Tuesday, January 6, 2015

India MSME POLICY 2015 - Draft Consultation Paper - Inviting Suggestions

India MSME POLICY -  Draft Consultation Paper

Excerpts highlighting important issues are given in this article. You can download full paper from

 As per the fourth Census of MSMEs the Report for which was published in 2012, the total number of MSMEs in India are 3.6 crores employing over 8 crore people. It is the second largest employer after
agriculture. It also accounts for 45 % of total industrial production, 40% of total exports and contributes very significantly to the GDP. Manufacturing segment within the MSME contributes to 7.09% of GDP. MSMEs also contribute to 30.50% of services. The total contribution of MSMEs to the GDP is 37.54%.

Fourth All India Census MSME - Unregistered Enterprises Final Report

Fourth All India Census MSME - Registered Enterprises Final Report

The MSME Policy framework must encourage growth of units and   also help creating employment on a massive scale.

Suggestions are being invited from everyone to put such a Policy in place. These suggestions can be sent at policy@dcmsme.gov.in . All suggestions would be considered from prospective entrepreneurs, existing entrepreneurs, Associations, Academia, Public Representatives and the concerned Citizens.

Last Date 15 January 2015


At Annexure-I are the Industrial Policies / MSME Policies as prevalent in India. (http://www.dcmsme.gov.in/Policies/International_and_national_%20Policies.htm)

At Annexure-II are, the Policies of the Industrialized World.  (http://www.dcmsme.gov.in/Policies/International_and_national_%20Policies.htm).

The salient points of these policies are given in the Summary at AnnexureIII.

How to enable Indian service enterprises to become global players observing
global levels of standards of services and ensure that Indian service industry can
become a global player?

What steps should the Government take to enable the Service Industry to grow?

What steps or standards should be prescribed for providing basic minimum
level of standards?

Do we require to set up Skill Development Centres which teach these standards
and should there be a regulatory framework?

Given that we have a numerous types of services, should there be an Industry
driven Council which enforces such standards?

The above points need to be addressed in framing MSME Policy of the country so
that an eco system supporting Services Sector in MSMEs may be created.

Those who understand these processes and have provided for enabling  framework have ensured that their small and medium businesses grow and do well.
A shining example is Germany, who leveraged the crisis of 2008-10 to make their “mittleschandt” (Small and Medium Companies) become global players. Thus, Germany provided a set of Policies which encouraged and allowed the companies to do all the above mentioned points and reached out to them.

The major elements of the Policy should be the following:-

I) Start-up Regime Framework:

More than 15 lakh students are passing out as Engineering graduates, MBA and Polytechnic but a very few only, venture into establishing their own enterprise. There is a need to encourage entrepreneurship in
the country by providing a suitable eco system for start ups for creating new enterprises both in Manufacturing and Service Sector.

What are the elements for Start-up Regime Framework?
What are the elements which should consist to enable a young engineer to start his / her manufacturing enterprise, or, a service enterprise which can grow?

II) The Regulatory Regime Framework:

The Regulatory Regime framework is required, but, should not become a crippling regime to discourage growth. It should also have automatic approval based on a robust IT back bone. Having said so, what should be the elements in a Regulatory Regime?

III) The Subsidy Regime Framework:

The Subsidy Regime Framework may be required for very small players of say less than Rs. 5 crores of turnover. The subsidy may be on a sliding scale and of a varying nature. Thus for a start-up regime, he may
be required a subsidy such as being provided by Prime Minister‟s Employment Generation Programme (PMEGP) being run by the Ministry of MSME. An enterprise with less than Rs.1 crore of turnover
may require subsidies to explore new markets but an enterprise with less than Rs.5 crore of turnover may require subsidies for rapid modernization. But once an enterprise has grown to a certain level, they
are not looking for subsidies but looking for a growth trajectory.

 What should be the elements of a Subsidy Regime?

(IV) Environment Compliance Framework for Green, Orange and Red Categories of Industries:

Environment compliance, Pollution Control as well as Energy Efficiency are the key elements of “Zero Effect” for Industry. However, Pollution Control Board as well as compliances cannot impose such a compliance load on Industry so as to make it unworkable.

What should be the elements of Environment Compliance Framework?
What are the pain points for Industries which they feel today, which need to be removed to enable robust growth without compromising on the standards?

The next seven  Frameworks are actually parallel frameworks which address a very large space for on-going and successful enterprises, who now would like to move to the next level of success and growth. Thus,
a Rs. 5 crore turn-over Company would look for ways and means to become a Rs. 50 crore turn-over Company in five years, or even earlier.

(V) The Promotional Scheme Framework:

What steps should be taken by the Government to promote the successful businesses to attain the next level or the next cycle of growth. For example, implementing the techniques such as 6 Sigma, Poka-Yoke or Kanban and Kaizen will enable it to have a zero defect manufacturing because it has a zero defect process.
This has already been successfully tested in the country.

What can be done to scale it up for the whole country?
Similarly, professional designing would help it attain better market value, better products and help it beat the competitor.
What other steps are suggested?
With a view to enable growth, what should be the Promotional Scheme Framework?
What should be the elements helping the Promotional Scheme Framework?

(VI) New Product Development Framework:

New products do not seem to be coming out of India.
What steps should be taken to help the industry develop new products?
What should be the element helping the New Product Development Framework?

(VII) The Value Addition Mechanisms and Framework:

Once again, India is low on value addition. By increasing value addition, the total return to the Indian industry would increase substantially and they would become more globally competitive.
What steps should be taken by the Government to help this value addition?
What should be the element helping the Value Addition Mechanisms and Framework?

(VIII) Knowledge & Innovation Framework:

Indian Institute of Science (IISc) and Council of Scientific and Industrial Research (CSIR) are world class institutions who have conducted path breaking research in several areas. Ministry of MSME has already taken steps to unlock this knowledge base and make it available for the industry. The Indian Institute of
Science has indicated as a first tranche, 195 projects where the research is almost complete and which can be commercialized. Similarly, CSIR has indicated 642 products which it has developed which can be very quickly productized because the entire process, including IP rights is available with CSIR.
Whereas these are starting points, what other elements should be there to promote the knowledge and innovation framework?

(IX) Manufacturing and Services “Excellence” Framework:

What should be the element helping the Manufacturing and Service “Excellence” Framework?

(X) Export Promotion and Marketing Framework:

If the Indian industry has to grow, it must start exporting more and tapping existing as well as new markets. Several elements already exist in the ongoing schemes of Department of Commerce, Ministry of Commerce and Industry.
But an equally important market is the Indian market itself. This market is attracting international attention due to its expand and depth. What are the steps needed for Indian companies to capture the Indian markets, they are major suppliers in the Indian markets with globally competitive products and globally competitive
prices. The only corollary would be that they would be expanding.
Are there any suggestions whereby our industry can break into new markets and expand their footprints in the existing markets?
What should be the element helping the Export Promotion Framework?

(XI) The Growth Accelerator Framework:

How to take a successful business with say, more than Rs. 50 crore of turn over or a Rs. 100 crore of turn over for a year.
What are the policy frameworks it would need to become a global business and grow to a thousand crore or more of turn over?
What are the elements required by the businesses to keep continuously growing?
What should be the elements helping the Growth and Accelerator Framework?

(XII) Consultative Mechanism Framework

How do we devise it?
What should be the role of Associations?
We need to put a dynamic and anticipative consultative mechanism whereby the Government can be alerted, in real time, of an emerging problem of the industry and take immediate and proactive steps to address that problem rather than be reactive.
What are the suggestions to make this a vibrant consultative mechanism?

(XIII) Financial Regime Framework

What are the problems being faced by MSMEs for access to (a) equity fund, (b) debt funds?
A major reason why new SME fail is not for lack of profit but lack of access.
What are the steps that should be undertaken to ensure that there is flow of credit to MSMEs?
Can a credit bureau to record SMEs credit history for the banking sector‟s risk evaluation and loan appraisals.

The high interest rates often make an otherwise internationally competitive MSME loose with competitive edge. On the other hand, a broad debt is available at the very low rate of interest. Should the Government consider a mechanism of pooling the needs of MSMEs and acting as an intermediary for providing debt at
international prices (but including exchange risk coverage) to MSMEs.
What can be the alternative models for financing of MSMEs at the start-up stage and at the growth stage, apart from bank credit?
How to have a robust and supporting financial regime framework which encourages credit of MSME?

(XIV) Resources Provisioning Framework

Human resources are a key for any MSME. On one hand we have a demographic dividend; on the other hand, we have a situation where industry complaints of not getting adequate trained labour. How to remove this mismatch?
Land would become increasingly scarce. Should India, as country, consciously adopt multi-storeyed “Plug and Operate” model to provide lower capital cost for MSMEs?
Raw material access is also a challenge. What steps should be taken to breach and bridge this gap?
Is there any other resources provisioning which needs to be done?

(XV) Exit Policy Framework

1. The exit policy framework is required in the following possible scenarios:
i. For a successful entrepreneur who would like to exit from the business at a profit. In India, the culture of successful serial entrepreneurship is not there. This exists, in countries like the US. What framework is needed for doing this in India?
ii. The second category of entrepreneurs who require an exit policy are those who are running a successful business but their next generation is not interested in joining the business. They look for a successful exit.
iii. The third category of entrepreneurs looking for exit policy is those who are not done well in their business but the business is still surviving. They would like to cut losses and exit.
iv. The fourth category of entrepreneurs who require exit policy are those who have failed , are having bank loans, but also have land resources as well as a factory which may be running or may be closed.
(2) What are the suitable exit framework for the above categories?

Overall Framework should provide an enabling environment, an easy comprehension to MSMEs and act as a growth accelerator for the MSMEs.

These frameworks singly or collectively then need to be dovetailed to the needs of:-
i) Village and Rural Industries
ii) Traditional Industries
iii) Handicrafts and Handlooms
iv) Other industries such as Defence manufacturing Industries, Electronics Services Design and Manufacturing Industries, Agro Food Processing Industries, Machine Tool Industries, Casting and Forging Industries.
v) Industries where MSMEs are part of the value chain manufacturing in strategic industries such as Aerospace, Shipping, Renewable Energy like solar and wind etc.
vi) Employment intensive industries such as Textiles, Readymade Garments, Leather and Footwear, Gems and Jewellery.
vii) Industries where India enjoys a comparative advantage such as automobile and pharmaceutical etc.
The same framework, also focus on growth acceleration for the larger industries, say with a turnover of more than Rs. 100 crores. .

My Suggestions - Dr. K.V.S.S. Narayana Rao

Micro and Small enterprise definitions can be different for proprietor-partnership concerns and corporate concerns.

For corporate concerns, small and medium units can be defined.

For micro enterprises which are mainly proprietor-partnership concerns, there can be a National Bank for Microfinance.

At the moment, microfinance interest rates are high due to small amounts of loans as well as frequent collection trips. One incentive can be reduction of interest rate when a micro unit becomes a small unit.  In this instance a profit/income to proprietor of Rs, 20,000 per month can be set as criterion to become a small unit. This is equivalent to Rs, 2,40,000 per year and the person may just enter the income tax paying category.

I) Start-up Regime Framework:

More than 15 lakh students are passing out as Engineering graduates, MBA and Polytechnic but a very few only, venture into establishing their own enterprise.

The focus for promoting entrepreneurs has to be on persons with 5 years of experience. There should be a scheme wherein employed people are encouraged to save and invest in enterprise oriented schemes so that after a certain period banks can provide matching funds to start enterprises. Banks and mutual funds can provide enterpreneurship training to such persons. Even the parents, in-laws and other family members will be confident to support a person who saved good amount of money during his employment and showed his abilities as a performer, good deal maker and manager of customers, suppliers and employees.

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