Micro Small and Medium Enterprises (MSMEs)

Project Report
Submitted To:

Prof. Rakesh Gupta

Submitted By:
Section A
Group Members Name:Amrita Paramanik Antara MukherjeeNaina KamraRadhika
BhardwajSabyasachi PandaVishal Goyal

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MICRO-ENTERPRISE
A micro-enterprise is a type of small business, often unregistered, having five or feweremployees. Micro
enterprises is an enterprise where the investment in equipment does notexceed Rs 10 lakh. They account for a
substantial share of total employment and gross domestic
product and they contribute significantly to poverty reduction. USAID defines “microenterprise”
as a firm of 10 or fewer employees, including unpaid workers, which is owned and operated bysomeone who is
poor.
MEDIUM ENTERPRISE
A medium-sized enterprise is defined as an enterprise which employs fewer than 250 persons.Medium enterprise
is that where the investment in equipment is more than Rs 2 crore but doesnot exceed Rs 10 crore.
SMALL ENTERPRISE
A small enterprise is defined as an enterprise which employs fewer than 50 persons.Smallenterprise is one where
the investment in equipment is more than Rs 10 lakh but does notexceed Rs 5 crore. The limit for investment in
plant and machinery / equipment for manufacturing / serviceenterprises, as notified,vide S.O. 1642(E) dtd.29-09-
2006 are as under:
Manufacturing Sector
Enterprises Investment in plant & machineryMicro Enterprises Does not exceed twenty five lakh rupeesSmall
Enterprises More than twenty five lakh rupees but does notexceed five crore rupeesMedium Enterprises More
than five crore rupees but does notexceed ten crore rupees
Service Sector
Enterprises Investment in equipmentsMicro Enterprises Does not exceed ten lakh rupees:Small Enterprises More
than ten lakh rupees but does not exceedtwo crore rupeesMedium Enterprises More than two crore rupees but
does notexceed five core rupees

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IMPORTANCE AND CONTRIBUTION OF MSME

The Micro Scale and Medium Enterprises (MSMEs) play an important role in the economicdevelopment of any
country. MSME enterprises can be rightly called as the backbone of theGDP of India. The MSME sector in India
is growing at an exceptionally fast rate due to which itis proving to be beneficial to the Indian Economy. However,
there are some important points thatneed to be considered for further development of the MSME sector.MSME
contributes in the following:Rural industrializationRural development and decentralization of industriesCreation of
employment opportunities and more equitable income distributionUse of indigenous resources; earning of foreign
exchange (FOREXs) resourcesCreation of backward and forward linkages with existing industriesEntrepreneurial
developmentThe development of MSMEs is one of the sustainable ways of reducing the level of poverty
andimproving the quality of life in household through job and wealth creation. According to theUnited Nation
Development program (UNDP), MSMEs have the highest capital, employmentratio and are a source of income
for a lot of people World over. The most important thing is thatMSMEs also act as safeguard in times of economic
recessions.The MSMEs constitute over 90% of total enterprises in most of the economies and are creditedwith
generating the highest rates of employment growth and account for a major share of industrial production and
exports. In India too, the MSMEs play a pivotal role in the overallindustrial economy of the country. In recent
years the MSME sector has consistently registeredhigher growth rate compared to the overall industrial sector.
With its agility and dynamism, thesector has shown admirable innovativeness and adaptability to survive the
recent economicdownturn and recession
.
As per available statistics (4
th
Census of MSME Sector), this sector employs an estimated 59.7million persons spread over 26.1 million
enterprises. It is estimated that in terms of value,MSME sector accounts for about 45% of the manufacturing
output and around 40% of the totalexport of the country.
This sector contributes 8% of the country’s GDP and employs around 60 million people, through
26 million enterprises. MSMEs in the country manufacture over 6,000 products.

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Let us analyze the factors that have contributed to the growth of the MSME sector in India.
MSME units in India are being funded by foreign and local fund providers.The advancement in technology
has also contributed highly to the MSME sector. There arenumerous business directories and trade
portals available online that contains a rich database of manufacturers, sellers and buyersTo start and
maintain these units, minimal investment is required.These MSME units are now being funded by many
government and private banks.The MSME sector is one of the greatest contributors of domestic production as well
as the exportearnings· Many major mergers have taken place recently.
Strengths:
The MSME sector is often driven by individual creativity.
It’s
potential for greater innovation both in terms of products and processes.Enterprises can be set up with very small
amounts of investments.Location flexibility to be located anywhere in the country. There is a well-spread
network at the national, state and the local level for providing a comprehensive range of supportservices under
marketing, technology, finance, and infrastructure and skill development.Maximum potential for employment
generation.Lowest Administrative cost & risk is lesser.Assist decentralization of power.Induce growth of
industrially backward regions ensuring balanced regional development.

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Weakness:
Small and Medium Enterprises (MSME), have inadequate access to finance due to lack of financial information
and non-formal business practices.
MSME’s also lack access to private equity and venture capital and have a very limited
access to secondary market instruments.
MSME’s face fragmented markets in respect of their inputs as well as products are also
vulnerable to market fluctuations.
MSME’s lack easy access to inter
-state and international markets. There is lack of awareness of global best practices.
The access of MSME’s to technology and product innovations is also limited.

MSME’s face considerable delays in the s

ettlement of dues/payment of bills by the largescale buyers. With the deregulation of the financial sector, the ability
of the banks toservice the credit requirements of the MSME sector depends on the underlyingtransaction costs,
efficient recovery processes and available security. There is animmediate need for the banking sector to focus on
credit and finance requirements of
MSME’s.
suffering from low technology base resulting in low productivity and poor qualityMajor weakness another
weakness is absence of marketing channels and brand buildingcapacity f products.The lack of reliable and updated
data base is another area of concern as it inhibitsmonitoring of development initiatives.There is a lack of
coordination among the various organizations involved in thepromotion of MSMEs, including organizations of
the State Governments and also thereare poor linkages with the institutional stakeholders in the private sector.

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Challenges Faced by the MSME Sector

The challenges being faced by the small and medium scale sector may be briefly set out asfollows-Small and
Medium Enterprises (MSME), particularly the tiny segment of the smallenterprises have inadequate access to
finance due to lack of financial information andnon-formal business
practices. MSME’s also lack access to private equity and venture
capital and have a very limited access to secondary market instruments.MSME's have to face the increased cost of
raw materials.
MSME’s face fragmented markets in respect of their inputs as
well as products and arevulnerable to market fluctuations.
MSME’s lack easy access to inter
-state and international markets. There is lack of awareness of global best practices.
The access of MSME’s to technology and product innovations is also limited
.In the competitive market, MSMEs need protection against market manipulation andneed to be given institutional
support
MSME’s face considerable delays in the settlement of dues/payment of bills by the large
scale buyers. With the deregulation of the financial sector, the ability of the banks toservice the credit requirements
of the MSME sector depends on the underlyingtransaction costs, efficient recovery processes and available
security. There is animmediate need for the banking sector to focus on credit and finance requirements of
MSME’s.
There is need of high level research and development required to develop these sectors inboth the urban and rural
areas
The MSME units are functioning efficiently and effectively, but even now there is lack of information regarding
the inputs of these industries, like the raw materials, skills, machinery andequipment.Though the MSME
industries are spread all over the urban areas, proper infrastructure needs tobe developed in the rural
areas to establish these industries there.

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Latest Updates on MSME

Budget Impact on MSME
Raj Kumar Malhotra, Chairman, Export Promotion Council for Handicrafts (EPCH) lauded theUnion Budget
2011-12 and termed it as a growth oriented budget for the handicraft sector. Headded that the handicrafts sector has
been given recognition in the Union Budget with a numberof initiatives including reduction in basic customs duty
on bamboo for agarbatti from 30 per centto 10 per cent, which according to him, an important incentive for the
agarbatti exporters sincethis would reduce the input costs. The development of a handicraft mega cluster would
helpincrease the production and exports of wooden handicrafts and other allied products from theregion. (
Latest updated news dated 1 march 2011
)
MSME ministry out to help young entrepreneurs
The government is very keen to support first generation entrepreneurs and so there are schemesunder Rajiv
Gandhi Udyami Mitra Yojana (RGUMY), says Minister of State (IndependentCharge) for Micro, Small and
Medium Enterprises, Virbhadra Singh in a written reply to aquestion in the Lok Sabha on Thursday.He also
informed that the government imparts training to persons desirous of setting up of micro-enterprises including
agro-industries, under Prime Minist
er’s Employment Generation
Programme (PMEGP). PMEGP is a credit-linked subsidy scheme of the Government,implemented from 2008-
09 through Khadi and Village Industries Commission (KVIC), astatutory organization under this Ministry
( www.futureindia.com news updated on 25 Feb. 2011)
New initiatives for MSME
New initiatives for Micro, Small and Medium Enterprise (MSME) sector will be launchedshortly based on the
report of the Task Force on MSME, said President Pratibha Patil.She said that the MSME sector continues to hold
its dynamism in terms of production,employment generation and contribution to exports.The MSME sector
contributes 8 percent of the country's GDP, 45 percent of the manufacturedoutput and 40 percent of its exports.The
task force on the MSME sector headed by T K A Nair, Principal Secretary to PrimeMinister, Manmohan Singh,
had submitted its report containing several recommendations lastmonth. The suggestions covered areas like easy
and affordable credit, government procurementfrom MSMEs and simplification of labour laws. The task force
also suggested setting up of aexchange for the SMEs.On the Khadi sector, which employees over one crore
people, she said, "The khadi sector is avery large employer, with khadi and village units giving employment to
over one crore persons.A comprehensive Khadi Reform Programme has been launched."
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STRATEGIES PROPOSED FOR MSME’S

When we observe the general imbroglios associated with these segments of industries thefollowing strategies can
be proposed:
NICHE MARKET STRATEGY:
Launching a product into a niche market is far cheaper than launching a mass-market product.Potential customers
are easier to identify and to target. Niche markets often develop as a subsetof mass markets and mass marketed
manufacturers choose to launch niche products as well. Soin the context of creating awareness about their product
and also create a better platform to saletheir products, niche market strategy would be an appropriate plan.
FINANCIAL STRATEGY (CREATING SNAPSHORT OF COST, MARGIN,OPERATING
CAPITAL)
All small businesses need to have absolute certainty and clarity about their fixed costs and theirvariable costs into
the near-to medium term future and have mechanisms in place to review thison a regular basis. Cash flow
management is a basic and essential business requirement.If they need to borrow money as an overdraft or a
factoring arrangement or even off friends andfamily, it should be ensured that they are getting the best terms and
the maximum flexibilitypossible. They need to be allowed about eight weeks to arrange credit and plan
accordingly.Negotiations with the financial institution must include the flexibility to get out of thearrangements as
their cash reserves improve.It should be decided priory whether they are going to pay individual commissions,
team bonusesand special privileges. Are the special deals you are offering to employees sustainable in thelonger
term? All these factors must be considered.
COMPETITIVE STRATEGY:
Every organization faces competition and it is up to the organization to decide whether it usesprice or effective
distribution to position in front of the customers when there is a concernregarding the products. Here several factors
like understanding customer behavior and supplychain are important.

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ESTABLISHING A INFORMATION MAPPING STRATEGY

:After going through the gamut of issues regarding SMSE s it has been found that there is a lack of proper
information flow among various departments particularly the workflow so a crossfunction application such as
ERP could be implemented which would act as a storehouse of information and help the managers to take efficient
decisions in future.
PROCESS STRATEGY:
There are indeed many options open to the SME regarding executing change. This could bestarted from
standardizing the primary functions of the organization like as mentioned below:Finance
–
(billing, invoicing)HR
–
(staff information, retention, training, incentives)
•

Operations
–
(planning, scheduling, information sharing, inventory, forecasting)Delivery & logistics
–
(fulfillment, customer deliveries)
•

Supply chain
–
(information sharing, access to production planning data, inventoryreplenishment, order tracking, forecasting)

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Bibliography
http://msme.gov.in/msme_ http://news.franchiseindia.com/smallbusiness/MSME-contributes-over-45-in-India-s-
manufacturing-sector-
2353/ http://zambiachambers.org/index.php?option=com_content&view=article&id=737:msmes-policy-
opportune-initiative&catid=1:latest-news&Itemid=57 http://www.business-
standard.com http://www.thomex.com/trade-events/india-msme-summit-2009/index.html