AN EMPIRICAL ANALYSIS OF GROWTH OF MSME IN

INDIA AND ROLE OF SIDBI

Abstract:

The Micro, Small and Medium Enterprise (MSME) area assumes an indispensable part
in the development of our country in making business, sends out, net mechanical
estimation of yield, net worth added, interest in fixed resources, commitment to GDP,
and offering boost to manufacture, service and infrastructure sectors. The openings in
MSME areas are colossal because of the elements like Less Capital Intensive,
Extensive Advancement and Support by Government, Reservation for Exclusive
Manufacture, Funding via Finance and Endowments, Reservation for Exclusive
Purchase by Government, Export Promotion, incredible interest in the homegrown
market , trade potential, etc. The quantity of MSMEs working in the country according
to Quick Results of 4th All India Census (2006-07), in the enlisted and unregistered
classifications are 1.55 Million (5.94%) and 24.55 Million (94.06%) individually. The
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 has offered
decision to business person that the documenting of Memorandum (Registration) by
Entrepreneur aiming to set up a Micro, Small or Medium Venture is optional and not
obligatory. In this examination, other than making a concise survey of the in general
execution of the MSME area, the pretended by the Small Industries Development Bank
of India (SIDBI) in engaging MSMEs and going about as the nodal organization for
SME plans of Government of India, have been depicted.
INTRODUCTION:

The worldwide economy is required to show a progressive strengthening of activity in

2013 from the moderately disappointing speed of mid 2012 and record a higher
development of 3.6% as against 3.3% in 2012. The development will be driven by the
USA, China, Japan and Middle East and North Africa (MENA) nations. Also, the
Indian economy is balanced on a recuperation way with expected higher development
energy in financial Year 2012-13. Various positive components are attempting to make
a development empowering eco-framework for the MSME area. To start with, good
credit strategy measures, for example, 20% yearly credit development to MSMEs, 60%
of the MSME credit to be set out for micro ventures and 10 percent yearly development
in the quantity of micro undertaking accounts. All the more critically, its constant
observing by Government of India and Reserve Bank of India will upgrade credit
admittance to the area. Second, significant imperatives of MSME area are currently
being tended to by SIDBI's new plan of action which is arranged towards filling the
monetary holes and formative holes in the MSME eco-framework.

In its new plan of action, SIDBI would give venture/ risk capital, energy effectiveness
speculation advances, bills discounting/calculating which are by and large not being
given sufficiently to MSMEs by banks. Credit stream to MSME area will be
additionally expanded by SIDBI's activities in setting up of Credit Advisory Centres
with industry relationship in groups and giving advance help/partnership
administrations. Third, a significant imperative of data hole in MSME area is presently
being tended to by SIDBI's recently dispatched site "www.smallB.in" which not just
handholds another business people to set up units, yet likewise gives all essential data
to existing business visionaries to fill in future.

Fourth, certain strategy measures like early goal of Non-Performing Assets( NPAs) and
disorder in MSME area, opening up of particular MSME branch/cell in MSME
bunches, simpler admittance to FOREX advances by MSMEs, dispatching of inventive
bank offices solely for financing creative MSMEs, obligatory 20% acquirement from
MSE area by Public Sector Undertakings/Government divisions, opening up of
safeguard area to MSMEs, and so forth will go far to assist MSMEs with accomplishing
a higher and maintainable development in coming years.
WHAT ARE MSMEs?

MSMEs sector is significant to the socio-economic development of the nation. The

sector has gained quite a lot of importance due to its contributions to the GDP of the
nation and exports. It has immensely contributed to entrepreneurship development,
particularly in the rural and semi-urban areas of our country.
According to the provisions of Micro, Small & Medium Enterprises Development
(MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified
in two classes i.e. Manufacturing Enterprises and Service Enterprises.
The enterprises are further categorized based on investment in equipment and annual
turnover.1
Criteri Manufacturing Service
a Turnover Investment Turnover Investment
Rs. 5 crores Less than Rs. 25 Rs. 5 crores Less than
Micro (US$ 0.6 lakhs (US$ 0.03 (US$ 0.6 Rs. 10 lakhs
million) million) million) (US$ 0.01 million)
More than Rs. 25 More than Rs. 10
Rs. 50 Rs. 50
lakhs (US$ 0.03 lakhs (US$ 0.01
crores crores
Small million) but less than million) but less than
(US$ 6.8 (US$ 6.8
Rs. 5 crores (US$ Rs. 2 crores (US$
million) million)
0.6 million) 0.3 million)
More than Rs. 2
More than Rs. 5
crores
Rs. 250 crores (US$ 0.6 Rs. 250
Mediu (US$ 0.3 million)
crores (US$ million), but less crores (US$
m but does not exceed
34 million) than Rs. 10 crores 34 million)
Rs. 5 crores
(US$ 1.4 million)
(US$ 0.6 million)

1
INDIA BRAND EQUITY FOUNDATION, available at https://www.ibef.org/industry/msme-presentation
PROBLEMS FACED BY MSMES
1. Lack of credit facilities from banks- MSMEs face major problems while getting
funding from banks. The processes are very lengthy and includes a lot of
documentation required with high cost processing fees charged by the banks. The
MSMEs do not get adequate loans from the banks.
2. MSMEs face competition from MNCs- MSME’s often end up facing a huge
competition from the multinational companies as they can quality goods at low price.
3. Lack of goof infrastructure- MSME’s are developing so rapidly but there is lack of
infrastructure facilities.
4. Unavailability of Resources- Due to non-availability of raw materials, work force and
other inputs in the market. Therefore, it is very difficult to produce the products at
affordable prices.
5. Lack of advanced technology- In the MSME’s sector, there is a lack of awareness of
advanced technologies of production. They are using traditional methods for
producing goods.
6. Lack of distribution of marketing channels- MSME’s not adopting innovative ideas
for promotion of the products distribution and advertisements. Because of ineffective
2
advertisement and poor marketing channels leads to a very poor selling.
Evidences have shown that MSMEs have contributed significantly to the growth of the
Indian economy by means of creating employment, generating production exports and
volume, bringing in new innovations and various development of entrepreneur skills.
However, the MSMEs faces many problems in India. Some of the main problems of
MSMEs are:
 Unduly delayed payments by large industry players
 Absence of adequate and timely affordable bank credit
 Lack of infrastructure inputs and banking support
 Limited capital and knowledge
 Low managerial capability,
 Low return on investment,
 Lack of suitable technology,
 Low production and productivity

2
Dey Dr. Sanjeeb Kumar MSMEs IN INDIA: IT’S GROWTH AND PROSPECTS [Journal] // Abhinav National
Monthly Refereed Journal of Research in commerce and management. - 2014.
 Ineffective marketing strategies,
 Non-Identification of new markets,
 Hurdles in expansions, modernisation and innovations,
 Inadequate power supply, water supply, transportation facilities
 Lack of adequate warehousing facilities,
 Lack of information timely,
 Lack of skilled labour and training
 Ruthless competition,
 Declining exports of total exports3

FUTURE PROSPECTS OF MSMEs

1. Employment generation: There are large opportunities in the field of
manufacturing and service rendering of MSME’s. In the field of retail and
manufacturing sector, MSMEs are generating different and ample amount of
employment.
2. Focus on customer satisfaction: Primarily, MSMEs manufacturing goods focus
on test and preferences, liking and disliking of the consumer. But now a day
they produce goods according to the needs or expectations of the customers. So
the MSMEs can be more customer satisfaction oriented.
3. Minimization of regional imbalance: The MSMEs will utilize the manpower of
rural areas so such areas of the nation can equally developed through the
running of MSME units in rural areas. So this is helpful to minimize or remove
the regional imbalance
4. Development of Export: In the international market, there will be a large
demand of Indian product like wooden items, other handmade articles etc. So
MSMEs have the potential to improve the export of India.
5. Attraction of Foreign Investment: The Indian MSMEs are the growing sectors
and their growth rate and return on investment is satisfactory. This sector can
attract foreign investment in India, so their growth rate increasing drastically.4
3
INDIAN JOURNAL OF APPLIED RESEARCH, VOL 5 ISSUE 4, Dr. M.S. Vasu, Growth and Development of MSMEs
in India, 126, available at https://www.worldwidejournals.com/indian-journal-of-applied-research-(IJAR)/
recent_issues_pdf/2014/May/May_2014_1492764769__40.pdf

4
MSME at a Glance, Government of India 2017, https://msme.gov.in/sites/default/files/MSME_at_a_G
LANCE_EN_0.pdf
WHAT IS SIDBI?

Small Industries Development Bank of India (SIDBI) is a bank that provides aid and
support to small scale industrial units by means of financing loans put out by primary
lending institutions. SIDBI acts as a significant financial body for MSME sector. They
provide assistance to MSMEs in acquiring the funds they require in the growth,
marketing, developing and selling of the products that they manufacture. Its main
contributions over last 25 years has been:
 Providing an assistance of around Rs. 5.40 lakh crore to the MSME sector
 Extending loans to lakhs of disadvantaged people, mostly women, through its
Microfinance operations
 Supporting budding and existing entrepreneurs by taking initiatives to help them build
their skills5

Functions of Small Industries Development Bank of India (SIDBI):

 SIDBI provides loans which are put out by financial institutions to small scale
industries
 It helps expand marketing channels of the products of MSMEs
 It helps offer services like factoring, leasing etc to MSMEs
 It helps promote employment opportunities among MSMEs in semi-urban areas
 It initiates the process of technology upgradations
 It helps enable the flow of credit as working capital or term loans to MSMEs.

ROLE OF SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA

IN DEVELOPMENT OF MSMEs:

Small Industries Development Bank of India (SIDBI), established on Apr 2, 1990

below an Act of Indian Parliament, stands to be the Principal establishment for the
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https://www.creditmantri.com/forum-what-is-sidbi-and-its-functions/
 Promotion, funding and Development of the Micro, Small and Medium Enterprise
(MSME) sector and for Co- ordination of the functions of the establishments engaged
in similar activities. Financial support is provided by approach of finance to eligible
Primary disposition establishments (PLIs) such as banks, State monetary Corporation’s
(SFCs), State Industrial Development firms (SIDCs), State Small Industries
Development firms (SSIDCs) and so forth for onward disposition to MSMEs, monetary
help in the kind of loans, grants, equity and quasi- equity to Non Government
Organisations / small Finance Institutions (MFIs) for on-lending to small enterprises
and economically weaker sections of society, sanctionative them to require up financial
gain generating activities on a property basis and direct help to MSMEs that is
channelized through the Bank's network of 103 branch offices. SIDBI plays a major
role in promotion, finance and development of MSMEs and coordinating the functions
of establishments engaged in similar activities.

Its sphere of activities include (i) Direct Finance Operations to MSMEs and Service
Sectors besides Infrastructure; (ii) Indirect Finance by way of resource support to
Banks, NBFCs, SFCs, and other Central Financing/Development Agencies,
Development of Micro Credit Institutions; (iii) Promotion of Associate Institutions like
Venture Capital, Rating Agency, Credit Guarantee Fund, Asset Reconstruction
Company and so on; and (iv) Nodal Agency for Government of India MSME Schemes
like Technology Up gradation Fund Scheme (TUFS), Credit Linked Capital Subsidy
Scheme (CLCSS), Integrated Development of Leather Sector Scheme, Development of
Infrastructure Development Projects and a few.6

The main focus of the institution is to develop manufacturing, its development, and that
of service and infrastructure sectors by way of the growth of MSMEs and their
promotion.

Strategic Business Initiatives and Overall Operations:

The business methodology of SIDBI has been reoriented towards topping off the
monetary and non-monetary holes in the MSME eco-framework. SIDBI would stretch
out renegotiate to Banks and Non-Banking Financial Organizations (NBFCs) and
furthermore stretch out limit building backing to more modest business banks, Regional

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 Rural banks (RRBs), Urban Co-usable banks (UCBs) and District Cooperative Banks
(DCBs). Likewise, direct money to MSMEs is being focused at specialty territories to
address different monetary holes through extraordinarily planned items like danger
capital, manageable money, considering, receipt limiting, administrations area
financing, and so forth

a) Addressing financial gaps:

The equity/risk capital assistance has supported the growth requirements of a number of
MSMEs including leveraging of senior loans, funding intangible requirements like
expenditure for Research & Development, marketing / brand building, technical know-
how, energy efficiency, quality control, working capital margin, etc. where bank loans
are generally not available. SIDBI also provides such risk capital assistance selectively
to start- ups and early stage ventures operating in innovative businesses/ technology
space, including those being incubated at technology incubators.

During Financial Year 2011-12, Direct Risk Capital Scheme (DRCS) has been
rechristened as Growth Capital & Equity Assistance Scheme for MSMEs (GEMs), with
some modifications and additional features so as to assist greater number of MSMEs.
SIDBI has also put in place a scheme to provide risk capital assistance to MSMEs by
way of line of credit / resource support through Channel Partners (CPs)/ NBFCs with
an objective of enhancing the retail reach of risk capital7

It has executed an MoU with IT, TIFAC (forecasting and assessment council) for implementing
the technological innovation Programme (The Srijan Scheme). An innovation fund of rupees 30
crores has been created under the scheme by TIFAC. The major aim of the scheme is
supporting MSMEs in order to develop, up-scale, demonstrate and commercialise of
innovation and technology based projects.

SIDBI has been operating focused lending schemes with Line of Credit (LoC) support
from various multilateral/bilateral international agencies, such as, Japan International
Cooperation Agency (JICA) Phase IJPY 30 billion & Phase-II – JPY 30 billion,
Kreditanstalt fur Wiederaufbau (KfW), Germany - EUR 50 million; and Agence
Francaise de Developpement (AFD), France - EUR 50 million.8

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 The primary target of these engaged loaning plans is to upgrade energy productivity,
decrease CO discharges and improve the benefit of the Indian MSMEs over the long
haul. SIDBI has contracted EURO 38.5 million LoC from KfW, Germany for
advancing interest in cleaner creation alternatives in the MSME area. The primary
target is to accomplish decrease of outflow and contamination through cleaner creation
ventures. Venture, for example, Common Effluent Treatment Plants (CETPs), Waste
Treatment, Storage and Disposal Facilities, Waste reusing, and so forth, profiting huge
number of MSMEs in the modern groups are likewise qualified under the help. The
mindfulness about the ecological perspectives among the MSMEs has expanded in the
zones of energy proficiency, squander reusing, squander treatment and removal, ISO
certificates, energy review, Bureau of Energy Proficiency (BEE) star rating of their
items, green appraisals and so on, for supportability of their assembling offices. SIDBI
presented 'Green Loan Scheme' to help MSMEs to meet their capital use, non-
operational and immaterial consumption for improving energy proficiency/receiving
cleaner creation measures, and so forth.

b) Addressing Non-financial Gaps:

Along with giving credit straightforwardly and by implication, SIDBI has set up a
framework for advance assistance/partnership administrations to MSMEs to help them
benefit credit from banks/FIs. The framework visualizes making an adaptable eco-
framework for advance partnership including MSMEs, authorize MSME Project
Consultants/ Innovative Consultancy Organizations (TCOs), SIDBI staff, Rating
Agencies – to get greater validity to the assessment interaction for empowering
MSMEs in getting bank credit. To additional empower MSMEs to get to credit from
banks, SIDBI has stepped up to the plate and set up Credit Advisory Centers (CACs)
with industry relationship in select MSME bunches, where the MSMEs are given free
consultancy/warning administrations by SIDBI authorities and resigned financiers in
getting credit from banks and FIs. Effectively 41 such focuses covering 150 groups
have been set up by SIDBI. MSMEs are discovered to be deficient in data on the best
way to begin a business, Govt. plans, wellsprings of different funds, promoting,
innovation, and so forth to address the data hole, SIDBI has dispatched a site named as
„www.smallB.in‟ which goes about as virtual guide and handholding apparatus for
business visionaries to set up new units and develop the current ones. Further, SIDBI,
 alongside GIZ, Germany, has started monetary education crusade among MSMEs in
various bunches.

Subsidiaries and Associate Organisations of SIDBI:

Aside from tending to different monetary and non-monetary necessities, SIDBI has
likewise made an empowering institutional eco-framework to address explicit
prerequisites of MSMEs through its auxiliaries/partner concerns. To start with, SIDBI
Venture Capital Ltd. was set up in July, 1999 for giving funding help to information
based MSMEs. By and by SVCL is overseeing three investment reserves, viz. the
National Venture Fund for Software and Information Technology Industry, SME
Growth Fund and India Opportunity Fund for giving investment help Similarly, to urge
banks/FIs to give more credit to MSMEs, SIDBI alongside Govt. of India set up Credit
Guarantee Fund Trust for Micro and Small Enterprises in 2000 to give credit ensure
inclusion to security free/outsider assurance free advances upto '1 crore reached out by
banks/FIs to miniature and little undertakings. This went about as a distinct advantage
in as much as that more than 9.33 lakh MSE advance record with credit ensure
inclusion were given monetary help by banks/FIs by end October, 2012.

Once more, to help banks in faster credit authorization to MSMEs, SIDBI, alongside
barely any Public Sector banks and Dun and Bradstreet (D&B), set up SME Rating
Agency of India Ltd. (SMERA) in September 2005 – a MSME devoted outsider rating
office to give thorough, straightforward and solid evaluations and hazard profiling.
Aggregately as on September 30, 2012, SMERA has allocated appraisals to 17,725
MSME units, out of which miniature undertakings comprised 65%. India SME
Technology Services Limited (ISTSL), was set up by SIDBI in November 2005, which
gives a stage to MSMEs to tap openings at the worldwide level for obtaining of current
advancements

SIDBI has also set up, India SME Asset Reconstruction Company Ltd. (ISARC),
country's first MSME focused ARC striving for speedier resolution of non-performing
assets (NPA) by unlocking the idle NPAs for productive purposes which would
facilitate greater and easier flow of credit from the banking sector to the MSMEs. It
started operations in April 2009.9

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 SIDBI as Nodal Agency for Government Schemes:

In addition to its direct and indirect operations, SIDBI also plays a pivotal role in
implementation of various schemes for MSME sector undertaken by the Government of
India (GoI). SIDBI continued to play an important role as a nodal agency in the
implementation of GoI schemes, viz. Credit Linked Capital Subsidy Scheme (CLCSS)
[Ministry of MSME], Technology Up gradation Fund Scheme for Textile Industry
(TUFS) [Ministry of Textiles], Integrated Development of Leather Sector Scheme
(IDLSS)10

Promotional & Developmental initiatives:

Being the pinnacle monetary establishment for the MSME area, SIDBI receives a
„Credit Plus‟ approach under which Promotional and Developmental (P&D) exercises
are started with the twin system of making of undertakings and fortifying of existing
endeavours. SIDBI has profited the MSME area through P&D exercises which helped
in setting up of more than 1 lakh endeavours, creating work of around 3 lakh and
profiting around 4 lakh people.

A significant P&D activity of the Bank is the Micro Enterprises Promotion Program
(MEPP) which targets advancing feasible miniature endeavours in country regions
prompting provincial business age. In total, up to March 31, 2012, MEPP has been
executed in 121 areas in 24 States, subsequently advancing in excess of 38,000 country
ventures. Likewise, Entrepreneurship Development Program (EDP) focuses on
advancement of independently employed endeavours equipped for producing business
openings, particularly focusing on less advantaged segments of the general public like
Women, Scheduled Castes/Scheduled Tribes, minorities also, the provincial poor. As
on March 31, 2012, aggregately number of EDPs upheld by the Bank for different
target bunches was 2894, profiting in excess of 72,850 members. Additionally, the
absolute number of Skill-cum-Technology Up degree Programs (STUPs) and Small
Ventures Management Programs (SIMAPs) upheld by the Bank since commencement,
till March 2012, were 1,504 and 295, individually profiting around 39700 members.

STUP targets upgrading innovation profile of MSME units and SIMAP targets
qualified jobless just as industry-supported competitors, with the by and large target of
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 giving able supervisors to the MSME area. SIDBI additionally concurs unique
thoughtfulness regarding the improvement of North Eastern Region (NER) through a
bundle of miniature account, provincial industrialisation, business improvement,
showcasing support, and so on The uncommon activities being sought after in the NER
incorporate MEPP in 22 areas, 39 Cluster Improvement Programs (CDP) and different
professional preparing programs, promoting exercises, classes, and so forth These
projects have so far advanced in excess of 2500 units in NER.

To speed up modern improvement in the north eastern piece of the country, your Bank
has enrolled North Eastern Development Monetary Institution (NEDFI) as a qualified
essential loaning organization for renegotiate of advances to miniature and little
endeavours and a renegotiate cut off of '50 crore was endorsed to it during FY 2011-12.

Your Bank has additionally set up Directing Centre Shillong (Meghalaya), Silchar
(Assam), Aizawl (Mizoram), Gangtok (Sikkim) and Agartala (Tripura). In 2012-13, the
monetary establishment gave credits to Micro, Small and Medium Enterprises
(MSMEs) straightforwardly (term advance under direct credit plans, MSME receivable
account, mass credit &Venture capital money) what's more, in a roundabout way
(Refinance, Equity help, Micro Finance including P&D help Resource backing to
foundations) had dispensed Rs 41,160 crore. SIDBI had distinguished four specialty
regions - hazard capital, receivable financing, financing administrations area and
reasonable financing - where MSMEs need support. In the current financial, SIDBI set
a 10 percent higher dispensing objective.

SIDBI also got 2 international awards during the year 2012-13 from Association of
Development Financing Institutions in Asia and the Pacific (ADFIAP) in the areas of
(a) Energy Efficiency Improvements in Furnaces used in SME Steel Industry Clusters
in India; and, (b) WB-GEF Project: Financing Energy Efficiency in MSMEs under the
category of Environmental Development in 5 clusters.11

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 CONCLUSION
In conclusion, the MSME area of India is today at the passage of worldwide
development on the strength of serious and quality item range. Notwithstanding,
assistance from the Government is needed to limit the exchange expenses of innovation
upgradation, market infiltration, modernisation of framework and so on In this paper
we have taken a gander at development of Indian Micro Small and Medium Enterprise
Sector in the course of the most recent ten years. The MSME area has regularly been
named the 'driving force of development' for creating economies. We start with an
outline of this area in India and take a gander at a few ongoing patterns which feature
the turn of events and meaning of this area opposite the Indian economy. We have
examined the development of MSMES in fixed venture, creation execution, business
age and fare commitment. The MSME Development Act of 2006 is maybe the most
pivotal of these new approach changes. The arrangements of interest are state expenses
and sponsorships focused towards this area. All the more explicitly, we have examined
about Employment openings, Infrastructure Development, Testing research facilities,
Foreign direct venture strategy, De-reservation, Competitive innovation, Export
advancement inside the MSME area. We have additionally investigated the openings
given in the Indian economy for improvement of MSMEs. The variables like fare
advancement, reservation strategy, tooling& innovation, labour preparing, innovation
and administrative abilities gave tremendous freedoms for development and better
execution in the economy. The centre working zone of the twelfth long term plan
additionally examined in the paper. It is reasoned that MSMEs in the Indian Economy
have shown enormous development and magnificent execution with the commitment of
strategy system and proficient advances which had been set aside by the Government
effort to time for the development and improvement of MSMEs.