24 Feb, 2012

Indian Govt Sets 20% Procurement Target from SMEs in 3 Years

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Ministry of Micro, Small & Medium Enterprises, 23-February, 2012 – The Micro Small and Medium Enterprises play a pivotal role in the overall industrial economy of India. MSME constitute more than 80% of the total number of industrial enterprises and support industrial development. With globalization, there is an urgent need of a dynamic and self-sustaining culture of innovation and cluster based approach for the development of MSMEs.

An MSME Summit focussing on the theme Innovation & Clusters was organized along with FICCI here today. Mr R.K. Mathur, Secretary, MSME, delivered the following speech:

“Innovation refers simply to the creation and application of a new idea to create value in a certain context. The rise of India as a growing power not only in Asia but also at the global stage would require not only a macroeconomic uplift but also a thorough realization of innovation by the MSMEs. Innovation being the key solution to the various challenges being faced by the entrepreneurs, equally important is to realize the need of cluster based approach.

As a whole, it facilitates to face market challenges, quicker dissemination of information, sharing of knowledge and best practices and better cost effectiveness due to distribution of common costs. It also provides an effective and dynamic path for inducing competitiveness by ensuring inter-firm cooperation through networking and trust. The geographic proximity of the enterprises with similarity of products, interventions can be made for a large number of units that leads to higher gains at a lower cost, which in turn helps in their sustainability. The cluster approach thus aims at a holistic development covering areas like infrastructure, common facility, testing, technology & skill upgradation, marketing, export promotion.

“The cluster approach has proved effective and successful tool for upgradation of industry all over the country in a cost effective manner. The cluster development initiatives in various clusters have reportedly delivered remarkable results. The small and tiny units of natural rubber cluster of Kottayam in Kerala would not have been able to process their materials in a common-to-all centrifugal mixer and calendering plant, at predetermined rates, if they had not come forward to form a cluster body and availed benefits of cluster development scheme.

The Government has adopted the cluster approach as a key strategy for enhancing the productivity and competitiveness as well as capacity building of MSEs and their collectives in the country. The guidelines of the MSE Cluster Development Programme (MSE-CDP) have been comprehensively modified to provide higher support to the MSMEs. With this, a total of 477 clusters spread over 28 States and 7 UTs (Union Territories) have so far been taken up for diagnostic study, soft interventions and setting up of CFCs under the programme. The efforts under the scheme are focused on covering more and more clusters from all the States/UTs. There has been a good response to the Cluster Development Programme from the southern States as evident from large number of proposals received from southern States. This indicates a greater awareness about the Cluster Development Programme in the Southern part of the country.

National Manufacturing Competitiveness Programme

We are all aware that Micro, Small and Medium Enterprises (MSMEs) are facing the challenges of globalization, higher cost of funds, knowledge management technology upgradation, infrastructure constraints. My Ministry has been implementing several promotional schemes for a growth and development of small scale industries. These relates to technology, quality upgradation, support, marketing support and entrepreneurial and managerial development. For enhancing competitiveness of the Indian manufacturing industry Government has taken up the National Manufacturing Competitiveness Programme.

There are 10 components targeted at enhancing the entire value chain of the MSME sector to make it competitive. The components are Lean Manufacturing Competitiveness Scheme for MSMEs, Promotion of Information & Communication Tools (ICT) in MSME sector, Setting up of New Mini Tool Rooms under Public Private Partnership (PPP) Mode, Technology and Quality Upgradation Support to MSMEs, Support for Entrepreneurial and Managerial Development of SMEs through Incubators, Design Clinics scheme for MSMEs, Enabling Manufacturing Sector to be Competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTT), Marketing Assistance and Technology Up gradation Scheme for MSMEs, Building Awareness on Intellectual Property Rights for the MSME and Marketing Assistance/Support to MSEs (Bar Code).

The Government has also recently announced a Public Procurement Policy. Therein every Central Ministry / Department / PSU shall set an annual goal for procurement from MSE sector at the beginning of every financial year. Objective is to achieve an overall procurement goal of minimum 20% of total annual purchases of products or services produced or rendered by MSE from the latter in a period of three years. After 3 years, overall procurement goal of minimum 20% will be mandatory. Further, out of 20% target of annual procurement from MSEs, a sub-target of 20% (i.e. 4% out of 20%) will be earmarked for procurement from MSEs owned by SC / ST entrepreneurs.

The Skill and Entrepreneurial Development Programmes of the Ministry of MSME are the flagship programmes of the Government. Keeping in view the increasing number of youth joining the job market in coming years, this Ministry has been set a target of training 1.5 core persons within 2022 and more than 40 lakh persons during 12th Five Year Plan. I am very much assured that Ministry will achieve the target.

The Pyramid

India’s young demographic profile has the country favourably placed in terms of manpower availability. There is a need to equip the youth with skills and knowledge for giving them access to productive employment. The Ministry of MSME is recognized as a Nodal Ministry on Entrepreneurship Development by Government of India. At the uppermost echelon of this pyramid, the training provided by our state-of-the-art Tool Rooms and Technology Development Centres.

In the middle of the pyramid, the Ministry provides training on entrepreneurial development skills coupled with specific skills relating to various trades which enable the trainees to try their own entrepreneurial skills, besides seeking wage employment at the middle level. At the bottom of the pyramid, the agencies of the Ministry of MSME, including the KVIC, Coir Board, MSME Development Institutes, etc., provide grassroots training to enable the bottom rug of the society in basic skill development. The Ministry of MSME is also providing free training to the marginalized sections of the society including SC/ST, women and physically challenged, along with a stipend of Rs.500/- per month per trainee.

The MSMEs in India face several difficulties in their quest for growth. These relate mainly to easy access to capital, technology, marketing, infrastructure, availability of critical information and simplified systems and procedures. To address these issues, Hon’ble Prime Minister set up a Task Force on MSMEs which had given number of recommendations its report. The Report has been circulated to all concerned including the State/UT Government for implementation of the recommendations in a time-bound manner.

Further, a Council on MSMEs under the chairmanship of Hon’ble Prime Minister has been constituted to lay down the broad policy guidelines and review development of the MSME sector. For ensuring timely/speedy implementation of the recommendations of the Task Force, a Steering Group under the chairmanship of Principal Secretary to the Prime Minister has also been constituted. Three meetings of the Steering Group have so far been held. The action on a substantial number of recommendations for its implementation has been completed.

Adequate credit

Availability of adequate credit is paramount to the success of the micro and small enterprises. The micro and small enterprises have traditionally relied on debt financing from banks and non-bank financial institutions. MSEs primarily rely on bank finance for a variety of purposes including purchase of land, building, plant and machinery as also for working capital.

However, even for bank financing, they have to provide collateral security. To ensure better flow of credit to MSEs by minimizing the risk perception of banks/financial institutions in lending without collateral security, the Government is implementing the Credit Guarantee Scheme. The scheme provides guarantee cover of up to 85% on collateral-free credit facility extended by lending institutions to new and existing MSEs for loans up to Rs.100 lakh. More than 7.15 lakhs proposals have been approved under the Scheme so far.

The Government is also implementing another credit linked scheme, namely, Prime Minister’s Employment Generation Programme (PMEGP) for assisting the young entrepreneurs to set up new micro enterprises in the manufacturing as well as the services sector. The Scheme provides for attractive subsidy for promoting self-employment and has the potential of providing employment to a very large number of people, especially in the rural areas. This is a very important scheme and needs to be pursued vigorously by the State Governments to support setting up of as many micro enterprises as possible.