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CII Policy Watch - MSME

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The November issue of #PolicyWatch focuses on the overall state of #MSME development in the country, opportunities for MSMEs in some critical sectors, some of the latest MSME initiatives by the Government demonstrating its commitment towards the melioration of business environment for MSMEs and significant policy recommendations in various areas that will assist in putting Indian MSMEs on a high growth trajectory.

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CII Policy Watch - MSME

  1. 1. 1policy watch this IssueInside Message From the Director General............ 1 Chandrajit Banerjee, Director General, CII Industry Voices������������������������������������������������� 10 Factfile������������������������������������������������������������� 11 CEO Speak...........................................................2 Policy Barometer..................................................8 November 2015, Volume 4, Issue 6 Policy T here is no over emphasizing the fact that industrialization is a sine qua non for economic development. The key objectives of industrialization include achieving and sustaining a high growth rate, employment generation and inclusive development. Features like small size, lower capital requirement, use of indigenous technology and local resources, employment intensity and suitability for rural areas make a strong case for the promotion of Micro, Small and Medium Enterprises (MSMEs) in order to bolster the economic performance through balanced industrialization as well as counter challenges such as endemic poverty, unemployment and inequitable distribution of wealth confronting developing countries such as ours. Their 38 per cent contribution to the nation’s Gross Domestic Product (GDP), 46 per cent share of overall exports and 37 per cent share of the manufacturing output bear testimony to the salience of the role played by MSMEs in the social and economic restructuring of the nation. MSME units in India have seen a surge from 36.2 million in FY07 to 48.8 million in FY14. With more than 54 per cent of its total population below 25 years of age, India enjoys a unique advantage of demographic dividend which is expected to last for the next few decades. Owing to the high rate of unemployment in the agricultural sector, it falls on the MSME sector to provide opportunities of gainful employment to the nation’s youth. Rising to the challenge, MSMEs are increasingly contributing towards employment generation, especially in the rural areas. The number of people employed by MSMEs has grown to 111.4 million during FY14 recording a CAGR of 4.8 per cent since FY07. The proclivity of the Government to fortify this sector for stimulating the growth potential of Indian economy is evident by the fact that the planned allocation for the MSME sector for the 12th Five Year Plan period spanning 2012-17 has been raised to Rs. 24,124 crore, up by 133.53 per cent, over the 11th Five Year Plan allocation of Rs. 10,330 crore. It is ebullient to note the positive interventions of the Government in promoting the sustainable growth of MSMEs through a deluge of schemes. The Make in India initiative and its accent on increasing the share of manufacturing in the GDP from the present 15 per cent to 25 per cent by 2022 has the potential to transform the fortunes of the MSME sector. In fact, the Government envisions a key role of this sector in the fruition of this initiative. In spite of their significance, these enterprises face an assortment of challenges and constraints. Some of these include poor access to finance, shortage of skilled manpower, technological obsolescence, regulatory issues, etc. A prominent feature of the MSME sector is that a predominant number (around 94 per cent) of these enterprises are in the unorganized sector. This foregrounds the lack of reliable and updated data on the sector and restricts the cover of existing schemes of the Government for the sector. With the view to promote ease of doing business as well as simplify registration, the Ministry of MSME has recently notified a one page Udyog Aadhaar which can be filled online using a dedicated website. Other notable initiatives of the Government consistent with CII’s suggestions include the proposition for redefining MSMEs by enhancing the existing investment limits in plant and machinery, a framework for the revival and rehabilitation of sick MSMEs and an enquiry into the magnitude of fiscal paucity in the sector highlighted by the Committee to Examine the Financial Architecture of the MSME sector under the chairmanship of KV Kamath, President, New Development Bank and past CMD, ICICI Bank. CII has taken the lead in guiding MSMEs to enhance their competitiveness through the time tested technique of the Cluster Approach.Along with its strategic partners, CII has assisted in constituting about 245 clusters by far impacting over 3000 MSMEs. CII has set up an online SME Finance Facilitation Centre to provide advisory and credit facilitation support to the sector. CII has also launched the Village Buddha programme to build a strong relationship between business and society. A technologically vibrant and internationally competitive MSME sector should be encouraged for a sustainable contribution to the national income, employment and exports. CII is committed to work synergistically with the Government for ensuring strength and vitality of the Indian MSME sector. n Chandrajit Banerjee Director General Confederation of Indian Industry Focus: MSME
  2. 2. 2 policy watch CEOSpeak Globally, MSMEs play a leading role in propelling economic growth and promoting equitable regional development. In India too, MSMEs are credited with generating the highest rate of employment growth and have a major share in industrial production and exports. With around 48.8 million units throughout the geographical expanse of the country, MSMEs contribute around 7 per cent of the manufacturing GDP and 31 per cent of the GDP from service activities. They have been able to provide employment to around 111.4 million during FY14, recording a Compounded Annual Growth Rate (CAGR) of 4.8 per cent in employment generation since FY07. The sector contributes around 46 per cent of the overall exports from India and has consistently maintained a growth rate of over 10 per cent. The highest growth in recent time was recorded during 2011-12 (18.5 per cent) whereas during the years 2012-13 and 2013-14 growth rate was around 14.3 per cent and 12.4 per cent, respectively. An accelerated MSME growth is fundamental to India achieving and sustaining a high GDP growth. Ease of Doing Business Delay in regulatory approvals, multiplicity of governing authorities, duplication of compliance procedures, etc. are some of the most prominent factors responsible for a complex business environment for Indian MSMEs and for India’s dismal 130th rank amongst 189 countries in the latest World Bank’s Doing Business report. CII has constituted a Sub-group on the Ease of Doing Business which is designing a survey along the lines of the Doing Business Report to identify the specific challenges faced by MSMEs for ease of doing business. CII has also submitted recommendations to the Task Force on Ease of Doing Business for MSMEs. These include an online portal for registration of MSMEs; simplification of the new Companies Act, 2013; implementation of strict contracts for delayed payments; and simplification of procedures for construction permits, paying taxes, trading across borders, etc. through single window systems and online technology enabled portals. The enhanced focus of the Government on improving the ease of doing business has been crucial in significant policy reforms and simplification of procedures through initiatives such as the eBiz Portal integrating 14 Government services, Form INC 29 for simplification of incorporation of a company, online application for environment clearances, etc. The recently launched Udyog Aadhaar, a simple online registration form replacing the erstwhile cumbersome Entrepreneurs Memorandum (EM) I and II will facilitate the simplification and universalization for the registration process of MSMEs. Labour Law Ecosystem for MSMEs Labour laws in India have often been characterized as cumbersome and restrictive, hurting investments in the manufacturing sector. Although progress has been made since reforms began in 1991, the labour market is still subjected to around 250 labour rules at the Centre and State level. The burden of compliance in the face of duplicity, multiplicity and redundancy of several labour laws gets magnified for MSMEs owing to the paucity of resources at their disposal. CII has compiled and submitted recommendations on the Small Factories Act and other Labour laws to the Ministry of Labour and Employment.The focal suggestions are: implementation of amendments to the Small Factories Act exempting coverage of establishments with under 40 workers; regulation of labour inspections; a single and uniform labour code; flexibility in minimum wage rules and annual returns through a single window system, etc. Government’s veritable efforts for simplification of labour laws must be extolled. The most notable initiatives in this area include the Random Inspection Scheme to put an end to the interminable harassment faced by enterprises under the Inspector Raj system; efforts to introduce a unique Universal Account Number (UAN) for portability of the Employees' Provident Fund (EPF) account; online registration for Employee State Insurance Corporation (ESIC) and Employees' Provident Fund Organization (EPFO) and the Shram Suvidha Portal for registration of units for Labour Identification Number (LIN), etc. Revised Framework for Defining Indian MSMEs The existing limits under the MSMED Act were fixed in 2006. Since then, there has been a significant increase in the price index and cost of inputs. It has been at the core of CII’s policy advocacy to facilitate the revision of the MSME definitions. CII has submitted a draft to the Ministry of MSME with proposed changes to the investment limits in plant and machinery/equipment. In line with CII’s proposal, the Ministry has issued a corrigendum to notify the MSME Development (Amendment) Act, 2014 which proposed revised slabs for defining MSMEs. Additionally, this notification enables the Central Government to vary the investment limits up to thrice the deemed limits.The Bill is currently pending in the Parliament. Revival and Rehabilitation of MSMEs In line with CII’s recommendation to launch an exit/revival policy for making the exit The Indian MSME Sector: Lynchpin for Economic Stability and Progress T T Ashok Chairman, CII National SME Council and Managing Director,Taylor Rubber Private Limited
  3. 3. 3policy watch CEOSpeak of MSMEs from businesses speedy and cost effective, the Ministry of MSME has notified a framework for the revival and rehabilitation of MSMEs with the twin objectives of time-bound exit and revival of loss-making units to help them consolidate their businesses and to re-deploy capital in other greenfield ventures. Financial Inclusion of MSMEs Lack of access to timely and adequate finance is plaguing the fortunes of MSMEs in India. The gravity of the issue can be estimated by the fact that around 93 per cent of all MSMEs are outside the coverage of formal financial channels. In an attempt to analyze the financial dearth in this sector, the Committee to Examine the Financial Architecture of the MSME sector was set up by the Department of Financial Services under the stewardship of KV Kamath, President, New Development Bank and past CMD, ICICI Bank. The Committee has suggested measures to increase equity flow to MSMEs by developing technology driven platforms for financial inclusion, establishment of a receivables financing platform, seven fold increase in the corpus of the Credit Guarantee Trust for MSMEs and expansion in coverage of credit bureaus to include a wider range of credit institutions to open up the flow of funds to MSMEs.The Government has also launched the Micro Units Development and Refinance Agency (MUDRA) Bank with a corpus of Rs. 20,000 crore and a credit guarantee fund of Rs. 3,000 crore to fund MSMEs. Set up at a subsidiary unit of SIDBI, the Bank has already succeeded in reaching out to a large number of micro enterprises. Expanding the financial access of MSMEs has long been a focus of CII’s SME developmental roadmap too for which CII has submitted inputs to the KV Kamath Committee. Some of the recommendations include classification of Non Performing Assets (NPAs) to be 120 days for MSMEs; interest on borrowing limited at a maximum of base rate plus 2.5 per cent; a dedicated SME bank as well as equity funds specifically for MSMEs and a reservation of 25 per cent of fund allocations for women entrepreneurs. CII has also set up an online SME Finance Facilitation Centre (FFC) which has been successful in facilitating the disbursement of loans worth over Rs. 475 crores by partnering with around 20 banks and conducting roadshows, webinars, online master classes, etc. Make in India The Prime Minister announced the Make in India Mission to reverse the deceleration in the Indian manufacturing sector and to promote India as an investment destination and global hub for manufacturing, design and innovation. The CII National SME Council has submitted inputs for the Prime Minister’s Workshop on Make in India. These cover a wide range of subjects like financing, skill development, provision of infrastructure, technological upgradation, regulatory framework, labour laws and revival/exit of MSMEs. Some of these include creation of land banks at the State level for smooth land allocation to startups and micro enterprises, allotment of 25 per cent land at industrial corridors to MSMEs, State level Public Procurement Policy (PPP), a 5 per cent reservation for women owned enterprises under the PPP, etc. The Way Forward To prosper,MSMEs need a conducive business environment, adequate basic infrastructure, access to funding at reasonable rates, equity and venture capital, advisory assistance, knowledge about market opportunities and market linkage avenues. Looking ahead, the challenge lies in building the next generation of MSMEs that will collectively function as the powerhouse of the economy. To achieve this, Government and Industry must make collaborative efforts to create a supportive ecosystem for MSMEs. n Source: bikeriderlondonshutterstock.com
  4. 4. 4 policy watch CEOSpeak The manufacturing sector is the backbone of any economy. It fuels growth, productivity, employment, and strengthens agriculture and service sectors. Factors like favorable demographic dividend, sustained availability of low cost manpower, strong domestic demand owing to consumerism, rapidly expanding middle class, strong technical and engineering capabilities backed by top-notch scientific and technical institutes, etc. will be crucial for establishing the country as one of the top 3 manufacturing destinations by 2020. Added impetus has been provided by the Prime Minister Shri Narendra Modi’s call to ‘Make in India’ which attempts to increase manufacturing sector's growth to 12-14 per cent per annum over the medium term, to increase manufacturing sector's share in India's GDP from 16 per cent to 25 per cent by 2022 and to create 100 million additional jobs by 2022 within the sector. It requires no reiteration that the MSME sector is crucial to the development of the country. There is no dearth of literature or empirical evidence corroborating the conspicuous growth effects of this sector. As India is increasingly becoming an attractive hub for foreign investments in the manufacturing sector, several mobile phone, luxury and automobile brands among others, have set up or are looking to establish their manufacturing base in the country. This opens up vistas of profitable opportunities to orchestrate an expansion of the MSME sector within manufacturing. Initiatives for MSME Integration with Anticipated Growth in Manufacturing The Government should be credited for its initiatives in brining productivity enhancement, cost competitiveness and globalization for Indian MSMEs. As part of the ‘Make in India’ initiative, an ecosystem has been created through Technology Centre System Programme (TCSP). A Centre of Excellence has been set up in Indian Institute of Science (IISc), Bengaluru for commercializing 110 technologies under the Design Scheme of the Ministry. Under the cluster development initiative, 43 new clusters have been taken up for various interventions. Some of the nation’s manufacturing clusters have become leading producers in their respective industries. The Lean Manufacturing Competitiveness Scheme has been scaled up to total project cost of Rs. 241 crore to cover 1491 units in 536 clusters. The MSME – Global Environment Facility (GEF) – United Nations Industrial Development Organization (UNIDO) Clean Tech programme has been launched as part of the Zero Effect Zero Defect initiative. Funds like the India Aspiration Fund for boosting entrepreneurship and the SIDBI Make in India Loan for Small Enterprises further adduce the Government’s commitment. The National Manufacturing Policy specifically outlines proposals for improving the access of MSMEs to finance. Some of the measures outlined in the policy include the roll over relief from long-term capital gains tax to individuals on sale of a residential property and in case of re-investment in a new start-up of an MSME unit. Others include setting up a stock exchange for MSMEs and tax pass through status for venture capital funds with a special focus on MSMEs. The MUDRA Bank to Fund the Unfunded Entrepreneurs of small-scale businesses in India will soon be able to avail loans under Pradhan Mantri MUDRA Yojana (PMMY) run by the MUDRA Bank. The three products available under the PMMY include: Shishu, which covers loans up to Rs. 50,000; Kishor, which covers loans between Rs. 50,000 to Rs. 5 lakh; andTarun, which covers loans between Rs. 5 lakh and Rs 10 lakh. An innovative basket of products like sector specific schemes, micro credit schemes, a Refinance Scheme for Regional Rural Banks (RRBs) / Scheduled Co-operative Banks, Mahila Udyami Scheme, etc. is being designed for the disbursement of the above allocation. The Bank also intends to launch a pre-loaded MUDRA Card and link it with other schemes and benefits accruing to the sector. The Bank is also planning to explore the option of a Portfolio Guarantee product under which credit guarantee or risk sharing would be provided for a portfolio of homogenous loans. Accelerating MSME Growth in Manufacturing CII has been a keen proponent of initiatives to accelerate the manufacturing growth in the MSME sector. CII has made several representations to the Government on the subject of accelerating manufacturing growth in the MSME sector through enablers like elimination of redundant processes, focus on time-bound project clearances through a single online portal, provision of adequate infrastructural facilities for the MSMEs, increasing the domestic value addition and technological penetration, etc. and these suggestions have been taken up by the Government at various platforms. With focus on developing industrial corridors and smart cities, the Government aims to ensure a holistic development of the nation. As India embarks on a new wave economy, it is imperative that it adopts an MSME opportunity framework which provides impetus for tapping opportunities such as increase in demand fuelled by consumerism and higher spending, spending in defence and infrastructure, increasing FDIs and double digit growth expected in various business sectors, etc. n Exploring Avenues for Deeper MSME Penetration in Manufacturing Mukul Somany Co-Chairman, CII National SME Council and Vice Chairman Managing Director, Hindusthan National Glass Industries Ltd
  5. 5. 5policy watch CEOSpeak With its economic growth outstripping that of most of its rivals, India’s economic performance in recent times has been characterized by dynamism, improving business sentiments, rising consumer demand and greater macro-economic stability. A concurrence of these factors has generated demand for new products besides increasing the customer-base of existing ones. India is also recognized globally as a key source of high technology skills and scientific and technical manpower. This, coupled with the entrepreneurial nature and flexibility in technological assimilation, renders MSMEs ideal for an enhanced role in the Electronic System Design Manufacturing (ESDM) industry. Industry Outlook The ESDM industry consists of four key components: electronics products, electronics components, semiconductor design and electronics manufacturing services. With an estimated size of USD 68 billion in 2012, the ESDM industry is anticipated to be USD 94 billion by the end of the current fiscal year.Added fillip is provided by the National Policy on Electronics which aims to create a globally competitive ESDM industry by attracting investments worth about USD 100 billion for a projected demand of USD 400 billion by 2020 and generating employment for around 28 million. Government Support The Government must be credited with consistent support for MSMEs in the ESDM industry through policies aimed at promoting their growth. The Government has recently launched a scheme specifically focusing on MSMEs in the ESDM industry for providing financial support, promoting manufacturing and building awareness for quality as well as encouraging export for MSMEs. The support provided is in the form of Grant in Aid (GIA) for reimbursement of expenses related to manufacturing of electronic goods in compliance with Indian Standards as well as for expenses on testing and certification for exports. The scheme also provides GIA of Rs. 10 lakh per cluster for a maximum of 20 clusters for the development of Electronics Manufacturing Clusters (EMCs) by MSMEs. Under the Public Procurement Policy 2012, the Government provides preference to domestically manufactured goods from MSMEs in Government procurement. The Electronic Sector Skills Council and the Telecom Sector Skills Council have been set up in order to establish an ecosystem for developing and imparting outcome-oriented skills for the ESDM sector. A total of 90,000 people are to be supported under the Skill Development Scheme in 6 different States. The setting up of the Venture Capital Fund, the Electronics Development Fund, the Karnataka Information Technology Venture Capital (KITVEN) Fund, the Walden Fund and a national fund by SIDBI, etc. is indicative of the Government’s focus on this sector. Government is considering a proposal to enforce global standards across the ESDM industry. Goods produced to global standards would find better acceptance in the international markets and by multinational corporations, thus opening up large global markets which hitherto are not accessible by many Indian MSMEs. Furthermore, enforcing these same standards on ESDM products being imported would effectively act as barriers against cheap imports. This standardisation, if introduced in a well- planned manner with a concrete roadmap, providing handholding support along the way to the MSMEs by the Government through awareness sessions, financial support, expert counselling, etc., would facilitate adoption of international standards by MSMEs. This would certainly be of great benefit to the MSMEs. Empowering MSMEs to Partake in the Growth of the ESDM sector Praveen Toshniwal Co-Chairman, CII National SME Council and Chairman, Nivo Controls Private Limited Source: anyaivanovashutterstock.com
  6. 6. 6 policy watch CEOSpeak CII Interventions CII has been working with various Government departments on suggesting measures to expand the penetration of MSMEs in the ESDM sector. The policy advocacy efforts to improve the financial access of MSMEs include low cost credit schemes for MSMEs, reduction in the cost of borrowing, caps on collateral requirements, etc. For the provision of infrastructure, the recommendations include creation of land banks, plug and play type world class infrastructure at national and regional levels, allotment of vacant and disused premises in industrial estates to new and existing enterprises, etc. Efforts in improving the access of MSMEs to technology through the setting up of Technology Centers, expansion of the scope of the Design Scheme, etc. will assist in providing the requisite propulsion to MSMEs in the ESDM industry. Conclusion MSMEs form the backbone of the ESDM sector not just in India but also in countries like Taiwan, Japan, South Korea, China and Germany. Providing a favourable environment to develop MSME value chains can greatly contribute to high value-added indigenous manufacturing. ESDM can be the bellwether of new generation manufacturing in India. Collaborated efforts from industry bodies and the Government along with rapidly rising domestic consumption, changing global supply chain dynamics and a slew of policy interventions supporting indigenization will pioneer a new dawn of prosperity for local MSMEs in the ESDM industry. n The Indian automotive industry is the sixth largest in the world with deep forward and backward linkages propelling the economy ahead by its strong positive multiplier effect. In fact, the automotive and auto components industry accounts for almost 40 per cent of Indian manufacturing. It is therefore not surprising that the ‘Make in India’ campaign launched by our Prime Minister, which is a blueprint to develop the country’s manufacturing, resonates well with the auto component industry’s roadmap of a vibrant global manufacturing and sourcing hub in India. Despite the volatility in the automobile sector in the last few years, the auto component sector has continued to grow steadily in the last decade. The component sector has a turnover of approximately USD 40 billion, with exports accounting for 28 per cent of the production at over USD 11 billion. Consistent growth in auto component export is a clear indication of the growing credibility of made-in-India auto components in the global supply chain. Practically every major Original Equipment Manufacturer (OEM) in the world is either sourcing or has plans to source auto components from India and this includes all the big names like Ford, General Motors,Toyota, Honda, Suzuki, Daimler, BMW, Volkswagen, Volvo and many more. Let us see what the future holds for the auto component industry. In the Automotive Mission Plan 2016-26 announced recently by the Government of India, the target for the auto component industry has been set at an impressive USD 200 billion in turnover by 2026, with exports in the region of USD 80 billion. These targets may seem a bit ambitious, but are achievable. Here are some reasons why the sun will continue to shine on the auto component sector and what more needs to be done. India remains one of the most under- penetrated markets for automobiles, with passenger vehicle ownership of less than 15 per 1000 people. This pales in comparison with ownership levels that 3 to 10 times higher in Thailand, Indonesia, Malaysia and China. Therefore, there is a huge latent demand for mobility and there are millions of Indians aspiring to own their first passenger car, or motorcycle. Additionally, exports of automobiles from India are growing, with manufacturers like Hyundai, Ford, Volkswagen, etc. using India as a manufacturing base to export vehicles, engines and components. Simultaneously, the Indian auto component manufacturers are improving their quality capability and becoming more cost competitive, which is opening up more markets around the world. However, a lot remains to be done. The automotive industry in India cannot flourish without the active support and contribution of its Tier 2 and Tier 3, which are essentially MSMEs. In fact, close to 80 per cent of the component industry is dominated by such enterprises. It is imperative that for a robust automotive industry in India, we must ensure that our Tier 2 and Tier 3 remain not only healthy but also become globally cost competitive. Some of the key challenges being faced by the MSMEs in the auto component sector are akin to those of the large enterprises like infrastructure deficit, complex regulations, etc. but considering the relative smaller size of the sector, the issues become more pronounced and acute – whether it be access to capital, access to technology or attracting and retaining the right talent – ingredients that are essential for global competitiveness. While the traditional advantages of low cost and skilled engineering manpower backed Empowering Auto MSMEs to Steer the Indian Economy Ashok Taneja Co-Chairman, CII National SME Council and MD CEO, Shriram Pistons Rings Ltd.
  7. 7. 7policy watch CEOSpeak by a robust domestic demand for vehicles have stood in good stead for the smaller component manufacturers so far, however going forward there is a need to focus on building in-house design capabilities, frugal engineering for cost competitiveness, innovation for product differentiation, and zero defect quality to meet the evolving needs of customers that are continuously looking for maximum value for money in a highly competitive auto market. What is worrisome is that most of the component Tier 2 and Tier 3 enterprises have poor Earnings Before Interest, Taxes and Amortization (EBITA) margins. In most cases the return on capital is lower than the cost of capital. Thus such units are actually eroding capital. It is for this reason that more MSMEs fail to attract the attention of potential investors, and scale up. While it is the primary responsibility of the Tier 1, as also that of OEMs to some extent, to ensure that we create factors of growth and sustenance for the smaller enterprises, a lot however rests on the shoulders of the MSMEs themselves. For example, maintaining process discipline and not taking short cuts is essentially the responsibility of the MSMEs. No amount of handholding from OEMs or Tier 1 can substitute this. Similarly, investing in the training and development of people, providing a stable career, investing part of the profit towards upgrading technology and periodically modernising machine tools rests with MSMEs. As India catches up with new technology trends such as light weighting, electrification of powertrains, safety and emission norms, the Tier 1 alongwith smaller Tier 2 and Tier 3 industry will have to evolve and innovate to meet the stakeholders’ expectations. MSMEs have the advantage of relatively uncomplicated operations, flexibility to change fast and innovate. It is for this reason that globally more innovations come from smaller enterprises than large enterprises. Innovation, RD and new product development need to be urgently focused upon to scale the industry to the next level. Most importantly, the urgent need is to move away from ‘build to print’ to ’in-house design’ and creation of IP. A vertical completely absent in India is that of electronics manufacturing, which India simply cannot afford to miss. Electronic hardware is already the third largest item of import into India and imports are growing.The electronic content in automobiles is growing rapidly and we risk becoming totally import-dependant. Neither the auto industry nor the country can afford this.Therefore, there is an urgent need to create an ecosystem for a vibrant and innovative auto electronics sector to develop. We have already reached the critical state of ‘now or never’. In conclusion, I would like to leave the following 5 points to consider for the MSMEs to play a bigger role in India’s manufacturing sector, particularly the auto component sector:- • The market in India for automobiles, to satisfy domestic demand and demand in exports, is expected to grow continuously for the next few years.Therefore, MSMEs have to think of scaling up. Small is not beautiful for the high volume, high growth auto sector. • It is difficult to attract and retain talent in MSMEs. However, it is also a fact that without investing in good talent it is not possible to achieve efficient manufacturing and cost competitiveness. OEMs and larger Tier 1 must come forward to share resources with MSMEs to train their manpower, upgrade their skills and if necessary, loan their experienced personnel for knowledge sharing. • If the MSMEs have to seize the growth opportunity, the biggest challenge is to focus on quality. The new mantra is not to reduce Parts Per Million (PPM), but to achieve zero defect. This requires a new look and new approach towards process discipline, with no one allowed to tinker with specialisation of raw material, or design of tools and fixtures or the approved manufacturing processes. • MSMEs cannot remain cost competitive only on the basis of lower wages and salaries. MSMEs have the advantage of being entrepreneurial and innovative and this is their best bet to become not only locally cost competitive, but globally cost competitive. The mantra for MSMEs is to innovate, innovate and innovate. • OEMs, Tier 1 and small Tier 2 and Tier 3 are joined at the hip. They have a shared destiny. If any part of the supply chain is weak, all the participants will stand to lose. Therefore, just as developed countries have the responsibility to assist developing countries in their self- enlightened interest, similarly OEMs and Tier-1 companies must extend themselves to help MSMEs to grow. Simple gestures like fair business dealings, making payments on time, training shop-floor personnel, sharing technology etc. can help to create a robust and vibrant MSME sector. When the small enterprises develop a strong backbone, the entire auto component sector will become globally competitive and help us achieve the dream of ’Make in India’. n Source: Vlad Teodorshutterstock.com
  8. 8. 8 policy watch Policy Barometer CII Recommendations Area Issues Recommendations Finance Lack of access to timely and adequate credit Dedicated MSME equity funds need to be made available to finance rapid• growth of MSMEs both in the public as well as private space The current limits under the Credit Guarantee Trust for Micro and Small• Enterprises (CGTMSE) scheme should be enhanced in a phased manner from the present Rs. 4,000 crore to Rs. 28,000 crore The classification of Non Performing Assets (NPAs) should be 120 days• instead of the present 90 days with a special dispensation for extra 30 days for MSMEs High cost of credit Cost of money (interest on borrowing) should be limited to a maximum limit• of base rate + 2.5 per cent Delayed payments There is a need for provisioning of factoring without recourse, online• receivables financing platform and incentives to large enterprises for making timely payments for delayed payments Promoting women entrepreneurship 25 per cent of fund allocations should be reserved for women entrepreneurs• to fill the gender gap in the industry Skill Development Limited access to technical assistance and advisory services National industry bodies in partnership with Central and State Governments• to play mentorship roles through innovative programs like business mentoring services and senior expert advisory services to provide the necessary guidance for entrepreneurs and MSMEs The Government should incentivize approved/accredited training centers• to skill employees from the MSME sector Lack of skilled and talented manpower 10 per cent of additional employment generation should be incentivized• by way of employment allowance type deduction Entry level skilling through appointment of apprentices by MSMEs should• be incentivized Infrastructure Inadequate infrastructure facilities The Government should allocate 25 per cent of the land available at• all industrial corridors for MSMEs at a different rate slabs and acquiring models Global standard plug and play infrastructure models should be created• and made available at national and regional levels in manufacturing zones and along industrial corridors on Public Private Partnership (PPP) basis Land bank should be created at State level to facilitate smooth allocation• of land to start-ups and micro enterprises State Governments should allot vacant and disused premises in industrial• estates to new or existing enterprises Incubation cells and hubs within clusters can be developed in collaboration• with academia/regional institutions to provide MSMEs with mentoring and technology support, shared research and development facilities
  9. 9. 9policy watch Policy Barometer Area Issues Recommendations Technology Non-availability of superior technology Incentivize and implement cloud technology among the MSME clusters• which can help MSMEs in knowledge sharing and competitiveness development and encourage MSMEs to use different Information and Communication Technology (ICT) platforms like Enterprise Resource Planning (ERP) through enhanced depreciation on Information Technology (IT) products Creation of a ‘central climate friendly technology fund’ will help MSMEs• to adopt such technologies The scope of the Design Clinic Scheme should be expanded to allow• more than one product and the coverage should be extended to commercialization of new products Legal / Regulatory Framework Lack of a comprehensive policy framework for MSME development There is a need for a speedy implementation of the MSME Development• (Amendment) Bill, 2014 which redefines MSMEs Ease of Doing Business Ensure effective e-governance in areas of customs, excise, sales tax• through e-filing of returns and online data sharing between concerned departments Simplify the Companies Act 2013 as applicable to MSMEs in matters such• as related party transactions; loans and deposits from related parties and directors; provisions relating to appointment of directors, auditors, audit committees; remuneration; prohibitive penal provisions, etc. Single window approval system to register businesses, obtain licenses,• etc. through a single application Market Linkages Lack of adequate market linkages for business development and expansion Ensure effective implementation and monitoring of the public procurement• policy and incentives for vendor development by public and private enterprises in each industry sector Formulate and implement State level public procurement policies with• grievance redressal and monitoring systems Effective implementation of the various market development schemes• available including Market Development Assistance (MDA), trade fair participation, customer visits in foreign countries, etc. is urgently needed for creating market linkages
  10. 10. 10 policy watch Industry Voices Indian MSMEs continue to chug along with their growth story. With their huge potential, the Government of India is taking different measures to increase their competitiveness in the international market but there is still a lot required to give the much needed thrust to MSMEs. Once this untapped potential becomes the source for growth of these units, the size of Indian GDP can surpass that of developed nations. Challenges such as absence of adequate and timely banking finance, non-availability of suitable technology, ineffective marketing due to limited resources, unavailability of skilled manpower, etc. must be countered head on while keeping the focus on the ease of doing business. Competitiveness of the MSME segment is impacted by unfavorable regime of labor laws which retard productivity and growth. It is our considered opinion that simple, fair and friendly labour laws be introduced on a pilot basis and later they can be taken across the board after the efficacy is proven. A solemn commitment by the Government as well as industry bodies like ours will carefully chalk the high growth path that these enterprises are capable of and accelerate the growth of the Indian economy. Captain Alok Sharma Chairman, Regional Committee on MSME, CII NR and Managing Director CEO, Forge (India) Pvt Ltd In a report released recently, the globally recognized ratings body CRISIL concluded that MSMEs in the southern States, including Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and Telangana, have outperformed their counterparts in the rest of the country, recording a growth in annual turnover to the tune of 21 per cent during 2013-14 as against the 13 per cent overall growth in MSMEs. Large scale infrastructure plans, industrial corridors and training centers have made it possible to achieve this feat. We are committed to enable an unprecedented growth for the MSMEs by empowering MSMEs in our region to lead the way. Ashok Rao Chairman, Regional Committee on MSME, CII Southern Region Managing Director, KGK Engineering As global business networks profligate and an integrated global marketplace evolves, a pro-business environment with MSMEs as the top priority becomes an imperative.A digital business environment will strengthen the regulatory framework and improve among others, regulatory transparency, ease of finance, MSME friendly commercial conditions and promote the creation, survival and growth of entrepreneurship through ease-of-access to local equity markets and venture capital funds. In addition, tax complexity is another area requiring immediate attention. To tap the global business opportunities the Indian MSMEs must produce superior quality product with high level of professional commitment. Indian Industry must create a very strong perception of best quality products in the global market. Nandakumar Chairman, Regional Committee on MSME, CII WR and Chairman Managing Director, Chemtrols Industries Ltd Accelerated MSME growth is fundamental to India achieving a sustainable high GDP growth. Today, as the Government at the Centre draws up fresh strategies to resuscitate the Indian economy, it would be prudent to direct sharp attention on the factors that will spur accelerated MSME growth. Opportunities are rapidly evolving owing to demographic patterns, urbanization trends, increasing disposable income, proliferation of technology enabled platforms, growth in internet user base, etc. Thus a commensurate and continual focus on development of the MSME space is critical to sustain the value generation process in any supply chain and for the larger economic health of the country. It is thus important that all sections of the society, political parties, Industry, trade commerce, and media support the various economic measures being proposed by Government to ensure growth of the Indian MSMEs. This is the need of the hour to accommodate the dynamic change in the market place. S K Behra Chairman, Regional Committee on MSME, CII ER and Vice Chairman Managing Director, RSB Transmissions (I) Ltd
  11. 11. 11policy watch Factfile
  12. 12. 12 policy watch Factfile Copyright © 2015 Confederation of Indian Industry (CII). All rights reserved. No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), in part or full in any manner whatsoever, or translated into any language, without the prior written permission of the copyright owner. CII has made every effort to ensure the accuracy of the information and material presented in this document. Nonetheless, all information, estimates and opinions contained in this publication are subject to change without notice, and do not constitute professional advice in any manner. Neither CII nor any of its office bearers or analysts or employees accept or assume any responsibility or liability in respect of the information provided herein. However, any discrepancy, error, etc. found in this publication may please be brought to the notice of CII for appropriate correction. Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi 110003, India Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: info@cii.in; Web: www.cii.in For suggestions please contact Priya Shirali, Corporate Communications at priya.shirali@cii.in
  • SudhaJaiswara

    Jan. 6, 2020

The November issue of #PolicyWatch focuses on the overall state of #MSME development in the country, opportunities for MSMEs in some critical sectors, some of the latest MSME initiatives by the Government demonstrating its commitment towards the melioration of business environment for MSMEs and significant policy recommendations in various areas that will assist in putting Indian MSMEs on a high growth trajectory.

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