Top 10 ways to improve Indian SME sector | SupportBiz

Managing Growth

Top 10 ways to improve Indian SME sector

As reported in one of our earlier stories, Indian SMEs continue to remain small or become smaller even after years of their operations. While there have been a number of studies and researches digging out the reasons behind this, ASSOCHAM feels it’s high time the government show a strong political will to implement necessary policies to improve this significant sector.

However, before heading to the ASSOCHAM recommendations, here is a brief overview of the current SME scenario in India:

According to the All India Census of Micro, Small and Medium Enterprises (MSME) 2006-07, there are 26.1 million MSMEs employing more than 60 million people. Of the 26.1 million, 7.45 million (28.56 percent) units are in the manufacturing sector and 18.65 million (71.44 percent) units belong to service sector. MSMEs manufacture more than 6,000 products and the industry accounts for 40 percent of the country’s overall exports and 45 percent of industrial output. The total production of MSMEs for the year 2011 amounted to Rs 10,957.6 billion (at 2001-02 prices.)

Here’s a brief note on the major issues affecting the MSME sector:

 - Unavailability of adequate and timely credit, and high cost of credit.

 - Collateral requirements

 - Limited access to equity capital

 - Inadequate sources / knowledge of marketing and its opporunities.

 - Limited scale of operations leads to low production capacity

 - Procurement of raw material at a competitive cost

 - Problems of storage, designing, packaging and product display

 - Lack of access to global markets

 - Inadequate infrastructure facilities, including power, water, roads

 - Low technology levels and lack of access to modern technology

 - Lack of skilled manpower for manufacturing, services, marketing etc

 - Multiplicity of labour laws and complicated procedures

ASSOCHAM’s top 10 recommendations to improve SME sector are:

1. Redefine MSME: In an important recommendation, ASSOCHAM demands a revision of the existing MSME definition (under MSMED Act 2006). Assessing various factors including the definitions for MSMEs in other countries and inflation in India, it’s asserted that the levels of capital investment for defining MSMEs are too low and suggests that it should be increased by at least 50 percent.

2. Availability and Cost of Credit: ASSOCHAM demands that SME exporters who repay timely should be granted an additional interest subsidy of 2 percent. There should be a reduction of the spread on foreign currency credit to LIBOR + 2 percent. The government also should implement a process whereby the foreign currency limits are increased automatically according to rupee depreciation. The industry body also advises banks to aim for at least 40 percent export credit to MSMEs and targets for banks to increase MSME borrowers by 10 percent annually until 2017.

3. Assistance in Marketing: There should be an enhancement of budget and increased scope under MDA/MAI schemes. SMEs should be given greater assistance to focus on brand building and provide opportunities to showcase their products at trade fairs. ASSOCHAM also seeks double income tax deduction for marketing expenses and support for E-Commerce.

4. Increase Productivity: There should be an effective amendment of labour laws to enable more overtime hours for employees. It should also offer opportunities for more women employment and ensure safety for women to work in night shifts.

5. Technology Upgradation: Demands enhancement of technology upgradation schemes with capital subsidy and interest subsidies for fast technological adoption.

6. Skill Development: More funds should be allotted to set up research/resource/product development and incubation centers. There should be effective coordination with the technical institutions and CSIR laboratories.

7. Improve Infrastructure: ASSOCHAM seeks 24x7 facilities for export consignments at major air cargo/sea port complexes, enhancement of ASIDE scheme and development of MSME clusters near highways/rail corridors.

8. Fix incentives/Tax related issues: There should be a new corporate/income tax regime for MSME exporters, incorporate a different ECGC policy for MSMEs to reduce costs. Bring in efforts to remove service tax on conversion of export proceeds remittances and other issues which will reduce transaction costs in exports.

9. Develop an Institutional Framework: Creation of a Standing Committee of Secretaries to resolve policy and implementation related issues will initiate greater changes in the sector. There should also be a greater coordination at the ground level between Customs and DGFT offices.

10. Resolve Sector Specific Issues:  Immediate steps need to be taken to increase fund allocation to resolve issue relating to sectors such as handicrafts and leather industries.