ROLE OF MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) IN THE ECONOMIC DEVELOPMENT OF A COUNTRY

INTRODUTION The small and medium enterprises today constitute a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who required developing core industry and having a supporting sector in the form of small scale enterprises. MSMEs sector has emerged as a dynamic and vibrant sector of the economy. Today, it accounts for nearly 35% of the gross value of output in the manufacturing sector and over 40% of the total exports from the country. In terms of value added this sector accounts for about 40% of the value added in the manufacturing sector. The sector's contribution to employment is second highest next to agriculture. The MSMEs sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 6.79 million units in the year 1990-91 to over 13 million in the year 2007-08. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the MSMEs Sector. Worldwide, the micro and small enterprises (MSEs) have been accepted as the engine of economic growth and for promoting equitable development. The MSEs constitute over 90% of total enterprises in most of the economies and are credited with generating the highest rates of employment growth and account for a major share of industrial production and exports. Micro, small and medium enterprises are also referred to as Small and medium enterprises or SMEs, and small and medium-sized businesses or SMBs in some countries. The abbreviation SME occurs commonly in the European Union and in international organizations, such as the World Bank, the United Nations and the World Trade Organization. The term small and medium-sized businesses or SMBs is predominantly used in the United States of America (USA). In the European Union and USA, SMB's are companies whose headcount or turnover falls below certain limits. The business is classified as per the number of employees employed in the business. In South Africa the term SMME for Small, Medium and Micro Enterprises is used. Elsewhere in Africa, they use MSME for Micro, Small and Medium Enterprises.

In India, the sector is generally referred to as the Micro, Small and Medium Enterprises (MSMEs). MSMEs play a pivotal role in the overall industrial economy of the country. In recent years the MSME sector has consistently registered higher growth rate compared to the overall industrial sector. The major advantage of the sector is its employment potential at low capital cost. IMPORTANCE OF MSMEs SECTOR IN INDIA The development of the micro, small and medium enterprises (SME) sector is on the priority of Government Agenda. As per the Results-Framework Document (RFD) for Ministry of Micro, Small and Medium Enterprises (2012-2013), the Mission of the government is to Promote growth and development of globally competitive Micro, small and Medium Enterprises, including Khadi, Village and Coir industries, in cooperation with concerned Ministries / Departments, State Governments and other stakeholders by providing support to existing enterprises and encouraging creation of new enterprises. To endeavor to achieve a cumulative growth of 40%-50% in the number of registered enterprises by the end of 12th Plan and enhance this sector's contribution to GDP from the present 8% to 10% by the end of 12th Plan. The role of micro, small and medium enterprises (MSMEs) in the economic and social development of the country is well established. As per the Report of the Working Group on Micro, Small and Medium Enterprises (MSMEs) Growth for 12th Five Year Plan (2012-2017), the sector accounts 45% of the manufacturing output and 40% of total exports of the country. The sector provides employment to about 69 million persons through 26 million enterprises throughout the country. Over 6000 products ranging from traditional to high-tech items are being manufactured by the MSMEs in the country. The labour to capital ratio in MSMEs and the overall growth in the sector is much higher than in the large industries. The geographic distribution of the MSMEs is also more even. Thus, MSMEs are important for the national objectives of growth with equity and inclusion. Over the years, the small scale sector in India has progressed from the production of simple consumer goods to the manufacture of many sophisticated and precision products like electronics control systems, micro wave components, electro medical equipments, etc. The process of economic liberalization and market reforms has further exposed these enterprises to increasing levels of domestic and global competition. The MSME sector in India is highly heterogeneous in terms of the size of the enterprises, variety of products and services produced and the levels of technology employed.

While one end of the MSME spectrum contains highly innovative and high growth enterprises, more than 94% of MSMEs are unregistered, with a large number established in the informal or unorganized sector. The sector has a high growth potential and performs a critical role in the manufacturing and value chains. Micro, small and medium enterprises (MSME) sector is characterized by low investment requirement, operational flexibility and location wise mobility. As per the quick estimates of 4th All-India Census of MSMEs, the number of enterprises is estimated to be about 26 million and these provide employment to an estimated 60 million persons. Of the 26 million MSMEs, only 1.5 million are in the registered segment while the remaining 24.5 million (94%) are in the unregistered segment. The Statewise distribution of MSMEs show that more than 55% of these enterprises are in 6 States, namely, Uttar Pradesh, Maharashtra, Tamil Nadu, West Bengal, Andhra Pradesh and Karnataka. Further, about 7% of MSMEs are owned by women and more than 94% of the MSMEs are proprietorships or partnerships. MSMEs in the country manufacture over 6,000 products. Some of the major subsectors in terms of manufacturing output are food products (18.97%), textiles and readymade garments (14.05%), basic metal (8.81%), chemical and chemical products (7.55%), metal products (7.52%), machinery and equipments (6.35%), transport equipments (4.5%), rubber and plastic products (3.9%), furniture (2.62%), paper and paper products (2.03%) and leather and leather products (1.98%). The importance and contribution of the SME sector to the economic growth and prosperity is well established. Towards this, Government's policy initiatives like enactment of the Micro Small and Medium Enterprises Development (MSMED) Act, 2006, pruning of reserved SSI list, advising Financial Institutions to increase their flow of credit to the SME sector, are all initiatives towards boosting entrepreneurship, investment and growth. Reservation of items for exclusive manufacture in MSME sector statutorily provided for in the Industries (Development and Regulation) Act, 1951, has been one of the important policy measures for promoting this sector. The opportunities of growth in the MSMEs sector are enormous due to the following factors: 1. Less Capital Intensive 2. Extensive Promotion & Support by Government 3. Reservation for Exclusive Manufacture by small scale sector 4. Project Profiles

5. Funding - Finance & Subsidies 6. Machinery Procurement 7. Raw Material Procurement 8. Manpower Training 9. Technical & Managerial skills 10. Tooling & Testing support 11. Reservation for Exclusive Purchase by Government 12. Export Promotion 13. Growth in demand in the domestic market size due to overall economic growth 14. Increasing Export Potential for Indian products 15. Growth in Requirements for ancillary units due to the increase in number of green-field units coming up in the large scale sector. PROBLEMS BEING FACED BY MSMEs IN INDIA Micro Small and Medium Enterprises (MSMEs) contribute to economic development in various ways such as creating employment opportunities for rural and urban population, providing goods & services at affordable costs by offering innovative solutions and sustainable development to the economy as a whole. MSMEs in India face a number of problems - absence of adequate and timely banking finance, non-availability of suitable technology, ineffective marketing due to limited resources and non availability of skilled manpower. Small and Medium Enterprises (SME) play an important role in the development of a country. There are around 26 million MSME units in India, of which 13 million are MSMEs. MSMEs contribute nearly 45% share of manufactured output, accounting for 40% in overall exports of the country and providing employment to about 32 million people. The performance of MSMEs in India though impressive comes next to China where this sector provides employment to 94 million people with a network of 37 million units. India has registered a high economic growth (6-9%) consistently over the last one decade. For the sustainability of this kind of growth proper nurturing of SME sector is imperative. The need of the hour is to empower the SME Sector so that it is able to take its rightful place as the growth engine of the economy. This paper throws light on various challenges being faced by MSMEs in India at present and tries to find solutions to these problems, so that the MSMEs become more vibrant and are able to make forays to new un-chartered areas such as infrastructure etc.

Finance Minister has proposed to provide Rs. 5,000 crore to SIDBI for refinancing incremental lending by banks to MSMEs out of the shortfall of banks on priority sector lending targets. In view of the problems being faced by handloom weavers, inability to repay debts to handloom weaver cooperative societies which have become financially unviable, FM has proposed to provide Rs. 3,000 crore to NABARD. The initiative is expected to benefit 15,000 cooperative societies and about 3 lakh handloom weavers. These efforts could not bring a lot cheer to the sector as many concerns still remain. Though additional Rs. 1000 crore to SIDBI may help address priority sector lending concerns, but it does not stand anywhere near sufficient. This is because borrowing costs still remain high for the sector. Farming did see some relief in terms of lower interest rates on loans. SME is the foremost employment generating sector and has a significant contribution in Indian GDP. Currently, unavailability of funds plagues the growth of many MSMEs and at the same time loans rates faced by them are as high as 16% and above, which affects investment decisions. The budget proposes to move the service tax from cash basis to accrual basis. This implies that businesses will have to pay tax for the money that they have not received yet, due to which liquidity will become an issue. Another important concern is that of rising input costs. This is affecting the competitiveness of SME products in domestic as well as international market. Also, it is difficult for MSMEs to pass on the extra cost to consumers due to which their margins decline, making production unviable. FM did address the issue by trying to control inflation. The only problem here is that it is a very gradual process, not going to happen immediately. Small and Medium Enterprises (MSMEs) are often confronted with problems that is uncommon to the larger companies and multi-national corporations. These problems include the following: LACK OF IT SUPPORT IT personnel are in high demand and are often attracted to bigger companies and MNCs. It is very difficult for MSMEs to attract good IT personnel. It is even more difficult to retain them. Moreover, good IT personnel are expensive and may not be affordable by most MSMEs. LACK OF IT LITERACY Many of the employees in MSMEs started from the ground up after working with the company for many years. Some of them are often holding supervisory and managerial positions. These employees may not be IT literate and often have high resistance to the changes in the working process that they are comfortable with after many years.

LACK OF FORMAL PROCEDURE AND DISCIPLINE Most MSMEs do not have formal procedure or often these are not documented. Furthermore, there is tendency for these procedures to change frequently. This makes it difficult for third party and newcomer to understand the existing business practices and match them with the IT process. UNEVEN IT AWARENESS AND MANAGEMENT SKILL As company grows, new managers are often introduced into the company. There will also be old managers who are promoted from the rank and file. Some of these managers may not been trained in the leadership and management skill. These uneven skill among the managers often caused conflicts during the implementation. LACK OF FINANCIAL RESOURCES As a SME/SMI, financial resources are often limited. This often forces company to select a solution, which appear to be cheap initially. However, the hidden costs will start to emerge during implementation. This sometime causes the project to be abandoned or sometime sent the company into further financial crisis. LACK OF HUMAN RESOURCES Implementations of some bigger scale IT project especially those that involve business process across different departments or require large amount of initial data entries require human resource during the implementation. Some MSMEs are often in the stage of frequent fire fighting and shortage of manpower. This makes it very difficult for them to allocate time to carry out implementation. Furthermore, there is always a conflict between getting the daily routing work going and to do the "Extra" IT implementation. LACK OF EXPERIENCE OF USING CONSULTANTS A good consultant often save time and effort, and help to prevent pitfalls during the IT projects. However, most MSMEs are lacked of experience in working with consultants. The lack of knowledge in the field of IT makes them difficult in identifying good consultant for the projects. They often feel that the consultant cost is too high and they can handle it with their own staff. If the company has no staff that are experience and knowledgeable in t he IT project, avoiding external help often costs more to the company eventually. Small and Medium Enterprises significantly contribute to industrial, economic, technological and regional developments in all economies, developed and developing, though the definitions of MSMEs may vary (Agarwal 2005). In India, it is estimated that there are over 1.4 million small industries, out of which about 30 per cent may relate to manufacturing.

SSI sector account for about forty percent of total industrial production, thirty five to forty percent of total exports and a significant share in employment (close to 2.5 million) and close to 8% of GDP. However MSMEs or SSI sector (now called as micro, small and medium enterprises, MSMEs) are going through a transition phase including restructuring of strategies and facilities since the announcement of new policies in 1991 and thereafter progressive adoption of liberalised and globalising policies in India. We will however continue to use 'SME' nomenclature as it is more popular, and widely accepted. MSMEs need to be vitalised for competitiveness and sustainable growth under new world trade rules and faster technological changes, including wider use of ICT, besides new business models. Several initiatives have been taken by the government from time to time to promote and support MSMEs, including new support measures, financing mechanisms, and gradual de-reservation of items for production. Innovations and technologies are becoming more crucial for competitiveness and sustainability of MSMEs, in the emerging international trade regime. MSMEs (or SMEs) need to adopt internationlisation strategies in tune with objectives and strategies and global supply chain management of transnational corporations (TNCs) or large companies. Some of the recent initiatives, key issues and best practices evolved worldwide to vitalize and internationalise MSMEs, particularly from technology point of view have been discussed in this paper. It draws lessons from the studies carried out by the author recently in 2005-06 for UNESCAP, after a desk research and field surveys and visits to SME related organisations in select four developing countries in Asia Pacific region.(The National Manufacturing competitive Council, 2006). This study report was also discussed in an UNESCAP international workshop held at Seoul, South Korea, in Jan. 2006, (Agarwal 2006,a) in which about thirty countries and international agencies participated. The findings were further presented in another seminar at Seoul in March 2006 and a workshop at Beijing, republic of China, in Oct. 2006 (Agarwal2006,b,c). Prevailing technology capability building measures and national manufacturing strategy recently announced in India have also been discussed, and some suggestions made to internationalize to improve competitiveness of MSMEs in India. It is hypothesized in this paper that vitalization and internationalization of select MSMEs is necessary in developing countries such as India, and technological inputs and support is a prerequisite for their growth and competitiveness; along with a comprehensive policy framework, implementation mechanisms and built evaluation systems.

MEASURES TAKEN BY GOVERNMENT OF INDIA Ministry of Small Scale Industries is primarily responsible for promotion and development of SMEs in India, and has evolved several policies, institutional and support measures, spread all over the country, in order to enable SMEs to meet their changing needs. Small Industries Development Bank of India (SIDBI) has developed various financing schemes. Ministry of Science and Technology (DST, DBT, DSIR) has evolved several measures and programmes for technological assistance and development and transfer of technologies for SMEs. Some of the economic ministries such as Ministry of Textiles, Department of Food Processing and Department of Handicrafts etc. have also recently announced initiatives for technical assistance in various firms.(DCSSI 2006) STEPS TAKEN RECENTLY The Micro, Small and Medium Enterprises (MSME) sector contributes significantly to manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for about 45 % of the manufacturing output and 40% of total exports of the country. The sector is estimated to employ about 69 million persons in over 26 million units throughout the country. There are over 6000 products ranging from traditional to high-tech items which are being manufactured by MSMEs in their ranging from traditional to high-tech items, which are being manufactured by MSMEs in the country. It is well known that MSME sector provides maximum opportunities for both self employment and jobs outside agriculture sector. The inclusiveness of the sector is underlined by the fact that nearly 50% of the MSMEs are owned by disadvantaged groups of the society. To make this sector to become more vibrant and significant player in development of the Indian economy the Government of India has taken various initiatives. The definition and coverage of the MSME sector was broadened MSME Development Act 2006 which recognized concept of 'enterprise' to include both manufacturing and service sector besides defining medium enterprises setting up a Board for developing policy frameworks and indicating procurement policy. A task force was constituted to identify issues that are inhibiting the economy development and growth of the MSME sector. Sequels to this about 80 recommendations were made to unshackle the Indian MSME sector. While most of the recommendations have already been implemented there are some specific issues related to policy and government support needs immediate attention.

CONCLUSION Small and Medium Enterprises (SMEs) contribute to economic development in various ways such as creating employment opportunities for rural and urban population, providing goods & services at affordable costs by offering innovative solutions and sustainable development to the economy as a whole. SMEs in India face a number of problems - absence of adequate and timely banking finance, non-availability of suitable technology, ineffective marketing due to limited resources and non availability of skilled manpower. Small and Medium Enterprises (SME) play an important role in the development of a country. There are around 26 million MSME units in India, of which 13 million are SMEs. SMEs contribute nearly 45% share of manufactured output, accounting for 40% in overall exports of the country and providing employment to about 32 million people. The Micro, Small and Medium Enterprises (MSME) sector contributes significantly to manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for about 45 % of the manufacturing output and 40% of total exports of the country. To make this sector to become more vibrant and significant player in development of the Indian economy the Government of India has taken various initiatives. The definition and coverage of the MSME sector was broadened MSME Development Act 2006 which recognized concept of 'enterprise' to include both manufacturing and service sector besides defining medium enterprises setting up a Board for developing policy frameworks and indicating procurement policy. REFERENCES 1. Annual Reports, Ministry of Small Scale Industries, Government of India 2. Micro, Small and Medium Enterprises Development Act Background Paper, Jessica Wade, Small Enterprise Finance Centre, IFMR. 3. Ministry of Micro, Small & Medium Enterprises, 2007: Micro, Small and Medium Enterprises in India: An Overview, Ministry of Micro Small and Medium Enterprise, Government of India 4. MSME Development Act 2006, Ministry of MSME, Government of India 5. Final Results: Third All India Census of Small Scale Industries 2001-2002, August 2004 Edition, Ministry of Small Scale Industries, Government of India. 6. Guidelines for Rehabilitation of Sick Small Scale Industrial Units, Reserve Bank of India Document, January 2002.