businessFROM THE CHAIRMAN’S DESK

MSMEs are playing a crucial role in boosting the country's industrial output, employment and ex-ports. This sector was instrumental in shoring up

the national economy's during the market slowdown, and had played a stellar role in the economy's strong recovery. Now, as the country anticipates GDP growth in the region of 9%, the time has come for the MSME sector to find du-rable solutions to some of the intractable problems that it

has encountered over the years, in accessing credit, new technologies and markets.The CII National MSME Council in its meeting on December 22 directed sharp attention

on the key imponderables, focusing on areas such as cloud computing, promotion of wom-en entrepreneurs and contract labour laws. The Council thereupon decided to set up core groups to address the areas of common concern to come up with suitable suggestions.

The need of the hour is innovative thinking. Mr Uday Kumar Varma, Secretary, Ministry of MSME, Government of India, highlighted this aspect while addressing the Council in an interactive session. He spoke about constituting profession-ally-managed funds to spur innovations in the sector and financing of MSMEs and even suggested that certain tax incentives could be considered to bring in more private investments into the sector. Earlier the same day, at the meeting of the National Board for MSMEs, Mr Varma mentioned that a notification of the proposed Public Procurement Policy after due approval by Cabinet will of-fer a much needed and less optimally used avenue for increased consumption of MSME products by Government Departments and PSUs. He added that the proposed Public Procurement Policy seeks a mandatory 20% share of MSMEs in all Government/PSU purchases over a period of three years. CII welcomed this development wholeheartedly as it was pursuing this with the government for the last couple of years. Mr Varma's observations on the growth and development of the sector have been vividly captured in an interview featured in this edition.

Most MSMEs have faced great difficulties in extending their market access, denting their growth prospects and competitiveness. Taking cognizance of this important fac-tor, CII Odisha organised the MSME Linkage 2010 on the occasion of the 15th edition of Enterprise Odisha in Bhubaneswar. The event highlighted the collaborative approach of the Council in working with state and zonal level SME panels and affiliated SME sec-toral associations to bring about transformational change in the MSME sector.

Marketing in the New Millennium is largely a function of technology. It would be in the fitness of things for Indian MSMEs to adopt affordable technologies like cloud computing and e-commerce to explore new markets. The MSME Ministry has pro-actively supported this cause, and CII is continually bringing the different stakehold-ers on a common platform to actualise this mechanism. In this edition, the subject of cloud computing has been discussed.

Indian MSMEs have progressively turned to the international markets, strik-ing alliances with enterprises and bodies worldwide. Yet, we have only seen the tip of the iceberg in terms of internationalising Indian MSMEs. Dr Mohan Kaul, Director-General, Commonwealth Business Council, has contributed an article on this subject which is featured in this edition.

As the New Year gets underway, there are encouraging signs that the busi-ness confidence of the sector will scale new heights. I invite you to participate in this enduring journey.

Ramesh DatlaChairman, CII National MSME Council

MSME

Journal of Small BuSineSS and enterpriSe Volume 8, iSSue 1, January 2011

Please write to me at Chairman.MSMECouncil@cii.in

Plus

NETWORKED Pg5MaRKET accEss Pg6iNTERviEW Pg8sEcTOR Pg11TEchNOlOgy Pg13iNTERNaTiONal Pg15sTRaTEgy Pg17agENDa Pg18

sMall WORlD Pg3EvENTs Pg19

inside This issue

MsMEs are the real engines of growth...

Pg8

cloud computing for MsMEs...Pg5

Mr Uday Kumar VarmaSecretary, Ministry of MSME, Govt. of India

Prof. S SadagopanDirector, IIIT Bangalore

MsME development & internationalisation...

Pg15Dr Mohan KaulDirector-General, Commonwealth Business Council

The Ministry of Corporate Af-fairs (MCA) has reintroduced

the ©Easy Exit Scheme, 2011© under the provisions of Section 560 of the Com-panies Act, 1956. This scheme is simi-lar to ©Easy Exit Scheme, 2010©, which concluded earlier in August 2010. The EES 2011 shall be effective for a period of one month starting from January 1 to January 31, 2011. This scheme is being introduced to give another op-portunity to the defunct companies for getting their names struck off from the Register of Companies (ROC). The defunct companies, which have active status on the portal of MCA, can apply electronically along with a prescribed fee. Pending litigations and reasons for being inoperative need to be dis-closed. The ROC shall give thirty days time period to the company and stake holders for raising any objections. The

scheme is not applicable to certain categories of companies like listed companies, de-listed companies, sec-tion 25 companies, companies where inspection and investigation has been ordered, where prosecution is pending in the court, companies have pending dues against income tax, sales tax or any other statutory dues, etc.

The Ministry of Micro, Small and Me-dium Enterprises (MSMEs) has rolled

out the Rajiv Gandhi Udyami Mitra Yojana (RGUMY) to provide handholding support and assistance to the potential first genera-tion entrepreneurs, who have already suc-cessfully completed Entrepreneurship De-velopment Training Programme (EDP)/Skill Development Training Programme (SDP)/ Entrepreneurship cum Skill Development Training Programme (ESDP) / Vocation

Training Programmes (VT), through the selected lead agencies i.e. 'Udyami Mitras', in the establishment and management of the new enterprise, in dealing with various procedural and legal hurdles and in com-pletion of various formalities required for setting up and running of the enterprise. BE for 2010-11 is Rs. 7.75 crore and it is target-ted to assist 4,000 new Udyamis. There is a demand from Udyami Mitras for enhancing the scale of financial assistance.

Easy exit scheme reintroduced

In a written reply to a ques-tion in the Rajya Sabha, Minis-

ter of State (Independent Charge) for Micro, Small and Medium Enterprises Mr Dinsha Patel said that the share of micro, small and cottage indus-tries in total manufacturing output and gross domestic product (GDP) was 45.42% and 6.09%, respective-ly, in 2007-08. In order to promote micro enterprises in non-farm sec-tor, including units of agro based industries, the ministry had been implementing the Rural Employment Generation Programme (REGP) in the country through Khadi and Village Industries Commission (KVIC) till 2007-08. During 2008-09, the Min-istry of MSME launched the Prime Minister©s Employment Generation Programme (PMEGP), a credit-linked subsidy programme, with Khadi and Village Industries Commission (KVIC) as the nodal agency.

The year 2011 could bring cheers to micro- and small- industries,

as a much-awaited public procurement policy is expected to be in place by the end of January. The Ministry of Micro, Small and Medium Enterprises (MSMEs) is set to send a note to the Cabinet for final approval. The new policy would make it mandatory for all ministries and public sector undertakings to reserve 20% of their annual procurement from MSMEs. On this, Mr Uday Kumar Varma, Secretary, Ministry of MSME, Govern-ment of India, was quoted saying "this policy will be a big boost to the sector. He said the "20% reservation would be introduced in a phased manner over three years." The proposed revised or-der is the result of an MSME task force constituted by the Prime Minister last year. The task force recommended a public procurement policy, to mandate ministries and PSUs to procure 20% of their purchases from MSMEs.

MSME details presented in Rajya Sabha

20% quota for MSMEs in PSU procurement

Stress on cluster development

Handholding support to first gen entrepreneurs

The Ministry of Micro, Small and Medium Enterprises (MSME) would

focus more on cluster development. The 8the meeting of National Board for Micro, Small and Medium Enterprises (NBMSME), held at New Delhi, under the chairman-ship of Mr Dinsha Patel, Minister of State (Independent Charge), MSME, discussed various issues of the sector with particu-lar focus on "Micro and Small Enterprises-Cluster Development Programme (MSE-

CDP): Achievements and Prospects". The National Board for MSME was set up as per the provisions of Micro, Small and Me-dium Enterprises Development (MSMED) Act, 2006, replacing the non-statutory body Small Scale Industries Board to ad-vise the government on all policy matters relating to the development of the sector, by giving representation to various asso-ciations, different regions, central minis-tries and FIs.

mS

me

Business

3

January 20

11

Small World

Malaysia to set up labs for Indian business

The Malaysia will set up three labs for Malaysian Indians fo-

cusing on small and medium enterpris-es (SME), retail industry and reducing crime among youth, Deputy Minister in the Prime Minister©s Department Mr SK Devamany has been quoted say-ing. Addressing the media, Devamany said: "Indians need help to improve their living standards and compete with others especially in the business world." He also said that talks with the Performance Management and Delivery Unit (PEMANDU) are ongoing to have similar labs established un-der the National Key Economic Areas (NKEA). "We are now working on the retail industry because Indians are still running their businesses the tra-ditional way and need to modernise their outlets to compete with others," the Star quoted Devamany, as saying. The Deputy Minister in the Prime Min-ister's Department also highlighted that Indians need to venture more into SMEs.

Utilise funds timely: Dinsha Patel

Minister of State (Independent Charge) for Micro, Small and Medi-

um Enterprises (MSMEs), Mr Dinsha Patel has asked Khadi and Village Industries Commission (KVIC) to intensify its effort for timely utilisation of fund. Mr Patel said the Government is committed to the development of KVIC, which is evident from the fact that the allocation for KVIC in the current year has been increased from Rs 919.20 crore to Rs 1,518.75 crore. He also asked KVIC to intensify its effort for timely utilisation of fund. Mr Patel added that the MDA Scheme is a pioneer-ing attempt at reforming the Khadi Sec-tor. He said the Government is making all efforts to increase the production as well as sales of KVI products with introduc-tion of the modified scheme of MDA.

New MSE clusters approved Government has approved 27 proposals for setting up clus-

ters with common infrastructure fa-cilities for the micro and small units at a total cost of Rs.73.40 crore. The projects spread across the country would be developed under the pub-lic-private-partnership mode. Of the total project cost, the Ministry of Mi-cro, Small and Medium Enterprises would fund Rs.51.75 crore, while the remaining would be by private play-ers. In a recent meeting, the MSME Ministry cleared four proposals for establishing common facility cen-tres and 17 diagnostic study report centres. Till date, over 470 clusters and 124 Industrial Infrastructure De-velopment projects have been un-

dertaken. Besides six proposals for setting up of new industrial estates and upgrading the existing ones, under the Industrial Infrastructure Development Scheme (IIDS) were approved.

The scheme provides infrastruc-ture facilities like roads, electric-ity and common effluent treatment plants to the units established with-in the industrial estates. In 1998, the MSME Ministry had adopted the cluster approach for enhancing the productivity, competitiveness and capacity building of such units. Clus-ter-based intervention has been ac-knowledged as one of the key strate-gies for comprehensive development of Indian industries.

Regional bourses seek to play SME exchanges

SMEs can benefit from use of IPRs: Expert

"We have to focus on how small and medium enterpris-

es can benefit from the use of IPRs with a view to moving up the value chain," Ms Krishna Sarma, Managing Partner, Corporate Law Group, was quoted saying. She shared that the WTO Agreement on Trade-related aspects of IPRs (TRIPS) set manda-tory minimum standards of protec-tion for IPRs. Post 1995, a number of new IP laws were enacted like the Geographical Indications (Reg-istration and Protection) Act, 1999,

Protection of Plant Varieties And Farmer©s Rights Act, 2001, Semicon-ductors Integrated Circuit Layout Designs Act, 2001 and The Designs Act, 2000. India also joined the Patent Cooperation Treaty in 1998 and more recently the Madrid Pro-tocol relating to trademarks. "SMEs are already a force to reckon with in the economic ecosystem, all with the impressive growth in the last few years, especially in the fields of light engineering, textiles, biotech and IT," she said.

The Regional stock exchanges, led by Federation of Indian Stock

Exchanges (FISE) and Madras Stock Ex-change, have made a strong case for a different set of rules for them and to allow them to raise smaller funds from regional investors. As regional stock exchanges’ tie-ups with National Stock Exchange and Bombay Stock Exchange

(BSE) show, there will be a wider inves-tor base for high-quality regional com-panies, they said in the media. "Invest-ment bankers don't touch public issues less than Rs 200 crore these days. You need to have small exchanges, smaller investment bankers," said Mr V Nagap-pan, Director of Madras Stock Exchange was quoted in the media.

4

mS

me

Bus

ines

sJa

nuar

y 2

01

1

Small World

Cloud Computing for MSMEs

Wikipedia defines cloud com-puting as "Internet-based computing whereby shared resources, software and in-formation are provided to

computers and other devices on-demand, like the electricity grid".

Let me start with an example; large corpo-rations run their own fleet of cars, buses and trucks. But many of you in the MSME sector use a "taxi service" provider to supply cars or buses to transport your staff or visitors regularly or oc-casionally. 1. You take the services "on demand";2. You pay for the services and not the equipment (cars or trucks);3. You do not have the headache of manag-ing the drivers, license, paperwork, main-tenance etc., 4. You save money, as there is no upfront investment.

Think of cloud in the same way. Just as you use taxi service without buying and running equipment, cloud computing gives you access to IT without you owning and running IT. Taxi ser-vice was not possible till you had enough service providers to choose from, enough option (low-end, high-end or AC non-AC car), well-accepted model (distance based, time-based and pack-ages "4 hours and 40 kilometers", for example). IT services industry has matured today; getting IT services on demand is what cloud computing is all about, as far as MSMEs are concerned.

l 1995: Internet became widespread with the arrival of the "browser"; browsing was the first "killer app" with HTML-linking making all informa-tion "only a click away" (over some HTML link). l 2000: With its intuitive appeal, the power of global communication at near zero cost and the asynchronous nature of communication, email be-came the "killer app" by the turn of the century. l 2005: With the phenomenal success of Google and its IPO in 2004, "Googling" became the "killer app" by 2005. "Instant Messaging", Voice-over IP (exemplified by Skype) and You-Tube became the next set of "rage application". l 2010: With the popularity of Web 2.0 in

the past three years, "Social Computing" (exemplified by Facebook & Twitter) is the "killer app" today. l By 2015, "Cloud computing" will become the "killer app" for the Web.

Cloud computing is a reality todayMany MSMEs in India are using email as a service. Some of you use Sales Force Auto-mation (SFA) from SalesForce.com; it is noth-ing but "software delivered as a service" over the Internet. So "cloud computing" is not new to you; it is the way you will approach "cloud computing" Ð to get all applications (soft-ware) including the infrastructure (hardware and networking) - that will be new.

Many Internet companies including Google, Amazon, SalesForce, Microsoft and Adobe are providing "cloud platform" on which developers can "develop" applications with practically no IT investment. Many other companies includ-ing the major hardware vendors (IBM and HP, for example) and software vendors (Microsoft and Oracle, for example) are building tools and technologies to develop the "cloud eco-system". Many IT service companies including Infosys and Wipro and many small companies in your area will start "cloud offerings" from now on, if not already. With broadband reaching thousands of towns and 3G redefining broadband, the requi-site connectivity infrastructure is in place.

Why should you use "cloud computing"?Cloud computing saves money: Cloud com-puting enables cost cutting by way of moving the corporate data center to data center vendors who could amortise common infrastructure costs (air conditioning, power, fire control and physi-cal security). More important, cloud computing saves money by way of individual enterprises not having to hire expensive IT system adminis-trators. Last, but not the least, cloud computing moves cost from CapEx (capital expenditure) to OpEx (operating expenditure), as cloud service providers use "pay per use" model instead of upfront investment demanded by traditional IT hardware vendors (servers, storage and net-working vendors)

Cloud computing saves headache and time: The biggest handicap for MSMEs to use IT services is the need to "manage" IT; buy and run expensive and demanding IT resources (servers, storage and networks) and to employ IT profes-sionals. They are both expensive and not easily available for MSME sector particularly in non-metros. Cloud computing extends the reach of IT services to any place where broadband or mobile goes (which is practically every town in India). With cloud computing new MSMEs can start us-ing IT from Day 1.IT is for everyone: Just as the 20th century saw everyone consuming electricity, the 21st cen-tury is moving towards everyone "consuming" IT. Even a small enterprise needs email, Web-hosting, payroll applications, tax filing, some en-terprise applications, and messaging and com-munications applications. With cloud computing MSME could utilise IT to improve productivity, the way larger enterprises could, thanks to IT.India is ready for cloud computing: With 775 million mobile phones today, most Indians are routinely using mobile phones not just to make phone calls, but to send messages, click, store and send photographs, check bank balanc-es, participate in polls, buy train / plane tickets or movie tickets and listen to Radio or watch TV; many of them are using "smart phones" already, and more phones will be "smart phones" in the next couple of years. The citizens are used to oth-er utilities (such as electricity or drinking water) charging them "metered services"; the new util-ity "IT" will be no different. Also, for an economy like the Indian economy with very low purchasing power for millions of citizens, such utility model is the only sustainable way to deliver "IT services"

Way forwardIt will be interesting to see thousands, if not mil-lions of applications developed and distributed over the cloud from developers in India; in that case, many applications will be "made in India" and cloud computing will be "made for India". Hopefully, MSME and CII would start a special "cloud services for MSME" so that all of you in MSME sector can start benefiting from IT right away. Exciting time indeed.

Prof. S Sadagopan, Director, IIIT Bangalore, affirms the relevance of cloud computing in the MSME domain

Director, International Institute of Information Technology (IIIT) Bangalore

Prof. S Sadagopan,

mS

me

Business

5

January 20

11

Networked

To withstand the onslaught of competition from large enterprises within and outside, MSMEs need to respond promptly to changing marketing needs and marketing innovations

Casting The Marketing Net Wide

If the singular contribution of mi-cro, small and medium enterprises (MSMEs) in economic activities of the county in terms of output, employment generation and export share needs

to be sustained, then the sector should be nurtured in an overt and explicit manner by providing excellent market access. Mean-while, MSMEs contribution should be seen not only in terms of output, employment, income, investment or exports but also in terms of the more qualitative indicators such as the synergies they promote with large industry, their contribution towards balanced regional growth, participation in nurturing entrepreneurial spirit, innova-tion and in providing a nation-wide pool of skilled and trained manpower.

Even today, most small businesses in In-dia are set up by first generation entrepre-neurs. They often have a product or service idea and some zest to work hard. However, the limited market access namely capital access, brand promotion solutions, mar-keting support, logistics and sales support, and information & communication technol-ogy (ICT) support stall the zeal to take the enterprise to next level.

A recent study conducted by research firm Access Markets International (AMI) Partners has revealed that the MSMEs in In-dia are broadly unaware of the technology solutions and tools available to cater their marketing needs. The report had stressed on the need for a concerted effort to create awareness for leveraging technology tools to possess marketing excellence.

According to the AMI-Partners study, less than 6% of PC-owning Indian SMEs advertise online and a majority of these enterprises use traditional media. Many

Indian SMEs are also unaware of the ef-fectiveness, measurability and predict-ability of using online advertising to reach the target audience.

The study said that a huge opportunity exists for SMBs to reach their desired finan-cial goals by optimising their web presence and capabilities. The report pointed out that since the majority of India SMEs, espe-cially the small businesses, generate a large proportion of their revenue from the local market, they still rely on traditional media like telephone directories and newspapers to reach their customer base.

This is where mentoring and hand-hold-ing support becomes crucial. This usually comes from industry chambers, agencies and the government. The mentoring and helping-hand encompass the policy sup-port, fiscal incentives, protection from un-equal competition from large enterprises, advocacy, facilitation and providing inter-national and ICT exposure.

Master Moves It pertinent to mention that marketing, a strategic tool for business development, is critical for the growth and survival of MSMEs. Marketing is most important factor for the success of any enterprise. It is one of the weakest areas wherein MSMEs face major problems in the present competitive age. Due to lack of information, scarcity of resources and unorganized way of selling/marketing, MSME sector finds problems in exploiting new markets.

The Marketing Assistance and Technology Up-gradation Scheme for Micro Small and Medium Enterprises (MSMEs) programme of MSME Ministry envisages that some of those clusters of MSMEs, which have qual-ity production and export potential, shall be identified and encouraged and assisted through the scheme to achieve competi-tiveness in the national and international markets. The programme aims at improv-ing the marketing competitiveness of MSME

6

mS

me

Bus

ines

sJa

nuar

y 2

01

1

Market Access

sector by improving their techniques and technologies' promotion of exports and to provide a check on imports also

The activities planned under the scheme include technology upgradation in pack-aging, skills upgradation/development for modern marketing techniques, competition studies of threatened products, identification of new markets through state and district levels, local exhibitions, trade fairs, corpo-rate governance practices, marketing hubs and reimbursement to ISO certification.

The Indian manufacturing industry is witnessing dynamic and complex business scenario with cost structures and relent-less pursuit of customer satisfaction. In re-sponse to the rising expectations, adoption of ICT tools and applications is imperative for small business in the country. The Min-istry of MSME has introduced a scheme to encourage and assist the potential manu-facturing MSME clusters to adopt ICT tools and applications in their production and business process, and thereby, improve their productivity and competitiveness in national and international markets.

Under the scheme, activities covered are identifying target cluster for ICT interven-tion, setting up of E-readiness infrastruc-ture, developing web portals for clusters, skill development of MSME staff in ICT application, preparation of local software solution for MSMEs to enhance their com-petitiveness, construction of e-catalogue, e-commerce etc and networking MSME cluster portal on to National level Portal in order to outreach MSMEs into global mar-kets. Besides, the National Small Industries Corporation (NSIC) has launched a B2B web portal and established a Marketing Intelli-gence Cell for providing domestic and glob-al market information to the MSMEs.

The Ministry of MSME has taken several initiatives to facilitate market access both within and outside the country. The Ministry has also formulated a public procurement policy for the MSEs, which will provide the much needed support to MSEs in market-ing their products and help in developing long-term relationships in production/ser-vice value chains between MSEs and the public sector. Various organisations under the ministry organise exhibitions fairs and buyer-seller meets across the country pro-viding the MSMEs an opportunity for dis-playing their products and capabilities.

The market development assistance (MDA) scheme, currently operated by the

Ministry of Commerce & Industry, is an at-tempt to encourage MSME exporters to access and develop overseas markets. The scheme offers funding for participation in international fairs, study tours abroad, trade delegations, publicity, etc.

Also, SIDBI operates a scheme of direct assistance for financing activities relating to marketing of MSME products. The Office of DC (MSME) has an existing scheme for participation in international fairs, whereby MSME entrepreneurs are encouraged to display their products at international exhi-bitions abroad. MSME-DO provides exhibi-tion space and shipment of exhibits free of cost for this purpose.

To smoothen the marketing of MSME prod-uct, Financial Assistance for Bar Coding have been formulated under the National Manufac-turing Competitiveness Programme (NMCP). According to the ministry, Bar Coding can have a noteworthy impact, as accurate capture of product information and its communication electronically across the supply chain, ahead of physical product flow, is critical to lowering inventory costs, in accurate sales forecasting and in product track and trace.

GS1 India, an autonomous body under Min-istry of Commerce & Industry, Government of India, is the solution provider for registration for use of Bar Coding. Besides, Ministry of MSME, provides the financial assistance for reimbursement of 75% of one-time registra-tion fee (Under SSI-MDA Scheme) and 75% of annual recurring fee for first three years (Under NMCP Scheme) paid by MSEs to GS1 India for using of Bar Coding.

One of the components of the NMCP is

"Building Awareness on Intellectual Property Rights (IPR)" for the MSME. Accordingly, to enable the MSME sector to face the present challenges of liberalisation, various activi-ties on IPR are proposed under this scheme. These initiatives will provide MSME sector more information, orientation and facili-ties for protecting their intellectual powers. Effective utilisation of IPR tools by MSMEs would also assist them in technology upgra-dation and enhancing competitiveness

Bottom-up ApproachAs part of various initiatives taken for MSME to improve market access, CII has recently organised the Enterprise Odisha under the banner "MSME Linkage 2010", a seminar to facilitate MSME sector to take advantage of various policies and schemes of the govern-ments, at Odisha.

On the occasion the Chairman, National CII MSME Council, Mr Ramesh Datla elaborated on CII's initiatives for building global com-petitiveness in Indian small business saying that "CII through its apex level MSME council, state and zonal level SME panels and affili-ated SME sectoral associations, channelises the promotional and developmental efforts at grassroots level, ensuring the growth and competitive advantage for this sector."

Mr Datla said that the CII today is working with various governments and industry as-sociations to develop a conducive environ-ment for the MSMEs to enable networking and sharing of best practices.

Today, as Indian MSMEs move up the global value chain, the importance of mar-ket access can hardly be overstated.

(L-R) Dr Saugat Mukherjee, Regional Director, CII Eastern Region; Mr Ramesh Datla, Chairman, CII National Council on MSMEs & Managing Director Elico Ltd; Mr S S Samal, Chairman MSME Facilitation Council & CEO of Sigma Engineering Corporation; Mr K N Khatai, Director, Directorate of Industries, Govt. of Odisha. m

Sm

e B

usiness

7

January 20

11

Market Access

‘MSMEs are the real engines of growth’

The MSME sector already contributes over 40% of domestic industrial out-put, exports and employment. Is there scope for increasing this share fur-ther? What steps would you advocate for this?The MSME sector has shown consistent growth in terms of output, export and employment generation over the last few years. Still, huge latent potential exists in the sector. The Government has provided an enabling institutional mechanism by way of enacting the Micro, Small and Me-dium Enterprises Development Act, 2006 for the promotion and development of MSMEs and to enhance their competitive-ness. Further, the National Manufactur-ing Competitiveness Programme (NMCP) with ten innovative components has been launched to improve the productivity and competitiveness of MSMEs so that the sec-tor could successfully meet the challenges of a global competitive environment. Also, initiatives such as MSE-Cluster Develop-ment Programme, Market Development Assistance, etc., would reap rich dividends to the sector.

A large number of MSMEs continue to operate in the unorganised sector. What specific measures may be taken to bring a sizeable number of these en-terprises into the organised fold?The National Commission for Enterprises in the Unorganised Sector (NCEUS) has exam-ined the problems confronting enterprises in the unorganised sector and submitted eleven reports with various recommen-dations to provide technical, marketing and credit support to the enterprises. In pursuance of the above, action is under process by different ministries. Also, the Prime Minister’s Task Force on MSMEs has

made several recommendations to create an overall enabling environment using ap-propriate legal and fiscal instruments to incentivise the transition of MSMEs from the unorganised sector to the organised sector. In order to cater to the credit needs of the micro/unorganised sector, SIDBI has already set up a special cell for refinancing micro enterprises. An Advisory Group has been constituted to monitor the operation of the special cell. Enterprises in the unorganised sector may make use of all such efforts initiated by the Government.

In what ways can the MSME sector con-tribute to the overall goal of inclusive growth? Is the sector also contribut-ing toward balanced regional growth in the country?The MSME sector employs about 60 mil-lion persons in over 26 million units across the country and contributes about 45% of industrial output and continues to show dynamism in terms of growth and employment generation. It is a highly la-bour intensive sector. The enterprises are scattered throughout the country. It is un-ambiguous that the MSMEs are the real engines of growth which can promote in-clusive and broad based growth with inter-regional equity.

The majority of MSMEs in the country have faced financial exclusion over the years. What measures are required for their financial inclusion? In this con-text, would you say that priority sec-tor lending to MSEs have delivered the goods?To ensure sufficient credit availability to the Micro and Small Enterprises (MSE) sector, the credit to this sector is includ-

Secretary, Ministry of Micro, Small & Medium Enterprises, Government of India

Mr Uday Kumar Varma,

Mr Uday Kumar Varma, Secretary, Ministry of Micro, Small & Medium Enterprises, Government of India, provides an overview of the growth and development of the sector in an exclusive interview. Excerpts:

8

mS

me

Bus

ines

sJa

nuar

y 2

01

1

Interview

ed under the priority sector lending by the commercial banks. The outstanding bank credit to MSEs from the scheduled commercial banks has increased from Rs 2,13,538 crore as at the end of March 2008 to Rs 2,56,127 crore as at the end of March 2009 and further to Rs 3,64,012 crore as at the end of March 2010 (provisional). However, considering the vast size of the MSE sector and its credit needs to achieve accelerated growth, there has to be a greater thrust on lending to MSEs. As per the Reserve Bank of India (RBI) guidelines to banks, 60% of MSE advances should go to the micro enterprises.

The Task Force on Micro, Small and Me-dium Enterprises (MSMEs) has made im-portant recommendations for enhancing the flow of credit to MSMEs. These include strict adherence to the stipulated targets by the commercial banks for the micro en-terprises (viz., 20% year-on-year growth for MSEs lending with 60% apportionment for micro sector).

In terms of the recommendations of the Task Force, the RBI has advised the banks to achieve a 20% year-on-year growth in credit to MSEs and a 10% annual growth in the number of micro enterprise accounts. The banks have been advised that the al-location of 60% of the MSE advances to the micro enterprises is to be achieved in stages viz., 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13.

As recommended by the Task Force, a Standing Review Committee under the chairmanship of the Member (Industry), Planning Commission has been consti-tuted for monitoring the credit flow to the MSME sector and suggesting policy measures. Further, a Special Cell has been created in SIDBI to facilitate and monitor the financing of micro enterprises in the unorganised sector.

Adoption of new web and IT tools will help MSMEs enhance their operational efficiency. Cloud computing is one as-pect that has received a lot of atten-tion now. Is Government taking any specific steps to promote the adoption of these tools by MSMEs?The Ministry has already launched the ‘Scheme for Promotion of Information and Communication Technology (ICT) in MSME Sector' as a component under Na-tional manufacturing Competitiveness

Programme (NMCP) with the objective of formulating a planned model of adoption of information technology in potential MSME clusters based on need analysis of stakeholders. It covers the entire chain of business from procurement of raw mate-rials to after-sales service. This scheme would improve the competitiveness and operational efficiency of MSMEs so that MSMEs can sustain in the global competi-tive environment.

The scheme envisages, inter alia, the es-tablishment of a national portal for MSMEs to provide e-commerce and e-catalogue related facilities to them. This portal will have adequate linkages with all the clus-ter specific portals established under the scheme. The cloud computing model offers visible benefits to SMEs who are looking for easy-to-use, reliable and scal-able applications to enable good business growth and also to dynamically scale their computing capability without having to in-vest in costly infrastructure. However, the issues like online security threats need to be addressed adequately while adopting the cloud computing model of information and service sharing.

What steps may be taken to enhance the market access for MSMEs, both within the country and overseas?The Ministry has taken several initiatives to facilitate MSMEs to enhance their mar-ket access both within and outside the country. Various organisations under the Ministry of MSME organise exhibitions/fairs and buyer-seller meets across the country providing the MSMEs with an op-portunity for displaying their products and capabilities.

Under the MSE Marketing Development Assistance (MDA) Scheme, assistance is extended to individuals for participation in overseas fairs/exhibitions, overseas study tours or tours of individuals as member of a trade delegation going abroad.

The Ministry of MSME has also formulat-ed two schemes under the National Manu-facturing Competitiveness Programme (NMCP) to smoothen the marketing of MSME products. The activities supported under these components include assis-tance for adoption of bar code, technology upgradation in packaging and skill upgra-dation/ development for modern market-ing techniques. Bar coding can have a significant impact on the success of any

marketing initiative. Considering this, the Government of India provides the financial assistance to eligible MSEs by way of reim-bursement of 75% of one-time registration fee paid by MSEs to GS 1 India for adoption of Bar Code w.e.f. 1st January, 2002 under SSI-MDA Scheme. In addition, 75% reim-bursement of annual recurring fee for first three years is also paid to MSEs w.e.f. 1st June, 2007 under the NMCP Scheme.

Also, the work of reimbursement has been decentralised and transferred to field offices i.e. MSME-Development Insti-tutes w.e.f. 1st April, 2009 with a view to ensure speedy and timely implementation of the scheme.

Further, the National Small Industries Corporation (NSIC) has launched a B2B web portal and established a Marketing In-telligence Cell for providing domestic and global market information to the MSMEs. Various industry associations play a pivotal role by undertaking sector specific market studies and also by initiating/ contesting anti-dumping cases.

The Ministry has also formulated a pub-lic procurement policy for the MSEs, which will provide the much needed support to MSEs in marketing their products and help in developing long-term relationships in production/service value chains between MSEs and the public sector.

Are you seeing greater cooperation and meaningful collaborations between Indian MSMEs and their counterparts overseas?In this era of global market integration, no country can remain in isolation. The Gov-ernment has taken initiatives to engage their overseas counterparts in a fruitful manner through various memorandum of understanding (MoU)/ agreements/joint action plan for cooperation in the MSME sector with ministries/organisations of about 14 countries including Mozambique, Romania, Mexico, Korea, Sri Lanka, etc.

Such cooperation offers a window of opportunities to Indian MSMEs by way of opening up new markets, joint ventures and sharing of best practices including technology collaboration. In addition, the National Small Industries Corporation (NSIC) is also engaged in such internation-al collaboration in various aspects relating to MSMEs.

The International Cooperation Scheme envisaged by the Ministry of MSME has the

mS

me

Business

9

January 20

11

Interview

objective of modernisation of Indian MSMEs and promotion of exports. It also covers de-puting MSME business delegations to other countries, participation by Indian MSMEs in international exhibitions/trade fairs and holding international conferences and sem-inars on topics of relevance to MSMEs.

Is enough being done to build a large skilled workforce for the MSME sector?The Government has taken up skill develop-ment as a high priority area through vari-ous measures like enhancing the training capabilities of the tool rooms, MSME-Devel-opment Institutes and other organisations under the Ministry of MSME. While the tool rooms offer various training programmes to meet the wide spectrum of technical manpower required in the manufacturing sector, the thrust of training programmes conducted by the MSME-Development Insti-tutes are on entrepreneurial skill develop-ment coupled with specific skills relating to trades like electronics, electrical, food pro-cessing, etc, which enable the trainees to start their own ventures.

In addition, the Khadi and Village Indus-

try Commission (KVIC) and Coir Board pro-vide grassroot training to the bottom rung of society in basic skills. The agencies un-der the Ministry of MSME conducted skill development programmes for more than 3 lakh trainees during 2009-10. The target for the current year is to train 4 lakh youth. The Ministry of MSME provides all such trainings for SCs/STs, free of cost. Simi-lar programmes are also being organised for women and other weaker sections of society free of cost, besides providing a monthly stipend of Rs 500 per month dur-ing the entire period of training.

Are the Government procurement poli-cies encouraging for the MSMEs?The proposal for a comprehensive Public Procurement Policy for Micro and Small Enterprises (MSEs) is being processed by the Ministry of MSME. It envisages ear-marking a definite share for MSEs in the Government purchases to encourage their greater participation.

Presently, under the Government Pur-chase and Price Preference Policy for MSEs various facilities/benefits are provided to

the MSEs registered with the National Small Industries Corporation (NSIC). Some of the facilities are: (1) issue of tender sets free of cost; (2) exemption from payment of ear-nest money; (3) waiver of security deposits up to the monetary limit for which the unit is registered; and (4) price preference up to 15% over the quotation of large-scale units. In addition, there are 358 items reserved for exclusive purchase from MSEs.

To what extent can the MSME sector contribute to the growth goals of the manufacturing sector? Is Government and industry acting in concert to align the growth paths of these two sectors?Almost half of the manufacturing output is being contributed by the MSME sector. The resilience shown by the Indian manufactur-ing sector over the last few years has largely been supported by a vibrant MSME sector. The Government holds wide consultation with stakeholders of industry to provide a conducive environment aimed at overall growth of the sector. Of late, Government is also promoting the public private partner-ship (PPP) model of growth.

Innovation, Technology, Marketing Will Drive MSME Growth

ing their wealth in MSMEs. This might bring in substantial funds into the sector in the backdrop of the buoyancy in the real estate sector.

Speaking about technology adoption, he said that while the Credit Linked Subsidy Scheme for Technol-ogy Upgradation has played its part in furthering this goal, there is a need for setting up a technol-ogy acquisition fund of sizable order. Explaining this, Mr Varma said that a special purpose vehicle (SPV) could be created to manage the fund.

Stating that the next decade should indeed be-come the decade of MSMEs, Mr Varma said the sector should have a greater thrust on innovation. For this an innovation fund could be created with Government providing the corpus which may be managed by a team of professionals.

Commenting on the physical infrastructure support required by the sector, he said that the SME clusters have worked well. The state gov-ernments have key roles cut out in strengthening these clusters. He also said that the opportunity of promoting private cluster should be looked into, just as private special economic zones (SEZs) are sanctioned.

The MSME story is a good narrative with promising indicants. The sector produces 6,000-8,000 diversified products. Like

in the US, China and other key countries, the MSME sector accounts for a large share of the domestic industrial output. What ails the sector then? Addressing the broad issues that under-pin MSME growth and development, Mr Uday Kumar Varma, Secretary, Ministry of MSME, Government of India, during an interaction with the members of the CII National MSME Council on December 22, 2010 in New Delhi, said that uniform intervention is difficult given the het-erogenous character of the sector.

He reckoned that the MSME players themselves have not adopted aggressive growth strategies as the sector as a whole is still deeply influenced by the state patronage that it received for long years. There is a certain dependence on government subsidy which must change, he said.

While the volume of credit flow to the MSMEs continues to be an area of concern for the sector, bankers have maintained that MSME lending is growing 20-22% year-on-year, even though the

overall demand for credit appears to far outstrip the credit flow. Mr Varma said this problem stems from the sector's excess reliance on debt financ-ing. Even if the credit demand gap were to be bridged, there is no data available on the aggre-gate demand. Hence, he asked CII to undertake a study to estimate the overall MSME demand for bank finance and credit.

Underlining the need for out-of-the-box think-ing to enhance MSME access to finance, Mr Varma said that perhaps the capital gains tax exemption could be extended to those reinvest-

(L-R) Mr Uday Kumar Varma, Secretary, Ministry of MSME, Government of India; Mr Ramesh Datla, Chairman, CII National MSME Council; Mr Gurpal Singh, Deputy Director General, CII

Janu

ary

20

11

mS

me

Bus

ines

s

Interview

10

Indian pharmaceutical industry is capable of producing from simple headache pills to sophis-ticated antibiotics and complex cardiac compounds. With almost

every type of medicine is now made indigenously and having wide rang-ing capabilities in the complex field of drug manufacture and technology, the phrama sector is in the front rank of the industries that spur the country's GDP growth. The industry, estimated to be worth $4.5 billion and growing at about 8-9% annually, boasts of quality producers and many units approved by regulatory authorities in the US and the UK. It completely outplays the global average growth of 5-6%. The pharma-ceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceu-tical formulations, chemicals, tablets, capsules, orals and injectibles

Small MattersHowever, the Indian pharmaceutical sector is highly fragmented with more than 20,000 registered units. With five Central public sector units, there are about 250 large units and about 8,000

tion and adoption of good manufactur-ing practices (GMP) by SMEs to meet global quality standards; limited expo-sure and expertise on IPR issues; limited adoption of information technology (IT) techniques in production and processes; low or negligible R&D expenditure which affects the ability of SMEs to offer in-novative solutions; and the inability of SMEs to access finance on easy terms for import of capital goods and undertaking advertising and marketing activities.

Contract Manufacturing & Research Corporate players in the field including the multinational pharmaceutical com-panies whose costs are prohibitively high are increasingly looking to SME pharmaceutical firms in India to out-source their production and research programmes. This has opened up a big opportunity to Indian pharmaceutical SMEs. Many of the Indian SME pharma possesses world standard manufac-turing facilities as per the GMP norms which are approved by various regula-tory agencies across the globe. The di-verse disease profile and abundance of patients in India provides better ground

Indian SME pharma players are looking to move up the manufacturing and research value chain

small scale units, which form the core of the pharmaceutical industry in In-dia. These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic val-ue and used for production of phar-maceutical formulations.

Besides, the leading 250 pharmaceu-tical companies control 70% of the mar-ket with market leaders holding nearly 7% of the market share. Pitted against the big players, the small scale phar-maceutical sector across the country in general has been on a struggling path. Almost 75% of the small scale units have moved to comparatively safer ha-vens of excise free zones now.

A study entitled ‘Defining the Role of Government in Trans-nationalization Ef-forts of Indian SMEs: A Case Study of Indian Pharmaceutical Industry' by In-stitute for Studies in Industrial Develop-ment has highlighted certain weaknesses of pharmaceutical small and medium en-terprises (SMEs) in their endeavour to-wards trans-nationalisation and exports. These include: lack of expertise, training and finance for technological upgrada-

Pharma industry should promote R&D If India wants to become a pharmaceutical power hub, more and more re-search institutions need to be developed. R&D institutions should have special courses focusing on life sciences. And for making this happen, the pharmaceutical industry needs to sponsor and promote the real time research and R&D. This will in turn help the industry achieve quality and skilled manpower which is the need of the industry today.

Mr Jay Narayan Vyas, Minister of State of Health & Family Welfare, Government of Gujarat

Just The Right Medicine

mS

me

Business

11

January 20

11

Sector

for clinical trials. India has leveraged this advantage to attract clinical trials process outsourced by the companies involved in innovation.

As the global pharmaceutical industry is increasingly facing cost pressures on various counts, R&D of these players has gone down significantly in recent years, under rising manpower costs and higher regulatory risk. In fact, the process of getting approval of new products in reg-ulated market requires strict compliance of quality norms, which is stringent and is also subject to high legal risk.

This factor is forcing MNCs to out-source part of their R&D activities to low cost destinations like India. Howev-er, Indian SMEs unit face one major ob-stacle in grabbing the opportunity. Their research facilities do not adequately match with the Western standards. Though their manufacturing capabilities are widely acknowledged, Indian SMEs are finding it difficult to keep up with the pace of research and development in technologically advanced countries.

The prime reason for the Indian SME pharmas lagging behind companies in de-veloped counties in research facilities is

the severe shortage of funds they are fac-ing. A modern research lab entails state-of-the art technology like specialised au-tomation system and several sophisticated and costly equipment. Hence setting up of research facility is a very costly affair and only big players in the sector can afford the system in the present situation.

Helping Hand The steps proposed by Institute for Studies in Industrial Development to be taken by the Central Government to enable the small and medium phar-maceutical companies to face the stiff challenges posed by big pharmaceuti-cal companies include: availability of financial assistance up to Rs 1 crore with 15% capital subsidy to small scale drug and pharma units for technology up-gradation under the credit-linked capital subsidy scheme of the Minis-try of Micro, Small and Medium Enter-prises (MSME); proposal of Department of Chemicals and Petrochemicals to extend 5% interest subsidy to pharma small scale units for technology up-gradation on the basis of Schedule ‘M' of Drugs and Cosmetic Rules, 1945; sup-

port to high-risk pre-proof-of-concept research and late stage development in small and medium companies in the areas of agriculture, human and ani-mal health, environment, diagnostics, immuno-biologicals and various indus-trial products like antibiotics, industrial enzymes, vitamins etc. under the Small Business Innovation Research Initiative (SBIRI) scheme launched by the Depart-ment of Bio-technology.

CII Role CII has been closely working with Depart-ment of Pharmaceuticals, Government of India, on ‘Pharma/Biotech Quality Move-ment'. The Ministry of MSME has already sanctioned Rs 7,500 crore to Department of Pharmaceuticals, Ministry of Chemi-cals and Fertilizers, for the upgradation of pharma SMEs sector, upgradation of food and pharma laboratories as per the GLP standards and promotion of pharma intermediates under REACH (Registra-tion, Evaluation, and Authentication of Chemicals in EU) norms.

The effort is to create a nodal body to facilitate development activities in GMP for all pharma manufacturers with emphasis on SME. CII is in talks with clusters at Baddi, Indore, Ankleshwar, Hyderabad, Chennai and Ahmedabad for pharma SME upgradation. Initially, CII will train pharma companies in associa-tion with the respective FDA or Central Drugs Standard Control Organization (CDSCO) through different clusters. It is assumed that after five years, 50 Indian pharma SMEs would be ready to compete with the top 10 pharma companies.

CII has also recommended the need for the establishment of a core training facility at the national level. It is sug-gested that a core group led by the CII with key representatives from govern-ment and industry and international agencies be created to work out and suggest the role, purpose, structure and budget for the functioning of the proposed training facility.

The industry is witnessing trends such as acquisition activity, increasing investment, deeper penetration into the rural markets, growth in insurance coverage, innovation in healthcare delivery, the rapid growth of the chronic segment and changes in taxation policies. Taken together, these trends are leading to increased pa-tient affordability and access to quality medical care.

Mr Maheshwar Sahu, Principal Secretary, Industries and Mines Department, Government of Gujarat

mS

me

Bus

ines

sJa

nuar

y 2

01

1

Sector

12

The global emphasis on green and clean environment en-compasses MSMEs to a great extent. In India also green growth and clean tech is an

adopted agenda. There has been in-creasing concern on environmental degradation caused by industrializa-tion and realisation of the need to take corrective measures to protect the environment.

Apart from revisiting manufactur-ing processes and technologies being used by MSMEs, the focus has shifted to adopting appropriate / alternative technologies / production processes to maximise energy conservation. Now reduce (waste), reuse and recycle are emerging as thrust areas of vari-ous activities.

Lack of information about the avail-ability of alternative clean technolo-gies, lack of awareness of the advan-tages of investing in such technologies and low skillsets of the existing work-force to adapt to new technologies are major reasons for MSMEs lagging behind in upgrading and modernis-ing their facilities. The sector has to be provided technological support services along with credit facility on softer terms to invest in Cleaner Pro-duction (CP) options.

Cleantech sector promotes two ba-sic goals: (i) sustainable development; and (ii) better quality of life.

The Cleantech sector represents a diverse range of products, ser-vices and processes, all intended to: l Provide superior per-formance at lower costs l Greatly reduce or elimi-nate negative ecological impact l Improve the productive and re-sponsible use of natural resources.

Financing Option in MSME Sector for Clean Tech

Financial support is provided by SIDBI by way of:l Refinance to eligible Primary Lend-ing Institutions (PLIs) such as Banks, State Financial Corporations (SFCs), State Industrial Development Corpo-rations (SIDCs), Micro Finance Institu-tions (MFIs), etc., for onward lending to MSMEs. l Direct assistance to MSMEs which is channelised through the bank's net-work of 103 branch offices reaching out to more than 600 MSME clusters. As a step towards financial inclusion, the micro-credit programme of SIDBI offers both financial and non- finan-cial services and is designed with the objective of reaching financial servic-es to the disadvantaged section of the society.

Initiatives for Clean Tech in MSME Sector

Financing for Energy Efficiency: SIDBI has taken several initiatives to pro-mote lending for green and energy efficient technologies in the MSME

sector. SIDBI has been operating fo-cused lending schemes for promoting investment in clean tech production and energy efficient technologies / production process under bilateral lines of credit from KFW, Germany and JICA, Japan. These focused schemes have a two-pronged approach:l Concessional lending to encourage investment in green or energy effi-cient technologiesl Launching of cluster specific infor-mation dissemination.

SIDBI is involved in cluster-level in-tervention for furthering modernisa-tion / quality improvisations or evolv-ing technology mission for MSMEs with vision 2010 or institutionalising technology needs through a technolo-gy bank or acting as a key nodal agen-cy for government schemes aimed at developing niche in certain sectors through technology upgradation.

There have also been isolated at-tempts within the private sector to combine environmentally-responsible technologies and production process-es with profitable business models

mS

me

Business

13

January 20

11

Technology

Clean Tech in MSME SectorThe MSME Sector is progressively looking to adopt appropriate clean technologies / production processes to maximise energy conservation and reduce carbon emissions

to achieve sustainable growth. These market-based solutions have used the emerging prominence of ’green’ sec-tors including clean technology and organic agriculture as vehicles of col-lective action.

Recent Advancements in Clean Tech in MSME Sector

Electronic Waste Recycling Facility in Bangalore: The project caters to wastes generated by IT, Telecom & Electronic industries in and around Bangalore. The advantages accru-ing from the project includes helping more than 100 MSMEs to become com-pliant with regulatory requirements / environment audit, reduction in waste treatment cost and reuse & recycling of treated metals / materials.

Common Effluent Treatment Plant (CETP): (i) MSME textile dyeing and printing units in and around Surat ’ Gujarat Environ Protection & Infra-structure Ltd has been assisted to set up Treatment Storage and Disposal Facilities (TSDF) in Surat to help MSME textile dyeing and printing units in proper waste disposal; (ii) CETP, Ban-galore - Eco Green Solution Systems (P) Ltd has been assisted for setting up of a Treatment Storage and Dis-posal Facilities (TSDF) facility for toxic waste generated from the electroplat-ing, powder coating, metal finishing industries in and around Bangalore. It has helped more than 300 MSMEs in reuse and recycling of treated efflu-ent, reduction in waste treatment cost per unit, etc.

Mumbai Taxi Financing Scheme: Un-der the Scheme, taxi drivers have been provided assistance to buy new taxis without any collateral security under CGTMSE coverage. More than 700 micro entrepreneurs have so far been provided finance under this ar-rangement. The initiative has helped in promoting clean technology thus controlling pollution.

Auto Rickshaw Financing: In this clean energy Initiative, 600 CNG fit-ted auto rickshaws were provided assistance in Chandigarh by Delhi Fi-

nance Corporation (DFC).

Solar Lanterns: Friends of Women's World Banking (FWWB), an MFI, was sanctioned assistance of Rs 10 crore for providing assistance to micro en-trepreneurs for acquiring solar lan-terns of 2 watts each. 50,000 micro entrepreneurs are proposed to be covered under the assistance.

Rickshaw Sangh Programme: Under the programme, BMC has provided 500 rickshaws to poor people resid-ing in and around Lucknow with credit support from the SIDBI and Techni-cal support from AIF. Under the pro-gramme, the beneficiaries would also be provided license and Municipal permit, uniform, life insurance for client and his spouse, accident insur-ance, etc.

Information Dissemination: MSMEs were given information on green technol-ogies, better production processes, invest-ment required and cost benefit analysis of each investment. So far 18 awareness campaigns have been organized in MSME clusters across the country.

Furthering Green Growth with De-velopmental Support: Under multi-activity-multi agency MSME Financing and Development Project (MSMEFDP) being implemented by SIDBI, various initiatives are being undertaken to enable the emergence of competitive MSMEs with provision of financial and non-financial services.

Credit Facility (CF) has been chan-nelised to over 2,050 MSMEs spread across major cluster centres across the country. Project has adopted in-ternational best practice of Environ-ment and Social Risk Assessment framework (E&S) in its appraisal pro-cess. More than 100 credit officials have been trained on E&S.

In its cluster development initia-tive aimed at soft infrastructure de-velopment, the Project has adopted a long-term intervention strategy. Starting with value chain mapping of a cluster, an action plan is devised in consultation with stakeholders and is pursued with sustainability angle. In-stilling Energy Efficiency (EE) in these

adopted clusters has emerged as one of the cross- cutting issues. Major ini-tiatives taken up in the EE area under MSMEFDP are: (i) energy efficiency initiative with Bureau of Energy; and (ii) knowledge series.

In order to attend to challenges of information asymmetry, the Project has brought out knowledge series publications on energy efficiency in fruit and vegetable processing, ce-ramics, foundry and engineering clus-ters. These along with a 'Tip sheet on Energy Efficiency' (providing simple housekeeping) tips to MSMEs has been widely disseminated among MSMEs.

The Project has supported India SME Technology Services Ltd (promoted by SIDBI and leading public sector banks) to prepare a ’Carbon Credit Guide-book for MSMEs’, update its existing basket of 800 technologies and flag them as carbon-free, clean, energy efficient technologies.

The Project has initiated steps, in association with DSIR, Ministry of Sci-ence and Technology, to evolve a poli-cy document on 'Technology Vision for Indian MSMEs- 2020'. It is expected to be a tool, providing boost to innova-tive traits of Indian MSMEs.

Green Ratings: With support under MS-MEFDP, SME Rating Agency (SMERA), an associate of SIDBI, is gradually introducing rating variants and the latest is the ’Green Rating’ model. This initiative is aimed to encourage MSMEs engaged in industrial activity to adopt better clean technologies and processes to prevent unmitigated environmental damage. It will act as a risk mitigation tool for MSMEs to ef-fectively face business continuity risks associated with rapidly changing reg-ulatory prescriptions on environment governance & compliances.

The Green agenda and Clean Technology includes challenges in strengthening MSMEs managerial capability, creation of awareness on economic values of technologies and benchmarking quality up to global standards.

credits: Management Team of Religare Finvest limited Ð lending and Distribu-tion arm of Religare Enterprises limited

mS

me

Bus

ines

sJa

nuar

y 2

01

1

14

Technology

mS

me

Business

15

January 20

11

International

Lessons from the Commonwealth: MSME Development & Internationalisation

Finland, one of the largest producers of renewable energy, has offered its ex-pertise to India in the clean energy space and become

New Delhi's partner in attracting tech-nology and $55-billion investment in this area over five years.

Small companies are the lifeblood of all Commonwealth economies. In the UK, MSMEs account for 99% of all businesses. As much as 50% of the workforce are employed by companies employing less than 100 people and on average 65% of all new jobs are cre-ated by MSMEs each year. The fastest growing 5% of MSMEs are responsible for 25% of all jobs created. In most Commonwealth countries MSMEs are an even more important part of the economy.

As the UK looks to export its way out of recession a greater emphasis is being placed on understanding how more can be done to internationalise MSMEs. Only the most innovative and competitive MSMEs will succeed in in-ternational markets, but the Govern-ment recognises that a strategy fo-cused on supporting fast growing and innovative MSMEs will reap dispro-portionately large dividends in terms of economic growth and employment creation.

India in particular is seen as an enor-mous potential market for MSMEs, but so far UK companies have struggled to penetrate the market. A notable suc-cess story is the architectural consul-

tancy firm Benoy, which went to India on a subsidised UK Trade and Invest-ment (UKTI) mission in 2005 and has been winning large contracts in India ever since. Such success stories have unfortunately been few and far be-tween.

India has continually demonstrated an ability to nurture its MSMEs into national and international corpora-tions. A great deal of this success can be attributed to the entrepreneurial ability of Indians, which is continually being demonstrated by Indian nation-als and NRIs around the world. It is es-timated that there are over 45 million entrepreneurs in India today.

Almost all the major Indian corpo-rations have developed from humble origins within living memory. The emergence of Nirma as a genuine competitor to Unilever in India in the

soap and detergents markets is a story still studied by management students worldwide today.

India is therefore an important mar-ket for international MSMEs looking to win new business and for those coun-tries looking to learn how they can support and develop their own MSMEs. Gujarat more than any other state in India embodies the Indian MSME ex-perience, which is why the Common-wealth Business Council is delighted to organise a Roundtable on MSMEs in partnership with the CII at the Vi-brant Gujarat Summit in Gandhinagar in January 2011.

Gujarat accounts for 16% of the in-dustrial production of India and the economy has seen an average growth of 9% over the last three years, mak-ing it the fastest growing state in India. Gujarat is home to 30% of the entire Indian stock market capitalisation and its ports handle 80% of all sea-borne cargo. It is an obvious choice for any MSME looking to explore the opportu-nities in India or for any Government looking to understand how it can sup-port its own MSMEs.

I am also pleased that we have es-tablished a relationship between the state-owned Bank of Industry in Nige-ria, and the Entrepreneurship Devel-opment Institute of India in Gujarat.

Under the agreement Indian ex-perts will travel to Nigeria to provide capacity building to Nigerian entre-preneurs and bankers, who play such an important part in the growth story

Dr Mohan Kaul, Director-General, Commonwealth Business Council, provides an analytical account of how India is emerging as an important destination for international MSMEs looking for new business and how countries are looking to emulate the Indian MSME growth model.

Director-General, Commonwealth Business Council

Dr Mohan Kaul,

of any MSME. Short-sighted decision making by banks too often results in businesses with potential going to the wall Ð we believe training bankers and entrepreneurs together will lead to greater trust and understanding be-tween them.

Nigerian entrepreneurs and bankers will in turn travel to India to learn from the Gujarati experience; initially in the leather, automotive and rice-growing industries. This sharing of experience will have the added benefit of creating enhanced commercial ties which will lead to transactions.

This is a win-win situation for both sides and there is enormous poten-tial for us to expand this programme across the Commonwealth. Our work can only complement the work that the Indian Government and private sector institutions are already doing in assisting MSMEs. In 2008 the Indian Government mandated the National Small Industries Corporation (NSIC) to establish Vocational Training Centres across Africa. To date the Ministry of MSME in India has established long term partnerships with 11 countries,

but so far covering only three Com-monwealth countries -- Lesotho, Sri Lanka and Rwanda.

Our findings demonstrate that doing business with another Commonwealth country can be up to 15% less expen-sive than doing business with non-Commonwealth countries as a result of the common language of English, similar legal and accounting systems and the informal networks which bind our countries together. These factors are of disproportionate advantage to MSMEs.

There is a great deal of potential for the Indian Government to do more work with MSMEs across the Common-wealth and the Commonwealth Busi-ness Council would be pleased to pro-vide support in achieving this through its networks and its relationships with Commonwealth business organisa-tions and specific MSME bodies such as SMEDAN in Nigeria.

Other Commonwealth countries would do well to learn from India's experi-ence in clustering and creating special economic zones. There is also a huge amount that can be learnt from India's

‘frugal innovators' Ð those who have made services such as mobile phones affordable for developing markets. In turn India could learn from initiatives such as UKTI's mapping of global sup-ply chains or the creation of Co-Oper-ative Research Centres in Australia. Ev-ery country in the Commonwealth has learnt their own lessons about how to develop the MSME sector.

While these programmes are undeni-ably beneficial to all involved, the cost of international travel alone for many MSMEs is prohibitive. Funding support from Government is often necessary, which means in all circumstances it must be ensured that any trips involv-ing MSMEs are well planned and the deliverables and outcomes are defined well in advance.

At the same time MSMEs cannot sim-ply be led overseas by the Government Ð the entrepreneurs behind a business must have the vision and the desire to target international markets. A Gov-ernment can provide advice and fund-ing support, but unless the leadership of an MSME is committed to expanding internationally and has the capacity to achieve that goal it is wasted spending.

Governments must therefore en-sure that their support to MSMEs is well focused and well targeted. In this regard the UK model of providing In-ternational Trade Advisers (ITAs), who are individuals with significant prior international business experience and expertise, to provide free advice to MSMEs looking overseas is particu-larly successful. The difficulty is to ensure that the work of these ITA's is adequately coordinated between re-gions in the UK and with trade officials based in target countries. Too often companies that would benefit from this advice are not aware of the ser-vices that are available to them.

While the Governments of the Com-monwealth can play an important role in nurturing MSMEs and helping those with potential to establish a pres-ence overseas, ultimately responsibil-ity rests with entrepreneurs to create competitive and innovative MSMEs that are able to compete in interna-tional markets. In this regard India is in good shape to continue its strong economic growth.

16

mS

me

Bus

ines

sJa

nuar

y 2

01

1

International

mS

me

Business

17

January 20

11

Strategy

Leveling the Playing Field

Supplier diversity concerning micro, small and medium enterprises (MSMEs), and subsequent inclu-sivity, is becoming increasingly important in business strategy

throughout the corporate sector in the county. Diversity's scope and levels of implementation vary and are often influenced by company policy. However, importance of MSMEs as part of supplier diversity, and eventual national agenda of inclusive growth, cannot be under-estimated and sidelined as MSMEs make a sig-nificant contribution to the delivery of services and supply of goods. Moreover, they are often ideally placed to provide innovative solutions to large enterprises requirements and to de-liver value for money, either individually or as part of a group.Many corporate have publically stated that they are committed to ensuring that MSMEs have a fair access to large contracts. Supplier diversity by definition states that ensuring that an organisation's procurement processes provide equal opportunities for all suppliers to compete for contracts. According to vari-ous media reports, blue chip companies aim to spend billions annually with minority and women-owned business by 2010. Nevertheless understanding that MSMEs may be better placed, or more innovative, to meet the requirements of particular groups than larger organisations because of their specialist knowledge, corporate may have unwarranted concerns in breaking down bigger contracts to into smaller lots. It may also be seen as a pol-icy in response to increase efficiency through larger procurements.However, supplier diversity is becoming a busi-ness necessity for large organisations. As a supplier, the large corporates when tendering public sector purchasers increasingly see di-versity management as a business imperative and strategy. For corporate suppliers increas-ingly need to demonstrate their commitment to equality, diversity and inclusivity, there is a strong focus on improving their own contract practices and procurement base. The many

facets of procurement are often interwoven and supplier diversity is no exception. It is an integral part of corporate social responsibility and sus-tainability and therefore high on the agenda.As MSME sector is not only the economic backbone of the country but also the game changer in inclusive agenda, industry cham-bers, forums and government agencies are also keen to support MSMEs to overcome many barriers that businesses face, and how MSMEs can be assisted in bidding for work to ensure that they are not unduly discriminated against in the procurement process.

Lady Luck for Inclusivity One of the major pillars of supplier diversity and inclusivity is women-owned business. As women-owned enterprises make great con-tribution to the economy, significant efforts are being made to diversify supply chains to include sourcing from women-owned enter-prises. The proactive procurement policies targeting women-owned enterprises would contribute to economic empowerment and bring more companies into the winners' circle from exclusion.It has been widely recognised that to attain inclusive growth enough support to small women-owned business to access new mar-ket opportunities and supply chains across the public and privates sectors are to be provided. According to WEConnect, an accreditation

programme that aims to link women-owned businesses into corporate supply chains, much more needs to be done to secure the oppor-tunities of women-owned businesses, particu-larly those in MSMEs, who are still at risk of not benefiting as much as they should from the procurement and supply chain business. A model of good practice that WEConnect pro-poses globally, including in India, for MSMEs involving women are: (a) easy to search online portal for MSMEs to access procurement op-portunities, (b) straightforward tender docu-mentation issued electronically, (c) details of contract awardees published online, (d) flagging of tendering opportunities suitable for MSMEs, (e) qualification criteria that are not sector-spe-cific to be standardised, (f) all previous relevant experience when bidding to be admissible not just the sector experience, (g) procurers to take a flexible approach on the process of contract award, (h) better use innovation procurement plans, and (i) all government departments to report annually on the value of their contract spend with women-owned MSMEs.However, it has always been viewed that while having a diverse supplier base the quality needs be maintained, especially in a procurement mar-ket. So, while developing a national-level procure-ment policy for broadening supplier diversity for social justice, the background of increasing global competition and stakeholder pressure on corpo-rates have to be considered.

Larger enterprises in the country have to cautiously tread the thin line of broadening the supply base for social justice and upholding the interest of stakeholders by quality procurement

18

mS

me

Bus

ines

sJa

nuar

y 2

01

1

Agenda

Imperatives For MSME Growth & Development

Even as the MSME sector pre-pares to board a higher growth trajectory in the coming fiscal, the industry heads have ex-pressed the need for certain

fiscal measures which have been encapsu-lated in the ‘CII pre-Budget Memorandum for MSMEs: 2010-11' presented to the Gov-ernment. They are:STPI Scheme: Among the key issues and suggestions highlighted in the memoran-dum, the phase out of the tax benefits un-der Sec. 10A & 10 B of the Income Tax Act, popularly known as STPI scheme, has been referred to. CII has noted that the phase out of these tax benefits will adversely affect over 5,000 small software and IT services companies in the country. In view of this, CII has urged the MSME Ministry to take up this issue which has already been brought to the attention of the Department of IT.Low Threshold for Service Tax Ex-emption: To give relief to small compa-nies in the services sector, it has been rec-ommended that the threshold for Service Tax Exemption should be revised from Rs 10 lakh currently to at least Rs 25 lakh.Linkage of Tax Incentives with Invest-ments: While the new Direct Tax Code states that tax incentives should be invest-ment-kinked, industry has felt that it would work against the MSME sector as the sector is not capital intensive. The alternative rec-ommendation put forth is that the incentives should based on employment generation.Delayed Payments: Industry has also ex-pressed the need for tax benefits to be pro-vided to companies that source from MSMEs and adhere to the payment schedule, as per the terms of the contract, agreed upon with their vendors. This would ensure the growth progression and upgradation of the vendors, in line with the requirements of the vendee and also help to address the issue of payments (delayed), throughout the supply chain. Lack of IT Usage: Enhanced depreciation

on IT products will encourage greater ICT use by MSMEs. Hence, a recommendation has been put forth that Government consid-er according 100% depreciation, once in a block of three financial years, for an annual investment in IT equipment and software up to a limit of Rs 25 lakh to the MSMEs. The ICT hardware/software equipment for which this depreciation is accorded should be excise duty paid/cleared and the soft-ware is original (genuine)/duly licensed.Simplify Tax Procedures/Regulations: It was noted that Direct and Indirect Tax pro-cedures/regulations need to be simplified and address the ‘Executive discretion'.Promotion of Environment-friendly Technologies: CII has recommended the need to create a Central Climate Friendly Technology Fund to help MSMEs to adopt such technologies.A few important non-Budget recommenda-tions have also been put forth, which are as follows:Lack of Options for Raising Equity Finance: Industry has urged Government to facilitate the establishment of SME Ex-change while ensuring product innovation and without compromising on risk manage-ment. This will reduce credit requirements on one hand, and broadbase equity funding on the other. While it is important to have minimum disclosure norms and regulatory costs, it is also necessary to strike the right balance between the needs of issuers and upholding robust standards of investor pro-tection. SEBI will have to devise separate standards of disclosure and compliance requirements to minimize the cost of listing and compliance. Integration in the Value/Supply Chain: The memorandum also highlighted the need for the formulation of the Pur-chase preference policy, as per Section 11 of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, that enables the Central Government and the

State Governments to notify from time to time, preference policies in respect of pro-curement of goods and services, produced and provided by Micro and Small Enterpris-es, by its Ministries or Departments as the case may be or its added institutions/public sector enterprises. Multiplicity of Labour Laws: Industry has stated that the recommendations made by the Working Group or Labour Laws by the Planning Commission and referred in the Report of the 2nd National Labour Commission must be discussed with the In-dustry, and the various labour regulations be suitably amended. Lack of Availability of Adequate Credit and Provisions Related to NPAs and Margins: CII has underlined the need to enhance the availability of credit to the MSEs from the commercial banks and other institutional sources. Fix-ing a sub-target for this sector would go a long way in improving the scenario. Hence, there is a need to revise the NPA norms for a period of 2-3 years to enable the Banks to re-structure the financial facilities offered to this sector. There is also the need to re-visit the margins required for the working capital requirements: Higher working capi-tal ratios should be provided by the Banks, with reduced margins from the Industry. Acceptability and Weightage for In-dependent Credit-rating by Banks: It was cited that the RBI could constitute a group along with the Indian Banks As-sociation and the credit rating agencies to work out a uniform credit rating format and processes to bring about transparency and speed to this important issue. Promote FDI in MSMEs: There is a need for policy guidelines to encourage FDI par-ticipation by NRIs in the SME sector Ð this would include automatic approval for 100% FDI from NRIs, and other promotional mea-sures, including a single window clearance, across all subsectors within the MSMEs.

CII Budget Wishlist for MSMEs

mS

me

Business

19

January 20

11

Upcoming Events

Title/Theme Date venue

cii Ð BEE Workshop on Enhancing competitiveness through Energy Efficiency. Focus hand Tool sector

18 January 2011 Jalandhar

23rd cii Regional Workskills competition 18-20 January 2011 chandigarh

cii industrial Expo 2011: Robust, inclusive, green growth 29-31 January 2011 haridwar

hR conclave 2011 11-12 February 2011 Jaipur

Meeting with commerce secretary industries & commerce 12 January 2011 Jammu

Meeting with Director MsME February 2011 Jammu

Program on intellectual Property Rights January 2011 Banaras

cii BEE session on Enhancing competitiveness through Energy Efficiency 14 January 2011 Noida

Workshop on how to retain customers 22 January 2011 Noida

Training Workshop on cost Reduction strategies for sMEs 25 February 2011 Noida

contact: Mr C M Tungare Email: c.tungare@cii.in

contact: Ms. Navdeep Kaur; Email: navdeep.kaur@cii.in

CII Western RegionTitle Date venue

iT for MsMEs 15 January 2011 Nagpur

Fifth eMeeting of the MsME sub committee 21 January 2011 goa

hR for MsMEs 28 January 2011 Mumbai

Finance for MsMEs February 2011 Thane

MsME Mission to Jamshedpur and Ranchi 6 - 9 February, 2011 Jamshedpur and Ranchi

contact: Ms Gargi Mitra; Email: gargi.mitra@cii.in

CII Eastern Region

Title/Theme Date city

interaction with secretary commercial Taxes January 2011 Jamshedpur

Finance for sMEs February 2011 Jamshedpur

sME East, 2011 22 February 2011 Kolkata

For further details please contact Gurpal Singh, Confederation of Indian Industry (CII), ‘The Mantosh Sondhi Centre’, 23, Institutional Area, Lodhi Road, New Delhi 110 003 Tel. : +91 (011) 24629994 - 97 * Fax : +91 (011) 24626149 * e-Mail : gurpal.singh@cii.in

CII Northern Region

MSME Focused Projects, Events, Meetings, Interactions & Training Programmes

(Jan 2011 - Feb 2011)

© CONFEDERATION OF INDIAN INDUSTRY