Finance
Although MSME is considered as one single group, the performance of each Micro, Small and Medium Enterprises varies in all aspects. For instance, Micro enterprises have a share of 94.94% of the total MSMEs and contribute 70% of employment and 44% of total gross output. Micro sector provides livelihood to many Self-Employed people in India. SMEs are the growth drivers of the Industry. There are only 79,000 Registered SMEs (5% of Total MSMEs) in India. Despite their numbers, they generate employment for 2.8 million people i.e. 30% of total employment, contribute to 63% of total Fixed Assets, and 55% of the Gross Output of the MSME sector. Growth Rate of Indian Industry v/s SME Sector: The average Industrial growth rate during 2002 to 2008 was approximately 7.9% and the same for MSME sector was 11.5%. This means the growth of MSME sector was about 1.5 times the Industrial growth rate. We can also observe the growth rates of MSME sector was always on an increasing scale during the period. Institutional Arrangement: SIDBI is the prime financial institution setup for financing and development of the MSE sector. Apart from direct lending, it also provides refinance assistance and support services to the sector. Competitive Technology: The Government, to foster the growth of MSME sector, has set up Training Centres and Tool Rooms. It also implements many schemes for the upgradation of technology of the MSME. (Eg: Fee Reimbursement, Credit Linked Capital Subsidy Scheme, etc.) Marketing and Procurement Assistance: Government, under the Stores Purchase Programme, provides various facilities to registered enterprises for marketing their products in competitive environment. Fiscal Concessions: The Government, under the General Excise Exemption Scheme, provides full excise exemption to the enterprises based on their annual turnover. Scope of SME Exchange: The SME Exchange launched by BSE and NSE provides an avenue for SMEs to raise upto INR 25 crore via IPO. There is an eligibility criteria that an SME must be atleast 3 years old and have generated positive cash accruals or EBITDA for the past 2 years before application. SME Exchanges provides a great platform for SMEs to raise money from capital markets quickly, easily and with less costs. This avenue may create a revolution for SMEs in the future to get easy institutional investments and this also creates easy option for Venture Capitalists to exit their investments. At last, considering their difficulties in getting conventional funding, proves a sign of glory for potential SMEs. Conclusion: The SME sector has a bright future ahead with the transformation in policies and acts by the government. The implementation of Alternative Investment Funds Act and launch of SME Exchange helps SMEs to raise credit easily and quickly. The Government must take certain measures such as educating entrepreneurs about the policies and schemes, and making efforts for free flow of information. A major leap in the policy has to be made, where registration of Small and Medium Enterprises should be mandatory. The Indian economy has witnessed quite a few lows in the recent times. The Manufacturing sector showed a negative growth of -0.3% and the Indian GDP is at a 9-year low clocking 5.3% in 4th Quarter of 2011-12. But if the SME sector is provided the right assistance, the Manufacturing sector would improve and register an increased growth rate.
Source: The SME Whitebook 2011-12, Businessworld (Rough estimates, figures extracted from a graph)
Booster to the Sector: MSME Credit: Credit is a critical input for promotion and development of MSMEs. The RBI’s lending policy treats MSE (Micro & Small) as a priority sector and as per the guidelines, atleast 60% of the total MSE lending is extended to Micro Sector. Credit Guarantee Scheme: Under this scheme, the eligible lending institutions extend collateral-free credit facility to new and existing micro and small enterprises. They can raise collateral-free loan of upto INR 5 lakhs without any track record.
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