Section I

SECTION I
INTRODUCTION
“Compliance is concerned with holding the balance between economic and
social goals and between individual and communal goals. The governance
framework is there to encourage the efficient use of resources and equally to
require accountability for the stewardship of those resources. The aim is to align
as nearly as possible the interests of individuals, corporations and society.”
Micro, Small and Medium Enterprises (MSMEs) sector has emerged as a highly
vibrant and dynamic sector of the Indian economy over the last five decades.
MSMEs not only play a crucial role in providing large employment opportunities
at comparatively lower capital cost than large industries but also help in
industrialization of rural and backward areas. MSMEs reduce regional imbalances,
assuring more equitable distribution of national income and wealth. MSMEs are
complementary to large industries as ancillary units and this sector contributes
enormously to the socioeconomic development of the country.
The flagship Make in India initiatives aims to facilitate investment, foster
innovation, enhance skill development and build an Eco-system for manufacturing
infrastructure in the country. The MSMEs of India would be the cradle for the
“Make in India” vision. This would be the nursery where small existing businesses
have the potential to become world beaters tomorrow. The larger players amongst
the MSME space also are in a unique position to become global players attracting
partners with technology and funds.
Startup India is a flagship initiative of the Government of India, intended to build a
strong ecosystem for nurturing innovation and Startups in the country that will
drive sustainable economic growth and generate large scale employment
opportunities. The Government through this initiative aims to empower Startups
to grow through innovation and design.
More than 90% of MSMEs in India are either proprietorship or partnership
enterprise and therefore, it is imperative to strive towards corporatisation of Small
& Medium Enterprises for good corporate governance as well as energise the
economy as a whole.
Globally, Micro, Small and Medium Enterprises (MSMEs) play a vital role in the
1
2 HANDBOOK FOR MSME ENTREPRENEURS
economic development of a nation. MSMEs are the nursery where small existing
businesses have the potential to become Global Enterprises.
The MSME sector has emerged as a dynamic sector of the Indian economy over
the last five decades. MSMEs contribute enormously to the socio-economic
development of the country. MSME have a large share of jobs, production and
exports. The primary responsibility of promotion and development of MSMEs is of
the State Governments. However, the Government of India, supplements the
efforts of the State Governments through various initiatives.
MSMEs have the inherent characteristics of being innovative and quickly
responsive to changing market conditions. And it is because of these qualities,
SMEs contribute substantially to any economy and are widely acknowledged as
the engine of economic growth.
Some highlights of MSME performance are as under :
 The second largest employer after agriculture
 The total number of MSMEs - 3.6 crores
 Employing over 8 crore people
 Accounts for 45 % of total industrial production
 40% of total exports of India
 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%
Major contribution of MSMEs is as follows:
1. It provides opportunities at comparatively lower cost;
2. It helps in industrialization of rural and backward areas;
3. Reduce Regional imbalances through the optimum utilization of their
resources;
4. More equitable distribution of national income and wealth;
5. Major partner in the process of inclusive growth.
The SME business market of India is large and bubbling with newer opportunities.
Increased purchasing power and consumerism is what drives the business
scenario in India. Thus, here is an opportunity for competitive advantage that can
benefit investors and entrepreneurs to a large extent. An investment in any best
small business opportunity promises lucrative returns and success in less time.
HANDBOOK FOR MSME ENTREPRENEURS 3
There are various reasons due to which the small scale business in India has
witnessed a spurt of growth. Some of these factors are:
 Less Capital Intensive
 Extensive Promotion & Support by Government
 Reservation for Exclusive Manufacture by small scale sector
 Project Profiles
 Funding - Finance & Subsidies
 Machinery Procurement
 Raw Material Procurement
 Manpower Training
 Technical & Managerial skills
 Tooling & Testing support
 Reservation for Exclusive Purchase by Government
 Export Promotion
 Growth in demand in the domestic market size due to overall economic
growth
 Increasing Export Potential for Indian products
 Growth in Requirements for ancillary units due to the increase in number
of Greenfield units coming up in the large-scale sector.
Although Indian MSMEs are a diverse and heterogeneous group, they face some
common problems, which are as under :
 Lack of availability of adequate and timely credit. The major dependence
for some sectors (eg. handicrafts) is for larger working capital requirement,
which directly impacts their production cycle
 High cost of credit
 Collateral requirements being insisted upon by banks
 Limited access to equity capital for MSMEs
 Marketing is one of the critical areas where MSMEs face problems
including product differentiation, brand building, customized tailor-made
services, clientele building, after sales servicing etc.
 Many entrepreneurs are not entering in the field of exports due to lack of
4 HANDBOOK FOR MSME ENTREPRENEURS
market knowledge, availability of a growing domestic market, and the

complexities of international trade.
 Limited scale of operations leads to low production capacity (and
consequent low exportable surplus), which is related to the maximum
limits for capital investment for definition of MSME
 Problems of designing, packaging and product display due to limited
capacities Inadequate infrastructure facilities, including power, water,
roads, etc.
 Low technology levels and lack of access to modern technology.
 Lack of skilled manpower
 Absence of a suitable mechanism which enables the quick revival of
viable sick enterprises and allows unviable entities to close down speedily.
 Lack of coordination among the various organizations involved in the
promotion of MSMEs, including organizations of the State Governments,
and poor linkages with the institutional stakeholders in the private sector.
There is also duplication of programmes run by various Ministries for the
same target group
 Lack of reliable and updated data base to help in monitoring the
development initiatives and formulation of appropriate schemes to meet
the differential needs of the heterogeneous beneficiaries.
 Non availability of raw materials at a competitive cost, very often due to
low volumes
 High transaction costs and procedural delays leading to high fixed costs.
 Policy and procedural issues.
 Governance Issues.
In nutshell, the major problems for the MSMEs relate to the availability and cost of
credit, marketing support, improving productivity, technology/skill upgradation,
infrastructure and the institutional framework for the MSMEs.

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SECTION I

market knowledge, availability of a growing domestic market, and the

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