The document discusses the importance of Micro, Small and Medium Enterprises (MSMEs) for India's economic development and growth. Some key points: 1) MSMEs contribute significantly to India's GDP, exports, manufacturing output and employment. Their role in employment generation is especially important given India's large young population. 2) The government has taken several policy measures to promote the growth and competitiveness of MSMEs, including increasing planned allocations for the sector, the Make in India initiative, redefining MSME classifications, and frameworks for revival of sick MSMEs. 3) However, MSMEs still face challenges like access to finance, skilled labor shortages, and outdated technology.

1. 1policy watch
this IssueInside
Message From the
Director General............ 1
Chandrajit Banerjee,
Director General, CII
Industry Voices������������������������������������������������� 10
Factfile������������������������������������������������������������� 11
CEO Speak...........................................................2
Policy Barometer..................................................8
November 2015, Volume 4, Issue 6
Policy
T
here is no over emphasizing
the fact that industrialization
is a sine qua non for economic
development. The key objectives of
industrialization include achieving and
sustaining a high growth rate, employment
generation and inclusive development.
Features like small size, lower capital
requirement, use of indigenous technology
and local resources, employment intensity
and suitability for rural areas make a
strong case for the promotion of Micro,
Small and Medium Enterprises (MSMEs) in
order to bolster the economic performance
through balanced industrialization as well as
counter challenges such as endemic poverty,
unemployment and inequitable distribution
of wealth confronting developing countries
such as ours. Their 38 per cent contribution
to the nation’s Gross Domestic Product
(GDP), 46 per cent share of overall exports
and 37 per cent share of the manufacturing
output bear testimony to the salience of the
role played by MSMEs in the social and
economic restructuring of the nation. MSME
units in India have seen a surge from 36.2
million in FY07 to 48.8 million in FY14.
With more than 54 per cent of its total
population below 25 years of age, India
enjoys a unique advantage of demographic
dividend which is expected to last for the
next few decades. Owing to the high rate
of unemployment in the agricultural sector,
it falls on the MSME sector to provide
opportunities of gainful employment to
the nation’s youth. Rising to the challenge,
MSMEs are increasingly contributing
towards employment generation, especially
in the rural areas. The number of people
employed by MSMEs has grown to 111.4
million during FY14 recording a CAGR of
4.8 per cent since FY07.
The proclivity of the Government to fortify
this sector for stimulating the growth
potential of Indian economy is evident by
the fact that the planned allocation for the
MSME sector for the 12th
Five Year Plan
period spanning 2012-17 has been raised
to Rs. 24,124 crore, up by 133.53 per cent,
over the 11th
Five Year Plan allocation of
Rs. 10,330 crore.
It is ebullient to note the positive interventions
of the Government in promoting the
sustainable growth of MSMEs through
a deluge of schemes. The Make in India
initiative and its accent on increasing the
share of manufacturing in the GDP from
the present 15 per cent to 25 per cent by
2022 has the potential to transform the
fortunes of the MSME sector. In fact, the
Government envisions a key role of this
sector in the fruition of this initiative.
In spite of their significance, these
enterprises face an assortment of challenges
and constraints. Some of these include
poor access to finance, shortage of skilled
manpower, technological obsolescence,
regulatory issues, etc.
A prominent feature of the MSME sector
is that a predominant number (around 94
per cent) of these enterprises are in the
unorganized sector. This foregrounds the
lack of reliable and updated data on the
sector and restricts the cover of existing
schemes of the Government for the sector.
With the view to promote ease of doing
business as well as simplify registration,
the Ministry of MSME has recently notified
a one page Udyog Aadhaar which can be
filled online using a dedicated website.
Other notable initiatives of the Government
consistent with CII’s suggestions include
the proposition for redefining MSMEs by
enhancing the existing investment limits in
plant and machinery, a framework for the
revival and rehabilitation of sick MSMEs
and an enquiry into the magnitude of
fiscal paucity in the sector highlighted by
the Committee to Examine the Financial
Architecture of the MSME sector under
the chairmanship of KV Kamath, President,
New Development Bank and past CMD,
ICICI Bank.
CII has taken the lead in guiding MSMEs
to enhance their competitiveness through
the time tested technique of the Cluster
Approach.Along with its strategic partners,
CII has assisted in constituting about 245
clusters by far impacting over 3000 MSMEs.
CII has set up an online SME Finance
Facilitation Centre to provide advisory and
credit facilitation support to the sector.
CII has also launched the Village Buddha
programme to build a strong relationship
between business and society.
A technologically vibrant and internationally
competitive MSME sector should be
encouraged for a sustainable contribution
to the national income, employment
and exports. CII is committed to work
synergistically with the Government for
ensuring strength and vitality of the Indian
MSME sector. n
Chandrajit Banerjee
Director General
Confederation of Indian Industry
Focus: MSME

2. 2 policy watch
CEOSpeak
Globally, MSMEs play a leading role in
propelling economic growth and promoting
equitable regional development. In India
too, MSMEs are credited with generating
the highest rate of employment growth and
have a major share in industrial production
and exports. With around 48.8 million units
throughout the geographical expanse of the
country, MSMEs contribute around 7 per
cent of the manufacturing GDP and 31 per
cent of the GDP from service activities. They
have been able to provide employment to
around 111.4 million during FY14, recording
a Compounded Annual Growth Rate (CAGR)
of 4.8 per cent in employment generation
since FY07. The sector contributes around
46 per cent of the overall exports from
India and has consistently maintained a
growth rate of over 10 per cent. The highest
growth in recent time was recorded during
2011-12 (18.5 per cent) whereas during
the years 2012-13 and 2013-14 growth
rate was around 14.3 per cent and 12.4
per cent, respectively. An accelerated MSME
growth is fundamental to India achieving
and sustaining a high GDP growth.
Ease of Doing Business
Delay in regulatory approvals, multiplicity
of governing authorities, duplication of
compliance procedures, etc. are some of
the most prominent factors responsible for
a complex business environment for Indian
MSMEs and for India’s dismal 130th
rank
amongst 189 countries in the latest World
Bank’s Doing Business report.
CII has constituted a Sub-group on the Ease
of Doing Business which is designing a
survey along the lines of the Doing Business
Report to identify the specific challenges
faced by MSMEs for ease of doing business.
CII has also submitted recommendations to
the Task Force on Ease of Doing Business for
MSMEs. These include an online portal for
registration of MSMEs; simplification of the
new Companies Act, 2013; implementation
of strict contracts for delayed payments; and
simplification of procedures for construction
permits, paying taxes, trading across borders,
etc. through single window systems and
online technology enabled portals.
The enhanced focus of the Government on
improving the ease of doing business has
been crucial in significant policy reforms
and simplification of procedures through
initiatives such as the eBiz Portal integrating
14 Government services, Form INC 29 for
simplification of incorporation of a company,
online application for environment clearances,
etc. The recently launched Udyog Aadhaar,
a simple online registration form replacing
the erstwhile cumbersome Entrepreneurs
Memorandum (EM) I and II will facilitate
the simplification and universalization for the
registration process of MSMEs.
Labour Law Ecosystem for MSMEs
Labour laws in India have often been
characterized as cumbersome and restrictive,
hurting investments in the manufacturing
sector. Although progress has been made
since reforms began in 1991, the labour
market is still subjected to around 250 labour
rules at the Centre and State level. The
burden of compliance in the face of duplicity,
multiplicity and redundancy of several labour
laws gets magnified for MSMEs owing to the
paucity of resources at their disposal.
CII has compiled and submitted
recommendations on the Small Factories
Act and other Labour laws to the Ministry of
Labour and Employment.The focal suggestions
are: implementation of amendments to the
Small Factories Act exempting coverage
of establishments with under 40 workers;
regulation of labour inspections; a single and
uniform labour code; flexibility in minimum
wage rules and annual returns through a
single window system, etc.
Government’s veritable efforts for simplification
of labour laws must be extolled. The most
notable initiatives in this area include the
Random Inspection Scheme to put an end
to the interminable harassment faced by
enterprises under the Inspector Raj system;
efforts to introduce a unique Universal
Account Number (UAN) for portability of the
Employees' Provident Fund (EPF) account;
online registration for Employee State
Insurance Corporation (ESIC) and Employees'
Provident Fund Organization (EPFO) and the
Shram Suvidha Portal for registration of units
for Labour Identification Number (LIN), etc.
Revised Framework for Defining Indian
MSMEs
The existing limits under the MSMED Act
were fixed in 2006. Since then, there has
been a significant increase in the price index
and cost of inputs. It has been at the core
of CII’s policy advocacy to facilitate the
revision of the MSME definitions. CII has
submitted a draft to the Ministry of MSME
with proposed changes to the investment
limits in plant and machinery/equipment.
In line with CII’s proposal, the Ministry has
issued a corrigendum to notify the MSME
Development (Amendment) Act, 2014 which
proposed revised slabs for defining MSMEs.
Additionally, this notification enables the
Central Government to vary the investment
limits up to thrice the deemed limits.The Bill
is currently pending in the Parliament.
Revival and Rehabilitation of MSMEs
In line with CII’s recommendation to launch
an exit/revival policy for making the exit
The Indian MSME Sector: Lynchpin for
Economic Stability and Progress
T T Ashok
Chairman, CII National SME Council and
Managing Director,Taylor Rubber Private Limited

3. 3policy watch
CEOSpeak
of MSMEs from businesses speedy and
cost effective, the Ministry of MSME has
notified a framework for the revival and
rehabilitation of MSMEs with the twin
objectives of time-bound exit and revival of
loss-making units to help them consolidate
their businesses and to re-deploy capital in
other greenfield ventures.
Financial Inclusion of MSMEs
Lack of access to timely and adequate
finance is plaguing the fortunes of MSMEs
in India. The gravity of the issue can be
estimated by the fact that around 93 per
cent of all MSMEs are outside the coverage
of formal financial channels.
In an attempt to analyze the financial dearth
in this sector, the Committee to Examine the
Financial Architecture of the MSME sector
was set up by the Department of Financial
Services under the stewardship of KV Kamath,
President, New Development Bank and
past CMD, ICICI Bank. The Committee has
suggested measures to increase equity flow
to MSMEs by developing technology driven
platforms for financial inclusion, establishment
of a receivables financing platform, seven fold
increase in the corpus of the Credit Guarantee
Trust for MSMEs and expansion in coverage
of credit bureaus to include a wider range of
credit institutions to open up the flow of funds
to MSMEs.The Government has also launched
the Micro Units Development and Refinance
Agency (MUDRA) Bank with a corpus of Rs.
20,000 crore and a credit guarantee fund of
Rs. 3,000 crore to fund MSMEs. Set up at a
subsidiary unit of SIDBI, the Bank has already
succeeded in reaching out to a large number
of micro enterprises.
Expanding the financial access of MSMEs
has long been a focus of CII’s SME
developmental roadmap too for which CII
has submitted inputs to the KV Kamath
Committee. Some of the recommendations
include classification of Non Performing
Assets (NPAs) to be 120 days for MSMEs;
interest on borrowing limited at a maximum
of base rate plus 2.5 per cent; a dedicated
SME bank as well as equity funds specifically
for MSMEs and a reservation of 25
per cent of fund allocations for women
entrepreneurs.
CII has also set up an online SME Finance
Facilitation Centre (FFC) which has been
successful in facilitating the disbursement
of loans worth over Rs. 475 crores by
partnering with around 20 banks and
conducting roadshows, webinars, online
master classes, etc.
Make in India
The Prime Minister announced the Make in
India Mission to reverse the deceleration
in the Indian manufacturing sector and to
promote India as an investment destination
and global hub for manufacturing, design
and innovation. The CII National SME
Council has submitted inputs for the Prime
Minister’s Workshop on Make in India.
These cover a wide range of subjects like
financing, skill development, provision of
infrastructure, technological upgradation,
regulatory framework, labour laws and
revival/exit of MSMEs. Some of these include
creation of land banks at the State level
for smooth land allocation to startups and
micro enterprises, allotment of 25 per cent
land at industrial corridors to MSMEs, State
level Public Procurement Policy (PPP), a
5 per cent reservation for women owned
enterprises under the PPP, etc.
The Way Forward
To prosper,MSMEs need a conducive business
environment, adequate basic infrastructure,
access to funding at reasonable rates, equity
and venture capital, advisory assistance,
knowledge about market opportunities and
market linkage avenues. Looking ahead, the
challenge lies in building the next generation
of MSMEs that will collectively function as
the powerhouse of the economy. To achieve
this, Government and Industry must make
collaborative efforts to create a supportive
ecosystem for MSMEs. n
Source: bikeriderlondonshutterstock.com

4. 4 policy watch
CEOSpeak
The manufacturing sector is the backbone of
any economy. It fuels growth, productivity,
employment, and strengthens agriculture
and service sectors. Factors like favorable
demographic dividend, sustained availability of
low cost manpower, strong domestic demand
owing to consumerism, rapidly expanding
middle class, strong technical and engineering
capabilities backed by top-notch scientific
and technical institutes, etc. will be crucial
for establishing the country as one of the
top 3 manufacturing destinations by 2020.
Added impetus has been provided by the
Prime Minister Shri Narendra Modi’s call to
‘Make in India’ which attempts to increase
manufacturing sector's growth to 12-14 per
cent per annum over the medium term, to
increase manufacturing sector's share in
India's GDP from 16 per cent to 25 per cent
by 2022 and to create 100 million additional
jobs by 2022 within the sector.
It requires no reiteration that the MSME
sector is crucial to the development of the
country. There is no dearth of literature
or empirical evidence corroborating the
conspicuous growth effects of this sector.
As India is increasingly becoming an
attractive hub for foreign investments in the
manufacturing sector, several mobile phone,
luxury and automobile brands among others,
have set up or are looking to establish their
manufacturing base in the country. This
opens up vistas of profitable opportunities
to orchestrate an expansion of the MSME
sector within manufacturing.
Initiatives for MSME Integration with
Anticipated Growth in Manufacturing
The Government should be credited for its
initiatives in brining productivity enhancement,
cost competitiveness and globalization for
Indian MSMEs. As part of the ‘Make in
India’ initiative, an ecosystem has been
created through Technology Centre System
Programme (TCSP). A Centre of Excellence
has been set up in Indian Institute of Science
(IISc), Bengaluru for commercializing 110
technologies under the Design Scheme of
the Ministry. Under the cluster development
initiative, 43 new clusters have been taken up
for various interventions. Some of the nation’s
manufacturing clusters have become leading
producers in their respective industries. The
Lean Manufacturing Competitiveness Scheme
has been scaled up to total project cost of
Rs. 241 crore to cover 1491 units in 536
clusters. The MSME – Global Environment
Facility (GEF) – United Nations Industrial
Development Organization (UNIDO) Clean
Tech programme has been launched as part
of the Zero Effect Zero Defect initiative. Funds
like the India Aspiration Fund for boosting
entrepreneurship and the SIDBI Make in
India Loan for Small Enterprises further
adduce the Government’s commitment. The
National Manufacturing Policy specifically
outlines proposals for improving the access
of MSMEs to finance. Some of the measures
outlined in the policy include the roll over
relief from long-term capital gains tax to
individuals on sale of a residential property
and in case of re-investment in a new start-up
of an MSME unit. Others include setting up
a stock exchange for MSMEs and tax pass
through status for venture capital funds with
a special focus on MSMEs.
The MUDRA Bank to Fund the
Unfunded
Entrepreneurs of small-scale businesses in
India will soon be able to avail loans under
Pradhan Mantri MUDRA Yojana (PMMY) run
by the MUDRA Bank. The three products
available under the PMMY include: Shishu,
which covers loans up to Rs. 50,000; Kishor,
which covers loans between Rs. 50,000 to Rs.
5 lakh; andTarun, which covers loans between
Rs. 5 lakh and Rs 10 lakh. An innovative
basket of products like sector specific schemes,
micro credit schemes, a Refinance Scheme
for Regional Rural Banks (RRBs) / Scheduled
Co-operative Banks, Mahila Udyami Scheme,
etc. is being designed for the disbursement of
the above allocation. The Bank also intends
to launch a pre-loaded MUDRA Card and link
it with other schemes and benefits accruing
to the sector. The Bank is also planning to
explore the option of a Portfolio Guarantee
product under which credit guarantee or risk
sharing would be provided for a portfolio of
homogenous loans.
Accelerating MSME Growth in
Manufacturing
CII has been a keen proponent of initiatives
to accelerate the manufacturing growth in
the MSME sector. CII has made several
representations to the Government on
the subject of accelerating manufacturing
growth in the MSME sector through enablers
like elimination of redundant processes,
focus on time-bound project clearances
through a single online portal, provision
of adequate infrastructural facilities for
the MSMEs, increasing the domestic value
addition and technological penetration, etc.
and these suggestions have been taken up
by the Government at various platforms.
With focus on developing industrial corridors
and smart cities, the Government aims to
ensure a holistic development of the nation.
As India embarks on a new wave economy,
it is imperative that it adopts an MSME
opportunity framework which provides
impetus for tapping opportunities such as
increase in demand fuelled by consumerism
and higher spending, spending in defence
and infrastructure, increasing FDIs and
double digit growth expected in various
business sectors, etc. n
Exploring Avenues for Deeper MSME
Penetration in Manufacturing
Mukul Somany
Co-Chairman, CII National SME Council and
Vice Chairman Managing Director, Hindusthan
National Glass Industries Ltd

5. 5policy watch
CEOSpeak
With its economic growth outstripping
that of most of its rivals, India’s economic
performance in recent times has been
characterized by dynamism, improving
business sentiments, rising consumer
demand and greater macro-economic
stability. A concurrence of these factors has
generated demand for new products besides
increasing the customer-base of existing
ones. India is also recognized globally as
a key source of high technology skills and
scientific and technical manpower. This,
coupled with the entrepreneurial nature
and flexibility in technological assimilation,
renders MSMEs ideal for an enhanced
role in the Electronic System Design
Manufacturing (ESDM) industry.
Industry Outlook
The ESDM industry consists of four key
components: electronics products, electronics
components, semiconductor design and
electronics manufacturing services. With an
estimated size of USD 68 billion in 2012,
the ESDM industry is anticipated to be USD
94 billion by the end of the current fiscal
year.Added fillip is provided by the National
Policy on Electronics which aims to create
a globally competitive ESDM industry by
attracting investments worth about USD 100
billion for a projected demand of USD 400
billion by 2020 and generating employment
for around 28 million.
Government Support
The Government must be credited with
consistent support for MSMEs in the ESDM
industry through policies aimed at promoting
their growth. The Government has recently
launched a scheme specifically focusing on
MSMEs in the ESDM industry for providing
financial support, promoting manufacturing
and building awareness for quality as well
as encouraging export for MSMEs. The
support provided is in the form of Grant
in Aid (GIA) for reimbursement of expenses
related to manufacturing of electronic goods
in compliance with Indian Standards as well
as for expenses on testing and certification
for exports. The scheme also provides GIA
of Rs. 10 lakh per cluster for a maximum
of 20 clusters for the development of
Electronics Manufacturing Clusters (EMCs)
by MSMEs.
Under the Public Procurement Policy 2012,
the Government provides preference to
domestically manufactured goods from
MSMEs in Government procurement.
The Electronic Sector Skills Council and the
Telecom Sector Skills Council have been set
up in order to establish an ecosystem for
developing and imparting outcome-oriented
skills for the ESDM sector. A total of 90,000
people are to be supported under the Skill
Development Scheme in 6 different States.
The setting up of the Venture Capital Fund,
the Electronics Development Fund, the
Karnataka Information Technology Venture
Capital (KITVEN) Fund, the Walden Fund and
a national fund by SIDBI, etc. is indicative of
the Government’s focus on this sector.
Government is considering a proposal to
enforce global standards across the ESDM
industry. Goods produced to global standards
would find better acceptance in the
international markets and by multinational
corporations, thus opening up large global
markets which hitherto are not accessible
by many Indian MSMEs. Furthermore,
enforcing these same standards on ESDM
products being imported would effectively
act as barriers against cheap imports. This
standardisation, if introduced in a well-
planned manner with a concrete roadmap,
providing handholding support along the
way to the MSMEs by the Government
through awareness sessions, financial
support, expert counselling, etc., would
facilitate adoption of international standards
by MSMEs. This would certainly be of great
benefit to the MSMEs.
Empowering MSMEs to Partake in the
Growth of the ESDM sector
Praveen Toshniwal
Co-Chairman, CII National SME Council and
Chairman, Nivo Controls Private Limited
Source: anyaivanovashutterstock.com

6. 6 policy watch
CEOSpeak
CII Interventions
CII has been working with various
Government departments on suggesting
measures to expand the penetration of
MSMEs in the ESDM sector. The policy
advocacy efforts to improve the financial
access of MSMEs include low cost credit
schemes for MSMEs, reduction in the cost of
borrowing, caps on collateral requirements,
etc. For the provision of infrastructure, the
recommendations include creation of land
banks, plug and play type world class
infrastructure at national and regional levels,
allotment of vacant and disused premises
in industrial estates to new and existing
enterprises, etc. Efforts in improving the
access of MSMEs to technology through the
setting up of Technology Centers, expansion
of the scope of the Design Scheme, etc. will
assist in providing the requisite propulsion
to MSMEs in the ESDM industry.
Conclusion
MSMEs form the backbone of the ESDM
sector not just in India but also in countries
like Taiwan, Japan, South Korea, China and
Germany. Providing a favourable environment
to develop MSME value chains can greatly
contribute to high value-added indigenous
manufacturing. ESDM can be the bellwether
of new generation manufacturing in India.
Collaborated efforts from industry bodies
and the Government along with rapidly rising
domestic consumption, changing global
supply chain dynamics and a slew of policy
interventions supporting indigenization will
pioneer a new dawn of prosperity for local
MSMEs in the ESDM industry. n
The Indian automotive industry is the sixth
largest in the world with deep forward and
backward linkages propelling the economy
ahead by its strong positive multiplier
effect. In fact, the automotive and auto
components industry accounts for almost
40 per cent of Indian manufacturing. It
is therefore not surprising that the ‘Make
in India’ campaign launched by our Prime
Minister, which is a blueprint to develop the
country’s manufacturing, resonates well with
the auto component industry’s roadmap of
a vibrant global manufacturing and sourcing
hub in India.
Despite the volatility in the automobile sector
in the last few years, the auto component
sector has continued to grow steadily in
the last decade. The component sector has
a turnover of approximately USD 40 billion,
with exports accounting for 28 per cent
of the production at over USD 11 billion.
Consistent growth in auto component export
is a clear indication of the growing credibility
of made-in-India auto components in the
global supply chain. Practically every major
Original Equipment Manufacturer (OEM) in
the world is either sourcing or has plans to
source auto components from India and this
includes all the big names like Ford, General
Motors,Toyota, Honda, Suzuki, Daimler, BMW,
Volkswagen, Volvo and many more.
Let us see what the future holds for the
auto component industry. In the Automotive
Mission Plan 2016-26 announced recently
by the Government of India, the target for
the auto component industry has been set
at an impressive USD 200 billion in turnover
by 2026, with exports in the region of
USD 80 billion. These targets may seem a
bit ambitious, but are achievable. Here are
some reasons why the sun will continue to
shine on the auto component sector and
what more needs to be done.
India remains one of the most under-
penetrated markets for automobiles, with
passenger vehicle ownership of less than 15
per 1000 people. This pales in comparison
with ownership levels that 3 to 10 times
higher in Thailand, Indonesia, Malaysia
and China. Therefore, there is a huge
latent demand for mobility and there
are millions of Indians aspiring to own
their first passenger car, or motorcycle.
Additionally, exports of automobiles from
India are growing, with manufacturers like
Hyundai, Ford, Volkswagen, etc. using India
as a manufacturing base to export vehicles,
engines and components. Simultaneously,
the Indian auto component manufacturers
are improving their quality capability and
becoming more cost competitive, which
is opening up more markets around the
world.
However, a lot remains to be done. The
automotive industry in India cannot flourish
without the active support and contribution
of its Tier 2 and Tier 3, which are essentially
MSMEs. In fact, close to 80 per cent of
the component industry is dominated by
such enterprises. It is imperative that for a
robust automotive industry in India, we must
ensure that our Tier 2 and Tier 3 remain
not only healthy but also become globally
cost competitive.
Some of the key challenges being faced by
the MSMEs in the auto component sector
are akin to those of the large enterprises like
infrastructure deficit, complex regulations,
etc. but considering the relative smaller
size of the sector, the issues become more
pronounced and acute – whether it be
access to capital, access to technology or
attracting and retaining the right talent –
ingredients that are essential for global
competitiveness.
While the traditional advantages of low cost
and skilled engineering manpower backed
Empowering Auto MSMEs to Steer the
Indian Economy
Ashok Taneja
Co-Chairman, CII National SME Council and
MD CEO, Shriram Pistons Rings Ltd.

7. 7policy watch
CEOSpeak
by a robust domestic demand for vehicles
have stood in good stead for the smaller
component manufacturers so far, however
going forward there is a need to focus
on building in-house design capabilities,
frugal engineering for cost competitiveness,
innovation for product differentiation, and
zero defect quality to meet the evolving
needs of customers that are continuously
looking for maximum value for money in a
highly competitive auto market.
What is worrisome is that most of the
component Tier 2 and Tier 3 enterprises
have poor Earnings Before Interest, Taxes
and Amortization (EBITA) margins. In most
cases the return on capital is lower than the
cost of capital. Thus such units are actually
eroding capital. It is for this reason that
more MSMEs fail to attract the attention
of potential investors, and scale up.
While it is the primary responsibility of the
Tier 1, as also that of OEMs to some extent,
to ensure that we create factors of growth
and sustenance for the smaller enterprises,
a lot however rests on the shoulders of the
MSMEs themselves. For example, maintaining
process discipline and not taking short cuts
is essentially the responsibility of the MSMEs.
No amount of handholding from OEMs or
Tier 1 can substitute this. Similarly, investing
in the training and development of people,
providing a stable career, investing part of
the profit towards upgrading technology
and periodically modernising machine tools
rests with MSMEs.
As India catches up with new technology
trends such as light weighting, electrification
of powertrains, safety and emission norms,
the Tier 1 alongwith smaller Tier 2 and Tier 3
industry will have to evolve and innovate
to meet the stakeholders’ expectations.
MSMEs have the advantage of relatively
uncomplicated operations, flexibility to
change fast and innovate. It is for this
reason that globally more innovations
come from smaller enterprises than large
enterprises. Innovation, RD and new
product development need to be urgently
focused upon to scale the industry to the
next level. Most importantly, the urgent
need is to move away from ‘build to print’
to ’in-house design’ and creation of IP.
A vertical completely absent in India is that of
electronics manufacturing, which India simply
cannot afford to miss. Electronic hardware is
already the third largest item of import into
India and imports are growing.The electronic
content in automobiles is growing rapidly and
we risk becoming totally import-dependant.
Neither the auto industry nor the country can
afford this.Therefore, there is an urgent need
to create an ecosystem for a vibrant and
innovative auto electronics sector to develop.
We have already reached the critical state of
‘now or never’.
In conclusion, I would like to leave the
following 5 points to consider for the
MSMEs to play a bigger role in India’s
manufacturing sector, particularly the auto
component sector:-
• The market in India for automobiles, to
satisfy domestic demand and demand in
exports, is expected to grow continuously
for the next few years.Therefore, MSMEs
have to think of scaling up. Small is
not beautiful for the high volume, high
growth auto sector.
• It is difficult to attract and retain talent
in MSMEs. However, it is also a fact
that without investing in good talent
it is not possible to achieve efficient
manufacturing and cost competitiveness.
OEMs and larger Tier 1 must come
forward to share resources with MSMEs to
train their manpower, upgrade their skills
and if necessary, loan their experienced
personnel for knowledge sharing.
• If the MSMEs have to seize the growth
opportunity, the biggest challenge is to
focus on quality. The new mantra is not
to reduce Parts Per Million (PPM), but to
achieve zero defect. This requires a new
look and new approach towards process
discipline, with no one allowed to tinker
with specialisation of raw material,
or design of tools and fixtures or the
approved manufacturing processes.
• MSMEs cannot remain cost competitive
only on the basis of lower wages and
salaries. MSMEs have the advantage of
being entrepreneurial and innovative and
this is their best bet to become not only
locally cost competitive, but globally cost
competitive. The mantra for MSMEs is
to innovate, innovate and innovate.
• OEMs, Tier 1 and small Tier 2 and Tier 3
are joined at the hip. They have a shared
destiny. If any part of the supply chain
is weak, all the participants will stand
to lose. Therefore, just as developed
countries have the responsibility to
assist developing countries in their self-
enlightened interest, similarly OEMs and
Tier-1 companies must extend themselves
to help MSMEs to grow. Simple gestures
like fair business dealings, making
payments on time, training shop-floor
personnel, sharing technology etc. can
help to create a robust and vibrant MSME
sector.
When the small enterprises develop a strong
backbone, the entire auto component sector
will become globally competitive and help us
achieve the dream of ’Make in India’. n
Source: Vlad Teodorshutterstock.com

8. 8 policy watch
Policy Barometer
CII Recommendations
Area Issues Recommendations
Finance
Lack of access to timely
and adequate credit
Dedicated MSME equity funds need to be made available to finance rapid•
growth of MSMEs both in the public as well as private space
The current limits under the Credit Guarantee Trust for Micro and Small•
Enterprises (CGTMSE) scheme should be enhanced in a phased manner
from the present Rs. 4,000 crore to Rs. 28,000 crore
The classification of Non Performing Assets (NPAs) should be 120 days•
instead of the present 90 days with a special dispensation for extra
30 days for MSMEs
High cost of credit
Cost of money (interest on borrowing) should be limited to a maximum limit•
of base rate + 2.5 per cent
Delayed payments
There is a need for provisioning of factoring without recourse, online•
receivables financing platform and incentives to large enterprises for
making timely payments for delayed payments
Promoting women
entrepreneurship
25 per cent of fund allocations should be reserved for women entrepreneurs•
to fill the gender gap in the industry
Skill Development
Limited access to technical
assistance and advisory
services
National industry bodies in partnership with Central and State Governments•
to play mentorship roles through innovative programs like business
mentoring services and senior expert advisory services to provide the
necessary guidance for entrepreneurs and MSMEs
The Government should incentivize approved/accredited training centers•
to skill employees from the MSME sector
Lack of skilled and
talented manpower
10 per cent of additional employment generation should be incentivized•
by way of employment allowance type deduction
Entry level skilling through appointment of apprentices by MSMEs should•
be incentivized
Infrastructure
Inadequate infrastructure
facilities
The Government should allocate 25 per cent of the land available at•
all industrial corridors for MSMEs at a different rate slabs and acquiring
models
Global standard plug and play infrastructure models should be created•
and made available at national and regional levels in manufacturing zones
and along industrial corridors on Public Private Partnership (PPP) basis
Land bank should be created at State level to facilitate smooth allocation•
of land to start-ups and micro enterprises
State Governments should allot vacant and disused premises in industrial•
estates to new or existing enterprises
Incubation cells and hubs within clusters can be developed in collaboration•
with academia/regional institutions to provide MSMEs with mentoring and
technology support, shared research and development facilities

9. 9policy watch
Policy Barometer
Area Issues Recommendations
Technology
Non-availability of
superior technology
Incentivize and implement cloud technology among the MSME clusters•
which can help MSMEs in knowledge sharing and competitiveness
development and encourage MSMEs to use different Information and
Communication Technology (ICT) platforms like Enterprise Resource
Planning (ERP) through enhanced depreciation on Information Technology
(IT) products
Creation of a ‘central climate friendly technology fund’ will help MSMEs•
to adopt such technologies
The scope of the Design Clinic Scheme should be expanded to allow•
more than one product and the coverage should be extended to
commercialization of new products
Legal / Regulatory
Framework
Lack of a comprehensive
policy framework for
MSME development
There is a need for a speedy implementation of the MSME Development•
(Amendment) Bill, 2014 which redefines MSMEs
Ease of Doing Business
Ensure effective e-governance in areas of customs, excise, sales tax•
through e-filing of returns and online data sharing between concerned
departments
Simplify the Companies Act 2013 as applicable to MSMEs in matters such•
as related party transactions; loans and deposits from related parties and
directors; provisions relating to appointment of directors, auditors, audit
committees; remuneration; prohibitive penal provisions, etc.
Single window approval system to register businesses, obtain licenses,•
etc. through a single application
Market Linkages
Lack of adequate market
linkages for business
development and
expansion
Ensure effective implementation and monitoring of the public procurement•
policy and incentives for vendor development by public and private
enterprises in each industry sector
Formulate and implement State level public procurement policies with•
grievance redressal and monitoring systems
Effective implementation of the various market development schemes•
available including Market Development Assistance (MDA), trade fair
participation, customer visits in foreign countries, etc. is urgently needed
for creating market linkages

10. 10 policy watch
Industry Voices
Indian MSMEs continue to chug along with their growth story. With their huge potential, the Government of
India is taking different measures to increase their competitiveness in the international market but there is still
a lot required to give the much needed thrust to MSMEs. Once this untapped potential becomes the source
for growth of these units, the size of Indian GDP can surpass that of developed nations. Challenges such as
absence of adequate and timely banking finance, non-availability of suitable technology, ineffective marketing
due to limited resources, unavailability of skilled manpower, etc. must be countered head on while keeping the
focus on the ease of doing business. Competitiveness of the MSME segment is impacted by unfavorable regime
of labor laws which retard productivity and growth. It is our considered opinion that simple, fair and friendly
labour laws be introduced on a pilot basis and later they can be taken across the board after the efficacy is
proven. A solemn commitment by the Government as well as industry bodies like ours will carefully chalk the
high growth path that these enterprises are capable of and accelerate the growth of the Indian economy.
Captain Alok Sharma
Chairman, Regional Committee on MSME, CII NR and Managing Director CEO, Forge (India) Pvt Ltd
In a report released recently, the globally recognized ratings body CRISIL concluded that MSMEs in the
southern States, including Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and Telangana, have outperformed
their counterparts in the rest of the country, recording a growth in annual turnover to the tune of 21 per
cent during 2013-14 as against the 13 per cent overall growth in MSMEs. Large scale infrastructure plans,
industrial corridors and training centers have made it possible to achieve this feat. We are committed to
enable an unprecedented growth for the MSMEs by empowering MSMEs in our region to lead the way.
Ashok Rao
Chairman, Regional Committee on MSME, CII Southern Region Managing Director, KGK Engineering
As global business networks profligate and an integrated global marketplace evolves, a pro-business environment
with MSMEs as the top priority becomes an imperative.A digital business environment will strengthen the regulatory
framework and improve among others, regulatory transparency, ease of finance, MSME friendly commercial conditions
and promote the creation, survival and growth of entrepreneurship through ease-of-access to local equity markets
and venture capital funds. In addition, tax complexity is another area requiring immediate attention. To tap the
global business opportunities the Indian MSMEs must produce superior quality product with high level of professional
commitment. Indian Industry must create a very strong perception of best quality products in the global market.
Nandakumar
Chairman, Regional Committee on MSME, CII WR and Chairman Managing Director, Chemtrols Industries Ltd
Accelerated MSME growth is fundamental to India achieving a sustainable high GDP growth. Today, as the
Government at the Centre draws up fresh strategies to resuscitate the Indian economy, it would be prudent to
direct sharp attention on the factors that will spur accelerated MSME growth. Opportunities are rapidly evolving
owing to demographic patterns, urbanization trends, increasing disposable income, proliferation of technology
enabled platforms, growth in internet user base, etc. Thus a commensurate and continual focus on development
of the MSME space is critical to sustain the value generation process in any supply chain and for the larger
economic health of the country. It is thus important that all sections of the society, political parties, Industry, trade
commerce, and media support the various economic measures being proposed by Government to ensure growth
of the Indian MSMEs. This is the need of the hour to accommodate the dynamic change in the market place.
S K Behra
Chairman, Regional Committee on MSME, CII ER and Vice Chairman Managing Director, RSB Transmissions (I) Ltd

11. 11policy watch
Factfile

12. 12 policy watch
Factfile
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