UPSC Exam Preparation-Gist of Yojana Nov 2017 Issue: Micro, Small and Medium Enterprises

Table of Contents

Micro, Small and Medium Enterprises

Empowering India’s MSME Sector

Promotional Avenues for MSMEs

Enhancing Competitiveness through technology Up gradation

Challenges and opportunities for MSMEs

Accessing Finance: Challenge to the MSMEs

Quality Certification: Trigger force for competitiveness

Role of MSMEs in New India

Engineering a difference

Encouraging Environment for Small Enterprises

Enabling Ease of access to MSME Products

Empowering India’s MSME Sector

The Micro, small or Medium Enterprise sector, or the MSME sector as it is called, has been recognized globally as a major contributor to Gross Domestic Product (GDP) and stimulator for economic growth.


Indian Perspective

From the Indian economic perspective, the sector occupies a position of strategic importance. Nearly, 90 per cent of the industrial units belong to this sector, employing 40 per cent of India’s workforce. The sector produces more than 8000 products ranging from traditional to high-tech precision items.


There was an upsurge in the budgetary allocation to the Ministry of Micro, Small and Medium Enterprises, an all-time high as compared to previous years.


Challenges MSMEs face

  1. Timely access to credit, infrastructural gaps, technological obsolescence, sub-optimal access to market and skilled manpower are some of the challenges which the sector faces
  2. Increasing competition from neighbouring countries like China Indonesia, Philippines, and Thailand, it has become imperative for the sector to adopt robust strategies to become globally competitive.
  3. MSME sector is not homogeneous and timely access to adequate credit is a priority for micro and small enterprise remains a challenge.



Initiatives ‘Make in India’, ‘Digital India’, ‘Start-up India’ and ‘Skill India’ have been taken up for the holistic growth of the sector. Measures are also underway to enhance the overall contribution of the manufacturing sector in India’s GDP to 25 per cent vis-à-vis current 16-17 per cent and to create 100 million more jobs by 2022


Financing SMEs


Prime Minister’s Employment Generation Programme (PMEGP)

Prime Minister’s Employment Generation Programme (PMEGP) is a flagship scheme of the Ministry, whereby Micro Enterprises are set up every year creating employment opportunities across the country


Khadi and Village Industries

Khadi and Village Industries are two important National Heritage sectors of India. Ministry of Micro, Small and Medium Enterprises has as host of schemes for the Khadi and Village industry sector to provide gainful employment at the door steps of the rural unemployed, especially youth and women.


Focus on Technology

  1. Technological sophistication has become immensely important to the sector. The Ministry is focussing on high end skilling and technical support through 18 Tool Rooms and Technology Development Centres across the country
  2. In addition the Ministry of Micro, Small and Medium Enterprises has allocated Rs 2200 crore with funding support from the World Bank to upgrade some of the existing centers and establish 15 new Technology Centers (TCs) under Technology Center System Project (TCSP) to improve the overall productivity of MSMEs
  3. The TCs will support MSMEs by providing access to state of the art manufacturing technologies, skilled manpower and business advisory support to entrepreneurs
  4. Additionally, a Credit Linked Capital Subsidy Scheme (CLCSS) is also operational for up gradation of technology for Micro and Small Enterprises.


Scheme for Financial Support to MSMEs

Scheme for Financial Support to MSMEs in Zero Defect Zero Effect (ZED) Certification. This scheme is an extensive drive to create awareness amongst MSMEs about ZED manufacturing and motivate them for assessment of their enterprise for ZED and support them.


Strengthening Infrastructure

The Government has adopted a cluster-based approach for the development of MSMEs. As a whole, the approach encourages co-operative behaviour, yet infuses a sense of competition amongst the firms present at the cluster level for doing business.


Cluster Development Programme aims at the creation of tangible assets like Common Facility Centers (CFC), getting access to latest tools, technology, designs, testing facilities etc. The Ministry of Micro, Small and Medium Enterprises (M/o MSME) has prepared comprehensive guidelines for schemes such as Micro Small Enterprises – Cluster Development Programme (MSE – CDP) and Scheme for Up gradation of Rural and Traditional Clusters (SFURTI) to undertake more and more clusters for further interventions.


Access to New Markets

  • To enlarge the existing market size of MSMEs and to build enduring interdependent relationships, an overall goal has been set up by the Government. It was proposed that Ministries and Departments of Central Government and Central Public Sector Enterprises, shall procure 20 per cent of goods and Enterprises (MSEs), as a part of Public Procurement Policy, MSE order 2012
  • The policy encourages MSEs owned by Schedule Caste (SC) and Scheduled Tribe (ST) entrepreneurs to participate in the Public Procurement Market.
  • Sub-target of 4 per cent has also been set aside for procurement from MSMEs owned by SC-ST entrepreneurs.
  • To achieve the target and to promote entrepreneurship culture for SC-STs, a National SC-ST Hub (NSSH) has been launched by the Hon’ble Prime Minister on October. The objective of NSSH is to provide professional support to SC-ST enterprises. The Hub is currently operational from National Small Industries Corporation (NSIC), a Central Public Sector Enterprise (CPSE) under M/o MSME, GoI
  • A Special Credit Linked Capital Subsidy Scheme (SCLCSS) has also been formed under the hub to facilitate the purchase of Plant and Machinery by existing as well new SC-ST enterprises. The scheme envisages the upfront capital subsidy amount of 25 per cent.


Human Capital

MSME sector holds the key for skilling our workforce, especially at a time when 65 per cent of our population is below the age of 35. Several EDPs and Vocational Training Programmes have been conducted by Ministry of Micro, Small and Medium Enterprises through the office of Development Commissioner (MSME) in various sectors and trades


As part of ‘Ease of Doing Business’ and to formalize the sector, Udyog Aadhaar Memorandum (UAM) has been notified, the system offers one – page single point registration, thereby avoiding delays and replacing heterogeneity in the existing system of Entrepreneurship Memorandum (EM) Part I and II. This is a path-breaking initiative taken to offer ease to Indian MSMEs in terms of registering their businesses. More than 35 lakh units have been registered under Udyog Aadhaar Memorandum (UAM) since its inception. Furthermore, with ‘One Nation One Tax’ approach under GST, MSMEs are likely to unleash its true potential. MSME sector with its vast spectrum of enterprises, holds the key to achieving the Demographic Dividend.

Promotional Avenues for MSMEs

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 after the enactment of this Act, a separate Ministry of Micro, Small and Medium Enterprises was formed on 09.05.2017 by the merger of erstwhile Small Scale Industries (ARI). It produces 45 per cent of the total manufacturing output and provides 40 per cent to the exports from the country


Steps taken by the Government:

Government of India has taken a number of steps for promoting development of Micro, Small and Medium Enterprises. These include

  1. Availability of credit, schemes for technological up gradation, quality improvement and marketing support
  2. Stand up India, increased coverage of Credit Guarantee Fund for Micro and Small Enterprises and higher credit limits provided by the banks to MSMEs have improved credit support to them
  3. The Ministry of Micro, Small and Medium Enterprises is tasked with the promotion of Khadi, Coir and Village industries
  4. Khadi and Village Industries Commission (KVIC) no only serves the basic needs of the processed goods of the vast rural sector of the country but also provides sustainable employment to approximately 150 lakh persons in rural areas
  5. Khadi and Village Industries Sector represent in exquisite heritage product, which is ethnic as well as ethical. The sector has a potentially strong clientele among the middle and upper echelons of the society



The Ministry has been tasked with the promotion of coir industry, which has extended its base from Kerala to various other States including Tamil Nadu, Andhra Pradesh, Karnataka, Goa, Odisha, Maharashtra and Gujarat as well as other States. This industry provides employment to more than 7 lakh persons and has contributed significantly in increasing amount of exports over the years. Use of coir has witnessed surgence due to its environment – friendly nature. There is a great potential for value addition in coir products through technological interventions and diversification into products like coir geo-textile.


It is a matter of pride that the Ministry of Micro, Small and Medium Enterprises has been the first to be awarded ISO 9001-2008 certification, demonstrating the Ministry’s mission of promoting the growth and development of Micro, Small and Medium Enterprises with dedication and commitment


Why ISO?

Implementation of ISO standards would enable the Ministry to identify areas for improvement and also bring in transparency and accountability in its functioning.


KVIC, Coir Board, NSIC and NIMSME, the other wings of the Ministry, have also adopted ISO standards and have obtained certification.


Two Schemes namely, National Scheduled Caste / Scheduled Tribe Hub and Zero Defect Zero Effect (ZeD) Scheme on increased credit facilities for MSMEs and increased corpus for Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was announced. It also happened for the first time that MSMEs were segregated for special focus in the Union Budget presented on 1st February, 2017 where the Corporate Tax for the MSMEs having a turn-over of less than Rs. 50 cr. was brought down from 30 per cent to 25 per cent


Role of Ministry of MSME

The schemes / programmes undertaken by the Ministry and its organizations seek to facilitate / provide:

  1. Adequate flow of credit from financial institutions / banks
  2. Support for technology up-gradation and modernization
  • Integrated infrastructural facilities
  1. Modern testing facilities and quality certification
  2. Access to modern management practices
  3. Entrepreneurship development and skill up-gradation through appropriate training facilities
  • Support for product development, design intervention and packaging
  • Welfare of artisans and workers
  1. Assistance for better access to domestic and export markets and
  2. Cluster-wise measures to promote capacity – building and empowerment of the units and their collectives


The Ministry is implementing credit linked subsidy scheme, namely, Prime Minister’s Employment Generation Programme (PMEGP) for assisting the young entrepreneurs to set up new micro enterprises in the manufacturing as well as the services sector. A Scheme for Promoting Innovation and Rural Entrepreneurship (ASPIRE) was launched by the Ministry on 2015. The scheme was formulated to set up a network of technology centres and incubation centers to accelerate entrepreneurship and start-ups for innovation and entrepreneurship in agro-industry.


The planned outcomes of ASPIRE are setting up Technology Business Incubators (TBI), Livelihood Business Incubators (LBI) and creation of a Fund of funds for such initiatives with SIDBI


Ministry of MSME & SIDBI launched the scheme of Credit Guarantee Fund Trust for Micro, and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises with an objective to have availability of bank credit without the hassles o collaterals / third party guarantees to the first generation entrepreneurs to realize their dream of setting up a unit of their own.


The Ministry has notified Udyog Adhaar Memorandum in September, 2015. This Udyog Adhaar memorandum is basically for making registration process easy for the entrepreneur. The Udyog Adhaar Memorandum can be filed online at Udyog Adhaar Portal maintained by the Ministry of MSME. More than 4.17 lakh MSMEs have been registered so far.


Government has announced Public Procurement Policy for MSEs which. Under the policy 20 per cent of the total procurement of any Government Ministry/Department Public Sector Enterprises is to be procured from the Micro and Small Enterprises, compulsorily after a period of 3 years


Again, with a focus on inclusivity, the policy announces a separate target of 4 per cent of the total procurement from the Enterprises owned by persons from Scheduled Castes and Scheduled Tribles


For enhancing competitiveness of the Indian manufacturing Competitiveness Programme has been taken up. Aims to enhance the entire value chain of the MSME sector to make it more competitive.


Ministry of MSME has established 18 Technology Centers (TCs). TCs provide invaluable services to the Indian industry by way of precision tooling and providing well trained craftsmen in the area of tool and ide making.


The main objective of these Technology Centres is to

  1. Develop human resources for meeting the requirements for transfer for technology in respective products fields.
  2. Centres are also running training courses as per the requirements of the industry


“Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises” to revive and rehabilitate sick MSMEs


Stand Up India initiative envisages promoting entrepreneurship among SC/ST and Women Entrepreneurship This scheme is intended to leverage upon the institutional credit structure outreach the most underserved sectors of the population by facilitating Bank loans repayable up-to 7 year and in-between Rs 10 Lacs to Rs 100 Lacs for Greenfield enterprises set-up by SC-ST/ Women borrowers.


Start-Up India scheme initiative aims at fostering entrepreneurship and promoting innovation by creating an ecosystem that is conducive for the growth of start-ups


In order to promote start – ups especially in the manufacturing sectors from the criteria of “prior experience/turnover without any relaxation in quality standards or technical parameters”. The start-ups also need to execute the project as per the requirements and should have their own manufacturing facility in India


Role of National Institute for Micro, Small and Medium Enterprises (ni-msme):


Ni-msme was originally set up as Central Industrial Extension Training Institute (CIETI) in New Delhi in 1960 as a Department under the Ministry of Industry and Commerce. It was decided to keep it free from the tardy and impending administrative controls and procedures, so that the Institute can play a pivotal role in the promotion of small enterprises. Therefore, the Institute was shifted to Hyderabad in 1962, and was renamed as Small Industry Extension Training (SIET) Institute.


Ni-msme the nodal training, research and consultancy wing under the aegis of Ministry of Micro, Small and Medium Enterprises. However, being the nodal institute apropos to the mandate ni-msme still enjoys autonomy and is self-financed.


Engaged in rendering various consultancy services with different State Government and Central Government Ministry to develop and promote the MSME Sector, Cross Skilling and Skill Up-gradation etc.


Functional Spectrum:

The Institute is implementing ITEC Scheme of the Ministry of External Affairs, Govt of India since 1976 and trained 9,450 international executives from 142 developing countries and completed 909 research and consultancy projects since inception and would strive hard to continue the legacy.

Enhancing Competitiveness through Technology Up-gradation


MSMEs contribute significantly to the Indian economy, In 2015/16, the sector comprised more than 51 million enterprises, employed more than 117 million persons and accounted for more than Rs. 8492 billion worth of exports (at current prices); produced about Rs. 18100 billion worth of output (at constant prices in 2012/13). The sector in India, with some exceptions, is characterized by low technology levels, which acts as a handicap in the emerging global market. But given their scale of operations, it is difficult for Indian MSMEs not only to invest in Research and Development (R & D) activities but even to acquire advanced manufacturing technologies available in the market, on their own, due to high costs (Government of India, 2010)


Technology Transfer: Meaning and Importance


Technology includes patentable blueprints, plans, mechanisms, formulae, and the like (Enos, 1989), and transfer can be limited to the new use of such technology either within a particular firm or by a host country firm after contractual exchange with a foreign firm or organization (smith, 1980) Technology can perhaps be better defined as the knowledge whereby economic efficiency can be improved it includes “hand,” possibly patentable, aspects of production, like the specifications of goods and the mechanistic details of their manufacture, but also the “soft” aspects of business processes, such as organization, marketing, and other types of managerial knowledge and skills


  1. Technology Transfer is an alternative to internal technology development.
  2. “Technology Transfer” is seen as every process that aims at transferring technological know-how from a donor such as a university, a research centre or R&D department of firms to a recipient
  3. Limited resources, expertise and time are the factors that push many firms to acquire technology from a source external to the firm rather than developing it in-house.
  4. Thus, Technology Transfer is fundamentally the application of knowledge associated with a new physical hardware used by an MSME as machinery equipment in the production process for generating product/service which is quantitatively as well as qualitatively superior to what it was producing earlier


MSMEs particularly in industrializing countries go for acquiring external technologies to overcome their technological obsolescence. This is because they are not able to cope with the technological changes that occur in the international market. This is the outcome of negligible or nil R&D orientation therefore, policy support for technology up-gradation and modernization is invariably extended in various forms to MSMEs.


There are various sources through which MSMEs can acquire external technologies.

  • Sponsoring a research in a University
  • Supporting employees’ education and thereby assess candidate technologies
  • Making use of an external R&D center
  • Employing consultants to help them assess the new technologies available in the market
  • Going for licensing, one of the widely utilized methods of technology acquisition
  • Using technical meetings, technical journals and trade shows for assessing alternative technologies,
  • Purchasing existing technology either through vendor/supplier or form any commercial channel


Transfer can be broadly grouped under

  1. i) Vertical Technology Transfer and
  2. ii) Horizontal Technology Transfer

Vertical Technology Transfer occurs when information is transmitted from basic research to applied research, from applied research to development and from development to production. And the form of information changes as it moves along this dimension. But horizontal Technology Transfer occurs when technology used in one place, organization or context is transferred and used in another place, organization and context (Enos, 1989) Horizontal Technology Transfer is found to be common among MSMEs


Transfer of information and skills to the employees of the technology receiving this second step. The second step is more important because if the technology acquiring firm has to effectively use the transferred technology, acquisition of necessary information and skills related to the use of the new technology is essential and critical


An Important per-condition for this step is the absorptive capacity of employees in the recipient forms. Therefore, MSMEs with a better absorptive capacity will be able to adapt externally acquire technology efficiently and successfully


Transfer of technologies from the non-commercial to the private sector is increasingly regarded as playing a significant role in tech start-ups, growth of existing businesses, and new job creation


Technology Transfer channels are of particular importance to MSMEs with little in-house resources and experience to explore the potential or new technologies (Brychan, 2001). MSMEs usually lack awareness about the value of Technology Transfer, sources of technology, they are diffident about enabling services, and therefore rely on co-operation with others.


Two basic mechanisms available to MSMEs are technology exchange (technology passed from one MSME to another) and technology exploitation (technology transferred to an MSME from an external source). For MSMEs involved in Technology Transfer networks, key mechanisms include information transfer (newsletters and databases), Technology Transfer (R&D audits), skills transfer (training) and specialist support (financial guidance)


The Technology transfer performance of MSMEs will be influenced by a variety of institutional factors which include in-house technical personnel, access to external sources of knowledge the political, legal and administrative environment and the organization of knowledge transfer.


As for as achievements of Technology Transfer are concerned

  1. i) Increase in number of news products,
  2. ii) Shortened product development cycle

iii) Increase in productivity due to cost reduction, and

  1. iv) Sales increase, are the commonly observed major outcomes


The empirical studies have brought out a significant and positive relationship between external technology between external technology acquisition and firm performance, depending on the degree of internal R&D efforts


Technological obsolescence has been one of the most severe problems identified with the Indian MSME sector time and again. That is why technology development has been considered the foremost factor for enhancing the global competitiveness of the Indian SME sector


Technology Transfer offers various benefits to MSMEs


Achievements of Technology Transfer: MSMEs generally are able to accomplish multiple outcomes

through Technology Transfer. Some of them are


  • Increase in productivity
  • Reduction in costs
  • Expansion of scale of production (scale economies)
  • Diversified product range (Scope economies)
  • New product development
  • New design products
  • Better quality of products
  • Penetration of international markets
  • Increase in sales and market share


To conclude, technology up-gradation desired by MSMEs to achieve multiple objectives such as overcoming technological obsolescence, scale/scope expansion, and/or entering the international market to achieve technology up-gradation, MSMEs go for Technology Transfer by scouting for alternative sources. Once a certain source is identified, the channel of Technology Transfer is finalized and pursued. The accomplishment of Technology Transfer would enable MSMEs to realize some or all of their objectives leading to an overall enhancement of economic performance and competitiveness. In the current era, it is imperative to enable an increasing number of MSMEs to realize technology up-gradation through Technology Transfer, for the benefit of the sector as much as for Indian economy





MSMEs constitute the basic form of entrepreneurship. It is important to understand scientifically, such aspirations, and to nurture such grass root level impulses. Therefore, a discussion on MSMEs needs to be part and parcel of the agenda of economic growth in general, and of employment promotion in specific


India’s industrialization perspective, since Independence, has been focused on a two-pronged approach:

1) Providing employment opportunities and

2) Taking such opportunities, to the extent possible, to the villages, as a regional development tool.


‘Make in India’ is a highly visible national campaign – mode initiative which needs to be translated into action at two levels: First, there is need for attracting large foreign and domestic investments. Secondly, these large enterprises also need MSMEs for subcontracting linkages and service delivery


Need for an Integrated Development Approach

Considering the emerging complexities of the economy, there is need for an integrated development approach on MSMEs. New research and evidences should lead to a review and restatement of existing policies, with a thrust on the following:


  1. Political and Administrative Powers: Under the 56th Amendment of the Constitution, village and small industries is a subject of the Local Government. In India’s bottom-heavy industrial structure, a large number of small towns and villages contribute to the small enterprise output of the country. This also implies that the breeding of entrepreneurship resources in the country is a local phenomenon. However, paradoxical enough, the local governments are either ignorant, or are reluctant to exercise their powers; or that these powers are usurped by the higher tiers of the government. Even in some of the States, where particular panchayats are show-cased as “success stories’, it would be instructive to analyse the success factors. “Success” is often explained in terms of implementation of popular and politically sensitive National and State level programs, such as sanitation, water supply, elementary health services, primary schooling etc. People’s participation in programme design and implementation, is often negligible.
  2. Capabilities: It is also important to understand, whether these lower tiers of government, and their administrative machinery are objectively, capable of exercising such powers. The Component that is often missing is advisory services at various stages of planning and execution of an entrepreneurial activity beyond the so called “administration”, the focus needs to be on specific functional areas as follows:
  3. a) Identification of project ideas and business opportunities;
  4. b) Provision of general information and guidance
  5. c) Onward support services and
  6. d) Documentation, networking and creating ground for synergies

These functions can best be performed by competent BDS providers

Governments will have to increasingly play a catalytic role in helping SMEs to tap the emerging benefits of the ‘new economy’

  1. Resources: Under the existing formula of resource sharing between the State governments and the Local governments, the necessary resources for co-ordinating several of the base level promotion activities relating to enterprise development are available with the local governments. While some of the promotional activities being performed by the District industries Centers today can be handed over to the Local governments, the corresponding, funds also should flow along with that.
  2. Development of Synergies: Synergies need to be ensured, primarily between the Center and State, on the one hand, and the State and the District Administration, on the other that ensures such synergies through the mechanism of various Committees. Making synergies for enterprise development, demands both vertical and horizontal strengthening of the constituency of ‘enterprise’ horizontally, there is need for an understanding of enterprise as a specialised subject, across the various line departments. This necessitates an Enterprise Resource Policy. In the absence of such a perspective, each tier of government will identify some program and scheme of their imagination, and lower trier of government creating wide gulf between schemes & people needs.


Recent Initiatives

For transforming India into manufacturing hub, ‘Make in India’ was announced as a flagship programme. As a corollary of this major programme, several other programmes were announced.


Skill India was announced in order to mitigate the critical problem of skill gap. In order to have a proper integration of the skilling agenda, with that of entrepreneurship promotion, a separate programme called ‘Start-up India’ was announced. This programme visualizes and tries to take advantages of India’s opportunities relating to the ‘new economy’


In order to address the problem of social exclusion and its reflections on the investment front, a specialized programme called ‘Stand-up India was announced. This programme has a dual approach of reducing exclusion, and to ensure the resources of the banking sector in an equitable manner.


The introduction of MUDRA as a specialised window, meant for targeting micro enterprises, can be described as a major intervention for broad basing finance. MUDRA loans today can be considered as a significantly broad based financial structure, with a stronger “bottom of the pyramid”.


Promotion of ancilarisation is a major initiative, and also a remarkable achievement. This is clear in the case of defense equipment sector. However, at the sub-sectoral level, lot more need to be done in order to use MSMEs as a powerful handmaid of manufacture in the country.


Policy Initiatives: Implications

In formalism is a major characteristic of the MSME sector of the country

The Government of India has chosen the path of accelerating innovation in the MSME sector


MSMEs have a dual character of significant vulnerability on the one hand, and the substantial inherent strength which can be used to reduce the pains of a radical change. The results of a group of major policy initiatives, including GST, demonetization etc, have been widely debated. In most countries of the world, such radical policy decisions have contributed to short term shocks in the economy. While we wish the long term benefits, to offset the short term shocks, public policy cannot remain passive. There is need for a Special Package for MSMEs in order to supplement for formulization attempts that are in progress


While the total effect of all the measures taken by the Government is enhanced formalization of the enterprise system, the next step should be a five pronged strategy for sustaining such results. There is need for a three pronged approach:

1) Detailed Subsectoral understanding of MSME dominant sub sectors

2) A re interpretation of the functioning of the economy on the basis of clear functional criteria, rather than on the basis of old criteria such as, rural-urban, male-female etc

3) A rationalization of the role of institutions, on the basis of detailed studies

4) A re-interpretation of the role of finance, and a restructuring of the relationship between fiancé and the real sector

5) Planning for Entrepreneurship as a critical resource




  1. In India, MSMEs are defined on the basis of investments in plant and machinery (excluding land and building) as opposed to turnover/employment based criteria in most other countries
  2. Based on 4th MSME Census (2013), the Annual Report (2016-17) by Union Ministry of MSME estimates that the number of MSMEs in India stands at 5.13 crore employing 11.1 crore people 4th MSME census brought out that almost 90 per cent of MSMEs are dependent on informal sources for funding

It is obvious that with current financial architecture, a very large segment of MSMEs has not been reached



What are the constraints because of which so many MSMEs remain outside Institutional Financial System?


Supply side Constraints

Table-1: Definition of MSMEs


Manufacturing (in Rs)

(Investment in plant and machinery)

Services (in Rs)

(Investment in equipment)


Does not exceed 25 lakh

Does not exceed 10 lakj


More than 25 lakh but does not exceed 5 crore

More than 10 lakh but does not exceed 2 crore


More than 5 crore but does not exceed 10 crore

More than 2 crore but does not exceed 5 crore


Public-sector banks control more than 70 per cent of the banking systems assets under direct control of the Government. The Governments in India have long been accused that they corner the deposits in the Banks (through government securities and bonds) to make up for budget deficits, finance political schemes and influence flow of funds to the projects/ promoters of their liking


Firstly, tight control of Government on PSU Banks – the most powerful players in banking system, results in subdued competition and sub-optimal outcomes both of the owners and the customers of the banks


Secondly, the banks (both domestic commercial banks and foreign banks having more than 20 branches) are required to lend 40 per cent of their total advances to ‘Priority Sector’. The Priority sector constitutes of Agriculture – having a sub – target of 18 per cent and the rest of sectors such as MSMEs, Education, Housing, Export Credit and others.


What is clear is that there is no specific sub-target for MSMEs within the priority sector lending target. The MSMEs are bracketed with the sectors which bankers find more lucrative and easier to lend such as housing and education.


Thirdly, industrial financing envisages two specific requirements from financial institutions – ability to lend for longer period – as project gestations are longer and technical knowledge of sectors to understand business cycles and technology.


But banks have a problem: they take relatively short term deposits and therefore they hesitate to lend for longer periods as it make their asset liability condition precarious

  1. Further, they lack the technical expertise necessary to appreciate sectorial complexities
  2. Naturally, known business families and large corporates pass through the test
  3. For MSMEs where promoters could be non-descript and a first generation entrepreneur, bakers try to minimize their risks by insisting on asset-based collateral securities for lending. Potential MSME promoters not having asset-based collateral are excluded.
  4. When a few do bring collateral securities, most of the time those would not be commensurate with loan size leading to further downsizing of the project to a sub-optimal scale further
  5. India’s adoption of Base III norms – an international banking standard, made lending to MSMEs even more difficult. Following Base I-II, RBI requires financial institutions to maintain ‘enough’ cash reserves to cover risks incurred by operations.


Demand Side Constraints


The MSMEs are a heterogeneous sector comprising of Micro, Small and Medium enterprise segments with each having very distinct need and different challenges. The Microenterprises are largely ‘informal’ and ‘unorganized’ Almost all of them are proprietorship/ partnership firms and not companies exposing them to unlimited liabilities. A vast majority of them work from an unauthorized/ unapproved place of work as either approved commercial spaces are just not available or are unaffordable to most. This segment faces financial inclusion challenges owing to its informal nature, lack of information needed by banks and documents.


The Small segment is relatively better organized and operates largely in B2B segments. Their major problems are difficulties in raising risk capital to start a new business, lack of sufficient collateral and high working capital needs as their payments are routinely delayed by their large buyers


Globally it is the Medium segments within the MSMEs sector – the Mittlestand, which is considered most robust and promising as it operates right scale and can compete internationally often the phenomenon in India is termed as the ‘missing middle’.

Besides lack of quality of bank assistance, a few key constraints faced by the segments are: banks’ requirement of additional collateral securities, access to equity/mezzanine capital, foreign currency loans including external commercial borrowing (ECBs) and to competitively priced non-fund based bank facilities


Policy Response

 In the last couple of years there has been a massive financial inclusion programme with policies like Pradhan Mantri Jan-Dhan Yojana (PMJDY)

  1. The top down push has nudged the banking sector and banks reached out to the informal sector and the unbanked like never before
  2. To provide additional comfort to bankers, Credit Guarantee Trust for MSEs (CGTMSE) has been created to enable MSEs to access loans without collateral securities. The Fund provides insurance against default of loans up to 75 per cent of loan amount to Banks
  3. Four Credit Information Bureaus namely CIBIL, Equifax, Experian and Highmark have evolved to address the issue of high information asymmetry in India in MSME space which results into ‘over due diligence’
  4. To help MSMEs monetize the movable assets, the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) has created movable asset registry which allows the movable assets to be pledged to obtain bank financing.
  5. To enable MSMEs to have access to equity for green field or scaling up existing ones, both BSE and NSE have been allowed to create dedicated SME exchanges
  6. Further, in order to solve the problem o delayed payment to MSMEs, RBI has licensed three entities for operating the Trade Receivables Discounting System (TReDS). These platforms act like Electronic Bill Factoring Exchanges where invoices / bills of MSMEs could be traded electronically
  7. Finally, one of the most critical institutional reforms is enactment of Indian Bankruptcy and Insolvency Code, 2016


Way Ahead

  1. The creation of these institutions fills important needs of a modern financial system. However, these are necessary but not sufficient measures
  2. There is a need to create a revolution similar to telecom in the banking sector creating conditions where the service providers chase the clients. The Government will have to exist from banking and cede space to the private sector to create massive competition
  3. The traditional role of intermediation by banks is being challenged by new entities such as telecom companies and digital financial platforms and Fintech companies. We need to increase to these emerging technologies.
  4. The massive amount of information which is likely to be generated through GSTN should make lucrative than asset-based ones turning the traditional banking on its head




Quality certification is becoming extremely significant in competitive markers for gaining strong foothold exports. Quality certifications are no longer restricted to large industries; MSMEs are increasingly coming forward to embrace need-based quality certification. Competitive advantages for MSMEs reflect in higher productivity and profitability. An enterprise can only develop higher performance and sustainable profitability if the quality standards are in sync with global standards.


Quality and technology up-gradation are important factors for enhancing competitiveness in MSMEs. MSMEs have limited resources and access to funds; they find difficulty in upgrading themselves. Ministry of MSME has addressed the quality and technology aspects of manufacturing in MSMEs through various schemes and programmes for enhancing the competitiveness of small businesses.


Following are the benefits to certification for an organization.

  • Recognition and brand reputation
  • Continual improvement
  • Maintain focus
  • Confidence
  • Staff satisfaction and engagement


Various schemes for quality certification of Govt, of India are as follows:


  1. National Manufacturing Competitiveness Programme (NMCP) – Under this programme then schemes have been drawn up that includes promotion of ICT, mini tool room, design clinics and marketing support for SMEs. This programme enables the manufacturing sector to be competitive through Quality Management Standard & Quality tech Tools (QMS/QTT)
  2. Technology and Quality Up-gradation Support to MSMEs – This scheme advocates the use of energy efficient technologies in manufacturing units for reducing the cost of production and for adopting clean development mechanism
  3. Financial Support to MSMEs in ZED (Zero Defect Zero Effect) Certification Scheme – This scheme envisages to develop an Ecosystem for Zero Defect Manufacturing in MSMEs by developing Manufacturing in Quality tools and Energy Efficient manufacturing. This scheme also supports Make in India campaign. Under this scheme MSMEs will have to compete to bag gold, silver or bronze quality certification in order to get contracts. Financial assistance is provided to MSMEs for the activities to be carried out for ZED certification. This includes assessment/rating, gap analysis, handholding and consultancy for improving the rating of MSMEs by consultants. Quality Council of India (QCI) is appointed as the National Monitoring and Implementing Unit (NMIU) for implementation for ZED. QCI is set up jointly by the government and industry for establishing a national accreditation structure and promote standards
  4. Quality Certifications – ISO Certification Assistance – ISO 9001 is the world’s most widely recognized Quality Management System (QMS), It helps organizations to meet the expectations and needs of their customers and stakeholders, amongst other benefits.


It helps to continually monitor and manage quality across all operations and outlines ways to achieve consistent performance and service. This is a management tool to promote excellence in all function for an enterprise. These standards relate to Quality Management Systems (QMS) and are designed to aid organizations to ensure that they meet quality standards for catering to the needs of all stakeholders.


MSME sector has shown an average growth of 18 per-cent over the last five years.




Worldwide, the Micro and Small Enterprises (MSEs) have been accepted as MSME can be the backbone for the existing and future high growth businesses with both domestic and foreign companies investing in the ‘Make in India’ initiative and make significant impact in the area of indigenisation. ‘Make in India with zero defect and zero effect’, is a significant opportunity. The ‘Digital India’ revolution also provides a great opportunity to promote MSME participation in the Information Communication and Telecommunication (ICT) sector, in line with the government vision. It is equally important that the MSME segment develops in all areas of agriculture, 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.


Role of MSMEs

As per the Report of the Working Group on Micro, Small and Medium Enterprises (MSMEs) Growth for 12th Five Year Plan (2012-2017) the sector accounts for 45 per cent of the manufacturing output and 40 per cent of total exports of the country. The labour to capital ratio in MSMEs and the overall growth in the sector is much higher than that in the large industries


Major Initiatives by the Government

Government’s policy initiatives like enactment of the Micro Small and Medium Enterprises Development (MSMED) Act, 2006; pruning of reserved Small Scale Industries (SSI) list; advising Financial Institution to increase their flow of credit to the SME sector; etc. are all initiatives towards boosting entrepreneurship, investment and growth. Reservation of items for exclusive manufacture in MSME sector statutorily provided for in the Industries (Development and Regulation) Act, 1951, of the important policy measures for promoting this sector. Ministry of Agro and Rural Industries (Krishi Evam Gramin Udyog Mantralaya) were merged into a single Ministry, namely, “Ministry of Micro, Small and Medium Enterprises.


Major New Schemes of the Government


  1. Scheme of Fund for Regeneration of Traditional Industries (SFURTI) – The objectives of the scheme is to organize the traditional industries and artisans into clusters to make them competitive and provide support for their long term sustainability, sustained employment, to enhance marketability of products of such clusters, to equip traditional artisans of the associated clusters with the improved skills, to make provision for common facilities and improved tools and equipment’s for artisans, to strengthen the cluster governance systems with the active participation of the stakeholders, and to build up innovated and traditional skills, improved technologies, advanced process, market intelligence and new models of public-private partnerships. Major achievements so far include

The nodal Agencies include KVIC, Coir Board, IIE Guwahati, NIMSME Hyderabad, NIESBUD Noida, all MSME Dis and all DICs of State Government

  1. Stand-Up India Scheme – Stand-Up India scheme has been launched by the Prime Minister on April 05, 2016. The objective of the Stand-Up India Scheme is to facilitate bank loans between Rs 10 lakh to Rs 100 lakh to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one Woman borrower per bank branch of all scheduled commercial banks for setting up a green-field enterprise. This enterprise may be in manufacturing, services or the trading sector. In case of non-individual enterprises at least 51 per-cent of the shareholding and controlling stake should be held by either an SC?ST or Woman entrepreneur. The Stand-Up India scheme is based on recognition of the challenge faced by SC, ST
  2. Scheme for the Development and Promotion of Women Entrepreneurs – Trade Related Entrepreneurship Assistance and Development Scheme – Tread with a view to encourage women in setting up their own ventures, government implemented a scheme, namely, “Trade Related Entrepreneurship Assistance and Development (TREAD) during the 11th The Scheme envisages economic empowerment of women through the development of their entrepreneurial skills in non-farm activities. There are three major components of the scheme;

(i) Government of India grant up-to 30 per cent of the total project cost to the Non-Government Organisations (NGOs) for promoting entrepreneurship among women. The remaining 70 per cent of the project cost is financed

(ii) Government of India grant up-to Rs 1 lak per programme to training institutions / NGOs for imparting training to the women entrepreneurs, subject to these institutions/NGOs bring their share to the extent of minimum 25 per-cent of Government of India grant and 10 per cent in case of NER

(iii) Need-based Government of India grants upto Rs 5 lakh to National Entrepreneurship Development. Institutions and any other institutions of repute for undertaking field surveys, research studies, evaluation studies, designing of training modules etc.

Under Mahila Coir Yojana, financial assistance is provided for motorized rats for spinning coir yarn to women artisans after giving training.


MSMEs in Budget 2017 -18

An Interesting observation that the effective tax rate of MSME is much higher than that of larger companies, this in spite of the fact that these companies contribute immensely towards economic growth and employment generation, proposed to reduce the tax rate of MSMEs reporting turnover of less than Rs 50 crore to 25 per cent from the existing 30 per cent

  1. In a drive to promote digital way of doing business, a lower rate of 6 per cent from the existing 8 per cent has been proposed to small companies having turnover less than Rs 2 crore to the extent their sale proceeds are realised through banking channels
  2. Threshold for mandatory tax audit compliance has been raised to Rs 2 crore, which would ease the compliance burden


Future Prospects

For future growth the Indian economy and GDP increase, growth in Indian economy and GDP increase, the share of MSME contribution would increase from current 8 per cent to 15 per cent by the year 2020. This would be realized by following opportunity areas:


  1. Export Contribution

Promote Export contribution by supporting and developing MSME segment to be globally competitive and adopt research and development, innovation and global technologies, entering into bilateral trade agreements and set off arrangements.


  1. Public Procurement Policy

Promote an ecosystem for supplies to defence and public sector enterprises as to achieve at least 25 per cent portion of total procurement by defence and public sector enterprises from MSME. Procurement by Large Indian and Foreign Corporate across Industry Sectors from MSMEs


  1. Traditional and Heritage Industries

 Incentivise and support any stakeholder that invests in development, growth and opening global markets for India’s traditional and heritage industries for goods, services and agricultural and natural medicines and therapy relate products and services.


  1. Infrastructure

National, regional and sector specific clusters and business enters for MSME in PPP model for state of the art infrastructure comprising physical infra, knowledge infra, e-platforms, B2B access and technology and innovation support for MSME


  1. Regulatory

One “all India all-purpose” enactment as MSME regulation to be adopted by all stakeholders in MSME system with one window and one annual return compliance filing coupled with significant direct tax incentives and indirect tax exemptions


  1. Funding

Open environment and incentives for investments by High Net worth Individual (HNWI) and funds into MSME business as well incentivize debt funding in MSME segment. Develop MSME equity exchange and ‘two chance” approach for entrepreneurs, and fast close winding up where necessary


  1. Performance Incentives

Direct incentives in form for direct taxes rebates and set offs, weighted deductions and reliefs in indirect taxes combined with low cost funding and credit access for stakeholders in MSME eco system who make investments in desired growth and achievement of desired growth results in developing MSME funding and infrastructure skills, technology, innovation, global market access, indigenization, public procurement and vendor development, traditional and heritage industry developments.



KVIC has started ‘Honey Mission’ in the country, in order to provide judicious patronage for honey making practice. Under the Honey Mission, KVIC will distribute one lakh Bee Boxes this year to the farmers.


Sewapuri Varanasi, area is an agriculture belt with lots of flora and fauna, hence an apiary of 100 bee boxes with hives had been set up in the campus, under the ‘Honey Mission’


  1. Women Empowerment in Narmada Valley

KVIC through its Sahyog Programme had given 80 Charkhas to tribal women at Omkareshwar to start Khadi activities in the Narmada valley areas of Madhya Pradesh.


  1. Making a Mark on the Market


  1. 23 Hospitals to Use Only Khadi Products

Ministry of Health, adopting Khadi for hospitals and staff, is a significant symbol because Rs 150

            4.Orders from Air India

The national carrier Air India had decided to use natural and eco-friendly khadi products on its flights,


  1. Reaching Out Wide


  1. Conclusion

A true reflection of Khadi reforms is visible in the implementation of Khadi Reforms and Development Project (KRDP)



Impact of Liberalization and Globalization

Industrial Policy adopted in the post-independence period imposed various restrictions on large scale private industries; and industrial policy at that time became synonymous with ‘License and Quote Raj’ while existing industries learned the art of living created barriers for new entrepreneurs. Before the advent of the new economic policy in 1991, 812 items were reserved for production in the Small Scale sector The New Economic Policy (NEP) storm mercilessly killed this policy of reservation. Slowly concessions to SSIs vanished in the name of promoting competition. NEP’s arguments took precedence over arguments of employment, decentralization and equity favouring concessions to SSIs.


Policy of open imports in the era of globalization did help us in getting number of goods and sometimes even technology, but at the cost of closure of millions of Small Enterprises, which couldn’t face fierce competition from the rest of the world.


In India, costly electricity, outdated labour laws, complicated tax system, high rates of taxes, problems in getting finance, lack of infrastructure, laws inhibiting start of enterprise, inspector raj and perverted environment laws are some of the problems which have been coming in the way of healthy development of Small Scale Sector.



After the current government took over the rein of power, it has tried to facilitate Small and Micro Enterprises through Micro Units Development and Refinance Agency (MUDRA), Start-up schemes etc.




Marketing assistance scheme (MAS)

It aims to help MSMEs to participate in domestic and international exhibitions / trade fairs, buyer-seller meets, campaigns/seminars and consortia formation. It is implemented through National Small Industries Corporation (NSIC), a Public Sector Enterprises of the MSME Ministry.

Objectives of the scheme are as follows:

  • To enhance marketing capabilities and competitiveness of the MSMEs
  • To showcase the competencies of MSMEs
  • To update MSMEs about the prevalent market scenario and its impact on their activities
  • To facilitate the formation of consortia of MSMEs for marketing of their products and services
  • To provide a platform to MSMEs for interaction with large institutional buyers
  • To disseminate/propagate various programmes of the Government
  • To enrich the marketing skills of the micro, small and medium entrepreneurs.


Helps MSMEs to get exposure besides facilitating them in exploring new business opportunities in emerging and developing markets events provide a platform to MSMEs where they meet, discuss, and conclude agreements on technical and business collaborations.


Revised Marketing Assistance and Technology Up-gradation (MATU) Scheme


Here, financial support is provided participate in State/District level local exhibitions/trade fairs. The scheme comprises of following activities:


  • To encourage manufacturing MSEs in their efforts of tapping and developing domestic/overseas market
  • To encourage MSEs, for adoption of bar coding on products for increase in marketability of products in National/International market
  • To facilitate marketing linkages especially in the view of Public Procurement Policy for MSEs
  • To create consciousness and to educate the MSMEs about importance of packaging in marketing, latest packaging technology, import – export policy and procedure, latest development in international trade etc. by organising International and National Workshop/Seminar on marketing/packaging/topics relevant to MSME sector,


MSME Development Institute (MSME-DI) is responsible to implement the scheme.


Vendor Development Programme (VDP)

This is a platform to bring Buyers and Sellers together for business promotion. Such an event is organized by MSME Development Institutes (MSME – Dis) located in every corner of the country to provide a common platform for business as well as selling organizations to inter-act with each other with a view to identifying emerging demands of the buyers organizations while simultaneously providing an opportunity for displaying the capabilities of the small scale entrepreneurs and their industrial ventures.


Marketing Development Assistance (MDA)

The Scheme aims to encourage Small and Micro exporters in their efforts at tapping and developing overseas markets. It also intends to increase participation of representatives of small/micro manufacturing enterprises under MSME India stall at International Trade Fairs/Exhibitions besides enhancing export from the small/micro manufacturing enterprises. The scheme also facilitates the effort to popularise the adoption of Bar Coding on a large scale.


The best part of all schemes is that there is targeted sectorial allocation which helps not just in selling products and services but also results in significant employment generation. No doubt, access to markets is important but there is need to redefine the MSMEs also so that they have enough capital to restrategize themselves according to rapidly changing business environment.


Leave a Comment

Your Mobile number and Email id will not be published.