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Competitive Performance of Micro, Small and Medium Enterprises in India

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Vol.III(1), Jan-June 2011, pp.128-146
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Competitive Performance of Micro, Small and Medium

Enterprises in India
Nallabala Kalyan Kumar 1 and Gugloth Sardar2
1
Research Scholar, Department of Management Studies, Sri
Venkateswara University, Tirupati-517502, India.
2
Associate Professor, Department of Management Studies, Sri
Venkateswara University, Tirupati-517502

Abstract
The micro, small and medium enterprises (MSMEs) is aptly
regarded as the backbone of the Indian economy. The small scale sector
occupies a position of prominence in the Indian economy, contributing to
more than 50% of the industrial production value accumulation terms. The
sector accounts for one third of the export revenue and employs the largest
manpower next to agriculture. MSMEs are recognized as one important
constituent of the national economies. The paper highlights the
consequence of the MSME and their role in the economy and the impact of
economic reforms on growth pattern and performance of MSMEs. The
MSMEs should be encouraged to make a sustainable contribution to the
national income, employment and exports. SMEs area major employment
provider and donor to GDP, they are burdened with the responsibility of
providing employment while at the same time experiencing slow-moving
growth because of dividing agriculture sector and globalization.

Key words: Micro, Small and Medium Enterprise, Small Scale Industry,
Credit Guarantee Scheme, Competitiveness.

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Nallabala Kalyan Kumar and Gugloth Sardar 129

Introduction
The MSMEs sector constitute an important fragment of the
Indian economy in terms of its contribution to the country’s
industrial production, export’s, employment and creation of a
consumerist base (Nanjundappa,D.M 2002). The government
established the ministry of small scale industries and Agro and rural
industries (SSI&ART) In October, 1999 as the nodal ministry for
formulation of policies and programmes, their accomplishment and
related coordination, to supplement the efforts of the states for
promotion and development of this category of industries in India.
MSME have been accepted as the Indian engine of economic growth
and for promoting equitable development.

The MSME constitute over 90% of total enterprises in most

of the economics and are attributed with generating the highest rates
of employment growth and account for a major share industrial
production and exports. In India the MSMEs play a vital role in the
overall industrial economy of the country. It is estimated that in
terms of value, the sector accounts for about 39% of the
manufacturing output and around 33% of the total exports of the
country (www.msme.in). Further, in recent years the MSME Sector
has consistently registered higher growth rate of compared to the
overall industrial sector. The major advantage of the sector its
employment potential at low capital cost (Annual Report 2009-10).
As per available statistics this sector employs an estimated 31 million
person spread over 12.8 million enterprises and the labor intensity in
the MSE sector is estimated to be almost four times higher than the
large enterprises (Vasant, D. 2009).The responsibility of ministry of
MSMEs in mainly to support the state governments for promoting
growth and development of MSMEs for ornamental their
competitiveness in the changed scenario. MSME play a key role in
the industrialization of developing country. Micro, small and medium
enterprises as per MSMED Act, 2006 are defined based on their
investment in plant and machinery (for manufacturing enterprises)
and equipment for enterprises providing or representation services.
The Ministry of Agro rural industries and Ministry of small scale
industries were merged in to a single Ministry namely “Ministry of
micro, small and medium enterprises” from 2nd October, and 2006
(Vidya Suresh and Shashidhar).

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Nallabala Kalyan Kumar and Gugloth Sardar 130

New arrangement and Classification of MSME:

(As per Micro, Small and Medium Enterprises Development Act,
2006)
In India, the enterprises have been classified broadly into two
categories:
 Manufacturing
 These engaged in providing/rendering of services service
enterprises.
Both categories of enterprises have been further classified into micro,
small and medium enterprises based on their investment in plant and
machinery (for manufacturing enterprises) or on equipments. (In
case of enterprises providing (or) rendering services). The present
ceiling on investment to be classified as micro, small (or) medium
enterprises (is as under).

Manufacturing Enterprises
 A micro enterprise, where the investment in plant and
machinery does not exceed twenty five lakh rupees.
 A small enterprises, where the investment in plant and
machinery is more than twenty five lakh rupees but does not
exceed five crore rupees.
 A medium enterprise, where the investment in plant and
machinery is more than five crore rupees but does not exceed
ten crore rupees.
Service Enterprises:
 Micro Enterprises, where the investment in equipment does not
exceed ten lakh rupees.
 In small enterprises, where the investment in equipment is more
than ten lakh rupees but does not exceed two crore rupees.
 A medium enterprises where the investment in equipment is
more than two crore rupees but does not exceed five crore
rupees.

Performance of (MSMEs) in India

The MSMEs sector contributes significantly to the
manufacturing output, employment and exports of the country. It is
estimated that in terms of value, the sector accounts for about 45
Percent of the manufacturing output and 40 percent of the total
exports of the country. The sector is anticipated employ about 60
million persons in over 26 million events throughout the country.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 131

Further, this sector has consistently registered higher growth rate

than the rest of the industrial segment. There are 6000 products
ranging from conventional to high-tech items, which are being
manufactured by the MSMEs in India (Ruddar Datt, and Sundharam,
K.P.M. 2010). The MSME sector contributes significantly to the
manufacturing output, employment and exports of the country. This
sector has time after time registered a higher growth rate than the rest
of the industrial segment. It is familiar that the MSME sector
provides the maximum opportunities for both self-employment and
jobs after agriculture sector.

Table 1: Growth pattern of employees in SSIs MSME Sector

Year Total MSMEs Employment
(lakhs numbers) (lakh and person)
1992-1993 73.51 174.84
1993-1994 76.49 182.64
1994-1995 79.60 191.40
1995-1996 82.84 197.93
1996-1997 86.21 205.86
1997-1998 89.71 213.16
1998-1999 93.36 220.55
1999-2000 97.15 229.10
2000-2001 101.1 238.73
2001-2002 105.21 249.33
2002-2003 109.49 260.21
2003-2004 113.95 271.42
2004-2005 118.59 282.57
2005-2006 123.42 294.91
2006-2007 261.01 594.61
2007-2008 272.79 626.34
2008-2009 285.16 659.35
Source: Annual Report, 2009-10, ministry of micro, small and medium
enterprises, www.msme.in

As per latest fourth census with reference year 2006-07,

there were about 261 lakh enterprises providing employment to about
595 lakh persons. The anticipated subsequent figure for the year
2008 - 2009 was 285 lakhs enterprises generating employment for
about 659 lakh persons.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 132

Graph 1: Trends in the enlargement of Micro, Small and medium

Enterprises (MSMEs) and the Employment generated (in lakh)
700
600
500
400
300
200
100
0

Total MSMEs (lakhs numbers) Employment (lakh and person)

Source: Annual Report, 2009-10, Ministry of Micro, Small and Medium

Enterprises,WWW.msme.gov.in

It can be deciphered from the graph that the number of

MSEs has increased gradually in India from 73.51 lakhs in 1992-93
to 285.16 lakhs in 2008-09. The number of persons employed in
MSEs was increasing from 174.84 lakhs in 1992-93 to 659.35 lakhs
in 2008-09. Small firms and enterprises are in importance of
employment in many developing nations, often employing significant
share of the labour force.

As per the latest 4th Census with reference year 2006-07,

there were about 261 lakh enterprises providing employment to about
595 lakh persons. The projected corresponding figure for the year
2008-09 was 285 lakh enterprises generating employment for about
659 lakh persons .The following graph depicts the number of
enterprises, employment and the magnitude of fixed investment in
MSME sector.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 133

Table 2: Growth model of production in MSMEs (Rs. In Crores)

Production Production
(Rs.Crores) Growth (Rs.Crores) Growth
Year
Constant prices Rate
Current prices
at 1993-94
1992-1993 92246 (5.6) 84413 (4.71)
1993-1994 98796 (7.1) 98796 (17.04)
1994-1995 108774 (10.1) 122154 (23.64)
1995-1996 121175 (11.40) 147712 (20.92)
1996-1997 134892 (11.32) 167805 (13.60)
1997-1998 146262.9 (8.43) 187217 (11.57)
1998-1999 157525.1 (7.7) 210454 (12.41)
1999-2000 170379.2 (8.16) 233760 (11.07)
2000-2001 184401.4 (8.23) 261297 (11.78)
2001-2002 195613 (6.06) 282270 (8.03)
2002-2003 306771 (8.68) 314850 (11.54)
2003-2004 336344 (9.64) 364547 (15.78)
2004-2005 372938 (10.88) 429796 (17.90)
2005-2006 418884 (15.83) 497842 (5.27)
2006-2007 NA NA 709398 (166.20)
2007-2008 NA NA 790759 (11.47)
2008-2009 NA NA 880805 (11.39)
Source: Website of Reserve Bank of India
Note: The figures in brackets show the percentage growth over the
previous years.)

Table 3: Growth pattern in exports of MSMEs

Year SSI exports Growth Rate
(Rs. In Crores)
1992-1993 17784 (28.10)
1993-1994 25307 (42.30)
1994-1995 29068 (14.86)
1995-1996 36470 (25.46)
1996-1997 39248 (7.62)
1997-1998 44442 (13.23)
1998-1999 48979 (10.21)
1999-2000 54200 (10.66)
2000-2001 69797 (28.78)
2001-2002 71244 (2.07)
2002-2003 86013 (20.73)
2003-2004 97644 (13.52)
2004-2005 124417 (27.42)
2005-2006 150242 (4.37)
2006-2007 182538 (101.62)
2007-2008 202017 (10.67)
2008-2009 NA NA
Source: Hand book of statistics’ on Indian economy (2010) Reserve Bank of India.
(Note: The figures in brackets shoe the percentage growth over the previous years.)

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 134

In the accomplishment of the deliberate objectives of a self-

reliant and self-motivated economy, the government considers a
substantial development in export wages to be a great magnitude the
value of exports from the small scale industries sector has been
increasing from year to year (1992-2009). Small scale industry
sector plays a most important responsibility in India’s current export
performance. The small scale industries are causal almost 45
percentages of the manufacturing output and 40 percent of the total
exports of the country.
Graph 2: Trends in the development of (MSMEs) and the production

180
160
140
120
100
80
60
40
20
0
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009

Graph 3: Trends in the growth of MSMEs and the exports.

SSI exports (Rs. In Crores)

300000
200000
100000
0

SSI exports (Rs. In Crores)

Source: 1. Centre for industrial and economic research (CIER), New Delhi.
2. WWW.indiastat.com, Exports from the small industry have enlarged from Rs.
17784 crore in 1992-1993 to Rs. 202017 crores in 2007-2008.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 135

Growth rate has not been right through reference period and
has decreased significantly after reorganization. The elimination of
license-quota-permit system shifted the meeting point from
production to competitive endorsement. Involving a process of
deservation of product from small scale industries during pre-
liberalization period the highest enlargement rate of 15% achieved in
2005-06.
Table 4: Growth pattern in investment of SSIs
Year Fixed Investment Growth Rate
(Rs. In crores)
1992-1993 109623 9.24
1993-1994 115795 5.63
1994-1995 123790 6.9
1995-1996 125750 1.58
1996-1997 130560 3.82
1997-1998 133242 2.05
1998-1999 135482 1.68
1999-2000 139982 3.32
2000-2001 146845 4.90
2001-2002 154349 5.11
2002-2003 162317 5.16
2003-2004 170219 4.87
2004-2005 178699 4.98
2005-2006 188113 4.07
2006-2007 500758 111.48
2007-2008 558190 11.47
2008-2009 621753 11.39
Source: Ministry of MSME

Sickness in MSMEs
Perception of sickness: Sickness is easy to understand but difficult
to define. It is relative term .In common idiom ,a sick industry is one
which is not healthy .A healthy unit is one which earns a reasonable
return on capital employed and which builds up reserves after
providing reasonable depreciation .Different agencies have defined
sickness differently (Jain, N. 2004).
The description of sick small scale industrial units under the
Reserve Bank of India’s (RBI) instructions followed in September
1989 is as follows.

A small scale industrial unit is considered as sick when any

of its borrowable accounts has become a doubtful advance that is

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 136

most important or interest in respect of any of its borrowal accounts

has remained overdue for a period more than 2&1/2 years and there
is wearing away in the net worth due to accumulated cash losses to
the extent of 50 percent or more of its climax net worth during the
foregoing two accounting years.The sick industrial companies
(special provisions) Act, (SICA), 1985 defines sick units as an
industrial company (Being a company registered for not less than
seven years), (Jaya Krishna, M. 2004). which has at the end of any
financial year accumulated sufferers equal to or exceeding its
complete net worth and has also suffered from cash losses in such
financial year instantaneously proceeding such financial year.

Graph 4: Trends in the growth of MSMEs and the Investment

Fixed Investment (Rs. In crores)

0.08
x 10000000

0.06
0.04
0.02
0 Fixed Investment (Rs.
In crores)
1992-1993
1994-1995
1996-1997
1998-1999
2000-2001
2002-2003
2004-2005
2006-2007
2008-2009

Signals and symptoms of sickness

It is clear from the definition of sickness that industrial
sickness does not come to mind all of a unexpected in the life
narration of an industrial unit. In fact, it is a continuing process with
distinct stages taking from 5 to 7 years to corrode the health of a unit
beyond cure. It starts with downturn in the industry whose
continuation leads to setting in of industrial sickness. (Lagipathi Rai,
H., and Subbi Reddy,T. 1988). The process of industrial sickness can
be presented in different traditions. Bidani and Mitra put this process
of industrial sickness in the following manner.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

 Nallabala Kalyan Kumar and Gugloth Sardar 137

PROCESS OF INDUSTRIAL SICKNESS

Normal units  Functional areas, VIZ., production, marketing, finance and
personnel are normal and efficient .generating profits,
current ratio is more than one.
 Net worth is positive and debt - equity ratio is satisfactory
Tending towards  Initial aberration in some of the functional areas mentioned
sickness above decline in profit during last year and losses anticipated
in current year.
Incipient  Deterioration in the above functional areas continues.
sickness  Cash losses incurred last year are expected in current year.
 Deterioration anticipated during current year.
 Although current ratio is more than one during the last year.
 Deterioration anticipated in debt -equity ratio during current
year
sickness  Units functional areas have become inefficient, cash losses
were incurred last year, expected in the current year and next
year also.
 Current ratio is less than one and debt-equity ratio has
worsened.

Symptoms of sickness
The determination of various signals over a long period of
time becomes symptoms of sickness. The various symptoms
ultimately reflect on plant performance, capacity utilization, financial
ratios, share market price and practices in the diverse areas of
finance, production, marketing and labour relations in the industry
(Raj, K.N. 1956). Some of the important symptoms which
differentiate industrial Sickness.
• Persisting shortage of cash
• Deteriorating financial ratios
• Widespread use of creative accounting
• Continuous tumble in the prices of the shares
• Frequent request to banks and financial instructions for loans
• Delay and default in the payment of statutory dues
• Delay in the audit of annual accounts and Demoralization of
employees and desperation among the top and middle
management level.
However ,the financial ratios, in all cases .cannot be
considered as accurate symptoms of industrial sickness mainly due to
two reasons ,First ,the sickness horizontal units ,in order to present a
better and resonance representation ,do a lot of window covering
.Second ,the financial data is available after a slit of one year.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 138

However, an early recognition of signals and symptoms of industrial

sickness make the task of detecting sickness easier .The particulars of
sickness relating to MSMEs sector in India is presented in table5.
Table 5: Sickness in MSMES sector of India during 1998to 2008

Year Total Sick Percentage Total Sick units Percentage

ssi units units in investment investment
in lakh Lakhs in crores in crore
percentage
1998 89.71 2.21 2.46 133242 3857 2.89
1999 93.96 3.06 3.26 135482 4313.48 3.18
2000 97.15 3.04 3.13 139982 4608.43 3.29
2001 101.1 2.49 2.46 146845 4505.54 3.07
2002 105.21 1.77 1.68 154349 4818.95 3.12
2003 109.49 1.67 1.53 162317 5706.35 3.52
2004 113.95 1.43 1.25 170219 5772.64 3.39
2005 118.59 1.38 1.16 178699 5380.13 3.01
2006 123.42 1.26 1.02 188113 4981.13 3.64
2007 261.01 1.14 0.43 500758 5266.65 1.05
2008 272.79 0.85 0.31 558190 13849 2.48
Source: 1. Government of India, Ministry of Micro, Small and Medium Enterprises, Annual
Repo 2009-2010.
2. Reserve bank of India .Hand book of statistics on Indian economy, 2008-09

It can be noticed from the table 5 that there were 89.71 lakh
MSMEs units in 1988 and their number has steadily increased year
by year to’ 272.79 lakh units in 2008. The percentage of sick units
among the MSMEs was 2.46 percent in 1998 and it gradually went
up to 3.13 in 2000 and declined to a level of 0.31 percent in
2008.The total investment in MSME units was reported at RS.1, 33,
242 crore in 1998, of which investment incurred on sick units has
been worked out to 2.89 percent .The percentage of investment of
sick units was revolving in the range of 3.52 percent to 0.248. The
maximum percentage of 3.52 percent was observed during the year
2003.In absolute terms, the investment in sick units increased year
after year as there was increase in investment in MSMEs units. The
sickness among MSMEs units during 1998-2008 is percentage in the
graph 5.

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Nallabala Kalyan Kumar and Gugloth Sardar 139

Graph 5: Sickness in MSMES during 1998 to 2008

300 261.01272.79
250
200
150 109.49113.95118.59123.42
89.71 93.96 97.15 101.1105.21
100
50 2.21 3.06 3.04 2.49 1.77 1.67 1.43 1.38 1.26 1.14 0.85
0
1 2 3 4 5 6 7 8 9 10 11

Total ssi units in lakh Sick units in Lakhs

Performance and credit scheme for rating of small scale

industries
Background:The small sector occupies an important position in any
emergent economy the world over fast changing global economic
circumstances has frightened up many opportunities and challenges
to the small scale industries to India. The Ministry of MSMEs
addresses the issues and concerns relating the MSME division at the
national level through the formulation of policies and schemes which
are implemented by the organizations approaching under its purview,
the Ministry is assessed in the accomplishment of its policies and
programs by summit organizations like small industries development
organization(SIDO), National small industries corporation (NSIC),
Small Industries Development Bank of India (SIDBI), National
Commission for Enterprises in the unorganized sector (NCEUS) and
National Entrepreneurship Development Institutes (EDIs). The
office of the Development Commissioner for MSMEs which comes
directly under the Ministry of MSMEs operates a number of
promotional and developmental schemes on behalf of the Ministry
(Jaya Krishna, M. 2004).A performance and credit rating system for
small scale industries has been formulate in discussion with various
pledge holders that is small industries association and Indian banks,
association on various ranking agencies viz., CRISIL, ICRA, DUN
and Brad Street (B & D) and ONICRA. It has the approval of
government.

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Nallabala Kalyan Kumar and Gugloth Sardar 140

Financial support for SSI

Credit is the prime input for continued growth of SSI and its
recruitment for meeting fixed and working capital needs possess the
leading problems. Credit provided for creation of fixed assets like
land, building, plant and equipment is called long term credit. Credit
card scheme has been provided to SSI where they can credit up to
Rs.10 lakhs. Apart from this, credit facilities up to maximum of
Rs.25 lakhs are providing through credit guarantee fund trust in
association with SIDBI (Small Industries Development Bank of
India) and Govt. of India (Natarjan, R. 1989).

SSI finance and Credit policies input from the ground

The over shifting concerns of the MSME sector remains
that of assess the sufficient credit. The participants reported four key
issues with regards to MSME finance and credit policies.
1. Perceived poor quality of service.
2. High cost of credit to MSME sector in comparison to their
large counter parts.
3. The lack of simplicity (in fixing charges, credit rating
process, disposal of loan application).
4. Insufficiency of domain knowledge (of sectors or products)
among branch managers with enhances their risk perception.
Credit Guarantee Scheme:The credit conveniences which are
appropriate to be covered under the scheme or both term loans and
working capital facilities up to Rs.100 lakhs (Rs. 1.0 Crore) per
borrowing unit. The loan is extended without any guarantee security
or third party guarantee, to a new or existing micro or small
enterprises. The loans are guaranteed by credit guarantee fund trust
for micro small enterprises.

In case of default by the borrowing units, the trust which

stands assurance up to 75% (or higher as the case may be) of the loan
amount, pays off the agreed amount to the lending institution. The
guarantee covers is higher at 85% for more exposed sectors like
micro enterprises with a loan limit of Rs. 5.0 lakhs.

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Nallabala Kalyan Kumar and Gugloth Sardar 141

Guarantees

Category Maximum extent of Guarantee where credit facility is

Up to Rs. 5 Above Rs.5 Above Rs. 50 lakhs
lakhs lakhs Upto Rs. 100 lakhs
Up to Rs. 50
lakhs
Micro Enterprises 85% of the 75% / Rs. Rs. 37.5 lakhs plus
amount in 37.50 lakhs 50% of amount in
default subject default above Rs. 50
to a maximum lakhs subject to
of Rs. 4.25 overall ceiling of Rs.
lakhs 62.50 lakhs.
Women 80% of the amount in default Rs. 50 lakhs plus 50%
Entrepreneurs/units subject to a maximum of Rs. 40 of amount in default
located in north-east lakhs. above Rs. 50 lakhs
region (include subject to overall
Sikkim) other than ceiling.
credit facility up to
Rs. 5 lakhs to micro
enterprises.
All other categories 75% / Rs. 37.50 lakhs Rs. 37.50 lakhs plus
of borrowers 50% of amount in
default above Rs. 50
lakhs subject to
overall ceiling of Rs.
62.50 lakhs.

Schemes for small industrial units

In the World Trade Organization (WTO) surroundings. It
has become very clear that small industrial units have to be cost
spirited and produce quality goods to remain in business. The
ministry of SSI projected to help small industrial units by giving
incentives for taking ISO-9000 certification, introduce a Credit
Linked Capital Subsidy Schemes (CLCSS),Technology up gradation
scheme and Credit Guarantee fund trust (TGSCGPT),for small
industries.

Laghu Udyami Credit Card Scheme: Laghu Udyami Credit Card

Schemes (LUCCS), introduce in November 2001, has been
implemented by the banks for on condition that borrower friendly

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 142

credit facilities to small business, retail trades, artisans, small

entrepreneurs, professional and other self employed persons
including those in the tiny sector (Laghu- Udyoug Sam Char 2006).
Credit limited per enterprise under the scheme has been increased
from Rs.2 lacks to Rs.10 lacks for borrowes with satisfactory record.

SSI advances guaranteed by Credit guarantee fund trust for

small industries (CGTSI): Credit Guarantee Trust for Small
Industries (CGTSI), A trust setup jointly by the Govt. of India and
small industries development bank of India is administering the
credit guarantee fund scheme for small industries(CGFSSI), launched
by Government of India to cover credit facilities extended small scale
industries by eligible lending institutions.

The guarantee covers under CGFSSI is available for credit

facilities extended by eligible lending institutions, irrespective of a
single borrower, not exceeding Rs.25 lakhs by way of term loan and
working capital facilities on (or) after entering into an agreement
with the trust. To the small scale industries units including
information, technology and software industries without any
collateral security and (or) third party guarantees. The guarantee
cover is also extended to sick units, the cover being about 75% to
85% and limit maximum of Rs. 65 lakhs. As on 31st March, 2007
proposals from entrepreneurs and small businesses, guaranteeing
term loans and working capital facilities were 70,000 and 53,708 in
2008-09 with cover of Rs. 2200 crores. However as on February,
2010, 2, 77, 983 proposals with guarantee covers of Rs. 10, 55,168
lakh were approved encouraging response.The trust provides
guarantee covers of up to 75% of amount in default of the credit
facility extended by the lending institution to an eligible borrower,
subject to a maximum cover of Rs. 18.75 lakhs per borrower.
Swaroggar Credit Card Scheme: Swaroggar Credit Card Scheme
(SCCS) has been launched since 15th august 2003 and banks are
providing working capital to self employment people to the extent of
Rs.25000 lakhs per card. Credit flow from the formal system to small
borrowers, especially persons of small means, has not been ad
equated which has been established by various studies, Various credit
delivery innovation in the firm of SHG-bank linkage programme for
making financial services available to the unfortunate, Kisan Credit
Card Scheme (KCCS) for meeting the production credit needs of the

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Nallabala Kalyan Kumar and Gugloth Sardar 143

farmers for small industrial sector have been introduced. However,

tiny and cottage village industries sector and self employed persons
were left out from credit card schemes.

Credit Linked Capital Subsidy Schemes (CLCSS): The scheme

was started in October, 2000 for a period 5 years for encouraging the
small industrial units for technology up gradation by installing new
machinery and equipment for increasing productivity, quality up
gradation, machinery for packaging or for environmental protection
.Initially 13 items were shortlisted under this scheme, providing 15
percent upfront capital subsidy with effect from the 29.09.2005 to
Micro, Small and Medium Enterprises. A provision for giving
subsidy of Rs.600 crores was made under this scheme. Recently the
list of items has been improved to 30, so that more number of units
can become in principle advanced.

Outstanding Bank Credit to Micro, Small and Medium

Enterprises
The outstanding bank credit to micro, small and medium
enterprises by all scheduled commercial banks, as at the end of the
March 2009 is Rs.257361 crores as compared to Rs. 83498 crores at
the end of 2005.The percentage of MSMEs credit to net bank credit
has increased from 8.08 in 2005 to 11.4 in 2009. Similar trend is
observed in the case of public and private sector banks (Table.6)

Table 6: Outstanding bank credit to MSMES

(Rs.Crore)
As on last Percentage
Public Private All Scheduled
reporting Foreign of MSME
Sector Sector Commercial
Friday of Banks credit to Net
Banks Banks Banks
March Bank Credit
2005 67,800 8,592 6,907 83,498 8.8

2006 82,434 10,421 8,430 1,01,285 7.5

2007 1,02,550 13,136 11,637 1,27,323 7.2

2008 1,51,137 46,912 15,489 2,13,538 11.6

2009 1,91,307 47,916 18,138 2,57,361 11.4

Source: Annual report 2009-10, Government of India

Note: Figure in parentheses indicates year –on –year growth.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 144

The high growth witnessed during 2008 is on account of re

-classification of MSEs as per MSMED Act ,2006.Firstly ,the
investment limit of small (manufacturing) was raised from Rs.1
crore to Rs.5 crore and small (services) was added to include
enterprises with investment limit between Rs.10 lakhs to Rs.2 crore
,Secondly, The reporting of examine enterprises were broadened to
include small road and all other service enterprises as per definition
provided under MSMED Act,2006.
Graph 6: Outstanding bank credit to MSMES

300000

250000

200000

150000

100000

50000

0
2004 2005 2006 2007 2008 2009 2010

P ub lic S e c to r B a nk s
P riva te S e c to r B a nk s
F o re ig n B a nk s
A ll S c he d ule d C o m m e rc ia l B a nk s
P e rc e nta g e o f M S M E C re d it to N e t B a nk C re d it

Conclusion
MSMES has performed extremely well and enabled our
country to attain wide-ranging events of industrial amplification and
diversification. By its less capital concentrated and high labor
combination nature, MSME sector has made important contribution
to employment generation and also to rural industrialization. Under
the shifting economic scenarios’ has both the demanding and
opportunities before them. The business can contend on cost, quality
and products at household and international level only if ideal
investment in equipment production process, R&D and marketing are
made. Communications bottlenecks are not completely solved. The
promotional behavior for MSMES in India needs to contemplate on
improved credit flows, human resource development, suitable
technology and resources for transformation. So, this is the
appropriate time to set up projects in the MSMES sector. It may be
said that the stance is positive in reality shows potential, give some
security. This exemption is based on a necessary characteristic of the

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

Nallabala Kalyan Kumar and Gugloth Sardar 145

Indian industry and the demand structures. The variety in the demand
structure will ensure long-term co-existence of many layers of
demand for consumer products/technology/process. There will be
prosperous and well stranded markets for the same product/process,
differentiated by quality, value added and complexity, these
characteristics of the Indian economy will allow balancing survival
for a variety of miscellaneous types of units.

Asia Pacific Journal of Social Sciences, Vol.III(1), Jan-June 2011, pp.128-146

 Nallabala Kalyan Kumar and Gugloth Sardar 146

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