Msme Sector in India

Empowering MSMEs for Sustainability: “Make In India”
With the change of power in the Centre various new initiatives have been taken by the
government to kick start the economy to give a double digit growth in the years to come.
One such initiative is Make in India. It is a slogan coined by the Prime Minister of our
country on 25th September 2014. The idea behind this is to attract businesses from across
the world to set up a manufacturing base in India. The purpose behind this is to fulfill the
promise of job creation, give a fillip to the national economy and making India into a self
reliant country. This campaign is also an attempt to attract FDI in the country.
The purpose of Make in India includes economic transformation in India and making India a
manufacturing hub. This is sought to be achieved by simplifying laws, making bureaucratic
processes shorter and easier, bring more transparency in the government transactions and
making the government more accountable. It is also envisaged to have time bound project
clearances which would be done online. It is also proposed to have a dedicated group of
people who would be replying to issues raised by investors in a period of 48 hours.
The idea and the intentions are very good. However this cannot happen in isolation and this
cannot be pursued by one ministry or a group of persons. Every arm of the government be
it for creation of infrastructure or launching IT initiatives or reforming labour laws etc.
Unless everyone pursues this objective with a missionary zeal things may not pan out as
envisaged. However looking at the passion with which it is being pursued it seems that the
objective of Make in India would be achieved.
Jyoti Prakash Gadia
Managing Director
Resurgent India Limited
MESSAGE
Jyoti Prakash Gadia
Managing Director
Resurgent India Ltd.

Empowering MSMEs for Sustainability: “Make In India”
Contents
Introduction........................................................................................1
MSME Sector in India: The Engine of Growth .....................................2
Key Government Schemes and Initiatives to support MSMEs ..........14
Current Financing Landscape for MSMEs..........................................23
Issues and Challenges for MSMEs.....................................................29
Role of ICT.........................................................................................34
Innovation as a Catalyst for MSME growth.......................................39
Recommendations............................................................................44
Conclusion ........................................................................................50

Page | 1Empowering MSMEs for Sustainability: “Make In India”
Introduction
The MSME sector contributes in a significant way to the growth of the Indian economy with
a vast network of over 46 million units, creating employment of about 106 million people,
manufacturing more than 6000 products, contributing about 45% to manufacturing output
and about 40% of exports, directly and indirectly.
It has been witnessed globally, that the MSME segment constitutes the mainstay for
maintaining growth rates as well as employment generation rate and provides stability
during economic downturns. India’s GDP is expected to touch 8.5 %, with the country likely
to be a USD 5 trillion economy by 2025. To accomplish this, growth of the MSME sector will
be paramount. Further, the progress of this sector is extremely critical to meet the national
objectives of financial inclusion and employment generation across urban and rural areas in
the country.
MSMEs can make significant impact in the area of indigenization, with both domestic and
foreign companies investing in the ‘Make in India’ initiative. With the launch of this
initiative, MSMEs will increasingly focus on securing investment and technical expertise
from foreign firms, which on the other hand, would be willing to leverage existing networks
/ resources of the MSMEs to get higher returns on investment.
It is essential, that as India embarks on a new wave economy, it adopt an MSME opportunity
framework that will provide the necessary momentum to seize the opportunities created by
the ‘Make in India’.
The new wave MSMEs should support the development of a conducive business eco system
that enables and continuously supports business that are striving to deliver their products
and services at a competitive price, both in domestic and international markets.
It is imperative that the MSME sector develops in all areas of manufacturing and services
sectors because each of these sectors will continue to be very relevant to the overall GDP
growth as well as employment generation. The MSME sector will act as a catalyst to bring
about this socio-economic transformation.
The Indian MSME segment has the potential to emerge as a backbone for this economy and
act as an engine for growth, given the right set of support and enabling framework.

MSME Sector in India: The Engine of Growth
Micro, Small and Medium Enterprises (MSMEs) are a significant contributor to the economic
growth of the country across the realms of production, exports and employment.
Today, the sector produces a wide range of products, from simple consumer goods to high-
precision, sophisticated finished products. It has emerged as a major supplier of mass
consumption goods as well as a producer of electronic and electrical equipment and drugs
and pharmaceuticals. An impetus to the sector is likely to have a multiplier impact on
economic growth.
MSME Definition
Prior to 1991, industries were divided into two blocks, at a very broad level: large and small.
SSIs were defined based on investment in plant and machinery (excluding land and building)
and there were no licensing required to set-up such a unit.
In 2006, under MSMED Act, a more comprehensive definition based on capital investment
was laid out. The details enumerated below:
Classification Manufacturing Enterprises Service Enterprises
Micro Does not exceed INR 25 lakh Does not exceed INR 10 lakh
Small More than INR 25 lakhs but
doesn’t exceed INR 5 crore
More than INR 10 lakhs but
doesn’t exceed INR 2 crore
Medium More than INR 5 crores but
doesn’t exceed INR 10 crores
More than INR 2 crores but does
not exceed INR 5 crores.
Key Characteristics
 Number of MSMEs –
Ministry of MSME periodically conducts Census to ascertain the size and status of the
industry from time to time. While all registered units form part of the survey, from the
unregistered a representative sample is selected across geographies and its findings
extrapolated for the country. The two sets together represent the entire MSME sector.
Further, this survey has incorporated revisions on coverage and expansion from time to
time. So before MSMED Act 2006, the sector was comprised only of manufacturing units.
The Act included a small list of industry related and IT services. By the time results of 4th
MSME Census (2006-07) were published, a few very large sectors were included such as
wholesale and retail trade; legal, education and social services; hotel and restaurants;
transports , storage and warehousing (except cold storage) among others. #
# Anil Bhardwaj Blog “Counting the Beans – Part 1” on Economic Times Website

As per the last Census of 2006-07, there were 361.7 lakh MSME units. The corresponding
figures have been used by the Ministry to project size of the sector and as per MSME Annual
Report for 2013-14;the projected estimate of the size of number of MSMEs for 2012-13 is
467.6 lakhs. This has grown at CAGR of 4.4% over a period of 6 years ending 2012-13.The
Annual MSME Report for 2012-13 pegs the composition of the MSME sector as - Services
68.2% and Manufacturing 31.8%.
Exhibit 1: Number of MSMEs (In Lakhs)
Source: Annual Report 2013-14, Ministry of MSME
 Employment Generated by MSMEs –
Similarly, for the Employment figures, The MSME Annual Report for 2013-14 puts the
projected estimate of employment at 1061.52 lakh, having grown at a CAGR of 4.7% over a
period of 6 years ending 2012-13.
Exhibit 2: Employment in the MSME Sector (In Lakhs)
Source: Annual Report 2013-14, Ministry of MSME
361.8 377.4 393.7 410.8 428.7 447.7 467.6
0.0
100.0
200.0
300.0
400.0
500.0
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
4.4%
805.2 842.0 880.8 921.8 965.2 1011.8 1061.5
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
4.7%

 Split by Segment : Registered vs Un-registered –
In terms of the split by registered – unregistered, the fourth (All-India) Census of MSMEs
estimates, that out of the total number of MSMEs, almost 94 % are still in the unregistered
segment.
Exhibit 3: Split by Registered Vs Unregistered
Source: Annual Report 2013-14, Ministry of MSME. 4th All India MSME Census, 2006-07
 Contribution of MSME (Manufacturing Sector) in the GDP –
Based on the results of Third and Fourth All India Census of Small Scale Industries / Micro,
Small & Medium Enterprises, an attempt has been made to estimate the share of MSME
Sector in manufacturing output and GDP revising the existing ratio-based estimation
procedure adopted by the Planning Commission in the year 1992. As per the Ministry’s
Annual Report 2013-14, the contribution of MSMEs in Manufacturing Output is provided
below.
Exhibit 4: Contribution of MSME in Manufacturing Output (in 000 Crs, and %)
Note: * - Provisional.
Source: 1. Fourth All India Census of MSMEs 2006-07, 2. National Account Statistics 2013, CSO, M/O SPI and 3.
Annual Survey of Industries, CSO, M/O SPI
6
94
Registered
Unregistered
1,199
1,323
1,376 1,488
1,656
1,791
42% 42%
41%
40%
38% 38%
36%
37%
38%
39%
40%
41%
42%
43%
0.4
200.4
400.4
600.4
800.4
1000.4
1200.4
1400.4
1600.4
1800.4
2000.4
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12*
Gross Output Value Contribution %

The contribution to GDP over the period is shown in the table below.
Exhibit 5: Contribution of Manufacturing Output inGDP (in 000 Crs, and %)
Note: * - Provisional.
Source: 1. Fourth All India Census of MSMEs 2006-07, 2. National Account Statistics 2013, CSO, M/O SPI and 3.
Annual Survey of Industries, CSO, M/O SPI
 Key Industries for MSME –
It is a very heterogeneous sector, encompassing diverse industries ranging from traditional
to high-tech manufacturing and valued services. An overview of leading industries with
respective shares is provided in the chart below.
Exhibit 6: Key Industry Shares for MSME (in %)
In terms of manufacturing, Apparel, F&B, Furniture and Textile constitute the majority
share. However in terms of gross output, IFC/ World Bank Inetllecap Analysis, 2013 pegs
1,199
1,323 1,376
1,488
1,656
1,791
7.7% 7.8% 7.5% 7.5% 7.4% 7.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12*
Gross Output Value Contribution %
39.9
8.8
6.9
6.2
3.8
3.6
3.6
3.6
2.3
2.3
19.4
Retail Trade, Except of MV; repair of personal
and HH goods
Manufacture of Wearing Apparel, Dressing &
Dyeing fur
Manufacture of F&B
Other Services
Other Businesses
Hotel & Restaurants
Sales, Maintenance & Repair of MV & MC,
Retail sale of automotive fuel
Manufacture of Furniture
Manufacture of Textiles
Manufacture of fabricated metal products
Others

the share of food products and beverages segment as the highest followed by textiles, basic
metals and chemicals.
Industry Context: Overall Outlook
While the Indian economy remained soft, with especially lower manufacturing performance
in the last few years, the outlook looks upbeat and the mood positive. The shift is led by two
key factors:
a) Biggest mandate to a single party since 1984, on an election fought on
‘Developmental’ issues
b) A sign of revival evident across global economies – led strongly by US and is expected
to continue as per IMF estimates.
Exhibit 7:Positive Economic Estimate augurs well For ‘Make in India’ (% GDP growth)
Source: *IMF Estimate, BCG
‘Make in India’ Campaign
Given the current and projected favorable domestic and global sentiments, the launch of
campaign could not have been timed better. The honorable Prime Minister launched make
in India Campaign in September 2014 with an intention of reviving manufacturing
businesses and emphasizing key sectors in India (25 sectors identified including both
manufacturing and services domain). This has come amidst growing concerns that most
entrepreneurs are moving out of the country due to its low rank in ease of doing business
ratings.
The Make in India sets the program’s vision around –
a) Facilitate investment
b) Foster innovation
c) Enhance skill development
1.5
0.9
2.1
3.1
2.7
1.7
2.1
3.0
4.3
3.3
0.0
1.0
2.0
3.0
4.0
5.0
Germany Euro Zone USA ME,NA World
2010-14 2014-20*

d) Protect Intellectual Property
e) Build best in class manufacturing infrastructure
f) Provide employment
g) Making ‘Doing Business’ easy for India
Relevance of ‘Make in India’
India must become a manufacturing powerhouse in order to gainfully employ its
demographic dividend. Its natural advantages like a big labor pool and a large domestic
market are available enablers. In addition, China’s competitive advantage in terms of cost is
fast eroding, being only marginally better than other developed countries. India has the
opportunity to take some share of global manufacturing away from China. This would be
possible only if the prevalent process inefficiencies are solved through—improved
infrastructure, ease of doing business, rationalized tax policies, labor reforms, enhanced
skills, ease of land acquisition, implementation of Goods and Services Tax (GST) and fast
track approvals.
Exhibit 8: Weakening China’s Cost Competitiveness
Source: US Economic Census, BLS; BEA, ILO, EIU, BCG Analysis
The "Make in India" initiative, will also tackle the key issue of “Ease of doing Business”. It
will act as a first reference point for guiding foreign investors on all aspects of regulatory
and policy issues and assist them in obtaining regulatory clearances. The Centre has already
allowed 100% Foreign Direct Investment (FDI) under the automatic route in construction,
operation and maintenance in rail infrastructure projects and increased FDI in defense from
26 to 49 %.
The investor facilitation cell will assist the foreign investors from the time of their arrival in
the country to the time of their departure, with focus on green and advanced
manufacturing and helping these companies to become an important part of the global
4.4
7.0
5.8
12.5
11.0
13.7
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Productivity Adjusted
Manufacturing Wages (USD)
Industrial Electricity Cost
(cents per KwH)
Industrial Natural Gas Cost
(USD per mn BTUs)
2004 2014
+187% +57% +138%
#Source: DNA

value chain. Key imperatives that have been undertaken to improve business process
efficient include#:
a) Process of applying for Industrial License & Industrial Entrepreneur Memorandum
made online on 24×7 basis through eBiz portal.
b) Validity of Industrial license extended to three years.
c) States asked to introduce self-certification and third party certification under Boilers
Act.
d) Major components of Defense products’ list excluded from industrial licensing.
e) Dual use items having military as well as civilian applications deregulated.
f) Services of all Central Govt. Departments & Ministries will be integrated with the E-
Biz – a single window IT platform for services by 31 Dec. 2014.
g) Process of obtaining environmental clearances made online.
h) Following advisories sent to all Departments/ State Governments to simplify and
rationalize regulatory environment.
i) All returns should be filed on-line through a unified form.
j) Checklist of required compliances should be placed on Ministry /Department’s web
portal.
Sectors covered under ‘Make in India’

The campaign covers a mix of manufacturing and services dominant sector, as listed below:
Source: MakeinIndia website
Market Reactions
The initiative has been hailed by one and all, some industry reactions are captured below:
"As a nation we need to focus on four
areas - rules & regulations, infrastructure,
policies and skill training. Make in India
can add 90 million jobs in the next
decade.” –ChandaKochhar, CEO, ICICI
Bank
“Policy changes if get into action we
should see a fairly significant change in
the situation, fairly significant change in
investment”—Nitin Nohria, Dean, Harvard
Business School
"In response to Prime Minister Narendra
Modi's call to the world to make in India,
the UK is launching a campaign to
celebrate and inspire Great Collaborations
between the UK and India”.—Official
statement, British High Commission
“This offers a timely and unique
opportunity for industry and government
to work together to make India truly,
globally competitive”-- Chairman of Tata
Group, Cyrus Pallonji

Potential Impact of ‘Make in India’
The vision statement of official website, www.makeinindia.gov.in commits to achieve for
the country among other things an increase in manufacturing sector growth to 12-14 % per
annum over the medium term, increase in the share of manufacturing in the country’s Gross
Domestic Product from 16% to 25% by 2022 and importantly to create 100 million
additional jobs by 2022 in the manufacturing sector alone. These are ambitious targets,
acknowledging slowed growth of manufacturing sector in the last few years.
As per BCG survey and analysis, 2014, India Inc. expects an 8-10% growth in the
manufacturing sector Y-o-Y. Growth at this rate would place the manufacturing share of
GDP around 17-18% against the targeted 25%. If the same growth were maintained until
2030, Indian manufacturing would be at 22% of GDP at INR 40 trillion. It is important to note
that a consistent 8-10% growth is not small anyway, as achieving this can allow India to be
among the top 3-5 manufacturing economies globally.
An overview of key benefits from the initiative is listed below:
a) Boost of FDI in Identified Sectors: Increased government commitment and direction
to give a sense of reduced risk to investors, thereby fuelling inflows.
b) Access to Advanced Technology and Research Support: The campaign aims to urge
both local and foreign companies to invest in India. The foreign investment could
enable access to advanced technologies and research know-hows, leading to
improved efficiency and quality.
c) Push towards Infrastructure Growth: The campaign provides direct thrust on
infrastructure development, in the absence of which investors’ confidence would
remain jittery.
d) Labor Law Reforms: The Industry has been plagued by high incidence of strikes due
to outdated labor laws, especially the flash point between automotive companies
and their labor force but reforms could change this scenario in the days ahead.
“The Make in India campaign promises to
fast-track India's growth trajectory by
making it a manufacturing hub. Made in
India, made by India but made for the
world “– Rana Kapoor, President,
ASSOCHAM
"Make in India and Clean India are very
important social campaigns”— Preeti
Patel, UK’s Minister of Parliament

e) Reduced Trade Deficit backed by multiplier effect on exports. With the help of
‘Make in India’, the dependence on imports can be brought down and at the same
time, current account deficit can also be controlled. India is heavily dependent on
imports for a large number of goods and services. While import of certain goods like
crude is inevitable, many other products across consumer sectors like electronic
white goods, lighting, and consumables which are not technology intensive, have a
significant potential to be substituted by local enterprises.
f) Business Mindset Change: The strong government backing and support would help
design MSMEs outlook for future. According to a global study done by Egon Zehnder,
Indian businesses tend to think more short term as compared to their global
counterparts. This takes a toll on investing in process creation, R&D setup thereby
hindering innovation and expansion possibilities. ‘Make in India’ through sustained
government support and access to technical know-how through foreign investments
can help change the mindset for longer payoffs.
g) Global Recognition: India’s performance on ease of doing business has been dismal
in global surveys. PM’s flagship initiative towards harnessing foreign investment in
India through the promise of a favorable investment climate and reformed ways of
business doings has the potential to get India a big perceptual lift overseas.
While it is still early days to see real impact, the initial signs are impressive. Here is a look
below:
Exhibit 9: Early Impact of the Campaign
Source:Mapsofindia
• Indian Government has cleared INR 80,000 cr worth of defence deals
including the construction of six submarines
• Defence Acquisition Council (DAC) approved the manufacturing of
these diesel-electric submarines in a single domestic shipyard.
Defence Boost
• Campaign is the key highlight at the Sweden India Nobel Memorial
Week
• The Swedish Ambassador, H E Harald Sandberg praised PM Modi’s
initiative to boost the manufacturing, automobile, infrastructure &
other sectors drawing upon the traditional strengths of the country.
Sweden Appreciation

Strengthening ‘Make in India’
The campaign comes with its fair share of challenges, which would be important to counter
to make ‘Make in India’ a reality:
Exhibit 10: Imperatives for Strengthening Make in India
a) Identify Levers for Competitiveness: As the Reserve Bank of India Governor
Raghuram Rajan has correctly pointed out, that, the nature of manufacturing is
changing. Pure labor cost competitiveness is partly as advanced nations approach
efficiency and automation led competitiveness. Developed countries are also
realizing how crucial local manufacturing is to jobs and to having stable, prosperous
societies and so there is an attempt to reverse outsourcing and revive local
manufacturing by embracing new technologies and innovations such as 3-D printing
and the “Internet of things”. India, thus needs to strategically decide which
competitive lever to play for which sector –i) sectors that leverage India’ core
strengths ii) sectors that have big domestic market iii) sectors that could benefit
from global shift.
b) Assign Sector Priority: In addition to above, we must also assign a clear sector
priority. Herein, we must assess the idea of localization and building scale for
sectors that have large domestic market, e.g. Defense (we are world’s leading
importers of arms); Health care (need to get aggressive on IPR support), Electronics
(Projected import to outgrow oil import bill), Construction.
c) Provide for Infrastructure: The success story would not be complete without
adequate support of Infrastructure. We must invest further in power and transport
infrastructure – to give a perspective of our transport infra, our average speed for
freight trains is 25 km/hr., which is less than half of US and Germany and ports have
a turn-around time twice that of China.

d) Build ‘Ecosystems’: Close dialogue and partnership between government and the
private sector, both domestic and foreign, is critical. Indian companies along with
Chinese, Japanese, German, American and Swedish companies are all vital partners
and we must create an environment that is open and welcoming. Critical to create
few oases in the form of special economic zones with localized support and
efficiencies to boost manufacturing.
e) Encourage Innovation: Foster an environment of innovation as a means to drive
competitiveness (detailed further in ‘Role of Innovation’ section in the report).
f) Driving Talent Pool for the Identified Sectors: MSME sector per se suffers from the
lack of accessibility of talent pool. Government can, through the use of advertising
maybe, create buzz around identified sectors and project them as attractive
employability destination for young talent pool.

Key Government Schemes and Initiatives to support MSMEs
To a large extent, the growing number of MSMEs across the nation can be attributed to a
slew of available government schemes and initiatives. Over the last decade, many schemes
for the development of MSMEs have been launched by the central and state governments.
The following table captures in brief the nodal government bodies looking after MSME
development and some of the central government financing schemes available.
Exhibit 11: Key Government Pillars and Schemes

Exhibit 12: Role of Key Government Pillars
Key Government Schemes and Initiatives launched to support MSMEs
An overview of government support listed below:
1. Incubation Support Schemes –
1.1. Technology Incubation and Development of Entrepreneurs (TIDE) Scheme - The
scheme aims to support institutes of higher learning to strengthen their
Technology Incubation Centers so as to nurture technology MSMEs, especially
start-up companies. Key initiatives undertaken by the Host institute includes
mentoring, infrastructure and financial support, entrepreneurial training, IPR
facilitation, initiate contact with AIs/VCs, etc. Host institute/TIDE center receives
financial support from government up to INR 155 lakhs. These funds can be used
for improvement in infrastructure - up to INR 30 lakhs and for providing financial
support to the incubating companies – INR 125 Lakhs (@ INR 25 lakhs per
company).
1.2. Support for Entrepreneurial and Management Development of SMEs through
Incubators- The Scheme aims to provide early stage funding for nurturing
innovative business ideas in select fields including electronics and software.
Under this scheme, financial assistance is provided for setting up of business

incubators. The objective of the scheme is to promote development of
knowledge based innovative start-ups and improve the competitiveness and
survival ability of the MSMEs. Under this scheme, Business Incubators (BIs) are to
be set up under Technology (Host) Institutions which are normally the Indian
Institutes of Technology (IITs), National Institutes of Technology (NITs),
engineering Colleges, Technology Development Centers, etc. Each BI is expected
to support incubation of 10 new ideas/units. Each BI is given financial assistance
between INR 4 lakh to INR 8 lakh per idea/unit subject to an overall cap of INR
62.5 lakh per incubator. The Scheme is implemented in a Public Private
Partnership (PPP) mode with private participation ranging b/w 15 % to 25 %. This
scheme has been successful as more than 80 ideas have already been
commercialized under the scheme, with a majority being in the IT space.
1.3. Technology Development Board – GOI set up TDB to provide financial assistance
to the industrial concerns and other agencies undertaking development and
commercial application of indigenous technology or adapting imported
technology for wider domestic application. TDB a) Provides financial assistance
to research and development institutions b) Provides financial assistance to
Venture Capital Funds for assisting technology MSMEs c) Provides grants to
Technology Business Incubators in IITs/Labs/ Institutions for giving loans/equity
support to small technology start-ups d) Provides loans and grants to Labs/
Institutions/ Indian Companies to co-develop and commercialize technologies of
national importance.
2. Business Development & Promotion / Marketing Support Schemes– Since most SMEs
do not have easy access to capital and have to invest a larger amount of their funds in
production activities, they do not have any surplus funds left for marketing activities.
Moreover, even with availability of funds, the importance of marketing is not recognized
by majority of them. Thus, the government provides special schemes wherein SMEs are
specially provided assistance solely for their marketing activities. Some of the schemes
provided by the Government are listed below-
2.1. Scheme to Promote International Cooperation – This scheme offers assistance
to MSMEs for exploring new areas of technology infusion/up gradation and
identifying new markets through Joint ventures and foreign collaborations.
Financial assistance up to 95% of airfare and space rent is provided to
entrepreneurs to participate in international exhibitions, trade fairs and buyer-
seller meets in foreign countries and India.
2.2. Marketing Assistance Scheme offers assistance to MSMEs for undertaking
marketing promotion activities. Under the scheme, MSMEs can avail financial
assistance for organizing exhibitions, trade fairs, buyer-seller meets and other
marketing promotion events.
2.3. MSME Market Development Assistance Scheme offers financial assistance to
MSMEs for using Global Standards in bar coding. The scheme also provides

funding to MSMEs for participation in the international exhibitions / fairs,
producing publicity material and sector specific studies and for contesting anti-
dumping cases.
2.4. Information Assistance- Ministry of MSME launched ‘Udyami helpline’ in 2010.
This call center acts as a single-point facility for a wide spectrum of information
and accessibility to banks and other MSME-related organizations. It also gives
information on a wide range of subjects, including guidance on setting up a unit,
access loans from banks, project profiles and about various MSME schemes.
3. Manufacturing Support Schemes–
3.1. Lean Manufacturing Competitiveness for MSMEs aspires to enhance the
manufacturing competitiveness of MSMEs through the application of various
Lean Manufacturing (LM) techniques. Under this scheme, manufacturing MSMEs
can receive financial assistance up to 80% of the cost from the GOI on the
implementation of lean manufacturing techniques.
3.2. Enabling Manufacturing Sector to be Competitive through Quality Management
Standards and Quality Technology Tools – This scheme seeks to encourage
MSMEs to understand and adopt latest Quality Management Standards (QMS)
and Quality Technology Tools (QTT) in the manufacturing process.
3.3. Design Clinic Scheme - The design clinic scheme is an initiative of the Ministry of
MSME and National Institute of Design. The main objective of the scheme is to
bring the MSME sector and design expertise onto a common platform and to
provide expert advice and solutions on real-time design problems, resulting in
continuous improvement and value addition for existing products. This model
brings design exposure at the doorstep of industry clusters for design awareness,
improvement, evaluation, analysis and design-related intervention. It aims to
enhance industry competitiveness and productivity with the help of design
intervention at various functional levels.
3.4. National Manufacturing Competitiveness Programme- The NMCP is the nodal
programme of the government of India to develop global competitiveness among
Indian MSMEs. There are 10 components under the NMCP targeted at enhancing
the entire value chain of the MSME sector. It includes programmes like
establishment of new tool rooms, benchmarking of the global competitors,
enhancing of product and process quality, cost reduction through lean
manufacturing techniques, etc. The programme is to be implemented through
the public-private partnership mode with close physical and financial
participation of the MSME sector.
4. Finance and Credit Rating Support Schemes – The principal constraint facing the MSMEs
has remained access to adequate and timely loan finance. This becomes more crucial
during the early and growth stage of business when the financing need of the enterprise
is high. For the purpose, the government offer various incentives and funding support to
encourage growth of Business.

4.1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme
was launched by the GOI in 2000 to strengthen credit delivery system and
facilitate flow of credit to the MSME sector. To operationalize the scheme, GOI
and SIDBI set up the Credit Guarantee Fund Trust for MSMEs. The scheme
provides collateral free funding up to INR 1 Crore for individual MSMEs. The CGS
assures the lender that, in the event of a default on the part of the MSME unit,
which availed collateral free credit facilities, the Guarantee Trust would make
good the loss incurred by the lender, up to 75/80/85 % of the credit facility with
a maximum guarantee cap of INR 62.50 lakhs / INR 65 lakhs. The CGTMSE
Scheme is operated through a network of Banks and FIs called Member Lending
Institutions (MLIs). All scheduled commercial banks (PSU, Private or Foreign),
specified Regional Rural Banks, National Small Industries Corporation Ltd, North
Eastern Development Finance Corporation Ltd and SIDBI, which have entered
into an agreement with the trust (CGTMSE) are considered as MLIs.
4.2. Credit Linked Capital Subsidy Scheme – This scheme aims at facilitating
technology up-gradation of MSMEs by providing 15 % capital subsidy for
purchase of Plant & Machinery / Improved technology. Maximum limit of eligible
loan for calculation of subsidy under the scheme is Rs.100 lakhs. At present,
more than 1500 well established/improved technologies under 51 sub-sectors
have been approved under the Scheme. Since inception of the scheme in the
year 2000, more than 28287 MSME units have availed subsidy of Rs.1619.32
crore till 31.03.2014.
4.3. GOI launched ‘India Inclusive Innovation Fund’, jointly created by National
Innovation Council and MSME Ministry with an initial corpus of INR 500 Crores
which could be scaled up to INR 5000 crores over the next 2 years. Of the INR
500 crore, the ministry of MSME has committed INR 100 crore and the remaining
INR 400 crore will come from 12 public sector banks. Under the fund, the plan is
to fund anything b/w INR 50 lakh to INR 2 crores to 70 and 200 ideas with
special focus on MSMEs which address social needs like healthcare, agriculture,
education, financial inclusion and water, etc.
4.4. Growth Capital and Equity Assistance Scheme aims to provide adequate capital
to MSMEs so as to enable them to make investments in marketing, brand
building, creation of distribution network, technical know-how, R&D, and ICT
adoption / software purchase, etc.
4.5. General Refinance – Under this scheme financial support is provided to MSMEs
for new business set up, expansion, modernization or diversification of existing
business.
4.6. Composite Loan Scheme offers assistance up to INR 25 lakh for purchase of
equipment and/or working capital requirements.
4.7. Single Window Scheme provides support to entrepreneurs, both term loans for
fixed assets and loan for working capital through a single agency.

4.8. Rehabilitation of Sick Industrial Units Scheme provides financial assistance for
rehabilitation of potentially viable sick units which are capable of being restored
to normal health within a reasonable time.
4.9. Development of Industrial Infrastructure for MSME Sector Scheme provides
financial support for development of industrial infrastructure / industrial
estates/I industrial areas.
4.10. ISO 9000/ISO 14001 Certification Reimbursement Scheme for MSMEs offers
reimbursement of expenses up to 75% (subject to a maximum of INR 75,000)
incurred towards the acquisition of ISO 9000/ISO 14001/HACCP certification.
5. R&D, IPR support schemes– IPR schemes were launched for building awareness on IPRs
so as to enable MSMEs to use the tools of IPR effectively for innovative projects. The
Ministry of MSME has set up an intellectual property cell which provides a range of IP
related services such as prior art-search, validity search, patent landscape, studies on
technology development, etc.
5.1. R&D Funding scheme provides funds to institutions/ organizations in the area of
research and development, for technical collaboration, etc.
5.2. Multiplier Grants scheme aims to encourage and accelerate development of
indigenous products by establishing, nurturing and strengthening the linkages
between the Industry and R&D Institutes. The objective of the scheme is to
bridge the gap between R&D and commercialization by strengthening linkages
between the industry and R&D institutes. The maximum funding ranges between
INR 2 crore and INR 4 crore. The grants cover specific expenditures under the
project like equipment’s, consumables, manpower, travel and training,
contingencies, and overheads (which are limited to 15 % of the total project).
5.3. Building Awareness on Intellectual Property Rights scheme endeavors to
enhance awareness among the MSMEs about IPRs. Under this scheme, financial
assistance is provided for conducting awareness programs on IPRs including
seminars, workshops, training, etc. Additionally, it also offers one time financial
support limited up to INR 25,000 on grant of domestic patent and INR 2 lakh for
foreign patent to MSMEs.
5.4. Support International Patent Protection in Electronics and IT (SIP-EIT) – This
scheme provides financial support up to 50% of total patent cost (subject to a
max. of INR 15 lakh) to MSMEs for international patent filing so as to encourage
indigenous innovation.
6. Export Promotion Schemes –
6.1. SEZ– Special Economic Zone provides simplified procedures and a single window
clearance policy on matters relating to central and state governments. Key
benefits offered under the scheme include Drawback/ DEPB benefits, CST
exemption, Service Tax exemption and income tax holiday. Exemption from
income tax is tapered down over 15 years from the date of commencement - 100
% exemption of export profits from income tax for the first five years, 50 % for

the next five years and 50% for the five years subject to transfer of profits to
special reserves.
6.2. Duty exemption schemes enable duty free import of inputs required for export
production.
7. ICT support Schemes –
7.1. Software Technology Parks of India (STPI) – STPI offers a single-window
clearance for project approvals, import certification software valuation and
certification of exports for software exporters. The STPI Scheme is considered as
one of the most effective schemes for the promotion of exports of IT and BPM; ~
51 STPI centers have been established under the scheme since inception. Key
benefits offered include exemption from customs duty available for capital
goods, exemptions from service tax, excise duty, and rebate for payment of
Central Sales Tax. STPI is pan India Scheme with over 8,000 units registered
under this scheme.
7.2. Export Promotion of Capital Goods (EPCG) scheme provides support to
exporters of electronic products by allowing import of capital goods for pre-
production, production and post-production at 0% customs duty, subject to an
export obligation equivalent to 6 times of duty saved on capital goods imported
under EPCG scheme, to be fulfilled in 6 years reckoned from the date of
authorization issue.
8. Other schemes and initiatives –
8.1. Public Procurement Policy for MSMEs - The ministry of MSME formulated the
Public Procurement Policy for MSMEs, which mandates every Central
ministry/Department/PSU to achieve a procurement goal of at least 20 % of the
total annual purchases of the products or services, produced or rendered by
MSMEs. The policy seeks to promote MSMEs by improving their market access
and competitiveness through increased participation in Government purchases
and encouraging linkages between MSMEs and large enterprises.
8.2. The Reserve Bank of India has, from time to time, issued a number of directives
to banks to facilitate lending to the MSME sector. Some of them are highlighted
below-
8.2.1. Advances to the MSME sector are considered in computing achievement
under the overall Priority Sector target of 40 % (32 % for Foreign Banks) of
adjusted Net Bank Credit
8.2.2. Banks are advised to achieve a 20 % year-on-year growth in credit to
MSMEs
8.2.3. Banks are mandated not to accept collateral security for loans up to INR 10
lakh extended to units in MSME sector.
8.2.4. Public sector banks have been advised to open at least one specialized
MSME branch in each district with special focus on key industrial clusters/
manufacturing centers.

8.2.5. Banks have been advised to fix sub-limits within the overall working capital
limits to the large borrowers specifically for meeting the payment
obligation in respect of purchases from MSMEs.
8.2.6. Banks have been directed to create separate cells to provide consultancy to
MSMEs in areas related to operations, accounting and finance, business
planning etc.
8.2.7. Banks have been advised to strengthen their existing systems of monitoring
credit growth to the MSME sector.
8.2.8. Banks have been directed to allow restructuring of debt for all eligible
MSMEs.
8.3. National Small Industries Corporation (NSIC) Schemes–
8.3.1. Credit Rating and Facilitation – This scheme aims to encourage MSMEs to
upgrade their competence in terms of business and technologies by getting
rated through the rating agencies empanelled with NSIC. The scheme
strives to establish independent and trusted third party opinion on the
capabilities and credit worthiness of MSMEs so as to facilitate swift loan
approvals from Banks and FIs. Under the scheme, the MSME can seek
partial re-imbursement of the rating fee, if the credit-rating is undertaken
by an empanelled rating agency of NSIC. Additionally, NSIC has entered into
a MOU with various nationalized and private sector banks to provide credit
support from banks without any cost to MSMEs.
8.3.2. Raw Material Assistance scheme provides assistance to MSMEs by way of
financing the purchase of raw material (both indigenous & imported).
8.3.3. Single Point Registration scheme aims at increasing the share of Govt.
purchases from MSMEs. This scheme offers MSMEs a single point of
registration for participation in Govt. schemes. The units registered under
the scheme are entitled to special benefits such as issue of tender free of
cost, exemption from payment of Earnest Money Deposit (EMD), etc.
8.3.4. Infomediary Services scheme provides a one-stop, one-window service
office for information on business, technology and finance through its web
portal- www.msmemart.com
8.3.5. Marketing Intelligence Services Lease scheme aims to support MSMEs
seeking business collaboration or joint ventures, exporters and importers,
etc. Under this scheme, MSMEs can avail information on bulk buyers in
Government/public & private sectors, Exporters, International buyers,
Technology suppliers, and units registered with NSIC under Single Point
Registration Schemes, and also market intelligence reports pertaining to
several sectors, trends analysis and export – import statistics.
8.3.6. Bill Discounting scheme covers purchase/discounting of bills arising out of
genuine trade transactions i.e., sales made by MSMEs to reputed public
limited companies / State and Central Government Departments.

8.3.7. NSIC Infrastructure scheme offers MSMEs – a) Enabling infrastructure
supporting business incubation b) Exhibition halls / Complex in Hyderabad
and New Delhi for organizing exhibitions/ conferences c) Office space to
IT/ITES and non-IT/ITES MSMEs in STP’s in New Delhi and Chennai
8.4. Skill Development Initiatives – GOI has recognized the importance of vocational
education and skill up gradation of the existing workforce. As a result, it has
taken initiatives to upgrade nearly 1,390 industrial training institutes (ITIs) in
public private partnership mode across the nation.
8.5. Prime Minister's Employment Generation Programme (PMEGP) was launched
to generate employment opportunities in rural as well as urban areas through
setting up of new self-employment ventures / projects / micro enterprises.
Under the programme, beneficiaries can set up micro enterprises by availing of
margin money subsidy of 25% (35% for special categories) of the project cost in
rural areas. The maximum cost of the projects assisted under PMEGP is 25 lakh
INR in the manufacturing sector and 10 lakh INR in the service sector.

Current Financing Landscape for MSMEs
Exhibit 13: Current Financing Options Available
Overall Funding Demand and Gap for MSMEs
The overall finance gap in the MSME sector is estimated to be INR 20.9 trillion. The demand
for finance form external sources is estimated to be INR 27.9 trillion, while the total finance
channeled by formal sources is estimated to be INR 7 trillion. The overall finance (debt and
equity) gap of INR 20.9 trillion is split into a debt gap of INR 19 trillion and an equity gap of
INR 1.9 trillion. This gap largely remains unmet, with a significant share met through
informal channels, which is often at higher cost than the institutional finance.

Exhibit 14: Current Funding Gap
Source- IFC-Intellecap report
Financing options available to MSMEs
1. Funding from FIs–
Scheduled Commercial Banks - Conventionally, Banks have been the largest source of
finance for SMEs. Amongst commercial Banks, Public Banks have a better access to
MSMEs and take the lead in lending to the sector, as compared to private and foreign
Banks. Public sector Banks have been the front-runners in providing financial support to
the MSMEs which can approach them for loans under various schemes. Public sector
banks also have considerable empirical knowledge of the MSME sector, and with the
increased use of core banking technology, they are able to analyze historical data on
MSMEs to develop targeted products and better risk management techniques.
However, Banks have also aimed at limiting their exposure due to high risk perception
and high transaction costs. Credit is usually extended against collateral equivalent to
100% of the loan amount. Majority of the MSMEs, especially those in the early / start-up
stage do not have sufficient assets to offer as collateral for lending, thereby making the
banking system inaccessible to them.
Further, Banks appraise loan proposals based on the financial ratios of the MSME. As
majority of the MSMEs do not follow proper accounting processes, the task of
generating clean financial statements becomes quite difficult.
SMEs are part of the priority sector lending for banks. As per RBI guidelines, priority
sector lending should be 40% of the total credit lending of banks. However, there are no

sub-targets within the priority sector lending requirements. However they are mandated
to have a 20% growth YoY. This has limited the quantum of credit which banks have
extended to MSMEs.
Non-Banking Finance Companies – NBFCs have also been a significant source of MSME
debt. Large share of the funding is for purchase of asset / plant & machinery. Major
share of the loan portfolio comprises of business related to transport, engineering,
vendor supply chains and retail trade. According to Frost & Sullivan, the MSME Small
Loan Credit Market for NBFCs in India stood at INR 7,200 crores in FY 2012 and is
expected to grow to INR 38,400 crores by FY 2020 at a compounded growth rate of 23
%.
Small Banks- Small banks such as RRBs, UCBs and government financial institutions such
as SFCs, SIDCs enjoy significant branch outreach, and have been able to leverage their
local presence to get better knowledge and understanding of MSME financial needs.
Small Banks have also exhibited the potential to serve a much larger MSME customer
base than they are currently serving.
It was felt that the risk-averse lending practices of banks were hindering credit disbursal
to the MSME sector. In order to counter this, the RBI allowed collateral-free lending up
to a limit of INR 5 lakh for all enterprises covered under the definition of the MSMED Act
2006.
Further, in an effort to minimize the impact of default on loans, the GOI and SIDBI
launched the Credit Guarantee Trust for MSMEs. The CGTMSE aims to comfort the
financier that in the event of MSME unit (which availed collateral-free credit facilities)
default, the Guarantee Trust will make good the loss by up to 75 to 85% of the credit
availed.
2. Equity Funding –
Venture capital provides financial assistance primarily by way of equity or equity-linked
capital investment carefully scrutinizing projects. Typically, MSMEs which are involved in
commercializing innovations and high-end technologies need access to the VC fund.
These firms need finance during the initial stages of conceptualizing their product
offerings (seed phase) and during development and marketing phase. Besides infusing
capital, VCs also bring expertise, superior advice and other skills that help the MSME to
develop marketable products. They also seek to provide overall guidance and mentoring
support to IT SMEs so as to enable them to realize their growth potential and gain
competitive edge in both domestic and global markets. Typically, the VC provides
assistance to the entrepreneur in recruiting key personnel, providing contacts in
international markets, introductions to strategic partners, etc. Their main aim is to earn

higher returns on their investments. In addition to that, they also take active part in the
management of the company and provide expertise / involve in the board decisions of
the firm. Furthermore, VC funding improves the credibility of the MSME and increases
the chances of receiving Bank finance.
Angel Investors – An angel Investor is typically a HNI or network of affluent individuals
who/which provides capital to a start-up in exchange for equity. Angel investors
normally invest their own funds, unlike venture capitalists who manage the pooled
money of others in a professionally-managed fund. Typical investment made by the
Angel investor ranges between INR 25 lakhs to 5 crores. Indian Angel Network is one of
the largest angel networks in the country with almost 90 individual members and
institutional members like SIDBI, IBM, etc. Angel investors are also attuned to the start-
up or venture they invest in, thus benefiting the venture not only financially but also by
providing the intellectual capital.
Accelerators – Though at a nascent stage, the accelerator model in India has witnessed a
significant surge in the number of accelerators in recent years. Typically, accelerators
provide assistance around 4 core areas – Strategic, Financial, Operational and
Collaboration.
With the aim to create a conducive eco-system for the venture capital in the MSME
sector, the government proposes to establish an INR 10,000 crore fund to act as a
catalyst to attract private capital by way of providing equity, quasi equity, soft loans and
other risk capital for start-up companies.
3. SME Exchange–
GOI and regulators have initiated several measures to address the low level of MSME
financing through the capital markets. In March 2012, post issuance of SEBI guidelines,
both BSE and NSE have set up institutional trading platforms in the SME segment to
allow MSMEs to list and raise equity capital through venture funds, private equity and
wealthy individuals, without initial public offerings.
The listing process in this platform is completed within a month and also involves lower
costs compared to regular IPO route. Besides offering a suitable platform to raise capital,
it also provides easier entry and exit options to angel investors, VCFs and PEs, etc. It also
offers better visibility and wider investor base while offering tax benefits to long term
investors. The platform offers relaxed compliance and cost effective listing to SMEs.
Since this facility involves minimum regulatory procedures to be followed, it has already
encouraged a host of MSMEs to tap the BSE’s SME platform. A total of 70 companies
with a collective market capitalization of INR 8,200 crore now trade on these platforms.

These companies are from various sectors like trading, manufacturing, steel, textile and
finance spread across the geography of India.
4. Export Lines of Credit –
This financing option supports export oriented segments such as leather, gems and
jewelry, etc. EXIM Bank has launched several initiatives for the benefit of such exporters
- Export lines of credit to overseas financial institutions, regional development banks and
foreign governments and their agencies and buyers credits (BC) to foreign corporates.
Line of credits serve as a market-entry mechanism to Indian exporters and provide a safe
mode of non-recourse financing option to Indian exporters. LOCs and BCs are
particularly relevant for Indian SME exporters as the payment risk is borne by Exim Bank
without the need for insurance from Export Credit Guarantee Corporation.
5. Microfinance –
Leading national financial institutions like the SIDBI and the Rashtriya Mahila Kosh (RMK)
have played a significant role in making micro-credit an important movement. In India,
the size and types of implementing organizations range from very small to moderately
big, involved in savings and credit activities for individuals and groups. These groups also
adopt a variety of approaches. However, most of these organizations tend to operate
within a limited geographical range.
6. Electronic Bill Factoring Exchange –
In a recent move, RBI permitted the setting up of an exchange-based trading platform
(Trade Receivables Discounting System) to facilitate financing of bills /invoices raised by
MSMEs to corporate buyers including government departments and PSUs. This initiative
was taken to make the MSMEs capable of converting their trade receivables into liquid
funds.
Despite the many policies and measures to provide financial assistance to the MSMEs,
they continue to face difficulties in raising timely and adequate credit at reasonable cost.
This has led to the emergence of alternative sources of financing, some of which have
been detailed below.
7. Factoring–
Under this mode of finance, the MSME sells or assigns its accounts receivables to a
finance company (a factor) at a discount to meet its immediate funding requirement.
This method of financing evolved so as to minimize the adverse effect of delayed
payments by large scale customers on the operations of MSMEs. Factors buy the right to

collect on invoices raised against any sales by the SME and releases 80-90% of the
invoice value to the firm. The Indian factoring market is still at a nascent stage. There are
approximately 10 factoring companies in India, and the oldest among them are Canbank
factors and SBI Global Factors.
8. Supply Chain Finance –
Supply chain finance is fast emerging as another route to facilitate MSMEs access to
enhanced working capital from bank and non-bank sources. This mode of financing
enables SME suppliers to large OEMs to receive short-term credit against the volume
supplied during the payment receivable period.

Issues and Challenges for MSMEs
Exhibit 15: Overview of Key Challenges faced by MSMEs
MSMEs face several challenges in the fields of technology, finance, operations, and
marketing. Further, they also face challenges from a disruptive competitive environment, in
which they must compete with established players in the marketplace and imports.
Finance Related – As per the 4th Census on MSMEs, only 5.2% of MSMEs availed credit
from financial institutions.
a) Non-availability of timely and adequate funds at reasonable cost is one of the most
critical problems faced by the MSME sector- The banks are usually found to be averse
to offer credit to the MSMEs for a several reasons, the foremost of which originates
from a wide-ranging perception that the credit risk in lending to MSMEs is very high.
Banks regard this sector as high risk segment for different reasons like low capitalization,
lack of appropriate accounting records, and unavailability of complete financial
statements and business plans. Precisely because of this banks demand heavy collateral,
charge higher interest rates and transaction costs from MSMEs. The lack of adequate
collateral further hampers availability of funds to the sector and hinders their
competitiveness.
b) High cost of credit Interest Rates- Interest rates for non-collateral as well as collateral
backed loans to SMEs are often very high and at times prohibitive. The reason is
attributed to the high risk of lending to SMEs.

c) Non-conducive bank Policies towards lending to start-ups- It has been observed that
the Banks give undue significance to business vintage and financial statements / track
record to compute eligibility for loan. India has witnessed significant surge in the
number of start-ups in the last few years. Majority of them fail to meet this criteria and
hence, not able to meet the funding requirements of banks.
d) Lack of sufficient collateral - Banks seek tangible assets to secure their loans against
default. MSMEs normally do not have sufficient collaterals to obtain debt finance.
MSMEs especially start-ups/early stage firms do not possess sufficient collaterals, and in
case they do, the personal assets do not meet the loan to value norms of the bank. Lack
of adequate collateral translates to lack of adequate funds required for working capital
and/or capital expansion which further leads to a lower growth rate. In some of the
cases, the entrepreneurs are mandated to provide home/office premises/land as
collateral to secure funds from the banks.
e) Lack of equity support inhibits the growth of the MSME sector. Further, equity also acts
as leverage for raising debt finance from Banks.
 Limited Accessibility of VCs / Angel investors – It has been observed that MSMEs find
it difficult to initiate contact with the VCs and Angel investors in the absence of a
reference or a previous relationship. VCs typically show greater confidence in the
idea/concept if it is referred by a credible source/contact. This problem is more
profound in tier 2 / tier 3 towns. Further, entrepreneurs in these locations are not
aware of the process/mechanism to reach out to VCs.
 Funding norms not favoring early stage firms- Stringent conditions set by VCs such as
minimum funding criteria, expectation of high returns, detailed documentation
requirements and acquisition of substantial equity stake are some of the key reasons
deterring MSMEs from approaching VCs.
f) Lack of owners capital reduces eligibility to raise debt finance- It has been seen that
MSMEs typically bring in capital into the business from their own / borrowed money
from relatives, which is normally a small amount. Lending agencies are reluctant to fund
when they discover lower capital contributed by the entrepreneur.
g) Difficulty in loan proposal evaluation and high transaction costs involved- It has been
observed that several areas of MSME businesses are challenging to evaluate due to lack
of adequate information / absence of proper records. In such a situation, it becomes
difficult for the lending agencies to appraise the loan proposal. Further, due to low level
of technology adoption and poor record keeping-keeping and lack of efficient systems
and processes, the whole process of evaluation of loan application is extremely resource
intensive and costly for the lending agencies.

Operations Related –
a) Ineffective Marketing strategies - Limited understanding of new age marketing
strategies cripples MSMEs especially in smaller / Tier 3 towns. Limited access to market
intelligence and marketing tools such as packaging, labeling, bar coding, brand building,
advertisement, etc. limits the survival / growth prospects of MSMEs. Further, lack of
sufficient selling outlets and adequate infrastructure is a key concern disrupting
marketing of MSME products to the remote parts of the country.
b) Lack of skilled manpower- In spite of the fact, that India enjoys favorable demographic
dividend with large pool of human resources in the productive age group, the industry
continues to lack skilled manpower required for manufacturing, marketing, servicing,
etc. Further, MSMEs also face challenges around retaining talent and low productivity
levels of labor.
c) Unduly delayed payments especially from large-scale buyers- This disrupts the cash
flows and the ability of MSMEs to divert funds towards capex requirements and R&D.
d) Poor corporate governance mechanisms and weak organization structures- Majority of
the MSMEs are owner driven with lesser inclination towards formal organizational
structures. There is one (or two) owner and selected few core people working under
them co-handling key functions like accounts, production and sales. There are no
established governance mechanisms with any clear process of functioning, workflow or
instruction flow. The non-corporate structure and small size of the majority of MSMEs
makes the venture capitalists and other risk capital providers reluctant to investing in
them due to higher transaction costs and difficulties in exits out of such investments.
e) Low awareness of Government schemes and programs– Limited and a low level of
knowledge on key government schemes restricts their ability to avail benefits under
them.
Infrastructure Related –
a) Low levels of technology adoption - Low level of technology adoption in the MSME
sector driven by lack of awareness has been a major cause of low competitiveness of the
sector. For a country which boasts of strong IT labor poll and world’s top most
technology firms, the penetration of ICT in MSME sector has been rather low.
Consequently, a large number of MSMEs miss out on the greater benefits of increased
efficiency, better market linkages, and improved customer service.
b) Insufficient infrastructure- For MSMEs, land and infrastructure constraints are major
problem areas, especially in bigger cities and metros. The state and maintenance of
infrastructure in industrial estates (mainly maintenance of roads, drainage, sewage,
power distribution and captive power generation, water supply, dormitories for
workers, common effluent treatment plants, common facilities, securities, etc.) is poor
and unreliable.

c) Limited Market access - MSMEs are primarily small family run businesses which mostly
cater to domestic market. They majorly rely on traditional media like telephone
directory, customer references and tenders floated in the newspaper to reach
customers. It has been observed that MSMEs do not respond efficiently to the evolving
market trends and innovations thereby lag behind mid and large players in the market.
d) Low levels of modernization and technological up-gradation - Due to their small size
family driven nature, MSMEs have low access to new technology and face challenges in
modernization and technological up-gradation. This leads to cost inefficiency and poor
quality products. These result in the manufacturing processes being cost inefficient and
of poor quality standards.
e) Lack of innovation to develop new products with unique differentiators- There is a
growing need to innovate and develop products with unique differentiators among the
MSMEs to offset the rising threat from established players and global counterparts in
the marketplace. Over the years, MSMEs have largely ignored R&D requirements and
have not embarked on new product development or technological up-gradation at the
requisite pace. Though the MSMEs realize the importance of technological innovation,
most of them still favor importing technology rather than in-house development.
Legal and Tax Related –
a) Low relevance and innefective implementation of legislation on Intellectual property
rights (IPR)
 Low relevance of IPRs in raising funds- It has been witnessed that majority of the
MSMEs are unable to leverage IPRs to raise funding from VCs or Banks in the
absence of formal mechanisms for evaluating IPRs.
 Ineffective implementation of legislation on IPRs has adversely impacted innovation-
driven MSMEs. In the absence of stringent laws protecting inventions, MSMEs are
unable to monetize their innovation, thereby discouraging future innovation in
products.
b) No mechanism for quick revival of viable sick units and speedy shutdown of unviable
ones-At present there is no formal mechanism for systematic handling of sick units even
though financial assistance by way of debt restructuring for rehabilitation of sick MSE is
provided by primary lending institutions.
c) Bureaucratic hurdles in setting new business-Most SMEs suffer from the setup stage
due to systematic problems of bureaucracy at most government agencies/bodies like
taxes to labor. The ease of setting up a business index measured for various countries
considers this as a major make or break parameter.
d) Complex labor laws –Labor policies, especially multiplicity of labor laws and procedures
for compliance of various labor regulations have added to the woes of the MSME sector.

Role of ICT
Importance of ICT in the MSME Sector
Technology is one of the most important aspects in the sustenance of the MSMEs. The
personal competence of the entrepreneur can take the company up till a performance and
sustenance level, post that when the competition increases and the market expectations
mount, the “totality” of the workings of the enterprise becomes crucial. At this stage, use of
information and communication technology (ICT) becomes imperative for the growth of
SME, if not for survival.
Historically, ICT has been looked at as the enabler of productivity and quality through
process automation and quality control. However, its role is much and beyond in allowing
MSMEs to build a competitive advantage. According to World Bank Report (2006), firms that
use ICT grow faster, invest more, and are more productive and profitable than those that do
not.
Exhibit 16: Effect of ICT on Firm Performance in Developing Countries
Non IT Users IT Users
Sales Growth 0.4% 3.8%
Profitability 4.5% 9.3%
Labor Productivity $5,288 $8,712
Source World Bank. 2006. “Information and Communications for Development: Global Trends and Policies
Dili Ojukwu (2006) demonstrated that the more an organization increases its Investment in
both its Business and Information Solutions all other things being equal it would record an
appreciable and noticeable increase on the level of Growth. Madaswamy Moni (2009)
specified areas of MSME business that can be improved with the innovative use of ICT,
which are: (a) user profiling, (b) supply chain, (c) value chain, (d) customer relation
management (CRM), (e) SME networks, and (f) supplier cooperation.
The last decade of the twentieth century has witnessed rapid technological advances
especially in the areas of ICT albeit at different levels of adoption. Although technology
adoption considerably increased during the implementation of the Government of India’s
11th Five Year Plan – with its focus on creating a technology infrastructure and rolling out
technology-driven services – the use of technology in MSMEs remains limited.
Stages of ICT Adoption
In a qualitative research study supported by Ministry of MSME#, three business types
emerged on the basis of their technology adoption: a) “tech non-adopters” b) “tech

aspirers” c) “moderate tech adopters” Currently a lot of our MSMEs were found to operate
in low-medium awareness.
The research also helped point out the importance of location and clusters in driving
technology adoption. So while Punjab may be known for its entrepreneurship and favorable
environments for business, the technology adoption here was not as healthy as Bangalore,
which could be due in part to IT hubs present throughout its metropolitan region.
Exhibit 17: Technology Awareness- Adoption Framework
# Source: Intuit study in collaboration with the Government of India’s Ministry of Micro, Small and Medium Enterprises, the
National Institute of Entrepreneurship and Small Business Development and the National Small Industries Corporation
In a subsequent PwC report and ASM e-journal paper*, another such framework for
technology adoption was used, which helped understand how a firm moves up the ladder of
ICT embracing.
The first stage is about very basic adoption, limited to routine administration and record
keeping activities. The IT applications at this stage may involve use of Word processing,
spreadsheet, email, intranet etc. ICT’s contribution here is more around providing
operational efficiencies.
The second stage of adoption relates to computerization of selective functions. At this
stage, there is no integration between functions as the individual IT applications automate
Low Adoption
MODERATE TECH ADOPTERS
 Ambitious & Experimental
 Mainly service units
TECH ASPIRERS
 First generation/young
businesses
 Mix of manufacturing & service
NON /LOW ADOPTERS
 Embraces Status Quo
 Mainly medium manufacturing
units
High Adoption
High Awareness
Low Awareness

individual functions. This may include coverage of Financial, Inventory Management, Payroll
systems etc. The role of ICT here is around improving effectiveness of functions through
standardization of common processes.
The third stage of adoption intends to automate key functions and offer complete business
integration. Thus, this stage marks use of an enterprise level resource planning application
(ERP). The integrated ICT systems at this stage facilitate having a cross-functional
perspective of the fundamental business processes.
The fourth stage marks the maturity of ICT adoption. At this stage, the companies are
integrated across the value chain and using IT innovatively, through adoption of DSS, e-
commerce etc. The quality of delivery, innovation and service would have become more
important at this stage than control and costs.
*Source: PwC report, 2010 and Hemant Dudhe Paper on Role of ICT in improving SME competitiveness
Triggers & Barriers
Benefits from increased IT adoption are manifold. While internally, increasing ICT
penetration can improve collaboration and efficiency, externally it can provide access to
markets which would have been otherwise inaccessible. In a study done by IDC, the top
drivers for adopting ICT were around:
a) Improved communication within the organization
b) Stronger linkages with Customers and Suppliers
c) Get an edge over competition
d) Future growth and expansion
e) Creation and delivery of products + services
f) Reduction in Inventory
The survey evidently pointed out that accounting functionalities no longer figure in the top-
7 drivers for IT adoption. This may be because accounting functionalities mostly come out of
the box and most organizations have already implemented solutions that can fulfill their
basic accounting needs. The need now is more around customization and reliability to
increases scale of implementation.
Stage 1 : Basic
Stage 2 :
Functional
Automation
Stage 3 :
Business
Automation
Stage 4 :
Integration

Exhibit 18:Triggers & Barriers
Source: Red Seer Consulting Report, 2011 & Intuit study in collaboration with the Government of India’s Ministry of Micro,
Small and Medium Enterprises, the National Institute of Entrepreneurship and Small Business Development and the
National Small Industries Corporation.
The benefits of technology are undisputed and yet MSMEs in vast numbers are not adopting
it to the extent needed. We now look at some key barriers that hinder pervasive use of ICT:
a) High Cost - Given the financial tightrope, IT budgets are generally very small. In addition,
adopting IT is not a onetime cost because it also requires ongoing costs of maintenance,
upgrade and human resource. Cost concerns are exacerbated by low awareness of
devices and solutions, such as software, systems and processes. As a result, micro and
small businesses have little faith in their return on investment.
b) Poor Infrastructure - Most of the MSME clusters are around Tier-2, Tier-3 cities, which
completely lack adequate information and communication infrastructure, be it high
speed broadband connectivity or basic power outages.
c) Privacy & Data Security - IT users worry about storing sensitive data, such as invoices,
bills and client documents, on certain technology platforms without knowing how the
information will be used. In fact a lot of units keep a physical backup of their data on CDs
or external hard drives, exposing them to the risk of damage and subsequent loss of
data. This also limits the use of data for making informed decision making. The issue is
further compounded by the lack of awareness around the subject.
Poor Infrastructure, Limited
access to tailored products,
Low Awareness, Huge fixed
costs, Steep Learning curve,
Issues on security
Increased Efficiency,Fuelling
Innovation, Access to new
markets and new
technologies, Managing
customers and employees

d) Lack of Awareness - Technology is currently perceived around heavy devices and thus
seen as more of a distraction than value-add to the business. MSMEs are also not aware
on what products are available in the market and if the same can be customized to meet
their needs. They require agility both in product features and usage. Most technology
vendors have been unable to provide enough customization.
e) Steep Learning curve/ Lack of access to skilled manpower - Clear communication and
advanced planning at the start of any IT initiative are keys to ensuring successful
implementation of any IT services or solution. Firms and employees need to be educated
and trained on the application and use of the IT and the policies of using IT. This is often
the hardest step, but if done perfectly it ensures that the firm derives maximum benefit.
Role of Cloud Computing
The many challenges cited by MSME firms has given way to IT firms to create products and
services which are more relevant, affordable and address the real-life challenges of the
users. Such is a model named “Cloud Computing“, which is an on-demand network access to
a shared pool of configured computing resources. This requires minimal management effort
or service provider interaction.
The cloud has tremendous potential to enable MSMEs to overcome hurdles relating to the
high cost of using IT. Because cloud services provide access on a usage-based pricing model,
they can reduce costs of desktop software and specialized manpower. The cloud also
minimizes the need for investing in new or updated software. Other benefits such as
scalability, flexibility and ability to access information from virtually anywhere with a
connection, are a highly attractive proposition for MSMEs.
It will be important, however, to keep the solution:
a) Simple but adequate
b) Serviced or licensed use model to pull down costs and multiple employee use
c) Minimal on fixed cost/ device reliance
d) Flexible in use and payment (periodic payments)
e) Easy to maintain, Automatic updates

Innovation as a Catalyst for MSME growth
‘Innovation’ is fast gaining policymakers’ attention for its recognized role in building a
nationwide entrepreneurial ecosystem and thereby shaping India’s socio-economic growth
and stature. Its growing importance can be assessed from the fact that 17% of the large
companies rank innovation as their top strategic priority today and 75% rank it among their
top three.
However, its application still remains limited with not much known around how to diffuse
and sustain innovation. In the latest annual Global Innovation Index survey, India has slipped
10 positions to drop to 76th position. It is the worst performer among the BRICS nations,
with all the others improving their positions from that of the last year. While we score with
quality of universities, IT services exports, and export of creative goods, but these are
outweighed by weaknesses in its institutional pillars such as ease of starting a business,
human capital and R&D.
Exhibit 19: Global Innovation index
Country Rank 2013 Rank 2014
Brazil 64 61
Russia 62 49
India 66 76
China 35 29
South Africa 58 53
Source: Global Innovation Index 2014
Putting it in the context of MSMEs, their challenge is stiff and distinct. It comes from mainly
two sources -- bigger and established players in the market and imports. These make it

necessary for MSMEs to innovate and either introduce a new product or a service that is not
offered currently by any existing player or through process innovations reduce costs or time
to deliver so it gives a level-playing field if not an upper hand to the MSMEs.
According to a recent World Bank report aimed at enhancing India’s innovation capacities,
India would need to include following key imperatives in its MSME strategy:
 Grow competition as part of enhancing investment climate, backed by better
information infrastructure, stronger skills, active public – private partnership and a
secured funding environment
 Create and commercialise knowledge
 Ensure diffusion and absorption of existing local and global knowledge across the
enterprise strata.
 Encourage & promote formal R&D efforts, indigenous creative ideas and ‘juggads’ at the
grass root levels for an inclusive innovation culture.
Exhibit 20: Innovation Model
Source: PWC report on MSME, 2011
Historically, India has seen abundant localised examples of creativity for the lack of
resources and having to find creative means to the end. The problem has been to formalise
such creativity and give it scale. Few companies go beyond the one innovative product or
service. So, even while new technology start-ups can embark on breakthrough innovations
for building knowledge-intensive businesses, MSMEs should look at incremental innovation
to ensure competitiveness.
Further, while developing nations work with Shift and Adapt or Shift and Apply innovation
models, it is important for a country like India to have indigenous pervasive models. So any
Broad based Innovation for increased growth and welfare
Enhanced investment climate, and increased competition
Knowledge
creation &
commercialization
Knowledge
Diffusion &
Absorption
Inclusive
Innovation
Supporting Pillars
Infrastructure &
Technology
Stronger Skills &
Education
Funding
Mechanisms

innovation must think about sustenance and scaling up in the Indian context -- the target
segment size, price point, intended reach, cultural sensitivities etc.
The other big piece is around academia and industry partnership, which happen to be the
principal driver and source of technological innovations. The collaboration helps bridge the
gap between science and economy thereby fostering the innovation potential. Some
institutional set-ups of significance include S&T parks, technology and business incubators
and academic technology licensing offices.
Fortunately, in India, we are seeing an institutional policy shift towards attuning research
establishments to market needs. Recently, the Union Minister for MSME announced
government’s plan to encourage setting up of 500 incubation centres across the country.
Further plans should include identifying areas of collaboration, bankable projects,
addressing IPR issues and involving industry and financial experts in the process of economic
value addition to the knowledge generated through research and development.
The cluster approach could also offer a fix as thinking ’systemic’ allows selective
interventions in the weakest as well as the most critical nodes in the system. The success of
this approach is evident in India’s bio-technology industry. It is contiguous in several
innovation clusters, combining research establishments and producers. Several other
industry clusters like garments, pharma, leather etc. operate around the country.
The government must also consider strengthening of IPR implementation. The lack of it
currently impacts innovation-driven MSMEs. While the innovation gives the enterprises an

opportunity to develop products & services before others, but ineffective IPR
implementation cuts down the lead time towards effective monetisation.
On operations front, solving for problems of packaging and product display may remove
hurdles and allow companies to focus on their core business of innovation.
Global Case Studies#: With Aforementioned Principles
Exhibit 1: The Small Business Innovation
Research (SBIR) program, USA
A highly competitive program aimed at
developing research potential and engagement
among domestic small businesses, with the
potential for commercialization. Through a
competitive awards-based program, SBIR enables
small businesses to explore their technological
potential and provides the incentive to profit
from its commercialization. It is a double win as
high-tech innovation is stimulated and the United
States gains entrepreneurial spirit.
The program is structured in three phases: a) The
objective of phase 1 is to establish technical
merit, feasibility, and commercial potential of the
proposed R/R&D efforts. b) The objective of
phase 2 is to continue the R/R&D efforts initiated
in Phase I. Funding is based on the results
achieved in Phase I and the scientific and
technical merit and commercial potential of the
project proposed in Phase II. c) The last phase is
for the small business to pursue
commercialization objectives resulting from the
Phase I/II R/R&D activities.
Exhibit 2: Clustering Approach, Brazil
Brazil’s share of global trade in leather shoes rose
from 0.5% in 1970 to 12.3% in 1990.The export
Production doubled every three and a quarter
years for the nation. Within Brazil the most
dynamic export performance came from the state
of Rio Grande de Sul (specifically from small towns
of Sinos Valley) which, although accounting for
only 30% of Brazil’ s total leather shoe production,
manufactured 80% of its shoe exports. The 1,800
odd firms, and 150,000 persons within a radius of
50 kms in Sinos Valley’s shoe sector collectively
exported close to US$ 1billion a year (in 1995).
The core of the success lay in the clustering
principle, encompassing backward, forward
linkages and local support institutions. The local
competition encouraged some element of
efficiency, which provided the predominantly
small firms of the cluster with significant external
economies. Wholesalers provided technical and
organization advice and skills. Local support
institutions built for facilitating technical and skill
capacities along with global market access.

# Source: IIFT Report on MSME, 2012
Exhibit 3: The European Cluster Collaboration Platform
The platform provides high-quality, on-line information and networking support for clusters. The idea
is to assists clusters to improve their performance and competitiveness through the development of
transnational and international information and business cooperation network. A new online portal
has been established that bridges gap between cluster players from the same or a different sector to
facilitate inter cluster cooperation. It also builds itself as a business networking site – almost the
“LinkedIn” for cluster organizations.
Up to now 463 cluster managers haveregistered to become a part of this new cluster community. They
have access to over 150 clusterorganization profiles, becoming more each day.

Recommendations
Exhibit 21: Recommendation Outline
Recommendations on Credit & Finance
1. The corpus under the Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE) to be increased to benefit higher number of MSMEs by offering them
collateral free credit.
2. RBI-registered ‘AAA’ and ‘AA+’ rated NBFCs should be made eligible for becoming
Member Lending Institution of CGTMSE, subject to availability of additional corpus of
CGTMSE.
3. SIDBI to play a pivotal role in developing and promoting specialized instruments that
augment the access to credit for the MSMEs. Additionally, special exercises should be
undertaken for meeting the credit gap in the MSME sector. In this regard,
modifications in the existing CGSTMSE scheme can be debated to ensure a wider
coverage. Banks can be directed to make fuller use of CGTMSE dispensation and
collaboration can be sought with other relevant institutions in the state government
and Development Institutes of Ministry of MSME so as to reach out to needy MSME
units with credit offers.

4. RBI should firmly enforce its guidelines to Banks for not seeking collateral up to a loan
of INR 10 lakhs. This will reduce the tendency to seek security, which is a foremost
deterrent to fostering entrepreneurship.
5. Banks to simplify loan application forms and establish a common Scoring Model for
loan up to INR 25 lakh.
6. The banks should issue directives to further enhance the awareness of CGS amongst its
branch level functionaries in different parts of the country for securing greater
coverage of MSME loans under CGS.
7. Banks should educate and clearly specify there requirements for assessing a loan
proposal, i.e. what information they require from MSMEs, what essentially they look
for while assessing a loan proposal and how they will be convinced.
8. Banks should create separate cells to provide consultancy to MSMEs to impart learning
on data / information management so that their performance can be analyzed easily
and thus expediting the loan sanctioning process.
9. Bank to establish robust credit evaluation systems and invest in training and
development of loan officers- There is a pressing need for training loan officers, credit
managers and administrative staff with an entrenched attitude of approving loans
instead of finding reasons to reject it. Additionally, proper credit evaluation systems /
frameworks will have to be developed so as to ensure that valid due diligence checks
are done with no scope for personal biases in assessment of loan proposals from
MSMEs
10. Suggestions to improve access of MSMEs to Venture capital funds –
a. Exposure by banks to dedicated MSME VC Funds be treated as priority sector
lending.
b. Permit investment up to 10% of corpus by Pension/Provident Funds in dedicated
MSME VC funds.
Recommendations on Technology Up gradation of MSMEs
1. Government should disseminate information on Technology Acquisition Scheme so as
to provide assistance in both, development of indigenous R&D products as well as
procurement of global technology. This scheme is expected to boost development of
indigenous technology and manufacturing, cost competitiveness, reduction in import,
augment exports and generate employment.
2. Ministry of MSME should organize Technology exhibitions with the assistance of
Industry associations and technical Institutes for spreading information on modern
technologies so that proven technologies can be adopted by MSMEs.
3. Increase budgetary limits under CLCSS scheme to drive technological up gradation of
MSMEs- Ministry of Finance may consider increasing the budget outlay on Credit
Linked Capital Subsidy Scheme (CLCSS) as the current budget levels are not adequate
to meet the industry demand of modernized equipment.

4. The Government schemes should have special focus on emerging and innovative
Sectors such as bio-tech, nano-tech, defense, civil aviation, aero-space, etc.
Additionally, higher scale of assistance may be decided for adoption of clean
manufacturing technologies, renewable energy sources and environment friendly
processes.
5. Special focus on driving ICT adoption in MSMEs. Support to be offered to encourage
use of new concepts such as cloud computing which offers effective and affordable
solutions to MSMEs
Recommendations on Infrastructure for MSMEs
1. Provide space to MSMEs for manufacturing and industrial activity – Ministries of
Urban Development and Urban Poverty Alleviation should incentivize the State
Governments and local bodies to designate adequate areas to MSMEs. On the part of
the State Government, it should streamline and simplify internal processes for
allotment of vacant plots in industrial estates to MSMEs. Additionally, land parcels
close to urban areas can be identified and allotted to MSEs at affordable prices.
2. Special efforts to be directed towards maintenance of industrial estates /area. Entrust
Industry Associations, Local bodies, state govt. agencies, SPVs for maintenance by
empowering them to collect charges for upkeep.
3. Adequate support should be provided for development of marketing infrastructure for
MSMEs. Setting up of display halls / exhibition centers in each State capital or major
industrial center having concentration of MSMEs is recommended so as to enable
MSMEs to show case their products and capabilities to a large consumer base.
4. More packaging & designing institutes need to be set up to meet the training needs of
large number of MSMEs. Additionally, efforts should be made to increase the
awareness of these institutions among the MSMEs.
5. A mechanism should be established to assess the utilization and impact of the
Government schemes on the MSME sector - Due to the absence of an appropriate
mechanism it is difficult to determine the benefits being availed by MSMEs under the
offered schemes. A clearly established system should be in place to address these
questions - How many enterprises have benefitted and in what way? Why have others
not gained? What should be changed in the schemes to bring more people under the
umbrella of financial aid?
Recommendations on Skill Development and Training
1. Develop a labor market information system for identifying present and future skill
gaps in the various sectors of the economy and accordingly, design and conduct skill
development programs. Further, these programs should be established in close

collaboration with other stakeholders - MSME Associations, SIDBI, etc. so as to
ensure that skills are developed per the requirements of the local/regional MSMEs.
2. The MSME Development Institutes should be strengthened / upgraded with
equipment and training facilities for providing quality skill training so as to meet the
huge demand for skill development.
Recommendations on Legal, Tax and Labor Policies
1. Manufacturing MSMEs in the organized segment should be encouraged by offering
lower corporate tax rates, exemptions and concessions in Direct Tax in the first three
years of operations. Such a tax exemption may not lead to significant loss in
Government revenue as the first few years generally involve considerable struggle
for establishing a business.
2. State governments to be encouraged to approve public procurement policy at the
State level. The policy measure, should not only be looked as a means for enlarging
the market for MSMEs, but also as a means of building enduring professional
relationships between the government enterprises and the MSMEs
3. Government should simplify procedures and reduce paper work for processes
related to registration for VAT and other local taxes, land/property and provision of
utilities. This is critical as majority of the MSMEs do not have much of knowledge and
expertise in various company laws and taxation policies, and also do not want to
approach legal experts or CAs for consultation because of the high cost involved.
Additionally, Governments should encourage the use Information technology to
simplify and ensure greater transparency in the services.
4. Simplify legal procedures and overhaul existing bankruptcy Laws to facilitate quick
closures and exit. Ministry of MSME to conduct a detailed exercise on simplifying
procedures for closure of MSME units. The focus should be on streamlining the
procedures and improving the access and understanding of information for MSMEs.
These procedures relate to legal compliances under the company law, labor laws,
direct taxes, excise and service tax, customs and DGFT, VAT, power utility, water
utility, municipal body, creditors, financial institutions etc.
The Department of Financial Services to also look into revamping of policies on
bankruptcy laws to help viable companies survive while safeguarding the interests of
the creditors. The intervention in the existing policy should be such, that it helps
viable companies in distress, and make closing and re-starting easier.
5. Establish compliance assistance center for MSMEs in MSME Development Institutes
to create awareness on better environment management practices, policies and
procedures as well as for better compliance of environment regulations.

6. Establish strong legislation for IPR enforcement. Existence of weak legislative and
enforcement mechanisms on IPRs have severely dented the country’s commitment
to promoting innovation.
7. The compliance of labor related enactments should be simplified and be linked with
incentives so as to ensure better adherence by MSMEs.
8. The Government should initiate steps to ensure ease of setting up business. The
Government should announce additional measures to fast-track decision making,
provide quick clearances, reduce regulatory compliance burden and bring down the
cost of doing business.
Exhibit 22: Suggestions for MSMEs
Recommendations / Suggestions for MSMEs
1. Establish strong accounting system and use ICT for data management and control-
MSMEs should invest in a strong accounting and reporting system for managing
company related information. Adoption of ICT / accounting software’s should be
encouraged for better data management and control.
2. Develop managerial capabilities and establish a strong organization structure –A
clearly established organization structure with clear lines of authority will precipitate
prompt decisions and give confidence to lenders to sanction loans / enhance existing
loan limits.
3. Build strong succession practices – Strong succession planning will ensure business
continuity in case of a disaster or unforeseen conditions. This will further strengthen
lender confidence in the firm.

4. Establish well defined debtor mgt. practices- A clear well defined system of debtor
management should be established. There should be a process of identifying possible
risky parties and issuing internal red flags. Analysis of outstanding while processing
purchase orders should be internally set in stone in the business. This will also help the
firm seeking credit as most lenders consider cash flows while appraising loan
proposals.
5. MSMEs should adopt modern technology / lean manufacturing techniques to cut out
excess activities during the procurement, production and distribution phase.
Techniques such as Kaizen, TQM and Six Sigma would help in eliminating unnecessary
activities and result in optimum utilization of resources.
6. Identify and choose and appropriate financing option- MSMEs to evaluate the pros
and cons of each financial option before selecting the final choice. Decisions to borrow
at exorbitant rates from the grey market should be avoided.
7. MSMEs should proactively assign resources and time to gain understanding of the
applicable laws and acts. It has been witnessed, that significant number of financial
issues and business problems can be resolved with understanding and knowledge of
business linked information.

Conclusion
The MSMEs play a vital role in contribution to the development of Indian economy in terms
of production system, employment generation, GDP etc. MSMEs have also shown an ability
for innovation, creativity, and flexibility which qualifies them to respond promptly to
changing market conditions and to adapt the dynamic needs of the consumers.
However, the global environment has brought in newer challenges in terms of larger
volumes of mechanized production, better designs and marketing of products at lower
costs. In order to compete with the large firms and global players in the market place, it will
be imperative to develop competitiveness beyond just cost. This would also necessitate
support from the Government towards formulation of supportive and friendly policies to
provide the necessary impetus to the sector. Prime Minister’s flagship campaign ‘Make in
India’ is a progressive step in the same direction. With the right pushes, it holds key to
herald a new revolution for the identified manufacturing and service sectors.

Make In India
Making MSMEs Sustainable
Mr. U. K. Joshi
Director, ASSOCHAM
MSME Sector – An Overview
Micro, Small and Medium Enterprises (MSMEs) play a significant role in the development of the
industrial economy of the country. MSMEs contribute close to 8 percent of the country’s GDP,
45 percent of the manufacturing output. The major aspect of the sector is its immense
employment potential at reasonable rate after agriculture. MSMEs have a wide presence across
the country with production capacity of around 8000 diverse products and meeting needs of
local as well as international markets.
However, in past few years, statistical data indicates that the growth in manufacturing sector
has slowed down especially the share of MSMEs in GDP, manufacturing output and exports has
declined to a great extent. The prime reasons for slowdown are higher interest rates imposed
on consumer durable, several projects delayed owing to red-tapism, lack of will power in
decision-making by the government, etc. All these dormant attributes have scaled down the
confidence level, subsequently affecting the entire manufacturing sector in adverse manner.
To revitalize the bearish sentiments in manufacturing sector, government has triggered the
“Make in India” campaign to boost manufacturing sector, aiming to redesign manufacturing
sector as a key engine for India’s economic growth. If “Make in India” campaign is successfully
materialized, it will create a balanced road map and will link India into global supply chains,
reduce trade deficit and increase the investor’s confidence level at the same time.
It is believed that in order to encash upon the “Make in India” concept, there is a need to
identify existing loopholes in MSME sector with respect to financial, technical, skill set, at each
stage of manufacturing life cycle and providing requisite solution at the same time.
Re-igniting India’s Manufacturing Sector
The global crisis has widely impacted manufacturing sectors across the globe. India is not
immune to this global turmoil. Almost the entire manufacturing sector, ranging from metals
and automobiles to capital goods and consumer durables are struggling to find market in India.
The sluggish growth in manufacturing unit is being driven by slowdown in demand from
domestic as well as global market. Subsequently, high interest rates on consumer durables,

lackluster behavior of the government regarding land acquisition issues, stalled projects further
discourages capital expenditure in the sector. Although, estimated statistical data issued by
Central Statistics Office (CSO) indicated India’s overall GDP growth during the period 2013 -
2014 to be around 4.9%, rise of 0.4 basis points from previous period i.e. 2012-2013, but at the
same time growth rate of manufacturing sector remained negative. Manufacturing output
declined from 1.02% in FY13 to (0.68) % in FY14.
Growth rate in different sectors of Indian Economy
Source: Ministry of Statistics and Programme Implementation
Declining trend in manufacturing sector
Source: Ministry of Statistics and Programme Implementation
The manufacturing sector has been adversely affected not only through decline in consumer
spending but also through exponential fall in confidence levels of consumers. At present,
manufacturing sector contributes close to 15% of India’s GDP which clearly indicates that this
sector is highly penalized. India needs a boost in manufacturing sector to increase per-capita
income and create employment. There is no doubt that manufacturing sector employs millions
of workers, reduce country’s trade deficit, provide a stable source of foreign currency, and
create a smooth & rapid path for country’s economic development. India is an obvious source

of cheap labor and large domestic market. This wide demographic feature coupled with better
infrastructure and easier regulations vis-à-vis set up of manufacturing unit especially MSME will
surely propel manufacturing sector. By contrast, manufacturing’s share has stagnated at 15-
16% for nearly three decades with services sector share rising to 56% and agriculture to 17% in
FY14. This has hampered growth, even though the manufacturing sector grew 15% YoY during
2003-2008. Around the same time, Asian peers concentrated their efforts on expanding
manufacturing, boosting growth and keeping external imbalances in check. India’s
manufacturing value-added (MVA) as a percentage of GDP stood at 13% in 2013, compared to
24% for Indonesia and 30% in China and South Korea
“Make in India” to promote indigenisation and import substitution
In order to make India a powerful indigenous manufacturing hub and bring about economic
transformation, the government has come up with a concept of “Make in India”. With
successful implementation of “Make in India” concept, India's gross domestic product (GDP) is
expected to grow over $4.5 trillion by FY20. With the help of Make in India, the dependence on
imports can be brought down and at the same time, current account deficit can also be
controlled. “Make in India” will not only encourage the indigenous manufacturing sector but
also give tough competition to foreign rivals.
India is heavily dependent on imports for a large number of goods and services. While import of
certain goods like crude is inevitable, many other products across consumer sectors like
electronic white goods, lighting, and consumables which are not technology intensive, have a
significant potential to be substituted by local enterprises. Further, there is potential to
incentivise investments in high technology areas in order to develop capabilities in high
engineering import substitution and indigenisation in many areas of healthcare, automotive,
defence, electronics and telecom. A strong support of industry association and academia is also
needed to guide MSME foray into areas where they can substitute imports. Line
ministries/departments can help identify major imports of products of their respective domain
whose manufacturing involves low to medium end technology complexity.
Integrating Global Value Chain with MSME
MSME can be the backbone for the existing and future high growth businesses with both
domestic and foreign companies investing under the ‘Make in India’ initiative and this will
prove to be a significant step in the area of indigenisation. In recent years, India has progressed
from the production of simple consumer goods to the manufacture of complex products like
electronic control systems, electro medical equipment, microwave component etc. As a result
of globalization and alarming demands, MSMEs have adequate opportunities in sectors such as

information technology, telecom, textiles and garment, automobiles, leather products,
chemicals, pharmaceutical, food processing, petrochemical, etc.
MSME sector accounts for 36% of total exports of the country, mainly consisting of pearls,
precious stones, metals, electrical, electronic equipment, pharmaceutical products, organic
chemicals, iron and steel articles, etc. It can play a vital role in curbing import and boosting
export system in Indian economy. As per Foreign Trade Policy (2009-14) announced by the GOI,
India has an excellent opportunity to shine in technology led exports with focus shifting to
newer products. Therefore, MSMEs can be instrumental in transforming “Make in India” dream
to the next level.
In recent years, the MSME sector has consistently registered a higher growth rate compared to
the overall industrial sector. For manufacturing output to grow, a supportive ecosystem is
required for each of the stages of the enterprises starting from promotion and creation to
expansion till closure or exit.

About ASSOCHAM
THE KNOWLEDGE ARCHITECT OF CORPORATE INDIA
Evolution of Value Creator
ASSOCHAM initiated its endeavour of value creation for Indian industry in 1920. Having in its fold more than 400
Chambers and Trade Associations, and serving more than 4,00,000 members from all over India. It has witnessed
upswings as well as upheavals of Indian Economy, and contributed significantly by playing a catalytic role in shaping
up the Trade, Commerce and Industrial environment of the country. Today, ASSOCHAM has emerged as the
fountainhead of Knowledge for Indian industry, which is all set to redefine the dynamics of growth and development
in the technology driven cyber age of ‘Knowledge Based Economy’. ASSOCHAM is seen as a forceful, proactive,
forward looking institution equipping itself to meet the aspirations of corporate India in the new world of business.
ASSOCHAM is working towards creating a conducive environment of India business to compete globally. ASSOCHAM
derives its strength from its Promoter Chambers and other Industry/Regional Chambers/Associations spread all over
the country.
VISION
Empower Indian enterprise by inculcating knowledge that will be the catalyst of growth in the barrier less technology
driven global market and help them upscale, align and emerge as formidable player in respective business segments.
MISSION
As a representative organ of Corporate India, ASSOCHAM articulates the genuine, legitimate needs and interests of its
members. Its mission is to impact the policy and legislative environment so as to foster balanced economic, industrial
and social development. We believe education, IT, BT, Health, Corporate Social responsibility and environment to be
the critical success factors.
MEMBERS – OUR STRENGTH
ASSOCHAM represents the interests of more than 4,00,000 direct and indirect members across the country. Through
its heterogeneous membership, ASSOCHAM combines the entrepreneurial spirit and business acumen of owners with
management skills and expertise of professionals to set itself apart as a Chamber with a difference. Currently,
ASSOCHAM has more than 100 National Councils covering the entire gamut of economic activities in India. It has been
especially acknowledged as a significant voice of Indian industry in the field of Corporate Social Responsibility,
Environment & Safety, HR & Labour Affairs, Corporate Governance, Information Technology, Biotechnology, Telecom,
Banking & Finance, Company Law, Corporate Finance, Economic and International Affairs, Mergers & Acquisitions,
Tourism, Civil Aviation, Infrastructure, Energy & Power, Education, Legal Reforms, Real Estate and Rural Development,
Competency Building & Skill Development to mention a few.
INSIGHT INTO ‘NEW BUSINESS MODELS’
ASSOCHAM has been a significant contributory factor in the emergence of new-age Indian Corporate, characterized
by a new mindset and global ambition for dominating the international business. The Chamber has add ressed itself
to the key areas like India as Investment Destination, Achieving International Competitiveness, Promoting
International Trade, Corporate Strategies for Enhancing Stakeholders Value, Government Policies in sustaining India’s
Development, Infrastructure Development for enhancing India’s Competitiveness, Building Indian MNCs, Role of
Financial Sector the Catalyst for India’s Transformation.
ASSOCHAM derives its strengths from the following Promoter Chambers: Bombay Chamber of Commerce & Industry ,
Mumbai; Cochin Chambers of Commerce & Industry, Cochin: Indian Merchant’s Chamber, Mumbai; The Madras
Chamber of Commerce and Industry, Chennai; PHD Chamber of Commerce and Industry, New Delhi and has over 4
Lakh Direct / Indirect members.
Together, we can make a significant difference to the burden that our nation carries and bring in a bright, new
tomorrow for our nation.

ASSOCHAM Corporate Office
5, Sardar Patel Marg, Chanakyapuri, New Delhi - 110 021
Phone: +91-11-46550555 (Hunting Line) • Fax: +91-11-23017008, 23017009
E-mail: assocham@nic.in • Website: www.assocham.org
ASSOCHAM Southern Regional Office
D-13, D-14, D Block, Brigade MM,
1st Floor, 7th Block, Jayanagar,
K R Road, Bangalore-560070
Phone: 080-40943251-53
Fax: 080-41256629
Email:events@assocham.com
events.south@assocham.com,
director.south@assocham.com
ASSOCHAM Eastern Regional Office
F-4, “Maurya Centre” 48, Gariahat Road
Kolkata-700019
Tel: 91-33-4005 3845/41
HP: 91-98300 52478
Fax: 91-33-4000 1149
E-mail: Debmalya.banerjee@assocham.com
ASSOCHAM Western Regional Office
608, 6th Floor, SAKAR III
Opposite Old High Court, Income Tax
Ahmedabad-380 014 (Gujarat)
Tel: +91-79-2754 1728/ 29, 2754 1867
Fax: +91-79-30006352
E-mail: assocham.ahd1@assocham.com
assocham.ahd2@assocham.com
ASSOCHAM Regional Office Ranchi
503/D, MandirMarg-C,
Ashok Nagar,
Ranchi-834 002
Phone: 09835040255
E-mail: Head.RORanchi@assocham.com
AUSTRALIA
Chief Representative
ASSOCHAM Australia Chapter
Suite 4, 168A Burwood Road
Burwood | NSW | 2134 | Australia
Tel: +61 (0) 421 590 791
Email: yateen@assochamaustralia.org
Website: www.assochamaustralia.org
UAE
ASSOCHAM – Middle East
India Trade & Exhibition Centre
M.E. IBPC-SHARJAH
IBPC-SHARJAH
P.O. Box 66301, SHARJAH
Tel: 00-97150-6268801
Fax: 00-9716-5304403
JAPAN
ASSOCHAM Japan Chapter
Colors of India Center
1-39-3 Ojima Koto-Ku,
Tokyo 136-0072
Japan
Email: international@assocham.com
tceindo@hotmail.com
USA
ASSOCHAM – USA Chapter
55 EAST 77th Street
Suite No 509
New York 10162

RESURGENT INDIA LIMITED
DEBT I EQUITY I ADVISORY
Resurgent India is a full service investment bank providing customized solutions in the areas of debt,
equity and merchant banking. We offer independent advice on capital raising, mergers and acquisition,
business and financial restructuring, valuation, business planning and achieving operational excellence to
our clients.
Our strength lies in our outstanding team, sector expertise, superior execution capabilities and a strong
professional network. We have served clients across key industry sectors including Infrastructure &
Energy, Consumer Products & Services, Real Estate, Metals & Industrial Products, Healthcare &
Pharmaceuticals, Telecom, Media and Technology.
In the short period since our inception, we have grown to a 100 people team with a pan-India presence
through our offices in New Delhi, Kolkata, Mumbai, and Bangalore. Resurgent is part of the Golden Group,
which includes GINESYS (an emerging software solutions company specializing in the retail industry) and
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and outsourcing).
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© Resurgent India Limited, 2015. All rights reserved.
Disclosures
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Information and opinions contained herein have been compiled or arrived by Resurgent India Ltd from sources believed to be reliable, but Resurgent
India Ltd has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to
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Contact Details:
Gurgaon Office:
903-904, Tower C,
Unitech Business Zone, Nirvana Country,
Sector 50,
Gurgaon – 122018
Tel No. : 0124-4754550
Kolkata
CFB F-1, 1st Floor, Paridhan Garment Park,
19 Canal South Road, Kolkata - 700015
Tel. No. : 033-64525594
Fax No. : 033-22902469
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Express Zone A-509,
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Mumbai - 400097
Telephone No. :022-29810219
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