Prologue

Economic survey chapter 9. Industrial Performance. Three subparts

Companies act and corporate governance

Policies, PSUs, excise and custom duties
MSME sector

[Act 1] MSME Basics

Definition: MSME sector

Initial classification based on Abid Hussain committee.

Latest classification based on MSME Act 2006

Classification

Mfg. Sector

criteria

investment in plant and machinery

MICRO

upto 25 lakhs

SMALL

>25 lakhs

MEDIUM
distribution

>5 cr.
Upper limit 10 cr. (proposal to raise it to 20 crores)

32% of MSME are in mfg. sector

>55% of MSME located in rural area

have shown consistent growth above 10% since 2010

Definition: Cottage vs Village industry
Cottage industry

family members managing it

no hired employee.
negligible capital investment
Handmade production using their own tools and material.

in area belo
less than Rs

Definition: organized vs unorganized sector

Organized sector

unor

~17% of workforce here

~83% workforce here. (NSSO-201

establishments which are covered by

1.
Factories Act, 1948
2.
Shops and Commercial Establishments Acts of
State Governments,
3.
Industrial Employment Standing Orders Act,
1946 etc.

not covered under those acts/orde

workers get social security benefits- EPF, maternity

benefit etc.

as such they dont get.

but 2008: Government enac
2008
under this act, Social securit
2010: Swavalamban scheme
account of unorganized labore

permanent employment (in most cases)

casual labor. high mobility, l

dont get protection by trad

Problems of these industries:

Common to MSME, cottage and village industries

Value addition to raw material is very low because they lack

technology and skilled manpower.

Small size = no economies of scale = high cost of operations,

transport and raw material. Hence MRP wise cannot compete
with MNCs. e.g. Tide washing powder (P&G) vs. some small scale
detergent company

Electricity supply, market connectivity poor.

Weve learned the definition and problems of MSME, now lets check
Government initiatives to help them

[Act 2] MSME Government initiatives

Public procurement policy
applicable from

2012- for three years.

applies to

every central ministry, department and PSU

annual target

20% of their total purchase from MSME sector

SC/ST

within those 20%, 4% procurement from MSME owned by SC/ST e

SIDBI, SIDF and NEF

SIDBI

SIDF

NEF

one of the four All Indian financial institution (other three are NABARD, EXIM
Owned by consortium of SBI, LIC, IDBI and other public sector financial inter
setup in 89, administers SIDF and NEF

small industries Development fund (SIDF)

under SIDBI
when foreign banks less than 20 branches, cannot meet RBIs Priority secto
money to this fund
money used for refinance, expansion; rehabilitation of sick industries etc.

National equity fund

Purchases shares of small industries.
So in a way they provide easy money/capital/finance to the company.
Because in shares/equities- the company will have to repay dividend only

Taxation, Subsidy, Schemes for MSME

Excise Duty

MSME upto Rs. 1.5 crore turnover are exempted from Excise

Service Tax

doesnt apply, if firm selling services less than Rs.10 lakh in

Capital Subsidy

upto Rs.15 lakh for purchasing plant and machinery

India Inclusive Innovation

Fund

to promote grassroot innovations related social sector- healt

VC for SC

Venture capital fund for Schedule caste entreprenurs. manag

India]

UdhyamiMitra

Credit guarantee

Rajiv Gandhi udhyami mistra yojana

Helps getting NOC, legal compliance, capital, training,
entrepreneurs.
thus saves the new players from redtape and harassm
runs helpline

Up to 1 crore loans to Small scale industry- without an

bank gives the loan, MSME ministry takes the Guaran
loan, else well repay.
This increases bankers confidence = hassle free loans

marketing assistance

provides information, workshops to connect buyers with man

SIDO

Small scale industries Development organization provide re

those entrepreneurs

Cluster

MSE- cluster Development program its similar to giving co

mega food parks.

Khadi board

Khadi and Village Industries Commission, statutory body und

Coir board

statutory body under MSME ministry.

nationalawards

for entrepreneurs in 3 categories

1.
MSME
2.
Khadi and village
3.
coir

Reserveditems

only Micro and small enterprises allowed to produce 20 item

List not exhaustive

Items reserved for MSME sector

Pickles & chutneys

Bread
two edible oils (without solvent extraction) -Mustard oil, Ground nut oil
Wooden furniture and fixtures
Exercise books and registers

Wax candles
Laundry soap

if a non-small scale industry wants to launch above products,

theyve get license + must export 50% of annual production.

Exempted: Companies in SEZ and Export processing zone

(EPZ).
Budget 2014: MSME related announcements

Bankruptcy

Entrepreneur friendly legal bankruptcy framework will also b

Committee

SCs, STs and OBCs own majority of MSME enterprises.

Therefore, Government will setup a committee on how to pr
This Committee will have members from Finance Ministry, M
suggestions in three months.
Related topic: in 2013, Government had setup R.S. Gujaral c

Incubation
MSME definition

District level Incubation and Accelerator Program

Incubation of new ideas and providing necessary support fo

Ceiling will be raised so more industries can be brought under it.

Venture capital fund in MSME sector
10k crore
To provide soft loans and capital for start-up companies

Startup companies

technology centre
network

to promote innovation, entrepreneurship and agro-industry (200

(not

MoU

in budget but under Modi regime)

Flipkart Karigaar Ke Dwaar to provide artisans sell their pr
Tata sons made knowledge partner of MSME ministry
Raymond will give tranining for mens garments mfg.

Budget-Textiles / handloom related

Will setup Textile mega-clusters in following places (200 cr):
1.
2.
3.
4.

Varanasi
Bareily
Lucknow
Surat

Hastkala Academy

1
1
1
1

Kuttch
Bhagalpur
Mysore
Tamil Nadu

At delhi (30 cr)

For handloom, handicraft sector- will preserve and pr

P3

Pashmina Promotion Programme (P-3) in J&K. (50 cr)

Misc.

Crafts Museum
Trade Facilitation Centre
Budget 2014: Misc. announcements

Textile Misc. Factoids:

Textile export ranking: China > EU > India (3rd)

4.5 crore employed, majority in unorganized sector.

[Act 3] Sick industries
1987: Sick industrial companies Act, based on Tiwari
recommendations.
Definition of Sick industry:

Does not apply to micro and small enterprises.

applies to medium and large scale companies

registered under companies act, for minimum 5 years

making losses in this year and last year

Has eroded its entire networth / paid up capital.

What are the benefits of becoming of a SICK company? well
Government provides financial help or help you shut down!
BIFR= board for industrial and financial reconstruction
statutory body: setup under sick industries act
Quasi-judicial body: decides whether a company is sick or not.
Its decision is final and binding.

if a loss making company is declared SICK, its given three

options
1. time extension to make net worth positive
2. revival package (from SIDF fund money from SIDBI)
3. Wind up the company.
IIFB (closed)

Industrial investment bank of India

Provided finance and technical assistance to revive the SICK

industries. (after BIFR gave Certificate that given company is
SICK)

it was the fifth all India financial intermediary (AIFI)- other four
were SIDBI, NHB, NABARD and EXIM bank

2012: finance ministry closed it down because hardly any

positive impact.

[Act 4] Survey Summary: MSME reforms

# E-governance
1. Create a website with all the rules and regulations applicable to
businesses across states and the centre.
2. Department of industrial Policy and Promotion (DIPP)
implement E-biz module under National E-governance plan. We
can utilized it for this purpose
3. Minimize human interaction. Shift reporting/data submission to
an online-only mode whenever possible, e.g. for routine
registration, repeated filing and reporting of information.
4. Ask State Governments to share best practices on business
regulations- and adopt it at national level.
# less interference
1. Strengthen grievance redressal mechanisms against
inspections- with clear norms and deadlines.
2. Give extension time to companies, to correct their fault instead
of penalizing them immediately.
3. System for self-certification and third-party certification.
4. Review and remove outdated regulations
5. Reform the Apprenticeships Act of 1961.
6. Amend MSME act to help financially distressed companies
7. Long term: completely revamp Indian laws governing taxation,
labour, environment, and safety.
8. Setup a productivity commission similar to Australian
Productivity Commission. Itll serve a knowledge base, and
champion for business change.

# Land availability
1. Permit mixed use of residential and commercial properties.
Otherwise, given the real estate inflation- the MSME entreprenurs
cannot expand.
2. Ask PSUs and departments to sell away their Surplus /
unutilized land to MSME. The government could institute a use
it or lose it policy to free up this locked land.
#social security
1. Give wider social security and health benefits like New Pension
Scheme (NPS) and Rashtriya Swasthya Bima Yojna (RSBY).
2. Coupon system for casual workers- which grants them social
security benefits.