- Prologue
- [Act 1] MSME Basics
- [Act 2] MSME – Government initiatives
- [Act 3] Sick industries
- [Act 4] Survey Summary: MSME reforms
Prologue
Economic survey chapter 9. Industrial Performance. Three subparts
- Companies act and corporate governance
- Policies, PSUs, excise and custom duties
- MSME sector
[Act 1] MSME Basics
Definition: 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 |
SMALL | >25 lakhs | >10 |
MEDIUM |
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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
Definition: Cottage vs Village industry
Cottage industry | village industry |
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Definition: organized vs unorganized sector
Organized sector | unorganized sector |
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~17% of workforce here | ~83% workforce here. (NSSO-2011) |
establishments which are covered by
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not covered under those acts/orders |
workers get social security benefits- EPF, maternity benefit etc. |
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permanent employment (in most cases) |
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Problems of these industries:
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
[Act 2] MSME – Government initiatives
Public procurement policy
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. |
SIDBI, SIDF and NEF
SIDBI |
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SIDF |
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NEF |
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Taxation, Subsidy, Schemes for MSME
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] |
UdhyamiMitra |
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Credit guarantee |
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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
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Reserveditems | only Micro and small enterprises allowed to produce 20 items. |
Items reserved for MSME sector
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- 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).
Budget 2014: MSME related announcements
Bankruptcy |
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Committee |
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Incubation |
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MSME definition | Ceiling will be raised so more industries can be brought under it. |
Startup companies |
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technology centre network | to promote innovation, entrepreneurship and agro-industry (200 cr) |
MoU | (not in budget but under Modi regime)
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Budget-Textiles / handloom related
Will setup Textile mega-clusters in following places (200 cr):
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Hastkala Academy |
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P3 |
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Misc. |
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Textile Misc. Factoids:
- Textile export ranking: China > EU > India (3rd)
- 4.5 crore employed, majority in unorganized sector.
[Act 3] Sick industries
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.
IIFB (closed)
- 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.
[Act 4] Survey Summary: MSME reforms
# E-governance
- 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.
#social security
- 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.
nice article sir,..i love the way u explain..thnks
mrunal please remove the comment column from left side of your main page
Hi mrunal why images not displayed?
I tried different browsers, only problem with few pages here.
Sir you have mentioned in the above article that….
”Textile Misc. Factoids:
Textile export ranking: China > EU > India (3rd)
4.5 crore employed, majority in unorganized sector”
In India the majority population employed in unorganized sector is in textile or agriculture ??
doing good job
thanks a lot for your wonderful contribution for aspirants of different exams.