- [Act 1] MSME Basics
- [Act 2] MSME – Government initiatives
- [Act 3] Sick industries
- [Act 4] Survey Summary: MSME reforms
Economic survey chapter 9. Industrial Performance. Three subparts
- Companies act and corporate governance
- Policies, PSUs, excise and custom duties
- MSME sector
- Initial classification based on Abid Hussain committee.
- Latest classification based on MSME Act 2006
|Classification||Mfg. Sector||Service Sector|
|criteria||investment in plant and machinery||equipment|
|MICRO||upto 25 lakhs||upto 10 lakhs|
|distribution||32% of MSME are in mfg. sector||68% of MSME are in service sector|
- >55% of MSME located in rural area
- have shown consistent growth above 10% since 2010
|Cottage industry||village industry|
|Organized sector||unorganized sector|
|~17% of workforce here||~83% workforce here. (NSSO-2011)|
|establishments which are covered by||not covered under those acts/orders|
|workers get social security benefits- EPF, maternity benefit etc.|
|permanent employment (in most cases)|
Common to MSME, cottage and village industries
- Value addition to raw material is very low – because they lack technology and skilled manpower.
- Small size = no economies of scale = high cost of operations, transport and raw material. Hence MRP wise cannot compete with MNCs. e.g. Tide washing powder (P&G) vs. some small scale detergent company
- Electricity supply, market connectivity poor.
We’ve learned the definition and problems of MSME, now let’s check Government initiatives to help them
|applicable from||2012- for three years.|
|applies to||every central ministry, department and PSU|
|annual target||20% of their total purchase from MSME sector|
|SC/ST||within those 20%, 4% procurement from MSME owned by SC/ST entreprenurs.|
|Excise Duty||MSME upto Rs. 1.5 crore turnover are exempted from Excise duty payment|
|Service Tax||doesn’t apply, if firm selling services less than Rs.10 lakh in the given year.|
|Capital Subsidy||upto Rs.15 lakh for purchasing plant and machinery|
|India Inclusive Innovation Fund||to promote grassroot innovations related social sector- health, education, rural Development etc.|
|VC for SC||Venture capital fund for Schedule caste entreprenurs. managed by IFCI [Industrial Finance Corporation of India]|
|marketing assistance||provides information, workshops to connect buyers with manufactures|
|SIDO||Small scale industries Development organization – provide research, training, technical assistance to those entrepreneurs|
|Cluster||MSE- cluster Development program – it’s similar to giving common support infrastructure in SEZ and mega food parks.|
|Khadi board||Khadi and Village Industries Commission, statutory body under MSME ministry|
|Coir board||statutory body under MSME ministry.|
|nationalawards||for entrepreneurs in 3 categories|
|Reserveditems||only Micro and small enterprises allowed to produce 20 items.|
- if a non-small scale industry wants to launch above products, they’ve get license + must export 50% of annual production.
- Exempted: Companies in SEZ and Export processing zone (EPZ).
|MSME definition||Ceiling will be raised so more industries can be brought under it.|
|technology centre network||to promote innovation, entrepreneurship and agro-industry (200 cr)|
|MoU||(not in budget but under Modi regime)|
Will setup Textile mega-clusters in following places (200 cr):
Textile Misc. Factoids:
- Textile export ranking: China > EU > India (3rd)
- 4.5 crore employed, majority in unorganized sector.
1987: Sick industrial companies Act, based on Tiwari recommendations.
Definition of Sick industry:
- Does not apply to micro and small enterprises.
- applies to medium and large scale companies
- registered under companies act, for minimum 5 years
- making losses in this year and last year
- Has eroded its entire networth / paid up capital.
What are the ‘benefits’ of becoming of a SICK company? – well Government provides financial help or help you shut down!
- BIFR= board for industrial and financial reconstruction
- statutory body: setup under sick industries act
- Quasi-judicial body: decides whether a company is sick or not. Its decision is final and binding.
- if a loss making company is declared “SICK”, it’s given three options
- time extension to make net worth positive
- “revival” package (from SIDF fund money from SIDBI)
- Wind up the company.
- Industrial investment bank of India
- Provided finance and technical assistance to revive the “SICK” industries. (after BIFR gave “Certificate” that given company is “SICK”)
- it was the fifth all India financial intermediary (AIFI)- other four were SIDBI, NHB, NABARD and EXIM bank
- 2012: finance ministry closed it down because hardly any positive impact.
- Create a website with all the rules and regulations applicable to businesses across states and the centre.
- Department of industrial Policy and Promotion (DIPP) implement “E-biz” module under National E-governance plan. We can utilized it for this purpose
- Minimize human interaction. Shift reporting/data submission to an online-only mode whenever possible, e.g. for routine registration, repeated filing and reporting of information.
- Ask State Governments to share best practices on business regulations- and adopt it at national level.
# less interference
- Strengthen grievance redressal mechanisms against inspections- with clear norms and deadlines.
- Give extension time to companies, to correct their fault instead of penalizing them immediately.
- System for self-certification and third-party certification.
- Review and remove outdated regulations
- Reform the Apprenticeships Act of 1961.
- Amend MSME act to help financially distressed companies
- Long term: completely revamp Indian laws governing taxation, labour, environment, and safety.
- Setup a productivity commission similar to Australian Productivity Commission. It’ll serve a knowledge base, and champion for business change.
# Land availability
- Permit mixed use of residential and commercial properties. Otherwise, given the real estate inflation- the MSME entreprenurs cannot expand.
- Ask PSUs and departments to sell away their “Surplus / unutilized” land to MSME. The government could institute a ‘use it or lose it’ policy to free up this locked land.
- Give wider social security and health benefits like New Pension Scheme (NPS) and Rashtriya Swasthya Bima Yojna (RSBY).
- Coupon system for casual workers- which grants them social security benefits.