommended that the revised CDR Mechanism may be made applicable to corporate borrowers with credit limits of Rs.10 crore or more with multiple banking arrangements. Hence this Group recommends that restructuring of accounts of corporate SSI/ME borrowers having credit limits aggregating Rs.10 crore or more under multiple banking arrangements may be covered under the revised CDR mechanism.

Review of Reserve Bank’s •guidelines on nursing sick SSIs: i) All the accounts of sick units may be restructured on the lines of proposed debt restructuring mechanism for SME sector;

ii) Extant guidelines on definition of a sick SSI unit will continue. All other instructions relating to viability and parameters for relief and concessions to be

provided to sick SSI units, as prescribed by Reserve Bank may be withdrawn and banks may be given freedom to lay down their own guidelines with the approval of their Board of Directors. While formulating their guidelines, banks may consider the indicative guidelines suggested by the Working Group on Rehabilitation of Sick SSI Units (Chairman: Shri S.S.Kohli).

iii) As per extant guidelines, a unit is considered as sick when any of the borrowal accounts of the unit remains sub-standard for more than six months. The banks may consider restructuring accounts of units having financial problems even if the account has remained sub-standard for six months or less.

iv) It is expected that the policies formulated by banks in respect of (ii) and (iii) above will be more liberal than the existing policies.

v) Every attempt may be made by banks to implement the rehabilitation package in respect of the accounts of sick units at the earliest. In any case, it may not exceed a period of 3 months from the date of bank deciding suo motu to reconstruct the accounts or date of receipt of


request to that effect from the borrowing unit concerned.vi) Since the empowered committees to be constituted with the Regional Director of Reserve Bank as the Chairman, will also look into coordination issues between different agencies and banks, and in view of the above recommendations relating to restructuring of the accounts of sick SSI/ME, the future role of State Level Inter Institutional Committee (SLIIC) may be reviewed.

C. Policy Package for stepping up credit to SMEs (August2005)

The Government of India announced a ‘Policy package for stepping up credit to Small and Medium Enterprises (SMEs) on 10 August, 2005. The measures in the policy package to increase the quantum of credit to SMEs (including micro enterprises) include:

Public Sector Banks will • be advised to fix their own targets for funding SMEs in order to achieve a minimum 20% year on year growth in credit to SMEs. The objective is to double the flow of credit from Rs.67,600 crore in 2004-05 to Rs.135,200 crore to the SME sector by 2009-10, i.e. within a period of 5 years.

• Public Sector Banks will be advised to follow a transparent rating system with cost of credit being linked to the credit rating of the enterprise.

SIDBI, in association • with Credit Information Bureau(India) Ltd. (CIBIL) will expedite setting up a credit rating agency.

SIDBI, in association with • Indian Banks’ Association (IBA), would collect and pool common data on risk in each identified cluster and develop an IT-enabled application, appraisal and monitoring system for small (including tiny) enterprises. This would help reduce transaction cost as well as improve credit flow to small (including tiny) enterprises in the clusters.

The National Small Industries • Corporation has recently introduced a Credit Rating Scheme for encouraging SSI units to get themselves credit rated by reputed credit rating agencies. Public Sector Banks will be advised to consider these ratings appropriately and as per availability, and structure their rates suitably.

SIDBI has developed a • Credit Appraisal & Rating Tool (CART) as well as a Risk Assessment Model

(RAM) for risk assessment of credit proposals for SMEs. Public sector banks will be advised to take advantage of these models as appropriate and reduce their transaction costs.

The commercial banks • (including regional rural banks) with over 67,000 branches, will make concerted efforts to provide credit cover on an average to at least 5 new tiny, small and medium enterprises at each of their semi-urban/urban branches per year.

Reserve Bank will issue • detailed guidelines relating to debt restructuring mechanism so as to ensure restructuring of debt of all eligible small and medium enterprises at terms which are not less favourable than the Corporate Debt Restructuring (CDR) mechanism in the banking sector. The restructuring would follow upon a request to that effect from the borrowing unit. All accounts, except those classified as ‘loss assets’, will be eligible for restructuring, provided the industrial units are viable or potentially viable.

Banks will formulate a • comprehensive and more liberal policy relating to advances to SME sector.


In order to reduce the cost • of guarantee to the weaker segments of the borrowers, particularly tiny units, the CGTSI will be advised to reduce the one-time guarantee fee from 2.5% to 1.5% for all (i) loans up to Rs.2 lakh, (ii) eligible women entrepreneurs, and (iii) eligible borrowers located in the North Eastern regions (Sikkim) and Jammu & Kashmir. Further, public sector banks will be encouraged to absorb the annual service fee in excess of 0.25% in respect of guarantee for all (i) loans up to Rs.2 lakh, (ii)eligible women entrepreneurs, and (iii) eligible borrowers located in the North Eastern regions(Sikkim) and Jammu & Kashmir.

To broaden the financing • options for infrastructure development in clusters through public-private partnership (PPP), SIDBI will formulate a scheme in consultation with the stakeholders. SIDBI has already initiated the process of establishing Small Enterprises Financial Centres in select clusters.

Risk profile of each cluster • would be studied by a professional credit rating agency and such risk profile reports would be made

available to commercial banks. Each lead bank of a district will consider adoption of atleast one cluster.

Setting up of Watchdogs: • Monitoring and Review. The following supervisory arrangements will be ensured:

a. The existing institutional arrangements for review of credit to SSI sector like the Standing Advisory Committee in Reserve Bank of India and cells at the banks’ head office level as well as at important regional centres will be made more rigorous and regular. They will also review the flow of credit to small (SSI) and medium enterprises.

b. At the Regional offices, the Reserve Bank will constitute empowered committees with the Regional Director of the Reserve Bank as the Chairman to review the progress in SME financing and rehabilitation of sick small (SSI) and medium units and to coordinate with other banks/financial institutions and the state governments in removing bottlenecks, if any, to ensure smooth flow of credit to the sector. The said Regional level committees may decide on the need to have similar

committees at cluster/district levels.

c. The banks will ensure specialized SME branches in identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise. The existing specialised SSI branches may be also be redesignated as SME branches.

d. Boards of banks will be advised to review the progress in achieving the self-set targets as also rehabilitation and restructuring of SME accounts on a quarterly basis to ensure that the required emphasis is given to this sector.

e. For wider dissemination and easy accessibility, the policy guidelines formulated by boards of banks as well as instructions/guidelines issued by Reserve Bank will be displayed on the respective websites of Public Sector Banks as well as website of SIDBI. The banks would also be advised to prominently display all the facilities/schemes offered by them to the small entrepreneurs at each of their branches.


D. Package for Micro and Small Enterprises (February 2007):MinistryofMSME

The package for MSEs announced on February 27, 2007 has following provisions relating to credit:-

Monitoring of •implementation package for credit to SMEs: In line with the Policy Package for stepping up credit to Small and Medium Enterprises (SME), the RBI has already issued guidelines to the public sector banks to ensure 20 percent year-on-year growth in credit to the SME. Action has also been initiated to operationalise other elements of the said Policy Package. The RBI and the Government will closely monitor implementation of these measures.

Portfolio Risk Fund:• The Small Industries Development Banks of India (SIDBI) will scale up and strengthen its credit operations for micro enterprises and cover 50 lakh additional beneficiaries over five years beginning 2006-07. Government will provide grant to SIDBI to augment SIDBI’s Portfolio Risk Fund for the purpose.

Risk Capital Fund: •Government will also provide grant to SIDBI to

enable it to create a Risk Capital Fund (as a pilot scheme in 2006-07) so as to provide, directly or through intermediaries, demand- based small loans to micro enterprises.

Increase in number of •SIDBI Branch Offices(BOs)to100: SIDBI’s direct lending operations will be expanded by increasing the number of branches from 56 to 100 in two years beginning 2006-07, with a view to catering to the credit needs of more clusters of micro and small enterprises (MSEs).

Modification in Credit•Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): The eligible loan limit under the Credit Guarantee Scheme will be raised to Rs.50 lakh. The credit guarantee cover will be raised from 75 per cent to 80 per cent for micro enterprises for loans upto Rs. 5 lakh. Accordingly, to strengthen the Credit Guarantee Fund, the corpus of the Fund will be raised from Rs.1,189 crore as on April 01, 2006 to Rs.2,500 crore over a period of five years (with contribution by the Government and SIDBI in the existing ratio 4:1). Moreover, to encourage public sector banks and

public financial institutions to contributions to the corpus of the Fund, the feasibility of allowing deduction of their contributions to the Fund for income-tax purposes would be examined.

E. National Commission for Enterprises in the UnorganizedSector(NCEUS)Report on Financing of Enterprises in Unorganized Sector(November2007)

The Government of India constituted the National Commission for Enterprises in the Unorganized Sector in September 2004 under the Chairmanship of Dr. Arjun Sengupta. The Commission submitted two Reports on the ‘Financing of Enterprises in the Unorganised Sector’ and on ‘Creation of a National Fund for the Unorganised Sector’ (NAFUS). The main recommendations of the Commission in so far as financing to the unorganised sector were briefly as under:

Change In Priority •Sector: Priority Sector Lending Policy be revised and quota of 12% be fixed for Micro Enterprises (8%) and for Micro Credit and Credit Linked Government Programme (4%). Priority Sector Lending should be confined to only needy people in Agriculture covering


Small and Marginal Farmers, Micro Enterprises and Micro Credit And Weaker Sections People with Loan Requirement not above Rs. 5 lakh. For more creditworthy activities like Education, Housing, Professionals, Transport, etc. ceiling of Priority Sector Loan should not exceed Rs. 5 Lakh.

Provide Safety Nets To •Banks: Adequate Safety Nets should be provided to Banks to encourage Loans to Non-Farm Unorganized Enterprises. For this, Credit Guarantee Scheme should be appropriately revised. Guarantee Fee, Service Charges be reduced and immediate payment to Banks on default be increased.

Rate of Interest as for •Agriculture: Rate of interest on loans to Micro Enterprises below Rs. 5 lakh of investment should be same as Agriculture. To induce banks personnel to lend to Unorganized Enterprises, there is a need for their training.

Uniformity in Govt. •Schemes: Margin money support in all credit linked Government schemes should be uniforms at 25% as in the case of REGP.

• Delivery Points Should Be Strengthened: Banks should adopt Agency Model (Business Correspondents, Business Facilitators) to expand coverage and reduce cost of lending. Technical manpower is posted with the banks with proficiency in agriculture, agro processing and micro enterprises.

Micro Finance:• Micro finance should be allowed to graduate to micro enterprises lending through capacity building of matured SHGs, NGOs and MFIs.

Single Credit Card :• A single multi-purpose Swarojgar Credit Card be introduced for unorganized enterprises for a sum upto Rs. 10 lakh by merging all non-farms existing credit cards into one. To promote Innovative financing instruments, such as, factoring services, venture capital, credit rating, etc. be encouraged.

Increase Target of •beneficiaries: Targets of number of beneficiaries under Credit Linked Government sponsored Self-Employment Schemes be enhanced to provide employment opportunity to all needy entrepreneurs.

Creation of National •Fund for the Non-Farm Unorganized: To facilitate increased flow of credit to unorganized enterprises and to enhance the credit absorbing capacity of the borrowers, the NCEUS recommended creation of a National Fund for Unorganized Sector called NAFUS as a statutory body. It will have both Financing and Development Functions as under:

(a) Financing Refinance, Guarantee

Cover, Seed Capital, Support Microfinance through MFIs, NGOs, etc. and Factoring services.

(b) Developmental Skill development /

Technology Upgradation / Marketing support.

F. Working Group on Rehabilitation of Sick SMEs- Chairman: Dr. K.C. Chakrabarty (April 2008)

A Working Group (Chairman: Dr. K.C. Chakrabarty) was constituted by RBI to suggest measures for improving the credit flow to the SME sector as well as early implementation of rehabilitation / nursing of sick SME units by examining feasibility of bringing in additional capital through alternative routes, such as, equity participation and venture


financing. The Group made several suggestions as set out below:

o A simplified application cum sanction form (printed in the regional language as well) should be introduced for sanction of loans up to Rs. 1 crore to all micro enterprises.

o A current ratio of 1.25 should be acceptable in the accounts where bank finance was provided under the Nayak Committee norms.

o The rate of interest on loans should be completely deregulated and should be determined by the lenders based on the competitive market forces.

o The banks may be encouraged to accept inter-changeability of margin and collateral so to enable the borrowers with poor liquidity to provide additional collateral without inducting funds and the banks could accordingly reduce the margin. The Reserve Bank could consider raising the limit of compulsorily collateral free loans from Rs. 5 lakh to Rs. 10 lakh incentivised by 80 per cent coverage under the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE).

o Banks that had sanctioned term loan singly or jointly

must also sanction working capital limit singly (or jointly, in the ratio of the term loan) to avoid delay in commencement of commercial production of the MSME.

o Banks could focus on opening more specialized MSME branches, while RRBs and co-operative banks could be asked to undertake more MSME financing.

o Banks could consider sanctioning 50 per cent of the working capital as post sales limit. Cash credit (book debt) could be provided at a lower margin of say not more than 30 per cent. Margin could be reduced in the case of bill discounting / factoring also.

o A Rehabilitation Fund, with a corpus of Rs. 1,000 crore, should be created as many sick units could not be rehabilitated due to non-availability of promoters’ contribution.

o A Marketing Development Fund to provide, inter alia, financial assistance to MSMEs in setting up distribution and marketing infrastructure / outlets should be set up.

o The State Government should be directed by the Government of India to provide a one-time financial

support for recapitalization of the viable State Financial Corporations (SFCs), while the unviable SFCs should be wound up with the State Governments settling their creditors / lenders.

o Banks should finance, on an average, at least 10 MSME accounts per semi-urban / urban branch per year.

o Small finance banks could be set up, as suggested by the Raghuram Rajan Committee, to reach out to the poorer sections and MSMEs.

o Enterprises Development Centres (EDCs) could be set up by the stakeholders for providing comprehensive guidance and training for setting up of new units and provide continuing education on different aspects of successful management of existing business enterprises. The Government may provide grant up to Rs.2.5 crore, which should not be more than 50 per cent of the cost of setting up an EDC, as against the present provision of Rs. 1 crore.

o State Government should have separate department for MSMEs as also short and long term polices for development / promotion of the MSME sector.


o The incidence of sickness in small enterprises is double of that prevailing in the banking system as a whole. This makes the lenders averse to lending to the sector. Thus, the risk coverage under CGTMSE could be raised to 80 per cent for all micro enterprises without charge of guarantee fees, while the credit guarantee coverage offered could be raised from Rs.50 lakh to Rs.1 crore.

o Banks should set up credit counseling centers (whether singly or jointly with other banks or with large corporate) exclusively for MSMEs in major industrial towns / clusters.

o A micro or small enterprises (as defined in the MSMED Act, 2006) could be defined as sick, if any of the borrowal account of the enterprises remained a non-performing asset (NPA) for three months or more, or accumulated losses led to a 50 per cent erosion of its net worth. Also, the existing stipulation for the unit to have been in commercial production for at least two years should be removed in order to enable banks to rehabilitate units where there was a delay in commencement of commercial production and a resultant need for

handholding due to time / cost overruns.

o The rehabilitation process should start at the point of incipient sickness which is defined as any of the following: (a) delay in commencement of commercial production by more than six months for reasons beyond the control of promoters and entailing cost overrun; (b) incurrence of losses for two years or cash loss for one year, beyond the accepted timeframe on account of change in economic and fiscal policies affecting the working of MSMEs or otherwise; and (c) capacity utilization at less than 50 per cent of the projected level in terms of quantity or sales at less than 50 per cent of the projected level in terms of value during a year.

G. Raghuram G. Rajan Committee Report on Financial Sector Reforms (April2008)

Targeted Policy for ♦Inclusion: Goal of financial inclusion should be not only to expand volume of credit but to expand access to financial services, such as, payment services, saving products, insurance product, inflation protected pensions.

Channelise transfer to poor from various Government programmes into their saving account - this will reduce leakage and promote saving. 90% of the households should have deposit accounts in the next three years. Instead of forcing credit to the poor, make them creditworthy. Focus should from rural areas to urban areas also where people are migrating.

Measures to reduce cost ♦of credit: Focus should move from large bank led, public sector dominated, mandate ridden branch expansion strategy to low-cost structure with capacity to make quick decisions with minimum paperwork – who find poor as profitable. Allow more entry to private well governed deposit taking small finance banks. They are akin to local areas banks. The intent is to bring local knowledge to bear on the products that are needed locally. Small banks have failed in the past due to poor governance, excessive government and political support and interference and inability of the regulators to take prompt corrective action. Technological solutions can bring down the cost.


Priority Sector: ♦

If needed, reduce the • cost of banking sector by reducing priority sector quota.

Offer priority sector loan • certificates (PSLC) to all entities that lend to eligible categories in the priority sector. Allow banks that undershoot their priority sector obligations to buy the PSLC and submit it towards fulfilment of their target. Priority sector lending certificates should be issued to institutions (MFIs, co-operative banks, banking correspondents) that extend loans to poor for the amount of loan. Deficient banks can purchase these certificates and submit it towards fulfillment of their targets of priority sector lending.

Priority sector lending • policy should be revised to focus solely on the sectors that truly need access including urban poor.

Deregulate Interest Rate: ♦Liberalize the interest rate. This makes the priority sector lending unprofitable and this compels the banks to add several hidden charges to deny credit to poor forcing

them go to money lenders. Formal institutions will have reputation reasons to not charge exorbitant rates. Transparency, incentives and competition will ensure that rates of interest charged by the banks are not exorbitant. Improve methods if risk mitigation for the poor through insurance. Technology will help to reduce cost of lending to poor. Use existing networks like cell phone kiosks, kirana shops as business correspondents to deliver products. Liberalize banking correspondents regulation so that a wide range of local agents can serve to extend financial services.

Small Finance Banks ♦ be set up to reach out to the poorer sections.

Land and Tenancy ♦Reforms:

Ongoing efforts to • improve land registration and titling—including full cadastral mapping of land, reconciling various registries, forcing compulsory registration of all land transactions, computerizing land records, and providing easy remote access to land records—should be expedited. Lifting various restrictions can help the

landless (or more efficient large land owners) get land from those who migrate, and allow those who currently lease land informally to formalize their transactions and thus obtain institutional credit and other benefits.

Restrictions on tenancy • should be re-examined so that tenancy can be formalized in contracts, which can then serve as the basis for borrowing.

The powers of SRFAESI that ♦are currently conferred only on banks, public financial institutions, and housing finance companies should be extended to all institutional lenders.

ARCs have additional ♦powers, such as, step-in rights and the ability to change management, and the right to sell or lease the business. Given these additional powers, it is important that a number of ARCs flourish so that no single ARC has excessive power. There is really no sensible case to keep foreign direct investment out of ARCs. The kind of risk capital as well as the kind of expertise foreign investors bring is useful in the economy, and can help provide a valuable buffer. Encourage the entry of more


well-capitalized ARCs, including ones with foreign backing.

H. Prime Minister’s Recent Announcement on Credit to MSMEs (August 2009)

Underlining the •Government’s commitment to the MSME sector, Hon’ble Prime Minister has recently said that the Government aims to double the credit flow to MSME sectorwithin five years. Hon’blePrime Minister stated that “Credit is the lifeline of any business. The Government is committed to double the flowof credit toMSMEs infiveyears”.

I. Task Force on MSMEs under the Chairmanship of the Principal Secretary to the Hon'ble Prime Minister (January 2010)

In order to examine various issues and problems of the MSME sector and suggest suitable remedial measures, our Hon’ble Prime Minister has set up a Task Force under the Chairmanship of the Principal Secretary to PM. The recommendations of the Task Force are given in Chapter No. 3 (Government Policy Support for MSMEs).

5.6 Status of Credit Flow to MSME Sector

As mentioned earlier in this Report, the medium enterprises

have been included in the SSI only after the enactment of MSMED Act in 2006 and were included by the RBI only in 2007 for the purpose of credit to MSME sector. With the upward revision in the definition ofthe MSEs and such redefineddata being made available from FY 2007-08 onwards, a historical comparison is neither appropriate nor meaningful. However, comparable growth rates of outstanding credit are given in the Table 5.1 which shows appreciable growth in credit to the MSE sector since FY 2005-06.

It may be observed from the above Table that credit to SSI/MSE sector by SCBs has shown

Table 5.1: Non-food Gross Bank Credit Outstanding fromScheduled Commercial Banks to SSI / MSE Sector (Rs. Crore)

FinancialYear

(end-March)

Non-Food Gross Bank

Credit (NFGBC)

Prioty Sector Lending

Credit to SSI/MSEs

Annual Growth of SSIs/MSE Credit(%)

SSI/MSE credit as % of

NFGBC

SSI/MSE credit as % of Priority

Sector Lending

2000-01 429162 154414 56002 5.40 13.05 36.272001-02 482749 175259 57199 2.14 11.85 32.642002-03 620055 211609 60394 5.59 9.74 28.542003-04 728422 263834 65855 9.04 9.04 24.962004-05 999788 381476 74588 13.26 7.46 19.552005-06 1404840 510738 91212 22.29 6.49 17.862006-07 1801240 635966 117910* 29.27 6.55 18.542007-08 2202890 747380 204892*

(155804)**73.8

(32.1)9.30 27.41

2008-09 2602290 915886 259998* 26.90 9.99 28.39As On 20 Nov 2009

2716217 949428 335654* NA 12.36 35.35

*MSEdataareasperMSMEDAct2006;**Asperolddefinition. # Figure corresponds to Non-food Gross Bank Credit @ Source: Economic Survey 2008-09. $ Source: RBI Third Quarter review of Monetary Policy, 2010 Sources: Compiled from Report on Trend and Progress of Banking in India, RBI (2005) by Internal Working Group of RBI (RBI 2008) and Monthly Economic Report, Ministry of Finance, (GOI 2008) for 2007-08 data on Net Bank Credit.


rapid progress during the last few years with an average growth rate of 27.6% during FY 2005-06 to FY 2008-08. The stimulus measures helped continued augmentation of credit to the MSME sector as is evident from a year-on-year growth of 26.9% in FY 2008-09 and 19.3% in FY 2009-10 (upto November 20, 2009). Further, the doubling of credit to the MSME sector as announced by Hon’ble Finance Minister in August, 2005, over a period of 5 years lending by FY

2009-10, was achieved earlier by FY 2007-08 Similarly, the share of MSE credit to Gross Bank Non-fund Credit of SCBs made a reversal in its declining trend by recording higher shares from 6.5% in FY 2005-06 to 12.4% in November, 2009. Another notable trend is the doubling of share of MSE credit in priority sector credit from 17.9% in FY 2006-07 to 35.4% in November, 2009. With Government of India supporting a target of doubling the credit flow to the sector by

FY 2012, this trend is likely to continue.

While in terms of Gross Bank Credit outstanding of Scheduled Commercial Banks to MSE sector constituted 9.9% of Non-Food Gross Bank Credit as at end March, 2009, in terms of Adjusted Net Bank Credit (ANBC), the share of MSE sector was 11.4% (Table 5.2). It is worth noting that Public Sector Banks, account almost 75% of total lending to MSE Sector. Among the various categories of

Table5.2:Bank-wisePrioritySectorAdvancesbyScheduledCommercialBanks(Rs.Crore)

Items FY 2007(asonlastreportingFriday)

FY 2008(asonlastreportingFriday)

FY2009(P)(asonlastreportingFriday)

Total Priority Sector

Advances

% of NBC/

ANBC/ CEOBSE

% of total priority sector

dvances


Advances

% of NBC/

ANBC/ CEOBSE

% of total

priority sector

advances


dvances

% of NBC/ NBC/ OBSE

% of total ority sector

advances

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)Public Sector Banks

521376 39.7 100.0 610450 44.7 100.0 720083 42.5 100.0

Of Which (ii) MSEs 102550 7.8 19.7 151137 11.1 24.8 191307 11.3 26.5Private Sector Banks

144549 42.9 100.0 164068 42.5 100.0 190207 46.8 100.0

Of Which (ii) MSEs 13136 3.9 9.1 46912 13.7 28.6 47916 12.0 25.2Foreign Banks 37831 33.4 100.0 50254 39.5 100.0 55483 34.3 100.0Of Which (ii) MSEs 11637 10.3 30.8 15489 12.2 30.8 18188 11.2 32.8Scheduled Commercial Banks @

703756 39.9 100.0s 824772 43.9 100.0 965773 42.7 100.0

Of Which MSEs 127323 7.2 18.1 213538 11.6 25.9 257072 11.4 26.7P : Provisional. @Estimated by sum of Public Sector Banks, Private Sector Banks and Foreing BanksNBC - Net Bank Credit, ANBC - Adjusted Net Bank Credit, COBSE - Credit Equivalent Amount of Off- Balance Sheet ExposuresSources : (1) RBI Annual Report 2008-09 (2) RBI Report on Trend & Progress of Banking in India 2008-09


Banks, the share of Public Sector Banks, Private Sector Banks and Foreign Banks stood at 11.3%, 12.0% and 11.2%, respectively.

Public Sector Banks were ahead of Private and Foreign Banks in volume terms, contributing almost three quarters of total credit to priority sector as well as that to MSEs. However, in terms of percentage of total credit allocated to Priority Sector and to MSEs, Private Sector Banks are slightly ahead with 46.8% and 12.0% of NBC respectively, as compared to 42.5% and 11.1.3% for banks in Public Sector. Year-on-year growth in credit to priority sector by SCBs was 17.1% and 17.2% in FY 2009 and FY 2008, respectively, while priority sector credit by Public Sector Banks increased by 18.0% and 17.1%, respectively.

5.7 Credit to MSE Sector other than SCBsRegional Rural banks (RRBs)Regional Rural Banks have been established primarily with an objective to extend financial assistance for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas. Because of their proximity to the rural India, these banks have been one of the main sources of credit for the micro and small enterprises and

rural artisans. Over the years, there has been a paradigm shift in the operations of RRBs and several of them have achieved remarkable growth in their credit to SSI / MSE sector, especially during FY 2007-08 and FY 2008-09. The year-wise credit dispensation to small scale industries (since classified as MSE) from the RRBs is given in the Table 5.3 placed below:

Urban Co-operative Banks (UCBs)The UCBs are increasingly playing an important role to meet the credit needs of the MSE sector. UCBs credit to small enterprises recorded a sizable growth of 41.7% during FY 2008-09 contrary to the concerns about a slowdown in the economic activities following global financial crisis and economic slowdown (Table 5.4).

Table 5.3: RRBs Credit to Small Scale Industries (Rs. Crore)End March Total Loan

OutstandingO/S Loan to

SSIsO/S Loan to Rural Artisans

O/S Loan to Retail Trade

etc2000-01 8823 70 181 11232001-02 10571 107 198 12792002-03 22158 330 695 32642003-04 26115 433 715 36072004-05 32871 580 713 43642005-06 39712 757 748 34522006-07 48493 880 736 36772007-08 58984 1227 671 45312008-09(P) 69030 1400 820 5015Source: Report on Trend and Progress of Banking India, various issues, Reserve Bank of India* Data ProvisionalNote: Percentages in the parentheses show y-o-y growth.

Table 5.4: Credit by UCBs to MSEs(Rs.Crore)

End March Total priority Sector Loan Outstanding

Outstanding Loan to SSIs

Small business enterprises

2000-01 NA NA NA2001-02 NA NA NA2002-03 42633 9252# 60432003-04 24754 6231# 40002004-05 NA NA NA2005-06 37714 9817# 54562006-07 44058 12125# 60792007-08 46859 15011 NA2008-09 55248 21283 NA

# Cottage and Small scale industries; NA = Not Available.Source: Report on Trend and Progress of Banking India, various issues, Reserve Bank of India


Small Industries Development Bank of India (SIDBI)

SIDBI was established under an Act of Parliament in 1990 as the principal financial institution for financing, promotion and development of micro, small and medium enterprises in the country and to coordinate the function of other institutions in the country who have been engaged in the promotion and development of micro and small enterprises. SIDBI has been established primarily as the refinancing institution to ensure the availability of the financial resources to the other financial intermediaries in the country so that no worthwhile project in the micro and small enterprises sector is denied credit for want of funds. Besides extending financial assistance to micro small and medium enterprises through the wide network of primary lending institutions (over 82,000 branches), SIDBI over the years has been expanding its outreach by opening new branches in important MSE clusters for the better coordination of and credit dispensation to MSEs. As the principal financial institution for the micro and small enterprises, SIDBI has been playing equally important role in the promotional and developmental efforts of micro

and small enterprises by way of organizing skill development and entrepreneurship development programmes, rural industries progarmmes, business development services, preparing project profiles, cluster development programmes and organizing awareness programmes for environment management and energy saving in MSEs and contributing to the corpus of credit guarantee trust. While the details of SIDBI’s operations are given in the Chapter 7 “Role of SIDBI, the financial assistance extended by SIDBI during the last ten years is given in the Table 5.5 placed below.

Table 5.5 :

Credit by SIDBI to MSMEs (Rs. Crore)

F Y Disburse-ments

(During year)

Outstanding (endMarch)

2000-01 6441 145712001-02 5919 131602002-03 6789 127282003-04 4414 100642004-05 6188 108622005-06 9100 138912006-07 10225 160312007-08 15087 202262008-09 28298 30886Source: SIDBI Annual Reports

NABARD

NABARD is set up as an apex Development Bank with a mandate for facilitating

credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity, NABARD is entrusted with

1. Providing refinance to lending institutions in rural areas

2. Bringing about or promoting institutional development and

3. Evaluating, monitoring and inspecting the client banks Besides this pivotal role, NABARD also:

• Acts as a coordinator in the operations of rural credit institutions

• Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development

• Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development


• Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development

Acts as regulator for • cooperative banks and RRBs

NABARD’s functions can be classified into 4 major categories, viz. Credit Planning, Financial services, Promotion and Development, and Supervision. Under Credit Planning, NABARD prepares Potential Linked Credit Plan (PLP) annually for each district of the country by assessing potential available in agriculture and rural sector. This serves as a guide for banks and Government agencies to prepare their own investment and credit plans in the district and state. Under its Financial Services, it refinances commercial, co-operative and regional rural banks for on lending to farm and non-farm activities. This includes farm activities like minor irrigation, animal husbandry, farm mechanization, forestry, fisheries, land development, horticulture, plantation and medicinal crops and non-farm like rural industries, artisans, handicrafts, handlooms, rural housing, rural tourism and agro processing. Refinance is provided by NABARD for both long term investment credit as well as short term production credit for

crop loans and working capital for non-farm activities. The operational details of NABARD are given in Table 5.6.

NSIC

National Small Industries Corporation Ltd. (NSIC), an ISO 9001 certified company, since its establishment in 1955, has been working to fulfill its mission of promoting, aiding and fostering the growth of small scale industries and industry related small scale services/business enterprises in the country. Over a period of five decades of transition, growth and development, NSIC has proved its strength within the country and abroad

by promoting modernization, upgradation of technology, quality consciousness, strengthening linkages with large medium enterprises and

enhancing exports - projects and products from small industries.

NSIC carries forward its mission to assist small enterprises with a set of specially tailored schemes designed to put them in a competitive and advantageous position. The schemes comprise facilitating marketing support, credit support, technology support and other support services. The NSIC loans disbursement and loan outstanding to MSME sector are given in Table 5.7.

Table5.7:NSICOperationsforMSMESector(Rs.crore)F Y Disbursements

(Duringyear)Credit facilitation to MSME sector (Duringyear)

2005-06 1537 N.A.2006-07 2198 N.A.2007-08 2987 4212008-09 3508 688

Table 5.6 : Investment Credit Operations of NABARD (Rs. Crore)F Y Sanctions

(Duringyear)Disbursements(Duringyear)

2000-01 7096 61582001-02 7534 66832002-03 8175 74192003-04 8349 76052004-05 9277 85772005-06 8866 86222006-07 9631 87952007-08 9704 90462008-09 11621 10535


KVIC

The Khadi and Village Industries Commission (KVIC) is a statutory body created by an Act of Parliament in 1957. KVIC is an apex organization under Ministry of Micro, Small and Medium Enterprises (Government of India), which seeks to planning, promotion, organisation and implementation of programs for the development of Khadi and other village industries in the rural areas in coordination with other agencies engaged in rural development wherever necessary. The details of fund released by KVIC is given in Table 5.8.

NEDFi

North Eastern Development Finance Corporation Ltd. (NEDFi) was incorporated under the Companies Act, 1956, on August 9, 1995 with its registered office at Guwahati, Assam, for the development of industries, infrastructure, animal husbandry, agri-horticulture plantation, medicinal plantation, sericulture plantation, aquaculture, poultry and dairy in the North Eastern states of India. NEDFi has been promoted by All India Financial Institutions - Industrial Development Bank of India, ICICI Ltd., Industrial Finance Corporation of India, Small

Industries Development Bank of India, Insurance Companies - Life Insurance Corporation of India, General Insurance Corporation and its subsidiaries, Investment company - Unit Trust of India and Bank - State Bank of India.

NEDFi provides credit and other facilities for promotion, expansion and modernisation of industrial enterprises and infrastructure projects in the North Eastern Region of India, also carry on and transact

Table 5.9: Total amount sanctioned and disbursed (Rs.Crore)FY Sanctioned Disbursed2000-01 83.24 50.462001-02 63.04 50.792002-03 63.64 51.102003-04 89.70 52.092004-05 89.32 52.352005-06 131.32 104.312006-07 138.72 94.242007-08 279.46 116.442008-09 266.90 184.09Total 1294.32 792.37

business of providing credit and other facilities for promotion of agri-horticulture plantation, medicinal plantation, sericulture plantation, aquaculture, poultry, dairy and animal husbandry development in order to initiate large involvement of rural population in the economic upsurge of the society and faster economic growth of different parts of the North Eastern region. The details of total amount sanctioned and disbursed are given in Table 5.9.

Table 5.8: Details of Funds released during2002–2009(Rs. Crore)

FY Funds releasedPlan Non - Plan

2002-03 340.55 83.362003-04 423.60 63.702004-05 460.99 83.902005-06 558.56 84.762006-07 589.82 83.912007-08 622.99 82.802008-09 1104.94 107.62


SFCs

SFCs were established under the SFCs Act 1951 by various State Governments as the State level financial institutions for financing the MSMEs in the respective States. There are a total of 18 SFCs. The SFCs have played an important role in the promotion of micro and small enterprises in their respective states. Several big corporates of today have been assisted and nurtured by SFCs in the past. The disbursements and outstandings of SFCs are given in the Table 5.10:

State Industrial Development Corporations(SIDCs)/State Industrial Investment Corporations(SIICs)

SIDCs/SIICs were promoted under the Companies Act by various State Governments as wholly owned companies of state Govt to facilitate the promotion and development of medium and large enterprises. Besides SIDCs/SIICs have been extending the support services and developing suitable industrial infrastructure in the State for the faster industrialization of the State. The financial assistance of SIDCs to micro and small enterprises in the past two years is given in the subsequent Table 5.11.

It may be observed that • SIDCs/SIICs role in the credit dispensation to micro and small enterprises has not been very significant.

At the state level, State Small • Industries Development Corporations were also promoted as State owned undertakings to cater to the needs of the small, cottage and tiny industries in the respective states, besides SFCs and SIDCs/SIICs. The main function of SSIDCs have been procurement and distribution of scarce

raw material, supply of machinery on hire-purchase basis and providing assistance for marketing of the products.

Scheduled Commercial Banks dominate in supply of credit to MSEs.Scheduled Commercial Banks (SCBs) currently meet more than 90 percent of the credit requirement of the micro and small enterprises in the country. The share of SCBs has moved from 68.1 percent of the total lending in March, 2003 to 91.2

Table 5.10: Credit Dispensation by SFCs

(Rs.Crore)FY Disburesements Outstanding

Small Scale Industries

Others Total Total

2000-01 1309 440 1749 115352001-02 1254 468 1722 116952002-03 1077 212 1289 111152003-04 864 141 1005 102722004-05 916 530 1446 97312005-06 936 638 1574 91012006-07 1066 422 1488 90212007-08 1226 358 1585 88242008-09 1627 365 1992 8225

Table 5.11: Credit Dispensation to Micro & Small Enterprises by SIDCs/SIICs

(Rs.Crore)

FY Micro Small Total

Sanc Disbs Sanc Disbs Sanc Disb2007-08 2.22 3.01 30.62 35.55 32.84 38.562008-09 4.09 3.70 35.67 27.33 39.76 31.03Source: SIDBI


per cent in March, 2008. One of the main factors contributing to the phenomenon is relative decline in the contribution of Urban Cooperative Banks from 26.6 per cent of the credit in March, 2003 to 6.5 percent in March, 2008. The performance of State Financial Corporations and SIDCS has also shown declining trend from 3.3 percent of total credit in March, 2003 to as low as 0.3 percent in March, 2008. The comparative position and role of various institutions in meeting the credit needs of MSEs could be seen in the Table 5.12 below.

5.8 Emerging Sources of Finance for MSMEs

Faced wit h increased competition on account of globalization, MSMEs are beginning to move from bank credit to a variety of other specialized financial services and options. In recent years, the sector has witnessed increased flow of capital in the form of primary/secondary securities market, venture capital and private equity, external commercial borrowings, factoring services etc. More advanced MSMEs have started realizing the importance of these alternative sources of

funding to raise resources and the need for adopting better governance norms to take advantage of these funding sources. The MSME sector is estimated to have received funds from emerging sources like venture capital and private equity, external commercial borrowings, factoring services, etc. to the tune of Rs. 12,000 crore by the end of March, 2007, though it was less than 5% of their total credit needs.

Securitization market and MSMEs

Indian structured finance market witnessed an 18% drop in Issuance volume in FY 2009 over the previous fiscal to Rs. 520 billion ( Table 5.13), contributed largely by a cumulative drop of 47% in Asset Backed Securities and Residential Mortgage Backed Securities.

Asset Backed Securities (ABS) has traditionally been the dominant product class in the structured finance products. However, in wake of tight

Table 5.12: Estimated Total Supply of Credit to MSEs(Rs. Crore)

March 2003 March 20081. Schedule Commercial

Banks including RRBs.64707 (68.1) 210209 (91.2)

2. Urban Cooperatives Banks (UCBs)

25317 (26.6) 15011 (6.5)

3. SIDBI (Direct Credit) 1917 (2.0) 4540 (2.0)4. SFCs 1856 (2.0) 782 (0.3)5. SIDCs 1250 (1.3) NegligibleTotal 95047 230542

Table 5.13: Trends in Issuance volumes of Structured Finance Products(Rs. Billion)

FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09

Asset Backed Securitization 222.9 178.5 234.2 313.2 135.7

Residential Mortgage Backed Securitization

33.4 50.1 16.1 5.9 32.9

Collateralised Loan Obligations 25.8 21 119 318.2 351.2

Total 282.1 249.6 369.3 637.3 519.8

Source: ICRA: Update on Indian Structured Finance Market FY2009


liquidity conditions and rising delinquency in asset categories, FY 2009 saw a 57% drop in issuance volumes from FY 2008 along with a decline from Rs. 3.1 billion to Rs. 1.7 billion in the average deal size. ABS market continued to be driven by few dominant players, with top 5 issuers garnering about 80% of the issuance volumes.

Asset Class-wise Distribution of ABS Pools—FY2009Of Rs 136 billion issuance volume of ABS, 4% (or approximately Rs 5 billion) went to MSMEs. Securitizations of debt by MSMEs makes the debt instruments more liquid and brings own cost of lending. Recognition and listing of Pass-through Certificates is also expected to develop the market in the long term.

Venture Capital and MSMEs

The year 2007 was a peak year for venture capital activity in India, with 480 deals worth $13.68 billion investment. During the calendar year 2008, the total investments from PEs/VCs into India are estimated at $10.8 billion with 447 deals. According to a study by Venture

Intelligence in partnership with the Global-India Venture Capital Association (GIVCA), venture capital firms invested $117 million over 27 deals during the 6 months ending June 2009. This is lower compared to the first half of 2008 which had

witnessed an investment of $413 million across 67 deals,

Factoring in MSME sector

Factoring has gained ground in the Indian system in the year 1991 with SBI Factors and Canbank Factors starting operations. In the year 2008, factoring turnover reached Rs 33,228 crore which constituted about 1.24% of total bank credit. Product portfolio of Indian factoring companies have specialised to the needs of clients offering a host of choices including with recourse/without recourse factoring, domestic/international factoring and d i s c l o s e d / u n d i s c l o s e d factoring.

Domestic transactions constitute 90% of factoring done in India. Textiles, Iron and Steel, chemicals, pharmaceuticals and electrical engineering are the key industries that utilise factoring in India. The statistics of factoring are given in Table 5.14.

India’s Factoring Profile2008

From being around 0.11% of India's GDP in 2000, factoring

Table 5.14: Factoring Operations in IndiaItems As on March 31, 2008Number of Companies providing factoring services

8

Factoring turnover (in million EUR) 5,200Of which i) Domestic 4,750 ii) International 450


turnover has shown a robust growth to 0.68% of GDP in 2008, though the penetration remains low. Factoring organisations not only provide MSMEs with finance, but also offer other services, such as:(i) Sales Ledger A

dministration(ii) Debt collection(iii) Credit insurance.

However, MSMEs have not been able to utilize the true potential of factoring due to:

Apprehension of recovery • procedures used by factors

Reluctance to share sales • ledger with factor

Use of factoring solely as a • financing tool and failure to utilize facilities such as sales ledger management, collections

Factoring perceived as • more costly than alternative financing mechanisms

Limited branch network of • factoring companies

Regulatory and legal issues • including differing stamp duties across states leading to high cost of factoring, delay in resolving cases of defaults amongst others

Lack of reliable credit and • financial information of clients

5.9 Government Schemes relating to CreditCredit Linked Capital SubsidyScheme(CLCSS)

The Scheme was launched in October 2000 by Ministry of MSME, Government of India with the objective of facilitating technology upgradation of MSE in industry category. SIDBI and NABARD act as the Nodal Agencies and operate through Primary Lending Institutions.Additional Nodal Banks/ Agencies – SBI, Canara Bank, BOB, PNB, BOI, Andhra bank, and SBBJ & TIICL operate directly. The scheme provides 15% capital subsidy on eligible institutional loan up to Rs. 100 lakh and covers 47 Products / Sub-sectors. Total disbursement of subsidy under the scheme till March 31, 2009, amounts to Rs.276 crore to 6,630 MSEs. Year-wise progress of the scheme could be seen from the Table 5.15 below:

Technology Upgradation FundScheme(TUFS)

TUFS was launched by Ministry of Textiles, Government of India in April, 1999 with the objective of revival, rejuvenate and modernize the vast textile, jute and cotton ginning and pressing industries by encouraging them to undertake and adopt modern technological processes and / or undertake capacity expansion wherever required in order to enable them to change from quantitatively restricted textiles trade to market driven global merchandise and create economies of scale and increase the flow of investment to this sector. SIDBI, IDBI and IFCI were initially identified as the Nodal Agencies for implementing the Scheme. The nodal agencies co-opted other All India Financial Institutions / State Financial Corporations / State Industrial Development Corporations and Commercial / Co-operative

Table 5.15: Progress of CLCSS (Rs. Lakh)

FY No. of units assisted

Amount of subsidy sanctioned

2001-02 9 21.362002-03 47 93.972003-04 150 368.182004-05 526 1340.972005-06 699 1784.952006-07 1883 6642.592007-08 1402 6439.022008-09 1914 10888.80Source: Annual Report 2008-09, Ministry of MSME, Government of India.


Banks so as to have a better reach. Various types of subsidy available under the scheme :

5% interest reimbursement ♦(4% for spinning machinery) of the normal interest charged by the lending agency on rupee term loan or coverage of foreign exchange fluctuations upto 5% p.a. (4% for spinning machinery) or 15% margin money subsidy for SSI textile and jute sector in lieu of 5% interest reimbursement on investment in TUF compatible specified

machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy is Rs. 15 lakh or 20% margin money subsidy to the powerloom units in lieu of 5% interest reimbursement on investment in TUF compatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy is Rs. 20 lakh or 10% capital subsidy in addition to 5% interest reimbursement for specified processing machinery &

specified machinery required in manufacture of technical textiles and garmenting machineries.

Year-wise progress of the scheme could be seen from the Table 5.16.

Integrated Development of Leather Sector Scheme (IDLSS)

The scheme was launched by Department of Industrial Policy & Promotion (DIPP) (Leather Section), Ministry of Commerce & Industry, Government of India in November, 2005. SIDBI

Table5.16:TechnologyUpgradationFundScheme(TUFS)

Applications Sanctioned Applications Disbursed

Period No. Amount (Rs.Crore) No. Amount (Rs.Crore)

2000-01 616 2090 494 1863

2001-02 444 630 401 804

2002-03 456 839 411 931

2003-04 884 1341 814 856

2004-05 986 2990 801 1757

2005-06 1078 6776 993 3962

2006-07 12589 29073 13168 26605

2007-08 2260 8058 2207 6854

2008-09 (P) 6072 24007 6111 21826

2009-10 (P) (upto June, 2009)

199 82 198 80

As on 30.06.2009 (P)

25893 78307 25777 66284

Note: As the cut off date for the cases sanctioned prior to on or before March 31, 2007 for claiming subsidy under TUFS has been fixed till the quarter ending December, 2008, the data upto December, 2008 covers units whose project was sanctioned prior to March 31, 2007Source: Office of the Textile Commissioner, Ministry of Textiles, Government of India


is the Nodal Agency for release of subsidy under the Scheme, monitoring & interface and co-ordination with Financial Institutions, Banks and the Government. The Scheme provides investment subsidy to the extent of 30% cost of plant & machinery for SSI and 20% of cost of plant & machinery for other units (i.e. non-SSI units) subject to a ceiling of Rs. 50 lakh for technology upgradation / modernisation and / or expansion. Year-wise progress of the scheme could be seen from the Table 5.17.

Scheme of Technology Upgradation/Setting up /Modernisation/Expansion of Food Processing Industries

The Scheme was launched by Ministry of Food Processing Industries (MFPI), Government of India with the objective of upgradation of processing capabilities of food processing industries in India. All Scheduled Banks including Co-operative / Commercial / Regional/Rural

Banks and Financial Institutions are acting as nodal agencies for implementation and release of subsidy under the scheme. The Scheme provides subsidy equivalent to 25% of the cost of eligible plant & machinery and technical civil works, subject to a maximum of Rs. 50 lakh in general areas and 33% or up to Rs. 75 lakh in difficult areas (Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Sikkim, North-Eastern States, Andaman & Nicobar Islands, Lakshadweep) and Integrated Tribal Development Project (ITDP) areas.

MSE Cluster Development Programme of Ministry of MSME, Government of India

The main features of the scheme and the progress so far are out line below:

Holistic approach – several ♦types of interventions:

Soft interventions like ♦capacity building, exposure to enabled clusters,

enhancing supply chain, up-scaling marketing channels.

Hard interventions like ♦technological improvement, setting up of Common Facility Centres.

Creation / up–gradation of ♦physical infrastructure.

Integrated Infrastructure ♦Development (IID) Scheme – Rs. 5 crore project cost in 40:60 ratio. The earlier scheme of IID has been merged in to the new scheme.

Max. Project cost Rs.10 cr. – ♦GoI share 30% - 80%, 90% for clusters of Women.

Max. Allocation for soft ♦interventions – Rs.10 lakh.

Total Clusters taken up - ♦411.

Under Progress: Hard ♦intervention (CFCs) – 33; Soft Intervention – 116; Diagnostic Study – 173.

Sanctions since 1998-99 – ♦Rs.76.19 crore.

Performance & Credit Rating Scheme for Micro and Small Enterprises

On behalf of the M/o MSME, NSIC is implementing “Performance & Credit Rating Scheme” for micro and small enterprises (MSEs) since April 2005 and is

Table 5.17: Progress of IDLSS

FY No. of units assistedAmount of subsidy

sanctioned (Rs.Lakh)

2006-07 101 2053.93

2007-08 398 5271.84

2008-09 170 2718.97


operating the scheme through 7 accredited rating agencies, i.e. Credit Analysis & Research Ltd. (CARE), Credit Rating Information Services of India Ltd. (CRISIL), Dun & Bradstreet (D&B), Fitch Ratings (FITCH), ICRA Ltd. (ICRA), Onicra Credit Rating Agency Services India (ONICRA) and SME Rating Agency of India Ltd. (SMERA). The fee to be paid by the MSEs for the rating, is subsidized by the Government to the extent of 75% upto a maximum of Rs. 40,000/-. The scheme has become quite popular and getting good response. During 2008-09, a total of 4,900 units have been rated under the Scheme, as against 3850 units rated during 2007-08. Up to March 2009, about 11,600 MSEs have been rated under the scheme. The rating serves as a trusted third party opinion on the unit’s capabilities and credit worthiness. A good rating enhances the acceptability of the rated unit in the market and also makes it access to credit quicker and cheaper and thus helps in economising the cost of credit.

Prime Minister’s Employment Generation Programme (PMEGP)

A new scheme titled Prime Minister’s Employment

Generation Programme (PMEGP) has been launched by the Ministry of MSME, Government of India, in August 2008 by merging existing two schemes namely Prime Minister's Rozgar Yojana (PMRY) and Rural Employmetn Generation Programme (REGP). The new scheme is a significant initiative as it has a higher level subsidy compared to earlier programmes to generate additional employment opportunities during Eleventh Plan with a total Plan outlay of Rs 4,735 crore including Rs 250 crore for backward and forward linkages for generating around 37.38 lakh additional employment opportunities.

Details of funding through beneficiary contribution, margin money subsidy from Government and Bank Credit are given in Table 5.18.

Funding and outcomes under PMEGP:

Total Plan outlay towards ♦margin money subsidy: Rs 4,485 crore (for 4 years i.e. 2008-09 to 2011-12).

Additional Plan allocation ♦for backward and forward linkages: Rs 250 crore (for 4 years i.e. 2008-09 to 2011-12.

Estimated employment ♦targeted (four years): 37.38 lakh.

Amount released in 2008- ♦09: Rs 823 crore (including subsidy o Rs 740 crore)

3.63 lakh additional ♦employment opportunities estimated to be generate in 2008-09.

Time period for settlement ♦of loan applications under PMEGP has been extended upto 31 August 2009

Table 5.18: Margin Money Subsidy: Under REGPCategories of beneficiaries Beneficiary’s

contribution(of project

cost)

Rate of Subsidy(ofprojectcost)

Area (location of project / unit)

Urban Rural

General 10% 15% 25%Special (including SCs / STs / OBCs /Minorities / Women, Ex-Servicemen, Physically handicapped, NER, Hill and Border Areas)

05% 25% 35%


Budget Estimates 2009-10: ♦Rs 823 crore (Rs 740 crore +Rs 83 crore)

Estimated employment ♦target for 2009-10 : 6.17 lakh

The cumulative progress ♦of the earlier two schemes namely PMRY and REGP is given below in Table 5.19.

Scheme of Fund for Regeneration of Traditional Industries(SFURTI)

Introduced in October 2005 ♦

For development of around ♦100 clusters at a cost of Rs. 97.25 crore over 5 years

Objective is to make ♦traditional industries more competitive & market driven and enhance employment of artisans and rural entrepreneurs by adopting cluster approach

Selection of clusters based on ♦geographical concentration of around 500 beneficiary families of artisans / micro enterprises

105 clusters (29 khadi, 50 ♦village industries and 26 coir industries) have been approved under SFURTI for their development.

17 national level institutions ♦have been selected for providing technical support to the clusters.

All the preliminary activities ♦under these clusters have been completed.

70 KVI clusters have been ♦functional and it is reported that the wages of artisans / workers have been enhanced by 40-60 percent in these clusters.

5.10 Status of NPAs and Sickness in MSE Sector

According to the Fourth Census of MSME (2006-07), the

important reasons for sickness in the sector are : lack of demand, shortage of working capital, non-availability of raw material, power shortage, labour problems, marketing problems, equipment problems and management problems. Table 5.20 indicates the reasons given by the units suffering from sickness / incipent sickness as the Census. The status of NPAs of the SCBs to all sectors vis-

Table 5.19: Credit under PMRY and REGPPMRY(1994-2008) REGP(1995-2008)

No. of cases disbursed

31,08,316 No. of Projects 3,06,727

Estimated Employment (No. of Persons)

4,66,27,474 Margin Money Utilized (Rs. Crore)

2,623.21

E m p l o y m e n t generated (No. of Persons)

49,44,012

Source: Annual Report 2008-09, Ministry of MSME.

Table 5.20: Reason for SicknessS.

No.Reason for sickness / incipent

sicknessProportion of sick / incipient sick units*

1. Lack of demand 71.6%

2. Shortage of working capital 48.0%

3. Non-availability of raw material 15.1%

4. Power shortage 21.4%

5. Labour problems 7.4%

6. Marketing problems 44.5%

7. Equipment problems 10.6%

8. Management problems 5.5%

* The total will exceed 100%, as some units have reported more than one reason


à-vis SSI could see in the Table 5.21.

However, in absolute terms the amount of non-performing assets is larger in case of the non-priority sector than the priority sector as given in Table 5.22 and Table 5.23.

Problem of Sickness in the SSI Sector: The data compiled by the Reserve Bank of India from the scheduled commercial banks indicate the status of sick SSI units, potentially viable units and units under nursing as given in Table 5.24.

The number of sick units appears to have declined. Table No. 5.24 shows that as on March 2007, out of 1.14 lakh sick units, only

Table 5.21: NPA of SCBs (Rs.crore)

Total SSI/MSE SectorYear End

March

Gross Advan-

ces

Gross NPAs

Gross NPAs to

Gross Advan-

ces

Gross Advan-

ces

Gross NPAs

Gross NPAs to

Gross Advan-

ces

2006 1551378 51097 3.3 101285 - -

2007 2012510 50486 2.5 127323 6542 5.12008 2507885 56435 2.3 213538 6521 3.12009 3038254 68973 2.3 257072 7874 3.1

Source: RBI’s Report on trend and progress of Banking in India 2008-09 and earlier issues.

Table 5.22 : Year-wise Gross and Net NPAs(Rs.crore)

Non-Performing AssetsGross NPAs Net NPAs

Year (End-March)

Amount

As Percentage

of Gross Advances

As Percentage of

Total AssetsAmount

As Percentage

of Net Advances

As Percentage of Total Assets

2001 63,741 11.4 4.9 32,461 6.2 2.5

2002 70,861 10.4 4.6 35,554 5.5 2.3

2003 68,717 8.8 4.1 29,692 4 1.8

2004 64,812 7.2 3.3 24,396 2.8 1.2

2005 59,373 5.2 2.5 21,754 2 0.9

2006 51,097 3.3 1.8 18,543 1.2 0.7

2007 50,486 2.5 1.5 20,101 1 0.6

2008 56,435 2.3 1.3 24,734 1 0.62009 68,973 2.3 1.3 31,424 1.1 0.6

Source: 1) RBI Handbook of Statistics on Indian Economy, 2008-09 2) RBI Report on Trend and Progress of Banking in India, 2008-09

4287 units were identified as potentially viable by the banks (i.e. 3.7% of the total sick units). Of these, only 588 units were


put under nursing by the banks. Further, as per the guidelines of RBI on the rehabilitation of sick SSI units, only those sick SSI units which are considered to be potentially viable / viable are to be taken up for rehabilitation. The amount outstanding with

banks has, however, increased from Rs. 1,608 crore in 2000 to Rs. 13,849 core in 2008. The data for 2008 are not comparable with earlier years due to change in definition. 2008 data show position of sick medium enterprises separately. The

viability position of sick units are given in Table 5.25.

High Non-Performing Assets has been one of the major reasons for lower credit flows to against the SSI sector as compared to large industries

Table 5.23: Bank-wise NPAs in SSI / MSE Sector (Rs. crore)

Year (End-March)

Public Sector Banks Private Sector Banks Foreign Banks

Amount % to Advances

Amount % to Ad-vances

Amount % to Advances

2001 6,536 13.5 1,001 12.4 N.A. -

2002 6,914 12.7 1,485 17.2 N.A. -

2003 7,097 13.5 1,262 15.7 N.A. -

2004 8,838 15.2 1,262 16.6 N.A. -

2005 7,835 11.5 964 11.1 N.A. -

2006 6,917 8.4 807 7.7 N.A. -

2007 5,843 5.7 645 4.9 54 0.5

2008 5,805 3.8 651 1.4 65 0.42009 6,984 3.7 670 1.4 220 1.2

Source: RBI Report on Trend and Progress of Banking in India, 2008-09

Table 5.24: Position of Sick SSI Units And Sick/Weak Non-SSI Units Financed By Scheduled Commercial Banks (Rs. crore)

Year (End March)

Sick SSI Sick Non-SSI Weak Non-SSI Sick/Weak Total

Units Amount O/S

Units Amount O/S

Units Amount O/S

Units Amount O/S

2001 249630 4506 2928 18478 389 2792 252947 25776

2002 177336 4819 2880 17591 381 3655 180597 26065

2003 167980 5706 2999 21518 397 7591 171376 34816

2004 138811 5285 5054 31166 567 4531 144432 40982

2005 138041 5380 4478 29644 774 4783 143293 39807

2006 126824 4981 3408 26013 1132 6976 131364 37970

2007 114132 5267 2982 17984 1010 7082 118124 30333

2008 85187 13849 NA NA NA NA NA NASource: RBI Handbook of Statistics on Indian Economy 2008-09, NA=Not Available. O/S=Outstanding


NPA. As against an NPA of 11.4 in respect of all sectors of the economy, it was as high as 17.2 in the case of SSI units in the year 2000-01. This shows that there has been a decline in the NPA levels of both total as well as the SSI sector in recent years. Further, there is a decline both in absolute terms as well as in percentage terms. While total SCBs' NPA declined from 11.4 percent in 200-01 to 2.3 percent in 2007-08, that of MSME sector declined from 17.2 percent to 3.0 percent during the same period. In the MSME Sector, this decline is partly attributable to settlement schemes (OTS) introduced by the RBI and due to the large scale prudential write-off by the banks.

Table 5.25 : Viability Position of Sick SSI Units

Year (End March)

Total SickUnits

Potentially Viable

Of viable units, those put under nursing

Non-Viable

Viability yet to be decided

2001 249630 13076 753 225488 11066

2002 177336 4493 621 167574 5269

2003 167980 3626 993 162791 1563

2004 138811 2385 783 135276 1150

2005 138040 3922 2080 132153 1966

2006 126824 4594 915 117148 5082

2007 114132 4287 588 109011 834

2008 85186 4210 1262 75829 5147

Sources: 1. RBI Annual Report, 2009 2. RBI Handbook of Statistics on Indian Economy 2008-09

StatuS of Micro finance in india and Select international experience

6.1 Introduction

Micro finance has emerged as a new paradigm to

widen and deepen the process of financial inclusion by way of purveying micro credit to the disadvantaged sections, such as, women, minorities and backward classes in the rural, unorganized and underserved regions of the country. In other words, micro finance is now being seen as an important vehicle for realizing the Millennium Development Goals and reducing poverty and vulnerability. The micro finance industry, as it is now referred globally, is striving to achieve the twin objectives: that of enabling the poor to generate additional income and savings to eventually move out of poverty and also to run the business of micro finance on commercially sustainable basis.

Definition of Micro Finance

Micro finance is a very broad concept which includes micro credit, micro savings, micro insurance, remittances, micro pension and other financial services and products of very

small amounts to the poor for enabling them to raise their income levels and improve their living standards. The Task Force on Micro Finance has defined it as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas, for enabling them to raise their income levels and improve living standards. The informal and flexible services offered to low-income borrowers for meeting their modest consumption and livelihood needs have not only made micro finance movement grow at a rapid pace across the world, but also resulted in the betterment of the lives of millions of the poor.

6.2 Indian ScenarioWith nearly a third of the population below the poverty line, the Government has, over the past fifty years, initiated a number of steps for poverty alleviation. It has created an extensive banking network and launched a number of directed and subsidised credit

programmes aimed at providing financial services to the millions of marginalized and poor persons.

In response to the inadequacy of the formal financial institutions to meet the credit needs of the poor and non-availability of other financial services in the unorganized, rural sector, an alternative financial services delivery mechanism started emerging in the villages and small towns of the country. The micro finance programmes initiated by local NGOs started providing financial and non-financial support to the poor in an effort to lift them out of poverty. Over a period of time, these NGOs have grown to become Micro Finance Institution (MFIs) and have created financial technologies that serve increasing numbers of the poor and sustain loan repayment rates that are not only comparable with traditional commercial banks but also offer profits without subsidies.

A number of studies have been done in the past to assess the extent of demand for


financial services by the poor in India. While all of these studies have differed in estimating the actual size of the micro finance market in the country, the fact that has been commonly highlighted in all the studies is that the size of the market is immense and there is huge unmet demand for financial services by the poor.

As per a study done by Intellecap in 2007, the number of poor persons in India is estimated to be in the range of 5.79 crore to 7.73 crore . These form the primary market for micro finance services in India. The annual credit demand from this segment of the population has been estimated in the range of Rs. 23,160 crore to Rs.77,300 crore.

The above estimates pertain only to credit requirements of poor and marginal sections of the population. The poor also require services, such as, micro insurance, remittances and money transfers and micro pensions.

The Intellecap study estimates that demand for micro insurance services ranges between Rs.2,020 crore to Rs.8,830 crore. The potential annual savings base from these clients is estimated to be around Rs.12,000 crore. The size of micro pension market is estimated at Rs.2,100 crore.

Over the years, various models of micro finance that have evolved in India are as under:

Self Help Groups (SHG) have ♦15-25 members and savings form an essential part of the group as they are collected and revolved among the members.

Grameen group has 5 ♦members. 6-9 such groups come together to form a center and the basic underlying principle is peer pressure and joint liability for the loans.

All the other Micro Finance ♦Institutions (MFIs) that follow more than one model of credit delivery are considered under Hybrid model.

ASA model, also known ♦as the Ford Motor model of Microfinance, has been termed as the most cost effective and sustainable model for MFIs. It is similar to Grameen Model, but with a highly standardized set of procedures and forms.

The MFIs that follow ♦Individual Banking Model provide financial services to individual clients – though they may sometimes be organized into joint liability groups, cooperatives or even SHGs.

However, the two important models which have taken centrestage in the Micro Finance field in India are (a) the SHG – Bank Linkage programme (SBLP) supported by NABARD and (b) the MFI-SHG linkage programme, pioneered to a large extent by SIDBI. While the SHG-Bank Linkage, pioneered by NABARD since 1992, has remained predominant in the past, the MFI channel has become increasingly significant in the last few years. Nevertheless, the supply of financial services for this segment of the population has remained limited. In this Chapter, both these models as well as contribution of NABARD and SIDBI are discussed in subsequent paras.

6.2.1 Policy Initiatives by the Reserve Bank of India

In January 1993, SHGs, registered or unregistered, were allowed by the Reserve Bank to open savings bank account with banks. Further, to study the potential of the micro finance movement, in 1994 the Reserve Bank constituted a ‘Working Group on NGOs and SHGs’ (Chairman: Shri S. K. Kalia). Based on its recommendations, banks were advised, inter alia, that financing of SHGs should be included by them as part of their lending to the weaker sections and that SHG lending should be reviewed at the State Level

173Status of Micro Finance in India and Select International Experience

Bankers Committee (SLBC) level and by the banks at regular intervals.

To further promote the SHG momentum in the country, banks were advised by the Reserve Bank in 1998 that SHGs which were engaged in promoting the savings habits among their members would be eligible to open savings bank accounts and that such SHGs need not necessarily have availed of credit facilities from banks before opening savings bank accounts. Subsequent to the Monetary and Credit Policy announcement for the year 1999-2000, banks were also advised that interest rates applicable to loans given by banks to micro credit organizations or by the micro credit organizations to SHGs/member beneficiaries would be left to their discretion.

A Task Force on Supportive Policy and Regulatory Frame-work for micro finance was set up by NABARD in 1999. The Task Force looked into the entire gamut of issues related to micro finance, particularly regulatory issues. Recognizing the growing importance of micro finance, the Reserve Bank constituted a micro credit special cell in the Bank in 1999 to suggest measures for mainstreaming micro credit and accelerating flow of credit to MFIs. The special cell has since been converted into a Micro Finance and Financial Inclusion Division in the Reserve Bank.

Several non-banking finance companies (NBFCs) and residuary non-banking companies (RNBCs) also started entering the micro finance sector, gradually recognizing the potential in the sector. In order to further facilitate the process, in January 2000, all NBFCs and RNBCs were advised by the Reserve Bank that those NBFCs which were engaged in micro financing activities, licensed under Section 25 of the Companies Act, 1956, and which were not accepting public deposits were exempted from the purview of Sections 45-IA (registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of a portion of profits to Reserve Fund) of the Reserve Bank of India Act, 1934.

In February 2000, the Reserve Bank issued comprehensive guidelines to banks for mainstreaming micro credit and enhancing the outreach of micro credit providers. These guidelines, inter alia, stipulated that micro credit extended by banks to individual borrowers directly, or through any intermediary, would from then onwards be reckoned as part of their priority sector lending. Banks were given freedom to formulate their own model(s) or choose any conduit / intermediary for extending micro credit. Banks were also permitted to prescribe their own lending norms so as

to provide maximum flexibility with regard to micro lending. Such credit was to cover not only consumption and production loans for various farm and non-farm activities of the poor, but also include their other credit needs. Banks were asked to delegate adequate sanctioning power to branch managers and keep the loans procedures and documents simple for providing prompt and hassle free micro credit.

The rapid development of the sector necessitated addressing the various issues associated with the sector. In October 2002, the Reserve Bank set up four informal groups to look into issues relating to: (i) structure and sustainability; (ii) funding; (iii) regulations; and (iv) capacity building of micro finance institutions. Taking into consideration the recommendations of the groups, banks were advised that they should provide adequate incentives to their branches for financing the SHGs and that the group dynamics of working of the SHGs should be left to them.

Based on the recommenda-tions of the Advisory Commit-tee on Flow of Credit to Agricul-ture and Related Activities from the Banking System (Chairman: Prof. V S Vyas), which submit-ted its final report in June 2004, it was announced in the Annual


Policy Statement for the year 2004-05 that in view of the need to protect the interest of deposi-tors, MFIs would not be permit-ted to accept public deposits unless they complied with the extant regulatory framework of the Reserve Bank. However, as an additional channel for re-source mobilization, the Reserve Bank in April 2005 enabled NGOs engaged in micro finance activities to access the external commercial borrowings (ECBs) up to US$ 5 million during a fi-nancial year for permitted end-use, under the automatic route.

In order to examine issues relating to rural credit and micro finance, an internal group (Chairman: Shri H.R. Khan) was set up in 2005. Based on the recommendations of the group and with the objective of ensuring greater financial inclusion and increasing the outreach of the banking sector, banks were permitted in January 2006 to use the services of NGOs / SHGs, MFIs (other than NBFCs) and other civil society organizations as intermediaries in providing financial and banking services through business facilitator and business correspondent models.

All Regional Directors of the Reserve Bank were advised in April 2006 that whenever issues relating to micro finance were noticed in the areas under their jurisdiction, they may offer to

constitute a coordination forum comprising representatives of SLBC convener banks, NABARD, SIDBI, State Government officials, and representatives of MFIs (including NBFCs) and NGOs / SHGs to facilitate discussion on the issues affecting the operations in the sector and find local solutions to the local problems.

In May 2006, a joint fact-finding study was conducted by Reserve Bank and a few major banks. It was observed during the study that some of the MFIs financed by banks or acting as their intermediaries / partners were focusing on relatively better banked areas and trying to reach out to the same set of poor, resulting in multiple lending and overburdening of rural households. Further, many MFIs supported by banks were not engaging themselves in capacity building and empowerment of the groups to the desired extent and banks did not appear to be engaging them with regard to their systems, practices and lending policies with a view to ensuring better transparency and adherence to best practices. Guidelines were, therefore, issued to banks in November 2006, advising them to take appropriate corrective action.

In order to address the issues of financial inclusion, the Government of India constituted a “Committee on Financial Inclusion” under the Chairmanship of Dr. C. Rangarajan. The Committee submitted its final report to Hon’ble Union Finance Minister on 04 January 2008. The major recommendations of the Committee are given in Box 6.1. Some major recommendations include launching of a National Rural Financial Inclusion Plan (NRFIP) in mission mode with a clear target to provide access to comprehensive financial services, including credit, to at least 50% (say 55.77 million) of the financially excluded rural cultivator/non-cultivator households, by 2012 through rural/semi-urban branches of Commercial Banks and Regional Rural Banks, Constitution of two funds with NABARD – the Financial Inclusion Promotion & Development Fund (FIPF) and the Financial Inclusion Technology Fund (FITF) with an initial corpus of Rs. 500 crore each to be contributed by GoI / RBI / NABARD and Opening of specialized micro finance branches / cells in potential urban centers for exclusively catering to micro finance and SHG - bank linkages requirements of the urban poor.

The Union Budget for the year 2008-09 announced that banks would be encouraged


to embrace the concept of total financial inclusion. The Government would request all scheduled commercial banks to follow the example set by some public sector banks and meet

the entire credit requirements of SHG members, namely: (a) income generation activities; (b) social needs like housing, education, marriage: and (c) debt swapping. Consequent

upon this, in April 2008, banks were advised by the Reserve Bank to meet the entire credit requirements of SGH members, as envisaged in the Union Budget.

Box 6.1

Rangarajan Committee on Financial Inclusion (January 2008) - Chairman Dr. C. Rangarajan

Supply side solution: National Mission for Financial Inclusion to be created. The task of financial inclusion should be taken up on a Mission mode with set targets under National Rural Financial Inclusion Plan. Cover 50% of excluded families or rural cultivator by 2012 and balance by 2015. Committee has made recommendations for financial inclusion institution wise as under:

Commercial Banks: Each branch to provide credit access to at least 250 excluded households every year. Banks should provide more services than credit, such as savings than credit, such as savings, insurance etc. Adopt new technology to improve efficiently. Make wide use of Business Correspondents and Business Facilitators to extended services to the excluded. Strengthen SHG-Bank Linkage programme to deepen the outreach of micro finance.

RRBs: Same as commercial banks. Further merger of RRBs need not be done.Local Area Banks: In order to provide wider net work of institutions, the RBI should reconsider giving them licenses but without compromising regulatory prescriptions.

Co-operative banks: Implement Vaidyanathan Committee Report for their revival. Credit Guarantee Fund be set up for farm sector.

SHG-Bank Linkage: State Governments and NABARD to provide budgetary support to SHGs in excluded regions. Capacity building of functionaries. Capacity building of old SHGs, to allow them to extend credit to Micro Enterprises.

MFIs: Use MF-NBFCs as Business Correspondents. FIPB Guidelines, SEBI Guidelines etc. may be relaxed. Allow tax concessions to MFIs.

Creation of 2 Funds: Committee has recommended creation of two funds to improve the efficiency of Banks credit absorbing capacity of farmers and introduce improved technology to reduce cost of lending. The funds are:Financial Inclusion Promotion and Development FundFinancial Inclusion Technology Fund

Both the Funds have already been created through 2007-08 Union Budget based on Interim Report of the Committee which was submitted to the Government in February 2007.

Demand side solution: Make investment in human resource development. Enhance productivity of land. Arrangement for value addition of farm produce. National Calamities Fund to be created.


6.2.2 SHG-Bank Linkage Programme

The micro finance sector started getting recognition in India after the launch of the SBLP. Under the SBLP, the following three different models have emerged:

Model I: SHGs promoted, ♦guided and financed by banks.

Model II: SHGs promoted ♦by NGOs / Government agencies and financed by banks.

Model III: SHGs promoted ♦by NGOs and financed by banks using NGOs / formal agencies as financial intermediaries.

Model II has emerged as the most popular model under the SBLP programme. Commercial banks, co operative banks and the regional rural banks have been actively participating in the SBLP.

6.2.3 Role of NABARD

NABARD has been playing a crucial developmental role for the micro finance sector in India. NABARD has been organizing / sponsoring training programmes and exposure visits for the benefit of bank officials, NGOs, SHGs and Government agencies to

enhance their effectiveness in the field of micro finance. The best practices and innovations with respect to the sector are widely circulated among Government agencies, banks and NGOs. NABARD also provides support for capacity building, exposure and awareness building of the SHGs and NGOs.

Recognizing the need for upscaling the micro finance intervention in the country, the Union Finance Minister, in the budget for the year FY 2000-01, announced creation of a Micro Finance Development Fund (MFDF). The objective of the MFDF is to facilitate and support the orderly growth of the micro finance sector through diverse modalities for enlarging the flow of financial services to the poor, particularly for women and vulnerable sections of society, consistent with sustainability. Consequently MFDF with a corpus of Rs. 100 crore was established in NABARD. The Reserve Bank and NABARD contributed Rs. 40 crore each to the fund, while the balance was contributed by eleven select public sector banks.

As per the Union Budget announcement for the year FY 2005-06, the MFDF was re-

designated as ‘Micro Finance Development and Equity Fund’ (MFDEF) with an increased corpus of Rs.200 crore. The fund is being managed by a board consisting of representatives of NABARD, commercial banks and professionals with domain knowledge. The Reserve Bank is a member of the Advisory Committee of the MFDEF.

The MFDEF maintained by NABARD is used for promotion of micro finance through scaling-up of the SHG-bank linkage programme; extending Revolving Fund Assistance (RFA) and capital support to MFIs and undertake various promotional initiatives.

NABARD launched a pilot project in December 2003 to link post-offices with the SHGs with the objective of examining the feasibility of utilizing the vast network of post offices in rural areas for disbursement of credit to rural poor on an agency basis.

NABARD launched the ‘Micro-Enterprise Development Programme’ (MEDP) for skill development in March 2006. The basic objective was to enhance the capacities of matured SHGs to take up micro enterprises through appropriate skill up


gradation. The programme envisaged development of enterprise management skills in existing or new livelihood activities, both in farm and non-farm sectors. The duration of training can vary between 3 to 13 days depending upon the objective and the nature of training. During the year FY 2008-09, 564 MEDPs were conducted covering 41,030 SHG members on activities like bee-keeping, mushroom cultivation, horticulture and floriculture, vermi-compost / organic manure preparation and dairy.

In FY 2005-06, a pilot project for ‘promotion of micro-enterprises’ was launched among members of matured SHGs. This is being implemented by 14 NGOs acting as ‘micro-enterprise promotion agency’ (MEPA) in nine districts. NABARD also provides marketing support to the SHGs for exhibiting their products. Cumulatively, 6,107 micro-enterprises were established under the project, involving bank credit of Rs.535 lakh, as on 31st March 2009.

The SHG Federations are emerging as important players in nurturing SHGs, increasing the bargaining power of group members and livelihood

promotion. The features and functions of SHG federation models promoted in the country vary depending on the promoting agencies.

Recognizing the role played by MFIs, in extending micro finance services in the unbanked areas, NABARD extends support to these institutions through grant and loan based assistance. NABARD has been selectively supporting MFIs for experimenting with various micro finance models such as replication of Grameen Model, NGO networking (bigger NGOs supporting smaller NGOs), credit unions and SHGs federations, among others, to meet credit requirements of the unreached poor. NABARD provides loan funds in the form of revolving fund assistance (RFA) on a selective basis to MFIs to be used by them for on-lending to SHGs or individuals. This loan has to be repaid along with service charge, within a period of 5 to 6 years. During the year FY 2008-09, RFA amounting to Rs. 6.35 crore was sanctioned to four agencies, taking the cumulative credit sanctioned to Rs. 43 crore covering 35 agencies.

In order to identify, classify and rate MFIs, NABARD

introduced a scheme for commercial banks and RRBs to enable them to avail the services of accredited rating agencies for rating of MFIs. Banks can avail the services of credit rating agencies like CRISIL, M-CRIL, ICRA, CARE and Planet Finance for rating of MFIs and avail financial assistance by way of grant to the extent of 100 per cent of the total professional fees of the credit rating agency, subject to a maximum of Rs. 1 lakh. The assistance is available for the first rating of MFIs with a minimum loan outstanding of Rs. 50 lakh and maximum loan outstanding of Rs. 500 lakh. During the year FY 2007-08, rating support amounting to Rs. 3 lakh to four agencies was provided.

6.2.4 SHG-Bank Linkage Prog-ress

The SBLP has made considerable progress since its inception in the early 1990s; both in terms of the number SHGs credit linked with banks as also the bank loans disbursed by SHGs. The cumulative number of SHGs credit linked with banks increased sharply from 33,000 in FY 1992-99 to 264,000 in FY 2000-01 and further to 4,224,000 in FY 2008-09. During the above


period, the cumulative bank loans disbursed to SHGs also witnessed a sharp increase from Rs. 57 crore in FY 1992-99 to Rs. 481 crore in FY 2000-01 and further to Rs. 22,679 crore in FY 2008-09 (Table 6.1).

In terms of relative shares of different agencies, Commercial Banks had the maximum share of outstanding bank loans to SHGs with a share of 67.1% followed by RRBs with a share of 23.1 % and Cooperative Banks with a share of 9.8% (Table 6.2). The average bank loan outstanding per SHG had increased from Rs. 46,884 as on 31 March 2008 to

Rs.53,689 as on 31 March 2009. It varied from as high of Rs. 57,037 per SHG in case of Commercial

Banks and as low of Rs. 31,460 per SHG in case of Co-operative Banks as on 31 March 2009.

Table 6.1: SHG-Bank Linkage Programme* (Rs. crore)

FYTotal SHGs financed by banks in ‘000 Bank Loans

During the year Cumulative During the year Cumulative

1992-99 33 33 57 57

1999-00 82 (147.9) 115 (247.9) 136 (138.1) 193 (238.1)

2000-01 149 (82.3) 264 (129.9) 288 (112.0) 481 (149.2)

2001-02 198 (32.6) 461 (74.9) 545 (89.0) 1,026 (113.4)

2002-03 256 (29.5) 717 (55.4) 1,022 (87.0) 2,049 (99.6)

2003-04 362 (41.4) 1,079 (50.4) 1,856 (81.0) 3,904 (90.6)

2004-05 539 (49.1) 1,618 (50.0) 2,994 (61.0) 6,898 (76.7)

2005-06 620 (15.0) 2,239 (38.3) 4,499 (50.3) 11,398 (65.2)

2006-07 1,106 2895 6,570 12366

2007-08 1228 3625 8849 17000

2008-09 1609 4224 12253 22679

*: Relating to Commercial Banks, RRBs and Co-Operative Banks.Note:-

1. From FY 2006-07 onwards, data on number of SHGs financial by banks and banks loans are inclusive of ‘Swarnjayanti Gram Swarozgar Yojna’ (SGSY) SHGs and existing groups receiving repeat loans. Owing to this change, NABARD discontinued the publication of data on a cumulative basis from FY 2006-07. As such data for FY 2006-07 onwards are not comparable with the data in the previous years. Data from FY 2006-07 onwards is from the Economic survey.

2. Figure in parentheses include percentage variations over the year.Sources: RBI Report on Trend and Progress of Banking in India- 2007-08, NABARD Report on Status of Micro finance in

India, 2008-09

Table 6.2: Agency-wise SHG-Bank Linkage Position (Rs. crore)

Agency

SHGs Credit Linked (in ‘000)

Outstanding Loan

FY 2007-08 FY 2008-09 FY 2007-08 FY 2008-09

Commercial Banks 2,379 (65.6)

2,831 (67.1)

11,475 (67.5)

16,149 (71.2)

RRBs 876 (24.2)

978(23.1)

4,421 (26)

5,224 (23)

Co-Operative Bank 371 (10.2)

415 (9.8)

1,103 (6.5)

1,306 (5.8)

Total 3,625 4,224 16,999 22,679

Source: NABARD Report on Status of Microfinance in India, 2008-09 Note: Figures in parentheses are percentage shares in the respective total.


Of the three models under the SBLP, the model II, viz. SHGs promoted by NGOs / Government agencies and financed by banks has emerged as the most dominant model in the case of India (Table 6.3).

The region-wise pattern of SHGs linked to banks showed greater concentration in the southern region, although the spatial disparity has declined in the last few years with some increase in the share of other regions, particularity the eastern region (Table 6.4).

In order to scale up efforts and reduce the regional imbalances in outreach, 13 non-south Indian States (Assam, Bihar, Jharkhand, Gujarat, Himachal Pradesh, Maharashtra, Madhya Pradesh, Chattisgarh, Orissa, Rajasthan, Uttar Pradesh, Uttaranchal and West Bengal) with high incidence of rural poverty and where the micro finance movement had not taken roots were identified by NABARD. Special efforts by NABARD resulted in an increase in the number of SHGs credit linked in these States from 100 thousand as on March 31, 2002 to 1.4 million as on March 31, 2007 and to 1.87 million as on March 31, 2009. Thus the spread of the programme in the 13 States led to a significant decline in the share of the southern States in SHGs linked to banks.

Table 6.3: Model-wise Cumulative Linkage Position (As at end-March)

Model

2004 2005 2006

No. of SHGs (‘000)

Bank Loans (Rs.

crore)


Bank Loans (Rs.

crore)


Bank Loans (Rs.

crore)

(i) Model I- SHG promoted, guided and financed by banks

218(20.0)

550(14.0)

343(21.2)

1,013(14.7)

449(20.1)

1,637(14.4)

(ii) Model II- SHGs promoted by NGOs/ Government agencies and financed by Banks

777(72.0)

3,165(81.0)

1,158(71.6)

5,529(80.2)

1,646(73.5)

9,200(80.7)

(iii) Model III- SHGs promoted by NGOs and financed by banks using NGOs/formal agencies as financial intermediaries

84(8.0)

189(5.0)

117(7.2)

356(5.2)

143(6.4)

561(4.9)

Total 1,079 3,904 1,618 6,898 2,239 11,398

Figures in parentheses are percentage to the respective total. Note: NABARD has changed the data reporting format since 2006-07 and now does not publish model-wise cumulative figures relating to SHG Bank Linkage Programme.Source: RBI Report on Trend and Progress of Banking in India- 2007-08

Table 6.4: Regional Pattern of SBLP (As at end March)

(Per cent to total)

Region 2001 2005 2009

Northern 3.4 5.3 3.1

North-Eastern 0.2 2.1 2

Eastern 8.4 16.4 13.3

Central 10.9 12.2 9.1

Western 5.9 5.9 6.8

Southern 71.1 58.0 65.7

All-India 100.0 100.0 100.0

Source: RBI Report on Trend and Progress of Banking in India- 2007-08, NABARD Report on Status of Microfinance in India, 2008-09


A noticeable benefit of micro finance culture in India is to give boost to the savings habits and the rural poor. Commercial banks which accounted for 58% of SHGs as at end March 2009 had a 50% share in total Savings (Table 6.5). However, the RRBs which catered to 27% of SHGs, had a higher share of 36% of total savings. A similar trend is also observed in case of women SHGs.

About 29.6 per cent of banks reported recovery of above 95 per cent under the programme, 38.2 per cent banks reported recovery in the range of 80-94 per cent and another 22 per cent banks reported recovery in the range of 50-79 per cent. Some differences were observed in recovery rates of commercial banks, co-operative banks and regional rural banks (Table 6.6).

Many groups promoted under various Government sponsored programmes also constituted a part of the SBLP. As on March 31, 2009, the numbers of SHGs having outstanding banks loans under the Swarnjayanti Gram Swarozgar Yojana (SGSY) and other sponsored schemes were at more than 976 thousand constituting 23.1 per cent of the total SHGs under the SBLP. The loan amount outstanding under these SGSY and other sponsored schemes loans were Rs. 5,861.7 crore which constituted 25.84 per cent of the total amount outstanding loans to SHGs.

Table 6.5: Savings of SHGs with Banks(As at end-March 2009)

(Rs. crore)

Agency

Total Saving Exclusive Women SHGs

No. of SHGs

Amount of

Outstanding Saving

No. of SHGs

Amount of

Outstanding Saving

Commercial Banks 3,549,509(58)

2,772.99(50)

2,843,932(58.47)

2,160(48.71)

Regional Rural Bank

1,628,588(26.6)

1,989.75(35.9)

1,336,219(27.48)

1,771.15(39.95)

Co-operative Banks

943,050(15.4)

782.88(14.1)

683,770(14.05)

502.84(11.34)

Total 6,121,147(100.0)

5,545.62(100.0)

4,863,921(100.0)

4,434(100.0)

Note: 1. Figures in parentheses are percentage to the respective totals.Source: NABARD Report on Status of Microfinance in India, 2008-09

Table 6.6: Recovery Performance of Bank Loans to SHGs (As on end-March 2009, No of banks)

Agency Total No. of

Reporting Banks

95% & Above

80-90% 50-79% Less than 50%

Commercial Banks 32 11 13 7 1

Regional Banks 65 12 31 15 7

Co-operative Banks 170 56 58 37 19

Total 267 79(29.6)

102(38.2)

59(22.1)

27(10.1)

Notes: 1. Figures in parentheses include percentage shares in agency-wise totals.Source: NABARD Report on Status of Microfinance in India, 2008-09


6.2.6 Micro Finance Institu-tion Approach

While the SBLP model remains the most widely used model of micro finance in India, the MFI model has also gained momentum in the recent past. As the Formal Financial Institutions (FFIs) could not reach effectively to the economically disadvantaged people in the rural areas, a new cadre of financial intermediaries emerged, called as Micro Finance Institutions (MFIs) which are positioned between FFIs and the local money lenders to provide faster credit at cost effective rates at the doorsteps of socially disadvantaged sections.

The MFI model in India is characterized by a diversity of institutional and legal forms. MFIs in India exist in a variety of forms like trusts registered under the Indian Trust Act, 1882 / Public Trust Act, 1920; societies registered under the Societies Registration Act, 1860; Co-operatives registered under the Mutually Aided Co-operative Societies Acts of the States; and non-banking financial companies (NBFC) - MFIs, which are registered under Section 25 of the Companies Act, 1956 or NBFCs registered with the Reserve Bank. These MFIs

are scattered across the country and due to the multiplicity of registering authorities, there is no reliable estimate of the number of MFIs. The most frequently used estimate is that their number is likely to be around 800. Attempts have been made by some of the associations of MFIs like Sa-Dhan to capture the business volume of the MFI sector. As per the Annual Report of Sa-Dhan, during FY 2008-09, the 233 member MFIs of Sa-Dhan had an outreach of 22.6 million clients with an outstanding micro finance portfolio of Rs. 11,734 crore.

6.2.7 Regulation of Micro Finance Institutions

The rapid growth of the micro finance sector and varied number of micro finance providers influencing the lives of millions of clients have necessitated the need for regulating the sector. In India, micro finance is provided by a variety of entities. These include banks (including commercial banks, RRBs and co-operative banks), primary agricultural credit societies, SHGs linked to banks and MFIs that include NBFC, Section 25 companies, trusts and societies as also co-operatives (under MACS). Currently, banks and NBFCs fall under

the regulatory purview of the Reserve Bank. Other entities are covered in varying degrees of regulation under the respective State legislations. There is no single regulator for this sector. In this context, for the orderly growth and development of the sector, the Government of India has proposed a legislation and formulated a Micro Financial Sector (Development and Regulation Bill), 2007 which is under consideration of the Parliament.

In the meantime, formulation of a code of ethics has been formulated by Sa-Dhan in 2007, to be followed by their member institutions, with a mission to service low-income clients—women and men—and their families, providing them short term and/or long-term access to financial services, that are client focused, designed to enhance their well-being, and delivered in a manner that is ethical, dignified, transparent, equitable and cost effective.

6.2.8 MFI Model Progress

The emerging role of MFIs as institutions other than banks engaged in providing financial services to the poor is being recognized and the banking sector has been extending loans to MFIs for on-lending to SHGs.


During the year 2008-09, bank loans amounting Rs. 3,732.23 crore were disbursed to 581 MFIs, taking the total loans outstanding to Rs. 5009.09 crore to 1915 MFIs as on March 31, 2009 (Table 6.7).

The Reserve Bank carried out a survey of MFIs in 2007, which revealed that most of the MFIs have a good recovery rate. Commercial banks remained the most important source of funds for almost all the MFIs.

6.2.9 SIDBI’s Role in Micro Finance

The Micro Credit Scheme of SIDBI was launched in February 1994 with the objective of providing revolving fund assistance to select well-managed Non-Governmental Organisations (NGOs) for on-lending to the poor for setting

up micro enterprises. Small amounts of grants were also given to the NGOs for their capacity building.

Learning from the mixed experience of the pilot phase, SIDBI reoriented and upscaled

its micro finance programme in 1999. A specialised department viz. ‘SIDBI Foundation for Micro Credit (SFMC)’ was set up with the mission to create a national network of strong, viable and sustainable Micro Finance Institutions (MFIs) from the informal and formal financial sector. The setting up of SFMC was envisaged as an institutional answer to the huge unmet demand for micro finance.

SIDBI has completed more then 10 years of dedicated micro finance service to the Nation. During this comparatively

shorter time priod, SIDBI has been able to create, develop and nurture a pool of more than 140 partner MFIs that is likely to grow much higher in coming years. The partner MFIs represent a cross-section of organisational forms ranging from informal Societies and Trusts to the more formal and Non-Banking Finance Companies (NBFCs). SIDBI meets the various financial needs of MFIs with structured, value-added products. In a sense, SIDBI has pioneered the MFI-SHG linkage model in India.

Loans for On-lending

SIDBI provides need-based financial assistance by way of loans to partner MFIs on an annual basis for on-lending to poor, mostly women. Assistance to MFIs is based on an independent Capacity Assessment Rating (CAR) supplemented by in-house appraisal of financial, management and institutional aspects of the organisation. The concept of CAR in India has been pioneered by SIDBI with a view to bringing about a degree of professionalism in the sector and exude confidence in the funding agencies. CAR not only helps in assessing the creditworthiness of partner MFIs but also helps the MFIs to get an insight into their strengths and weaknesses.

Table 6.7: Loans Provided to MFIs(Rs. crore)

Agency

FY 2006-07 FY 2007-08 FY 2008-09

No. of MFIs

Amount No. of MFIs

Amount No. of MFIs

Amount

Loans Disbursed by Commercial Banks, RRBs and cooperative Banks to MFIs

334 1151.56 518 1970.15 581 3732.23

Outstanding Bank Loans to MFIs as on March 31

550 1584.48 1109 2748.84 1915 5009.09

Note: The actual number of MFIs would be less as some MFIs have availed loans from more than one bank.Source: NABARD Report on Status of Microfinance in India, 2008-09


Equity Funding

Provision of equity capital to the NBFC-MFIs is perceived as an emerging requirement of the micro finance sector in India. SIDBI provides equity capital to eligible institutions not only to enable them to meet the capital adequacy requirements but also to help them leverage debt funds. With a view to providing equity and quasi equity support to MFIs, the SIDBI Growth Fund for MFIs (SGF-MFI) was set up with an initial corpus of Rs.50 crore. Looking at the steady increase in the equity investments in the MF sector, enhanced requirement of capital for compliance of capital adequacy norms being stipulated by RBI, the fund size of the “SIDBI Growth Fund for Micro Finance Institutions” (SGF-MFI) was increased to Rs.500 crore. SIDBI has also introduced various Tier II products viz., optionally convertible Preference share capital, optionally convertible debt and optionally convertible Subordinate debt to cater to the capital requirement of various segments of MFIs.

Portfolio Risk Fund

The Ministry of MSME (MoMSME), Government of India (GOI) has also committed support of Rs. 150 crore under Portfolio Risk Fund (PRF) Scheme which is being utilised by the Bank for meeting a part of

the security cover requirements under Micro Credit Scheme of SIDBI for providing loan assistance to MFIs. This fund has helped SIDBI to scale up its micro finance operations to the cumulative disbursement level of Rs. 5000 crore reaching out to more than 200 lakh beneficiaries.

Capacity Building of the Sector

In order to help the partner MFIs to move profitably on the growth path and achieve financial self-sufficiency, it is imperative to lay equal and sustained emphasis on building the capacities of these institutions. SIDBI has been providing adequate and customised package of capacity building grant tailored to the needs of the MFIs with a view to building their operational, financial and institutional capacities as well as those of the end-users. The capacity building support has enabled the MFIs to increase their outreach and volume of business besides bringing about improvements in their business processes leading to efficient financial management and achieving institutional and financial sustainability.

Experiments and Initiatives in Underserved States

While the micro finance culture has been well-trenched in the four Southern States of Andhra

Pradesh, Tamilnadu, Karnataka and Kerala, the other States continue to lag behind in the development of micro finance interventions. These States have, therefore, been accorded special focus by the Bank, for development of micro finance.

One of the major strategies adopted by the Bank to address the issue is to induce the leading and well-performing MFIs from the developed Southern States to expand their operations in the North, East, NE and Central parts of the country. Need-based support, both by way of loan and grant, is provided to the MFIs for meeting their on-lending requirements and part of their cost associated with expansion such as branch infrastructure, MIS, Information and Communication Technology (ICTs), professional human resources etc.

Another approach in this direction involves incubation of new start-up MFIs promoted by first-generation development / micro finance professionals. The incubation support is either given through well-reputed management institutes or through institutions specializing in capacity building and technical support services. A large number of MFIs are being incubated in the underserved States through such programmes.


Policy Advocacy

SIDBI, being the principal financial institution for MSME sector in the country, has been involved with various national level efforts for creating an enabling regulatory framework for the sector. SIDBI has also been supporting the process of dialogues and deliberations at State and National levels by various stakeholders, aimed at formulation of appropriate and coherent policy guidelines and regulatory norms for the sector.

The micro finance operation of SIDBI have been largely conforming to select MDGs of United Nations as given in the Box 6.2.

6.2.9.1 Operation of SIDBI’s Micro Finance

As on January 31, 2010, SIDBI has disbursed more than Rs. 5000 crore under its micro finance programme which has estimated to have benefited more than 2 crore poor clients, mostly women. The micro finance outreach of SIDBI is given below in Table 6.8.

6.2.10 Bank Partnership Model

Banks can use MFIs as their agent for handling credit, monitoring, supervision and recovery. In this model, the bank is the lender

Box 6.2: Millennium Development Goals - SFMC’s Endeavour

MDG 1 - Eradicate extreme poverty and hunger : �59 lakh clients mainly women disbursed assistance of about Rs. ♦3380 crore;As per Impact Study, 44% of clients were ‘borderline/ very poor’ ♦clients;79% of clients having 3 meals per day. ♦

MDG 2 - Achieve universal primary education: �All children of 57% of households were going for school ♦education;65% of female children going to school (71% in case of very poor ♦clients).

MDG 3 - Promote gender equality and empower women: �80% women beneficiaries. Majority (55%) of them illiterates; ♦Proportion of client women with economic activity as their main ♦occupation increased

from 60% to 65%;Joint ownership improved significantly from 28% to 37% and ♦ownership by women improved slightly from 26% to 27%.The proportion of clients acquiring assets went up from 73% in ♦Baseline to 79% in Endline;

MDG 7 - Ensure environmental sustainability : �Environmental study of activities of assisted MFIs being ♦undertaken shortly.

MDG 8 - Develop a global partnership for development: �Partnership with DFID, U.K., IFAD, Rome and Asian Development ♦Bank (ADB) for provision of micro finance and capacity

building of Mf sector towards eradication and alleviation of poverty;World Bank/ KfW – Potential partners. ♦

Table 6.8 : Micro Finance Outreach of SIDBIFY Number of

MFI Partners (as at end of

year)

Number of MFI partners

in the underserved

states

Total Outstanding Micro Credit

Portfolio (Rs. crore)

Aggregrate Assistance sanctioned by way of

term loans to MFIs in the underserved

states (Rs. crore)

FY 2008 104 58 950 222

FY 2009 131 71 2137(Over 125%)

445(Over 100%)

No. of Beneficiaries through MFI route as on March 31, 2009 : 200 lakh


and the MFI acts as an agent for handling items of work relating to credit monitoring, supervision and recovery, while the borrower is the individual. The MFI acts as an agent – it takes care of all relationships with the client, from first contact through final repayment.

Another variation of this model is where the MFI, an NBFC, holds the individual loans on its books for a while, before securitizing them and selling them to the bank. Such refinancing through securitization provides the MFIs with greater funding access.

6.2.11 Business Correspon-dents

In January 2006, the Reserve Bank permitted banks to utilizes the services of NGOs, MFIs (other than NBFCs) and other civil society organizations as intermediaries in providing financial and banking services through the use of business facilitator and business correspondent (BC) models. The BC model allows banks to do ‘cash in - cash out’ transactions at a location much closer to the rural population, thus addressing the last mile problem. The BC model uses the MFI’s ability to get close to poor clients – a necessity for savings mobilization from the poor – while relying on the financial strength of the bank to safeguard the deposits.

Pursuant to the announcement in the Union Budget for FY 2008-09, banks were permitted to engage retired banks employees, ex-servicemen and retired government employee as business correspondents (BCs) with effect from April 24, 2008, in addition to the entities already permitted, subject to appropriate due diligence. The individuals appointed as BCs should be permanent residents of those respective areas. Every BC was to be under the oversight of a specific bank branch, designated as the base branch. It was advised that the distance between the place of business of a BC and the base branch, should not exceed 15 kms in rural / semi-urban/urban areas and 5 kms in metropolitan centers. If any need arises to relax the distance criterion, the matter could be referred to the District Consultative Committee (DCC) of the district concerned for approval. For relaxations covering adjoining districts and for metropolitan areas, the respective SLBC would be the clearing agency. DCCs/SLBCs would consider the requests on merit in respect of under-banked areas or where the populations was scattered over large area where the need to provide banking services was imperative, but having a branch was not viable.

Furthermore, on August 27, 2008, SCBs, including RRBs and

local area banks were advised that they could engage companies registered under Section 25 of the Companies Act. 1956, as BCs provided those companies were stand-alone entities or not more than 10 per cent of their equity was held by NBFCs, banks, telecom companies and other corporate entities or their holding companies as BCs, banks had to strictly adhere to the distance criterion of 15 kms / 5 kms, as applicable, between the place of business of the BC and the branch. The controlling authorities of banks should closely monitor the functioning of business facilitators (BFs) / BCs during their periodic visits to the branches. Banks were also advised to put in place an institutionalized system for periodically reviewing the implementation of the BF / BC model at the board level.

Importance of Micro Insurance

Social security in the form of micro insurance can be a boon for the poor, when the income-raising ability of the bread winner is impaired, In India, the micro insurance schemes are mostly implemented by the MFIs as a compulsory element along with the micro credit. Micro insurance schemes can be considered as a stepping stone to social protection. One of the best examples of micro insurance scheme is the one which is linked to the Grameen Bank scheme in Bangladesh.


Grameen established a separate organization called Grameen Kalyan (village welfare) which uses the women groups for the collection of annual premiums for micro insurance.

With the recent arrival of a number of private insurance companies in India, there has been significant innovation in new product development, as well as delivery in the insurance sector. Several MFIs are entering the domain of micro insurance. More than half of the 83 MFIs that responded to a Sa-Dhan study in year 2005 were offering insurance, with life insurance being more widespread than non-life insurance. Insurance Regulatory Development Agency (IRDA)’s micro insurance regulations of November 2005 formally recognized NGOs, SHGs and MFIs as “micro insurance agents” for acting as intermediaries between insurance companies and beneficiaries. The Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan), which submitted its reports in January 2008, highlighted the importance of micro insurance and made wide ranging recommendations in this regard (Box 6.3) .

Generally, micro insurance schemes cover health care, life,

accident expenses, maternity protection and disability. Both the public sector and private sector insurance companies’ have tied up with various MFIs in the country to offer micro insurance schemes. One of the difficulties in the implementation of micro insurance scheme is that poor have a lesser understanding of risk pooling and are often reluctant to join schemes where payments have to be made with no immediate returns.

6.3 Micro Finance in India – Impact

There are several instances of experiments of SHGs that have made a positive impact on the income and employment situation of the poor.

A few assessment studies have been carried out on the impact of the SBLP in India at the grass root level. Puhazhendi and Satyasai (2000)1 observed a shift towards higher income slabs between pre- and post-SHG situation. About 74 per cent of the sample householders were below an annual income level of Rs. 22,500 during pre-SHG situation. The proportion declined to 57 per cent in the in the post-SHG situation indicating increased income levels. Further, involvement in the group significantly

contributed to improving the self-confidence of the members. The communication with other group members also improved after association with the SHGs. The members were relatively more assertive in confronting with social evils and problematic situations.

In another assessment, Puhazhendi and Badaiya (2002)2 found that availing loans from moneylenders and other informal sources with higher interest rates was significantly reduced due to SHG intervention. It was also observed that consumption oriented loans were replaced by production oriented loans during post-SHG situation.

An independent Impact Assessment Study of SIDBI’s micro finance programme has demonstrated that micro finance is an effective strategy for extending financial services to the poor and other disadvantaged groups. The study has clearly demonstrated that micro finance is not only a financially viable business, but also addresses the larger social agenda of poverty alleviation. All this without any significant cost to the state exchequer as most of the activities are now being funded by commercial sources with focus on self-sustainability in the long run. It has now developed into an important

1 Puhazhendi V and J. S. Satyasai, 2000 “Microfinance for Rural Profile: An Impact Evaluation”, NABARD. 2 Puhazhendi V and K. C. Badaiya, 2002 “SHG Bank Linkage Programme for Rural Poor-‘An impact Assessment’.”


delivery mechanism for reaching the poor and achieving financial inclusion. Studies have brought out the positive impact of micro

finance on participating clients. As such, its role in enhancing human capital in the long-term would be considerable. It has

particularly helped women to become owners of assets, have an increased say in decision making and take up leadership positions.

Box 6.3. Recommendation of Rangarajan Committee on Micro Insurance

The Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan), which submitted its report in January 2008, observed in its report that micro Insurance should provide greater economic and psychological security to the poor as it reduces exposure to multiple risks and cushions the impact of a disaster. Micro insurance in conjunction with micro savings and micro credit could go a long way in keeping this segment away from the poverty trap and would truly be an integral component of financial inclusion.

The Committee suggested that in order to economize on costs and to increase the outreach of micro insurance to the poor, the sector needs to utilize existing Government organizations and NGOs, having greater acceptability among the financially excluded. In the opinion of the Committee, there is a need to emphasize linking of micro credit with micro insurance. Further, as it helps in bringing down the inherent risk cost of lending, NABARD should be regularly involved in issues relating to rural and micro insurance to leverage on its experience of being a catalyst in the field of micro credit. The Committee suggested that the technology platforms being envisaged to facilitate financial inclusion should enable micro insurance transactions also. Towards this end, according to the Committee, there is a need to integrate the various modules – savings, credit, insurance, etc. – into the technology framework so that holistic inclusive efforts are possible in the rural areas.

The Committee observed that there are a large number of group life and health insurance schemes which are run by various central ministries and State Governments. The level of actual coverage in terms of claims preferred and settled in such schemes is disturbingly low. These schemes should be reviewed by an expert group set up by the Insurance Regulatory and Development Authority (IRDA).

Making specific recommendations about various insurance schemes available, the Committee observed that a wide range of products are available in life insurance category but penetration is really limited in rural areas. The procedural requirements at the time of entry and in case of claims settlement are cumbersome. The commission structure for agents is also heavily weighed in favour of getting new policies with very little incentive to service existing policies. In this regard, Micro Insurance Guidelines (MIG) 2005 issued by IRDA has provided for equal commission throughout the life of a policy and this will now remove the disincentive in servicing existing policy holders.

As far as health insurance is concerned, the Committee observed that its penetration level was even much lower than life insurance. The two categories viz., critical illness and hospitalization are the main product segments. Some State Governments have developed health insurance schemes which are still in very early stages. The Committee has recommended mutual health insurance models as a better alternative to take care of existing situation.

As regards crop insurance, the Committee recommended that policies be evolved to make crop insurance universal, viz., applicable to all crop / regions and pricing actuarial.

About asset insurance, the Committee again recommended that involving local NGOs, MFIs and SHGs, among others, as distribution channels as well as facilitators of claims settlements would be quite useful.


The challenges facing the sector are being addressed on a continuing basis, in consultation with all stakeholders. The detailed outcome of the impact study is shown in Box 6.4.

The study conducted by EDA Rural Systems and APMAS (2006) observed that 30 per cent of SHGs in the sample were involved in community actions. These involved improving community services (43 per cent of the total actions, including water supply, education, health care, veterinary care, village road), trying to stop alcohol sale and consumption (31 per cent), contributing finance and labour for new infrastructure (12 per cent), protecting natural resources and acts of charity (to non-members). The most common type of action taken up by SHGs was the attempt to close down local liquor outlets.

The study also pointed out that such community action inculcated a new boldness and confidence amongst women, often putting pressure on the authorities (panchayat, district officers and police) to do their jobs. Some of the States like Andhra Pradesh are trying to implement various developmental and poverty alleviation schemes through

SHGs. To sum up, micro finance has come of age in India.

According to “Microfinance India- State of the Sector Report” (SAGE publication, 2009) MFIs use a commercial approach to effectively reach a large number of people in manner unmatched by other high cost, subsidized programmes. The awareness levels of state machinery engaged in district development and enforcement of statutes relating to money lending has increased over the years to gain a proper appreciation of the role and operations of MFIs. The MFIs, with their network reach the rural masses, have the systems to handle government funds responsibly. If the government has to pass on subsidies or transfer other benefits to people, the MFIs would be a suitable vehicle.

The MFIs have also shown the capacity to provide varied financial services through their network and human capacity in the hinterland. When banks opened 33 million no-frills accounts with their infrastructure and the BC/BF network, MFIs have added 12.6 million clients in the last 2 years. All accounts with MFIs are operational as these are loan accounts. Measures to recognize the role

played by MFIs and incentivize them to put in greater efforts in financial inclusion would help the excluded population to be mainstreamed into economic development process at national level.

In some states there have been double bottom line considerations, justifying that it is possible to achieve commercial sustainability and at the same time be socially relevant. Reaching out to more people is increasingly seen as being socially responsible behaviors. In this context, some areas which need attention are as under:

Bring social agenda back into ♦microfinance and rediscover the joy of making a customer happy.

Redefine social performance ♦management as a core concern with a customer focus not with an institutional focus.

Take the next large step ♦towards livelihood finance so that customers can also grow with the institution.

Innovate to move away from ♦the single product basket.

Invest in self-regulation so ♦that a competitive behavior does not adversely affect


Box 6.4 : Impact Assessment Study of SIDBI’s Micro Finance (MF) Programme

SIDBI carried out the longitudinal socio-economic research, conducted during the period 2001-07 of SIDBI’s Micro Finance Programme to assess, on a national scale, the development impact of MFI intervention. The highlights of which are :

Effective outreach to the underprivileged : �• Scheduled Castes / Scheduled Tribes & Backward Classes (73%)• Female Clients (80%)• Poor Clients (30%) and Vulnerable Borderline Poor (37%)

Economic Impact: �• 76% able to increase their income through MFI assistance.• Better employment opportunities to underemployed family members.• Increase in enterprise activity of clients : 77% developed their existing activities; 37% diversified into

new activities.• Demand for hired labour increased and that for the casual labour declined.• 75% clients engaged in self-employed manufacturing reported increase in income.

Social Impact: �• 59% considered a rise of social status as a result of association with micro finance movement.• 66% improved their food consumption pattern.• 56% improved housing conditions.• 77% could provide better educational facilities to their children.• Increased awareness of health care.

Gender Equality / Women Empowerment: �• Increase in savings by women in their own name.• Created new economic avenues for women; Increased control of women over running family

enterprise.• 65% of female children were going to school.

Source : Assessing Development Impact of Micro Finance Programmes, conducted by Agricultural Finance Corporation Ltd. for SIDBI.


basic discipline and orderly market conduct.

Establish customer ♦protection mechanism to avoid their going to external institutions for grievance redressal.

In short, prioritize customer ♦sustainability even while pursuing commercial sustainability of the organization.

6.4 Micro Financing – International Experiences

The Nobel Peace Prize for 2006, awarded to the Grameen Bank of Bangladesh and its founder Prof. Muhammad Yunus accords international recognition to the role of micro credit in eliminating poverty. In fact, a beginning in this direction was already made in 2005 by designating that year as an International Year of Micro Credit.

Microfinance worldwide has experienced accelerated growth in the last twenty five years as countries have discovered its potential to alleviate poverty by supporting income generation and micro enterprises growth. It is being practiced in about 117 countries consisting of both developing and developed. In 65 countries, it is one of the recognized instruments of

financing by the Government and the central bank of the country.

Two different approaches have been identified in the evolution of microfinance industry (Christen and Darke 2002). The Latin American model known as ‘commercial model‘ has recognized the significance of allying with formal financial system rather than devoting on targeted government programmes. Focus on social and community development, on the poor and marginalized women is missing in this system. There is instead, an accent on enterprise creation and growth.

The South Asian Model, largely based on Grameen model of Bangladesh, has its spotlight clearly on poverty and women. While briefly outlining the system as it works in some developed and developing countries, the experience of Bangladesh and South Africa have been discussed in details since the conditions in these two countries are very much similar to India.

According to “Micro Finance in India – State of the Sector Report 2009 (N. Srinivasan)” globally microfinance sector experienced shocks induced by the meltdown in years 2008 and

2009. A survey carried out by Microfinance Insights brought out that deposits taking MFIs registered growth of client deposits. Remittances were reported to have declined and bad debt provisions increased. MFIs had to concentrate more on risk management and diversification of funding sources. Investors in MFIs reported that they engaged in tighter monitoring and tightened due diligence on potential investee companies. In a cross-regional comparison, investors rated Eastern Europe and Central Africa as well as Sub-Saharan Africa as high-risk markets. South Asia was rated as the least risky market for investments.

An inter-regional compar-ison shows that South Asia, East Asia and the Pacific region posted the highest rate of growth in terms of client outreach to poor during the period 2002 to 2008. Sub-Saharan Africa, Middle East and North Africa region had the slowest growth rate. Cost per loan was the lowest in Asia and the highest in Eastern Europe and Central Asia. The Mix Market 2007 benchmarks show that South Asia had the highest client outreach among the regions as also portfolio volumes in 2007. South Asia had a high level of domestic funding


in microfinance which seems to have significantly helped the sector to absorb shocks arising from the global meltdown.

Within Asia, India emerged as the largest microfinance market. The market opportunities in India are rated to be high, with several international and national funders willing to invest. The Indian MFIs have enjoyed a better valuation for their equity compared to their counterparts elsewhere in the world.

The Mix Market database (2007) provides interesting comparisons across countries. On a range of financial ratios, a comparison was made to understand the position of Indian MFIs. The data across countries are not exactly comparable as they come from only those MFIs that report to MIX market which in some countries is a small minority. The number of institutions reporting their client base and other related aspects could give a slant to data that might not be typical of the entire sector. Bangladesh MFIs, with a large client base and loan volumes, still find it difficult to cover their operational costs, even after 15 years of functioning. Similarly, Pakistan MFIs continue to

struggle to cover costs. Brazil and Mexico are countries where MFIs are profitable, but on high interest rates and high average loans. Indonesia has average loans that are more than 10 times that of Bangladesh. Indian MFIs manage to cover costs even on low average loan size. The inference is that Indian MFIs have efficient systems and are able to manage their business on thin margins. The challenge would be to find funds for increasing the average loan size which could significantly improve return on assets and operational self-sufficiency.

6.4.1 Bangladesh Model – International Experience

Micro credit movement owes its origin to a large extent to Bangladesh. It started in 1976 with lending of $ 27 to 42 poor people in a village next to Chittagong University where Prof Muhammad Yunus, the Founder of Grameen Bank of Bangladesh, was teaching Economics. It was started as a step to help the starving families which were victims of 1974 famine of Bangladesh. When banks refused to help the penniless persons, the Professor gave the money from his pocket. Prof Yunus, however, linked these persons with the banks

by acting himself as guarantor of loans. The project started working well and later in 1983, it was converted into a bank called Grameen Bank of Bangladesh. It is working in about 81,343 villages across Bangladesh and has given loan to 8.1 million borrowers, 97% of whom are women. The Bank had disbursed more than US $ 8.86 billion (January, 2010) of loan since its inception, of which $ 7.86 billion has been ploughed back. The recovery rate is 96.54%.

In order to appreciate the phenomenal success of micro credit, it would be proper to look into the principles on which it works. These principles are valid for all types of micro credit. According to Prof. Muhammad Yunus, the founder of Bangladesh Grameen Bank:-

(i) Poverty is not created by the poor, but by the institutions and policies which surround them. In order to eliminate poverty, appropriate changes have to be made in these institutions or policies. Alternatively, new ones have to be created.

(ii) Charity is not an answer to poverty. It serves only to perpetuate poverty and create dependency. It takes away the initiative of an


individual to break through the wall of poverty. The way to overcome poverty is to unleash the energy and creativity in each human being.

(iii) There is no difference in the ability of a poor person and any other person. The poor merely do not get an opportunity to explore their potential and so their abilities remain unutilized. If they had the opportunity, they would be able to change own lives.

(iv) Micro credit is based on principles different from the Banking Principles. Conventional banks start with the principle that the more you have, the more you get which provides a spring board for those who are already well-off. The Micro credit works on the principle, the less the person has, the higher the priority he/she gets.

(v) Poor people always pay back.

(vi) Lending to women brings greater benefits to the family than lending to a man. If the mother is the borrower, the children are the immediate beneficiaries. Women have greater long-

term vision and are ready to bring about changes in their lives step by step. They are excellent managers of scarce resources.

Grameen Bank of Bangladesh has named the credit given by the bank as ‘Grameen Credit’ somewhat different from ‘micro credit’. However, the distinguishing features of Grameen credit are the same as of any sound and successful micro credit system. These are:-

(i) Grameen Bank promotes credit as a human right.

(ii) Its mission is to help poor families to help themselves to overcome poverty.

(iii) It is not based on any collateral or legally enforceable contracts but on ‘trust’.

(iv) It is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption.

(v) It is initiated as a challenge to conventional banking which rejects the poor as ‘not creditworthy’.

(vi) It provides services at the door step of the poor, based on the principle that people should not go to a bank, but that the bank should go to people.

(vii) It requires that borrowers join a group in order to obtain loans.

(viii) Loan comes with obligatory and voluntary savings programme of the borrowers.

(ix) It provides 3 types of loans- income generating loan, housing loans and higher education loan for the children of Grameen families.

Micro credit has brought transformation in the lives of the member families in Bangladesh. While providing small loans to the poor is an economic intervention, it begins a process of transformation in the life of the individual members. A poor women, who took it for granted that she had no worth, starts to believe in her ability to improve her own life. She works hard to bring a host of positive changes in her life. Studies of the beneficiaries of Grameen Bank have revealed -

Almost all the children of the Grameen Bank members are in school.

Members have a higher adoption of family planning practices and therefore, lower birth rate than non-members.


Box 6.5: The Grameen Bank Model in Bangladesh

The Grameen Bank (GB) was launched as a project in a village of Bangladesh in 1976 to assist the poor families by providing credit to help them overcome poverty. In 1983, it was transformed into a formal bank under a special law passed for its creation. It is owned by the poor borrowers of the bank who are mostly women. GB has reversed conventional banking practice by obviating the need for collateral. It has created a banking system based on mutual trust, accountability, participation and creativity. It offers credit for creating self-employment, Income-generating activities and housing for the poor, as opposed to consumption. It provides service at the doorstep of the poor based on the principle that the people should not go to the bank, but the bank should go to the people. In order to obtain loans, a borrower must join a group of borrowers. Although each borrower must belong to a five member group, the group is not required to give any guarantee for a loan to its member. The repayment responsibility solely rests on the individual borrower, while the group and the centre / branch oversee that everyone behaves in a responsible way and none gets into repayment problem. There is no form of joint liability, i.e., group members are not responsible to pay on behalf of a defaulting member. Loans can be received in a continuous sequence. New loan becomes available to a borrower if the previous loan is repaid. All loans are to be paid back in installments (weekly or fortnightly). The GB initially focused on providing credit facilities and paid little attention to voluntary deposit mobilization. This policy was changed in 2000, with increased emphasis on deposit mobilization.

GB currently offers four kinds of savings, namely personal savings account, special savings account, Grameen pension savings and credit-life insurance savings fund.

After operating group lending for 25 years, the GB switched to a new type of activity model II ,under which the focus is on individual lending recognizing that with repeated loan cycles and greater credit exposure, homogeneity of the group would weaken as loan requirements vary with variation in the levels of upliftment attained. Thus, the more flexible Grameen II is more appropriate for reaching the poor because its products can be conveniently used for everyday money management as well as for micro enterprises. GB II dispensed with the general loans, seasonal loans, family loans, and more than a dozen other types of loans. It also gave up the group fund; the branch-wise and zone-wise loan ceiling; fixed size weekly installment; the rule to borrow for one whole year, even when the borrower needed the loans only for three months.

The Government of Bangladesh has fixed interest rate for government-run micro credit programmes at 11 per cent flat, which amounts to about 22 per cent on a declining balance basis. The interest rate charged by the Grameen Bank is lower than that fixed by the Government of Bangladesh. There are four interest rates for loans from Grameen Bank: 20 per cent (declining balance basis) for income generating loans, 8 per cent for housing loans, 5 per cent for student loans, and 0 per cent (interest-free) loans for struggling members (beggars). All interests are simple interest, calculated on declining balance method. This implies an annual interest rate of 10 per cent for income-generating loan which is less than that (11 per cent) fixed by the Government of Bangladesh. GB offers attractive rates for deposits ranging from 8.5 per cent to 12 per cent. As of end-March 2008, it had 7.46 million borrowers, 97 per cent of whom were women. With 2,504 branches, GB provides services in 81,574 villages, covering more than 97 per cent of the total villages in Bangladesh.

Reference:Website of Grameen Bank; www.grameen-info.org Reserve Bank of India, Report on Currency and Finance, 2006-07.


Their housing is better and the use of sanitary latrines is higher than non-members.

Their participation in social and political activities is higher than that of non-members.

The details of various components of the Grameen Bank Model in Bangladesh could be seen in the Box 6.5.

6.4.2 South Africa

The South Africa case substantiates the efforts taken by an economy characterized by significant social and economic divide to bring previously excluded population segments into the mainstream financial sector. In doing so, it has chosen to follow a market- led approach. In South Africa, low-end financial services stagnated for a long time and micro-finance services emerged only in the early 1990s. The unique history of South Africa and in particular, its financial services market has shaped an unorthodox evolution of micro finance. Since 1994, South Africa has worked hard to promote the deepening of the financial market and providing a wide range of financial services to previously disadvantaged South Africans. One part of this process has been interest rate deregulation for small loans,

setting off rapid growth in the formal micro lending market.

In order to enable more effective consumer protection and regularization of the money lender operations in a growing market, the Micro Finance Regulatory Council (MFRC) was established in 1999 to supervise the operations of those institutions lending under the unrestricted interest rate window. The operations of the micro loan sector in South Africa are integrally enshrined with that of all the financial market. Current legal and regulatory limitations not only affect this sector’s capacity to provide services to small enterprises and ‘homebuyers’ but also limit the capacity of the entire market to generate other kinds of services options for the target group. The governance practices of the apartheid era in South Africa helped create a highly fragmented financial market.

In 1992, the government decided to create an Exemption to the Usury Act, allowing loans under 6000 Rand to be provided without any interest rate restriction. This helped growth of more formal services to this market, in the form of micro credit firms. Individual or family investors created small firms to

provide short term ‘cash’ loans repayable in full at the end of one month or less. Some firms began to provide ‘term borrowing’ for periods from 3 to 36 months. The micro lenders were largely unregulated although formally prohibited from taking deposits or investments except from family members. Until the practice was outlawed in 1999, borrowers guaranteed payments by provision of a bank debit card and PIN code of lender. The 1999 Exemption Notice defined the category of exempt money – lending transactions as those not exceeding 10,000 Rand payable within 36 months, excluding credit card schemes or overdraft on a checking account. Lenders are required to register with an authorized regulatory institution (MFRC), in order to be exempt from the Usury Act.

MFRC regulatory regime has created an environment in which a range of large and small lenders have a real interest in extending finance to low- income market. Till 2005, MRFC has registered 1334 institutions with a total of 5,051 branches, registered micro loan and gross credit outstanding is about Rand 14 billion.

There is several aspects of the South African micro loan


market that make it different from micro finance in most developing countries. These relate to client characteristics, loan purpose, repayment mechanism, motivations of key institutions and policies supporting services expansion.

6.4.3 Bolivia

Bolivia has the most advanced microfinance sector in Latin America and has been a model worldwide. BancoSol, globally the first commercial bank for microfinance, was implemented in Bolivia. Bolivia also has some of the few microfinance organizations that use individual loans to reach people almost as poor as those reached by group loans. Moreover, as the poorest country in South America, with a per capita gross domestic product of about US $800 (World Bank) and about 70% the population living below the poverty line, Bolivia has a significant market demand for microfinance. For one, small-scale agriculture prevalent in rural regions provides a client group of self-employed farmers. A flood of cheap imports have also created a large petty trade sector. In 1993, the Law on Banks and Financial Institutions introduced multiple service banking, allowing banks to

offer several tiers of service from universal banking to micro finance. The law takes a liberal approach, freeing interest rates to be set by markets. Banks can exclude from classification requirements loans of US$ 2000 or less for non-bank-financial institutions and for NBFCs upto $500, since, these represent little risk to the system. Thrift institutions use time and savings deposits to lend primarily in the residential mortgage market, and secondarily to SMEs.

6.4.4 Peru

Peru has a relatively well-developed microfinance sector, which is represented by diverse types of institutions ranging from larger banks to NGO credit cooperatives. Peru established a framework for micro financing institutions through a 1995 amendment of its banking regulations providing for an entity called EDPYME (Entidad de desarollo para la pequena micro empresa). A registered EDPYME has, as its objective, the provision of finance to persons engaged in small and micro-enterprises activity. “Small is defined as having assets of US$ 300,000 or less and/or annual turnover of $750,000 or less and micro as having assets worth $20,000 or less and/or

annual turnover of $40,000 or less. The EDPYMEs can access commercial bank credit, equity markets, and special rediscount facilities from the Peruvian Development Bank. Rural microfinance is considered both unprofitable and highly risky, as a result only 3.2% of formal MFI lending is for agricultural and livestock credits.

6.4.5 Indonesia

According to Microfinance Innovation Center for Resources and Alternatives (MICRA, Indonesia), the microfinance sector in Indonesia is one of the largest in the world with over 50,000 microfinance institutions (MFIs), some in existence over 100 years. Indonesia has supported financial deepening through a number of strategies. Most well-known is the integration of over 4000 unit desa (formerly a parastatal agricultural finance mechanism) in Bank Rakyat Indonesia (BRI), a state commercial bank forming the largest micro finance network in the world. These units compete with nearly 6000 offices of the other 170 commercial banks including regional development banks, serving over 30 million retail clients. The ‘Unit desa’ have borrowers with total loans (ranging in size upto US$2500)


of close to US$ 500 billion. This system combines a state directed credit approach with a hybrid form of regulation, in which BRI is authorized by ‘Bank Indonesia’ (Central Bank) to supervise the unit desa (which operate independently of BRI branches). BRI also supervises 50,000 village banks through its Small Business and Cooperative Division under contract to Bank Indonesia. Indonesia also has a second tier institution with very low minimum capital (US$ 5000).

6.4.6 China

Microfinance is of recent origin in China; in fact, it is not more than a decade old. Though 70 percent of China’s 1.3 billion population reside in rural areas, but according to official statistics not more than 5 percent of them are poor. SMEs provide 75 per cent of jobs in China, 10 percent of total loans by the banking system, particularly by more than 50,000 rural credit cooperatives in villages and townships and thousands of branches of Agricultural Bank and Rural credit cooperatives, are delivered by way of micro loans. Such loans, around US $80 (500-600 Yuan), are given to rural farmers to buy seeds, fertilizers, chicken and to run grocery shops.

The rate of interest charged is 20 to 30 percent over and above benchmark rate if the loan is non-mortgaged and lower rates on loans with collaterals. The loan period is less than a year.

6.4.7 Germany

In Germany, thrift institutions known as Sparkassen or savings banks combine features of local traditions with instrumentalities of the state rather than being privately run. The saving banks are established by municipalities and counties. They serve a set of community welfare needs including financing public infrastructure and encouraging thrift among the citizenry. These institutions are regulated by the ‘Bundesbank’, under the provisions of German banking law, which permit universal banking. The Sparkassen, while competing with commercial and cooperative banks, maintain safety and soundness and try to avoid the kind of crises that hit US thrifts in the 1980s.

6.4.8 United States

The Micro–loans program aims to increase the availability of very small loans to prospective small-business borrowers. It works through 504 certified Development Companies which extend long term, fixed

rate financing for fixed assets. However, most of the small loans come from commercial banks. Banking system was found incapable of meeting the micro credit demand of the people. Hence, Private Financial Fund (PPF) was created in 1995 by a Presidential Decree to channel resources to small and micro enterprises, as well as to individuals for durable goods purchases. PPF can lend, engage in finance leasing and take savings and time deposits. They can also engage in foreign exchange operations and some securities operations. In recent decades, the US has seen an explosion of new deposit equivalent that have enabled banks to mobilize funds that do not fit the legal definition of ‘deposit’ and therefore, exempt from costly deposit insurance and reserve requirements.

In most developing countries, the focus is on clients at or below the poverty line who want to borrow for income generation or micro enterprises. They have no experience with banks and they operate largely outside the formal sector. As against this, in South Africa, the client is an employee (government or private) earning monthly income between 1000 and 5000 Rands per month. His


level of income is low and is suffering from a declining real wages. While in developing countries micro credit clients take loans to enhance their labour input to generate income or as a seed capital for micro enterprises in South Africa, the client takes loan for education, housing, purchase of durable goods or as emergency loan. So far as repayment is concerned, the difference is worth-studying. In places like Bolivia, Bangladesh, Zimbabwe, repayment of micro credit is based on a combination of income from loan based activities, in South Africa, the loan is not supposed to enhance income level, hence repayment is attached to predicable payroll. Since the goal is not poverty alleviation in South Africa, private sector banks have entered into business in response to strongly felt need for credit access to formerly disadvantaged South African Citizen.

A study of the working of Micro Credit in Latin America, Asia and Africa conducted by Women’s World Banking and Monitor Company in 2004, has revealed certain inherent features of the system which have emerged over the years. These are:-

(i) Micro finance clients want more and faster credit at better terms. They value

speed and convenience; they want access to larger loans. They want respect and recognition. And they care about interest rate.

(ii) Low income men and women define microfinance broadly. They want business loans. They want to deposit voluntary savings. They want housing and education loans. They want health and life insurance. And they are willing to pay what it costs to provide responsive, sustainable services.

(iii) Poor people prefer individual loans over group loans.

(iv) The challenge in micro-finance is not high risk but high transaction costs in making very small loans and in mobilizing small savings.

(v) Micro finance is an evolving industry. The leaders continue to innovate on products, processes and distribution systems to reduce time and costs.

(vi) Micro finance performs well in good times and outperforms corporate finance in bad times.

Poor women have demonstrated that they are the world’s best borrowers. During the financial crises in Indonesia in 1998, Bank Rakyat Indonesia (BRI), a government commercial bank had to write off 100 percent of its corporate portfolio. In the same period, BRI’s 5 million micro-borrowers continued to repay, though on time repayment declined from 99 percent to 98 percent .

(vii) There are, however, some major exceptions to the above. Some banks and finance companies are seeking a future in small transactions, either because larger clients are going directly to the capital markets, or because they recognize that the majority of the economically active people in their countries are low income entrepreneurs and producers.

(viii) In spite of the many constraints, microfinance has emerged as a critical instrument of poverty alleviation and employment generation


for the neglected segment of the society. It is because everywhere, the mission of micro credit has been guided by four core themes:-

(a) Reaching the poorest,

(b) Reaching and empowering women,

(c) Building financially self-sufficient institutions, and

(d) Ensuring a positive measurable impact on the lives of the clients and their families.

ROLE OF SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA

7.1 Origin

SIDBI is the principal financial institution for the promotion,

financing and development of industry in the Micro, Small and Medium Enterprises (MSME) sector and to co-ordinate the functions of the institutions engaged in the promotion, financing or developing industry in the MSME sector and for matters connected therewith or incidental thereto (Box 7.1).

Since its inception, SIDBI has made a historical journey of 20 years, which are replete with many milestones. Two decades are a short span in the life of a financial institution. But for SIDBI, the journey has been more eventful and

memorable. The setting up of SIDBI primarily as a Refinancing institution (RFI) coincided with the Great Economic Reform in 1991. With these two decades, the Bank passed through many webs and lows of vicious cycles

and economic crisis. Exactly after 10 years, SIDBI became an autonomous financial institution in 2001. In its incessant strive towards meeting the diverse and developmental needs of the MSME sector, the Bank

MISSION STATEMENT

“To empower the Micro, Small and Medium Enterprises (MSMEs) sector with a view to contributing to the process of economic growth, employment generation and balanced regional development.”

VISION STATEMENT

“To emerge as a single window for meeting the financial and developmental needs of the MSME sector to make it strong, vibrant and globally competitive, to position SIDBI Brand as the preferred and customer-friendly institution and for enhancement of shareholder wealth and highest corporate values through modern technology platform”.

Box 7.1 : SIDBI – Highlights

• Established on April 02, 1990.• Subsequent to the amendment in SIDBI Act, delinked from IDBI w.e.f. March 27, 2000.• Authorised Capital Rs. 10 billion• Paid-up capital Rs. 4.5 billion held by 35 financial institutions / public sector banks / insurance companies owned or controlled by Government of India• Serves as Principal Financial Institution for o Promotion o Financing o Development of industries in Micro, Small and Medium Enterprises sector, and o Co-ordinating the functions of institutions engaged in similar activities.


started providing direct finance, introduced a number of innovative financial products, reverse factoring introduced in 1997 being one of them with the objective that no bankable project in the MSME sector should languish for want of resources and ensure that all deserving needs of potential MSME entrepreneurs are met seamlessly. SIDBI has also promoted a number of subsidiaries / associate institutions like SIDBI Venture Capital Ltd. for venture capital, Credit Guarantee Fund Trust for Micro and Small Enterprises for credit guarantee, SME Rating Agency of India Ltd. for credit rating, India SME Technology Services Ltd. for technology transfer and India SME Asset Reconstruction Ltd. for asset reconstruction. Many such innovative institutions had bagged a number of international awards.

The business operations have also moved on an upward trajectory. As on December 31, 2009, the Bank has made cumulative disbursement of Rs. 1,47,704 crore to the MSME sector. It has always provided the required support to the MSME sector with the full commitment towards the holistic development of the sector. SIDBI’s operations have reached out to 216.5 lakh beneficiaries by way of : (a) 214.5 lakh beneficiaries through

financial assistance (indirect, direct and micro finance); and (b) 2 lakh beneficiaries through Promotional & Developmental support. The journey from a Refinancing Institution to a Responsible Financial Institution has been given in the Box 7.2.

7.2 SIDBI’s role in the holistic development of MSME sectorCorporate Social Responsibility of SIDBI

Corporate Social Responsibility (CSR), also called corporate citizenship, responsible business and corporate social opportunity is a concept whereby organisations integrate social and environmental concerns in their business operations and in their interaction with their stakeholders. Under CSR, organisations incorporate into their business the interest of society by taking responsibility for the impact of their activities on customers, employees, shareholders and other stakeholders as well as the environment. CSR, has thus emerged as a key function of institutions world over.

It has been recognised that banks/FIs as major players in their economies, are expected to display a commitment to sustainable development that incorporates best practices of CSR movement. While voluntary measures alone are not considered sufficient, they

must support other measures, which will help the sector advance sustainabaly.

During the recent years, there is a visible trend in the financial sector of promoting environment friendly and socially responsible lending and investment practices in emerging markets. As they emerge from the shadow of traditional banking activities, banks/FIs have recognized that they have a social responsibility to fulfil. Responsible banking is the new approach borne out of the new market realities.

The CSR also has special significance for SIDBI, as the Bank has been mandated by an Act of Parliament to promote, finance and develop the MSME sector. Since its inception, SIDBI has been according special thrust on Promotional & Development activities targeted at (i) creation of enterprises, generation of employment and reduction of poverty and (ii) capacity building of the MSME sector as a measure of overall social and economic empowerment. Besides, the Bank’s micro finance support programme through MFIs is another tool of achieving financial inclusion and women empowerment. Further, energy efficiency and pollution control measures have been integrated into the Bank’s project finance. Corporate governance has thus

201Role of Small Industries Development Bank of India

Box 7.2 : SIDBI’s Journey of 20 YearsFinancial

YearMajor Milestone

FY 1991 • Small Industries Development Bank of India (SIDBI), set up on April 2, 1990.

FY 1992• Introduced (Bills Discounting) of MSE Vendors• Co-promoted two national level factoring companies viz. SBI factors and Commercial Services Pvt. Ltd. and Canbank Factors Ltd.

FY 1993 • Initiated measures to boost the process of Ancillarisation

FY 1994 • Started providing foreign currency and equity support schemes

FY 1995 • Launched Micro Credit Scheme.• Set up Technology Bureau for Small Enterprises to encourage transfer of technologies to MSME sector.

FY 1996 • Outstanding portfolio crossed Rs. 10,000 crore for the first time.• Introduced Technology Development and Marketing support schemes

FY 1997 • Initiated Vendor Development support

FY 1998 • Undertaken major modifications / expansion of Schemes.

FY 1999• SIDBI Foundation for Micro Credit launched in January 1999

• SIDBI received the coveted ‘Asian Banking Awards 1999’ by ADFIAP for its Micro Credit Scheme.

FY 2000

• SIDBI Venture Capital Limited – Set up in July 1999 to provide venture capital support to MSMEs. • Authorised capital increased from Rs. 500 crore to Rs. 1000 crore.• GoI’s Technology Upgradation Fund Scheme for Textile Industry launched in April 1999 with SIDBI as the Nodal Agency.

FY 2001• Set up Credit Guarantee Fund Trust for Small Industries in July, 2000 to provide guarantee for collateral- free loans to MSMEs since restructured as Credit Guarantee Fund Trust for Micro and Small Enterprises.• SIDBI designated as Nodal Agency for Government of India scheme Credit Linked Capital Subsidy Scheme.

FY 2002 • Launching of Fast Track Financing Scheme and customised products for financing services sector.FY 2003 • Rural Industries Programme bagged “ADFIAP Development Award 2003”FY 2004 • SME Fund of Rs. 10,000 crore launched to provide assistance to the MSME sector.

FY 2005• Holistic reform and transformation of SFCs started through MoUs with select SFCs.• Launched one of the world’s largest MSME sector development project in association with World Bank, DFID, UK; KfW and GTZ, Germany. Government of India is the Nodal Agency of the Project.

FY 2006

• Set up SME Rating Agency of India Ltd. in September 2005, as an exclusive MSME dedicated third-party rating agency to provide comprehensive, transparent and reliable rating agency and risk profiling. • Set up India SME Technology Services Limited in November 2005 to function as a technology bank for MSMEs in India.• SIDBI designated as Nodal Agency for Government of India scheme Integrated Development of Leather Sector Scheme (IDLSS).

FY 2007• Started direct working capital facility through IDBI Bank technology platform• Bagged ADFIAP Award for project on “SME Rating” under ADFIAP’s Institutional Outstanding Development Project Category on SMEs – 2007

FY 2008

• Set up Cell for Development of North-Eastern Region • Outstanding portfolio crossed Rs. 20,000 crore mark for the first time. • Received the “Plaque of Merit” for “Establishment of Role Model Fund for Equity Assistance to SMEs in the area of Software and Information Technology by ADFIAP.

FY 2009

• Set up in April 2008, Indian SME Asset Reconstruction Company Ltd. as the country’s first MSME focused Asset Reconstruction Company.• Outstanding Portfolio crossed Rs. 30,000 crore mark for the first time.• Net worth crossed Rs. 5000 crore landmark.• Received ADFIAP award for Best Website – 2009• SIDBI’s initiative towards setting up of India SME Asset Reconstruction Company Limited - 2009• The ‘Outstanding CEO of the year 2009’ awarded to Shri R.M. Malla, CMD, SIDBI• Established “SIDBI Foundation for Risk Capital”• 100th branch of SIDBI opened.

FY 2010

• Set up Micro & Small Enterprises Rural Self Employment Training Institute at Jangipur, West Bengal.• Announced commitment to sustainability and Corporate Social Responsibility by framing for the first time a CSR Policy and Publishing its first CSR Report.• Launched an e-discounting platform of bills of exchange called ‘NTREES’ (NSE Trade Receivables Engine for E-discounting in association with SIDBI).


been a guiding principle of the working of the Bank.

Recognising the importance of CSR, the Ministry of Corporate Affairs, Government of India, has recently brought out a set of voluntary guidelines on CSR for corporates. These CSR guidelines pertain to areas, such as, care for all stakeholders, ethical functioning, respect for workers’ rights and welfare, respect for human rights, environment and social and inclusive development. The CSR Report of SIDBI has been prepared on the basis of Global Reporting Initiative (GRI) G3 guidelines which comprises 46 Profile Disclosures and 79 Performance Indicators. GRI, which was a project of UN Environment Programme (UNEP) and CERES is now a permanent, independent organisation with global Headquarters in Amsterdam, Netherlands. GRI has developed Sustainability Reporting Guidelines which have become internationally accepted benchmark norms for any CSR reporting. SIDBI CSR Report has been benchmarked against GRI guidelines and found to be compliant with all the 46 Profile Disclosures and 40 Performance Indicators; thereby conforming to the “B “level reporting (the reporting level starting from “ C” level –the lowest- to “ A” level-the highest).

In the above backdrop, SIDBI has proactively taken necessary steps for preparation of the first Report on the Bank’s CSR activities, drafting its CSR Mission Statement, Assurance Statement and CSR Policy.

In order to encourage all offices of the Bank to assimilate CSR philosophy of the Bank in their activities, following major steps are being taken by the Bank :

i. Replacing Bulb/Tube lights with CFL lights in the office and owned premises of SIDBI.

ii. Greater use of Video Conferencing.

iii. Installing solar heater system in the Bank’s offices/residential buildings which could then be used as an alternative source of energy to generate power.

iv. Water conservation measures like rain water harvesting, wherever possible.

v. Use of “Recycled Paper” in official noting/record.

vi. Double sided printing of all official notes/memos etc.

SIDBI is committed to support sustainable growth and has incorporated Environmental and Social (E&S) aspects in its

lending operations. Sustainable development is sought to be achieved through the Bank’s financial assistance and promotional and developmental support which are now more focused on ensuring environmental protection through promoting and financing clean production and pollution control measures as also energy efficient technologies. Under the World Bank Line of Credit, the Bank provides credit to MSMEs conforming to E&S Standards. Similarly, under Japan International Cooperation Agency (JICA), Japan and KfW, Germany lines of credit, SIDBI provides loans on concessional terms for promoting energy saving projects, clean production and pollution control measures in the MSME sector. These types of sustainable financing facilities are primarily designed towards softening the environmental and social consequences of MSME projects, rather than purely economic impact. In order to ensure their holistic development, SIDBI’s interventions go beyond lending and endeavour to create an overall enabling environment for MSMEs to thrive and remain competitive. With an over-arching belief that MSMEs are an important vehicle for attaining inclusive growth,


SIDBI, works with wide array of stakeholders in rural and urban areas to ensure balanced regional development, providing demand-driven products and delivery mechanisms catering to the varied needs of the sector.

The Bank provides financial assistance by way of refinancing scheme through more than 900 Primary Lending Institutions (PLIs) having branch network of over 82,000 branches for onward lending to MSMEs. SIDBI supplements the indirect assistance with direct assistance to MSMEs in the form of term loan, equity, risk capital, receivable finance scheme, letter of credit, guarantee, etc. The financial assistance is supported by its subsidiaries and associates, in the areas of credit guarantee, venture capital, credit rating, technology transfer, asset reconstruction, Business Development Services, risk capital, etc.

The Bank is committed to attain sustainability through environmental protection and energy saving and for this, provides financial assistance for energy saving projects at concessional rate and terms to improve the energy efficiency in the MSME sector. SIDBI has pioneered the Micro Finance Institutions – Self Help Group

linkage (MFI-SHG) model and nurtured and strengthened more than 145 MFIs by way of micro credit with cumulative disbursement of more than Rs. 5000 crore & capacity building grant support, equity support etc., which has benefited more than 2 crore poor, mostly women, in the rural unorganized sector. The Promotional and Developmental (P&D) activities of SIDBI are designed to achieve enterprise promotion resulting in self-employment and creation of additional employment and enterprise strengthening to enable MSMEs to face the emerging challenges of globalisation and growing competition. These promotional and developmental activities, such as, Rural Industries Programme, Entrepreneurship Development Programme, Vocational Training Programmes, Skill-cum-Technology Upgradation Programme, Small Industries Management Programme, Cluster Development Programme, Marketing Assistance etc. have created more than 2 lakh employment opportunities. SIDBI has also provided policy advocacy to Government of India in preparation of various reports for the sector, such as, credit and fiscal issues for the MSE sector

and Private Sector Resource Estimate of the MSME Sector for Planning Commission, NPAs in MSME Sector, etc. SIDBI is the Nodal Agency for various MSME related schemes of Government of India. SIDBI is implementing a wide-ranging flagship project for financing and development of MSMEs, aimed at making MSME lending an attractive and viable financing option as also facilitate increased turnover and employment in the sector. Since 2005, the Micro, Small and Medium Enterprises Financing and Development Project (MSMEFDP), funded by the World Bank, UK’s Department for International Development (DFID), KfW, and GtZ, Germany has undertaken a number of initiatives to raise the efficiency, productivity and overall competitiveness of the sector and has achieved considerable progress in its goals as per verifiable measurements of success. The project, through its pilot interventions and models, has been able to make the ‘market work’ for the MSME sector.

7.3 Financial Assistance

SIDBI has introduced various market driven new schemes to emerge as single window for meeting the credit and non-credit needs of the MSME


sector to make it strong, vibrant and globally competitive. The schemes are first introduced as pilot projects and after their successful testing, these schemes are rolled out at the national level. The evolution of various Refinance and Direct Finance schemes over the last two decades are given in Box 7.3. The brief highlights of refinance and direct finance schemes are given in the following paras:

Refinance

SIDBI is primarily a Refinancing I n s t i t u t i o n . It provides r e f i n a n c e to augment the resource position of Primary Lending I n s t i t u t i o n s (PLIs), like banks, SFCs, SIDCs/SSIDCs, MFIs, etc. so as to enable them to provide greater flow of credit to MSME sector.

The Bank is able to access the vast geographical area of the country as the assistance is channelized through PLIs having a network of over 82,000 branches across-the-country. The Bank also provides resource support to institutions / Non- Banking Finance Companies (NBFCs) engaged in financing to large pool of MSMEs.

The Refinance support is extended for (i) Setting up of new projects and for technology upgradation / modernisation, diversification, expansion, energy efficiency adoption of clean production technologies etc. of existing MSMEs (ii) Service sector entities and (iii) Infrastructure development and upgradation. The main components of indirect finance are :

Resource Support - ♦ SIDBI provides resource support to

institutions / Non- Banking Finance Companies (NBFCs) engaged in promotion and development of MSME sector to facilitate channelising of assistance to a large number of MSMEs and infrastructure projects having linkages to MSMEs.

Lines of Credit (Refinance) ♦in favour of

-- Banks

-- State Financial Corporations (SFCs)

-- State Industrial Development Corporations (SIDCs)

-- State Small Industries Development Corporations (SSIDCs)

Micro Credit Schemes ♦

Term loan assistance to MFIs • for onward lending

Transformation Loan•

Privileged Partner Scheme•

Term loan • to Market Service Providers

P a r t n e r s h i p • Assistance

Micro Enterprises • Loans

Equity Support • to MFIs

During the recent period of global financial crisis and economic slowdown, the Government of India / Reserve

Bank of India had taken many proactive steps to help the MSMEs which included, among others, enhancement of refinance capacity of SIDBI to the MSME sector. Government of India announced setting up of a Refinance Fund for Rs. 2000 crore in the Union Budget for FY 2009, which was subsequently enhanced to Rs. 3,600 crore. Further, In view of the need to


1990-91 • Marketing Infrastructure Scheme • Direct Discounting of Bills (Equipment) Scheme • Direct Discounting of Bills (Component) Scheme • Infrastructure Development1991-92 • Scheme for Ancillarisation • Resource Support to Factoring Companies1992-93 • Equipment Finance Scheme • Project Finance Scheme • Venture Capital Scheme1993-94 • Integrated Infrastructural Development Scheme • Foreign Currency Term Loan • Direct Equity1994-95 • Pre-shipment Credit in Foreign Currency (PCFC) Scheme • Equity Assistance Scheme • ISO-9000 Certification Scheme • Micro Credit Scheme1995-96 • Marketing Scheme • TDMF Scheme1996-97 • Vendor Development Scheme • Credit Rating for SSIs1997-98 • Direct Factoring Services • Line of Credit for Marketing • Exports Bills Financing • Pre and Post-shipment Credit in Rupees • Bills Rediscounting against Inland Supply bills of SSIs1998-99 • Financial Support (Short Term Loan) to Banks1999-2000 • Technology Upgradation Fund Scheme for Textile Industries • Scheme of Short Term Loans to State Electricity Board and Power Sector Corporations / Companies. • Tannary Modernisation Scheme2000-01 • Credit Linked Capital Subsidy Scheme for Technology Upgradation of SSIs. • Refinance Scheme for term loans granted by State Financial Corporations / State Industrial Development Corporations to industrial concerns other than in the small scale sector2001-02 • Fast Track Financing Scheme • Financing Service Sector2002-03 • Micro Ventures Innovation Fund

2003-04 • Small and Medium Enterprises Fund • SIDBI Growth Fund • Portfolio Risk Fund • Portfolio Purchase Scheme2004-05 • Scheme of “Incentive to Accommodation Infrastrcture” • Scheme for Small Enterprises Financial Centres • Cluster Development • Channel Arrangements • Integrated Development of Leather Sector Scheme2005-06 • Short term Resource Support to SME intermediaries • Inland Letter of Credit Scheme • Vendor Development Scheme • Privileged Customer Scheme • Small Loans in North East Region • SME IT Loans • Working Capital Arrangement with IDBI • Scheme for Small Enterprises Financial Centres • Cluster Development • Channel Arrangements • Integrated Development of Leather Sector Scheme

2006-07 • Invoice Discounting Scheme • Equity Suport • Customised products relating to franchisee assistance, rental/cash flow discounting and pre-shipment fundings • Co-branding arrangements with NBFCs

2007-08 • SIDBI Foundation for Risk Capital for MSMEs

2008-09 • Ad-hoc assistance Scheme for existing MSME customers. • One-time liquidity support • Additional limit under Receivable Finance Scheme • Restructuring • DG Set Financing Scheme • Scheme for Energy Saving Projects in MSME Sector • Structured Credit arrangements – Industry Association, Mumbai Taxi Associations • Credit delivery arrangement with OEMs

Box 7.3 : Evolution of Various Schemes of Assistance


enhance credit delivery to the employment intensive, Micro and Small Enterprises (MSEs) sector, a refinance facility of Rs.7,000 crore was allocated by Reserve Bank of India (RBI) to SIDBI to be used for funding incremental credit (w.e.f. September 30, 2008) for both indirect lending through banks and SFCs as well as direct lending to MSMEs. Hon’ble Finance Minister, in his Union Budget speech for FY 2009-10 announced to further facilitate the flow of credit to the Micro and Small Enterprises sector at reasonable rates, by providing a special Fund of Rs. 4,000 crore out of Rural Infrastructure Development Fund (RIDF) to SIDBI. This Fund will incentivise banks and SFCs to lend to MSEs by refinancing 50 per cent of their incremental lending to MSEs.

Direct Assistance

SIDBI started its direct finance with the object that no bankable project in MSME sector languishes for want of resources. Accordingly, direct finance is provided to fill in the credit gaps by way of supplementing and complementing the efforts of the banks/SFCs/MFIs to meet adequate credit needs of MSMEs at affordable rates. It is also undertaken to showcase lending to the MSME sector is a viable and profitable proposition. Over the years, SIDBI has evolved

itself as a one-stop institution to meet the various types of credit requirements of the MSME sector by directly offering tailor-made fund based and non-fund based financial products and services. Direct finance is channelised through the Bank’s present network of 103 branches all over the country covering more than 600 MSME clusters. The major schemes of Direct Finance are:

Term Loan Assistance - ♦ Term loans are provided for (i) Setting up of new projects and for technology upgradation / modernisation, diversification, expansion, energy efficiency, adoption of clean production technologies, etc. of existing MSMEs (ii) Service sector entities and (iii) Infrastructure development and upgradation.

Working Capital Assis- ♦tance

Working Capital Term • Loan

The objective of the Scheme is to provide term loans to MSMEs to meet the shortfall in working capital including WC margin.

Working Capital arrange-• ment with IDBI Bank

SIDBI has a strategic arrangement with IDBI Bank to provide Working Capital Limit to its MSME customers by utilising the

banking platform of IDBI Bank.

MSME Receivable Finance ♦Scheme - SIDBI operates the MSME Receivable Finance Scheme (RFS) for MSME sellers / eligible service providers in respect of sales & services rendered to purchaser companies. Under the Scheme, SIDBI fixes limits to well-performing purchaser companies and discounts usance bills of MSMEs / eligible service sector units supplying components, parts, sub-assemblies, services, etc. so that the MSME / service sector units realise their sale proceeds quickly. This initiative of reverse factoring addresses the delayed payment issues of MSMEs.

Vendor Development ♦Programme - Original Equipment Manufacturers (OEMs) of some of the growing sectors are looking up to their vendors to upscale their facilities to support their growth. Some of the OEMs are advising their vendors to relocate facilities either close to their plants to improve inventory management or to new areas where tax benefits are available. With a view to catering to the increasing demand, SIDBI introduced and remodelled from time


to time a special vendor development programme to OEMs. Depending upon the comforts provided by the OEM, the scheme provides several flexibilities in fixing financial parameters, appraisal mechanism, etc. Conceptually, the scheme enables us to adopt a customised approach with each OEM. Under the scheme, term loan, working capital loan etc. are provided to the OEM’s MSME vendor for setting up new project, expansion, modernisation, etc. based on the recommendation of the OEM.

Foreign Currency Loans ♦

SIDBI offers refinance • assistance and Line of Credit in Foreign Currency to institutions / banks for extending foreign currency assistance to MSME units / Export Houses / Trading Houses etc.

SIDBI offers forex assistance • to its MSME customers in various forms including foreign currency term loans, booking of forward contracts, etc.

Equity Support ♦ - Pursuant to the announcement of setting up of MSME Risk Capital Fund of Rs. 2000 crore by Hon’ble Union Finance

Minister in the Budget Speech for FY 2008-09, a Risk Capital Fund for MSMEs has been set up in SIDBI to provide equity support to MSMEs. The Bank has set up “SIDBI Foundation for Risk Capital (SFRC) ” to manage the Fund. SFRC has developed more standardised and appropriate risk capital products for quick and effective utlisation of the fund to benefit a large spectrum of MSMEs.

Scheme for Energy Saving ♦and Clean Production Technology Projects in MSME Sector - SIDBI has negotiated a Line of Credit from Japan International Co-operation Agency (JICA) to encourage MSMEs to invest in energy saving projects and introduced Scheme for Energy Saving Lending in MSME Sector. Under the Scheme assistance is provided to MSMEs at concessional interest rate for energy saving investments in plant & machinery / production process, clean & renewable energy sources, reduction in CO2 emission, etc. The Scheme apart from offering the concessional rate of interest also provides the benefits of Govt. subsidy schemes (i.e. CLCSS, TUFS, IDLSS, etc.). Till December 31, 2009 more than 1200

MSMEs has been provided direct assistance under the Scheme (under JICA-EE Scheme) with aggregate assistance of Rs. 563 crore. The Bank has also organized awareness campaigns at 15 MSME clusters for information dissemination and promoting energy saving potentials in the cluster.

Some of the initiatives under ♦the Energy Efficiency lending for micro entrepreneurs are:

Auto Rickshaw Financing: ♦600 CNG fitted Auto Rickshaws were provided assistance in Chandigarh by Delhi Finance Corporation (DFC). SIDBI provided refinance to DFC for this clean energy initiative.

Solar lanterns - ♦ Friends of Women’s World Banking (FWWB), an MFI was sanctioned assistance of Rs.10 crore for providing assistance to micro entrepreneurs for Solar Lanterns of 2 watts each. 50,000 micro entrepreneurs are proposed to be covered under the assistance.

Privileged Customer ♦Scheme - In view of the persistent demand from the existing customers for an open ended credit product which could be delivered


quickly for meeting their unforeseen /emergent business expenditure, etc. a new scheme viz. Privileged Customer Scheme (PCS) was introduced to provide annual credit limits to the existing well performing customers of SIDBI for their annual non project specific investment plans.

Assistance for Industrial ♦Infrastructure

Financial assistance is • extended for industrial infrastructure like industrial estates.

Strengthening of existing • industrial clusters.

Providing support services, •

viz. common utility centres, common testing centres etc. and other infrastructure projects which benefit MSMEs.

Non-fund based Scheme ♦ – SIDBI offers guarantee and Letter of Credit facilities in foreign currency and rupee to its customers to meet their non-fund based credit requirements.

Guarantee Scheme -In the • contemporary international commercial dealings, many a transactions are required to be backed up with a guarantee. SIDBI provides ordinary guarantee (both financial and performance)

and deferred payment guarantee to MSMEs.

Letter of Credit - SIDBI has • been opening foreign Letter of Credits [LCs] for its own customers both for purchase of capital equipment and raw materials. However, several customers are required to open inland LCs for domestic suppliers of capital equipment and raw materials. In view of this SIDBI has commenced opening Inland LCs for MSMEs.

Other Recent Business ♦Initiatives

Structured Credit Delivery arrangements -In order to

Box 7.4: Recent Liquidity easing measures

In order to provide timely credit support to MSMEs to overcome the challenges of global financial crisis and economic slowdown, SIDBI devised certain tailor-made financial products / services, some of which are:

Ad-hoc Assistance Scheme for existing MSME customers - � The Bank offered one-time ad-hoc assistance to its existing customers upto 15 per cent (subject to maximum of Rs.50 lakh) of their total existing sanctions on a fast track with simplified terms to help MSMEs in getting immediate and adequate credit.

One-time Liquidity Support - � One-time liquidity support facility to the extent of 15 per cent (subject to maximum of Rs.50 lakh) of the existing working capital facility to its customers.

Additional limit under MSME RFS � - Additional limit of 15 percent was extended to the corporates for their procurements from MSME vendors with a view to helping MSMEs in realising their dues from such corporates immediately.

Diesel Generator Set Financing Scheme � - A number of industrial clusters in the country have been facing acute power shortage. Accordingly, a Diesel Generator (DG) Set Financing Scheme was introduced to existing MSME borrowers of the Bank.

Restructuring - � To tide over the immediate cashflow problems and the liquidity crisis, SIDBI proactively provided need-based restructuring in the repayment schedules to its customers.


expand its outreach and speed up credit delivery to a larger number of MSMEs, some of whom were outside the formal banking system so far, SIDBI devised certain innovative measures like

entering into a Memoran- �dum of Understanding with Faridabad Small Industries Association (FSIA) for providing pre-approved limits to well-performing MSME members of FSIA;

providing assistance to �taxi drivers in Mumbai for replacing their taxis which are more than 25 years old with taxis having CNG machines,

providing assistance to �MSMEs for procurement of equipment from Original Equipment Manufacturers as per predetermined credit screen under a simplified sanction process and terms.

Micro Finance

Micro Finance has emerged as a new paradigm for inclusive growth by empowering hitherto neglected sections of our society, such as, women, minorities, backward communities and the poor in the rural, unorganized sectors of economy. It has been observed that these sectors have long remained excluded from the Formal Financial Institutions (FFIs) and were heavily dependent on local money lenders who used to

charge usurious interest rates, leading to perpetual debt trap. In order to alleviate their problem, the Bank formally institutionalized the micro credit programme by setting up a specialized department called SIDBI Foundation for Micro Credit (SFMC) in 1999 as the “Institutional Answer” to the huge unmet demand for micro finance. The primary objective of SFMC is to “create a national network of strong, viable, and sustainable Micro Finance Institutions (MFIs) for providing micro finance services to economically disadvantaged people of India, especially women”. The MFIs have the advantage over FFIs in terms of reaching out to the doorstep of rural people and also over local money lenders by charging lower interest rates than that charged by such money lenders.

With the completion of 10 years of SIDBI’s micro finance programme, micro finance has emerged as a viable business model for the Bank and the Foundation has achieved a number of milestones (Box 7.5) and recorded impressive growth in terms of sanctions, disbursements and outstanding. During the last decade, SIDBI took the initiative to nurture, develop, strengthen and ultimately partner with more than 140 MFIs. These MFIs are provided grant support for their capacity building and financial assistance to effectively provide

micro credit at affordable rates. These MFIs are encouraged to promote women’s access to credit so as to help them acquire productive resources, thereby attempting to redress gender differences and inequalities in the social setup. In the area of MFI-SHG linkage model, SIDBI has emerged as a leader in micro finance system. Cumulatively, as on January 31, 2010, SIDBI has disbursed more than Rs. 5000 crore under its micro finance programme which has estimated to have benefited more than 2 crore poor clients, mostly women.

The Bank’s micro finance programme is perceived as a “Credit Plus” programme and hence, does not restrict itself to funding alone. The micro finance services include not only meeting the financial needs of MFIs with structured, value-added products, such as, Term Loans, Transformation Loans, Equity Support, etc. but also provide capacity building grants as well. The brief hightlights of some of the schemes are given below:

Transformation Loan - ♦ The Transformation Loan (TL) product is envisaged as a quasi-equity type support to help the MFIs not only in transforming their existing structure into corporate entities by enhancing their equity base thus helping MFIs in leveraging loan


funds and expanding their micro credit operations on a sustainable basis.

Term Loan to Marketing ♦Service Providers -A scheme to augment the resources of marketing agencies engaged in marketing of the products manufactured by micro enterprises / poor.

Privileged Partner Scheme- ♦To provide timely and adequate financial support to the MFIs and to enable them to expand and increase the outreach, a tailor made scheme by the name of

Privileged Partner Scheme (PPS) was introduced by SFMC for providing flexible financial facility for existing good customers of SIDBI with micro credit operations and proven repayment track record of more than five years with SIDBI. Two schemes earlier introduced by the Bank, viz. Liquidity Management Support (LMS) and Working Capital Term Loan (WCTL) did not pick-up due to certain limitations which have been addressed in the PPS.

With introduction of PPS, LMS and WCTL Schemes have been discontinued. Under PPS, loan funds will be provided to well performing partners with longstanding relationship with SIDBI, with a simplified sanction process to meet their immediate / liquidity management requirements in a flexible manner, besides increasing the volume of business under SFMC. As desired by Board, the tenure of the loan under PPS has been limited to one year.

Box 7.5 : Major Milestones of SFMC

SIDBI Foundation for Micro Credit launched in January 1999 �

SIDBI received the coveted ‘Asian Banking Awards 1999’ by ADFIAP for its Micro Credit Scheme �in the Development Finance products / programme category – The Awards are instituted by Asian Banking Association and the Association of Development Financing Institutions in Asia & Pacific.

Signing of MoU with the Department for International Development (DFID), UK – July 2000 �

Signing of Loan Agreement with International Fund for Agricultural Development (IFAD), Rome – �February 2002

Transformation Loan and Liquidity Management Support Products introduced – FY 2003 �

Micro Enterprise Loan product introduced for dispensing small loans upto Rs. 5 lakh through �intermediaries – FY 2004

Collaboration with the Govt. of India for creating a Portfolio Risk Fund of Rs 150 crore during the �10th Plan period – to partly meet security deposit requirement of MFIs in underserved States – FY 2004

Concept of Score Chart for pricing of loans introduced – Interest rate on loans to MFIs are priced �based on internal scoring done on various parameters – FY 2004

Corpus Support for Transformation – an innovative product was introduced to target the lowest �segment of NGOs / MFIs to facilitate their scale-up and eventual transformation – FY 2006

Creation of a Risk Fund to cover loans to MFIs in underserved States – FY 2006 �

Setting up of SIDBI Growth Fund for MFIs (SGF-MFIs) with a fund size of Rs. 50 crore for providing �equity and quasi-equity support to MFIs.- FY 2007

Opening of 7 dedicated micro finance branches at Lucknow, Hyderabad, Chennai, Bangalore, �Kolkata, Bhubaneswar and Guwahati - FY 2009


Partnership Assistance - ♦ Under this scheme, SIDBI and the MFI enter into a mutually beneficial partnership wherein the MFI organizes and facilitates linkage with SHGs/ solidarity groups/ individual borrowers, who can borrow directly from SIDBI under the overall supervision of MFI concerned.

Equity Support to MFIs- ♦In order to address the increased need of equity by the leading NBFC-MFIs / transforming MFIs, the Bank has set up a SIDBI Growth Fund for Micro Finance Institutions (SGF-MFI) with a corpus of Rs. 500 crore to proactively look at the opportunity to invest either through pure equity, preference shares, warrants, sub-ordinated debt, convertible debt, etc. in MFIs and PE funds having progressive management and the potential to significantly up-scale the operations with SIDBI’s equity support. As a result of higher leverage level, MFIs will be able borrow more from the market.

7.4 Overall Operations The details of the Bank’s operational and Financial performance are given in the Table 7.1 and Figure 7.2 and 7.3.

Table 7.1 : Operations of SIDBI(Amount in Rs. Crore)

FY Sanc-tion

Dis-burse-ment

Port-folio Size

In-come

Profit Net Worth

Stan-dard Asset

as % of Net O/s portfo-

lio

Capi-tal to Risk Asset Ratio (%)

2000-01 10821 6441 14571 1619 477 3771 98.8 28.1

2001-02 9026 5919 13160 1560 282 3951 97 45

2002-03 10904 6789 12728 1405 207 3934 96.2 44

2003-04 8246 4414 10064 1151 243 4071 97.6 54.6

2004-05 9091 6188 10862 948 225 4119 96.1 50.7

2005-06 11975 9100 13891 964 270 4268 98.1 43.2

2006-07 11102 10225 16031 1187 298 4436 99.86 37.5

2007-08 16164 15087 20226 1638 198 4713 99.75 41.7

2008-09 29188 28298 30886 2082 299 5342 99.92 34.2


7.5 Promotional And Developmental (P&D) ActivitiesThe Promotional and Developmental ( P & D) support to the MSME sector has always been an integral part of the Bank’s activities. The P&D activities of SIDBI are designed to achieve the twin objectives of national importance, viz.

(a) Promotional - enterprise promotion resulting in self-employment and creation of additional employment through its select programmes such as, Rural Industries Programme (RIP), Entrepreneurship Development Programme (EDP) and Vocational Training Programme etc.

(b) Developmental - enterprise strengthening to enable MSMEs to face the emerging challenges of globalisation and growing competition through select interventions such as Skill-cum-Technology Upgradation Programme (STUP), Small Industries Management Programme (SIMAP), Cluster Development Programme (CDP) and Marketing Assistance.

(a) Promotional

Rural industries Programme [RIP]

Rural Industries Programme (RIP) is a comprehensive enterprise support service programme for the benefit

of rural entrepreneurs. It aims at promoting viable rural enterprises leading to employment generation in rural areas and use of local resources. The programme addresses problems of rural unemployment, urban migration, under-utilisation of know-how and latent rural resources and marketing of rural products. Over the years, the RIP has been implemented in more than 120 districts in 24 States. More than 32,600 enterprises have been promoted. These enterprises have generated employment opportunities for over 1,00,000 persons.

E n t r e p r e n e u r s h i p Development Programme (EDP)

Entrepreneurship Development Programme (EDP) has been recognised as an effective enterprise development instrument and has assumed much significance in India considering huge unemployment, inequitable distribution of wealth and unbalanced regional development. Recognising this, Entrepreneurship Development Programmes (EDPs) are being supported by the Bank, under its P&D activities, for promotion of enterprises with a thrust on the less privileged sections of the society like women, SCs & STs and ex-servicemen etc. EDPs are

conducted through specialised agencies and accredited Non-Government Organisations (NGOs). The Bank relies on the delivery capacity of specialised agencies to conduct a bulk of the programmes. This is in keeping with the Bank’s approach to gradually institutionalise EDPs and create sustained capacities and capabilities for conduct of entrepreneurship programmes on a large scale. EDPs are conducted not only with the objective of training a target group in entrepreneurial traits, but it is seen that on completion of the programme, the trainees are motivated and guided in setting up their own enterprises. The total number of EDPs supported by the Bank since inception for various target groups was 2,661 covering about 72,000 participants, which has generated employment to around 82,000 persons.

(b) Developmental

Small Industries Management Programme (SIMAP)

The objective of SIMAP is to develop a cadre of industrial managers specifically train-ed to assist the MSME entrepreneurs in their multiple responsibilities. It also seeks to open up new avenues of productive employment for young graduates who are otherwise not professionally qualified. Thus, the programme


serves the dual purpose of offering a second line of trained managers at affordable salary level to the small entrepreneurs and professional qualification to those seeking employment opportunities. Specialised SIMAPs covering areas, such as, marketing, finance, production, tourism related service, etc. increase the placement chances for the participants and thereby their marketability are also conducted. SIDBI supported SIMAP till January, 2010 have benefited around 7,000 persons.

S k i l l - C u m - T e c h n o l o g y Upgradation Programme (STUP)

The objective of STUP is to improve the performance of existing MSME units by developing/strengthening the entrepreneurial and managerial skills and capabilities of the entrepreneurs and senior executives of small enterprises. The underlying intention is to enable the participant e n t r e p r e n e u r s / s e n i o r executives to assess his/her existing performance level and determine ways to enhance it. It is also aimed at creating awareness amongst MSME units on process, improvements, technological developments, etc. and to induce the units to upgrade their technological levels. The total number of STUPs supported by the Bank

since inception reached 1460 benefiting more than 35,000 participants. The Bank also provides the Corpus support to esteemed/reputed IITs and Management Institutions for conducting STUP/SIMAP on an ongoing and regular basis.

Cluster Development

The paradigm shift in the cluster development programme during last few years is basically from technology centric to a more comprehensive cluster development approach which include management practices, establishment of marketing linkages, product /design development, skill upgradation, etc.

Marketing Initiatives

Under the marketing activities, the Bank supports participation of MSME units in select trade fairs / exhibitions at national and international levels; organising trade fair / exhibitions / buyer-seller meets, setting up of retail outlets, development of website / brochure / catalogue etc. and market promotion and exploration trips.

MSME Financing & Development Project

SIDBI is implementing a multiactivity, multi-agency MSME Financing and Development Project (MSMEFDP) aimed at making

MSME lending an attractive and viable financing option as also to facilitate increased turnover and employment in the MSME sector. The objective of the Project is to attend to demand and supply side issues of MSME sector through financial and non- financial services. Principal partners/ donors for the project are World Bank; Department for International Development, UK; KfW and GTZ, Germany. While Department of Financial Services, Ministry of Finance, Government of India is the Nodal Agency, SIDBI is the Implementing Agency of the Project.

Credit Facility ♦

Long term financing is a critical input for supporting capital formation and technological upgradation. Looking beyond traditional approaches, the project helps facilitate MSME growth for survival and sustainability by providing Credit Facility. The component has utilized Lines of Credit (LoC) from World Bank (USD120 million) and KfW, Germany (Euro 43.5 million) well ahead of schedule and benefited 1294 MSMEs. Encouraged by the success, the World Bank and SIDBI have contracted additional LoC financing of USD 400 million in June 2009. The


utilization of this additional LoC has been been making good progress and the World Bank has rated this progress as “Highly Satisfactory”

Risk Sharing Facility ♦

This component aims at accelerating commercial banks’ financing to MSMEs through the establishment of Risk Sharing Facility (RSF). The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has been instrumental in implementing the pilot Project. Risk is shared on a pari passu basis between Member Lending Institutions (MLI) and CGTMSE. Under this facility, CGTMSE has launched a pilot product for providing guarantee cover in the range of Rs 5-10 million as against the then existing loan limit under guarantee at Rs 5 million. Looking at the success of this initiative, CGTMSE has institutionalized this pilot project as a regular feature of Credit Guarantee Scheme.

Technical Assistance: ♦ An ambit of initiatives is covered under the Technical Assistance component of the project aimed at enabling policy environment and institutional structure that deepens access to finance and business development services. Cornerstone of the MSMEFDP, technical

assistance helps address policy, regulatory and institutional constraints to the efficiency of the MSME credit markets.

Business Development Services (BDS)

Being implemented in 21 clusters all over the country initiatives include marketing support, IT trainings, skill development, regulatory compliance awareness programmes, testing facilities, business information and counseling centres for micro enterprises, promotion of energy efficiency measures, BDS Clinic, special BDS programme in underserved/ rural regions, etc. Around 350 activities have been conducted in these MSME clusters with gross participation of about 10,000 participants. The project has pioneered a new approach of BDS for Cluster Development in India supported by a number of successful initiatives. These initiative include facilitating training to more than 1000 BPL youths to become employable in MSME sector through PPP mode, promoting energy efficiency in MSME sector through information tools and cooperation with BEE,

upgrading cluster level technology by facilitating development and adoption of simple and cost effective solutions, linkages with organised retail chains, etc. to mention a few. The initiatives of the project are well documented and offer a big scope for replication.

Improving Credit Information and Rating Mechanism

MSMEFDP has supported, �through capcity building assistance, for the establishment and operations of India’s first credit bureau- the Credit Information Bureau of India Limited (CIBIL) and India’s first dedicated SME rating agency- the SME Rating Agency of India Ltd (SMERA). Both institutions are helping in emergence of strengthened credit dispensation environment. Project is supporting the integration of the commercial bureau (entity credit history) and the consumer bureau (individual credit history) of CIBIL to give a more comprehensive data on credit history. CIBIL has a database comprising over 123 million consumer accounts and over 3.85 million commercial accounts ( as against 0.9 million in January 2006), of which an estimated 81 percent pertain


to MSMEs. Its membership has grown from 33 ( January 2006) to 83 (December 2009) which indicates PFI’s increased sensitisation. The total number of credit information reports generated has gone up from 2755 in 2006 (start of support) to 1,36,506 till January 2010 which indicates its increasing acceptability as a credit enhancement tool.

With project support, �SMERA has quickly achieved sustainability. Since its establishment in October 2005, SMERA has rated over 5694 MSMEs ( till January 2010). SMERA is gradually diversifying and latest rating variant being introduced is ”Green Rating” model. It has organized 528 awareness and capacity building events. As per feedback of beneficiaries, about 22% customers have approached SMERA for re-rating, with the percentage growing further each year. MSMEs have started deriving benefits in terms of interest rate reductions (17% benefitted), increase in credibility (26%).

Capacity Building of banks/FIs

The project has enabled the capacity building of 500 officials of banks, SFCs and other FIs through a mix of domestic and international exposure

training. The project has supported capacity building for financial institutions, including Andhra Pradesh State Finance Corporation, to enhance their appraisal techniques and lending practices for MSME lending. In addition, the TA component supports innovative concepts such as credit scoring & “down-scaling” . Under KfW TA, capacity building of 36 officials of participating institution through international exposure on diverse topics such as Credit & Risk Analysis, Legal Issues, Product Management & Development, Retail Banking Products etc. has been undertaken. Under GtZ TA training has been imparted to 4000 BDS/MSMEs/bankers (where bankers were provided training on sectoral specific expertise in pharma and auto component sector, cash flow based, collateral free lending, exposure through international conference on credit guarantee, customer relationship management, etc.)

Innovation & Incubation Centre

SIDBI launched National Programme on Innovation & Incubation for MSMEs in order to infuse technological advancement in the MSME sector. Accordingly, the Bank extended grant support to IIT, Kanpur for setting up SIDBI Innovation & Incubation Centre.

Seven companies have already graduated from the Centre and six of them are working in the areas of anti-piracy solutions, Inertial Measurement unit, Inertial Navigation System, wi-fi enabled industrial sensors & controllers and developing wireless technologies for Universal Wide Bank, social networking, unmanned arial vehicle, software, e-commerce, supply chain mobile/PDA computing management. Currently, there are 8 incubatee companies working at the Centre in the diverse areas of state-of-the-art technologies & software and products that are in demand like weather insurance and the financial risk management for weather based risks, library automation software, speech recognition technologies, social networking on mobile phones, unmanned arial vehicle navigational systems, automated energy metering solutions, robotic systems and machine automation, etc.

National Innovation Foundation, Ahmedabad

A grant support of Rs.500 lakh was provided to National Innovation Foundation (NIF), Ahmedabad for setting up Micro Venture Innovation Fund (MVIF). Since inception, 118 projects of technology innovation have been supported under MVIF.


Support to IITs

SIDBI has also provided a grant support to IITs in Mumbai, Delhi and Kharagpur for facilitating technological innovations.

7.6 SIDBI’s Initiative for North Eastern RegionThe Bank accords priority to the development of North Eastern Region (NER) through its activities under micro finance, rural industrialisation, handicraft cluster development, entrepreneurship development, marketing support, etc.

Brief highlights of SIDBI’s role in NER is given below:

Cumulative credit of about ♦Rs. 383 crore has been provided by SIDBI to MSME units in NER, benefiting over 14,700 units, till February 15, 2010.

Under the Micro Credit ♦Scheme, till February 15, 2010, SIDBI has sanctioned term loan of over Rs. 93 crore to various NGOs / MFIs benefiting more than 3,60,000 people, mostly women in the Region.

SIDBI has nurtured and ♦developed 45 partners [including 32 Micro Enterprise Loan (MEL) partners] in the Region through various capacity building measures.

Under P&D activities in the ♦NER, SIDBI has supported

RIP in 22 districts, helping in promoting more than 1,788 units. Similarly, more than 453 EDPs have been conducted in the region benefiting around 14,500 participants. Over 105 STUPs have also been supported benefiting over 3,950 participants in the NER. SIDBI has also intervened in 30 clusters benefiting over 2,600 beneficiaries in the region covering handloom weaving, cane and bamboo mat weaving, carpet weaving, agarbatti making, muga silk, blacksmith, shoe making, terracotta pottery, brass and bell metal products, etc. The Bank has supported various vocational training programmes and marketing / seminars / exhibitions covering over 3,500 participants from MSME sector in the NER.

Published a compendium of ♦100 project profiles for tiny / micro enterprises which could be used to set up enterprises in NER, keeping in view the various factors specific to the region.

The Committee on Financial ♦Sector Plan (CFSP) for NER headed by Smt. Usha Thorat, Dy. Governor, RBI has recommended that SIDBI could open counselling wings at all State capitals in NER. A “Counselling

Centre for Micro and Small Enterprises”, a joint initiative of SIDBI and United Bank of India, at Guwahati has been made operational from March 2009. The Centre is providing counselling to first generation micro and small enterprises (MSEs) and so far, more than 575 entrepreneurs have been provided counselling services.

Small Loans Scheme for the ♦North Eastern Region (SLS-NER): The SLS-NER was launched for providing need-based assistance up to Rs. 0.02 crore to the MSEs in the NER. It has been deisgned for promoting small borrowers / entrepreneurs in the NER through speedy credit delivery at concessional interest rate. Further, concessionality in the form of refund of Guarantee fee / Annual Service Fees charged by CGTMSE, after full repayment of the loan, have also been built in the Scheme.

As a specific measure ♦towards mitigating the burden of CGTMSE charges on MSE borrowers in the NER, SIDBI has agreed to share the CGTMSE one-time guarantee fee and annual service charge with partner banks, wherever CGTMSE charge is shared by the bank


with the borrowers, in the ratio of assistance under the MSE Fund for NER.

Coordination Activities

With the objective of all-round development of MSME sector, SIDBI coordinates with a number of accredited technical and management institutions to synergise their services to MSME sector. Under its P&D initiatives, SIDBI has on-going collaborations with NGOs, Consultancy Organisations, Industry Associations and other national level organisations. The Bank also co-ordinates with various Ministries of Government of India, Government Committees, Planning Commission, Reserve Bank of India, Industry Associations, etc. At the international level, SIDBI has

entered into partnership with World Bank Group, Asian Development Bank, Japan International Cooperation Agency (JICA), Japan; Department for International Development (DFID), U.K; International Fund for Agriculture Development (IFAD), Rome; Kreditanstalt fur Wiederaufbau (KfW), Germany, GTZ, Germany and AFD, France for its financial and promotional support to the sector.

7.8 Role of Policy AdvocacySIDBI plays a significant role in attending to key policy issues that are critical in establishing a facilitating framework that promotes Indian MSME sector. SIDBI endeavours to attend to macro level policy frameworks through synergy and coordination with various Government of India

departments and support institutions. SIDBI supports wide range of initiatives, through various forms of policy advocacy tools aimed at reaching out to and conveying message to policy makers to enable them to make an informed policy decision. Initiatives also involve creation and promotion of information booklets to disseminate information on new and existing ideas of relevance. The major policy advocacy initiatives of SIDBI are encapsulated in Box 7.6.

7.9 SIDBI and the Millennium Development Goals : SIDBI’s thrust on financing, development and promotion for the holistic development of the MSMEs has an important bearing towards the achievements of eight MDGs, viz. Eradicate Extreme Poverty and Hunger; Achieve Universal

Box 7.6 : Some Major Initiatives under Policy AdvocacyInitiatives Description

Committees Senior Management of SIDBI regularly represent several national-level committees associated with issues concerning MSME sector. Some important ones are:

National Board of MSME �

Sub-Committee in Prime Minister’s Task Force �

Restructuring of MSME advances, Liquidity Committee, SME Exchange, etc �

Dr. Chakrabarty Working Group on Rehabilitation of Sick SMEs. �

Preparation of ‘Credit and Fiscal issues for the MSE Sector for the 11th Plan’, for Planning �Commission

Associated in preparing a report on ‘Private Sector Resource Estimate of the SME Sector �during the 11th Plan’, for Reserve Bank / Planning Commission in assn. with Ministry of MSME, GoI

RBI - Lead Bank Scheme for MSMEs, Working Group on CGTMSE �

SEBI Primary Advisory Committee , SEBI Committee on Venture Capital �


Box 7.6 : Some Major Initiatives under Policy Advocacy (Contd...)Initiatives Description

Knowledge Series

InstitutionalSupport

Apart from bridging information gap through its websites (www.sidbi.in and www.MSMEFDP.net), SIDBI regularly conducts policy aligned studies for the benefit of MSMEs. A few important ones include :

Project profiles for NER �

MSME Report, 2010 �

MSME Database- single source information data �

Corporatisation- Walk-in-kit - facilitating conversion to corporate entities, �

Risk Capital- enabling framework for Risk Capital �

Series booklets on Energy Efficiency (Fruit and Vegetable Processing, Ceramics, Foundry, �Engineering)

OPTIMiSM � - MSME Bi-monthly digest

Model CSR policy for MSME support institutions �

Factoring for MSMEs �

Since its inception, SIDBI has been supporting various thematic workshops/ conferences and seminars. SIDBI also participates in the deliberations providing critical inputs. A few of the recent initiatives include :

Supporting India MSME Summit organized by Economic Times in which lead policy �makers participated to highlight the issues faced by the MSME sector against the backdrop of financial crisis/global economic slowdown and suggest remedial measures. Based on the outcome/deliberation of the campaign and the summit, a dossier (Policy Document) has been released with support from the project. The dossier has been widely circulated among various stakeholders.

Developing a Modern Insolvency and Bankruptcy Regime for MSMEs. Outcome of this �has come up in form of a policy paper “Insolvency and Bankruptcy Regime”.

Risk Capital for MSMEs - Based on the deliberation of the workshop a policy paper on �“Risk Capital for MSMEs in India” has been released and widely circulated.

In line with international best practices, MSMEFDP has set up a Challenge Fund for �Advocacy in MSME Sector (ACF) which aims to promote ownership through involvement of beneficiaries / stakeholders. Under ACF, support is extended towards action research based initiatives that have been tested or can be tested/scaled up (backed by lesson learned / research findings).

Support has been extended for wider dissemination of clean, green, energy efficient �technologies and CDM among MSMEs.


primary education, Promote Gender Equality and Empower Women; Reduce child mortality;

improve maternal health; Combat HIV/AIDS, malaria and other diseases; Ensure

Environmental Sustainability and Develop a Global Partnership for Development (Box 7.7).


7.10 Nodal Agency for Government Schemes

SIDBI extends Nodal Agency services to the Govt of India for schemes sponsored by various Ministries for encouraging implementation of modernisation and technology upgradation by manufacturing units in the MSME sector.

Credit Linked Capital Subsidy Scheme (CLCSS)

Credit Linked Capital Subsidy Scheme (CLCSS) was launched by the Ministry of Micro, Small and Medium Enterprises, Government of India in October 2000, with the objective of facilitating technology upgradation of MSE in industry category. As on December 31,2009 , capital subsidy claims aggregating Rs. 264 crore for 6,067 units (cumulative) have been settled.

Technology Upgradation Fund Scheme for Textile Industry (TUFS)

Technology Upgradation Fund Scheme for Textile Industry (TUFS) was introduced by the Ministry of Textiles, Government of India in April 1999 with the objective of revival, rejuvenate and modernize the vast textile, jute and cotton ginning and pressing industries by encouraging them to undertake

and adopt modern technological processes and / or undertake capacity expansion wherever required in order to enable them to change from quantitatively restricted textiles trade to market driven global merchandise and create economies of scale and increase the flow of investment to this sector. As on December 31, 2009 capital subsidy and interest incentive claims for an amount of Rs. 535 crore to 7,272 units were settled.

Integrated Development of Leather Sector Scheme (IDLSS)

Integrated Development of Leather Sector Scheme (IDLSS) was launched by Department of Industrial Policy & Promotion (DIPP) (Leather Section), Ministry of Commerce & Industry, Government of India in November 2005 with the objective of strengthening leather industry and also to achieve increased share in global market by improving competitiveness and facilitating technology upgradation leading to productivity gains, right-sizing of capacity, cost cutting, design and development of existing tanneries, footwear, footwear components and leather products units. Under the IDLSS, cumulative claims as on December 31, 2009, 804 units aggregating Rs. 130 crore were settled.

Scheme of Technology Upgradation/Setting up /Modernisation/Expansion of Food Processing Industries

The Scheme was launched by the Ministry of Food Processing Industries (MFPI), Government of India with the objective of upgradation of processing capabilities of food processing industries in India. The scheme covers technology upgradation / setting up / modernisation / expansion of food processing industries in fruits and vegetables, milk products, meat, poultry, fishery, cereal, other consumer food products, oilseeds products, rise milling, flour milling, pulse processing and such other agri-horticultural sectors including food flavours and colours, aleoresins, spices, coconut, mushrooms and hops etc. leading to value addition and shelf life enhancement. Under the scheme, cumulative claims as on December 31, 2009, 11 units aggregating Rs. 11 crore were settled.

7.11 Information Dissemi-nation

MSMEs require timely information on various topics for smooth and efficient functioning related to policies, technology, projects etc. SIDBI as a part of its commitment to provide timely and effective information


has been brining out a number of publications to fulfil the informational gap. Some of the important publications are listed in Box. 7.8.

7.12 Initiatives relating to State Financial Corporations (SFCs)

During FY 2008, IDBI’s holdings in the shares of SFCs and its outstanding in respect of Loan in Lieu of Capital were transferred to SIDBI as on January 31, 2008, in compliance with the SFCs (Amendment) Act, 2000. The Bank continued to accord greater thrust on revival and strengthening of the operational and financial parameters of State Financial Corporations (SFCs). The Bank has entered into tripartite MoU with 11 SFCs and their respective State Governments since FY 2004. The impact of the MoU has been positive so far. Some other initiatives towards bring about improvements in the working and functioning of the SFCs are Joint Financing / Partnership Financing with SFCs Capacity Building, free of cost circulation of Credit Appraisal and Rating Tool (CART) model for taking up appraisal and risk management, training to officials of SFCs, etc.

Box 7.8: SIDBI Publications

Annual �

• Annual Report

• SIDBI Profile

• CSR Report

MSME Database �

Micro Finance �

• Expanding the frontiers of Micro Finance in India

• Assessing Development Impact of Micro Finance Programmes

• Findings and Policy Implications from a National Study of Indian Micro Finance Sector

• The maturing of Indian Microfinance Findings and policy implications from a national study

• Sustainability of Micro-Credit Models in India

• A decade of empowerment of women

• A study of the Operating Expenses and Practices of Indian Microfinance Institutions

MSME Studies / Reports �

• Cluster Diagnostic Studies – 18 Nos.

• Energy Efficiency in Fruit and Vegetable Processing Sector

• Energy Efficiency in Ceramics Sector

• Energy Efficiency in Foundry Sector

• Energy Efficiency in Engineering Sector

• MSME Summit Dossier

• Risk Capital for MSMEs

• Corportisation for MSMEs

• Project Profiles for North Eastern Region


Expanding The Structure

7.13 Awards & Recognition

Association of Development Financing Institutions In Asia and the Pacific (ADFIAP) – with member list of 100 institutions from 40 countries – have adjudged SIDBI a number of international awards as given in Box 7.9 :

Box 7.9: International Awards

SIDBI received the coveted ♦

‘Asian Banking Awards

1999’ by ADFIAP for its

Micro Credit Scheme in

the Development Finance

products / programme

category - 1999

SIDBI’s Rural Industries ♦

Programme bagged “ADFIAP

Development Award 2003”

SIDBI was adjudged winner ♦

for its project entry on “SME

Rating” under ADFIAP’s

Institutional Outstanding

Development Project

Category on SMEs - 2007

Best Website - 2009 ♦

SIDBI’s initiative towards ♦

setting up of India SME Asset

Reconstruction Company

Limited (ISARC) - 2009

Shri R.M. Malla, CMD, ♦SIDBI for the ‘Outstanding CEO of the year 2009’

7.14 New Initiatives

NTREES – � an e-platform of Bills Discounting : SIDBI and National Stock Exchange (NSE) launched an e-discounting platform of bills of exchange called NTREES (an acronym of NSE Trade Receivables Engine for E-discounting in

association with SIDBI) on December 22, 2009, aimed at facilitating discounting of MSME bills on their supplies to large purchaser companies on e-platform. NTREES is a part of SIDBI’s financing and developmental support to MSMEs and is a unique concept which will be prove to be a win-win situation for MSMEs, purchaser companies, banks and FIs. At present, NTREES platform is being used for SIDBI clients.

However, it is expected to grow as a bigger e-platform for discounting of invoices / bills of exchange by various participants, such as, banks, MSME suppliers and corporate. The funds would be remitted through RTGS/NEFT to speed up the transactions in a more

secured mode besides reducing the transaction cost substantially.

Rickshaw Sangh �Programme : SIDBI and American India Foundation (AIF) have joined hands in an initiative for providing livelihood support to the low-income groups called the “Rickshaw Sangh Programme”. Under this programme the Bank has sanctioned financial

NTREES : A win-win situation for allSuppliers

(Ancillaries/MSMEs)Financiers Purchasers

Benefit of creditworthiness of large purchaser

Assumes lower credit risk – on high quality purchaser

Facilitates vendor development

Efficient working capital financing (no col-laterals)

No Papers and Electronic Instrument

Better terms of contract (Credit period) with sup-plier

Get the best possible dis-count rate for factoring

Operational excellence and reduced marketing expenses

Payables manage-ment through the platform

Easy and hassle-free way of factoring the receiv-ables

Access to a wider market for factoring


assistance of Rs. 50 lakh to Bhartiya Micro Credit (BMC) under its Micro Credit Scheme for microfinance as also for financing livelihood programmes BMC, under the programme, has provided 500 rickshaws to poor people residing in and around Lucknow with the credit support from SIDBI and technical support from AIF. Besides providing new rickshaws to the clients, the programme facilitate arranging for the license, Municipal permit, life insurance of client & spouse, accident insurance for the rickshaw clients, bank account to deposit savings, etc.

Poorest States Inclusive �Growth (PSIG) Programme: The Department for International Development (DFID), UK has awarded the contract for “Design and Implementation of Poorest States Inclusive Growth (PSIG) programme” to the consortium led by SIDBI and comprising NABARD, ITC e-choupal, ACCESS Development Services and IFMR Foundation. The PSIG programme aims to enhance the income and employment opportunities of poor

women and men in the four poorest States of India, viz. Uttar Pradesh, Madhya Pradesh, Bihar and Orissa, by enabling them to participate and benefit from wider economic growth in India. PSIG has two separate, interlinked components: (i) access to broad range of financial services; (ii) access to business services and product markets. The aim is to protect poor people from economic shocks and market volatility, as well as offer opportunities to help them graduate from near-subsistence to larger-scale, market-oriented production. This is sought to be achieved through the development of commercially sustainable services, products and institutions, largely through leveraging of investments of private capital, and by ensuring an encouraging policy environment.

The programme is divided into two phases comprising the Design Phase of 20 weeks during which the consortium is required to design the programme based on the Terms of Reference (TOR) given by DFID; and the Implementation Phase of 6 years (extendable by another 12 months).

The project is of the size of GBP 33 mn. of which the Technical Assistance component is GBP 12 mn., while the balance GBP 21 mn. is the Programme Delivery Fund. The Design Phase allocation is GBP 327,860.

MSME Mentor: � SIDBI alongwith NSE and Prime Database have prepared an e-platform called www.msmementor.in which is a free online platform, for MSME service providers / consultants to submit their profiles in a simple format and for MSMEs to identify and reach out to required experts they need, through a refined search mechanism.

7.15 Institutions Building

Subsidiaries & Associate Organisations

While finance is the basic need of the MSMEs, they also require different non-credit facilities to gain the extra mile in their endeavour to attain international competitiveness. Such requirements are equity capital, credit rating, technology transfer and upgradation, etc. SIDBI has been constantly working on building various institutional mechanisms to cater to the emerging needs of


the MSME sector and has set-up various subsidiaries / associates, the details of which are given below :

SIDBI Venture Capital Limited“To catalyse entrepreneurship by providing capital and other strategic inputs for building businesses around growth opportunities and maximize returns on investment”.

SIDBI Venture Capital Limited (SVCL) is an asset management company, established in 1999 for managing venture capital fund. At present, SVCL manages two SEBI registered venture capital funds, viz. National Venture Fund

for Software and Information Technology Industry (NFSIT) and SME Growth Fund (SGF). The Growth Fund has the main

focus on growing sectors of the economy, such as, life sciences, retailing, light engineering, food processing, information technology, health care, logistics and distribution, etc.

NFSIT

NFSIT was set up in August 1999, as a close-ended fund of 10 years, with a corpus of Rs.100 crore contributed by SIDBI, Ministry of Communications and Information Technology (MCIT), Government of India and IDBI Limited. Original fund

life of 10 years has been extended by two years, i.e. till August 2011. NFSIT, with focus on software and Information Technology industries, has created a portfolio of 31 companies. NFSIT has completed its investment phase and is fully committed.

Operations of NFSIT

NFSIT has completed nine years of operations. The cumulative sanctions (net of cancellation) aggregated Rs.84.40 crore (31 companies). Cumulative disbursements since inception of the fund aggregate Rs.84.40 crore (31 companies). The NFSIT portfolio covers a wide range of IT and ITES businesses. After the investment phase, NFSIT is now nurturing the investments made and exiting on getting suitable opportunities. The Fund has, so far, made partial / full exits from 21 companies, including 2 full exits during FY 2008-09. These exits, on the whole, were profitable for the Fund.

SME Growth Fund

SME Growth Fund (SGF) is an 8 year close-ended Venture Capital Fund, set up in 2004, with a corpus of Rs.500 crore, contributed by SIDBI and 8 scheduled commercial banks. It is a general fund with focus on the growth stage MSMEs in the areas of auto components, textiles, life sciences, clean technologies, retailing, light engineering, information technology, services, etc.


Operation of SGF

The total commitments under the Fund (net of cancellations) as on March 31, 2009, is Rs.446.34 crore in 24 investee companies including commitment of Rs.59.26 crore made in two investee companies during FY 2008-2009. Cumulative investment stood at Rs.353.02 crore (in 21 investee companies) including investment of Rs.118.65 crore made in five investee companies during the year.

The Fund also approved exit from one of the investee companies with 25% IRR, wherein Fund had invested Rs.8.01 crore. Major part of the divestment proceeds (Rs.6.73 crore) was received in FY 2008-2009 and balance amount was received in April 2009. The Fund also distributed Rs.6.50 crore to all the contributors on pro-rata basis.

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

“To facilitate collateral-free loans to Micro and Small Enterprises from banks and financial institutions”

Credit to micro and small enterprises sector is generally perceived as high risk lending, more so in absence of any collateral. In order to encourage

banks to lend more to this sector, Government of India (GoI) and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in July, 2000 to provide credit guarantee support to collateral free / third-party guarantee free loans up to Rs. 100 lakh extended by banks and lending institutions for micro and small enterprise. This is the only credit guarantee institution in the country exclusively set up for the benefit of small / tiny enterprises in the country. The corpus of CGTMSE is contributed by Government of India and SIDBI in the ratio of 4:1. The scheme was formally launched on August 30, 2000. Under the scheme, credit facilities, which are extended without third party guarantee

on collateral security by eligible lending banks/Financial Institutions, are covered. Numerous initiatives have been taken by the Government to enhance the coverage of credit guarantee to incentivise collateral-free lending to MSE sector. The initial corpus of CGTSME of Rs. 125 crore has gradually increased and as on December 31, 2009, it was Rs. 1906.56 crore. It is proposed to be raised it to Rs. 2500 crore in due course. As on March 31, 2010, guarantee approvals were extended to 3 lakh proposals by the CGTMSE.

Guarantee Cover

The category-wise extent of guarantee cover is as detailed below:

Box 7.10 : Schemes of CGTMSE

Category

Maximum extent of Guarantee where credit facility isUpto Rs.5 lakh Above Rs.5 lakh

upto Rs.50 lakhAbove Rs.50 lakh upto Rs.100 lakh

Micro Enterprises 85% of the amount in default subject to a maximum of Rs.4.25 lakh

75% of the amount in default subject to a maximum ofRs.37.50 lakh

Rs.37.50 lakh plus 50% of amount in default above Rs.50 lakh subject to overall ceiling of Rs.62.50 lakh

W o m e n entrepreneurs/ Units located in North East Region (incl. Sikkim) (other than credit facility upto Rs.5 lakh to micro enterprises)

80% of the amount in default subject to a maximum of Rs.40 lakh

Rs.40 lakh plus 50% of amount in default above Rs.50 lakh subject to overall ceiling of Rs.65 lakh

All other category of borrowers

75% of the amount in default subject to a maximum of Rs.37.50 lakh

Rs.37.50 lakh plus 50% of amount in default above Rs.50 lakh subject to overall ceiling of Rs.62.50 lakh


Box 7.11 : Guarantee Fee Structure

Credit Facility

Upfront Guarantee Fee (%)North East

Region (incl. Sikkim)

Others Annual Service Fee (%)

Upto Rs.5 lakh 0.75 1.00 0.50Above Rs.5 lakh to Rs.100 lakh

0.75 1.50 0.75

Fee for Guarantee

The fee payable to the Trust under the scheme is one-time guarantee fee [which ranges from 0.75% to 1.5% of the credit facilities sanctioned] and annual service fee [which ranges from 0.5% to 0.75% per annum on the credit facilities sanctioned as on March 31, each year] as given in Box 7.11.

Operations of Credit Guarantee Scheme

CGTMSE crossed three significant milestones during FY 2008-09, i.e. 1,00,000th Guarantee Approval on June 16, 2008; over 50,000 Guarantee Approvals in a single financial year and exceeding 1,50,000 guarantee approvals cumulatively as on March 31, 2009. Another milestone in term of 3,00,000th credit guarantee proposal was achieved on March 31, 2010. The year-wise operations of the scheme are given in the Table 7.2.

It is important to note that the CGS has facilitated greater flow of credit to micro enterprises as almost 99% of CGS coverage was for loans upto Rs. 25 lakh. Similarly, amount-wise, the coverage was 83% (Table 7.3).

Overall Impact of CGS

The CGS operations have had a positive impact on the economy in terms of turnover, exports and employment of guaranteed MSE units as given in Table 7.4.

Table 7.2 : CGTMSE Operations Year Cumulative

Number of proposals approved

Cumulative Amount of credit

Guarantees

Average Loan Size

(Rs. Crore) (Rs. Lakh)2000-01 951 6.06 0.642001-02 2296 29.52 1.282002-03 4955 58.67 1.182003-04 6603 117.6 1.782004-05 9516 326.77 3.432005-06 12727 461.9 3.632006-07 27457 705.54 2.92007-08 97282 2701 2.792008-09 15004 4824.34 3.21Upto Dec, 09 2,49,116 9185.82 3.69Source: Annual report Ministry of MSME and SIDBI and CGTSME.

Table 7.3 : CGTMSE Slab-wise OperationsSlab wise CGS coverage

From: 01/04/2000 To: 31/12/2009S. No. Range No. of

Proposals Loan Amount

(Rs. Crore) 1 0-100,000/- 136037 605.31 2 100,001-200,000/- 33354 519.85 3 200,001-500,000/- 39175 1405.96 4 500,001-10,00,000/- 18937 1513.52 5 10,00001-15,00000/- 8013 1058.43 6 15,00,001-25,00,000/- 8613 1804.84 7 25,00,001-1,00,00,000/- 4987 2277.91Total 249116 9185.83

Table 7.4 : Impact of CGTMSE OperationsImpact of CGS

CGTMSE Operations As on December 31, 2009

Expected turnover of guaranteed units Rs. 50,000 croreExpected employment generation (No.) 24 lakhNumber of MLIs availing guarantee facility 99


SME Rating Agency of India Limited

“To be a facilitator in creating an enabling environment for growth of MSMEs through qualitative input for financial intermediation, action research and policy advocacy”

A need has been felt by SIDBI to address the requirement of accurate risk assessment by banks of MSME loan proposals. Bankers find it difficult to have accurate risk assessment of MSMEs as the desired information is not readily available. Hence, different banks assess MSME loan proposals with different yardsticks. Thus, there has always been a necessity for an independent rating agency for unbiased normative risk assessment of MSMEs.

In order to fill up this gap, SIDBI along with leading public, foreign and private sector banks and Dun & Bradstreet Information Services India Private Limited (D&B), set up SME Rating Agency of India Ltd. (SMERA) in September 2005, as an MSME dedicated third-party rating agency to provide comprehensive, transparent and reliable ratings and risk profiling.

Ratings have proven beneficial for a number of reasons for both MSMEs and financial

institutions. For MSMEs, ratings add credibility to their status and help open doors to deal with large companies, especially those who engage with a big number of vendors. SMERA ratings also serve as motivation to adopt good governance practices which are beneficial in the long run and also act as a tool for self-correction and self-improvement. From the perspective of the financial institutions, SMERA ratings facilitate pricing of loan products on attractive terms and prove useful in promoting compliance with regulatory and capital adequacy norms. SIDBI provides interest rate rebate upto 1% to SMERA rated MSMEs.

In a short span of time, SMERA has achieved market leader position in MSME rating by evaluating around 5,400 MSMEs by December 31, 2009.

The year wise performance of SMERA is shown in the Figure 7.5.

Value Proposition of SMERA Ratings

Favourable borrowing terms

A better rating from SMERA could lead to more favourable credit terms for the MSME. This could include:

Lower collateral require- ♦ments,

Lower interest rates, ♦

Simplified lending norms. ♦

Faster Access to Credit

SMERA Ratings would facilitate banks/lending institutions in reducing the turnaround time in processing credit applications, thereby providing MSMEs access to timely and adequate credit.

Fair evaluation amongst peers

SMERA Ratings categorise MSMEs based on size, so that each MSME is evaluated amongst its peers. This


enables rational comparison of companies of the same size, thus ensuring that the smaller companies are not at a disadvantage while applying for credit.

Industry-benchmarked ratings

SMERA Ratings take into account industry dynamics, by factoring in a system through which an MSME could compare its strengths and weaknesses with those of other companies in the same line of business. This is done through statistically derived industry benchmarks for various ratios.

Achievements & Initiatives

SMERA began its commercial ♦operations in August 2005 and has completed more than 5,400 ratings till December 2009.

At the ADFIAP (Association ♦for Development Financing Institutions in Asia and the Pacific) Annual Awards 2007, SMERA had been recognized as the “Outstanding Development Project” based on entries received from various countries in the Asia Pacific Region.

As per the Memorandum ♦of Understanding (MoU)

executed between SIDBI and D&B, D&B discontinued offering the rating services under the NSIC Scheme to MSMEs under its own brand. The Scheme is now being offered exclusively by SMERA under , “NSIC – D&B – SMERA Performance & Credit Rating for MSMEs” (“the Rating”) to reflect the joint branding of both D&B and SMERA.

SMERA has been ♦empanelled as an approved rating agency by the National Small Industries Corporation Ltd. (NSIC) under the “Performance & Credit Rating Scheme for Small Industries”, approved by the Ministry of Small Scale Industries, Government of India.

Keeping in view the impetus ♦that rating could provide to MSME lending & also the fact that Banks are one of the biggest users of the rating services, SMERA entered into MoUs with 29 banks, financial institutions and leading industrial associations.

During the FY 2009-10, ♦SMERA decided to diversify its product offerings to

the market by introducing newer services, such as:

a) Green Field & Brown Field Ratings

b) Micro Finance Institutions’ Ratings

c) Risk Model Mapping/Validation

d) Green Ratings

India SME Technology Services Limited (ISTSL)

“To render services for technology transfer and attendant support services in order to enhance market competitiveness of Micro, Small & Medium Enterprises and promote sustainable development”

India SME Technology Services Limited (ISTSL) was set up in November 2005 to function as a Technology Bank for MSMEs in India at national level. The shareholders of ISTSL are SIDBI, Indian Bank, Oriental Bank of Commerce, Indian Overseas Bank and State Bank of India.

ISTSL is rendering technical services for technology transfer and attendant support services in order to enhance market competitiveness of MSMEs and promote sustainable development. Accordingly, ISTSL has entered into


partnership with various national and international organisations engaged in similar activities. Efforts have also been made to facilitate energy efficient technologies leading to reduction in Green House Gases (GHG). Such initiatives of ISTSL are expected to strengthen and accelerate the process of technological modernization in the MSME sector.

ISTSL has identified Clean Development Mechanism (CDM) as the thrust area and has been working actively in MSME clusters organising awareness campaigns, seminars and guiding MSMEs to take advantage of the opportunities existing in carbon credit market. It entered into a Memorandum of Understanding (MoU) with KfW, a German Development Bank, for cooperation in the area of trading of Carbon Emission Receipts (CERs). ISTSL took up the project for implementing energy efficient technologies in Stainless Steel Re-rolling Cluster of Jodhpur, in association with KfW, Germany. The project is expected to generate CDM revenues, besides reducing the cost of fuel being consumed by the units.

India SME Asset Reconstruction Company Ltd. (ISARC)

“To facilitate unlocking of value out of non-performing loans, with a focus on the Micro, Small and Medium Enterprises sector by resorting to innovative resolution mechanisms”.

India SME Asset Reconstruction Company Ltd. (ISARC) was set up in April 2008 to acquire non-performing assets (NPAs), with a focus on MSME-NPAs, from banks/FIs and would strive to maximize recovery value through its innovative resolution methods thereby facilitating in revival of the MSME sector. SIDBI, in collaboration with SIDBI Venture Capital Ltd., 12 public sector banks, 4 FIs and LIC have agreed to contribute to the share capital of ISARC. Some of the activities of ISARC are as follows:

ISARC has been granted ♦Reserve Bank of India’s Certificate of Registration, on March 05, 2009, to commence/carry on the business of securitization or asset reconstruction under SARFAESI Act, 2002. It has already commenced its operations of acquisition of NPAs from banks/FIs.

ISARC has been appointed ♦by SIDBI to act as its Recovery Agent / Facilitator for recovery of some of its hardcore NPAs of its offices in the Western Zone. ISARC has accordingly been facilitating the recovery of NPAs of the Bank at its 2 branches in Mumbai and one branch in Pune.

Co-Promoted Institutions

North Eastern Development ♦Finance Corporation Ltd. (NEDFi) : SIDBI is one of the co-promoters of NEDFi which is set up at Guwahati as the Development Finance Corporation for the North East. NEDFi aims at catalysing the economic development of the region by extending assistance for the efficient formation of fixed assets through identification, financing and nurturing of eco-friendly and commercially viable industrial and infrastructure projects in the Region.

Indian Institute of ♦Entrepreneurship (IIE), Guwahati: SIDBI is one of the founder members of IIE, set up at Guwahati. IIE is undertaking entrepreneurial training activities in the Region.


SBI Factors and Commercial ♦Services Pvt. Ltd.: SBI Factors, a subsidiary of State Bank of India, is one of the leading factoring companies in India. It is the first factoring company to be set up in India. SIDBI holds 20% stake in the above company.

Canbank Factors Ltd.: ♦Canbank Factors is a subsidiary of Canara Bank. SIDBI and Andhra Bank are co-promoters of the company.

SuStainability and MSME SEctor

8.1 Sustainability

Sustainability is defined as forms of progress that

meet the needs of the present without compromising the ability of future generations to meet their needs. Sustainable development is broadly defined as the advancement of economic development while maintaining quality of environmental and social systems. Incorporating Environmental and Social (E&S) issues into development is important because environmental resources provide a basis for social and economic development. The principles of sustainable development are important in all industrial and commercial sectors, as all activities have the potential to influence social and environmental welfare quality. The financial sector is of particular importance, as this sector is able to affect many projects and the development trends that result from them.

World over, there is an increasing awareness about incorporating principles of

sustainability in the banks operations and outlook. Several forces are driving the paradigm shift in favour of sustainability of development process. An excellent approach to map these drivers in broad terms is the economists’ well known demand side and supply side framework. Within this framework, the relevant pressures can be classified under global and local ones. The two can be combined under what is now fashionably termed as global sustainability drivers.

8.2 Demand Side DriversEmerging Markets

Customers across the world are demanding green and clean labels. These market forces are mounting day by day manifesting themselves through consumer attitudes and willingness to pay for such basket of goods & services. Organic foods, renewable energy appliances, sustainability harvested timber and leather are only a few illustrative examples of this rapidly emerging market trend.

The pressure does not limit itself just to sustainable consumption patterns but extends now to sustainable production processes and ‘cradle to cradle’ systems. MSMEs are an integral part of supply chain as vendors for MNC/Large Companies. They have a lot at stake in this ‘sustainability’ revolution.

8.3 Supply Side ForcesProduction Cost Trends

Based on life cycle computations of resource costs and economy wide benefits, a broad range of green and clean consumer products and services are becoming comparatively cheaper than their conventional substitutes. Emergence of services sector aided by innovative bridging financing instruments and mechanisms are further bringing down the initial high capital cost barriers to adoption of these environmentally benign options, rapidly bringing them within the reach of affordability by large cross-sections of people. As a general trend, costs of


sustainably produced goods & services are falling, while on the other hand, those of their counterparts are rising. Fossil fuel based energy vis-a-vis renewable energy is an excellent illustration of this point. According to Intel co founder Gordon Moore’s Law, the number of transfers of some conductor chip of silicon (which is also used for photo voltaic cells to deliver solar energy) will double every 18 months. The same size chip will, in other words, deliver twice the computing power at the same cost. Many experts now believe that clean energy sources could experience a kind of Moore’s Law of their own.

8.4 Pressures Points8.4.1 Internal Pressures

The Environment Protection Act (1986) was enacted soon after the 1984 Bhopal Gas disaster and then, the supporting institutional structure of Ministry of Environment & Forests (MoEF), Central Pollution Control Board (CPCB), State Pollution Control Boards (SPCBs) and Pollution Control Committees was created. The law is becoming stronger against negative externalities caused in the form of air, water and other adverse impacts on safety, health and environment. Potential liability of the polluter to pay compensation to the victim’s regulation and other

fiscal and non-fiscal instruments which have been put in place are working as deterrents. The progress towards sustainability would be directly commensurate with the degree of success in enforcement of compliance with the new resource efficient low/no carbon world order.

8.4.2 External Pressures

Climatic Change

Climate change has become the most notable global issue of this decade. Controls on the generation of greenhouse gases (GHGs) will affect the price of conventional forms of energy and the products, services and sectors that rely on such energy. In the face of this emerging reality, a question arises as to how climate change as a macroeconomic variable will affect Micro, Small and Medium Enterprises (MSME) Sector. What are the opportunities in this market transition and what are the threats? It is, however, certain that competitiveness of MSME Sector would be impacted by the climate change related phenomenon. In the context of climate change, the factors which are expected to affect the competitiveness of MSMEs are

Weaknesses

Use of obsolete technologies ♦

Low energy efficiency ♦

Low technical or managerial ♦expertise

Lack of awareness/access ♦to an EE or new products/technology

Lack of access to institutional ♦finance

Lack of suitable/appropriate ♦infrastructure

High inertia to change ♦

Challenges

Technological

Lack of off-the-shelf ♦technological solutions

Underdeveloped tech- ♦nology/services market

Environment protection ♦issues leading to closure of units

Capacity Building

Lack of scientific approach, ♦measured data and hence, the awareness of energy performance status

Continued dependence on ♦‘experienced person’ rather than a scientific designing

Economic/financial

Increasing worldwide ♦competition

Scale of operation ♦

Access to institutional ♦finance

A rational analysis of the issue of sustainability reflects on the issues of environmental protection and energy efficiencies. This chapter makes an attempt to bring out the status, issues and future scenario of

233Sustainability and MSME Sector

environmental side and energy efficiency relating to the MSME sector in India.

8.5 Environment IssuesThe UNCED Summit in 1992 laid the foundation of explicit recognition of environment protection at the global level. This is reflected in a number of Multilateral Environmental Agreements (MEAs) like Basel Convention, Kyoto Protocol, Bio-diversity Convention, Montreal Protocol, etc. that have started influencing the business environment on a larger scale, both by exerting threats of ban on export of goods bearing adverse environment impact and by opening the doors of business opportunities that were virtually non-existent in the past.

8.5.1 Current Status in India

Despite the plethora of rules and heightened consciousness, environment pollution has became a very important issue in certain geographical regions of India. Even now, hazardous wastes are being dumped on land indiscriminately, coastal areas and deep seas are getting increasingly polluted, pesticides and other chemical pollutants continue to contaminate the rivers and ground water and noxious gases are being continuously released into the atmosphere. Rural areas are facing another threat, that

of indoor pollution. Studies indicate that the levels of pollutants inside rural houses, especially in the kitchens are quite significant due to poor ventilation and use of thermally inefficient chullahs as also due to use of poor fuels, such as, cowdung, firewood, kerosene, etc. These lead to higher indoor concentration of pollutants, adversely affecting the health of the people, especially women and children.

Contribution of MSMEs � Studies by the Confederation

of Indian Industry (CII) and National Productivity Council (NPC) point out that the MSMEs in India not only produce more waste per unit of product but also at the aggregate level, account for more pollution than their larger counterparts. According to CPCB (1999), the MSMEs produce about 750 chemicals, of which 75 chemicals have been classified as toxic in nature. Of these 75 chemicals, 58 chemicals are further classified into three tracks based upon their toxicity, i.e., 12 chemicals are highly toxic (track I), 19 are track II and 27 are in track III. It has been felt that in case of track I chemicals, if produced in MSME sector, the environmental requirement

cannot be met as the investment and recurring expenditure of pollution control measures will be very high and therefore, it is recommended that their manufacturing in MSMEs be banned. However, the cost of treatment even in the case of Track II and III chemicals is studied with the premise that industries will provide pre-treatment and the effluent will be diverted to a Common Effluent Treatment Plant (CETP) for further treatment. Even in that case, it is estimated that annual burden (AB) to annual turnover (AT) ratio is maintained at 1 to 1.5 per cent when the minimum scale of operation comes to 600 TPA and with the provision of best practicable technology for physio-chemical pre-treatment within the industry. With the use of thermal destruction technology, AB-AT ratio will be in the order of 4 to 5 per cent even with 1000 TPA of production. Therefore, production of these Track II and III chemicals also need to be discouraged by the MSMEs.

According to World �Bank’s Report (2007) titled “Strengthening Institutions for Sustainable Growth-


Country Environmental Analysis” brought out in close collaboration between Ministry of Environment & Forests and with active participation of Ministry of Power, Ministry of Industry, amongst others, an estimated 70% of the total industrial pollution load is attributed to Small & Medium Enterprises (SMEs), many of which continue to use obsolete technology with primitive pollution control methods.

Central Pollution �Control Board (CPCB), has released a Report titled “Comprehensive Environmental Assessment of Industrial Clusters” on December 24, 2009. Its key finding is that 43 out of the 88 industrial clusters studied are critically polluted with respect to one or more environmental component, viz. air, land, water, etc. (Annexture 8.1). These results are based on points scored (70+) on a scale constructed using a comprehensive environmental pollution index (CEPI). Further, if CPCB’s suggestion is accepted and areas having aggregated CEPI score between 60 to 70 are included as “severely polluted”, 30

out of the remaining 45 industrial clusters would fall in this latter category. Thus, 80% of the industrial clusters studied could be reckoned as either “severely or critically polluted”.

8.6 Energy Efficiency IssuesMicro and Small Enterprises (MSE) sector plays a vital role in the Indian economy as it contributes 40% of Industrial production, 31% share of exports & includes a wide range of products.

The efficient use of energy is one of the most important sustainable solutions for economic growth while mitigating Green house gas emissions, a key-contributor to climate change. There are many energy – intensive MSME clusters in the country which operate on obsolete or inefficient technologies. Despite overall reductions in aggregate energy intensity, the MSME sector has fallen behind certain larger Indian industry benchmarks in terms of technology up-gradation & Energy Efficiency (EE). Energy Efficiency is one of the key aspects of Climate change and many organizations from all over the world are taking initiatives to take up the Climate Change agenda. There are several other issues / barriers that still need to be addressed

before widespread EE adoption by MSEs, some of which are:-

1. Lack of awareness about viable cost-effective solutions.

2. Non-availability of affordable service providers at cluster level to advise MSME sector on EE issues.

3. Lack of suitable financial products.

4. Lack of financial resources of MSME to invest in suitable initiative.

8.7 Energy Efficiency Programmes

Several international and national agencies are working towards energy efficiency and energy conservation in MSME clusters; the foremost being the Bureau of Energy Efficiency (BEE), Ministry of MSME, Small Industries Development Bank of India (SIDBI), the World Bank, UNIDO and Japan International Cooperation Agency (JICA).

8.7.1 BEE Cluster Programme

The objectives, approach, programme of activities and the identified clusters by Bureau of Energy Efficiency (BEE), under the Ministry of Power, Government of India, are summarised below:

Objectives

To improve the energy ♦intensity of the Indian


economy by undertaking actions in the MSME Sector

To accelerate the adoption ♦of EE technologies and practices in 25 chosen clusters in the MSME Sector through knowledge sharing, capacity building and development of innovative financing mechanisms.

Approach

Improving knowledge base ♦of all stakeholders

Cluster Approach: about ♦75% units are in clusters

Market Development: EE ♦product/technologies

Financial Support: Bankable ♦DPRs, tie-up with FIs for loans, subsidies

Pooling Resources: synergy ♦with MoMSE, SIDBI, UNIDO, WB, etc.

Programme of Activities

a) Current Energy use and technology analysis

- Situation analysis in 35 MSME clusters to under-stand the ground situation, such as, technology, energy consumption, etc in the cluster

- Energy use and technology audit to understand the energy productivity out-comes, information on energy usage in cluster manuals, best practices, etc.

b) Capacity Building

- Introductory workshop to share the outcome of above activity

- Information dissemination workshops in the clusters

- Outcomes would be identification of Local Service Providers (LSPs) and finalization of technologies for detailed project report (DPR) preparation.

c) Implementation of energy efficient measures

- Preparation of 15 bankable DPRs per cluster on the identified technologies (total 375 DPRs under the programme)

- Capacity building of LSPs to implement EE projects

- Outcomes would be 375 DPRs, identification of LSPs, project-wise, Capacity Building of LSPS, etc.

d) Facilitation of innovating financing schemes

- Facilitation of financing EE projects

- Capacity Building of banks to evaluate EE projects

- Conducting Workshop for LSPs.

- Outcomes would be arrangement with financing institutions to fund EE projects, capacity building of bankers, project impact and future roadmap.

Identified Clusters

Ahmedabad (Chemicals), Alwar (Oil Mills), Bangalore (Machine Tools), Batala, Jalandhar, Ludhiana (Foundries), Bhimavaram (Ice Making), Bhubaneswar (Brass), E&W Godavari (Refractories), Ganjam (Rice Milling), Gujarat (Dairy), Howrah (Galvanizing), Jagadhari (Brass & Aluminium Utensils), Jamnagar (Brass), Jodhpur (Lime Kilns), Jorhat (Tea), Kochi (Sea Food processing), Morbi (Ceramics), Muzaffarhagar (Paper), Orissa (Sponge Iron), Pali (Textiles), Sholapur (Textiles), Surat (Textiles), Vapi (Chemicals), Varanasi (Bricks), Vellore (Rice Milling), Warangal (Rice Milling).

8.7.2 Energy Efficiency Programme of Ministry of MSME

The Ministry of Micro, Small and Medium Enterprises (MSME) has formulated a scheme in the name of Energy Efficiency and Quality Certification Support for MSME (EQCSM) under the National Manufacturing Competitiveness Programme (NMCP). The salient features of the scheme are given below:

EQCSM – Objectives

To sensitize the ♦manufacturing (MSME) sector in India to upgrade the technologies, usage of


energy efficient technologies to reduce emissions of Green House Gases, improve their quality and reduce cost of production, etc. so that they become globally competitive.

EQCSM – Proposed Activities

Organising awareness ♦programmes on Energy Efficient Technologies (EET) and Renewable Energy systems leading to market transformation of energy efficiency.

To train about 4500 • participants by organizing 400 awareness programmes in energy intensive clusters.

Implementation of Energy ♦Efficient Technologies in MSME sector.

Conduct energy audit of • 1000 MSMEs in selected energy intensive clusters.

Identification of 700 MSMEs • based on Audit report for preparation of DPR for implementation of EET project.

Subsidising the EET project • cost in 500 MSMEs based on the DPR and linked to funding of the balance amount by the MSME or through loan from SIDBI, bank and other financial institutions.

Demonstration of industrial ♦applications of renewable technologies.

• Diagnostic studies of select-ed MSMEs, training work-shops on best practices.

• Demonstration pilots to promote renewable energy based process heat applica-tions in selected MSMEs.

• Policy review, capacity building of experts, institutions and MSMEs.

Setting up of Carbon ♦credit aggregation centres for introducing and popularizing clean development mechanism in MSME clusters.

• To set up 16 nos. of Carbon Credit Aggregation centres (SPVs)/per year for the potentially eligible clusters under CDM.

Encouraging MSMEs to ♦acquire product certification licences from National/International bodies.

• 3000 units subsidised for BIS/BEE license.

• 1500 units subsidised for acquiring International product Certification.

Study of impact of the ♦scheme, administrative and other miscellaneous expenses.

• Provide activity administra-tion and monitoring fee to the implementing agencies.

• Take up mid term and end of plan evaluation of the scheme.

• Meet other administrative expenditures, TA/DA and office expenses.

8.7.3 SIDBI in the field of Energy Efficiency

SIDBI is a developmental financial institution in the country which has a mandate of not only financing but also promotion and development of MSME sector. SIDBI, in its apex role for the MSME sector, has taken several steps in the area of increasing Energy Efficiency of MSMEs which includes:

1. Line of Credit from JICA

SIDBI and Japan International Cooperation Agency (JICA) have collaborated with an objective to promote energy saving projects in MSME sector by providing financial assistance through select PLIs / NBFCs thereby contributing to Environmental improvement & economic development in the country. The objective of the project is, inter alia, to promote energy saving in MSMEs in India by providing financial assistance to MSMEs, by way of refinance to PLIs and also by providing technical assistance to PLIs, thereby


contributing to environmental improvement and economic development in the country. Banks are eligible for refinance from SIDBI only in respect of Micro and Small Enterprises (MSEs). In addition to individual / stand alone projects, cluster / Clean Development Mechanism (CDM) interventions may be considered on a package basis. Keeping above in view, Scheme for financing Energy Saving (ES) projects in MSME Sector has been designed to encourage MSME units to undertake Energy Saving investments in plants, machinery and equipment to reduce the energy consumption, enhance energy efficiency, reduction in CO2 and improve the profitability of the unit in the long run.

2. Line of Credit from KfW

A Line of Credit of Euro 50 million has been signed with KfW, Germany for financing energy efficiency proposals of MSME sector. The LoC would be supported by a grant of Euro 0.20 million for various capacity building activities.

3. Line of Credit from AFD

A Line of Credit of Euro 50 million is under advance stage of negotiation with AFD, France for financing energy efficiency proposals of MSME sector. The LoC would be supported by a grant of Euro 0.50 million for

demand stimulation and also capacity building of stakeholders in identified clusters.

4. Partnership with Ministry of MSME, GoI

Govt. of India announced in Union Budget 2005-06 a National Manufacturing Competitiveness Programme (NMCP) with the objective of making MSMEs globally competitive. As a component of NMCP, the Ministry of MSME has devised the Energy Efficiency and Quality Certification support to MSMEs (EQCSM) to be implemented in 500 MSMEs during the remaining period of the 11th Plan. The project is designed on the basis of Public-Private Partnership (PPP) model with Ministry of MSME, GoI, as the Public Institution and NGOs, State Governments, Industries Associations, SIDBI, etc. as private partners.

SIDBI’s role is suggested as the Implementing Agency to appraise the financial viability and to provide loans to 500 MSMEs which will adopt Energy Efficiency technologies in their enterprises during remaining period of the Eleventh Plan.

5. Energy Efficiency Initiatives under MSMEFDP

[A]. Partnership with BEE:-

SIDBI has signed an MoU with Bureau of Energy Efficiency

(BEE) to cover following areas:-

a. Creation of a shelf of energy efficient technologies for 25 MSME clusters.

b. Awareness creation and capacity building of local BDS providers for implementing energy efficient technologies.

c. Financing of eligible proposals for energy efficient measures.

Under the MOU, SIDBI has helped BEE in training of its consultants on financial appraisal and also in devising the formats for cluster level technology DPRs.

[B]. Energy Efficiency hand-books and Posters for 4 sectors:-

a. SIDBI had taken the initiative and engaged The Energy and Resources Institute (TERI) to prepare a simple do’s and don’ts booklet on energy efficiency measures for MSMEs to enhance awareness about simple, cost-effective solutions that would reduce the energy consumption and improve the competitiveness of the Fruit & Vegetable processing cluster.

b. SIDBI in association with Winrock International India has also carried out research and published 3 more


handbooks and 6 posters (3 general and 3 cluster specific) on housekeeping measures for improving Energy Efficiency of MSMEs in Engineering, foundry & ceramics sectors. These handbooks have also been published in various regional languages for wider dissemination.

[C]. SIDBI, BEE and World Bank – Global Environment Facility Project:-

a. The World Bank in conjunction with SIDBI and BEE is implementing a new initiative on financing Energy Efficiency (EE) in MSME industrial clusters to improve EE and reduce Green House Gas (GHG) emissions from MSMEs utilizing increased commercial financing for EE.

b. The above initiative envis-ions supporting 5 clusters, viz. Kolhapur, Pune, Tirunelveli, Ankaleswhwar and Faridabad in India through provision of assistance for completion of Energy Audits, preparation of DPRs and support in mobilization of financing from the Indian local banks to ensure that the identified EE measures are implemented.

c. The ultimate goal of the project is to support development of investment grade 500 detailed project reports in the selected clusters and help improve market acceptance (both by MSMEs and Local Banks) for this type of product.

[D]. Promoting energy efficiency under Cluster Development Initiative:-

a. SIDBI is working in 18 MSME clusters under a mul-tilateral project on MSME Financing & Development. In most of the clusters, en-ergy efficiency has emerged as a major issue. However, non-availability of local BDS providers at affordable prices has been sighted as a major stumbling block.

b. SIDBI has initiated efforts to build the capacity of local BDS providers to enable them to offer their services to MSME sector in energy related areas.

c. The BDS project follows a 3-step process starting with an awareness seminar followed by a walk through audit for select units and thereafter detailed energy audit.

d. In all, 58 such activities have been targeted in FY 2010

in these 18 clusters. It is estimated that around 1000 units and BDS providers will be exposed to energy conservation issues, over 100 will be trained and around 100 will get business related benefit from these activities. So far, around 200 firms and BDS providers have been provided exposure.

e. Energy Efficiency in Kanpur Leather Cluster:-

In Kanpur, the energy • consumption in tannery units is very high and constitutes about 10% of cost of production. Hence, to enhance the power utilization and reduce the losses is one of the most important considerations of the tannery units. Keeping in view the relevance of the service, energy audit services were introduced in the cluster. In the initial phase, 7 units were selected and energy audits have been completed for the units. The audits recommended certain investments and housekeeping measures with expected payback period of 3-8 months. Out of these 7 units, 5 have started implementing the recommendations and have found encouraging


results even with partial implementation.

f. Energy Efficiency in other clusters:-

• Energy audit of 3 firms in Ludhiana knitwear cluster has been conducted and it is found that firms are able to save 7% to 20 % energy depending upon size and type of operations. Dyeing units will be able to save about Rs. 1 lakh to 5 lakh per annum with their total energy consumption expenses of Rs. 10-30 lakh per year.

• SIDBI is cooperating with BEE to promote star labelling of Pumps in Coimbatore & Rajkot clusters leading to energy efficient products and processes.

[E]. Green Rating model of SMERA :

MSMEFDP has supported SME Rating Agency of India Ltd. (SMERA) to bring out a green rating model for MSME units. The model would measure the environment and energy efficiency parameters of MSME units against sectoral benchmarks.

[F]. Dissemination of informa-tion :

India SME Technology Services Ltd. (ISTSL), an associate institution of SIDBI, provides end-to-end solutions in MSME

clusters for promoting EE and also CDM related activities.

[G]. Future Programmes

SIDBI is in process of designing a nation wide programme for promoting energy efficiency in MSME clusters under MSMEFDP. The programme would focus to train about 5000 MSME units and complete energy audit of 500 enterprises.

8.7.4 World Bank – Global Environment Facility (WB-GEF)

The World Bank Programme is to work with local banks and provide funds on commercial terms as given below:

The scope of the new World Bank Project for financing energy efficiency in MSMEs comprises the following elements:

• Activities to increase awareness and build capacity.

• Activities to increase Investment.

• Knowledge Management.

• Project Management.

• Focussed efforts in 5 clusters, viz. Kolhapur, Pune, Faridabad, Tirunelveli and Ankaleshwar.

• Broad support to BEE work in 25 additional clusters.

The WB-GEF project in India is to be implemented by SIDBI and BEE.

8.8 National Action Plan on Climate Change

India released its National Action Plan on Climate Change (NAPCC) on June 30, 2008 to outline its strategy to meet the challenge of climate change. The National Action Plan advocates a strategy that promotes, firstly, the adaptation to climate change and secondly, further enhancement of the ecological sustainability of India’s development path.

India’s National Action Plan stresses that maintaining a high growth rate is essential for increasing the living standards of the vast majority of people in India and reducing their vulnerability to the impacts of climate change. Accordingly, the Action Plan identifies measures that promote the objectives of sustainable development in India, while also yielding benefits for addressing climate change. Eight National Missions, which form the core of the National Action Plan, represent multi-pronged goals in the context of climate change. The focus is on promoting understanding of climate change, adaptation and mitigation, energy efficiency and natural resource conservation. While several of these programmes are already a part of the current action, the


Action Plan seeks to enhance them in scope and effectiveness and implement them in an accelerated manner through time bound plans. The Eight National Missions are described in Box 8.1.

NAPCC has expressed concern for the MSME and suggested following MSME related measures:

Mandated specific energy ♦consumption decreases in large energy consuming industries and facilities that have been notified as Designated Consumers under the Energy Conservation Act, and provide a framework to certify energy savings in excess of the mandated savings. The certified excess savings may be traded amongst companies to meet their mandated compliance requirements, or banked for the next cycle of energy savings requirements.

Tax incentives for promotion ♦of energy efficiency, including differential taxation on appliances that have been certified as energy efficient through energy labeling programme.

Creation of energy efficiency ♦financing platforms for enabling public-private-

Box No. 8.1 : National Action Plan on Climate Change

National Missions

• National Solar Mission aims at increasing the share of solar

energy in the total energy mix through development of new

solar technologies, while attempting to expand the scope of other

renewable and non-fossil options, such as, nuclear energy, wind

energy and biomass.

• National Mission for Enhanced Energy Efficiency comprises four

new initiatives, namely – a market based mechanism of trading in

certified energy savings in energy intensive large industries and

facilities accelerating the shift to energy efficient appliances in

designated sectors, demand side management programmes in all

sectors by capturing future energy savings, and developing fiscal

instruments to promote energy efficiency.

• National Mission for Sustainable Habitat attempts to promote

energy efficiency in buildings, management of solid waste and

nodal shift to public transport including transport options based

on biodiesel and hydrogen.

• National Water Mission has as its objective, the conservation

of water, minimizing wastage and ensuring more equitable

distribution both across and within States.

• National Mission for Sustaining the Himalayan Ecosystem

is aimed at evolving management measures for sustaining and

safeguarding the Himalayan glacier and mountain ecosystem.

• National Mission for a Green India focuses on enhancing

ecosystem services and carbon sinks through afforestation on

degraded forest land, in line with the national policy of expanding

the forest and tree cover to 33% of total land area of the country.

• National Mission for Sustainable Agriculture would develop

strategies to make Indian agriculture more resilient to climate

change, with new varieties of thermal resistant crops, credit and

insurance mechanisms and improving productivity of rainfed

agriculture.

• National Mission on Strategic Knowledge for Climate Change is

intended to identify the challenges of, and the responses to, climate

change through research and technology development and ensure

funding of high quality and focused research into various aspects

of climate change.


partnerships to capture energy savings through demand side management programmes in the municipal, buildings, and agricultural sectors.

Fiscal Incentives ♦

Other Initiatives of NAPCC

Apart from the eight National Missions, the National Action Plan also envisages other initiatives aimed at enhancing mitigation and adaptation. These include:

Research and development ♦in the area of ultra super critical boilers in coal-based plants.

Integrated gasification ♦combined-cycle technology to make coal based power generation efficient.

Setting up more combined ♦cycle natural gas plants.

Promotion of nuclear energy ♦through adoption of fast breeder and thorium based thermal reactor technology in nuclear power generation.

Adoption of high-voltage ♦AC and high-voltage DC transmission to reduce technical losses during transmission and distribution.

Setting up small and large ♦scale hydro power projects.

Promotion of renewable ♦energy technologies, such as, biomass combustion and gasification based power generation.

Enhancement in the ♦regulatory/tariff regimes to help mainstream renewable based sources in the national power system.

Promotion of renewable ♦energy technologies for transportation and industrial fuels.

In addition, the Action Plan envisages effective disaster management strategies that include mainstreaming disaster risk reduction into infrastructure project design, strengthening communication networks and disaster management facilities at all levels, protection of coastal areas, provision of enhanced public health care services and assessment of increased burden of disease due to climate change. The Action Plan also highlights the role of Central Government, State Governments and local bodies in putting in place appropriate delivery mechanisms and building adequate capacity and knowledge in the relevant institutions for effective adaptation and mitigation action.

Institutional Mechanism

The National Missions are to be institutionalised by the respective Ministries and will be organised through inter-sectoral groups. Appropriate mechanisms including public-private partnerships and civil society actions will be devised, as suited, for effective delivery of each individual Mission’s objectives. The work is to be coordinated by the Ministry of Environment and Forests.

National Cooperation

National Action Plan looks forward to enhanced international cooperation under the United Nations Framework Convention on Climate Change. It renews India’s pledge to play an active role in multilateral cooperation in addressing climate change based on the principle of ‘Common but Differentiated Responsibilities and Respective Capabilities’. The Action Plan acknowledges that in the move towards a low carbon economy, technology has a vital role to play. Models and mechanisms for technology transfer will need to incorporate key elements, such as, appropriate funding modalities and approaches, facilitative Intellectual Property Rights (IPR) environment, and enhancing the absorptive capacity within developing


countries. Some reforms in the carbon market, such as, mainstreaming the bundling and programmatic CDM, also need to be carried out multilaterally. The Action Plan emphasizes that international cooperation should aim at enhanced implementation of the United Nations Framework Convention on Climate Change (UNFCCC) by minimizing the negative impacts of climate change through suitable adaptation measures, providing fairness and equity in actions and measures, and ensuring concessional financial flows from the developed countries and access to technology on affordable terms.

The NAPCC will evolve on the basis of new scientific and technical knowledge, and in response to the evolution of the multilateral climate change regime including arrangements for international cooperation.

8.9 Way Forward: 8.9.1 Energy Conservation

There is intrinsic advantage to MSME units from energy conservation as each unit of energy saved translates into a positive impact on their bottom-line. A large cross-section of studies conducted by the Bureau of Energy Efficiency and Indian Renewable Development Agency (IREDA) clearly suggest that these savings alone can

often suffice it to pay back the cost of energy conservation measures. In the present regime of Kyoto Protocol, such savings also qualify for Certified Emission Rights (CER) which can provide an additional source of cash inflow. Upfront carbon financing equivalent to the net present value of the cash inflow stream are possible through carbon markets. Combined with Central and State Government subsidies, the aggregate effect already makes it a good value proposition to install or retrofit suitable modern technology. It is important to note that Clean Development Mechanism (CDM) based revenue stream may become significant in the coming years. Taking into account these factors, it is suggested to create an enabling policy environment for Energy Service Companies (ESCOs) which operate on the fundamental premise of performance guaranteed savings from energy conservation measures and sharing these between the clients and the ESCOs. To foster their growth, such companies require, inter-alia, the following initiatives;

Wide dissemination of ♦opportunities for MSME and ESCOs.

Establishment of ♦accreditation system for qualified and reliable ESCOs.

Development of debt ♦financing sources, including third party financing of ESCOs.

Standardization of monitor- ♦ing and verification protocols.

The growth performance recorded by the services sector points towards the fact that a supplementary institutional mechanism in the form of ESPCs is also recommended. ESPCs are different from ESCOs in the fundamental respect of the revenue model. ESPCs provide energy services at the retail level for which they are paid in cash rather than the sharing of energy saved. According to recent EU guidelines, ESCOs/ESPCs have been operating in Italy and the rest of Europe for more than 100 years now. The services provided by them are not merely in the form of electricity but extend to space heating, lighting, air-conditioning, etc. Considering that MSMEs are agglomerated in the form of industrial clusters, it would be possible to create viable business models for the successful operation of ESCOs/ESPCs.

The main issue with tapping carbon finance is the high transaction cost involved in the process of registering such projects with the UNFCC individually by the small enterprises. The cost of monitoring and verification


protocol involved is also quite prohibitive on individual basis. The barrier can be surmounted by ESCOs and ESPCs, particularly if they can take on the role as integrators apart from aggregators. Aggregators can typically be Private Service Providers, Cluster Associations, NGOs and Consultants who, by accumulating a large number of MSME units, reduce significantly the high transaction cost of accessing CDM funds.

The role of integrators is somewhat different and not to be confused with System Integrator. Essentially specialised financial advisories, these companies bundle the different forms of incentives available in disparate and fragmented institutions. For example, for carbon finance, a project has

to be first posed to Ministry of Environment and Forests which is the designated National Authority for the purpose of registering such projects with the UNFCC. The methodology and procedure is beyond the capacities of individual MSME units. For energy efficiency incentives, the spectrum is once again very widely dispersed. Hence, comes into play the role of the integrators. Thus the companies which today provide consultancy services in the space of CDM could, amongst others, be grown to become integrators. Similarly, the equipment manufacturers could evolve as ESCOs/ESPCs/Integrators/Aggregators. The sector in brief needs to be unbundled to encourage efficiency through competition.

8.9.2 Environmental Sustain-ability of MSMEs

The perceived negative externality arising from the activities of MSME units can be addressed by sustainable laws and more importantly through demonstration effect. Several success stories based on market instruments are known and could be replicated. One excellent example is the West Bengal Government’s Bank Guarantee Scheme. The foremost step required to be taken is professionalization and strengthening of SPCBs. The Report of the World Bank on Strengthening Institutions for Sustainable Growth summarizes key recommendations as given in Box 8.2:

Box 8.2 : Recommendations of World Bank ReportKey Issues Actions suggested

Promote public participation

• Develop a national programme on public participation, including: - Programmes for raising community knowledge and capacity - Guidelines and training to SPCBs on public consultation - Programmes to involve citizens in monitoring and enforcement • Develop sectoral guidelines and training on public consultation • Disseminate examples of when public participation improved project performance • Share local knowledge with environmental and sectoral agencies

Improve access to knowledge and training

• Publicise the Information and Facilitation Centre and create its offices in other locations • Develop and regularly update public online database on environmental indicators • Upgrade and expand targeted training Programmes by industrial associations and/or sectoral

research and training institutions • Maximize effectiveness of the Right to Information Act by developing clear procedural guidelines

regarding requests for information • Disseminate relevant information to affected communities

Develop new programmes targeting MSME

• Develop a focused and well–packaged regulatory programme for MSME clusters that integrate targeted enforcement with compliance assistance, including a funding mechanism to provide matching grants to MSMEs participating in the programme.

• Provide training and capacity building to MSMEs on business opportunities from better EM Develop greening supply chain and industry mentoring initiatives

• Initiate community monitoring of MSMEs


Box 8.2 : Recommendations of World Bank Report (Contd...)Key Issues Actions suggested

Set feasible standards for a diverse regulated community

Strengthen the instrument of an economic impact assessment of new regulations by developing • a clear methodology drawing on best international practice and adjusted to India’s economic context.Review best international practice procedures for standard setting and develop guidelines for • India; strengthen/expand the application of the zoning concept in setting national standards.Provide necessary economic information, collaborate on the analysis and facilitate consultation • with industry.Provide information on community impacts of the proposed standards•

Strengthen monitoring and enforcement

Evaluate, expand and strengthen the bank guarantee system • Explore other innovative regulatory approaches to overcome the lack of credible sanctions • Periodically update sectoral guidelines for monitoring, and adding new sectors of growing • impact, such as, highways Adopt and implement a plan to improve effectiveness of monitoring, including greater use of • CEM technology and self-monitoring data

Promote good environmental performance by sectors

Develop a set of regulatory incentives to support voluntary initiatives, using existing good • practices Coordinate the development of a strategic framework for using global environmental financing • instruments Promote self-monitoring and self-reporting • Develop sector rewards for good compliance/performance Provide information and TA on • compliance process

Improve cross-sectoral approaches and coordination

• Develop “new generation” area-based pollution management programmes dealing with multiple sources that focus on ambient quality outcomes

• Empower local government to oversee regional environmental programmes and foster cross-sectoral coordination

• Develop roles and responsibilities of various stakeholders • Involve the community in monitoring of other sources of pollution in the area • Strengthen existing formal mechanisms to involve environmental authorities in project/

programme planning and design • Facilitate uptake of best practices with the integration of environmental zoning atlases by

SPCBs with industrial and urban development plans and locational decisions

Build capacity of the regulator

• Identify and undertake measures to rationalize key processes, outsource non-core technical functions, and devolve more responsibility to regional offices

• Maximize potential of modem monitoring technology (such as CEM) • Develop and implement medium-term capacity strengthening action plans, as well as training

and staffing plans to meet growing mandates • Review and recommend measures to improve the forestry clearance process

Strengthen ac-countability for regulator perfor-mance

• Strengthen an oversight programme for SPCBs, including: detailed oversight guidelines, regular assessment of the SPCBs performance based on a clear set of indicators introducing a system of performance-based incentives

• Improve efficiency, transparency and accountability in the forestry clearance process, includ-ing handbook on definitions and classification of forests land, updating database of forest land, aligning purchase of land for compensatory afforestation (CA) with project schedule, review/update NPV calculation methodology and avoid double counting with CA.


Box 8.2 : Recommendations of World Bank Report (Contd...)

Key Issues Actions suggested

Specific recommendations for industry sector

• Integrate environmental objectives in the State Industrial Policy • Link industrial promotion incentives to environmental performance (e.g. via environmental

performance bonds) • Encourage and advise on voluntary initiatives, mentoring programmes for SSIs • Provide information and training on clean technology, management practices and related

business opportunities • Utilize public green rating programmes • Expand citizen monitoring of industries

Specific recommendations for power sector authorities

• Develop a consistent framework for integrating externalities and use it as input into a consistent and realistic set of standards and regulations related to power sector

• Integrate stricter environmental performance and energy efficiency requirements in coal R&M programme, in accordance with latest trends in mitigating the impacts of coal power

• Develop incentives to coal plant operators for better ash management and disposal • Focus support to energy efficiency on high impact initiatives, including support for new

energy efficiency lending business • Initiate capacity building of State electricity regulators to create a stable regulatory

environment for renewable energy at State level • Explore innovative financing instruments and accelerate R&D to support future develop-

ment of the sector via global climate change agenda • Include environmental performance indicators in MoP database and annual reports


Annexure 8.1 : CEPI scores for Industrial Areas / Clusters in Descending OrderS.No. Industrial Cluster / Area Air Water Land CEPI

1. Ankleshwar (Gujarat) 72.00 72.75 75.75 88.50

2. Vapi (Gujarat) 74.00 74.50 72.00 88.09

3. Ghaziabad (Uttar Pradesh) 68.50 75.25 71.50 87.37

4. Chandrapur (Maharashtra) 70.75 67.50 66.50 83.88

5. Kobra (Chhatisgarh) 67.00 57.00 72.50 83.00

6. Bhiwadi (Rajashthan) 71.00 69.00 59.50 82.91

7. Angul Talcher (Orissa) 64.00 69.00 65.75 82.09

8. Vellore (North Arcot) (Tamil Nadu) 69.25 65.25 62.50 81.79

9. Singrauli (Uttar Pradesh) 70.50 64.00 59.50 81.73

10. Ludhiana (Punjab) 68.00 66.00 64.75 81.66

11. Nazafgarh drain basin (including Anand Par-vat, Naraina, Okhla and Wazirpur), Delhi

52.13 69.00 65.25 79.54

12. Noida (Uttar Pradesh) 65.75 64.00 60.00 78.90

13. Dhanbad (Jharkhand) 64.50 59.00 65.50 78.63

14. Dombivalli (Maharashtra) 66.00 63.50 57.50 78.41

15. Kanpur (Uttar Pradesh) 66.00 63.50 56.00 78.09

16. Cuddalore (Tamil Nadu) 54.00 65.25 64.00 77.45

17. Aurangabad (Maharashtra) 64.75 60.50 59.50 77.44

18. Faridabad (Haryana) 63.50 59.00 62.75 77.07

19. Agra (Uttar Pradesh) 59.00 63.75 59.50 76.48

20. Manali (Tamil Nadu) 64.00 59.00 58.00 76.32

21. Haldia (West Bengal) 53.75 64.50 57.00 75.43

22. Ahmedabad (Gujarat) 62.75 58.00 58.00 75.28

23. Jodhpur (Rajasthan) 52.00 65.50 54.00 75.19

24. Cochin, Greater (Kerala) 57.00 64.00 54.00 75.08

25. Mandi Gobind Garh (Punjab) 62.00 55.50 62.00 75.08

26. Howrah (West Bengal) 57.00 54.50 63.50 74.84

27. Vatva (Gujarat) 60.00 62.00 56.00 74.77

28. Ib Valley (Orissa) 61.00 56.50 59.00 74.00

29. Varansi-Mirzapur (Uttar Pradesh) 58.00 62.00 53.50 73.79

30. Navi Mumbai (Maharashtra) 61.00 59.00 55.50 73.77

31. Pali (Rajasthan) 52.00 64.00 52.00 73.73

32. Mangalore (Karnataka) 61.75 57.75 54.00 73.68

33. Jharsuguda (Orissa) 61.00 56.50 56.00 73.34

34. Coimbatore (Tamil Nadu) 62.25 58.75 45.50 72.38

35. Bhadravati (Karnataka) 62.75 56.50 45.50 72.33

36. Tarapur (Mahrashtra) 60.75 56.00 51.25 72.01


CEPI scores for Industrial Areas / Clusters in Descending Order (Contd..)S.No. Industrial Cluster / Area Air Water Land CEPI

37. Panipat (Haryana) 55.75 56.50 59.00 71.91

38. Indore (Madhya Pradesh) 59.00 57.50 52.00 71.26

39. Bhavnagar (Gujarat) 54.50 57.50 57.75 70.99

40. Vishakhapatnam (Andhra Pradesh) 57.00 57.50 55.00 70.82

41. Junagarh (Gujarat) 53.25 52.50 59.50 70.82

42. Asansole (West Bengal) 58.38 56.25 50.50 70.20

43. Patancheru-Bollaram (Andhra Pradesh) 50.00 59.00 54.00 70.07

44. Paradeep (Orissa) 54.00 58.50 48.00 69.26

45. Nashik (Maharashtra) 55.00 57.50 50.25 69.25

46. Chembur (Maharashtra) 59.75 50.75 46.00 69.19

47. Baddi (Himachal Pradesh) 56.00 54.50 54.50 69.07

48. Kala Amb (Himachal Pradesh) 56.75 54.50 51.00 68.77

49. Dewas (Madhya Pradesh) 51.50 57.50 51.50 68.77

50. Batala (Punjab) 51.00 56.50 54.50 68.59

51. Tirupur (Tamil Nadu) 56.75 50.75 53.00 68.38

52. Durgapur (West Bengal) 49.50 58.50 47.50 68.26

53. Raichur (Karanataka) 59.75 46.50 44.50 68.07

54. Bidar (Karnataka) 58.75 49.00 44.00 67.64

55. Singhbum, West (Bihar) 55.50 51.50 51.50 67.30

56. Mettur (Tamil Nadu) 46.00 58.00 46.50 66.98

57. Vadodara (Gujarat) 57.00 48.00 48.00 66.91

58. Jaipur (Rajasthan) 55.00 52.00 50.50 66.82

59. Rajkot (Gujarat) 45.50 54.50 55.50 66.76

60. Nagda-Ratlam (Madhya Pradesh) 44.50 54.50 56.00 66.67

61. Jamshedpur (Jharkhand) 55.75 55.50 42.00 66.06

62. Pimpari-Chinchwad (Maharashtra) 55.25 52.50 46.00 66.06

63. Raipur (Chhatisgarh) 56.50 42.00 49.00 65.45

64. Saraikela (Jharkhand) 50.50 49.00 54.00 65.38

65. Ramgarh (Jharkhand) 44.00 53.00 54.50 65.11

66. Pinia (Karnataka) 56.75 46.00 42.00 65.11

67. Pitampur (Madhya Pradesh) 47.75 54.00 50.50 65.09


CEPI scores for Industrial Areas / Clusters in Descending Order (Contd..)S.No. Industrial Cluster / Area Air Water Land CEPI

68. Jalandhar (Punjab) 52.00 52.00 52.00 64.98

69. Moradabad (Uttar Pradesh) 54.00 49.00 47.50 64.71

70. Bada Jamtara (Jharkhand) 48.00 52.50 52.50 64.47

71. Aligarh (Uttar Pradesh) 53.00 48.00 48.00 63.83

72. Parwanoo (Himachal Pradesh) 53.00 47.50 48.50 63.83

73. Haridwar (Uttarakhand) 51.75 48.00 40.00 61.01

74. Vijaywada (Andhra Pradesh) 52.00 41.50 43.00 60.57

75. Ferozabad (Uttar Pradesh) 49.00 47.00 47.75 60.51

76. Mathura (Uttar Pradesh) 48.00 48.00 48.00 59.98

77. Meerut (Uttar Pradesh) 50.00 47.50 39.50 59.38

78. Erode (Tamil Nadu) 47.38 47.25 43.50 58.19

79. Surat (Gujarat) 46.00 46.75 45.50 57.90

80. Kathedan (Andhra Pradesh) 44.50 47.00 45.50 57.73

81. Kukatpalli (Andhra Pradesh) 41.50 47.00 43.50 56.56

82. Hajipur (Bihar) 43.50 44.00 44.50 55.12

83. Gwalior (Madhya Pradesh) 45.88 38.50 42.00 54.63

84. Udhamsingh Nagar (Uttarakhand) 44.00 41.25 44.25 54.37

85. Bhillai-Durg (Chhatisgarh) 44.00 35.00 33.50 50.57

86. Bulandsahar-Khurza (Uttar Pradesh) 42.00 33.50 36.50 49.09

87. Burnihat (Assam) 39.00 34.50 34.50 46.26

88. Digboi (Assam) 32.00 32.75 38.00 44.55

Issues and ProsPects

9.1 MSME Sector Issues

All across the world, the MSMEs have been

accepted as the engine for promoting equitable economic development. In India, the MSME sector constitute 95% of all enterprises and plays a pivotal role in the overall industrial economy with 40% contribution towards manufacturing output and 33% towards total exports. It employs a total of 60 million people spread over 26 million enterprises. The MSME sector in India is heterogeneous, dispersed and mostly unorganized. They continue to face a number of common problems, which, accordingly to the ‘Report of the Prime Minister’s Task Force on Micro, Small and Medium Enterprises’ (2010), are:

Lack of availability of ♦adequate and timely credit;High cost of credit; ♦Collateral requirements; ♦Limited access to equity ♦capital;Problems in supply to ♦government departments and agencies;

Procurement of raw materials ♦at a competitive cost;

Problems of storage, ♦designing, packaging and product displays;

Lack of access to global ♦markets;

Inadequate infrastructure ♦facilities, including power, water, roads, etc.;

Low technology levels and ♦lack of access to modern technology;

Lack of skilled manpower ♦for manufacturing, services, marketing, etc.;

Multiplicity of labour laws ♦and complicated procedures associated with compliance of such laws;

Absence of a suitable ♦mechanism which enables the quick revival of viable sick enterprises and allows unviable entities to close down speedily; and

Issues relating to taxation, ♦both direct and indirect, and procedures thereof.

To further understand the issues faced by MSMEs and do a pragmatic analysis, a survey of 200 MSMEs1 (42 Micro, 114 Small and 44 Medium Enterprises) from all over India, primarily from cities of Chandigarh, Hyderabad, Jamshedpur, Surat, Rajkot and Bangalore was conducted through a questionnaire and on-field discussions and interviews with the MSMEs. Interviews and discussions were also done with cross sectoral MSMEs associations and trade chambers from different parts of India, representing various sectors, to generate a sector wide response on the issues being faced and the expectations of the MSMEs. The survey reveals that the top 8 issues, which are of major concern to MSMEs for their growth and development are: (i) Non-availability of adequate infrastructure support, (ii) Non-availability of adequate and timely credit, (iii) Inability to upgrade production facilities (e.g. greater automation) to achieve cost competitiveness, (iv) Lack of adequate knowledge about Government Schemes

1 Rajiv Gandhi Institute for Contemporary Studies


and facility with respect to adoption of Information and Communication Technology (ICT), (v) Non-availability of skilled personnel, (vi) Constraints in adopting Energy Efficiency in production process, (vii) Lack of proper means and support for brand building and (viii) Inadequacy of requisite R&D support. These issues are discussed in the following paras.

9.1.1 Infrastructural Bottle-necks

Much of the potential of small firms to grow and nurture innovativeness is shaped by the kind of infrastructure, both physical and economic, available and can be accessed at reasonable costs. Moreover, the nature and implications of such infrastructural absence or inadequacy could vary between small enterprises located in urban areas and those in rural and semi-urban areas.

Access to dependable supply of electricity is the most crucial issue hindering the rise of productivity and output of MSMEs in all the regions surveyed. Power cuts generally range from 24-48 hours per week. Similarly, poor transportation facilities, especially in rural and semi-urban areas, have been cited as constraints encountered by small enterprises; access

to newer and larger markets has been restricted due to this reason. The crucial infrastructure facilities required are improved roads, railways and port facilities. In addition to the generic infrastructure that boosts the local economy in general, there is need for enterprise specific infrastructure, viz. provision of common effluent treatment plants (CETPs), well-developed industrial estates / parks, common testing / quality check facilities, etc . Even provision of potable water to small enterprises was considered an important infrastructure that could add to productivity enhancement.

9.1.2 Inadequate Capital/Financial Support

Due to proactive policies of Government of India and Reserve Bank of India, the credit flow to Micro & Small Enterprises (MSE) sector has shown an increasing trend in the recent years. Nonetheless, financing continues to be most important challenge for the creation, survival and growth of Indian MSMEs, especially the innovative ones. Shortage of working capital, fixed capital, equity, etc. is widely recognized as the hurdle in the growth of MSEs.

The Figure 9.1 shows the various sources of finance of the micro, small and medium

enterprises surveyed. As it can be seen, 23.8% of surveyed Micro enterprises took loans from financial institutions compared to 31.8% of medium enterprises. Micro enterprises took more loans from friends and relatives and from money lenders who generally charge a higher interest rate of 20-30%.

A related issue is the inadequate knowledge of various schemes of Government of India and MSME. The survey shows that only 29.4% micro enterprises, 40.2% small enterprises and 33.3% medium enterprises are aware about the Government financing schemes.

According to OECD report on “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses, 2009”, MSMEs are generally more vulnerable in times of crisis for many reasons, among which are:

It is more difficult for them ♦to downsize as they are already small,

They are individually less ♦diversified in their economic activities,

They have a weaker ♦financial structure (i.e. lower capitalisation),

They have a lower or no ♦credit rating,

251Issues and Prospects

They are heavily dependent ♦on credit and

They have fewer financing ♦options.

The report also mentions that the MSMEs were confronted with a clear downturn in demand for goods and services and subject to two related stress factors: a) increased payment delays on receivables which added - together with an increase in inventories- result in a shortage of working capital and a decrease in liquidity and b) an increase in reported defaults, insolvencies and bankruptcies.

9.1.3 Issues relating to Delayed Payments

The MSMEs generally experience a delayed settlement of dues owed by the large scale buyers, thus, adversely affecting the flow of funds and business operations of the MSMEs concerned. Seasonal business face the major issue and suffer the most in debt collection. Many of the MSMEs still find it difficult to do so, because of the fear of loss of business and procedural hassles.

To avoid recurrence of delayed payments, a need has been expressed by MSMEs for providing an in-built mechanism, which could include:

(i) Establishment of a central/state level government agency which regularly


monitors and mandates the debt payment time period of large scale industries to MSMEs. The agency should benchmark and do ratings of the large sector companies on the basis of their debt payment period.

(ii) Disallowance of CENVAT credit on goods purchased from MSMEs, if payment was not made within the stipulated period.

(iii) To make deduction of expenses ineligible to the extent of outstanding dues for calculation of income tax, if the purchaser did not make the payment up to the agreed time period.

9.1.4 Technology Upgrada-tion and R&D Support

Technology is one of the most critical elements in the growth of the MSME sector. India is ranked very high in terms of availability of Science and Engineering personnel; however, MSMEs in India have not been able to fully utilize this vast infrastructure to achieve competitive edge in the global markets through access to modern technology. Owing to obsolete technology, the cost of manufacturing is much higher

in India compared to the other developing countries in Asia. The MSMEs are facing stiff competition from imports and need technological upgradation to produce better quality products at cheap rates.

The utilization of Informa-tion and Communication Technology (ICT) in the MSME sector is generally found to be limited. Given the financial limitation, IT budgets are usually small for MSMEs. In addition, adopting ICT is not a one-time cost because there are ongoing costs of maintenance, upgrading, and human capacity building.

Limited ICT literacy of MSME owners hinders their ability to choose the appropriate technology and understand the concrete benefits it can bring to their business. Many MSME owners are still skeptical of the concrete benefits to its core business and have the stereotype that ICT is only for larger companies. Even if they have the will and financial resources to integrate ICT into their core business, MSME owners often find it difficult when needing to choose the most appropriate and cost-efficient product.

Moreover, while technology solution providers can help MSME customers unlock the potential of scattered and unrelated data through integration and analysis, MSMEs are not well-versed with prevailing ICT legal system and feel hesitant to go in for internet based transactions.

9.1.5 I n f o r m a t i o n a l Inefficiency

The Government has taken various steps and launched many schemes and programs for the benefits of MSME sector. But many MSMEs are still not aware about the various government schemes. As is evident from Table 9.1, the Government has launched various schemes in all areas, from excise duty exemption to foreign market access support to quality upgradation, but of the MSMEs surveyed, only 14-50% are participating in the schemes and availing the benefits.

Various problems, such as, Lengthy paper work, Timeliness and Relevance in addressing business needs, makes it difficult for MSMEs to avail benefit of the schemes. Among those surveyed, 83% MSMEs find the application process lengthy, 80% MSMEs have faced delays in receving benefits and 40% MSMEs feel the schemes are unable to address their business needs.


9.1.6 Inadequate R & D Support

According to the survey, 66.6% of micro enterprises are doing some R&D expenditure compared to 87.7% of small and 88.6% of medium enterprises. The larger the size of the enterprise, the more is its R&D expenditure, with average R&D expenditure of Rs. 21.38 lakh among medium enterprises as compared to Rs. 11.65 lakh among micro enterprises (Table 9.2). Due to limited availability of finance and skilled R&D professionals, micro enterprises find it difficult to engage in R&D activities for product improvement, which further restricts the growth and expansion of these enterprises.

9.1.7 Procurement Issue

Demand of products of MSME sector is a major concern, especially during economic crisis period. Generally, MSMEs find it difficult to participate in public procurement mainly due to unavailability of financial guarantees, lack of knowledge about tender procedures, new opportunities and large size of contracts. Formulation of a Procurement Policy, which sets an annual procurement target from the MSE sector for the central ministries/departments/

Table 9.1: Participation of Surveyed MSMEs in Government Schemes

Government schemes No. of Enterprises benefitting

Percentage of total(Total = 200)

Excise Duty Exemption 87 43.50

Income Tax Exemp-tion 31 15.50

Credit Facilitation Schemes 43 21.50

Infrastructure Support 26 13.00

Export Incentives 60 30.00

Import Incentives 93 46.50Foreign market access support 63 31.50

SEZs/EPZs etc. 59 29.50Access to ITC 63 31.50Quality Upgradation 43 21.50Source : Based on Survey by Rajiv Gandhi Institute for Contemporary Studies.

Table 9.2: Research and Development Expenditure of Surveyed MSMEs

Size of enterprises

Total Enterprises

No. of enterprises doing R&D expenditure

Avg. R&D expenditure

(Rs. lakh)

Micro 42 28 (66.6) 11.65Small 114 100 (87.7) 15.15Medium 44 39 (88.6) 21.38

Figures in parantheses are in percentage termsSource : Based on Survey by Rajiv Gandhi Institute for Contemporary Studies.


PSUs, could address this concern and be a great support to this sector.

Across the globe, Government Procurement Policies (Box 9.1) have been able to provide a big boost to the MSME sector. In India also, the size of public procurement is huge and can provide a high potential for growth to the MSME sector, which covers a wide range of supplies, services and works required by governments, local authorities and public organizations.

9.1.8 Marketing Issues

Unorganized sector enterprises generally suffer from weak marketing. Most MSEs do not have money to invest in market research, advertisement, packaging and are unable to carry out design and technical improvements to keep up with market demands. This limits their ability to tap markets and attract consumers.

According to survey, five major challenges restricting access to domestic markets are Cost of production (due to high raw material cost), Market information, Import surges, Regulatory and Availability of professional management skills. 71% of enterprises have found that their sales suffered due to imports with sales declining by 26-50 percent for 63% of surveyed units and by less than 25 percent for 21% of the surveyed units.

9.1.9 Access to Global Markets

Many segments of MSE, especially the traditional sectors, find it difficult to compete against aggressive

marketing by the big domestic and multinational players. Street vendors, petty traders, handloom and powerloom weavers, home-based food processing units, khadi

Box 9.1: Best Procurement Policy Practices for assisting MSMEs in select countries

USA - statutory annual goal for small business procurement by �federal agencies is 23% of prime contracts.In Malaysia, 30% of the procurement activity is reserved for small �and medium enterprises (SMEs) who have been involved in the vendor development program.In Brazil, a new law in force since January 2007 establishes criteria �that are meant to increase participation of smaller businesses in public procurement.A set percentage of contracts in particular industries must go to �SMEs are prevalent in Australia, Thailand and China.UK - Special Contract Arrangements require contracting authorities �to give special consideration to buying goods and services from suppliers which employ severely disabled people.Malaysia - Tenders from bumiputera (indigenous Malays) �companies receive preferential treatment in government contracts.South Africa - Preferential Procurement to promote the advancement �of people historically disadvantaged by unfair discrimination on the basis of race, gender or disability.

Source : Report of the PM’s Task Force on MSME.


institutions, attar perfumers, zari workers, and rural artisans are the worst affected. There is a need to evolve a constructive response to this situation. As these sectors employ the most marginalized, the indigenous/traditional industries should be given opportunities to tap both the domestic and international markets.

Among those surveyed, only 7.1% of micro enterprises, 24.5% small enterprises and 50% medium enterprises are engaged into exports and have accessed global markets (Table 9.3). The prominent countries of export are Unites States of America (USA), United Kingdom (UK), China and Germany. Due to limited market information and lack of adequate resources and capital, micro enterprises find it most difficult to tap global markets.

According to the survey, the major challenges faced by MSMEs in accessing global

markets, in decreasing order of priority are:

Market information ♦

Price competitiveness ♦

Cost of transport ♦

Availability of professional ♦management skills

Non-tariff barriers ♦

Domestic regulations (for ♦services exports)

Among medium enterprises, cost of production is a major concern as they are able to gather market information easily, compared to micro and medium enterprises, which are not well educated about global markets and sometimes also lack the resources to gather market information.

9.2 Outlook

In the Indian economy, the uncertainty of economic revival has now been replaced with a benign economic turnaround and positive outlook. There has been good improvement in demand for capital goods and

consumer durables, especially consumer cars. The positive shift in turnover & order booking, during the second quarter of FY 2009-2010 may be attributed to the effect of the various stimulus measures announced by the Government of India and the Reserve Bank of India, during FY 2008-09.

The positive sentiment built up in the second and third quarter of FY 2009- 10 is expected to carry forward with higher optimism. The present period is, in fact, a testing time for the Indian MSMEs who have shown considerable resilience in the past and have the capability to bounce back to the road of growth and prosperity. The great entrepreneurial spirit of Indian MSMEs, higher capital productivity and growing savings would be the key drivers of MSME growth momentum.

The MSMEs have to continuously incorporate latest technology into their production processes to gain efficiency, as well as dynamism in their marketing and management functions, besides improving upon their inventory management. The MSME exporters may also attempt to diversify their export destinations and explore new markets including those within the domestic market, which by itself is very large.

Table 9.3: Access to Global Markets among Surveyed MSMEs

Size of enterprise

Total Enterprises

100% export oriented units

No. of enterprises into

exports

Micro 42 3 (7.1) 3 (7.1)

Small 114 10 (8.7) 28 (24.5)

Medium 44 3 (6.8) 22 (50)

Figures in ( ) are in percentage terms


Another area where the MSMEs must pay wider attention is in widening their knowledge and information base. Traditionally, this sector has been suffering from information inefficiency. As a result, many opportunities are missed simply due to lack of information.

The Eleventh Plan looks at the MSE sector as an engine for sustained and inclusive economic growth and employment. As per the plan targets, the production of MSEs in expected to grow at

a CAGR of 19.65 percent during the Eleventh Plan period. Box 9.2details the various strategies of Eleventh Plan for promotion of MSEs.

Box 9.2: Eleventh Plan Strategies for Promotion of MSEs

The strategy of the plan is two-pronged—it focuses on livelihood and social security. This is not just a rights issue but also makes economic common sense—artisans and entrepreneurs can be most productive only when they are physically and mentally fit. Thus providing enabling provisions for artisans, weavers, and small entrepreneurs within industrial policies and schemes will automatically fulfill the constitutional requirement and the commitments made by various Plans. While planning infrastructure development for industries, the needs of the micro and small sector would be kept in mind. There is need to move from adversarial to complementary relationships between various segments of industry and MSE. For instance, handlooms can target hi-end exclusive products—stoles, shawls, sarees, and furnishings— while powerloom mills do bulk production for gamchas, dhotis, towels, bed and table linen, etc. Big brands can continue to develop products such as suitings, shirtings, t-shirts, etc.

The MSE sector, including handlooms and handicrafts, presents an opportunity for exports. Exclusivity, which stems from the dispersed nature of this sector, is its biggest strength. And yet, the dispersed nature of the sector makes it difficult to meet bulk orders, raises quality control issues, robs the workers of bargaining power, limits access to credit and markets, results in absence of social security, and prevents enterprises from benefiting from economies of scale. The effort during the Plan period will therefore be to organize this sector, to create clusters and SHGs of weavers/artisans to improve their bargaining power and to enable them to pool resources. These groups, comprising weavers, artisans, and entrepreneurs, will be given full control over cluster decisions and will be provided support in the form of credit, inputs, expertise, and marketing links.

For micro and small entrepreneurs who cannot bring in sufficient equity/promoter’s contribution, a flexible debt–equity ratio may need to be adopted while sanctioning export credit. As international experiences indicate cluster based financing is the most effective way of providing credit to MSEs.

Source : Eleventh Five year Plan Document

Appendix

259Appendix

Appendix 1 List of Industrially Backwards Districts in the Country

State/UTs Industrially Backward Districts

Andaman & Nicobar Islands Entire Union Territory

Andhra Pradesh Anantapur, Chittor, Cuddapah, Karimnagar, Khamman, Kurnool, Mehbubhnagar, Medak, Nalgonda, Nel-lore, Nizamabad, Ongole, Srikakulam and Warangal

Arunachal Pradesh Entire State

Assam Entire State

Bihar Bhagalpur, Chamnagar, Darbhanga, Muzaffarpur, Walagau, Saharsa, Saran, Nalanda, Aurangabad, Nwaad-ha Gaya, Bhojpur, Begusarai, Monghyr, Khagaria and Madhepur

Chhattisgarh Raipur, Rajandgaon, Bastar, Bilaspur, RaigarhDadra & Nagar Haveli Entire Union Territory

Daman & Diu Entire Union TerritoryGoa Entire State

Gujarat Amreli, Banaskantha, Bhavnagar, Broach, Junagadh, Kutch, Mehsana, Panchmahals, Sabarkamtha, Suren-dranagar & Dang

Harayana Bhiwani, Hissar, Jind and MohindergarhHimachal Pradesh Entire State

Jammu & Kashmir Entire State

Jharkhand Palamau, Santhal, Parganas

Karnataka Belgaum, Bidar, Bijapur, Dharwar, Gulbarga, Hasan, Mysore, North Kanara, Raichur, South Kanara and Tumkur

Kerala Allappey, Cannanore, Malapuram, Trichur, Trivandrum, Wynad & IdukkiLakshadweep Entire Union Territory

Madhya PradeshBalaghat, Betul, Bhind, Chatarpur, Chindwara, Damoh, Datia, Dhar, Dewas, Guna, Hoshangabad, Jhabua, Khargone, Mandla, Kandsaur, Morena, Narsimhapur, Panna, Raisen, Ratlam, Rewa, Sagar, Seono, Shajapur, Shivpuri, Sidhi, Surguja, Tikamgarh, Vidisha, and New Sehore District

Maharashtra Aurangabad, Bhandara, Hir, Buldhana, Chandrapur, Colaba, Dhulia,Jalgaon, Nanded, Osmanabad, Parb-hani, Ratnagiri, Yeotmal and Gadchiroli

Manipur Entire StateMeghalaya Entire StateMizoram Entire StateNagaland Entire StateOrissa Balasore, Bolangir, Dhenkanal, Kalahandi, Keonjhar, Koraput, Mayurbhanj and PhulbaniPondicherry Entire Union TerritoryPunjab Bhatinda, Ferozpur, Gurdaspur, Hoshiarpur and Sangrur.Rajasthan Alwar, Banswara, Bhilwara, Barmer, Churu, Dungarpur, Jaisalmer, Jalore, Jhunjhunu, Jhalawar, Jodhpur,

Nagaur, Sikar, Sirohi, Tonk and UdaipurSikkim Entire StateTamil Nadu Dharmapuri, Kanyakumari, Madhurai, North Arcot, Ramanathapuram, South Arcot, Thanjavur, Tiruchira-

palli and Pudikkottai districtTripura Entire StateUttar Pradesh Azamgarh, Adaun, Baharaich, Ballia, Banda, Barabanki, Basti, Bulandshar, Deoria, Etah, Etawah, Faizabad,

Farrukhabad, Fatehpur, Ghazipur, Gonda, Hamirpur, Hardoi, Jalaun, Jaunpur, Jhansi, Mainpuri, Mathura, Moradabad, Pilibhit, Pratapgarh, Rai-Bareli, Rampur, Unnao, Uttar Kashi, Kanpur, Dehat, Shahajahanpur, Sitapur and Sultanpur

Uttaranchal Almora, Chamoli, Dehradun and Nainital, Pauri Garawal, Pithoragarh, Tehri Garhwal, Uttar KashiWest Bengal Bankura, Birbhum, Burdwan, Cooch-Behar, Darjeeling, Hooghly, Jalnaiguri, Malda, Midnapur, Murshida-

bad, Nadia, Purulia and West Dinajpur


Appendix 2 State wise Coverage of SSI/MSME Units

Name of State 2001-02 Coverage of SSI units in Third Census

2006-07 Coverage of MSME units in Fourth

CensusRegistered Unregistered Total Registered Unregistered Total

1 Jammu & Kashmir 14625 58500 73125 14534 246803 261337

2 Himachal Pradesh 10891 65307 76198 11936 172915 1848513 Punjab 65015 311811 376826 50113 753872 8039854 Chandigarh 1281 20966 22247 1001 30746 317475 Uttaranchal 15285 91199 106484 23766 202747 2265136 Haryana 39584 183710 223294 33783 570312 6040957 Delhi 7360 169720 177080 725 616482 6172078 Rajasthan 43145 398427 441572 55108 1216355 12714639 Uttar Pradesh 162938 1545039 1707977 187512 2925804 311331610 Bihar 52107 467244 519351 52188 950071 100225911 Sikkim 174 194 368 123 11716 1183912 Arunachal Pradesh 255 997 1252 451 19972 2042313 Nagaland 568 13293 13861 1315 25823 2713814 Manipur 4599 43400 47999 4507 60295 6480215 Mizoram 2733 8383 11116 3689 18690 2237916 Tripura 959 23393 24352 1251 108414 10966517 Meghalaya 1939 20581 22520 3063 45627 4869018 Assam 14453 179926 194379 18671 584870 60354119 West Bengal 42148 729240 771388 42605 2470698 251330320 Jharkhand 18322 114124 132446 18198 357435 37563321 Orissa 12366 375911 388277 19585 1042101 106168622 Chhattisgarh 33909 229991 263900 26235 338316 36455123 Madhya Pradesh 101939 691613 793552 108804 1181732 129053624 Gujarat 138537 391777 530314 229738 867363 109710125 Daman & Diu 1026 1291 2317 595 6612 720726 Dadar & Nagar

Haveli693 693 1714 4413 6127

27 Maharashtra 83098 720470 803568 86607 2496263 258287028 Andhra Pradesh 62917 812513 875430 23617 1981427 200504429 Karnataka 110487 548334 658821 139640 1472015 161165530 Goa 2139 4958 7097 3137 48354 5149131 Lakshadweep 68 464 532 89 1097 118632 Kerala 146988 305838 452826 149755 1318349 146810433 Tamilnadu 180032 607933 787965 233951 2361176 259512734 Pondicherry 1721 7139 8860 2109 32300 3440935 Andaman &

Nicobar Islands673 2530 3203 745 8745 9490

All India 1374974 9146216 10521190 1550860 24549910 26100770Sources:

• ThirdAllIndiaCensusofSmallScaleIndustries2001-2002•QuickResultsof4thCensus2008-09•NewsReportsNote: SSI Census data pertains only to Small Enterprises, whereas figures for Fourth MSME Census pertain to Micro, Small and Medium Enterprises combined

261Appendix

Appendix 3State/UT-wise distribution of working (registered) micro, small and medium enterprises

Sl.No.

Name of the State/UT

1st Census 2nd Census 3rd Census 4th Census

01 Uttar Pradesh 160027 (9.68) 348908 (9.52) 581810 (9.44) 845709 (8.93)02 Maharashtra 239770 (14.5) 355900 (9.71) 630570 (10.23) 1140016 (12.04)03 West Bengal 176198 (10.65) 311838 (8.51) 254809 (4.13) 362227 (3.82)04 Tamil Nadu 215182 (13.01) 536381 (14.63) 882083 (14.31) 1486291 (15.70)05 Andhra Pradesh 78673 (4.76) 276127 (7.53) 383335 (6.21) 83287*06 Karnataka 64385 (3.89) 244039 (6.65) 477284 (7.74) 836624 (8.84)07 Kerala 126514 (7.65) 169309 (4.62) 540260 (8.76) 630088 (6.66)08 Rajasthan 45860 (2.77) 122550 (3.34) 199676 (3.24) 395195 (4.18)09 Madhya Pradesh 59612 (3.6) 158808 (4.33) 249467 (4.04) 324294 (3.43)10 Orissa 18624 (1.12) 69305 (1.89) 80888 (1.31) 171849 (1.81)11 Bihar 61465 (3.72) 181781 (4.95) 136914 (2.22) 216007 (2.28)12 Gujarat 114500 (6.92) 276955 (5.92) 578764 (9.40) 1218099 (12.86)13 Punjab 123544 (7.47) 206209 (5.625) 337443 (5.47) 496953 (5.25)14 Delhi 64880 (3.92) 121972 (3.32) 86479 (1.40) 635*15 Assam 19652 (1.19) 34475 (0.94) 64623 (1.04) 157058 (1.66)16 Haryana 48503 (2.93) 105656 (2.88) 241171 (3.91) 465024 (4.91)17 Jharkhand Part of Bihar Part of Bihar 71071 (1.15) 85601 (0.90)18 Chhattisgarh Part of MP Part of MP 91000 (1.47) 72290 (0.76)19 Jammu & Kashmir 9598 (0.58) 40655 (1.11) 50707 (0.82) 106122 (1.12)20 Uttaranchal Part of UP Part of UP 40853 (0.66) 89075 (0.94)21 Himachal Pradesh 5851 (0.35) 25536 (0.70) 37660 (0.61) 70123 (0.74)22 Tripura 1698 (0.10) 10069 (0.27) 11666 (0.19) 26794 (0.28)23 Manipur 3409 (0.20) 10216 (0.28) 19626 (0.32) 19638 (0.20)24 Goa 7253 (0.44) 19935 (0.54) 16664 (0.27) 27807 (0.29)25 Meghalaya 1188 (0.07) 3780 (0.10) 10734 (0.17) 12810 (0.13)26 Pondicherry 2570 (0.15) 8721 (0.24) 19739 (0.32) 62486 (0.66)27 Chandigarh 2882 (0.17) 10579 (0.29) 10563 (0.17) 10977 (0.11)28 Nagaland 448 (0.027) 3059 (0.08) 4967 (0.08) 12922 (0.13)29 Arunachal Pradesh 181 (0.01) 2771 (0.07) 1481 (0.024) 5809 (0.06)30 Mizoram 36 (0.00) 42233 (0.11) 9061 (0.15) 23267 (0.24)31 Sikkim Not Available 1033 (0.03) 959 (0.015) 1037 (0.01)32 Andaman & Nicobar

Islands Not Available 1672 (0.05) 2594 (0.04) 14406 (0.15)

33 Daman & Diu Part of Goa 1233 (0.03) 25385 (0.41) 1334*34 Dadra & Nagar

Haveli381 (0.02) 2115 (0.06) 12918 (0.20) *

35 Lakshadweep Not Available Not Available 253 (0.004) *ALL INDIA 1653178 3665810 6163479 9471186

*Completedatahasnotbeenreceivedfromrespectivestates/UTs.Note : Figures in parentheses represent percentage shares


Appendix 4Industry Group (At 3-Digit Level of NIC -2004) Wise Distribution of Enterprises

NIC Description of Activities No. of MSMEs2004 Regd. Unregd. Total

522 Retail sale of food, beverages and tobacco in specialized stores

74 4252776 4252850

523 Other retail trade of new goods in specialized stores

11656 3786427 3798083

521 Non-specialized retail trade in stores 84 2828858 2828942

552 Restaurants, bars and canteens 1009 1119519 1120528

930 Other service activities 8716 1092540 1101256

181 Mnf. of wearing apperal 214072 1076687 1290759

160 Mnf. of tobacco products 4402 923752 928154

153 Mnf. of grain mill products, starches & starch products & prepared animal feeds

123781 713394 837175

526 Repair of personal & household goods 119569 641068 760637

642 Telecommunications 10278 588184 598462

171 Spinning, weaving and finishing of textiles

58102 582015 640117

851 Human health activities 1285 513168 514453

202 Mnf. of products of wood, cork, straw and plainting materials

25301 455723 481024

369 Mnf. of jewellery,musical instmns, sports goods,toys,stationery, decorative articles, etc.

27426 427485 454911

525 Retail trade not in stores 9997 396505 406502

172 Mnf. of other textiles 39106 348518 387624

749 Business activities N.E.C. 22758 302725 325483

512 Wholesale of agricultural raw material, live animals, food, beverages and tobacco

324 279304 279628

154 Mnf. Of other food products 38594 256793 295387

504 Sale, maintenance and repair of motorcycles and related parts accessories

184 255974 256158

809 Other education 770 213449 214219

269 Mnf. of non-metallic products N.E.C. 49643 210049 259692

551 Hotels; camping sites and other provision of short-stay accomodation

254 203468 203722

713 Renting of personal and household goods N.E.C.

640 178379 179019

151 Production, processing and preservation of meat, fish, fruit, vegetables, oils & fats

27756 158885 186641

263Appendix

Industry Group (At 3-Digit Level of NIC -2004) Wise Distribution of Enterprises (Contd..)

NICDescription of Activities

No. of MSMEs

2004 Regd. Unregd. Total

502 Maintenance and repair of motor vehicles 56206 152274 208480

630 Supporting and auxiliary transport activities; activities of travel agencies

800 151083 151883

361 Mnf. of furniture 71412 139166 210578

503 Sale of motor vehicle parts and accessories 6 131967 131973

514 Wholesale of non-agricultural intermediate products, waste and scrap

4 128965 128969

152 Mnf. of dairy product 6233 122950 129183

289 Mnf. of fabricated metal products; metal working service activities

101351 105414 206765

741 Legal, accounting, book-keeping and auting activities

627 99152 99779

921 Motion picture, radio, television and other entertainment activities

2570 95787 98357

513 Wholesale of household goods 15 92019 92034

511 Wholesale on a fee or contract basis 125 88185 88310

242 Mnf. of other chemical products 34299 81432 115731

281 Mnf. of structural metal products, tanks, reservoirs and steam generators

33436 79522 112958

222 Printing and service activities related to printing

38014 71630 109644

155 Mnf. of beverages 10426 70817 81243

524 Retail sale of second-hand goods in stores 18 62359 62377

712 Renting of other machinery and equipment

89 53666 53755

505 Retail sale of automotive fuel 25 48007 48032

853 Social work activities 76 45858 45934

201 Saw milling and planning of wood 26809 40577 67386

515 Wholesale of machinery, equipment and supplies

828 39451 40279

192 Mnf. Of footwear 20660 36867 57527

012 Farming of animals 9875 35160 45035

454 Building completion 78 34859 34937

711 Renting of transport equipment 35 33320 33355

924 Sporting and other recreational activities 25 33027 33052

641 Post and courier activities 9 28870 28879




No. of MSMEs


702 Real Estate Activities on A Fee or Contract Basis

27 28774 28801

519 Other Wholesale 623 27385 28008

271 Mnf. of Basic Iron & Steel 6445 27224 33669

701 Real Estate Activities with own or Leased Property

23 25772 25795

191 Tanning & Dressing of Leather; Mnf. of Luggage, Handbags, Saddlery & Harness

6063 25700 31763

923 Library, Archives, Museums and other Cultural Activities

49 25242 25291

221 Publishing 1643 23096 24739

273 Casting of Metals 5813 22668 28481

292 Mnf. of Special Purpose Machinery 52758 22090 74848

501 Sale of Motor Vehicles 1702 21519 23221

729 Other Computer Related Activities 4197 20380 24577

210 Mnf. of Paper And Paper Products 12636 20363 32999

252 Mnf. of Plastic Products 18918 19942 38860

311 Mnf. of Electric Motors, Generators and Transformers

13797 19696 33493

293 Mnf. Of Domestic Appliances, N.E.C. 2248 17563 19811

182 Dressing And Dyeing of Fur; Mnf. of Articles of Fur

354 16249 16603

020 Forestry, Logging and Related Service Activities

946 15830 16776

453 Building Installation 480 14999 15479

742 Architectural, Engineering and other Technical Activities

1658 13953 15611

261 Mnf. of Glass and Glass Products 4213 12847 17060

410 Collection, Purification and Distribution of Water

226 11233 11459

323 Mnf. of Television & Radio Receivers, Sound or Video Reproducing Appat & Asso. Goods

2024 10771 12795

173 Mnf. of Knitted & Crocheted Fabrics and Articles

7558 10335 17893

291 Mnf. of General Purpose Machinery 17491 10095 27586

314 Mnf. of Accumulators, Primary Cells and Primary Batteries

6009 10030 16039

265Appendix



No. of MSMEs


852 Veterinary Activities 4 9997 10001322 Mnf. of Television And Radio

Transmitters And Apparatus For Line Telephony & Telegraphy

2816 9648 12464

241 Mnf. of Basic Chemicals 12881 9405 22286401 Production, Collection and Distribution of

Electricity405 8975 9380

223 Reproduction of Recorded Media 124 8606 8730371 Recycling of Metal Waste and Scrap 181 8201 8382141 Quarrying of Stone, Sand and Clay 10591 7901 18492319 Mnf. of other Electrical Equipments

N.E.C.9358 7545 16903

922 News Agency Activities 127 7313 7440372 Recycling of Non-Metal Waste and Scrap 33 7270 7303272 Mnf. of Basic Precious and Non-Ferrous

Metals6110 6624 12734

402 Mnf. of Gas and Distribution of Gaseous Fulels

284 6102 6386

721 Hardware Consultancy 14 6085 6099251 Mnf. of Rubber Products 16173 6073 22246743 Advertising 355 5954 6309321 Mnf. of Electronic Valves and Tubes and

other Electronic Components3900 5612 9512

722 Software Publishing, Consultancy and Supply

3842 5004 8846

343 Mnf. of Parts & Accessories for Motor Vehicles and their Engines

1763 4550 6313

331 Mnf. of Medical Appliances/Instruments For Measuring, Checking, Testing, Navigating, etc

7749 4229 11978

725 Maintenance and Repair of Office, Accounting and Computing Machinery

2384 4162 6546

050 Fishing, Operation of Fish Hatcheries and Fish Farms; Service Activities

113 3837 3950

112 Service Activties Incidental to Oil and Gas Extraction

306 3677 3983

455 Renting of Construction or Demolition Equipment with Operator

1 3671 3672

333 Mnf. of Watches and Clocks 592 3548 4140

724 Database Activities and Distribution of Electronic Content

164 3480 3644

342 Mnf. of Bodies for Motor Vehicles; Mnf. of Trailers And Semi-Trailers

2059 3244 5303




No. of MSMEs


315 Mnf. of Electric Lamps and Lighting Equipments

1564 2754 4318

723 Data Processing 11102 2295 13397

332 Mnf. of Optical Instruments and Photographic Equipments

2219 2155 4374

359 Mnf. of Transport Equipment N.E.C. 14440 2147 16587

131 Mining of Iron Ores 196 2111 2307

312 Mnf. of Electricity Distribution and Control Apparatus

1487 2045 3532

351 Building And Repair of Ships & Boats 471 1841 2312

352 Mnf. of Railway and Tramway Locomotives and Rolling Stock

618 1706 2324

300 Mnf. of Office, Accounting and Computing Machinery

4962 1697 6659

142 Mining and Quarrying N.E.C. 1711 1606 3317

231 Mnf. of Coke Oven Products 1059 1473 2532

243 Mnf. of Man-Made Fibres 280 1455 1735

341 Mnf. of Motor Vehicles 2319 1229 3548

313 Mnf. of Insulated Wire And Cable 1911 1160 3071

731 Research And Experimental Development on Natural Science And Engineering (NSE)

6 995 1001

232 Mnf. of Refined Petroleum Products 1069 792 1861

233 Processing of Nuclear Fuel 18 771 789

014 Agricultural and Animal Husbandry Service Activities

1115 449 1564

132 Mining of Non-Ferrous Metal Ores, Except Uranium And Thorium Ores

611 407 1018

732 Research and Experimental Development on Social Science and Huminities (SSH)

120 333 453

403 Steam and Hot Water Supply 0 241 241

015 Hunting, Trapping and Game Propagation & Reated Activities, N.E.C.

4 126 130

353 Mnf. of Aircraft And Spacecraft 140 93 233

013 Growing of Crops Combined with Farming of Animals

4 71 75

999 Not Recorded 20832 0 20832

Total 1528320 24572450 26100770

Source:QuickResultsof4thCensus,2008-2009,MinistryofMSME,GovernmentofIndia.

267Appendix

Appendix 5Industry Group (At 3-Digit Level of NIC -2004) Wise Distribution of Employment

NIC Description of Activities Employment in MSMEs2004 Regd. Unregd. Total

523 Other Retail Trade of New Goods in Specialized Stores

25821 7568869 7594690

522 Retail Sale of Food, Beverages and Tobacco In Specialized Stores

369 6779151 6779520

521 Non-Specialized Retail Trade in Stores 253 4517228 4517481

552 Restaurants, Bars and Canteens 5427 2641806 2647233

930 Other Service Activities 21983 1936330 1958313

160 Mnf. of Tobacco Products 188264 1852146 2040410

171 Spinning, Weaving and Finishing of Textiles

706157 1795969 2502126

181 Mnf. of Wearing Apperal 912772 1753056 2665828

851 Human Health Activities 4177 1404746 1408923

369 Mnf. of Jewellery,Musical Instmns, Sports Goods,Toys,Stationery, Decorative Articles, etc.

130568 1209607 1340175

153 Mnf. of Grain Mill Products, Starches & Starch Products & Prepared Animal Feeds

486156 1114643 1600799

526 Repair of Personal & Household Goods 214583 1003672 1218255

172 Mnf. of other Textiles 301245 954692 1255937

642 Telecommunications 35299 908850 944149

202 Mnf. of Products of Wood, Cork, Straw and Plainting Materials

129910 890121 1020031

269 Mnf. of Non-Metallic Products N.E.C. 512670 794558 1307228

749 Business Activities N.E.C. 84809 765151 849960

551 Hotels; Camping Sites and other Provi-sion of Short-Stay Accomodation

1771 736292 738063

525 Retail Trade Not in Stores 27125 630859 657984

512 Wholesale of Agricultural Raw Mate-rial, Live Animals, Food, Beverages and Tobacco

1173 626899 628072

154 Mnf. of Other Food Products 488184 620648 1108832

504 Sale, Maintenance and Repair of Motor-cycles and Related Parts Accessories

449 601083 601532

809 Other Education 2362 580745 583107

630 Supporting and Auxiliary Transport Activities; Activities of Travel Agencies

17766 459283 477049


Industry Group (At 3-Digit Level of NIC -2004) Wise Distribution of Employment (Contd..)

NIC Description of Activities Employment in MSMEs


151 Production, Processing and Preservation of Meat, Fish, Fruit, Vegetables, Oils & Fats

163865 454563 618428

502 Maintenance and Repair of Motor Vehicles

157023 387004 544027

713 Renting of Personal and Household Goods N.E.C.

8907 372979 381886

513 Wholesale of Household Goods 155 343632 343787

514 Wholesale of Non-Agricultural Intermediate Products, Waste and Scrap

15 328033 328048

503 Sale of Motor Vehicle Parts and Accessories

10 310225 310235

921 Motion Picture, Radio, Television and other Entertainment Activities

6724 294050 300774

741 Legal, Accounting, Book-Keeping and Auting Activities

4424 292082 296506

361 Mnf. of Furniture 245181 269215 514396

511 Wholesale on a Fee or Contract Basis 861 264193 265054

152 Mnf. of Dairy Product 48712 240693 289405

281 Mnf. of Structural Metal Products, Tanks, Reservoirs and Steam Generators

146196 226046 372242

222 Printing and Service Activities Related to Printing

188477 194271 382748

242 Mnf. of other Chemical Products 357497 182896 540393

505 Retail Sale of Automotive Fuel 75 179231 179306

853 Social Work Activities 505 169532 170037

155 Mnf. of Beverages 71937 158401 230338

201 Saw Milling and Planning of Wood 92375 136918 229293

289 Mnf. of Fabricated Metal Products; Metal Working Service Activities

613807 130473 744280

524 Retail Sale of Second-Hand Goods in Stores

37 125439 125476

271 Mnf. of Basic Iron & Steel 139016 123734 262750

924 Sporting and other Recreational Activities 237 121627 121864

729 Other Computer Related Activities 12085 119330 131415

252 Mnf. of Plastic Products 192072 116668 308740

269Appendix




641 Post and Courier Activities 22 113864 113886

173 Mnf. of Knitted & Crocheted Fabrics and Articles

93080 111687 204767

515 Wholesale Of Machinery, Equipment and Supplies

3195 110420 113615

192 Mnf. of Footwear 102832 101067 203899

519 Other Wholesale 1769 98836 100605

221 Publishing 22191 94638 116829

712 Renting of Other Machinery and Equip-ment

448 90361 90809

722 Software Publishing, Consultancy and Supply

23536 90177 113713

343 Mnf. of Parts & Accessories for Motor Vehicles and their Engines

25531 86450 111981

501 Sale of Motor Vehicles 8710 86112 94822

293 Mnf. of Domestic Appliances, N.E.C. 20522 78375 98897

182 Dressing and Dyeing of Fur; Mnf. of Articles of Fur

4170 77140 81310

454 Building Completion 221 74486 74707

191 Tanning & Dressing Of Leather; Mnf. of Luggage, Handbags, Saddlery & Harness

71419 73244 144663

401 Production, Collection and Distribution of Electricity

2878 65974 68852

702 Real Estate Activities on a Fee or Contract Basis

116 63717 63833

711 Renting of Transport Equipment 1032 63191 64223

141 Quarrying of Stone, Sand and Clay 106762 57954 164716

701 Real Estate Activities with Own or Leased Property

317 55813 56130

742 Architectural, Engineering and other Technical Activities

8638 54767 63405

273 Casting of Metals 79285 53100 132385

923 Library, Archives, Museums and other Cultural Activities

118 50228 50346

210 Mnf. of Paper and Paper Products 167693 44120 211813

319 Mnf. of other Electrical Equipments N.E.C.

41482 43479 84961

453 Building Installation 2731 35757 38488





311 Mnf. of Electric Motors, Generators and Transformers

67713 34265 101978

323 Mnf. of Television & Radio Receivers, Sound or Video Reproducing Appat & Asso. Goods

11407 33008 44415

410 Collection, Purification and Distribution of Water

2124 31856 33980

261 Mnf. of Glass and Glass Products 48161 27822 75983241 Mnf. of Basic Chemicals 140650 27405 168055743 Advertising 1314 26399 27713402 Mnf. of Gas and Distribution of Gaseous

Fulels1572 25247 26819

922 News Agency Activities 335 25097 25432322 Mnf. of Television and Radio Transmit-

ters and Apparatus for Line Telephony & Telegraphy

10424 24035 34459

852 Veterinary Activities 19 23025 23044371 Recycling of Metal Waste and Scrap 1519 21754 23273315 Mnf. of Electric Lamps and Lighting

Equipments11332 21063 32395

342 Mnf. of Bodies for Motor Vehicles; Mnf. of Trailers and Semi-Trailers

14771 21015 35786

372 Recycling of Non-Metal Waste and Scrap 188 20492 20680721 Hardware Consultancy 40 20375 20415314 Mnf. of Accumulators, Primary Cells and

Primary Batteries17510 19595 37105

724 Database Activities and Distribution of Electronic Content

858 18953 19811

313 Mnf. of Insulated Wire and Cable 17876 18825 36701291 Mnf. of General Purpose Machinery 192238 18192 210430232 Mnf. of Refined Petroleum Products 28880 17935 46815223 Reproduction of Recorded Media 692 16843 17535300 Mnf. of Office, Accounting and Comput-

ing Machinery33387 16795 50182

243 Mnf. of Man-Made Fibres 2009 14741 16750725 Maintenance and Repair of Office, Ac-

counting and Computing Machinery6700 13197 19897

251 Mnf. of Rubber Products 117887 12849 130736333 Mnf. of Watches And Clocks 5833 12478 18311292 Mnf. of Special Purpose Machinery 321735 12185 333920331 Mnf. of Medical Appliances/Instruments

For Measuring, Checking, Testing, Navi-gating, etc.

79367 12000 91367

271Appendix

Industry Group (At 3-Digit Level of NIC -2004) Wise Distribution of Employment (Contd..)NIC Description of Activities Employment in MSMEs

2004 Regd. Unregd. Total112 Service Activties Incidental to Oil and Gas

Extraction4277 11189 15466

455 Renting of Construction or Demolition Equipment With Operator

1 10960 10961

351 Building and Repair of Ships & Boats 5667 9743 15410131 Mining of Iron Ores 4797 8911 13708312 Mnf. of Electricity Distribution and

Control Apparatus19594 7474 27068

723 Data Processing 43232 6785 50017341 Mnf. of Motor Vehicles 36308 6725 43033359 Mnf. of Transport Equipment N.E.C. 174961 6348 181309731 Research and Experimental Development

On Natural Science and Engineering (NSE)

200 6010 6210

142 Mining And Quarrying N.E.C. 16752 5298 22050332 Mnf. of Optical Instruments and

Photographic Equipments7422 4988 12410

233 Processing of Nuclear Fuel 132 4906 5038321 Mnf. of Electronic Valves and Tubes and

other Electronic Components45194 4091 49285

352 Mnf. of Railway and Tramway Locomotives and Rolling Stock

8423 3873 12296

231 Mnf. of Coke Oven Products 9744 3238 12982732 Research and Experimental Development

on Social Science and Huminities (SSH)615 3099 3714

272 Mnf. of Basic Precious And Non-Ferrous Metals

84677 1923 86600

403 Steam and Hot Water Supply 0 998 998132 Mining of Non-Ferrous Metal Ores,

Except Uranium and Thorium Ores4198 243 4441

353 Mnf. of Aircraft and Spacecraft 1106 195 1301012 Farming of Animals 195356 0 195356013 Growing of Crops Combined with

Farming of Animals14 0 14

014 Agricultural and Animal Husbandry Service Activities

9178 0 9178

015 Hunting, Trapping and Game Propagation & Reated Activities, N.E.C.

19 0 19

020 Forestry, Logging and Related Service Activities

7564 0 7564

050 Fishing, Operation of Fish Hatcheries and Fish Farms; Service Activities

1221 0 1221

999 Not Recorded 116485 0 116485 Total 9471862 50257039 59728901

Source:QuickResultsof4thCensus,2008-2009,MinistryofMSME,GovernmentofIndia.


Appendix 6 State/UT wise Major Products Manufactured

State/UTs Industrially Backward Districts

Uttar PradeshProcessed Food Products, Brass Utensils/Brass wares, Bangles, Handicrafts, Hand woven carpets, Diesel Engines, Leather Products, Glass wares, Chiken & Zari work Sarees, Foundry & Forged Products, Bamboo & Wooden furniture, Hosiery & other garments, Pottery, Flavors & Fragrance, Film processing & Editing.

Maharashtra

Entertainment & Engineering Electronics, Textile & Textile Products, Chemical & Chemical Products, IT (Hardware & Soft ware), Auto components, M/C Tools & Components, Gems & Jewelry, Leather Products, Garments, Rubber & Plastic Products, Marine Products, Foam Products, Construction Industries, Film processing & Editing.

West BengalLeather Product, Foundry castings (light & heavy) Rubber and Plastic products, Small arms, Paper Prod-ucts, General Engineering Products & Machinery parts, Handloom & Power loom Products, Hosiery Prod-ucts, Marine Products, Film processing & Editing.

Tamil NaduHosiery Products, Sericulture, Leather Tanneries & Leather products, Handicrafts, Brass wares, General Engineering, Cotton & Silk Textiles, Matches & Fireworks, Marine Products IT (Hardware & Soft ware) spices & agro products, Wind power generation, Film processing & Editing.

Andhra PradeshNon-ferrous metal products, Pearls & Jewelry, Marine products, Coir products, edible oils, Processed food products, Electrical & Electronic goods, Film Processing & Editing

KarnatakaElectronics, IT (Software & Hardware), Cotton & Silk Handloom Products, Agro based Industries includ-ing sericulture, Telecom & Telecom Products, Marine Products, Sandal Oil & Sandal Carvings, Ivory & Wood Handicraft, Construction Industries Tiles etc.

KeralaCoir & Coir Products, Marine Products, Cashew, Handloom, Light Engineering, Rubber & Rubber Prod-ucts, Processed food products & Spices.

Rajasthan Processed food & spices, Pickles, Stone cutting & Stone Handicrafts, Edible Oils, Wooden Handicrafts & Furniture, Textiles.

Madhya PradeshPulse processing, Engineering goods, Leather Toys, Cotton Ginning, Cattle Feed, Handloom & Power Loom.

OrissaHandloom Cotton/Silk Sarees, Marine Product, Handicraft (Metal & Silver), Processed food items, Engi-neering products, Wood based item including boats.

Bihar Textiles, Processed food products, Handloom Products, Shellac, and Agro based products.

GujaratDiamond cutting & Diamond Jewelry, Processed food products, Engineering Plants, Synthetic & Silken Textiles, Chemical Industries, dies & Intermediates, Hosiery, Garments, Engineering Industries.

PunjabFood Products, Hosiery, Garments M/C tools & Components, Rolled steel products, Cycle & Cycle parts, Sewing Machinery parts, Milk Products, Basic medal industries, Woolen Blankets & Knitwear, Builder’s Hardware.

DelhiGarments, Entertainment Electronics, Paper & Paper Products, General Engineering Industries, Machine tools & Other machinery.

AssamSericulture, Tea processing, Food Products, Agro Product Processing, Auto Servicing, Construction Indus-tries, Tiles, Bricks.

273Appendix

State/UT wise Major Products Manufactured

HaryanaConstruction Industry, Builder’s Hardware, Plywood, Agriculture implements, Agro based Industry. IT (Software & Hardware)

Jharkhand General Engineering, Auto components, Industrial Fasteners Repair & Maintenance, Shellac.

Chhattisgarh Agro Products, Fabrication, Food Products.

J & K Processed Food & Fruits Products, Honey, Woolen show to & Woolen garments, Walnut Furniture & Hand-icrafts, Handloom Products, Leather Products, and Mineral based industries, Cricket bats, Wickets, Agro based Industries.

UttaranchalAllopathic & Ayurvedic Drugs, Engineering Products, Auto Products, Electrical & Electronic Products, Survey & Drawing Instruments, Agro based Products, Tea Processing, and Tourism.

Himachal Pradesh

Food Products, Auto Parts and accessories Wood Products, Herbal Products, Ayurvedic Medicines, Electri-cal & Electronic Products, Tourism.

TripuraFood Processing Industry, Tea Processing, Handicrafts & Handlooms, Iron & Steel Fabrications, Rubber Based industry, Forest based industry

Manipur Handicrafts, Paper Products, Processed food products, Metal Products, Garments.

GoaMarine Products, Pharmaceuticals, IT (Software) Electronic goods, Cashews, Hosiery, Garments, Tour-ism.

Meghalaya Processed food & Fruit Products, Wood furniture, Garment, Paper & Painting, Handicrafts, Cyber Café.

Pondicherry Chemical products, Cotton, Food products, Rubber products & Leather products, Plant products.

Chandigarh General Engineering, Industrial fasteners, Steel furniture, Auto parts, Steel fabrication.

NagalandSericulture, Mineral Industry, Food processing industry, Agro based industry, Handicraft, Tourism, Cyber cafés.

Arunachal Pradesh

Tea processing, Spices, Cane & Bamboo products, Timber products, Rubber product, Carpets, Handi-crafts.

MizoramHandicrafts, Came & Bamboo products, STD & ISD Cyber cafes booth, Food & Fruit processing industry, Wooden furniture, Handloom.

Sikkim Tea processing, Fruits preservation, Agro based industries, Breweries, Handicrafts.

Andaman & Nicobar Island

Handicrafts, Wheat flour, Soft drinks, Fabrication work, Camera Film processing & Photo developing, Steel & wooden furniture, Marine products.

Daman & Diu Plastics & Plastic products, Fabrication industries, Wooden furniture.

Dadra & Nagar Haveli

Plastics products, Engineering items, Paper products, Textiles, Electrical & Electronic goods, Fabrication industry.

Lakshadweep Sea boats, coconut oil


Appendix 7 Major Crafts Practices in Different States

State/UT Handicrafts

Andhra Pradesh Carpets, Ikat, himroo, Pearls, Bidriware, Brassware of Pembarti

Arunachal Pradesh Bamboo and Cane Craft, Weaving, Woodcraft and Carving, Ivory and Metal Craft, Blacksmithy

AssamJewellery, Brass and Bell metal products, The Chalani (sieve), kula (winnowing pan), Khorahi (small bas-kets), the Japi (hat), Household articles, toys, dolls and images of worship, woodcarvings, Kuhila Koth or fiber weaving, Pith or Indian cork

Bihar Madhubani Paintings, Bangle Making, Stone Work, Sikki Craft

Chhattisgarh Bamboo Work, Wood Carving, Painting, Ornaments

Dadra & Nagar Haveli Leather slippers, weaving of bamboo mats and baskets, Mat weaving

Delhi Zardozi, meenakari work, Lacquer work bangles, incense sticks, ittars (perfumes), brass moulding

Goa Pottery & Terracotta, Brass metal ware, Wooden laquerware / Wood turning, Brass metal ware, Crochet & Embroidery, Bamboo Craft, Fiber Craft, Jute Macrame Craft, Coconut Mask Carving, Sea Shell Craft

Gujarat Handicraft Heritage, Textiles, Ethnic Flair Embroidery in Gujarat, Heer BharatMotifs, Kathi Embroidery, Woodcarving, Bead Work, Utensils, Terracotta Jewelry

Haryana Pottery making, handloom, woven furniture, artistic pottery, and woodcarving

Himachal Pradesh Textile, Carpet Making, Himachali Dolls, woodcarving, Architecture, paintings

Jammu & Kashmir Shawls, Carpets, Embroidery, wood carving, metal ware

Jharkhand Wood Craft, Bamboo, Paitkar Paintings, Metal Work, Stone Carving, OrnamentsToy Making

Karnataka Woodcarving, Ivory Carving, Metal Ware, Stone Carving, Doll Making, Bidriware, Folk Art and Craft, Mysore Paintings, Mysore Silk

Kerala Woodcarving, Metal Work, fibre crafts, cane and bamboo, Countryside Wonders

Madhya Pradesh Textiles, Carpet Weaving, striking papier-mâché articles, colored lacquerware, glass beads, wood, shell and white metal jewelry, terracotta figures and containers, rag dolls, and toys

Maharashtra Paithani Saris, Sawantwadi Crafts, Warli Painting, Kolhapuri Chappals, Narayan Peth, Bidri Ware

Manipur Wood Carving, Textile Weaving, Dolls and Toys, Stone-Carving, Block Printing, Kauna (Water Reed) Mat, Hand-Embroidery

Meghalaya Hand weaving, Baskets, sleeping mats, winnowing fans, rain shields, Jaintia fishing traps

Mizoram Exquisite cane, bamboo work, stoneware

Nagaland Handloom, Wood-carving, Bamboo work, Pottery, Blacksmithy, Wood Carving

Orissa Weaving Craft, Tradition of Palm Leaf Writing, Patachitra- The Chitrakar's Foray, World of Appliqué, Carving, Metal Craft

Punjab Jootis, Durries, Parandis, Dolls, Phulkari, Mud Works, Weaving and Embroidery, Folk Toys Making, Wood Works, Miscellaneous Crafts

Rajasthan Tie-and-Dye Textiles, Hand block Printing, Quilting, Pottery

Sikkim Hand woven woolen carpets, woven woolen carpets, table called Choktse, Handmade paper, Woolen blankets and traditional motifs and unique designs

Tamil Nadu Jewellery, Musical Instruments

Tripura Cane & Bamboo Handicrafts, Handlooms

Uttar Pradesh Chikankari, Jewelry, Zardozi

Uttaranchal Temple Architecture, Wood Carving, Paintings, Wall Painting, OrnamentsWest Bengal Daccai Jamdani, Tangail, Dhoneokali, Shantipuri and Begumpuri

275Appendix

Appendix 8Registration of Power Looms and Employment

FinancialYear-wise

Year end No. of units No of Power loom No. of Workers

1993-94 310154 1282953 3207383

1994-95 321361 1328049 3320123

1995-96 327310 1372457 3431143

1996-97 333711 1415844 3539610

1997-98 351245 1534398 3835995

1998-99 358312 1599114 3997785

1999-2000 367131 1629853 4074633

2000-2001 373922 1661550 4153875

2001-2002 374703 1666033 4165083

2002-2003 380172 1692737 4231843

2003-2004 413043 1836856 4592140

2004-2005 425792 1902953 4757383

2005-2006 433613 1943892 4859730

2006-2007 440172 1990308 4975770

2007-2008 469563 2106370 5265925

2008-2009 494312 2205352 5513380

Month end No. of units No of Power loom No. of Workers

Apr-09 495178 2208622 5521555

May-09 496272 2212949 5532372

Jun-09 496956 2215680 5539200

Aug-09 499111 2224226 5560565

Oct-09 500825 2231030 5577575

Nov-09 501470 2233543 5583857

Dec-09 503031 2238036 5595090

Source:OfficeofTextileCommissioner,MinistryofTextiles,GovernmentofIndiaNote: Power loom employment is estimated assuming that one power loom employs 2.5 workers.


Appendix 9India’s Export of Textiles

(Including Jute, Coir & Handicrafts)

ITEMS 2004-2005 2005-2006 2006-2007 2007-2008

Rs. Crore Mn US $ Rs. Crore

Mn US $ Rs. Crore Mn US $ Rs. Crore

Mn US $

Readymade Garments 29481.22 6574.76 38153.74 8634.02 40237.24 8884.35 38214.70 9496.69

Cotton Textiles 15924.43 3551.39 20369.28 4609.48 25197.20 5563.52 26161.94 6501.48

Man-made textiles 9214.25 2054.92 9029.90 2043.43 10863.39 2398.63 12624.30 3137.25

Wollen Yarn, Fabrics, MadeupsEtc.

313.56 69.93 377.59 85.45 385.50 85.12 374.78 93.14

Silk Textiles 1819.81 405.85 1915.08 433.37 1999.68 441.53 1537.62 382.11

TOTAL 56753.27 12656.85 69845.58 15805.74 78683.00 17373.15 78913.34 19610.67

Handicrafts 4555.38 1015.92 5819.89 1317.02 6181.00 1364.76 5557.74 1381.15

COIR & COIRMANUFACTURERS

474.29 105.77 590.37 133.60 660.25 145.78 639.72 158.98

Jute 1241.25 276.82 1311.631 296.82 1178.40 260.19 1299.87 323.03

TOTAL 6270.92 1398.51 7721.43 1747.43 8019.65 1770.73 7497.32 1863.15

GRAND TOTAL 63024.19 14055.36 77567.47 17553.17 86702.65 19143.88 86410.66 21473.82

Source:ForeignTradeStatisticsofIndia(PrincipalCommodities&Countries)

277Appendix

Appendix 10Production of Fabrics in Different Sectors

(Mn.Sq.Mtrs.)MILL SECTOR

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09(P)

2009-10(P)(Apr.-Nov.)

Cotton 1036 1019 969 1072 1192 1305 1249 1259 835(836)

Blended 296 263 253 243 252 330 422 426 306(283)

100% Non Cotton

214 214 212 211 212 111 110 111 51(74)

Total 1546 1496 1434 1526 1656 1746 1781 1796 1192(1193)

HANDLOOM SECTOR Cotton 6698 5098 4519 4792 5236 5717 6076 5840 3883

(3880)Blended 95 118 117 146 145 99 123 118 76

(78)100% Non Cotton

792 764 857 784 727 720 748 719 554(478)

Total 7585 5980 5493 5722 6108 6536 6947 6677 4513(4436)

DECENTRALISED POWER LOOM SECTORCotton 6473 6761 6370 7361 8821 9647 9923 9621 6802

(6391)Blended 5025 4695 4688 4526 4632 5025 4918 4764 3561

(3165)100% Non Cotton

13694 14498 15889 16438 17173 18207 19884 19263 14793(12797)

Total 25192 25954 26947 28325 30626 32879 34725 33648 25157(22352)

DECENTRALISED HOSIERY SECTORCotton 5562 6422 6182 7430 8624 9569 9948 10178 7564

(6761)Blended 871 800 1010 1117 1269 1428 1425 1458 1090


634 659 655 565 525 507 431 441 393(293)

Total 7067 7881 7847 9112 10418 11504 11804 12077 9047(8023)

ALL SECTORSCotton 19769 19300 18040 20655 23873 26238 27196 26898 19084

(17869)Blended 6287 5876 6068 6032 6298 6882 6888 6766 5033


15334 16135 17613 17998 18637 19545 21173 20534 15791(13641)

Total 41390 41311 41721 44685 48808 52665 55257 54198 39908(36004)

Khadi, Wool & Silk

644 662 662 693 769 724 768 768 512(512)

Grand Total 42034 41973 42383 45378 49577 53389 56025 54966 40420(36516)

P = ProvisionalFigures in bracket indicate the corresponding figures of the previous year.Source:OfficeofTextileCommissioner,MinistryofTextiles,GovernmentofIndia

279Appendix

Appendix 12 Specialised Training Institutes

Name of Institute Location Major ActivitiesNational Institute of Micro, Small and Medium Industry Extension Training (NISIET)

Hyderabad Training, Research and Consultancy Activities

National Institute for Entrepreneurship and Small Business Development (NIESBUD)

New DelhiCoordinating and overseeing activities of various institutes/agencies engaged in entrepreneurship development, conducts national and international level training programmes in different fields and disciplines.

Indian Institute of Entrepreneurship (IIE)

GuwahatiTraining and entrepreneurship development with its focus on the North East.

Central Institute of Hand Tools Jalandhar Technology support, tool design, manufacturing and marketing services.

Hand Tool Design Development and Training Centre

N a g a u r (Rajasthan)

Develop hand tool industry in small and tiny sections located in and around Nagaur by providing consultancy and advisory extension services.

Central Tool Room LudhianaProvide services in the area of toolings (Tool Design and Tool Manufacture), Precision Machining, Heat Treatment, Technical Training and Technical Consultancy to Small Scale Industries.

Central Tool Room & Training Centre (CTTC)

KolkataProvide consultancy and common service facilities in the areas of design and production of tools, jigs and fixtures moulds & dies etc.

Central Tool Room & Training Centre (CTTC)

BhubaneswarProvide consultancy and common service facilities in the areas of design and production of tools, jigs and fixtures moulds & dies etc.

Indo Danish Tool Room (IDTR) JamshedpurProvide consultancy and common service facilities in the areas of design and production of tools, jigs and fixtures, moulds & dies etc.

Central Institute of Tool Design Hyderabad

Conducts long term and short term training programmes in Tool design, Tool Manufacture, CAD/CAM and Low Cost Automation techniques besides Manufacture of Tooling and providing consultancy services in these fields.

Tool Room & Training Centre GuwahatiDesign and manufacture tools, dies, jigs and fixtures etc. and impart training to young persons in tool and die making.

Indo-German Tool Room AhmadabadProvides design and production facilities, advisory and consultancy services, man power training in the fields of design and manufacturing of Tools & Moulds, allied trades and CNC technology.

Indo German Tool Room AurangabadProvide Tool Room Services, Technical know-how and Trained manpower to the Industries in the field of Tool & Die technology.

Indo German Tool Room Indore Training and Consultancy, Tool Design and Production servicesCentral Footwear Training Institute Agra Training in leather and footwear products, footwear technology

Central Footwear Training Institute Chennai Training in leather and footwear products, footwear technology

Institute for Design of Electrical Measuring Instruments (IDEMI)

Mumbai Render services in to the instruments industry

MSME-Technology Development Centre (formerly Product-cum-Process Development Centre for Sports Goods)

Meerut Training, process and product development of sports goods, R&D

Fragrance and Flavour Development Centre

Kannauj (U.P)Modernize and upgrade technology status for the essential oils and perfumery industry

MSME-Technology Development Centre (formerly Product-cum-Process Development Centre for Foundry and Forging Units)

AgraProvide better scale technology to small scale foundry and forging units, pro-cess and product development, provision of design for melting equipment, testing facilities.

Electronic Service and Training Centre Ramnagar Training, technical and consultancy servicesCenter for the Improvement of Glass Industry Firozabad Development and adoption of new technologies and products- technical

training and consultancy.Source:MinistryofMSME,GovernmentofIndia


Appendix 13 Name of Research Institutions and Laboratories of CSIR

S. No Location Field of Research

1. Advanced Materials and Processes Research Institute (AMPRI) Bhopal Building material, metallurgy and material science,

mineral and environment

2. Central Building Research Institute Roorkee Building Industry

3. Centre for Cellular & Molecular Biology Hyderabad Multidisciplinary areas of modern biology

4. Central Drug Research Institute Lucknow New drugs, contraceptive agents and devices

5. Central Electrochemical Research Institute Karaikudi Electrochemistry and allied fields

6. Central Electronics Engineering Research Institute Pilani Electric devices and systems

7. Central Institute of Mining and Fuel Research

Dhanbad (CFRI Campus) Efficient and safe fuel utilization and management

8. Central Food Technological Research Institute Mysore Food industry, agro-resources, horticulture,

plantation produce etc.

9. Central Glass & Ceramic Research Institute Kolkata Glass, ceramics and refractory

10. Central Institute of Medicinal & Aromatic Plants Lucknow Medicinal and essential oils, dye and gum

yielding plants

11. Central Leather Research Institute Chennai Leather and related products

12. Central Mechanical Engineering Research Institute Durgapur Manufacturing technologies

13. CSIR Centre for Mathematical Modeling & Computer Simulation Bangalore Modeling and computer simulation facilities

14. Central Institute of Mining and Fuel Research

Dhanbad (CMRI Campus)

Mineral industries

15. Central Road Research Institute New Delhi Highway engineering and allied aspects

16. Central Scientific Instruments Organisation Chandigarh Scientific and industrial instruments and systems

etc.

17. Central Salt & Marine Chemicals Research Institute Bhavnagar Salt, marine and other organic chemicals

18. Institute of Genomics and Integrative Biology Delhi Genomics, molecular medicine, bioinformatics,

proteomics and environmental biotechnology.

19. Institute of Himalayan Bioresource Technology Palampur Bio-resources in Himalayan region

20. Indian Institute of Chemical Biology Kolkata Biological sciences

281Appendix

Name of Research Institutions and Laboratories of CSIR (Contd..)

21. Indian Institute of Chemical Technology Hyderabad Industrial and special chemicals

22. Indian Institute of Petroleum DehraDun Products for petroleum refining, chemicals and petrochemicals

23. Indian Institute of Integrative Medicine (IIIM) Jammu Drug discovery from natural products (medicinal

plants and microbial species)

24. Indian Institute of Toxicology Research Lucknow Safeguards from toxic chemicals, pollutants

25. Institute of Microbial Technology Chandigarh Microbial technology and genetic engineering

26. Institute of Minerals and Materials Technology (IMMT) Bhubaneswar

Minerals, ores, metals, alloys, organic and inorganic chemicals from marine, forest and mineral resources

27. National Aerospace Laboratories Bangalore Aerospace technologies

28. National Botanical Research Institute Lucknow Plant and plant products

29. National Chemical Laboratory Pune Chemical sciences

30.CSIR Unit for Research and Development of Information Products

Pune Science, technology and industry related information products in electronic, online and web based formats.

31. National Environmental Engineering Research Institute Nagpur Environmental biotechnology, toxic wastes

management etc.

32. National Geophysical Research Institute Hyderabad Solid earth geophysics

33.National Institute for Interdisciplinary Science & Technology

Thiruvanan-thapuram

Regional resource development, waste water treatment, environmental sciences

34. National Institute of Oceanography Goa Marine sciences, use of sea resources

35.National Institute of Science Communication and Information Resources

New Delhi Dissemination of information on plant and mineral wealth, industrial infrastructure

36.National Institute of Science Technology and Development Studies

New Delhi Science and technology, consultancy services

37. National Metallurgical Laboratory Jamshedpur Metallurgy and material science

38. National Physical Laboratory New Delhi National standards for measurements, physics and its application

39. North - East Institute of Science and Technology Jorhat Agro-technologies, other material resources for

north-eastern region

40. Structural Engineering Research Centre Chennai All types of structures

Source:CSIRDirectory,2008


Appendix 14Sectoral Deployment of Gross Bank Credit - Outstanding (Rs. Crores)

FY Food Credit Non-Food Gross Bank

Credit

Total Bank Credit

Priority Sector Industry (Medium

and Large)Total of which

Agriculture Small Scale Industries

2002-03 49479 679736 729215 211609 73518 60394 235168

2003-04 35961 804824 840785 263834 90541 65855 247210

2004-05 41121 1059308 1100428 381476 125250 74588 352304

2005-06 40691 1466386 1507077 510738 173972 91212 459232

2006-07 46521 1884669 1931189 635966 230377 117910 579429

2007-08 44399 2317515 2361914 747380 275342 194842 672033

2008-09 46211 2729338 2775549 915886 338656 257027 797363

Source:RBIHandbookofStatisticsonIndianEconomy,2008-2009

283Appendix

Appendix 15Key Environmental Legislations in India

Policies

Policy Statement on Abatement of Pollution, 1992 • National Conservation Strategy and Policy Statement on Environment and • Development, 1992 National Forest Policy, 1992 • Wildlife Conservation Strategy, 2002 • National Environment Policy, 2006 •

Environment Acts

The Indian Forest Act, 1972 • The Indian Wildlife (Protection) Act, 1992 (amended 1993) • The Water (Prevention and Control of Pollution) Act, 1973 (amended 1988) • The Water (Prevention and Control of Pollution) Cess Act, 1977 (amended 1992) • The Forest (Conservation) Act, 1980 (amended 1988) • The Air (Prevention and Control of Pollution) Act, 1981 (amended 1987) • The Environment (Protection) Act, 1986 (amended 1992) • The Motor Vehicles Act, 1988 • The Public Liability Insurance Act, 1991 (amended 1992) • National Environment Tribunal Act, 1995 • National Environment Appellate Authority Act, 1996 • The Wild Life (Protection) Amendment Act, 2002• The Biological Diversity Act, 2002 • The Water (Prevention and Control of Pollution) Cess (Amendment) Act, 2003•

Environment Rules

The Environment (Protection) Rules, 1986 • Hazardous Wastes (Management and Handling) Rules, 1989 • Forest (Conservation) Rules, 1990 (amended 1992) • Chemical Accidents (Emergency Planning, Preparedness and Response) Rules, • 1991 The Bio-Medical Waste (Management and Handling) Rules, 1998 • The Recycled Plastics Manufacture and Usage (Amendment) Rules, 1999 • The Municipal Solid Wastes (Management and Handling) Rules, 2000 • The Hazardous Wastes (Management and Handling) Amendment Rules, 2000 •


The Ozone Depleting Substances (Regulation and Control) Rules, 2000 • The Batteries (Management and Handling) Rules, 2001 • The Noise Pollution (Regulation and Control) (Amendment) Rules, 2002 • The Recycled Plastics Manufacture and Usage (Amendment) Rules, 2003 • Bio-Medical Waste (Management and Handling) (Amendment) Rules, 2003 • Forest (Conservation) Rules, 2003 • Draft Biological Diversity Rules, 2003•

Environment Notifications

Environmental Impact Assessment Notification 1994 (amended 2002) • Taj Trapezium Zone Pollution (Prevention and Control) Authority, 1998 • Fly Ash Notification, 1999• The Vienna Convention/Montreal Protocol, 1985 on substances that deplete the • ozone layer The Rio Declaration on Environment and Development, 1992 and the Agenda 21 •

International Agreements to which India is a Signatory

The Convention on International Trade in Endangered Species of flora and fauna • (CITES), 1975 The Convention on Wetlands of International Importance (the Ram Sar • Convention), 1991 The Framework Convention on Climate Change, 1992 • The Convention for Conservation of Biological Resources, 1992•

ABS – Asset Backed Security

ADB - Asian Development Bank

AIRTM - Dr. Ambedkar Institute of Rural Technology and Management

ALEAP - Association of Lady Entrepreneurs of Andhra Pradesh

ALM - Asset Liability Management

ANBC - Adjusted Net Bank Credit

APS - Annual Policy Statement

AS - Accounting Standard

ASEAN - Association of Southeast Asian Nations

BC - Business Correspondents

BCBS - Basel Committee on Banking Supervision

BDS - Business Development Services

BE - Budget Estimates

BF - Business Facilitators

BIS - Bureau of Indian Standards

BIT - Birla Institute of Technology

BoB - Bank of Baroda

BoI - Bank of India

BoP - Balance of Payments

BPLR - Benchmark Prime Lending Rate

BRI - Bank Rakyat Indonesia

BSE - Bombay Stock Exchange, Mumbai

CAD - Current Account Deficit

CAGR - Compound Annual Growth Rate

CAPART - Council for Advancement of People’s Action and Rural Technology

CART - Credit Appraisal and Rating Tool

CBDT - Central Board of Direct Taxes

CBGP - Cluster Based Growth Poles

CBLO - Collateralised Borrowing and Lending Obligation

List of abbreviations

CBRTI - Central Bee Research and Training Institute

CCRI - Central Coir Research Institute

CD - Certificate of Deposit

CDE - Cluster Development Executives

CDGI - Centre for Development of Glass Industry

CDM - Clean Development Mechanism

CDOs - Collateralised Debt Obligations

CDR - Corporate Debt Restructuring

CDS - Credit Default Swap

CENVAT- Central Value Added Tax

CER - Carbon Emission Receipts

CFC - Common Facility Centers

CFSP - Committee on Financial Sector Plan

CFTI - Central Footwear Training Institute

CGTMSE - Credit Guarantee Fund Trust for Micro and Small Enterprises

CIBIL - Credit Information Bureau of India Limited

CICT - Central Institute of Coir Technology

CITD - Central Institute of Tool Design

CLCSS - Credit Linked Capital Subsidy Scheme

CPI - Consumer Price Index

CPSE - Central Public Sector Enterprises

CRAR - Capital to Risk-Weighted Assets Ratio

CRISIL - Credit Rating Information Services of India Ltd.

CRR - Cash Reserve Ratio

CSO - Central Statistical Organisation

CSP - Central Sliver Plants

CSR - Corporate Social Responsibility

CTAE - College of Technology and Engineering


CVPI - Central Village Pottery Institute

D&B - Dun & Bradstreet

DC – Development Commissioner

DCC - District Consultative Committee

DFID - Department for International Development

DGCI&S - Directorate General of Commercial Intelligence and Statistics

DGS&D - Director General of Supplies and Disposal

DI - Development Institutions

DIC - District Industries Centre

DICGC - Deposit Insurance and Credit Guarantee Corporation

DIPP - Department of Industrial Policy & Programmes

DOC - Department of Communication

DONER - Development of North-Eastern Region

DoT - Department of Telecommunication

ECBs - External Commercial Borrowings

EDP - Entrepreneurship Development Programmes

EE - Energy Efficiency

EE&QC - Energy Efficiency and Quality Certification

EGoM - Empowered Group of Ministers

EMEs - Emerging Market Economies

EOU - Export Oriented Units

EPC - Export Promotion Council

ES - Energy Saving

ESCO - Energy Service Companies

ESDP - Entrepreneurship Skill Development Programmes

ESTC - Electronics Service & Training Centre

ETP - Effluent Treatment Plant

EU - European Union

EXIM Bank - Export Import Bank

FBT - Fringe Benefit Tax

FCCB - Foreign Currency Convertible Bond

FDI - Foreign Direct Investment

FEDAI - Foreign Exchange Dealers’ Association of India

FFDC - Fragrance & Flavour Development Centre

FFI - Formal Financial Institutions

FI - Financial Institutions

FIEO - Federation of Indian Export Organisation

FIF - Financial Inclusion Fund

FIIs - Foreign Institutional Investors

FIPB - Foreign Investment Promotion Board

FIPF - Financial Inclusion Promotion & Development Fund

FITF - Financial Inclusion Technology Fund

FPL&L - Fuel, Power, Light and Lubricants

FPO - Fruit Products Order

FRBM - Fiscal Responsibility and Budget Management

FRBs - Floating Rate Bonds

FSIA - Faridabad Small Industries Association

FWWB - Friends of Women’s World Banking

FY - Financial Year

GDP - Gross Domestic Product

GDRs - Global Depository Receipts

GDS - Grameen Development Services

GHG - Green House Gas

GIVCA - Global-India Venture Capital Association

GST - Goods and Services Tax

GVA - Gross Value Added

HTM - Held-to-Maturity

IBA - Indian Banks’ Association

ICAI - Institute of Chartered Accountants of India

ICICI - Industrial Credit and Investment Corporation of India

ICRA - Investment Information and Credit Rating Agency of India Limited

ICT - Information and Communication Technology

287List of Abbreviations

ID&R - Industries Development and Regulation Act

IDEMI - Institute for Design of Electrical Measuring Instruments

IDLSS - Integrated Development of Leather Sector Scheme

IE - Implementing Agency

IFC - Information & Facilitation Counter

IID - Integrated Industrial Development

IIP - Index of Industrial Production

IISc - Indian Institute of Science

IIUS - Industrial Infrastructure Up-gradation Scheme

IMCs - Industrial Motivation Campaigns

IPOs - Initial Public Offerings

IRDA - Insurance Regulatory and Development Authority

IRFs - Interest Rate Futures

ISARC - India SME Asset Reconstruction Ltd.

ISB - Indian School of Business

ISEC - Interest Subsidy Eligibility Certification

ISTSL - India SME Technology Services Ltd.

ITDP - Integrated Tribal Development Project

JICA - Japan International Co-operation Agency

KAWTF - Khadi Artisans Welfare Trust Fund

KCCs - Kisan Credit Cards

KGPS - Karnataka and Khadi Gramodyog Prayog Samiti

KNHPI - Kumarappa National Handmade Paper Institute

KVIC - Khadi and Village Industries Commission

LAF - Liquidity Adjustment Facility

LIBOR - London Inter-Bank Offer Rate

LILC - Loan in Lieu of Capital

LMS - Liquidity Management Support

LoC - Lines of Credit

LSP - Local Services Providers

MAT - Minimum Alternate Tax

MBS - Mortgage Backed Securities

MCA - Ministry of Corporate Affairs

MCIT - Ministry of Communications and Information Technology

MDA - Marketing Development Assistance

MDP - Management Development Programme

ME - Medium Enterprises

MF - Mutual Funds

MFDF - Micro Finance Development Fund

MFI - Micro Finance Institution

MFRC - Micro Finance Regulatory Council

MLI - Member Lending Institution

MoC - Memorandum of Cooperation

MoFPI - Ministry of Food Processing Industries

MoU - Memorandum of Understanding

MSECDP - Micro and Small Enterprises Cluster Development Programme

MSEFC - Micro and Small Enterprises Facilitation Council

MSERSETI - Micro & Small Enterprises Rural Self Employment Training Institute

MSEs - Micro and Small Enterprises

MSME TDC - MSME Technology Development Centers

MSME TI - MSME Training Institutes

MSME TR - MSME Tool Rooms

MSMED - Micro, Small and Medium Enterprise Development Act

MSMEFDP - Micro, Small and Medium Enterprises Financing and Development Project

MSMEs - Micro, Small and Medium Enterprises

MSP - Minimum Support Price

MSS - Market Stabilisation Scheme

MTM - Mark-to-Market

NA - Nodal Agencies

NABARD - National Bank for Agriculture and Rural Development

NABL - National Accreditation Board of Testing & Calibration Laboratories


NAPCC – National Action Plan on Climate Change

NAV - Net Asset Value

NBC - Net Bank Credit

NBFC-D - Non-Banking Financial Company – Deposit Taking

NBFCND- Non-Banking Financial Company – Non-Deposit Taking

NBFCs - Non-Banking Financial Companies

NCEUS - National Commission for Enterprises in the Unorganized Sector

NDTL - Net Demand and Time Liability

NEDFI - North Eastern Development Finance Institution

NEN - National Entrepreneurship Network

NER - North Eastern Region

NERIST - NER Institute of Science and Technology

NFSIT - National Venture Fund for Software and Information Technology Industry

NGO – Non Government Organisations

NHB - National Housing Bank

NIT - National Institute of Technology

NMCC - National Manufacturing Competitiveness Council

NMCP - National Manufacturing Competitiveness Programme

NPAs - Non-Performing Assets

NREGS - National Rural Employment Guarantee Scheme

NRFIP - National Rural Financial Inclusion Plan

NRI - Non-Resident Indian

NSE - National Stock Exchange

NSIC - National Small Industries Corporation

NSSO - National Sample Survey Organization

NTREES - NSE Trade Receivables Engine for E-discounting

NVA - Net Value Added

OBE - Off-Balance Sheet Exposures

OCBS - Overseas Corporation Bodies

OD - Overdraft

ODI - Offshore Derivative Instruments

OMO - Open Market Operation

OTC - Over-the-Counter

OTS - One-Time Settlement

PA - Partnership Assistance

PAN - Permanent Account Number

PCRA - Petroleum Conservation Research Association

PCS - Privileged Customer Scheme

PDEXCIL - Powerloom Development & Export Council

PDs - Primary Dealers

PDS - Public Distribution System

PE - Private Equity

PEP - People Education Programme

PFF - Private Financial Fund

PFRDA - Pension Fund Regulatory and Development Authority

PLI - Primary Lending Institutions

PLP - Potential Linked Credit Plan

PMEAC - Prime Minister’s Economic Advisory Council

PMEGP - Prime Minister Employment Generation Programme

PMO - Prime Minister’s Office

PMRY - Prime Minister’s Rojgar Yojana

PNB - Punjab National Bank

PPDC - Process-cum-Product Development Centre

PPP - Public Private Partnership

PPS - Privileged Partner Scheme

PRODIP - Product Development, Design Intervention and Packaging

PSBs - Public Sector Banks

PSIG - Poorest States Inclusive Growth

PSLC - Priority Sector Loan Certificates

PSUs - Public Sector Undertakings

PURA - Provision of Urban Amenities in Rural Areas

289List of Abbreviations

QIB - Qualified Institutional Buyer

QIP - Qualified Institutional Placement

RAM - Risk Assessment Model

RBH - Rural Business Hub

RBI - Reserve Bank of India

RCCI - Rajasthan Chamber of Commerce and Industry

RE - Revised Estimates

RE - Revised Estimates

REER - Real Effective Exchange Rate

REGP - Rural Employment Generation Programme

RFIs - Refinancing Institutions

RFS - Receivable Finance Scheme

RGUMY - Rajiv Gandhi Udyami Mitra Yojna

RICS - Rural Industries Consultancy Service

RIDC - Rural Industries Service Centers

RIDF - Rural Infrastructure Development Fund

RIP - Rural industries Programme

RoA - Return on Assets

ROE - Return on Equity

RPCD - Rural Planning and Credit Department

RR - Repo Rate

RRBs - Regional Rural Banks

R-RR - Reverse Repo Rate

RSF - Risk Sharing Facility

RTGS - Real Time Gross Settlement

SAARC - South Asian Association for Regional Co-operation

SAFTA - South Asian Free Trade Agreement

SARFAESI - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest

SBBJ - State Bank of Bikaner and Jaipur

SBI - State Bank of India

SBLP - SHG Bank Linkage Programme

SCB - Scheduled Commercial Bank

SCX - Sub Contracting Exchanges

SDR - Special Drawing Rights

SEBI - Securities and Exchange Board of India

SEC - Subsidy Eligibility Certification

SENET - Small Enterprises Network

SEZs - Special Economic Zones

SFCs - State Finance Corporations

SFMC - SIDBI Foundation for Micro Credit

SFRC - SIDBI Foundation for Risk Capital

SFURTI - Scheme for Fund for Regeneration of Traditional Industries

SGF - SME Growth Fund

SHGs - Self-Help Groups

SICDP - Small Industries Cluster Development Programme

SIDBI - Small Industries Development Bank of India

SIDC - State Industrial Development Corporation

SIIC - State Industrial Investment Corporations

SITP - Scheme for Integrated Textile Park

SLBC - State level banker’s committee

SLR - Statutory Liquidity Ratio

SLSNER - Small Loans Scheme for the North Eastern Region

SMERA - SME Rating Agency of India Ltd

SMEs - Small and Medium Enterprises

SPCB - State Pollution Control Board

SPV - Special Purpose Vehicle

SSIDC - Small Industries Development Corporations

SSIU - Small Scale Industrial Units

SSSBE - Small Scale Service Business Enterprises

SSSE - Small Scale Service Establishment

STRIPS - Separate Trading for Registered Interests and Principal of Securities

STUP - Skill-Cum-Technology Upgradation Programme

SVCL - SIDBI Venture Capital Ltd.


TA - Technical Agencies

TBSE - Technology Bureau of Small Enterprises

TC - Testing Centers

TEST - Trade in Environmental Services and Technologies

TL - Transformation Loan

ToRs - Terms of References

TPDCs - Training-cum-Product Development Centers

TREAD - Trade Related Entrepreneurship Assistance and Development

TS - Testing Stations

TUFS - Technology Upgraded Fund Scheme

UCBs - Urban Cooperative Banks

UNDP - United Nations Development Programme

UNIDO - United Nations Industrial Development Organisation

USAID - United States Agency for Industrial Development

UTs - Union Territories

VaR - Value at Risk

VC - Venture Capital

VDP - Vendor Development Programme

VSI - Village and Small Industries

WCTL - Working Capital Term Loan

WDC - Women Development Corporations

WEO - World Economic Outlook

WPI - Wholesale Price Index

WSCs - Weavers’ Service Centres

WSS - Weekly Statistical Supplement

WTO - World Trade Organisation

Y-o-Y - Year-on-Year

sidbi report on msme sector, 2010

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