The document discusses the significance and classifications of micro, small, and medium enterprises (MSMEs) in India, emphasizing their contributions to GDP, employment, and exports. It outlines the definitions based on investment limits and the impacts of recent changes to MSME classification standards. Additionally, it highlights the challenges faced by human resource management within MSMEs, such as talent management, employee retention, and the entrepreneurial culture, while proposing HR outsourcing as a potential solution.

1. Paper 6: APPLIED HUMAN RESOURCE
DEVELOPMENT (H.R.D.)
Unit 4 : HRD in Small & Medium Enterprises (SMEs)

2. Session: 1
1. What are MSMEs?
2. Difference between micro, small and medium enterprises
3. Role of MSMEs
4. Proposed changes to MSME classification

3. Introduction
Small & medium Enterprises are the back bone of Industrial Development.
Ministry of Micro Small & Medium Enterprises Contributes Nearly 8% in GDP, 40% in Manufacturing output &
45% in Exports.
They provides the largest share of employment after agriculture
They have emerged as a dynamic and vibrant sector of economy.
State governments given responsibility of encouraging small scale industries pre liberalization (1991). Further
encouragement provided by MSME Development Act 2006 and formation of Ministry of MSME

4. What are MSMEs?
M - Micro
S - Small
M - Medium
E - Enterprises
They are small sized entities defined in terms of their investment, as guided by Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006.

5. Differences
Definition as per Ministry of MSME and MSMED Act 2006 –
Manufacturing Enterprises - The enterprises engaged in the manufacture or production of goods
pertaining to any industry or employing plant and machinery in the process of value addition to the final
product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of
investment in Plant & Machinery.
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed 25 lakh rupees
Small Enterprises More than 25 lakh rupees but does not
exceed 5 crore rupees
Medium Enterprises More than 5 crore rupees but does not
exceed 10 crore rupees

6. Differences
Definition as per Ministry of MSME and MSMED Act 2006 –
Service Enterprises - The enterprises engaged in providing or rendering of services and are defined in
terms of investment in equipment
Enterprises Investment in equipment
Micro Enterprises Does not exceed 10 lakh rupees:
Small Enterprises
More than 10 lakh rupees but does not
exceed 2 crore rupees
Medium Enterprises
More than 2 crore rupees but does not
exceed 5 crore rupees

7. Role of MSMEs
Employment Generation
Production
Export Contribution
Increases country’s GDP

8. Break-up of MSMEs in India

9. Employment in MSMEs

10. Examples of MSMEs

11. Examples of MSMEs

12. Benefits to MSMEs
Benefits from State Governments: Most states offer those who’ve registered under the MSMED Act subsidies on power,
taxes and entry to state-run industrial estates. In particular, there is a sales tax exemption in most states and purchase
preference on goods produced.
Tax Benefits: Depending on your business, you may enjoy an excise exemption scheme as well as exemption from certain
direct taxes in the initial years of your business.
Benefits from Banks: All banks and other financial institutions recognize MSMEs and have created special schemes for
them. This usually includes priority sector lending, which means that the likelihood of your business being sanctioned a
loan is high, and lower bank interest rates. There may also be preferential treatment in case of delay in repayment.
Services provided by government to MSME include :
◦ Provision of training facilities
Hire-purchase of machineries for use in MSME
Assistance in marketing, both within the country and outside (exports)
◦ Extended credit facilities
Industrial extension support and services
Availability of developed sites for warehouse construction

13. Challenges faced by MSMEs
 First definition was determined in 2006. After many years, with continued erosion of value of Rupee, the
thresholds have become impractical. Adjusting for inflation would have required to enhance the limit by 2-3
times.
 The investment based definition creates an uneven field for older enterprises vis a vis new enterprises. Setting
up a unit to produce a product today would require several times more investment than the one set-up ten or
twenty years ago to produce the same product with similar quantity. What could be a micro unit because of
historical investment figures, would become medium or large if set up today. It becomes a barrier for new
entrants.
 To prove that a unit fell in a specific category, the MSMEs ran around CAs to certify the value of plant and
machinery. It is alleged that many large enterprises also under-reported the investment, got CA certificate and
partook in the Public Procurement ear-marked for MSEs.

14. Change to MSME classification since
2020
Classification of
the MSME
New Classification since 2020
(Investment and annual turnover)
Same for manufacturing & service
industry
Previous classification – Ceiling on
Investment in Plant and Machinery (in
Rs)
Micro
Investment not more than Rs. 1 crore
Turnover not exceeding Rs 5 crores
Below 25 lakhs
Small
Investment not more than Rs. 10 crores
Turnover not more than Rs 50 crores
25 lakhs to 5 crores
Medium
Investment not more than Rs. 50 crores
Turnover not more than Rs 250 crores
5 crores to 10 crores

15. Assignment
1. Write a 2 page report on the MSME Development act.

16. Session: 2
1. Role of HR in MSME
2. Challenges for HR in MSME

17. Role of HR in MSME
Strategy
Performance
Improvement
Conflict resolution
Recruitment & Payroll
Compliances
Administrative Services

18. Role of HR in MSME
Administration:
◦ Management of house-keeping, security and other such personnel
◦ Secretarial responsibilities to reporting officer
◦ Event management
Compliances:
◦ Salary processing, PF/ESIC/TDS management
◦ Factory compliance management

19. Role of HR in MSME
Recruitment & Payroll:
◦ Recruitment – local contract labourers, part-time workers
◦ Attendance management, payroll on excel
Conflict resolution:
◦ Act as an intermediary between manager and employee
◦ Fire-fighting
◦ Glorified ‘baby-sitter’ at some instances

20. Role of HR in MSME
Performance Improvement:
◦ Involvement in designing and allocating jobs
◦ Training & development
◦ Performance monitoring and reporting
Strategy:
◦ Seat on the management table
◦ Involvement in all business decisions
◦ Linking business needs to people processes

21. Challenges for HR in MSMEs
Absence or lack of HR departments:
◦ According to a survey conducted by Confederation of Indian Industries, 20% of medium and 80% of small-sized
businesses have no HR departments
◦ Possible reasons –
Budget constraints
Founders feel that their team size is too small
◦ Advisable to build an HR system right from the start so that various people related practices like talent management,
engagement, policies related to compensation and benefits can be laid out.

22. Challenges for HR in MSMEs
Managing Talent
◦ Recruitment : Fierce competition, limited pool of qualified candidates and at times inability to offer a competitive salary are
some of the top recruitment constraints. Apart from this, inadequate branding and risk associated make these enterprises
less attractive vis-a-vis more established, big organizations. HR managers still struggle to create a strong layer of middle
managers, especially in the urban set up where competition is fierce
◦ Training : To succeed in current scenario, organizations need to have a pool of skilled labour. Big organizations are making
concerted efforts to assess and upskill their talent by roping in expert external vendors to assess and deliver various training
programs. However, for SMEs, relying on external vendors is not always feasible mainly owing to budget constraints.
Therefore, they are mostly conducting on-the-job or in-house training programs which might or might not be that effective.
So despite realizing the need to roll-out specific skill based programs, HR at times, feels constrained to take that up

23. Challenges for HR in MSMEs
Managing Talent
◦ Performance Appraisals : Performance appraisals are often not very structured or documented in SMEs mainly because other
structures like competency framework, values, job description for different roles are not that well defined. Furthermore, managers
are mostly occupied and are not trained to handle difficult ‘performance conversations’. Since SMEs are mostly focused towards
growth and scale, the process of appraisal somehow gets sidelined. This comes as a big challenge and frustration for HR managers
who are considered as the process owners of such systems yet don’t have requisite resources and means to roll that out.
◦ Retention : In SMEs, retaining employees at the junior level is a challenge. The junior levels mostly comprise of employees with
functional skills such as electricians, or field sales people. This class is highly mobile and change jobs frequently and may even quit
without a prior notice. It becomes a big challenge for the HR to fill vacant positions at a short notice. On the other hand, at senior and
middle levels, where attrition is relatively low, HR needs to mainly focus on keeping employees engaged. Unclear role definitions, lack
of career path or any perceived unfairness in the system can trigger thoughts of attrition among these employees. As an HR manager,
one has to be really aware of employees’ engagement levels and their retention drivers.

24. Challenges for HR in MSMEs
Entrepreneurial Culture Management : SMEs in their initial days usually carry a culture which is fun, energetic, fast-moving and
‘entrepreneurial’ in nature. It is mostly comprised of young team members who work very closely with each other and interactwith seniors
and founders more frequently. However, once the business starts growing and becomes mature, it tends to lose its original entrepreneurial
spirit –teams become big and frequent interactions with seniors/founders turn into monthly meetings. Such scenarios present the
possibilities of people feeling less valued and less entrenched in the system, paving way for disenchantment and eventual attrition.
Value Alignment: Another important challenge which HR managers face in SMEs is to ensure that the values of the founders are aligned
with that of larger employee group. Misalignment often happens when people from outside bring different set of values which stand in
direct conflict with that of founders and both the parties are rigid enough to unlearn and embrace what is best for the enterprise. In such
challenging situation, HR needs to play a critical role by creating awareness amongst decision makers about the need for change. Two-way
and transparent communication between both the parties can bridge the gap.

25. What is HR outsourcing?
HR Outsourcing is a process in which the human resource activities of an organization are
outsourced so as to focus on the organization`s core competencies. Often HR functions are
complex and time consuming that it will create difficulty in managing other important thrust
areas. By HR outsourcing, this problem can be avoided which will enhance effectiveness by
focussing on what the organization is best at. It will also improve the flexibility of the organization
to the rapidly changing business needs. Usually businesses that outsource HR are typically small
to midsize firms with number of employees ranging from 25 to 1500.

26. What is HR outsourcing?
There are HR outsourcing firms present so as to meet an organization`s HR requirements. Some
HR outsourcing firms are generalists, offering a wide variety of services, while others are
specialists, focusing on specific areas such as recruitment, payroll etc. Depending on the degree
of outsourcing required, we can either outsource the entire HR functions or contract for specific
HR functions.
HR outsourcing has become a popular solution for organizations to remain competitive and cut
costs. It also provides skilled professionals who are focused specifically on HR.

27. Types of HR Outsourcing
1. Business process HR outsourcing (also known as BPO), where an external supplier manages
discrete HR activities, such as payroll administration or recruitment, or perhaps the whole
human resources function.
2. Shared service HR outsourcing, where only the transaction or administrative elements of
HR’s activities are subcontracted to an external supplier. This may include the personal
interface with employees.
3. Application service HR outsourcing, where external providers look after the technological
(and physical) infrastructure to support human resources activities.

28. Outsourcing HR

29. Advantages and Disadvantages

30. Technology and HR