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ABSTRACT

SME contribute 40% of export in Indian GDP, though SMEs dont have adequate technological,

infrastructural and financial support. By proper management, government polices and market

knowledge SMEs can cut barbed wires which are creating problems. SMEs integration with

almost all sectors creates enormous opportunities. Availability of large rural population as

human resources for SMEs making it cost effective. The need is to cash on the opportunities to

make the SMEs prospective bright. Investors should use all the available resources to reap the

benefits.

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INTRODUCTION :

Small industry has been one of the major planks of India's economic development strategy since

Independence. India accorded high priority to small and medium enterprises (SMEs) from the

very beginning and pursued support policies to make these enterprises viable and vibrant and

over time, these have become major contributors to the GDP. At the beginning, small scale

enterprises found it difficult to survive. In the last decade, the economic environment has

changed in favor of SMEs. In this context, it is important to re-look into the basic issues of

SMEs, past problems, present opportunities and future prospects, especially in the policy

framework.

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Micro, Small and Medium Enterprises :

In India the industries are defined into broadly two categories:

(i) Manufacturing

(ii) Services

Both have been further classified into micro, small and medium enterprises based on

investment in plant and machinery (manufacturing) or on equipments (services)

excluding cost of land and building.

TABLE 1: CLASSIFICATION BASED ON INVESTMENTNUFACTURING SERVICES

Manufacturing Services

Micro

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SIGNIFICANCE OF SMEs :

SMEs are considered the engine of economic growth in both developed and developing countries

as they:

Provides low cost employment since the unit cost of persons employed is lower for SMEsthan for large sized units.

Assists in regional and local development since SMEs accelerate rural industrialization bylinking it with more organized urban sector.

Help achieve fair and equitable distribution of wealth by regional dispersion of economicactivities.

Contribute significantly to export revenues because of the low cost labour intensive natureof its products.

Have a positive effect on the trade balance since SMEs generally use indigenous rawmaterials, reducing dependence on imported machinery, raw material or labour.

Impart the resilience to withstand economic upheavals and maintain a reasonable growthrate since being indigenous is the key to sustainability and self-sufficiency.

Firms with sales less than $1 million spend 2x - 3x more on R&D per $ of sales than theaverage. And result is SMEs producing 55 percent more innovations than LSEs.1

Converts the raw material within the country into semi-finished items and later pass it onthe LSEs that have capital, skill and equipment to process these into finished goods.

Provide rural people an opportunity for income generation and personal growth since theycan work at home. This helps to achieve fair and equitable distribution of wealth by

creating nationwide non-discriminatory job opportunities.

Attracts direct foreign investment since multinationals and big conglomerates have startedto outsource from countries with strong SME sectors. The low labour cost makes

production of semi finished goods very economical for large concerns operating in

international markets.

The SMEs act as engines through which the growth objectives of developing countries canbe achieved.

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ADVANTAGES OF SMEs :

The advantages of SMEs in an economy be it labour intensive or otherwise are manifold.

Therefore, the development of small and medium industries in any country has specific effects

on the balanced and dynamic growth of a country. It has a number of advantages over large scale

industries. Some of these are mentioned below:

It generates more jobs per unit of capital and is more capital efficient. Similarly it is also strongly integrated into the domestic economy. Small industries use a high percentage of local raw materials. Most of local consumable

products are produced by small scale industries. It taps the resources at the grass root

levels.

The promotion of Small and medium industries induces rapid growth of large scalemanufacturing in the long run.

It also generates cheaper goods and services to the general population which attempts tobreak the cycle of the ever increasing price hikes. The increased employment and the

goods/services produced has a positive effect on the GNP of a country. This becomes a

catalyst in breaking the poverty cycle.

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Sector wise Opportunities :

Chemicals and Petrochemicals

The Indian chemical industry was estimated to be worth approximately US$35 billion in2007, thereby contributing over 3% of Indias total GDP, according to the Department of

Chemicals and Petrochemicals. The sector notably contributed to over 13.2% of Indias

total merchandise export in FY07, to reach US$16.7 billion. The major sub segments of

this industry encompass alkali, organic chemicals, inorganic chemicals, pesticides, dyes

& dyestuffs and specialty chemicals.

Engineering Goods

The engineering sector is one of the largest among the various industrial sectors in the

country and its role has been accentuated with growing emphasis on infrastructure

development in India as well as globally. It occupies an important position in the

countrys export basket having contributing 23% to the total merchandise exports in

FY07. The exports of engineering goods increased to US$27.1 billion in FY07, thereby

witnessing y-o-y growth rate of 33.9%. The rapid growth of exports was led by

machinery and instruments which accounted for 22% of the total export of this product

group, followed by iron & steel with a share of 18%, manufacture of metals 17% and the

rest shared by others.

Food and Agro Products

The Indian food and agro products sector is an important industry in terms of production,

consumption, exports and more significantly provides employment directly to about 13

mln people and indirectly to 35 mln. The food and agro product industry comprises of

agriculture and allied products such as tea, coffee, cashew, raw cotton, fruits and

vegetables, processed fruits juices and other processed items, marine products, sugar and

molasses, oil meals, meat and meat preparations, rice, wheat etc. According to the

Ministry of Food Processing Industries, the size of the food market stands at around

US$69.4 billion that includes US$22.2 billion of value added food products. The sector is

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an important component of Indian merchandise exports, contributing around 10% of the

total exports in FY07, to reach US$12.5 billion.

Gems and Jewellery

The gems and jewellery sector is an important component of Indias export basket and

contributed to around 12.3% of the countrys total merchandise exports in FY07. In 2005,

the global gems and jewellery market size was estimated to be around US$146 billion,

having grown at a CAGR of 5.2% during 2000-2005. It is expected to reach US$185

billion by 2010, and subsequently to US$230 billion by 2015.

IT & ITeS-BPO

The Indian IT & ITeS-BPO industry size was estimated at around US$48 billion in FY07,

having registered a y-o-y growth of around 28.3%, thereby contributing around 5.4% to

Indias GDP, according to NASSCOM. The export market accounted for around 65.2%

of the total revenue generated by the Indian IT industry in FY07. For the same period, in

terms of revenue generated from the overseas market, the IT services segment

contributed the highest share with 57.5%, followed by the ITeS-BPO segment with

26.8% share and the rest shared by the software products and engineering services &

R&D.

Leather and Leather Products

The Indian leather industry size is estimated at around Rs 250 billion and employs around

2.5 million people, as per National Manufacturing Competitiveness Council (NMCC).

The industry comprises of tanning & finishing activities, footwear & footwear

components, leather garments, leather goods and finished leather. Around 185 million

hides and skins are processed annually of which 85% are sourced domestically. The

industry is highly fragmented with the small scale and cottage artisans contributing

around 75% of the total production in the country.

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Pharmaceuticals

The Indian pharmaceutical industry has come a long way driven by low costs, growing

enterprise, skilled manpower, rising demand both from the domestic and international

market. According to the Department of Chemicals and Petrochemicals, the annual

turnover of the Indian pharmaceutical industry stood at US$17 billion during FY07. On

account of the changes in drug patent legislation in 2005, the Indian pharmaceutical

industry has been undergoing a sea change in its process. This as a result has spurred

spending on R&D by the Indian pharmaceutical companies.

Plastic, Plastic Goods and Plastic Processing

The Indian plastic and plastic processing industry is highly labour intensive in nature and

one of the fastest growing industries in the country today. The sector directly and

indirectly provides employment opportunities for over 3.3 million people and has the

potential to generate additional employment opportunities for 3.7 million by FY12.

Textiles

The Indian textile industry has played a significant role in the growth of the economy in

terms of employment generation, industrial production and exports. The sector

contributed around 4% of Indias GDP, 14% of the industrial production and 13.5% to

merchandise exports in FY07, generating direct employment to nearly 35 mln people in

the country. The major sub-segments of the textile industry comprises of organized

cotton/man-made fibre textile, man-made fibre/filament, wool and woolen goods,

sericulture and silk, handlooms, handicrafts, jute and jute textiles.

Indias textile exports grew at a CAGR of 10% during FY03-07. During FY07, textile

and textile product exports posted a y-o-y growth of 3.7% to reach around US$17 billion.

Of these, ready made garments accounted for 51%, followed by cotton yarn, fabrics and

made-ups to around 24.3% and the rest shared by other products such as manmade yarn

fabrics, manmade staple fibre, jute, carpets

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PROBLEMS IN SMEs :

POOR AWARENESS ABOUT IPR

In the changing global scenario, the issues of IPR have gained special importance for the Micro,

Small & Medium Enterprise (MSME) sector. IPR protection plays a key role in gaining

competitive advantage in terms of technological gains for achieving higher economic growth in a

market driven economy. It is felt that IPR requires greater understanding and attention by the

industry, particularly the MSME sector in India. The Indian MSME sector needs more

information, orientation and facilities for protecting their intellectual powers. While majority of

the countries have adopted strategies for implementing strong IPR protection for strengthening

their industries and trades Indian industries, particularly the MSME are lagging behind in

recognizing the importance of IPR and adopting IPR as a business strategy for enhancing

competitiveness.

PROBLEM OF SPECIALISED TRAINING

In a present global scenario there is an urgent need for creating skilled human resources so as to

build capacity and develop the SME's sector that is compatible with commercialization

requirements. To achieve this objective there is need to conduct training programme for

enhancement of knowledge and capacity building of SMEs sector in all fields of IntellectualProperty.

PROBLEM OF SKILLED MANAGEMENT

In a market with low entrance barriers, trained apprentices usually leave the enterprise to start

their own. Management constraints include inter alias the lack of skills in basic business

management, accounting, book keeping and the lack of accessible consulting and support

services. In addition, with a relatively low level of educational attainment only 9% of small and

micro entrepreneurs have university degrees.

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LOW QUALITY OF INPUT

High-quality production inputs are not easily available to SME's. In order to obtain these inputs,

SMEs can't compete with export oriented units and big industrial houses as well as Multi

National Companies. Larger firms are acquiring all high quality input / raw material in the

domestic market due to their bargaining power but SMEs can't porches that input to better and

quality output. In addition, the government has imposed tariffs on high quality imported inputs it

affecting on compatibility of SMEs in India.

LESS INNOVATIVE ACTIONS IN SME's

Innovation is the means by which the entrepreneur either creates new wealth producing resources

or endows existing resources with enhanced potential for creating wealth. There is need of

Product innovation, Process innovation and Organizational innovation. There is need of creative

development and commercialization of radically new products or services, using new technology

and linked to unmet customer requirements. As well as development of new ways of producing

or delivering services that lead to cost efficiencies or speedier deliveries.

LACK OF PROPER MARKET INFORMATION

Information about market is the core factor of any business activity. Even it is an essential part of

marketing strategy. But, according to the survey of ministry of small scale industries, nearly two-

thirds of small businesses consider the lack of market information to be a very severe constraint.

SMEs lack the capacity, and their owners lack the education to tap sources of relevant

information about new products, consumer trends, technological developments etc.

RESEARCH AND DEVELOPMENT (R&D)

Another hurdle faced by the SMEs is low levels of research and development (R&D). R&D is

most important requirement of the industrial and service units in the era of globalized market.

But the current understanding of R&D activities of SME's is much lesser than the understanding

of similar activities of large multinational enterprises. SMEs are still falling down on R&D due

to weak links between business and academic research.

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LACK OF AWARENESS OF GLOBAL TRADE LAWS

The other barriers in the path of SMEs are lack of information, capability to build up an

international market position and maintaining international business relations and unsatisfactory

management skills. Most enterprises in this sector are more product and technology oriented than

market oriented. Moreover the lack of managers with international experience, global trade laws

and foreign language skills are another barrier in their growth.

REDUCTION IN EXPORT SUBSIDIES

The emerging challenges to the small-scale sector are to come from the impact of the

Agreements under WTO. This is expected to lead to an expansion in the volume of international

trade and changes in the pattern of commodity flows. The main outcomes of WTO stipulated

requirements will be brought about through reduction in export subsidies, greater market access,

removal of non-tariff barriers and reduction in tariffs. Increased market access under WTO

requirements will also mean that our industries can compete for export markets in both

developed and developing countries as well as big and small scale industries.

LOW LEVEL OF ICT ADOPTION IN SMEs

ICT adoption by the Indian SMEs is extremely low. As per the governments estimates the ICT

adoption among small business in India is less than 30%, and if the IT firms in the SME segment

are not considered, the number will be significantly less. The main reasons for low adoption are;

the first-generation small firm owners are not technology savvy and are extremely uneasy to

adopt new technology. Many clusters are located in semi-urban areas or rural areas and therefore,

cannot avail the benefits that communication can bring in. The small firms of India have

significantly less funds compared to their competitors and therefore, they cannot adopt ICT in

SMEs.

All above problems of SMEs in India are affecting on progress of SMEs. But this sector is an

important sector in the Indian economy because it is an instrument of poverty and unemployment

abolition. Hence, there is need of support and encourage to Indian SMEs. It will be possible by

the followings measures and policy.

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PROSPECTS OF SMALL MEDIUM SCALE INDUSTRIES IN INDIA:

ROAD MAP FOR THE DEVELOPMENT OF MICRO DEVELOPMENT UNIT IN THE

11TH

PLAN

The limit set for investment in the micro units is a major hindrance in this era of Globalization

and competitiveness. The limit has been increased to 5 crores. Steps for development of SME in

the eleventh plan are as follows.

(1) It has been targeted to raise the production of MSE units to 13, 98,803 cores for the year

2011-12. Employment has been planned to be increased from 322.28-391.73 lakhs

(2) In the MSE scheme in the eleventh plan, previously the manifesto was good for all which has

been turned to development. Regarding this, the document (VOL III p. 203) it has been

informed that "The eleventh plan approach to the MSE sector marks shift from welfare approach

to that of empowerment. The plan looks at the sector as an engine for sustained and inclusive

economic growth and employment. The eleventh plan emphasizes on the improvement of living

standard of workers and believes that only if a worker is physically and mentally sound, then will

he be able to produce a good output.

(3) In the eleventh plan, as the MSE sector is unorganized, the plan aims at organizing it so that

MSE sector gets maximum benefit of all the govt. schemes and plans.

(4) In the eleventh plan, MSE groups have been taken as a cluster and workers have been made

into a group (SHGS) so that their bargaining power is increased

(5) The MSE sector gets a loan of 5 lakh for 8 % interest without any bailee will be encouraged a

vehement drive will be undertaken, to develop this sector.

(6) Centre and the state govt. will give prime importance to the MSE sector. Women working in

this sector, get their due rights, for that efforts will be made.

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(7) Technical information will be provided to Small Industries Development Organization now

known as Micro, Small and Medium Enterprises Development Organization which has around

3000 technicians who work in testing centers, tool rooms, etc.

(8) Ministry of MSME has been formed for the development of Micro, Small and Medium

Industries. In the eleventh plan, it has been decided to establish Technology mission, which will

help develop dissemination of technology.

(9) In the year 2006, the govt. started the National Manufacturing Competitiveness Programme.

Under it in 5 years, at the cost of 850 crores, design clinics, steps to increase the competitiveness

of groups, and decrease the wastage will be undertaken.

(10) This sector faces basic problems like that of electricity. In the eleventh plan it has been

suggested, that these small and micro units establish their own power plants.

(11) Owing to the industrial laws and disputes act, the worries of this sector have increased.

According to the planning commission, it has been advised to form a third party which will

investigate into the matter.

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CONCLUSION:

There is an unprecedented importance of Small and medium Enterprises in the country. This

sector, contributes a major amount in the development and employment (31.25 million in FY07).

This sector does the work of providing employment to minorities, backward class people and

also to women. This sector is rife with problems like shortage of electricity and development of

basic infrastructure along with the problems related to market. In order to solve these problems

and develop the SME sector, major efforts have been done in the eleventh plan. The government

has recognized the importance of SMEs in the country. The role of government for promoting

the SMEs needs to be pro active by addressing the needs of the sector and providing not only

financial support but the need is to build an infrastructure where the SMEs can grow. The need

of imparting vocational training and skill development centers has to be addressed. Though there

are several centers for the said things but they have not been able to reach to the masses. SMEs

are the growth engine of the economy and help sustain other sectors such as services.

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References:

1. http://www.dnb.co.in/SME%20Awards/SME%20In%20India.asp2. Conclave on Empowering Indian SMEs for 2020-Opportunities and Challenges

(23August2008).

3. http://www.smallindustryindia.com/ssiindia/reservitems.html.4. http://dcmsme.gov.in/publications/reserveditems/itemrese.5. http://cc.iift.ac.in/sme/NEWS/02032009_SMEs%20in%20India%20The%20Challenges

%20Ahead.pdf