Micro, small and medium enterprises (MSMEs) showcase high levels of individual creativity & innovation. The MSME sector constitutes of 30 million enterprises and contributes more than 40% towards the total exports of the country. The sector’s labour-to capital ratio is much higher than that of large industries as it provides employment to more than 70 million people in India.

The past few years have witnessed an increased awareness of the issues concerning the MSMEs and their ecosystem. Problems related to finance, HR, IT, marketing, R&D, etc. are well known now but yet the solutions have been elusive. Policy framework and regulatory environment is better now but awareness and efficacy on the ground still needs a major boost. Except a few, most large businesses and financial enterprises are providing lip-service despite making a lot of noise.

Milagrow does not belive in just criticizing the Government for the lack of effectiveness in tapping the potential of the MSMEs in India or in expressing helplessness at the lack of focus on the MSME sector by the large companies. It has gone ahead and built a world-class platform to discuss and debate such issues. It has built upon its own knowledge division and has released path-breaking research on the MSME sector.

World SME Conference, during the last 2 years, witnessed the release of 9 insightful research studies conducted by Milagrow.

One of the studies revealed that the awareness levels of Government MSME policies have improved from 25% in 2008 to 35% in 2009, but still two-thirds of the MSMEs are not even aware about the MSME Development Act. 95% respondents across the country said that the corruption levels are high, and more than 80% felt that the impact of corruption on their businesses is adverse and hampers their growth.

Milagrow study on the best-practices in SME development from nations across the world was released during the Conference in December ’09 and recommendations were presented to the Indian policy makers. Some of the recommendations also found their way in the report submitted to the Prime Minister by a special Task Force during March ‘10. Some of the recommendations of the task force were:

• The government should earmark additional public spending to the tune of Rs.5,000 -5,500 crore over the next 3-5 years to specifically target deficiencies in the existing infrastructure and institutional set up. These funds may be used to: (a) support the establishment of Rehabilitation Funds in the States for the revival of potentially viable sick units; (b) assist MSMEs in the acquisition and adaptation of modern clean technologies as well as creation of Technology Banks and product-specific Technology Development Centres; (c) promote establishment of business incubators in educational institutions of repute; (d) renovate existing industrial estates and develop new infrastructure for MSME sector, with sustainable urban governance mechanisms; (e) re-engineer, strengthen and revitalize District Industries Centres to enable them to play a more active role in advocacy and capacity building for MSMEs and as appropriate, in their rehabilitation; (f) strengthen NSIC’s equity base for enhanced market support to MSMEs; and (g) up-scale the existing programmes of entrepreneurship and skill development targeted at MSMEs. It is further recommended that while the detailing of the schemes would be done on the basis of further examination, to avoid procedural delays in implementation of these schemes, a line entry may be incorporated in the Annual Plan 2010-11 of the Ministry of MSME.
 
• The government should take steps to create an overall enabling environment using appropriate legal and fiscal instruments, to incentivize the transition of MSMEs from the unorganized to the organized sector as well as for their corporatization as entities. It should also encourage higher investments for innovative and knowledge based ventures as well as for research and development through greater partnership between the industry and academic institutions.
 
• Government should set up an independent body at the national level for the promotion and development of MSMEs. This body may provide financial and managerial support for setting up of industrial estates/common facilities in partnership with the private sector, administer schemes for the unorganized sector, promote technology development (including clean technologies), provide marketing support and coordinate & disseminate information relevant to MSMEs. Currently, the Development Commissioner (MSME) is the focal point for all policy matters, formulation of various promotional and developmental schemes as well as channelizing certain incentives and subsidies to the MSME sector, the Small Industries Development Bank of India (SIDBI) is the principal financial institution for financing and related promotional and development work for MSMEs, while the National Small Industries Corporation Limited (NSIC) has been set up to facilitate MSMEs in procurement of raw material and helping in marketing of their products. In addition, various Ministries/Departments of the Government have promotional policies and developmental schemes for the MSMEs in their specific sector. The proposed independent body could use the existing structures of aforesaid organizations with appropriate changes in their charter and mandate. The experience of other countries with such institutions (such as the Small Business Administration, in the United States) may be considered while deciding on the mandate and structure of the National level institution.
 
• A Standing Review Committee under Member (Planning Commission) should be set up to monitor flow of credit to MSME sector and its apportionment to the more vulnerable sections like micro enterprises and the unorganized sector.
 
• Government should encourage Micro Finance Institutions (MFIs) to form self-help groups and finance micro enterprises in unbanked/identified excluded rural/semiurban areas at reasonable rates. Banks may also be encouraged to formulate schemes for refinancing loans taken by the MSEs from non-institutional sources/moneylenders. Financial outreach is likely to prove an effective means to formalize the unorganized sector. Suitable incentives, including tax concessions, should be extended to MFIs to encourage them to work as business correspondents and business facilitators for banks to service micro enterprises.
 
• The District Industries Centres (DICs) should be strengthened with provision of modern IT-enabled communication facilities and re-training of human resources available with these institutions. As the DICs form the bedrock of MSME promotion, they should be urgently strengthened, revitalized and transformed to play a more active role in advocacy and capacity building for potential and existing entrepreneurs. Wherever viable, active involvement of the private sector for revamping the DIC network should be considered. Such re-engineering of the DICs may be supported by the Central Government.
 
• States should be supported by the Central Government to set up Rehabilitation Funds and operationalize appropriate schemes for the rehabilitation of units temporarily rendered sick due to circumstances beyond their control. It is recommended that the state governments may establish a mechanism at the district level, in the DICs, to re-examine the viability of sick units in coordination with the banks and implement rehabilitation packages in a time bound manner.
 
• It must be ensured that the rehabilitation package is made binding on all stakeholders, including banks and financial institutions. The RBI/Finance Ministry should issue necessary orders in this regard so that discretion at the field level, whether by the field formations or by banks is ruled out. We recognize that the Andhra Pradesh Model may be a good template for this dispensation (Chapter IX Annexure B), which may be examined while finalizing the contours of the scheme.
 
• The government should infuse industrial estates which are currently in a state of decay and neglect, with fresh capital and upgrade them to ‘Industrial Townships’. The latter concept has constitutional recognition. This will permit effective municipal administration and a single-stop mechanism for the provision of municipal services.
 
• New clusters for MSEs should be created to meet the requirements of planned development and growth, consistent with the policy of progressively organizing the MSEs. Development of new infrastructure for the MSME sector should be substantially augmented with the government stepping in with viability gap funding to encourage private sector participation.
 
• Government should consider earmarking funds to the tune of Rs. 1500 crore, within the enhanced investment package proposed in A(vi) above, to support clean technology initiatives of different Ministries involved with MSME growth, particularly in the context of the National Action Plan for Climate Change (NAPCC). This amount should be utilized by up-scaling existing schemes or by evolving new schemes to assist existing MSMEs in acquisition, adaptation and innovation of modern clean technologies as well as creation of a Technology Bank/product specific technology centres to enable them to move up the value chain.
 
• The concept of business incubators in educational institutions of repute should be encouraged by setting aside Rs.1000 crore within the overall package set out in A(vi). We have seen that business incubators currently in place in the premier management institutions of the country have facilitated new enterprises with innovative ideas.
 
• Government should expedite the establishment of a SME Exchange which is already under consideration.
 
• Workable legal options should be developed for the securitization of trade credit receivables and for the promotion of factoring services.
 
• Wide publicity should be given to new formats like Limited Liability Partnerships and Single Person Companies, which provide MSMEs with an interim solution in the move from the informal to the formal economy.
 
• The insolvency legislation should be comprehensively reviewed in recognition of the reality of the global market where enterprises continuously get created and destroyed.
 
• Labour laws should be simplified, especially those applicable to enterprises in the MSME sector, since the transaction costs for complying with these laws is disproportionately high for these units.