COVER STORY

msme

MSMEs in India The Road Ahead

I
ndia is home to more than 50 million Micro, Small & Medium Enterprises (MSMEs), which
represent diverse types of business, and are spread across the length and breadth of the country.
MSMEs play a significant role in the Indian economy, as they account for about 45% of the total
manufacturing output and 40% of the exports from the country. Their development is extremely
critical to meet the national imperatives of financial inclusion and generation of significant levels
of employment across urban, rurban and rural areas, to catalyze socio-economic transformation.
MSMEs can be the backbone for existing as well as future high growth businesses as both domestic
and foreign companies invest in the ‘Make in India’ initiative and make a significant impact on
indigenization. ‘Make in India with zero defect and zero effect’, is a significant opportunity. It can
nurture and support the development of new age entrepreneurs who have the potential to create
globally-competitive businesses from India. The ‘Digital India’ revolution also provides good scope to
promote MSME participation in the Information, Communication and Telecommunication (ICT) sector,
in line with the Government’s vision.
It is important that MSMEs develop in all areas of agriculture, manufacturing and services, because
each of these sectors will continue to be very relevant to overall GDP growth as well as to
employment generation.
The development of new wave MSMEs requires a business ecosystem that enables and continuously
supports businesses that are gearing to deliver the right product, the right quality, the right solution
and the right service at a competitive price, both in domestic and international markets. It will require
significant changes in philosophy and approach to develop and deliver such an ecosystem, which
enables MSMEs to seize the emerging domestic and global opportunities. Removing hindrances and
hurdles in doing business will unleash young and dynamic entrepreneurial talent in India, who would
make self-entrepreneurship their first career choice and develop growth companies.
The development of a robust MSME sector will require efforts by the Government to bring the
various stakeholders, such as equity funds, banks and financial institutions, industry majors and
MNCs, regulators across various ministries at the Center and in the States, and trade associations
and global economies having trade flows with India, together, to create a forward-looking framework
and ecosystem.

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Key Policy Issues Impacting
MSMEs in India
T
o ensure that MSMEs are able to grow in tandem
with the economy in this age of increasing
globalization, it is essential to resolve the issues
faced by most of them. Despite the sector’s strategic
importance for industrialization and employment
generation, as well as the opportunities that the Indian
landscape presents, MSMEs in India face several
challenges. Technological obsolescence and financing
problems have been associated with the sector for a long
time. Also, constraints such as high cost of credit, low
access to new technology, poor adaptability to changing
trends, lack of access to international markets, lack of
skilled manpower, inadequate infrastructure facilities,
including power, water, roads, etc, as well as regulatory
issues related to taxation, labor laws, and environmental
issues are hampering the growth of Indian MSMEs.
Public Procurement Policy and
Market Linkages
With the objective of promoting the growth and
development of Indian MSMEs by improving their market
access and linkages, the Ministry of MSME notified the
implementation of the Public Procurement Policy for Micro
and Small Enterprises from 1 April 2012. The policy, which
is mandatory as notified under the MSMED Act 2006, calls
for achieving an overall procurement of minimum 20%
of the total annual purchases of products manufactured/
services rendered by MSMEs within a period of three
years by central ministries, government departments and
public sector undertakings (PSU). From 1 April 2015, the
policy has also earmarked a sub-target of 4% out of the
20% notified for procurement of goods and services from
MSMEs owned by SC/ST entrepreneurs.
The public procurement policy for MSMEs has the potential
to provide a significant impetus to this sector without
compromising on transparency and cost-effectiveness.
If implemented in full essence, it has the potential to
substantially remove one of the key constraints faced
by MSMEs, access to markets. Despite the enormous
10 | October 2017
potential, there is limited availability of reliable and
comprehensive statistical data on the public procurement
market size, especially in case of emerging economies.
Effective implementation of the policy requires a significant
build-up of knowledge and institutional capacity to address
the ever-growing challenges of public procurement for
MSMEs, central public sector enterprises (CPSE) and
other concerned stakeholders. Awareness amongst
MSMEs about the requirements of large enterprises,
vendor development initiatives by large companies,
institutional changes, and a monitoring mechanism by
the Government, are some of the prerequisites for this
policy to have the desired impact.
CII Recommendations
• Implementation of a robust monitoring mechanism.
• Launch of State-level public procurement policies
for expanding the coverage of public procurement
from MSMEs.
• Creation of a central repository of information on MSMEs
manufacturing various products across the country.
• Abolition of empanelment and enrolment fee.
Earnest money deposit exemptions must be strictly
implemented for procurement orders to MSMEs.
• Effective monitoring and implementation of schemes
like the Market Development Assistance (MDA)
scheme.
• Facilitation of international delegation visits, trade
fair participation, etc.
• Grant of subsidy of up to 3% of their previous year’s
turnover or 20% of tax paid, subject to a ceiling, on
actual cost basis, to MSMEs for participation in trade fairs,
business delegations and exhibitions in India or abroad.
• Extension of the MDA scheme to service sector
MSMEs.
Ease of Doing Business
India has been doing poorly on the World Bank ranking
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of doing business, though it is registering consistent
improvement. With a rank of 130 among 190 countries
in the World Bank Doing Business Report for 2017, India
is aiming to enter the top 50 in next three years.
MSMEs are more likely to flourish in a climate where
they are not overburdened by taxes and regulations.
In spite of the spate of economic reforms launched
recently, MSMEs in India are still hampered by a number
of complicated business regulations and compliances,
crippling their growth potential.
A series of reforms to improve the ease of doing business
in India have culminated in the present positive outlook for
Indian businesses. These reforms span a diverse range of
areas such as incorporation of a company, approvals and
clearances, procedures related to exports and imports,
labour laws, industrial licenses, exiting a business, etc, and
bear testimony to the Government’s proclivity to bolster
the performance of the Indian economy.
CII Recommendations
• Linkages between various regulatory bodies such as tax
department, customs, excise, etc for data-sharing.
• An effective time-bound dispute resolution mechanism
with fair purchase order /contract conditions.
• Single window systems for online submission of
all reports, filing of returns, etc, and self-audits and
certifications for firms paying a certain threshold
amount as tax revenue.
• Exemption from collection and deposition of service
tax for service sector MSMEs with turnover up to
`50 lakhs and increase in the limit of deposition to
`2 crores.
Access to Credit and Finance
Finance is critical for the growth and development
of MSMEs. These companies primarily rely on bank
finance for their operations. As such, ensuring timely
and adequate flow of credit to the sector has been an
overriding public policy objective.
Delayed payments adversely affect the recycling of funds
and the cost of operations for MSMEs by worsening
their working capital shortage and liquidity problems.
Sometimes, this even results in bankruptcy or shut down of
firms facing the squeeze effect of limited access to capital
combined with unwillingness to offend their customers.
CII Recommendations
• Comprehensive data needs to be made available to
financial institutions to enable them to offer MSMEs
easier access to credit.
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• The classification of NPAs to be extended to120 days
from the present 90 days with a special dispensation
for 30 extra days for MSMEs.
• Issuance of debt restructuring norms by the RBI
for MSMEs.
• NBFCs should be drawn into the formal banking
structure for credit expansion for MSMEs.
• Evolution of MSME-specific rating mechanisms to
assess their credit-worthiness.
Infrastructure
Lack of adequate infrastructural facilities at affordable rates
is a key growth constraint for Indian MSMEs. The creation
of land banks will facilitate the smooth allocation of land to
start-ups and micro enterprises. Moreover, the allocation
of land in industrial corridors at lenient rates will level
the playing field for MSMEs. A rental-cum-ownership
plug and play model will protect MSMEs from incurring
large loans and servicing burdens in the initial years.
The appointment of an Officer on Special Duty (OSD)
will further enhance the availability of infrastructure
by demystifying the various procedural requirements
involved in acquiring land.
Industrial estates encourage and support the creation,
expansion and modernization of MSMEs through the
provision of infrastructure, common service facilities
and economies of scale at all stages of development.
However, even industrial units located within industrial
estates need to obtain individual clearances on various
compliance requirements.
CII Recommendations
• Land and minimum-sized sheds in industrial estates/
areas should be allotted on a rental-cum-ownership
basis, at a reasonable rent for the initial 7 years,
with a one-time option for the firm to buy the land/
shed at inflation-indexed cost, conditional on the unit
being in production.
• 25% of the land available in industrial corridors must
be allocated to MSMEs at lenient rates.
• Land banks should be created at the State level.
• Incubation cells and hubs within clusters need to be set
up in collaboration with academia/regional institutions.
• Appointment of Officers on Special Duty (OSD) to
assist MSMEs with procedural formalities for land
acquisition.
• Implementation of the proposed amendments to the
Land Acquisition Act, 1897.
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12 | October 2017 Communiqué
 COVER STORY

Fostering Growth
through Partnerships

Vikram Golcha, Co-Chairman, CII National MSME Council, and MD, Associated Soapstone Distributing Co Pvt Ltd; Preeti Saran,
Secretary (East), Ministry of External Affairs; K J Alphons, Minister of State (I/C) of Tourism, and Minister of State of Electronics & IT;
Giriraj Singh, Minister of State (I/C) of MSME; Shreekant Somany, Chairman, CII National MSME Council, and CMD,
Somany Ceramics Ltd; Dr Arun Kumar Panda, Secretary, Ministry of MSME, and Chandrajit Banerjee, Director General, CII,
at the 14th CII Global MSME Business Summit in New Delhi

A
round 51.1 million MSMEs units throughout the
country provide employment to over 80 million
persons, contribute about 8% to GDP through
more than 6,000 products, generate 45% of the total
manufacturing output, and make up 40% of the exports
from India. Accelerated MSME growth is fundamental
to India achieving and sustaining a high GDP growth.
Many global companies are increasingly looking to Indian
MSMEs for strategic partnerships of mutual benefit due
to their innovative capabilities in niche manufacturing,
ability to speedily absorb new technologies, and local
skills and capabilities. However, identifying suitable
global markets, partners, and emerging business
opportunities, can be challenging for MSMEs, which
are hamstrung by information asymmetries, lack of
scale economies, inadequate technical and managerial
acumen, etc.
In order to promote and foster global MSME
partnerships, CII, in partnership with the Ministry of
MSME and the Ministry of External Affairs, organized the
14th CII Global MSME Business Summit 2017, ‘Fostering
Growth through Partnerships’ on 19–20 September in
New Delhi. Enabling the exchange of ideas and best
practices among MSMEs from around the world, the
Summit also sought to encourage cross-border trade
by disseminating know-how on assessing the export
potential of products and services of Indian MSMEs,
identifying suitable markets, developing strategies to
penetrate new markets, and singling out avenues for
joint ventures, franchising, cross-marketing, and co-
manufacturing, in the countries and regions participating
in the Summit.
As the world is gearing up for Industry 4.0, the MSME
sector needs to pay serious attention to manufacturing
high quality and technological products, said Mr Giriraj
Singh, Minister of State (Independent Charge) of
MSME. Highlighting the role of 'Zero Effect Zero
Defect' in the MSME sector, the Minister emphasized
that technologies like 3D printing can help in reducing
cost and time for MSMEs. Innovation is essential

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COVER STORY

for competitiveness. For practices in the areas

this, it is essential for
V O I C E S of credit availability and
businesses to understand ‘The adoption of new technologies like 3D quality standards.
and adopt emerging printing, Artificial Intelligence (AI), and Internet We need to create an
technologies like Artificial of Things (IoT) has the potential to bring down ecosystem for MSMEs
Intelligence (AI), Internet the time and cost of doing business.’ by aligning ‘Processes,
of Things (IoT) etc. which Giriraj Singh, Minister of State Prices, People’ (PPP) to
are going to define the (Independent Charge) of MSMEs make processes more
future course for industry, efficient, and prices more
he said. The Minister competitive, he felt. Dr
emphasized that, given that ‘MSMEs are the backbone of the Indian tourism
Panda also spoke of the
more than 60% of India’s sector and can drive significant employment.’
need to create an incentive
population still lives in rural K J Alphons, Minister of State (Independent system for the upward
areas, it is important to Charge) of Tourism, and Minister of State of graduation of enterprises,
tap the entrepreneurship Electronics and Information Technology from micro to small to
potential of MSMEs in the medium, so as to enable
agriculture sector, and, as them to achieve economies
‘MSMEs are an important pillar of the economy
well, bring in value-addition of scale, and to incentivize
and have been at 10% growth consistently.
in agro industries. such graduation based on
Issues such as access to credit, ease of doing
We w a n t t h e w h o l e business, technology improvement, market employment and wealth
country to benefit from access etc need to be addressed as a priority.’ creation.
technology', said Mr K J Th e S u m m i t fe a tu r e d
Shreekant Somany,
Alphons, Minister of State fo c u s e d r e g i o n a l a n d
Chairman, CII National MSME Council, and
(Independent Charge) of country sessions on ASEAN,
Chairman & Managing Director
Tourism, and Minister of Latin America, Singapore,
Somany Ceramics Limited
State of Electronics and Portugal, France, Japan,
Information Technology. and the Gulf and MEWANA
Backed by technology, the ‘The challenge of the 21st century for MSMEs region, to explore the latest
‘Ease of Doing Business’ is global competitiveness.’ global industry trends and
has improved dramatically Vikram Golcha, Co-Chairman,CII National to highlight the emerging
in the past three years MSME Council, and Managing Director, business opportunities
and is going to become Associated Soapstone Distributing Co Pvt Ltd across the globe for gainful
better in coming times, MSME partnerships.
he stated. Emphasizing
A masterclass on
the role of MSMEs in
‘Understanding and
generating huge employment in the tourism industry,
Leveraging Trade Agreements’ was held to help MSMEs
he suggested exploring avenues such as rural tourism
understand how Free Trade Agreements (FTAs) can be
and agro tourism.
used to increase trade within the region, and also how
Ms Preeti Saran, Secretary (East), Ministry of External they can utilize duty benefits to become more
Affairs, described the various measures being taken competitive.
by the Ministry to promote market access and trade
A diverse participant profile, comprising senior
promotion for MSMEs. This being the 25th anniversary
government officials, diplomats of various countries,
of ASEAN-India economic cooperation, a series of
trade and commercial officers, procurement heads of
activities are being undertaken which will culminate in
global OEMs and leading Indian companies, financial
a Summit in January, she said.
sector executives, as well as MSME delegations from
Highlighting the importance of exploring MSME 25+ countries, engaged in over 300 B2B meetings to
partnership opportunities with other countries, explore mutual beneficial areas of partnerships.
Dr Arun Kumar Panda, Secretary, Ministry of MSME,
The India MSME Expo held in tandem with the
emphasized the need for information-sharing and
Summit, showcased the products and services of 30+
bridge-building between countries, and sharing best
exhibitors.

14 | October 2017 Communiqué

 COVER STORY

Forging Global Partnerships

The 14th CII Global MSME Business Summit hosted focused regional
and country sessions on ASEAN, Latin America, Singapore, Portugal,
France, Japan, and the Gulf and MEWANA region, to update Indian
MSMEs on the latest global industry trends, and to explore business
opportunities for gainful partnerships across the globe

countries, and called for knowledge sharing of best practices on technology,

ASEAN
As part of the calendar of
commemorative activities this year
to mark the 25th anniversary of the
ASEAN – India Dialogue Partnership
and the 50 th anniversary of the
India-ASEAN partnership, CII, in
association with the Ministry of
External Affairs, organized a Special
Plenary Session on ASEAN during
the 14th CII Global MSME Business
Summit on 19 September in New
Delhi.
The session explored the institutional
framework for promoting collaboration
in MSME between India & ASEAN
skills and success stories in the MSME sector to increase the trade
basket between India and the ASEAN region.
BYTES
‘Trade is the common thread in the India-ASEAN relationship. The focus
is to boost Indian exports to ASEAN countries. Various government
initiatives are building border connectivity to attract investment and
support in the region.’
David Rasquinha, Managing Director,
EXIM Bank of India
‘In Indonesia, MSMEs contribute 97.16% to job creation and 58.65% to
national GDP. Facilitating business match-making and expanding trade
access in non-traditional markets would boost ties between MSMEs in
Indonesia and India.’
Mochammad Rizki Safary, Deputy Director, Directorate of
ASEAN External Cooperation, Indonesia

At the special plenary session on ASEAN

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‘There is good potential for collaborations and strategic
partnerships between India and Philippines, where
MSMEs account for 99.5% of the total number of
establishments in the country and employ 62.8% of
the total labor force. The AMEN (ASEAN Mentorship
for Entrepreneurs Network) framework to be launched
in November in Manila will create a mentoring system
to ASEAN MSMEs.’
Merly Cruz, Adviser for MSME Department,
Philippine Centre for Entrepreneurship
‘The Thai Government is undertaking to promote new
start-up enterprises and build new entrepreneurs
through digital platforms. Digitization can spur the
much-needed innovation and productivity growth across
many activities, transform public services, and improve
well-being for all citizens. Indian MSMEs can establish
manufacturing units for semi-finished goods in Thailand
for further export to other countries.’
Ashok Upadhya, Deputy Secretary General,
Federation of Thai Industries, Thailand
‘I invite Indian financial companies to promote MSMEs
in Laos. India, which has developed successful MSME
clusters, can share its expertise and experience in
developing entrepreneurship and human capability.’
Keomorakoth Sidlakone, Deputy Director General,
Department of SME Promotion, Ministry of Industry
and Commerce, Lao PDR
‘The Cambodian Government is trying to make its
people more productive and encourage them to compete
internationally. We invite Indian companies to partner
with local businesses. We need to create knowledge-
sharing platforms in the areas of innovation, technology
and resources and capacity-building.’
Chour Cheth Tyvoin, Deputy Director General,
Ministry of Industries and Handicraft, Cambodia
‘The Summit showcases what Indian MSMEs are
capable of. The 'Zero Defect Zero Effect' model signifies
two things: production mechanisms with no defects,
and with no adverse environmental and ecological
effects.’
Piyush Srivastava, Additional Development
Commissioner, Ministry of MSME, India
‘Digitization can help MSMEs grow their business. With
more people searching the web to find local information
it is important for MSMEs to have a high quality
16 | October 2017
presence that showcases what makes the business
unique. Studies show that businesses with complete
listings on Google are twice as likely to gain customer
trust, 38% more likely to attract in-store visits, and 29%
more likely to see a purchase. Google has launched
specific programs and tools free of cost for MSMEs
to come online and get their business digital.’
Shalini Girish, Director, GMS, Google India
KEY TAKEAWAYS
Policy Advocacy
• ASEAN – India FTA
• Domestic policy restructuring to support regional
value chains (RVCs), operations, labor laws,
trade facilitation, business facilitating services,
infrastructure, etc. More initiatives for JVs in the
region to promote RVCs.
Trade and Investment
• Collaboration in manufacturing of products between
India and ASEAN.
• Congenial policy environment to facilitate FDI.
• Need for conducive policies to promote investments
in the PPP model, coupled with technology
know-how and skills.
• Creation of opportunities for new investors and for
cross investment in sectors.
Technology and Skills
• CLMV countries can collaborate with India for
know-how.
• Creation of knowledge-sharing platforms in the areas
of innovation, technology and resources.
• Beyond finance, MSMEs need continued support
to bridge information gaps.
• Integrated training programs are required for
operators and managers to increase performance
efficiency.
FRANCE
The country session on France highlighted the warm
relationship shared by India and France in all spheres.
Business France and the different services of the
Embassy expressed eagerness to reinforce the
economic and commercial collaboration between Indian
and French MSMEs. While more French companies are
being drawn to ‘Make in India', France is welcoming
more Indian companies to benefit from an innovative
ecosystem and leverage France as a gateway to Europe
Communiqué

At the Session on France
and Africa. At present, 25,000 foreign companies are
operating in France where they employ 2 million persons.
Of them, 150 are Indian companies, employing 7000
people, while 400 French companies operate in India
via about 1000 offices and sites.
Speakers pointed out that the new pro-business
economic reforms planned by the Macron Government
will bring more flexibility to the employment law, speed
up innovation, and promote Paris as a financial center,
in the context of Brexit.
KEY TAKEAWAYS
• France looks forward to investing in the Skill India
and Smart City initiatives in India in sectors such
as design, healthcare, tourism and transport. CII
suggested that France could offer training programs
for Indian technical persons and managers.
• Indian MSMEs can use France as an entry point
to French-speaking countries in Africa. Post-Brexit,
Indian businesses can see Paris as the new gateway
to Europe.
GULF & MEWANA
The session on ‘Emerging Opportunities in Gulf and
MEWANA’ (Middle East and West and North Africa)
identified opportunities for collaboration across sectors
such as agriculture and food processing, pharma and
healthcare, technology, services and infrastructure.
BYTES
‘Business linkages between India and Tunisia could be
leveraged to strengthen mutual economic relations. Trade
facilitation measures have been improved, and laws
and policies have been enacted on foreign investment,
industrial enterprise, and special economic and free
zones in Tunisia.'
Nejmeddine Lakhal, Ambassador of Tunisia to India
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At the Session on Gulf & MEWANA
‘Structural economic and political reforms are now in place
in Iraq. The housing and construction industry has huge
potential, as do untapped markets for textiles, household
products, transportation, financial services, agriculture,
etc. The Iraqi government, aided by international coalition
forces, has succeeded in reclaiming significant portions
of territory from the ISIL.’
Fakhri Al Issa, Ambassador of Iraq to India
‘India maintains a special relationship with the UAE.
The last few years have seen the signing of a number
of agreements and MoUs in various areas of mutual
interest, including trade and investment. The UAE is
India’s leading trade partner, and its second largest
export destination.'
Ahmad Bin Harib Alfalahi, Commercial & Trade
Attaché to India, Embassy of UAE
JAPAN
An exclusive session on Japan was organized with
Japanese experts on 20 September, during the 14th CII
Global MSME Business Summit.
Speakers from Japan urged Indian MSMEs to look
at partnering with Japanese companies who have
technology and experience and are looking for
At the Session on Japan
October 2017 | 17
COVER STORY
collaborations with Indian MSMEs. This would be a
win-win situation for both sides, they said, noting that
such alliances would also help Indian MSMEs to be
competitive in global markets.
There are a lot of common synergies: MSMEs in India
are present across all sectors, manufacturing, trade and
services, and constitute a formidable component of the
country’s economic growth. Likewise , MSMEs play an
important role in the Japanese economy. The session
examined ways to develop an ecosystem where such
partnerships could utilize the respective strengths of
the enterprises of both countries.
LATIN AMERICA AND
THE CARIBBEAN
Session on Latin America and the Caribbean
CII hosted a session on leveraging business
opportunities in Latin America and the Caribbean
(LAC) region for MSMEs, to create millions of new
jobs. MSMEs in the LAC region are a vast reservoir
of latent potential that has yet to be fully tapped
for export-led growth, greater productivity, economic
diversification, and job-creation. The session sought
to develop an ecosystem where LAC MSMEs could
build partnerships with Indian companies, to utilize
their respective strengths.
KEY TAKEAWAYS
• An FTA between India
and Peru would give
entrepreneurs from both
countries the opportunity
to increase their
business activities. Peru
has one of the finest
manufacturing sectors
in textiles, and has
emerged as a popular
tourist destination.
18 | October 2017
Indian investors can look to invest in personal
trainers and beauty care services, handicrafts, and
food and restaurant businesses. India can share
expertise and technology relating to IT (computer
hardware and repairs) and even space technology.
The agriculture sector presents ample opportunities
to both sides
• For small and medium enterprises to understand the
core business and to be able to provide innovation
and long term sustainability, it is important to
understand the local people, and to lay emphasis
on trust, human values and personal relations
• Rural digitization is a huge opportunity in the LAC
region, in terms of mobile connectivity, education,
ICT, and monitoring and surveillance systems
• Trade financing and insurance, along with
hand-holding for MSME exporters, is vital to
sustain the flow of exports to the Latin American
countries.
PORTUGAL
KEY TAKEAWAYS
• Portugal can give Indian enterprises access to
a market of 826 million consumers, including
the European Union and Portuguese-speaking
countries.
• Portugal offers a good quality of life, and is
the easiest country in the world to develop an
international business. It is also the first country
to draw investment from the SME European
investment fund (more than 1,4 billion euros). and
is also the easiest country in the world to develop
an international business.
• FIRMA represents and solves business issues in
Portugal through a global team of experts.
Session on Portugal
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SINGAPORE
The country session on Singapore with the theme,
‘Building SME Partnerships’ called on MSMEs in India to
leverage the expertise of their counterparts in Singapore
to build a sound, sustainable and economically profitable
collaboration between the two countries.
Ms Amita Mehta, Centre Head, IE Singapore, pointed
out that Singapore has almost 6000 registered Indian
companies. The key sectors that attract FDI from Singapore
to India are real estate, manufacturing, renewable energy
and pharma, among others, she added.
Senior representatives of companies operating in
Singapore shared their business experiences. At the Session on Singapore

SUMMIT SNAPSHOTS

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'Access to Finance is the
Biggest Challenge for MSMEs'
We need to deepen and widen the delivery of credit
to MSMEs, says Shreekant Somany
W hat are the key challenges for MSMEs
today?
India is home to more than 50 million MSMEs
contributing about 45% of the total manufacturing output
and 40% of the exports from the country. While these
enterprises drive economic growth with their ability
to innovate and employ in large numbers, the biggest
challenge faced by them is access to finance. Cash
flow remains a key issue for MSMEs. There are other
challenges too, such as high transaction costs, problems
of power supply and power cost, labor issues and
shortage of skilled/semi-skilled manpower, and lower
rates of incentives.
W hat are some of the solutions envisaged by CII
to problems over the past few years, and also
for the future?
There is a need to deepen and widen the delivery of
credit to MSMEs. Also, for small businesses that wish
to go global, the biggest concern is the lack of funding
avenues. CII has prepared a number of suggestions for
improving access and affordability of credit to MSMEs.
Some of the steps towards this could be
• Enabling a digital network for integration of MSME-
related information (identification, financial and
credit information, etc.) with the Government. The
availability of such a comprehensive database with
the financial institutions would ease the assessment
of credit-worthiness for MSMEs and facilitate their
access to credit.
• Establishment of an effective, online, technology-
driven receivables financing platform for facilitating
the financing of trade receivables of MSMEs from
20 | October 2017
corporate and other buyers, including government
departments and PSUs through multiple financiers.
Launch of a Trade Receivables Discounting System
(TReDS) as proposed by the RBI at the earliest.
• Innovation in product structuring is as important in
addressing gaps in MSME financing as the channel
itself. Innovative products such as equipment lease
finance can help address the need for term debt,
and products such as receivable financing, bills
discounting and factoring could substitute the
requirements of working capital finance, addressing
the unique needs of small enterprises.
• Evolution of MSME-specific rating mechanisms to
assess the credit worthiness of these companies.
Credit ratings measure the credit-worthiness of
enterprises, and boost financial discipline, disclosure
and governance practices. They can assist in
reducing the risk perceived by lenders in lending
to MSMEs and provide them access to quicker and
cheaper credit.
Is the Government push for MSMEs getting the
desired results?
There is no denying that MSMEs have always been
on the Government’s development agenda. Several
packages and schemes have been introduced from
time to time by successive governments and it is
through this push that MSME today account for
about 45% of the total manufacturing output and
40% of the exports from the country. However, there
has been a lack of a holistic approach towards their
development needs.
As the world gears up for Industry 4.0, the MSME sector
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needs to pay serious attention to manufacturing high
quality and technological products. Thus a synergistic
eco-system combining the activities of the Ministry
and agencies dealing with different aspects of MSMEs,
State Governments, specialized institutions promoting
the sector, as well as private organizations, is the need
of the hour. I strongly feel that it is time to pause
and consider the policy environment in totality and
then initiate the process of developing a synergistic
ecosystem.
W hat are some of the global best practices that
can be adopted by Indian MSMEs? Please share
one or two illustrative examples.
Germany is one example. Germany’s economy depends
on a robust manufacturing industry, and the German
Mittelstand model can be one best practice to imbibe
get our country future-ready to embark on the next
generation of production technologies.
As India gears up for Industry 4.0, we can take a
leaf out of the German Mittelstand model to help
innovation-driven small firms. Mittelstands are so
successful, they contribute to more than half of the
German economic output and corporate investment.
Mittelstand companies are global leaders in sectors
such as machinery, auto parts, chemicals and electrical
equipment. Their success is supported by government,
academia and the private sector in terms of industry-
ready innovations, skilled manpower and market
development.
Establishing an ecosystem on the German pattern will
create a pipeline for the development of MSME-relevant
innovative products which can be exported effortlessly.
This will also make India’s technical and management
education system more useful to the needs of the
industry.
Also, we need to relook at the limits defining Indian
MSMEs for the purpose of classification. India has
traditionally been using investment in plant and
machinery as the metric to classify the sector. Under
the MSMED Act 2006, within the manufacturing
sector, enterprises are classified on the basis of
investment in plant and machinery as follows: micro:
not exceeding `25 lakhs, small: `25 lakhs to `5 crores,
and medium: `5 crores to `10 crores. However, we
must also appreciate that each sector has its own
unique capital requirements and standard revenue
and growth rates.
Most leading and developing economies around the
world have positioned the ceiling on investment for
22 | October 2017
medium enterprises at much higher levels, to encourage
technology upgradation, quality improvement, and
most critical-export orientation. In India, owing to the
low investment ceiling, MSMEs are forced to either
expand laterally or to remain engaged in low-tech/low-
value products.
In today’s complex business environment, turnover
and number of employees are more relevant matrices
for consideration of coverage. There is an urgent
need to recognize the global small and medium
segment levels and bring India at par with them.
The volume of turnover of a business is in general
a more appropriate measure of its relative size than
the more conventional measurements of number of
employees or value of assets.
MSMEs should also be looked at from the perspective
of their involvement in the global value chain. The
Government should also recognize this, to ensure an
adequate policy push for the growth of MSMEs in value
chains and OEMs.
A dequate skilled manpower is emerging as a big
roadblock in the way to global competitiveness.
What is the way forward?
It is very important to empower the MSME sector to
utilize their limited resources (human and economic)
in an optimum manner. MSMEs need to be educated
and informed of the latest developments globally, and
helped to acquire the skills necessary to keep pace
with global developments.
W hat are your ideas for building the business
confidence of MSMEs?
MSMEs are now exposed to greater opportunities
than ever for expansion and diversification across
sectors. The Indian market is growing rapidly and
our entrepreneurs are making remarkable progress
across diverse sectors, be it manufacturing, precision
engineering design, food processing, pharmaceuticals,
textiles and garments, retail, IT and ITeS, agro, or
services. Further, the Make in India vision of the
Prime Minister aims to facilitate investment, foster
innovation, enhance skill development and build
a sustainable eco-system for the manufacturing
infrastructure in the country. All these measures
have succeeded in raising the business confidence
of MSMEs, and also foreign investors.
Shreekant Somany is Chairman, CII National MSME Council, and
Chairman & Managing Director, Somany Ceramics Limited
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