Current scenario in India:MSMEs contribute 6% to India’s GDP, 33% in Manufacturing Sector and 45% in Exports. This is a dynamic sector that could pave the way forward for the Indian economy, by providing employment to 60 million people through 28.5 million enterprises. Definition of Micro, Small and Medium Enterprises in India The MSMEs are defined on the basis of investment in Plant & Machinery and equipments under the MSMED Act, 2006. The present investment limit for MSMEs is as under: MANUFACTURING ENTERPRISES “The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprises are defined in terms of investment in Plant & Machinery.”(i) Micro enterprise: investment in plant and machinery up to Rs. 25 lakh (ii) Small enterprise: investment in plant and machinery from Rs. 25 lakh to Rs. 5 crore. (iii) Medium enterprise: Investment in plant and machinery from Rs. 5 crore to Rs. 10 crore SERVICE ENTERPRISES “The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.”(i) Micro enterprise: investment in equipments up to Rs. 10 lakh. (ii) Small enterprise: investment in equipments from Rs. 10 lakh to Rs. 2 crore. (iii) Medium enterprise: investment in equipments from Rs. 2 crore to Rs. 5 crore Overview:MSMEs offer an alternative underutilized route in the context of continuing uncertainty in the agriculture sector because of substantial dependence on rain-fed irrigation. Also, in view of the continuing implications of climate change, it is necessary that the MSME sector is prepared to absorb millions who may be rendered unemployed in the agriculture sector.The schemes/programmes undertaken by the Ministry of MSMEs and its organisations seek to facilitate/provide:i) adequate flow of credit from financial institutions/banks;ii) support for technology up gradation and modernizationiii) integrated infrastructural facilities; iv) modern testing facilities and quality certificationv) access to modern management practicesvi) entrepreneurship development and skill up gradation through appropriate training facilities; vii) support for product development, design intervention and packagingviii) welfare of artisans and workersix) assistance for better access to domestic and export markets and x) Cluster-wise measures to promote capacity-building and empowerment of the units and their collectives.Policy Initiatives:Ease of Registration Process of MSMEs- Udyog Aadhaar Memorandum (UAM): Ministry of MSME has notified a simple one-page registration Form ‘Udyog Aadhaar Memorandum’ (UAM) on 18th September, 2015 in the Gazette of India Vide Notification Number S.O 2576 (E). The simplified one page registration form “Udyog Aadhaar” was made to change requirement of attestation of documents to be replaced with self-attestation of document to promote ease-of-doing-business for MSMEs. This helped increase the registrations of the MSMEs to more than 2.30 lakh units. Framework for Revival and Rehabilitation of MSMEs MSMEs have increased potential to grow but major obstacle is inadequate or non-timely finance. The Ministry of Micro, Small & Medium Enterprises has notified a Framework for Revival and Rehabilitation of MSMEs. Under this framework any enterprise can seek revival and rehabilitation benefit through a committee constituted by banks with representatives from State Governments, experts and others. The main features of the framework are as below: (a) Identification of incipient stress: Before a loan account of a MSME turns into a Non Performing Asset (NPA), banks/creditors are required to identify incipient stress in the account. (b) Committees for Distressed Micro, Small and Medium Enterprises: All banks shall constitute one or more Committees at such locations as may be considered necessary by the board of directors of such banks to provide reasonable access to all eligible Micro, Small and Medium enterprises which have availed credit facilities from such bank. (c) Corrective Action Plan (CAP) by the Committee: The Committee may explore various options to arrive at an early and feasible solution to preserve the economic value of the underlying assets as well as the lenders’ loans and also to allow the enterprise to continue with its business. (d) Options under Corrective Action Plan (CAP): The options under Corrective Action Plan (CAP) by the Committee may include Rectification, restructuring and recovery (e) Restructuring Process: If the Committee decides restructuring of the account as CAP, it will have the option of either referring the account to Enterprise Debt Restructuring (EDR) Cell after a decision to restructure is taken or restructure the same independent of the EDR mechanism. If the Committee decides to restructure an account independent of the EDR mechanism, the Committee should carry out the detailed Techno-Economic Viability (TEV) study, and if found viable, finalise the restructuring package within 30 days from the date of signing off the final CAP. (f) Prudential Norms on Asset Classification and Provisioning: While a restructuring proposal is under consideration by the Committee/EDR, the usual asset classification norm would continue to apply. The process of re-classification of an asset should not stop merely because restructuring proposal is under consideration by the Committee/EDR. However, as an incentive for quick implementation of a restructuring package, the special asset classification benefit on restructuring of accounts as per extant instructions would be available for accounts undertaken for restructuring under these guidelines. (g) Wilful Defaulters and Non-Cooperative Borrowers: Banks are required to strictly adhere to the guidelines issued by RBI from time to time regarding treatment of Wilful Defaulters. (h) Review: In case the Committee decides that recovery action is to be initiated against an enterprise, such enterprise may request for a review of the decision by the Committee within a period of fifteen working days from the date of receipt of the decision of the Committee. Application filed under this section shall be decided by the Committee within a period of thirty days from the date of filing and if as a consequence of such review, the Committee decides to pursue a fresh corrective action plan for revival of the enterprise shall apply accordinglyASPIRE – A Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship ASPIRE was launched to set up a network of technology centres and to set up incubation centres to accelerate entrepreneurship and also to promote start-ups for innovation and entrepreneurship in rural and agriculture based industry.Under the scheme:i) 80 Livelihood Business Incubators (LBI) and 30 Technology Business Incubators (TBI) to be set up by March 2017. ii) ii) A total of 1,04,000 incubates adequately skilled and trained would be ready for taking the program forward. Achievements i) 1st Livelihood Business Incubator (LBI) has been set up in Deoria, Uttar Pradesh on 15.04.2015 by NSIC.ii) Subsequently 21 LBIs have been approved with sanction of funds of ` 20.67 crore and ` 7.21 crore has been released. The 2nd Centre was inaugurated on 18th December 2015 at Rajkot Gujarat.iii) 2 TBIs have been approved in the States of Tamil Nadu (Thiruchirapally) and Maharashtra (Pune). iv) For creation and setting up of ASPIRE Fund of Funds, ` 60 crore has been released to the SIDBI. v) In the first year of the scheme, as of now, LBIs and TBIs are set up/proposed across 12 States of the country including NER.vi) As on 15.01.2016 a batch of 217 incubates involved in 8 different training modules have passed out from Deoria Centre and another batch of 160 incubates are undergoing training. In the Rajkot centre, a batch of 88 incubates are undergoing training involving 7 training modulesE-Governance initiatives/ DIGITAL INITIATIVES E-Office: e-Office initiative has been introduced to achieve paperless office in the Ministry. Movement of e-files has been started and digitalization of existing physical files for converting the same into electronic files has been completed.Proposal for ISO 9001:2015 Certified Organisation: First ISO 9001: 2008 quality standards have been adopted for the entire Ministry (first ever) and the processes completed with M/s TUV India has certified the processes. Mobile Friendly Website: The website of the Ministry and Office of the DC MSME has been made mobile friendly. With this, entrepreneur friendly content can be easily accessed through any mobile and tablet http://msme.gov.in and http://dcmsme.gov.in Challenges faced:• Access to finance • access to markets • technology and environment • infrastructural bottlenecks • access to people • regulatory constraints and facilitation Access to finance:A credit gap of 56 per cent exists in the MSME finance sector. While there is an estimated demand of INR 2,803,628 crore, the supply of finance stands at INR 1,038,948 crore, reveals a study conducted by US-based Entrepreneurial Finance Lab (EFL), with about 92 % of MSMEs lacking access to formal sector finance. Loaning to MSMEs is costly for lenders because of the lack of detailed applicant credit histories or other documented metrics of credit worthiness, subjective biases such as familiarity with applicants; pressure to meet monthly quotas, banking history, residential stability, marital status, and age. This includes loan officers over-reporting client revenues because they need to meet sales targets, natives being preferred over non-natives in most regions, likelihood of spouses bringing in a second income, etc.The government and non-governmental organisations seek to finance and allocate resources for MSMEs, but these resources often do not reach the targeted audience. The successful launch of the Jan Dhan Yojana (JDY) could be used to direct financial resources to targeted MSMEs. There are important things that can be learned from the case of Japan, where the government has imposed a cap on interest rates on loans that a money lender extends to MSMEs. Could an interest cap be imposed for lending to MSMEs in India too? Is it possible for money lenders to be brought under regulation now?In India, commercial banks are mandated to lend to MSMEs. In such cases there is also a need to ensure that the public sector does not crowd out the private sector. Further, MSMEs generally suffer from poor conduct by major banks. In some cases, mis-selling of financial products is a general complaint of entrepreneurs. This can take the shape of higher fee or interest rate, failure to explain exit costs, and sometimes threatening them with refusal to extend regular credit. Therefore, the role of financial education is very important for MSMEs in assessing appropriate start-up finance and in empowering them to use financial products and services to manage risks and other business needs.Not all banks can do MSME financing as this is a specialised area and requires specialised skills to assess the institutions that can benefit from bank finance and yield higher production. Therefore, skill development of bankers is also necessary for assessing MSMEs that can be bank-financed. These skills would include standardising simple format for accounting purposes for MSMEs, competent development of human resources, cultivating business ethics and standards, and also imparting training to MSMEs which are being served by the bankers. The initiatives by the RBI in this regard need to be strengthened in instituting similar training programmes in different commercial banks.In addition to financing, there is a need for focussed coordination of activities of different government authorities to encourage MSMEs. This coordinating agency could serve in building a database and repository information on a shareable basis, measuring levels of productivity for different product groups, and identifying products in need of research and development.GST: A step in the right directionThe Goods and Services Tax (GST) could help enhance the competitiveness of the almost five crore Micro, Small and Medium Enterprises (MSMEs) by making them a part of organised commerce and offering them a level-playing field through a simplified tax structure and a unified market. Also, lower freight costs, lower cost of raw materials, and a lower tax burden can help make MSMEs more cost-competitive. MSMEs will also enjoy ease of doing business as there will be no complexities in registration, limited interface of bureaucracy as registration, payments, input tax credit and tax liability adjustment, returns, and refunds will now happen electronically, which will bring transparency in compliance and will also reduce the compliance cost.However, it is difficult for MSMEs to adapt swiftly to this new tax regime and they will need to be educated about the various provisions and compliance requirements under GST for MSMEs through seminars, conferences, and training sessions.Encouraging opening of MSME intensive bank branches:In order to increase credit availability to small businesses, the finance ministry has asked public sector banks to open MSME intensive branches. : Dec 17, 2017Finance Minister Arun Jaitley in October had announced a capital infusion of Rs 2.11 lakh crore to enable the state-owned banks to play major role in the financial system and give a strong push to the job-creating MSME sector, by strengthening the banks that are reeling under high non-performing assets (NPAs) or bad loans. Challenges:Not all banks can do MSME financing as this is a specialised area and requires specialised skills to assess the institutions that can benefit from bank finance and yield higher production. Therefore, skill development of bankers is also necessary for assessing MSMEs that can be bank-financed. These skills would include standardising simple format for accounting purposes for MSMEs, competent development of human resources, cultivating business ethics and standards, and also imparting training to MSMEs which are being served by the bankers.Access to Markets:To withstand the onslaught of competition from large enterprises within and outside, MSMEs need to respond promptly to the evolving marketing needs and innovations. The sector needs to be provided better market access facilities in order to sustain and further enhance its contribution towards output, employment generation and exports. Technology tools like SMS, digital newsletter and electronic direct mail can be used efficiently to target segmented population. Broadly classified as push marketing, these media tools are cost efficient and easily accessible. To add to this, websites, yellow pages, directory listings help pull the prospective buyer with rational efforts. Trade fairs form another important platform for MSMEs to venture into new territories and develop businesses. The sector is required to look beyond India and innovate to market their products internationally.Access to Infrastructure:There is a need for common infrastructure projects for MSMEs. MSMEs, through coming together and sharing the costs of infrastructure, which are otherwise prohibitive for individual MSMEs, could benefited from economies of scale, synergy and collective bargaining by collaborating with each other particularly on aspects of common infrastructure, common facilities, raw material procurement, marketing & transportation of finished goods, testing laboratory, common tooling/machining, Research & Development etc.Basic infrastructure such as workspace and power, along with water supply, waste management, etc should be made accessible to these MSMEs.Local bodies may be encouraged to set aside substantial part of the collections derived from industrial estates, to upgrade infrastructure such as roads, drainage, sewage, power distribution, water supply distribution, etc. for the existing industrial estates. Alternatively, industrial estates could be notified as separate local bodies as envisaged in the Constitution and entrusted with municipal functions that shall include levy of taxes, responsibility to maintain the infrastructure within the Industrial Estate, etc.Access to people:Talent Attraction: MSMEs need to be able to distinguish themselves, create their niche brand and use it to attract talent. Organisations need to highlight to the potential hires that MSMEs are growing organisations and provide platform to the new incumbents to grow with the organisation. It is imperative for MSMEs to make potential employees aware of the fact that the exposure and the level of responsibility in a small firm are much larger than that in a big firm. Recruitment channels such as referral, internal transfers and graduate recruitment need to be implemented. It is important that MSMEs keep the recruitment process transparent and clearly communicate the key criteria for hiring a person and the key success factors for his or her role.Access to technology & environmental constraintsThe technology transfer issues pertaining to MSMEs in developing nations are very different from those being faced in the developed countries like the US and UK. The absence of an enabling ecosystem which is much required for facilitating an active interaction in the technology transfer process is a major inhibitor for the sector. Other issues such as ‘limited interaction’ between technology providers and technology seekers, minimal knowledge about upcoming technologies, and the cultural and the regional differences in the developing nations adversely affect the productivity of the MSME sector.Solution: Assistance from large firms: – involve large enterprises in the development of MSME clusters: a long-term strategic plan should be implemented by the Ministry of MSME to facilitate and build long-term relationships with large enterprises and research supply institutes.Regulatory Facilitation:• Schemes for Startups need to be designed • manufacturers’ associations should be consulted while formulating these schemes • compendium of schemes should be prepared with inclusion of application forms for each scheme• proper and a direct channel should be established between the Government bodies and entrepreneurs in order to spread awareness on promotional schemesConclusion:No country has catapulted from a developing country to an advanced economy without industry contributing significantly in output. So far, the growth story in India has been different, with the services sector overtaking industry in a short span of time. Building a sustainable and widespread manufacturing base is necessary. The government could also consider an appropriate guarantee system to be offered to the MSMEs availing loans under various government schemes. To inspire confidence, the government needs to strengthen the legal structure and establish a credible redressal mechanism. To prepare a vision document and an achievable roadmap that can place the Indian MSMEs to compete with those in China, Japan and Germany, there would be a need to engage researchers, industry groups and stakeholders.