Presentation by T.Selvakumar

SMALL Enterprises in India – pre curser

SSI sector (registered and unregistered units) in India comprised 1,05,21,190 units out of which over 44 lakh (42.26 percent) were SSIs and the remaining 61 lakh (57.74 per cent) were Small Scale Service and Business Enterprises (SSSBEs). About 55.00 per cent of total SSI units were located in rural India. The number of ancillary units among SSIs at 1.32 lakh constituted 2.98 per cent of the total number of SSIs. Tiny units with original investment in plant and machinery up to Rs 25 lakh numbering 44.26 lakh formed a dominating 99.50 per cent of the total number of SSIs. About 10.11 per cent of the SSI units were women enterprises.

The third census also revealed that about 44 per cent of the units were in the services sector, followed by 40 percent of the units in manufacturing and allied activities sector and 16 per cent of units in repairing and maintenance sector. Thus, services sector emerged as the dominant component in the total SSI sector.

As per the third census report, total output of the registered units in the year 2001-02 was estimated to be Rs 70,861.73 crore. The SSI sector employed 2,49,32,763 persons during the reference period. There were 50,606 exporting units accounting for exports to the tune of Rs 14,19,956 lakh.

Total investment in the units were to the tune of 1,54,348 crore. Loan outstanding to the SSI units as on 31 March 2004 from the Public Sector Commercial Banks stood at Rs 58,278 crore which was over 11 per cent of the net bank credit. While the aggregate SSI loan portfolio increased by 10 per cent during 2003-04, it grew below the 16.9 per cent annual growth of net bank credit during the same period.

SMALL Enterprises in India – Developmental issues the production is dispersed and un-organized, the scales of production are at a lower ebb they lacked in quality standards, technology employed for production is at a low level , preference to be small is rampant, they did not receive timely credit assistance in

adequate measures they faced problems relating to marketing and the multifarious approach by various promotional

agencies involved highlighted the need for collaborative efforts for reaping the desired developmental goals

Challenges and opportunities for the micro and small enterprises – WTO regime

The various agreements entered into by WTO member nations including India will have far reaching implications on Indian Industry particularly the micro and small enterprises, as they have traditionally been constrained by a number of factors impeding their competitiveness. Some of the Agreements which have already had a significant impact on Indian industry and particularly the micro and small enterprises are GATT (General Agreement on Tariffs & Trade) and the Principles of Most Favoured Nation and National Treatment, Agreement on Technical Barriers to Trade, Trade Related Intellectual Property Rights (TRIPS), Agreement on Anti-dumping Measures and Trade Related Investment Measures (TRIMS). Some of these are highlighted below:

Reduction in import duties under GATT and removal of Quantity Restrictions (QRs) had increased the inflow of low cost imports particularly from China and affected the domestic sales of micro and small enterprises leading to dwindling profit margins.

On the positive side reduction in duties on imports of good quality raw materials and accessories had improved the access of domestic industry to crucial raw materials resulting in improving the quality of finished products like high value ready-made garments, leather goods, gold jewelry etc., resulting in better export realizations.

Challenges and opportunities for the micro and small enterprises

Wider opportunities to Indian manufacturers in the markets of other member countries are made possible as no discrimination is permitted between imports from member countries. In the domestic market this had created increased competition for micro and small enterprises, which is expected to lead to in consolidation of the industry.

Those intending to survive will have to grow in size, set up optimum capacities, enter into strategic alliances with Large Scale Industries or their SME counterparts in other developing countries or enter into tie-ups with global manufacturers. Enterprises will have to concentrate on manufacturing products in which they have a clear cost advantage.

The Agreement on Technical Barriers to Trade (TBT) has permitted member countries to lay down their own stringent manufacturing standards on products imported from the developing countries to protect health and safety of their people and to protect the environment. Enterprises who are unaware of these internationally accepted manufacturing standards or have failed to adopt them have faced rejections of their exports as in case of Azo dyes, which were banned by EU. To overcome technical and environmental barriers, enterprises will have to harmonize their production processes with international standards. This would require increased investments in latest technologies, R&D, Quality Certifications and in turn increase the cost of production of micro and small enterprise.

Challenges and opportunities for the micro and small enterprises

Some of the non-permissible subsidies under WTO, like export subsidies, waiver of income tax on export earnings, export credits at rates below the cost of government borrowings, currency retention, might be removed, which might affect the profit margins of micro, small and medium enterprises.

The positive feature is that permissible subsidies such as subsidies for R&D, Installation of equipment for effluent treatment, etc. are likely to benefit the enterprises. Removal of certain non-permissible subsidies prevalent in the developed countries would in turn render Indian exports more competitive in the international market provided quality is improved and superior manufacturing standards are adopted.

Under the Agreement on Safeguard Measures countervailing duties on cheap imports that cause injury to domestic industry are permissible and this would safeguard the products made by micro, small and medium enterprises in the domestic market. Agreement on Anti-dumping Measures, also allows governments to take action against exporters who dump products into India, causing injury to domestic industry.

Agreement on Trade Related Intellectual Property Rights (TRIPS) requires WTO member countries to amend their legislations for various Intellectual Property Rights including Trademarks, Copyrights, etc. This Agreement and the amendments in the Indian Patent Act will put severe restrictions on SSIs manufacturing patented products through reverse engineering. These enterprises being unable to mobilize huge resources for R&D and patenting of their products will have to tie up with large manufacturing companies as contract manufacturers..

THREATS Entry of Indian & foreign multinationals in the

products & services of SME sectorStatutory registrations & regulations like Excise,

Service Tax, EPF, ESI etcUnwillingness from Financial Institutions to lend

moneyLarge debtors and payment cycleCompetitiveness compared to big playersPower CrisisRaising employee cost and unstable work forceLack of knowledge – commercial & technical expertise

Opportunities a plentyMSME Act 2006Collateral free fundingPurchase preference from Central Govt

departments and PSUsExemption from Earnest Money deposits and

Security deposit for NSIC registered vendors

MSME registration – For manufacturing & Service sectorReplaces erstwhile SSI registrationClassification of MSME

Registration with regional Joint director of Industries & commerce at state level

Category Manufactuing Sector*

Service Sector*

MICRO < 25 lakhs < 10 lakhsSMALL > 25 lakhs < 5

crores> 10 lakhs < 2 crores

MEDIUM >5 crores < 10 crores

> 2 crores < 5 crores

MSME ACT 2006 – Boon to SMEsPassed by GOI in year 2006 to protect SMEsProvides measures for promotion, development and

enhancement of competitiveness of micro, small and medium enterprises

Great savior for SME to collect money from big corporates

Provides succor for delayed payments to micro and small enterprises

MSME facilitation council – appeal only high courtsInterest can be collected on delayed paymentsSpeedy remedy compared other legal coursesNo need for civil suits and huge court fees

Government Stores Purchase Programme – Grant Of Benefits – To Small Scale UnitsUnder the government stores Purchase Programme,

Government of India has been extending various facilities as given below to the SSI units registered with NSIC

under its single Point registration scheme:-(i) Issue of tender sets free of cost;(ii) Exemption from payment of Earnest Money;(iii) Waiver of Security Deposit upto the Monetary Limit

for which at the unitis registered: and(iv) Price Preference upto 15% over the quotation of

large-scale unitsIn addition to the above, 358m items are also reserved

for exclusive purchase from SSI sector.

National Small Industries Corporation - NSICMARKETING ASSISTANCE SCHEMETo enhance marketing capabilities & competitiveness of

the MSMEs.To showcase the competencies of MSMEs.To update MSMEs about the prevalent market scenario

and its impact on their activities. To facilitate the formation of consortia of MSMEs for

marketing of their products and services.To provide platform to MSMEs for interaction with large

institutional buyers.To disseminate/ propagate various programmes of the

Government. To enrich the marketing skills of the micro, small &

medium entrepreneurs.

National Small Industries Corporation - NSICTECHNOLOGY & TRAININGNSIC provides technical support to MSMEs

through 'NSIC Technical Services Centres' (NTSCs) and a number of extension and sub centres spread across the country. The range of technical services provided through these centres include training in Hi-Tech as well as conventional trades, testing, common facilities, toolkits, energy audit, environment management etc.

National Small Industries Corporation - NSICTRAINING-CUM-INCUBATION CENTRENSIC Training-cum-Incubation Centres provide an

opportunity to first generation entrepreneurs to acquire skill for enterprise building and also incubating them to become successful small business owners. At these centres, exposure in all areas of business operations are being provided such as business skills development, identification of appropriate technology, hands on experience on working projects, project / product selection, opportunity guidance including commercial aspects of business. In addition, low cost project technologies required for setting up new small business enterprises are being displayed in working condition.

National Small Industries Corporation - NSICBANK CREDIT FACILITATION SCHEMETo meet the credit requirements of MSME units NSIC has

entered into a Memorandum of Understanding with various Nationalized and Private Sector Banks . Through syndication with these banks, NSIC arranges for credit support (fund or non fund based limits) from banks without any cost to MSMEs.

Furthermore the MSMEs can upgrade their competence in terms of business and technologies by getting rated through independent, renowned and professional rating agencies empanelled with NSIC. The empanelled rating agencies are CRISIL,ONICRA,SMERA-D&B,CARE, India Ratings, BRICKWORK and ICRA. The MSE’s which get rated under NSIC-Performance and Credit Rating Scheme not only has a liberty to get rated from any one of rating agencies of its preference but it also invariably increases their creditability in business and help them in getting timely credit from banks at liberal rates of interest.

National Small Industries Corporation - NSICEXPORT CREDIT INSURANCENSIC in its new role of facilatators to small and medium

enterprises has initiated a new action by entering into an arrangement with ECGC of India Ltd.

RAW MATERIAL ASSISTANCERaw Material Assistance Scheme aims at helping MSEs by way of

financing the purchase of Raw Material (both indigenous & imported). This gives an opportunity to MSEs to focus better on manufacturing quality products.

Benefits of the SchemeFinancial Assistance for procurement of Raw Material upto 90

days.MSEs helped to avail Economics of Purchases like bulk

purchase; cash discount etcNSIC takes care of all the procedures, documentation & issue

of Letter of credit in case of imports

National Small Industries Corporation - NSIC BILL DISCOUNTING SCHEMEThe Scheme covers purchase / discounting of bills arising out of genuine trade

transactions i.e. purchase of supplies made by small scale units to reputed Public Limited Companies / State and Central Govt. Departments / Undertakings.

SELLERSSmall Scale Units BUYERS i) State and Central Govt. Departments / Undertakings ii) Public Limited Companies GRANT OF PURCHASER-WISE LIMITSBills drawn by small-scale units for the supplies made by them and duly accepted by

the Purchaser will be financed against security of Bank Guarantee in favour of NSIC.

Purchaser unit(s) may approach NSIC for sanction of annual limits by furnishing information as per the prescribed application form.

GRANT OF SELLER-WISE LIMITSSeller unit(s) may provide bank guarantee in favour of NSIC for availing financial

assistance under the scheme. Bills drawn by them against their supplies made, duly accepted by the purchaser will be financed. Annual limits can be fixed for such units by obtaining information as per the prescribed application form.

CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISESCGTMSE – Credit guarantee Fund Trust for

MSEsAvailability of bank credit without the hassles of

collaterals / third party guarantees would be a major source of support to the first generation entrepreneurs to realise their dream of setting up a unit of their own Micro and Small Enterprise (MSE). Keeping this objective in view, Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme (CGS) so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector. To operationalise the scheme, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISES CGTMSE – Credit guarantee Fund Trust for MSEsCredit GuaranteeAny collateral / third party guarantee free credit facility (both fund as well as non fund based)

extended by eligible institutions, to new as well as existing Micro and Small Enterprise, including Service Enterprises, with a maximum credit cap of Rs.100 lakh (Rupees Hundred lakh only) are eligible to be covered.

The guarantee cover available under the scheme is to the extent of 75% / 80% of the sanctioned amount of the credit facility, with a maximum guarantee cap of Rs.62.50 lakh / Rs. 65 lakh. The extent of guarantee cover is 85% for micro enterprises for credit up to Rs.5 lakh.

The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or owned by women; and (ii) all credits/loans in the North East Region (NER). In case of default, Trust settles the claim up to 75% (or 80%) of the amount in default of the credit facility extended by the lending institution.

The lender should cover the eligible credit facilities as soon as they are sanctioned. In any case, the lender should apply for guarantee cover in respect of eligible credits sanctioned in one calendar quarter latest by end of subsequent calendar quarter. Guarantee will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the term credit in case of term loans / composite loans and for a period of 5 years where working capital facilities alone are extended to borrowers, or for such period as may be specified by the Guarantee Trust in this behalf.

CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISES SCOPE AND EXTENT OF THE SCHEME Guarantees by the Trust(i.) Subject to the other provisions of the Scheme, the Trust undertakes, in relation to

credit facilities extended to an eligible borrower from time to time by an eligible institution which has entered into the necessary agreement for this purpose with the Trust, to provide a guarantee on account of the said credit facilities.

(ii.) The Trust reserves the discretion to accept or reject any proposal referred by the lending institution which otherwise satisfies the norms of the Scheme.

Credit facilities eligible under the Scheme:The Trust shall cover credit facilities (Fund based and/or Non fund based) extended by

Member Lending Institution(s) to a single eligible borrower in the Micro and Small Enterprises sector for credit facility (i) not exceeding Rs. 50 lakh (Regional Rural Banks/Financial Institutions) and (ii) not exceeding Rs.100 lakh (Scheduled Commercial Banks and select Financial Institutions) by way of term loan and/or working capital facilities on or after entering into an agreement with the Trust, without any collateral security and\or third party guarantees or such amount as may be decided by the Trust from time to time.

Provided that the lending institution applies for guarantee cover in respect of credit proposals sanctioned in the quarter April-June, July-September, October-December and January-March prior to expiry of the following quarter viz. July-September, October-December, January-March and April-June respectively

NABARD assistance to SMEs Enterprise Loan Scheme (ELS) Borrowers Individuals, artisans, small entrepreneurs, groups of individuals, associations

(formal and informal), proprietary/partnership firms, co-operative societies, registered institutions/ trusts, NGOs/voluntary agencies, private and public limited companies, etc, financed by the above eligible institutions.

Purpose To set up new units as well as for modernisation/ renovation/

expansion/diversification of existing units and also for replacement of old and obsolete machinery even if the units were not initially financed by the banks and refinanced by NABARD.

To change over to new process of manufacturing/introduction of new technology/ computerisation, etc.

For acquisition of new machinery and equipments resulting in additional production capacity and/or improving productivity or introducing new product/product line, etc.

For Expansion/Diversification, any unit which has been in existence for at least two years will be eligible.

NABARD assistance to SMEs Eligible activities All manufacturing, processing, marketing and approved service activities in the

SSI sector with emphasis on Cottage, Village, Tiny Industries, Rural Artisans and Rural Crafts.

All activities in rural areas or benefiting rural areas that are income generating and/or employment generating, including all service sector activities, are eligible activities under NFS for refinance assistance. For example :

•Educational Services (Educational institutions such as schools, colleges set up privately and Educational loans to students). •Health services (Hospitals/ Clinics, Health Care Units (both human & animal) set up in rural areas, mobile hospital vans with necessary equipment, para health services, etc). •Construction sector (e.g. Building Material Supply Bank) . •Tourism sector ( Theatres, Eco-Tourism, Fair/Exhibition Complex, Hotels, Motels, Shops/ marketing outlets etc for rural products). •Vehicles (Two wheeler/ three wheelers and four wheelers other than those covered under SRWTO scheme). •Information Technology ( All activities providing information technology to the rural people). •Infrastructure (Rural Industrial Estates, Growth Centres, Communication Networks, Rural Safe Drinking Water,etc).

Exemptions from statutory duties and regulations VALUE BASED EXEMPTION NOTIFICATIONS FOR SMALL SCALE

GE No-1. Exemption to first clearances of specified goods upto a value of Rs. 1

Crore, if CENVAT facility not availed and exemption to goods captively consumed- Notfn. No. 8/03-CE dated 1.3.2003

As per Notification No. 33/2012 of Service Tax Department Small Scale Industries or Small Service Providers are fully exempted from Service Tax with effect from 01.07.2012.

SERVICE TAX EXEMPTIONS FOR SMALL SCALE taxable services of aggregate value not exceeding ten lakh rupees in any

financial year from the whole of the service tax leviable thereon under section 66B of the said Finance Act:

Provided that nothing contained in this notification shall apply to,-(i) taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or

(ii) such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,1994.

Exemptions from statutory duties and regulationsNo exemptions or relaxations are available

for SSI under EPF or ESIEPF registration is a must for 20+ employeesESI registration is a must for 10+ employeesNo change in employers contribution amount

for SSI