Namrata Kath Hazarika | 31 Dec, 2010
The global economic turmoil which hit the Indian economy adversely since 2008 and continued till 2010 caused the Indian Micro, Small and Medium Enterprises (MSMEs) face potential challenges to maintain growth and perform steadily.

Experts predict that although the MSME sector is clocking double digit growth for the last three quarters, the growth might not be sustained in 2011-12 if inflation and interest rates remain high.

Anil Bhardwaj, Secretary General, Federation of Micro, Small and Medium Enterprises (FISME) told SME Times, "Though the final figures are yet to become available for all four quarters, MSME sector is clocking double digit growth for the three quarters. If inflation remains high and interest rates hardened, growth may not be sustained in 2011-12."

Although the sector is not expecting much from the government, it urged the implementation of the recommendations of Prime Minister's (PM) Task Force soon, which will help the sector's growth, he said.

The task force was formed on September 02, 2009 dividing it into seven sub-committees. The committees of the task force prepared a report based on issues like labour, revenue, Credit, Exit Policy, procurement policy, schemes for North–East and J&K,  schemes relating to rehabilitation of sick enterprises and others and submitted the report to the PMO on different issues related to MSMEs.

Besides this, the government is also mulling to reserve 20 percent public procurement for micro and small enterprises (MSEs) under the MSME procurement policy. The report of which have been submitted to the cabinet and the union cabinet is expected to take up the new procurement policy  soon.

Government schemes for MSMEs
The Ministry of Micro, Small, and Medium Enterprises (MSMEs) has initiated ten innovative schemes under the National Manufacturing Competitive Program (NMCP) for the sectoral growth which includes lean manufacturing, design clinic, marketing assistance and technology upgradation for MSMEs, technology & quality management support for MSEs and promotion of ICT in manufacturing sector. Out of these ten innovative schemes, five are fully operationalized during the last one year.

While, credit is one of the critical inputs for the promotion of the Small and Medium Enterprises.
In fact, the Credit Linked Capital Subsidy Scheme (CLCSS) facilitate SMEs for its technology upgradation where they avail capital subsidy  for modernization of their production equipment and techniques.

SME's challenge
Further pointing out the challenges faced by the sector, Bhardwaj also added, "FISME has always held that we need reforms in financial sector if we want majority MSME to have access to institutional credit."

"It might as well require a separate regulator for banking to ensure fair but fierce competition to unleash innovative financial products." he added.

Further, both the government along with the industry has to mitigate the challenges on various fronts which includes inadequate financial support; inability to promote their products and services in domestic and international markets; lack of support from government organizations, large enterprises, etc; lack of appropriate need-based training and development programmes; lack of knowledge about low-cost brand communication solutions; unavailability of latest news, trends and technologies and lack of adequate networking opportunities and poor knowledge management.

SME stock exchange
Amongst all the initiatives taken the government, there are certain proposals on the table for SME stock exchange. SEBI had decided to encourage promotion of dedicated exchanges and/or dedicated platforms of the exchanges for listing and trading of securities issued by SME.

In fact, Securities and Exchange Board of India (SEBI) has finalized and specified the Model Equity Listing Agreement for execution between the Small and Medium Enterprise (SME) issuer and the Stock Exchange. Further, SEBI has also issued necessary guidelines in this regard.

FDI in retail
The government is mulling to open Foreign direct investment (FDI) in multi-brand retail soon. A discussion paper, prepared by the Department of Industrial Policy and Promotion has been put forward for eliciting opinion of various stakeholders. The discussion paper has thrown across mixed reaction for the entry of various international retail giants into the country.

Currently FDI in multi-brand retail is prohibited in India, while in 51 per cent is allowed in mono-brand retail and 100 per cent in cash and carry. However, the Ministry of MSME has proposed allowing only up to 18 per cent FDI in multi-brand retail, while cautioning that entry of global retailers could harm interests of kirana stores, small farmers and consumers.

Duty refund
Opining further on the SME sector, FIEO president, Ramu S Deora also said that SMEs incur huge losses due to the high transactional costs and this needs to be controlled by the government. He suggested all requisite work such as on duty refund must be done through online, which will save time and reduce transactional costs.

He also pointed out, "SMEs those who have exported their goods and services do not get duty refund immediately by the government under the export promotion schemes such as Duty drawback, Duty Entitlement Passbook Scheme and Advance License Scheme."

"SMEs should get the duty refund soon, that is very important for the SME exporters in the country and the government needs to pay attention to this." Deora added.

The MSME sector contributes 45 percent of the manufactured output and 40 percent of its exports. And, the sector provides employment to about 60 million persons through 26 million enterprises.