Enabling Effective Policy Framework for SMEs

The twin process of globalization and liberalization, combined with rapid advances in information and communication technologies, are creating new dynamics of production, enterprise development and international competition. These changes call for a holistic and integrated approach to enterprise development that addresses the multiplicity and interaction of factors that underpin the growth and competitiveness of enterprises. They also imply the need for country to formulate enterprise development strategies which take into account the role of the private sector and role of the Sate, as well as the interaction between them. However, all such activities, in order to have maximum usefulness and impact, will need to take place within a coherent policy framework. Experience has shown that, in the absence of a coherent policy environment, the globalization of production and the opening of domestic markets have had adverse effects on the enterprise structure and in particular on the SME sector. There is a need for ensuring coordination, coherence and complementarily in the design and implementation of instruments for SME development. In particular, the establishment of SME support agencies and programmes need to go in parallel with efforts to improve the policy, legal and regulatory environment in which SMEs operate. This would imply, among others, simplifying regulations and administrative procedures for business start-ups and development and enacting new legislation to deal with gaps or inconsistencies in business laws.

Two main preconditions for SME policies to succeed are (i) Achieving policy coherence, and (ii) Reforming the business environment.

Initiatives taken by Government for providing enabling effective policy framework to MSMEs

In the recent past, the Prime Minister’s Task Force on MSMEs and the Twelfth Plan Working Group on MSMEs have discussed issues related to the MSME sector. The Twelfth Five Year Plan policy framework is guided by the recommendations of these key committees. The Plan covers various aspects of the MSME sector and its key recommendations fall under six broad verticals, viz. 1) finance and credit (ii) technology (iii) infrastructure (iv) marketing and procurement (v) skill development and training, and (vi) institutional structure. The Plan has a separate set of recommendations for the khadi and village industries and the coir sector.

Ministry of MSME had taken various initiatives for providing enabling effective policy framework to MSMEs through the following schemes / interventions:

  1. Public Procurement Policy for Micro and Small Enterprises 

The government has notified a Public Procurement Policy for Goods Produced and Services rendered by Micro & Small Enterprises (MSE) order, 2012 effective from 1st April, 2012. The policy mandates that all the Central Ministries / Departments / Central Public Sector Undertakings (CPSUs) shall procure a minimum of 20 per cent of their annual value of goods / services required by them from MSEs. Further, policy has earmarked a sub target of 4 per cent procurement out of this 20 per cent from MSEs owned by scheduled caste/ scheduled tribe (SC / ST) entrepreneurs. 

  1. MSE- Cluster Development Programme (MSECDP) 

The Ministry of MSME has adopted a cluster approach for holistic development of MSEs in a cost effective manner. To build capacity of MSMEs for common supportive actions, soft interventions are undertaken in the existing clusters/new industrial areas/ estates or existing industrial areas/estates. To ensure transparency and speedy implementation of the MSE-CDP, office of the Development Commissioner, MSME has started an online application system from 1 April 2012. Hard interventions are taken up to create/upgrade infrastructure facilities and setting up of common facility centres in new/ existing industrial estates/clusters. The Government assistance under the scheme is as under:-

  • Diagnostic Study – Maximum cost Rs. 2.50 lakhs.
  • Soft interventions – Maximum cost of project – Rs. 25.00 lakh,

with GoI contribution of 75% (90% for Special Category States and for clusters with more than 50% women/micro/village/SC/ST units).

  • Hard interventions – i.e setting up of Common Facility Centres

– maximum eligible project cost of Rs. 15.00 crore with GoI contribution of 70% (90% for Special Category States and for clusters with more than 50% women/micro/village/SC/ST units).

  • Infrastructure Development in the new/ existing industrial estates/areas.

Maximum eligible project cost Rs.10.00 crore, with GoI contribution of 60% (80% for Special Category States and for clusters with more than 50% women/micro/SC/ST units).

  1. Credit Guarantee Scheme 

The Government is implementing the Credit Guarantee Fund Scheme for MSEs with the objective of facilitating flow of credit to the MSEs, particularly to micro enterprises by providing guarantee cover for loans upto Rs. 100 lakh without collateral / third party guarantees. For making the scheme more attractive to both lenders as well as borrowers, several modifications have been undertaken which, inter alia, include: (a) enhancement in the loan limit to Rs. 100 lakh; (b) enhancement of guarantee cover from 75 per cent to 85 per cent for loans upto Rs. 5 lakh; (c) enhancement of guarantee cover from 75 per cent to 80 per cent for MSEs owned/operated by women and for loans in North Eastern Region (NER); (d) reduction in one-time guarantee fee from 1.5 per cent to 1 per cent and annual service charges from 0.75 per cent to 0.5 per cent for loans upto Rs. 5 lakh and (e) reduction in one-time guarantee fee for NER from 1.5 per cent to 0.75 per cent.

  1. Credit Linked Capital Subsidy Scheme for Micro and Small Enterprises (CLCSS) for MSEs 

The scheme aims at facilitating technology upgradation of MSEs by providing 15 per cent capital subsidy (limited to maximum Rs. 15 lakh) for purchase of plant & machinery. Maximum limit of eligible loan for calculation of subsidy under the scheme is Rs. 100 lakh. Presently, 48 well established and improved technologies/sub sectors have been approved under the scheme. The CLCSS is implemented through 11 nodal banks/agencies. 

  1. National Manufacturing Competitiveness Programme (NMCP) 

The National Competitiveness Programme started by the Ministry of MSME with an objective to support the Small and Medium Enterprises (SMEs) in their endeavour to become competitive and adjust the competitive pressure caused by liberalization and moderation of tariff rates. Various components of NMCP are as under:-

  • Marketing Support/Assistance to MSMEs (Bar Code) 

Bar codes are the series of black lines and white spaces printed on product packages or attached as tags which you would have noticed on consumer products. Information on a product or a consignment like its item code or serial number, expiry date, consignor/ consignee etc., can be represented through such bar codes. When these bar codes are scanned using a scanner, it enables instantaneous data capture with 100% accuracy and at great speeds. Bar Coding can have a significant impact on the success of any enterprise/ company and organisation. Timely and 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 & dynamic production scheduling and in product track and trace.

Bar Coding not only facilitates the exchange of information between buyers and sellers, but also provides the potential for better visibility and sharing of information across an entire Supply Chain. Other benefits are (i) Automated data capture with 100% accuracy, (ii) Real time stock management of raw materials and finished goods (iii) Fast and error free data recording on product/ consignment movement (iv) Easy integration with existing software, if any, (v) In compliance with growing requirements of leading national markets (vi) In line with requirements of international retailers & (vii) Also gives international look and feel.

GS1 India, an autonomous body under Ministry of Commerce & Industry, Government of India is a solution provider for registration for use of Bar Coding.

  • Marketing Assistance and Technology Upgradation Programme is a strategic initiative for adoption of Modern Marketing techniques by MSMEs consistent with the requirement of global market. It involves eight sub-components for which Government of India (GoI) funding assistance is available. These are (i) Technology Upgradation in Packaging, 
  • Skill Upgradation/Development for modern marketing techniques, (iii) Competition Studies, (iv) Special component for North-Eastern Region, (v) New markets through State/District level local Exhibitions/Trade fairs, (vi) Corporate Governance Practices, (vii) Marketing Hubs and (viii) Reimbursement to ISO 18000/ISO 22000/ISO 27000 certification.
  • Scheme for Support for entrepreneurial and managerial development of SMEs through incubators 

The main objective of the scheme is to promote emerging technological and knowledge based innovative ventures that seek the nurturing of ideas from professionals beyond the traditional activities of Micro, Small & Medium Enterprises (MSMEs). Such entrepreneurial ideas have to be fostered and developed in a supportive environment before they become attractive for venture capital. Hence the need arises for incubation centres to promote and support untapped creativity of individual innovators and to assist them to become technology based entrepreneurs.

  • Scheme for enabling manufacturing sector to be competitive through quality management standards and quality technology tools (QMS/QTT) 

The scheme is designed to sensitize and encourage MSEs to adopt latest QMS and QTT and to keep a watch on sectoral developments by undertaking the stated activities. The major activities under the scheme are (i) Introduction of appropriate course modules for technical institutions, (ii) Organising awareness campaigns for Micro and Small Enterprises, (iii) Organising Competitive-Watch (C-Watch) (iv) Implementation of quality management standards and quality technology tools in selected Micro and Small Enterprises (v) Monitoring international study mission (vi) Impact study of the initiatives. 

  • Scheme for Building Awareness on Intellectual Property Rights (IPR) for MSMEs 

The objective is to enhance awareness of MSME about Intellectual Property Rights (IPRs) to take measures for the protecting their ideas and business strategies. Effective utilization of IPR tools by MSMEs would also assist them in technology upgradation and enhancing competitiveness. 

  • Lean Manufacturing Competitiveness Scheme 

The objectives of Scheme are to increase the competitiveness of the MSME sector through the adoption of lean manufacturing techniques with the objective of (i) Reducing waste, (ii)

Increasing productivity, (iii) Introducing innovative practices for improving overall competitiveness, (iv) Inculcating good management systems; and (v) Imbibing a culture of continuous improvement.

  • Setting up of Mini Tool Rooms & Training Centres under PPP Mode

The objective of the scheme is to develop more tool room facilities i.e. technological support to MSMEs, by creating capacities in the private sector for designing and manufacturing quality tools and also to provide training facilities in the related areas.

  • Design Clinic Scheme 

The main objective of the Design Clinic is to bring the MSME sector and design expertise into a common platform, to provide expert advice and solutions on real time design problems, resulting in continuous improvement and value addition for existing products. It also aims at value added cost effective solutions. These Design Clinics in clusters of the country are to usher in a continuous competitive advantage to MSMEs. 

  • Scheme for Technology and Quality Upgradation Support to MSMEs (TEQUP) 

The major activities of the scheme are : (i) Capacity Building of MSME Clusters for Energy Efficiency/Clean Development Interventions and other technologies mandated as per the global standards, (ii) Implementation of Energy Efficient Technologies (EET) in MSME sector/units. (iii) Setting up of Carbon Credit Aggregation Centres (CCA) for introducing and popularising clean development mechanism (CDM) in MSME clusters. (iv) Encouraging MSMEs to acquire product certification/ licences from National/International bodies and adopt other technologies mandated as per the global standards.

  • Promotion of Information & Communication Technology (ICT) in Indian MSME Sector 

The manufacturing industry is witnessing an increasing turbulent, dynamic and complex business scenario. The lowest entry barriers across countries, complex cost structures and relentless pursuit of customer satisfaction in response to rising expectations and adoption of Information and Communication Technology (ICT) tools and applications compared to other nations and this has resulted in loss of global competitive advantages. 

The objective of the scheme is to encourage and assist the potential manufacturing 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. 

The broad activities planned under the scheme include, identifying target cluster for ICT intervention, setting up of E-readiness infrastructure, developing web portals for clusters, skill development of MSME staff in ICT application, preparation of local software solution for MSMEs to enhance their competitiveness, construction of e-catalogue, e-commerce etc. and networking MSME cluster portal on to National level Portal in order to outreach MSMEs into global markets. 

  1. Performance and Credit Rating Scheme for MSEs 

Performance and Credit Rating Scheme for MSE was formulated in consultation with Industry Associations, Indian Banks’ Association (IBA), NSIC and Rating Agencies, with the objective of creating awareness amongst MSEs about the strengths and weaknesses of their existing operations and to provide them an opportunity to enhance their organizational strengths. NSIC has been appointed as implementing agency to carry out this scheme on behalf of the Government. Indian Banks’ Association and Reserve Bank of India recognized the Scheme and had informed to all banks to consider the ratings under the scheme as per availability and wherever appropriate structure their rates of interest depending on the ratings assigned to the borrowing SME Units’. RBI reiterates these guidelines every year vide its master circular.

The rating under the scheme serves as a trusted third party opinion on the capabilities and creditworthiness of the small enterprises. An independent rating by an accredited rating agency has a good acceptance from the Banks/Financial Institutions, Customers/Buyers and Vendors. Under this Scheme, rating fee to be paid by the small enterprises is subsidized for the first year only and that is subject to maximum of 75% of the fee or Rs. 40000/-, whichever is less. The rating agencies empanelled under the scheme are CRISIL, FITCH, CARE, ONICRA, ICRA, SMERA and Brickwork Rating India Pvt. Limited. Micro & Small Enterprises, desirous of being rated, are at liberty to select any of the empanelled rating agencies to carry out its rating under the scheme. All rating agencies are mandated to conduct the rating strictly in accordance with the Performance & Credit Rating Scheme.

The scheme has been widely accepted by the MSEs and has also been highly appreciated by the various Industry Associations in the country. More than 30 banks / financial institutions have signed MOU with the Rating Agencies / NSIC to extend the benefits to the units rated under the Scheme.

  1. Marketing Assistance Scheme

Marketing, a strategic tool for business development, is critical for the growth and survival of micro, small & medium enterprises. Marketing is the most important factor for the success of any enterprise. Large enterprises have enough resources at their command to hire manpower to take care of marketing of their products and services. MSME sector does not have these resources at their command and thus needs institutional support for providing these inputs in the area of marketing.

Ministry of Micro, Small & Medium Enterprises, through National Small Industries Corporation (NSIC) has been providing marketing support to Micro & Small Enterprises (MSEs) under Marketing Assistance Scheme.

Emergence of a large and diverse services sector in the past years had created a situation in which it was no longer enough to address the concerns of MSEs alone but essential to include the entire gamut of enterprises, covering both MSME Sector and related service entities, in a seamless web. There was a need to provide space for the small enterprises to grow into medium scale enterprises, for that is how they will be able to adopt better and higher levels of technology and remain competitive in a fast globalizing world. Thus, as in most developed and developing countries, it was necessary that in India too, the concerns of the entire range of enterprises – micro, small and medium, were addressed and the sector was provided with a single legal framework. The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 addresses these issues and also other issues relating to credit, marketing, technology upgradation etc concerning the micro, small and medium enterprises. The enactment of MSMED Act 2006, w.e.f. from 2nd October, 2006 has brought medium scale industries and service related enterprises also under the purview of the Ministry, accordingly the name of Ministry has also been changed.

The broad objectives of the Marketing Assistance Scheme, inter-alia, include:

  • To 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.

Marketing Support to MSMEs

Under the Scheme, it is proposed to provide marketing support to Micro, Small & Medium Enterprises through National Small Industries Corporation (NSIC) and enhance competitiveness and marketability of their products, through following activities:

  • Organizing International Technology Exhibitions in Foreign Countries and participation in International Exhibitions/Trade Fairs: 

International Technology Expositions / exhibitions may be organized by NSIC with a view to providing broader exposure to Indian micro, small & medium enterprises to facilitate them in exploring new business opportunities in emerging and developing markets. These exhibitions may be organized in consultation with the concerned stakeholders and industry associations etc. The calendar for these events may be finalized well in advance and publicized widely amongst all participants/stakeholders. The calendar of events would also be displayed on the Web-site of NSIC. Such expositions showcase the diverse technologies, products and services produced/rendered by Indian MSMEs and provide them with excellent business opportunities, besides promoting trade, establishing joint ventures, technology transfers, marketing arrangements and image building of Indian MSMEs in foreign countries. In addition to the organization of the international exhibitions, NSIC would also facilitate participation of Indian MSMEs in the select international exhibitions and trade fairs. Participation in such events exposes MSMEs to international practices and enhances their business prowess. These events provide a platform to MSMEs where they meet, discuss, and conclude agreements on technical and business collaborations.

  • Organizing Domestic Exhibitions and Participation in Exhibitions/ Trade Fairs in India: 

In order to provide marketing opportunities to MSMEs within the country, certain theme based exhibitions / technology fairs etc. may be organized by NSIC, focused on products and services offered by MSMEs, including technologies suitable for employment generation, products from specific regions or clusters (like North Eastern Region, Food processing, Machine-tools, Electronics, Leather etc). Micro, Small & Medium Enterprises would be provided space at concessional rates to exhibit their products and services in such exhibitions/fairs. Apart from above NSIC may also facilitate participation of MSMEs in the exhibitions / trade fairs / events being organized by various State Government departments, industry associations and other institutions, all over the country to exhibit their products and services. These exhibitions may be organized in consultation with the concerned stakeholders and industry associations etc. The calendar for these events may be finalized well in advance and publicized widely amongst all participants/stakeholders. The calendar of events would also be displayed on the Web-site of NSIC. Participation in such events is expected to help the MSMEs in enhancing their marketing avenues by way of capturing new markets and expanding existing markets. This would also help them in becoming ancillaries, partners in joint ventures and sub-contracting for large companies.

  • Buyer-Seller Meets: 

Buyers-Sellers Meets are organized to bring bulk buyers / Government departments and micro, small & medium enterprises together at one platform. Bulk and departmental buyers such as the Railways, Defence, Communication departments and large companies are invited to participate in buyer-seller meets to bring them closer to the MSMEs for enhancing their marketing competitiveness. These programmes are aimed at vendor developments from micro, small & medium enterprises for the bulk manufactures. Participation in these programmes enables MSMEs to know the requirements of bulk buyers on the one hand and help the bulk buyers to know the capabilities of MSMEs for their purchases. These Buyers-Seller Meets may be organized in consultation with the concerned stakeholders, including industry associations and other agencies involved in industrial development, and the calendar for these events may be finalized well in advance and publicized widely. 

  • Intensive Campaigns and Marketing Promotion Events: 

Intensive Campaigns and Marketing Promotion Events are conducted all over the country to disseminate information about the various schemes for the benefit of the micro, small & medium enterprises. They are also facilitated to enrich their knowledge regarding latest developments, quality standards etc. and improve the marketing potential of their products and services. 

  1. Other initiatives taken on the recommendations of Prime Minister’s Task Force on MSMEs 
  • Ministry of MSME has setup ‘Udyami Helpline’ – a call centre for MSMEs to create more awareness about the schemes of the Government.
  • In order to expand the coverage under entrepreneurship and skill development programmes, Ministry of MSME has modified scheme of “ Assistance to Training Institutions” which also provides giving financial assistance for “Training of Trainers” 

Programme and Rajiv Gandhi Udyami Mitra Yojana (RGUMY). In addition, effective steps have been taken for expanding the coverage under the Scheme by empanelling 50 partner institutes under 3 national level EDIs. Copy of this scheme has also been circulated to 96 MSME associations. 

  • A “Specialised Marketing Intelligence Cell” has been set up by 

NSIC to collect and disseminate both domestic and international marketing intelligence in coordination with other relevant departments/agencies.


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