Ministry of MSME

The Micro, Small and Medium Enterprises (MSMEs) are a vital part of the Indian economy. They contribute to over 45% of industrial production and around 40% of the total exports. There are about 13 million MSMEs in India, which employ about 31 million people. So, it is easily the single largest contributor in terms of employment generation in the manufacturing sector. MSMEs are present as part of the value chain in almost all distinguished industry sectors like automotive industry, garments and textile industry, leather industry and drug and pharmaceutical industry etc.

Realising the tremendous contribution of the MSMEs in industrial production, employment generation and exports, the Government of India has introduced several policies to increase business and promote growth among the MSMEs over the past few decades.

For the first time, in India, the Medium establishment has been defined in terms of a separate Act, governing the promotion and development of Micro, Small and Medium Enterprises. This is the Micro, Small and Medium Enterprises Development Act, 2006 (which has come into force from October 2, 2006). The Office of Development Commissioner (Micro, Small and Medium Enterprises) functions as the nodal development agency under the Ministry of Micro, Small and Medium Enterprises.

The post liberalisation era in the Indian economy has ushered newer opportunities and challenges for the MSMEs. As global competitiveness becomes intensive, with emergence of global supply chains, MSMEs are making a transition to a new business environment. MSMEs form an integral part of almost every value chain and there is a symbiotic relationship between the large corporations and relatively smaller-sized suppliers.

The domestic market is no more an insulated zone in a controlled economy; the competitive pressures of a free market economy are catching up in India. In the earlier protected economy scenario, even inefficient MSMEs in the manufacturing sector managed to be profitable. However, with the opening up of economy, the MSMEs have to catch up with global standards of excellence to remain competitive and profitable. MSMEs, therefore, have to adapt to new standards in technology, quality and pricing to be able to survive in the market place.

The future of the MSMEs will depend on overcoming the challenges of the liberalised world and by enhancing their competitiveness in an increasingly global economy.

National Manufacturing Competitiveness Programme (NMCP)
The Government has announced formulation of National Competitiveness Programme in 2005 with an objective to support the Small and Medium Enterprises (SMEs) in their endeavor to become competitive and adjust the competitive pressure caused by liberalization and moderation of tariff rates. Para 59 of the Budget Speech 2005 are as follow:-

"Worldwide, it is manufacturing that has driven growth. In order to revive the manufacturing sector, particularly small and medium enterprises, and to enable them to adjust to the competitive pressures caused by liberalization and moderation of tariff rates, I propose to launch a new scheme that will help them strengthen their operations and sharpen their competitiveness. The scheme will be called the "Manufacturing Competitiveness Programme". The design of the scheme will be worked out by the National Manufacturing Competitiveness Council (NMCC) in consultation with the industry".

Accordingly, the NMCC along with relevant stakeholders like the Ministry of MSME has conceptualized and finalized the components of the programme incorporating suitable inputs from the stakeholders in a meeting taken by Chairman, NMCC on 7.12.2005. The NMCP, as conceptualized by the NMCC was accepted by the Government and announced for implementation in the Budget 2006-07, para 68 of which state as under:-

The National Manufacturing Competitiveness Council (NMCC) has finalized a five-year National Manufacturing Programme. Ten schemes have been drawn up including schemes for promotion of ICT, mini tool room, design clinics and marketing support for SMEs. Implementation will be in the PPP model, and financing will be tied up during the course of the next year.

The Small and Medium Industries form the backbone of manufacturing sector not only in this country but even in the developed countries. In India, the small scale sector contributes to 40% of manufacturing. The small industries sector also contributes substantially to the exports. In the past, the Small Scale Sector existed in a relatively sheltered environment. The levels of protection were high, several goods were reserved for production in the Small Scale Sector, special fiscal incentives were extended to the units in the sector and a number of support programmes were also drawn up to ensure the Small Industries survived.

In the post-reform era, starting from 1991, the situation for the Manufacturing Sector as a whole as well as for the Small Industries has undergone a dramatic change. The tariffs on imports have been reduced very substantially. India is gradually integrating with the world economy; new trade blocs are forming and many countries, including India, are entering into Preferential Trade Agreements, Free Trade Agreements or Comprehensive Economic Agreements to improve trade in areas of their comparative advantage. In this process the Indian economy is becoming more open and there is an urgent need for the Industry to adjust to the new situation. The Indian Industry will have to become competitive by cutting down overall costs to that extent to survive and grow. The situation confronting the Small Industries in particular provides both opportunities as well as challenges. An opportunity to grow in a global market place is available to access entry into the global value chain by virtue of their being internationally competitive. The others would need to reposition themselves and become competitive to meet the challenges if they have to survive.

Development through clustering
Clusters can be defined as sectoral and geographical concentration of enterprises, particularly those Micro, Small and Medium Enterprises (MSMEs) facing common opportunities and threats. Hence, a group of companies, which partners together for the purpose of improving performance through mutual learning and sharing, is a cluster.

Clusters have benefited from natural external economies. But, only those have excelled, where firms have gone for promotion of selective “active cooperation” or “targeted joint action” and also taken the benefits of linking these to winner-value chain within and outside the cluster. As a result, clusters worldwide are being acknowledged as a strategic mechanism through which the regions and nations can attain higher level of industrial development.

International experience has proven that clustering and networking of enterprises helps enhance economic growth and encourage technical progress among MSMEs. Research studies on clusters state that competitive advantages of MSMEs grouped in clusters are based on specialisation, cooperation and flexibility. Many of the cluster stories indicate a strong networking between large firms and small firms as well as proximity of raw materials and business clients.

According to current estimates, there are about 6,500 clusters in India and they are responsible for 80% of the goods or services. Development of these clusters will have an impact on both employment as well as poverty alleviation.

The Ministry of Micro, Small and Medium Enterprises, Government of India, has adopted the cluster approach as a key strategy to enhance productivity and competitiveness as well as for capacity building of micro and small enterprises and their collectives. In this context, the scheme Upgradation of Technology and Management Programme (UPTECH) was launched in 1998.

Limitations faced by Indian clusters
Indian clusters generally do not participate in supportive production networks involving effective collaboration between firms and service institutions. Neither do they compete on the basis of improvements in their market connections, products, technologies and skills.

Some of the main obstacles hampering cluster development are:
The lack of a cultural attitude towards cooperation, both, at the firm and institutional level.
The transaction costs that need to be borne to identify suitable network partners and forge relationships.The absence of incentives – financial and fiscal – for implementation of common projects.

The imperfect market functioning for the provision of crucial inputs for networking development such as information and innovation; and the high risk of “free riding” that is especially faced in contexts where the legal framework to back up joint endeavours is relatively underdeveloped.

www.dcmsme.gov.in
www.msme.gov.in