In this blog post, Vyoma Mehta, a student of NMIMS, School of Law, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the planned economic reforms related to the MSME Industry in India.
The Micro Small and Medium Enterprises (MSMEs), is well established in the economic and social development of the country. The MSME sector is a nursery of entrepreneurships, often driven by individual creativity and innovation, contributing to about 8 percent of the country’s gross domestic product- 45 percent of the manufactured output and 40 per cent of its export. The industry provides employment to about 60 million people through over 26 million enterprises producing over six thousand products. The labor to capital ratio in MSMEs and the overall growth of the MSME sector is much higher than in the large industries. As it is observed from the way in which the MSME industry is contributing to the growth and development of the country, it can be said that the industry is imperative for the national objectives of growth with equity and inclusion. It would be an understatement to say that MSME sector in India is highly heterogeneous regarding the size of the enterprises, a variety of product and services produced and the levels of technology employed. Cutting across all sections of production and services, MSME sector is truly a strategic asset for the economy of the country.
The Indian small scale industries play an imperative role in the economic expansion of the country and have a vast approach for employment generation. Increasing small scale sector also results in decentralized industrial development, better distribution of wealth and investment and entrepreneur talent. The government has initiated several policies for the growth and development of small scale industries. Post liberalization the economic conditions of the country have created immense growth prospects for the small scale industries. The Ministry of Agro and Land Rural Industries and the Ministry of SSI have been merged into a single Ministry namely, Ministry of Micro, Small and Medium enterprises. For the past fifty years, the small scale sector has played an essential role in the socio-economic development of the country. It has significantly contributed to the overall growth regarding the gross domestic product, employment generation, and exports. The MSMEs Act 2006 which was enacted broadly classifies enterprises regarding activities such as those engaged in manufacturing, production, and enterprises engaged in services.
Policy Initiatives In Micro Small And Medium Enterprises
The main objective of Industrial Policy Resolutions was to promote industrial growth and also determine the pattern of state assistance to small industrial units for fulfilling socio-economic objectives. The promotion of industries has been regarded as an important element of the development strategy underlying Five Year plans. The industrial policy indicates the respective roles of the public, private, joint and cooperative sectors and also of the large, medium and small-scale sector and underlines the national priorities.
The advent of planned economy from 1951 and the subsequent industrial policy followed by Government of India, both government and planners earmarked a particular position of Micro, Small and Medium Enterprises in the Indian economy. Government’s objectives and intentions towards industry including small scale industry were announced through Industrial Policy Resolutions (IPRs). The resolution was announced in 1948, 1956,1977,1980,1990 and 1991 respectively.
Industrial Policy Resolution, 1991
The Government of India, for the first time, tabled the new small enterprise policy titled policy measures for promoting, strengthening and supplementing small, tiny and village enterprises in the Parliament on August 6, 1991.This policy widened the investment limit for the tiny sectors, removed the vocational restrictions and recognized business and industry related services as small industrial units on par with the tiny units. The Small and Ancillary Industries were exempted from licensing for all articles of manufacture, which were not covered by the public sector. The investment of 0.5 million and other location conditions was withdrawn. All industry related services and business enterprises with an investment limit as those of tiny enterprises, irrespective of location, were recognized as small industrial units. A new scheme of integrated infrastructural development for small industrial units was provided with the participation of State Government and Financial Institutions.
The New Industrial Policy, 1999
The emerging economic scenario in the changed labialized and competitive economic environment necessitated structural and fundamental changes in the policy framework put in place of the development of SSI. The main objective of the Industrial Policy, 1999 was to create a congenial environment for the small industrial units to cope with the emerging challenges of globalization. To focus fully on the promotion and development of small industrial units, a separate Ministry of Small Industrial Units and Agro and Rural Industries was created. The policy initiatives were:
- The annual turnover limit for calculation of working capital limit for small industrial units was raised to Rs. 5 crores from Rs. 4 Crores.
- The maximum ceiling limit for Composite Loan Scheme was increased to Rs. 5 lakhs.
- To increase the flow of credit to small industrial units, a new credit insurance scheme was launched.
- Small Industrial units producing goods in rural areas are allowed excise exemption on third party branded goods.
- The definition of small and ancillary industrial units was revised by reducing investment limit in plant and machinery to Rs. 1 crore from Rs. Three crores.
- Special package for the development of small and village industries in North Eastern regions was announced. The industrial units in the North Eastern Region were given exemption from excise duty for ten years from the date of commencement of production
- Special emphasis was given to the units which have high export potential.
Through the ministry, Government has brought about changes in policies and development support that have to enable rapid and substantial development of MSMEs in India and given them a competitive edge over their global countries. Some programs and policies have been outlined here. The facilities can be categorized into three: Policy initiatives, Institutional support and credit dispensation. The following chart shows three categorized policies.
Schemes For Financing Micro, Small And Medium Enterprises
Reimbursement For Iso-9000 Certification Scheme
The scheme was started in March 1994, and it provides up to Rs. 75,000 per small industrial unit which acquired ISO-9000 Certification. Since the inception of the scheme of ISO-9000 reimbursement, 4101 small industrial units to the tune of Rs. 1944 crore have been benefited up to Nov -2006.
Laghu Udyami Credit Card Scheme (LUCCS), introduced in November 2001, has been implemented by the banks for providing borrower friendly credit facilities to small business.
Credit Guarantee Fund Trust Scheme For Micro And Small Industries
The scheme covers collateral free credit facility extended by eligible lending institutions to new and existing Micro and Small Enterprises up to Rs. 50 lakh per borrowing unit.
National Equity Fund Scheme (NEF)
The objective of NEF Scheme is to provide equity type support to entrepreneurs for setting up new projects in tiny / small industrial sector for undertaking expansion, modernization, technology up gradation and diversification of existing tiny, Small Industries and Service Enterprises and for rehabilitation of viable sick units. In this scheme, the cost should not exceed Rs. 50 Lakhs.
Integrated Infrastructure Development Scheme (IIDS)
IIDS was launched in 1994 with the objective of providing basic infrastructural facilities like Power distribution network, Water, Roads, Telecommunication, Drainage and Pollution control facility, Banks, Storage and Marketing outlets, Common service facilities and Technological backup services, etc.
The MSMEs Development Act of 2006 is perhaps the most crucial of these recent policy changes. The growth of small scale industries can be evaluated in two ways: To compare the growth rates of units. Employment, output and exports of Small-scale industries in 2000 with that of the 1990s.To ascertain the change in the relative contribution of Small Scale industries to GDP, Exports and Organized Sector employment in the 2000s with that of 1990s.The small scale sector has grown rapidly over the years. The period of liberalization and the development the MSMEs sector constituted an important segment of our economy. MSMEs are a very important segment of the Indian industrial sector and would continue to play a crucial role in the Indian Economy in the future. It also brought in huge amounts of foreign investments into the country and provided employment opportunities for many people in the country which in its turn helped reduce the level of poverty in the country. A rewarding feature of economic development in India has been an impressive growth of modern MSMEs.
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