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(Online-Artikel.de) - The Government has been concerned about the impact of the global financial crisis on the Indian economy and underook steps described below.

Let me in the first place thank Dr. Gian Franco Terenzi, President of WUSME and Prof. Dr. Norbert W. Knoll-Dornhoff, Secy-General of WUSME and other office bearers and staff members for organizing this important international SME Conference to unite Micro, Small and Medium Enterprises worldwide in the Republic of San Marino for shared common objectives to support and nurture MSMEs and learn from mutual experience for the benefit of enterprise development in our countries. The Conference for the constitution of WUSME assumed a major significance at this juncture for two reasons:

1. The SMEs have been badly affected due to global melt down and they have been trying to come out of the recessionary trend and are on the path of recovery. In country like India they have more or less recovered and are on the rapid growth mode SMEs in many countries are trying to catch up.
2. We have no functional world SME forum or platform at present wherein we could share our experience for the benefit of SMEs in our countries and promote our cause.

I have been assigned the responsibility to address this august body on "Impact of the Global Economic Crises on SMEs in India". Let me at the outset tell you that the recession felt by Indian SMEs is behind us.  No doubt a sizeable number of SMEs in manufacturing sector have been badly affected particularly who have been mainly in exports such as Gem & Jewels, Textiles, Leather & Leather Product, auto Components, Coir & Coir Product etc.  Not only the orders of SMEs were canceled but also their receivables not realized resulting in squeeze of bank credit, lay offs and loss of production.   Most of the companies could weather the storm and these SMEs are on the recovery Path.  No doubt some of them had to re-engineer business, find new customers, dig into their savings and borrowed from their friends and relatives.  Last quarter ending March 2010 the manufacturing sector in India has recorded a growth of 15%. Last fiscal 2009-10 automobile industry in India grew 25.76 percent.  Passenger car production have been all time high and production crossed to million vehicles. Two wheeler segment recorded growth of 26 percent with a production of over 10 million units. This reflects benefit to sub contracting SMEs.  It is estimated the Indian economy will grow by 8% during fiscal 2009-2010.

The Government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem and give the stimulus package in four stages and some measures are given as follows:

1. Plan Expenditure
   in order to provide a contra-cyclical stimulus via plan expenditure, the Government has decided for additional plan expenditure of upto Rs 200 billion in the year 2008-09. In addition, steps are being taken to ensure full utilization of funds already provided, so that the pace of expenditure is maintained. The total spending programme in the balance four months of the fiscal year, taking plan and non-plan expenditure together is expected to be Rs. 300 billion.
   
   The economy continued to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year.
   
   
2. Measures to Support Exports
1. Pre and post-shipment export credit for labour intensive exports, i.e., textiles (including handlooms, carpets and handicrafts), leather, gems & jewels, marine products and SME sector was made more attractive by providing an interest subvention of 2 percent upto 31st March 2009 subject to minimum rate of interest of 7 percent per annum.
2. Additional funds of Rs. 11 billion was provided to ensure full refund of Terminal Excise duty/CST.
3. An additional allocation for export incentive schemes of Rs. 3.5 billion was made.
4. Government back-up guarantee was made available to ECGC (Export Credit Guarantee Corporation) to the extent of Rs. 3.5 billion to enable it to provide guarantees for exports to difficult markets/products.
5. Exporters were allowed refund of service tax on foreign agent commissions. They were also allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme.
3. MSME Sector
   The Government attaches the highest priority to supporting the medium, small and micro enterprises (MSMEs) sector which is critical for employment generation. To facilitate the flow of credit to MSMEs, RBI (Reserve Bank of India) has announced a refinance facility of Rs. 70 billion for SIDBI (Small Industries Development Bank of India) which was available to support incremental lending, either directly to MSMEs or indirectly via banks, NBFCs and SFCs. In addition, the following steps are being taken:
1. To boost collateral free lending, the current guarantee cover under Credit Guarantee Scheme for    Micro and Small enterprises on loans has been extended from Rs. 5 million to Rs. 10 million with guarantee cover of 50 percent.
2. The lock in period for loans covered under the existing credit guarantee scheme were reduced   from 24 to 18 months, to encourage banks to cover more loans under the guarantee scheme.
3. Government issued an advisory to Central Public Sector Enterprises and request State Public  Sector Enterprises to ensure prompt payment of bills of MSMEs. Easing of credit conditions generally should help PSUs to make such payments on schedule.
4. To monitor, special monthly meetings of state level bankers' committees are held to oversee the resolution of credit issues of micro, small and medium enterprises by banks. Department of MSME and the Department of Financial Services, Government of India was jointly set up a cell to monitor progress on this front.
5. The guarantee cover under Credit Guarantee Scheme for micro and small enterprises on loans has earlier been extended from Rs 5 million to Rs 10 million with a guarantee cover of 50 per cent. It has now been decided to extend the guarantee cover to 85 per cent for credit facility up to Rs half million.
6. To account for the loss due to currency value changes, it has been decided to restore duty drawback rates to those prevailing prior to November 2008. In order to provide predictability and stability of regime in the short term for future contracts, this scheme has been extended till 31 December 2009.

In addition to the above several other measures have been taken to stimulate MSMEs in India Looking back, MSMEs (Micro, Small and Medium Entreprise) have come a long way since   independence (1947) and    are proud that MSMEs are contributing 8% to GDP with the might of 26 million MSMEs in India generating an employment of 60 million persons in the length and breadth our country.

Now, we have to leapfrog their growth to realize a full potential of MSMEs in the true spirit of Indian enterprise. In this context, it is important to understand five policy initiatives taken by the Government of India in the last 3-4 years will go a long way to impact MSMEs growth. In the first place MSME Development Act 2006 has given a new identity and recognition not only to small industries but also to micro and medium enterprises and more so to the services sector which has been recording a very high growth rate generating vast employment opportunities mostly for educated persons – both men and women and brought India on the world map in the knowledge sectors. The Act provides teeth and also allows micro enterprises to graduate to small and then to medium enterprises.

The second major initiative is for skill development and setting up of National Council on Skill Development Chaired by the Hon'ble Prime Minister of India, National Skill Development Coordination Board and National Skill Development Corporation with a target to train 500 million young people by 2022 and impart much needed skills. MSMEs will greatly benefit, since they are facing a big shortage of skilled personnel.  Not only that, the young people will be able to meet the skill needs of the aging population worldwide.

Third significant initiative is for enhancing competitiveness of MSMEs through ten components announced under the National Manufacturing Competitiveness program (NMCP) particularly with applications for Lean Manufacturing, Quality Management Systems & Design Support, Quality Standardization, setting up of Mini Tool rooms under PPP (Public Private Partnership) mode, promotion for the usage of ICT Tools, awareness for IPR, Enterprise Development through Incubation and Marketing Support. These measures will stimulate enterprise and strengthen the MSMEs to enhance their competitiveness.
Forth, the passing of Limited Liability Partnership (LLP) Act 2008, enabling SMEs to adopt corporate structure with the limited liabilities. The Companies Bill 2009 will also allow one man companies. The SMEs will benefit lot under these acts.

Fifth, I believe, is the prompt decision of the Hon'ble Prime Minister to setup the Task Force on MSMEs announced during a meeting with industry representative on 26th August 2009 (wherein I participated) under the Chairmanship of Mr. T K A Nair, Principal Secretary to the Prime Minister. The Task Force has had a very comprehensive review of the entire MSME sector through seven sub-groups examining in depth issues on:

(i) Credit (ii) Marketing (iii) infrastructure Technology and Skill Development (iv) Labor (v) Rehabilitation & Exit Policy, (vi) Taxation and the 7th sub-group was devoted for development of MSMEs in North-East and Jammu & Kashmir. The final report (January 2010) is action oriented and has stipulation of time frame for each action point.  It is being implemented for stimulating enterprise and development of MSMEs in India.

The whole process speaks volumes for the commitment of the Government to support MSMEs and is a landmark for their growth & development.
Let me now deal with the development with services sector:  The MSME Act clearly recognizes the services sector which offers tremendous opportunities for the young people and records a high rate of growth. It is understood that the Services Sector forms the backbone of social and economic development of a country. It has emerged as the largest and fastest-growing sector in the world economy, making higher contributions to the global output and employment. Its growth rate has been higher than that of agriculture and manufacturing sectors in India. It is a large and most dynamic part of the Indian economy both in terms of employment potential and contribution to national income. It covers a wide range of activities, such as financial, trading, transportation and communication, construction & real estate and business services, as well as community, social and personal services. The contribution of services to GDP has been growing at a rate much faster than the agriculture and manufacturing. The share of the Indian services sector in country GDP has increased from 43.7% in 1990-91 to 51.16% in 1998-99 and now it is estimated to have crossed 63%. It is evident, India is witnessing a transition from agriculture-based economy to a knowledge-based economy. The knowledge economy creates, disseminates, and uses knowledge to enhance its growth and development. One of the major functional pillars of this economy is Information Technology (IT) and IT-enabled services (ITeS) industry. Other knowledge based sectors are also growing well such as Health Services, Travel & Tourism, Media & Entertainment, Financial Services, Bio-technology, Design Technology, Fashion Technology and many more. The Ministry of MSME had piloted successfully MSME Development Act 1996 in the Parliament, wherein services have been given special place and defined in financial terms. However, India need to promote and benefit from the opportunity for creation of higher employment particularly for the educated youth – both men & women.

Services sector creates jobs at a faster rate with lesser investment but utilizing the Human Capital.
 
AIMA organized Global Convention of MSMES on "Towards Excellence in MSMES: Innovation Practices for Global Competitiveness" on 11th March 2010 which focused to bring an Excellence to MSMEs and enhance their Global Competitiveness and learnt lessons from presentation by various successful enterprises. We dealt with only three major issues on Innovative Financing, Technology and Marketing in this convention.

We have also come out with modules for SMEs on managing the Business, Technology, Finance, Marketing, Exports, HRD and Industrial Relations. AIMA has also instituted an Annual Award for Creativity and Innovation. We have undertaken studies on the impact of Globalization on SMEs and SMEs in the Asian Region: Harnessing Their Growth Potential.

Dr. J.S.Juneja
Vice Prsident WUSME World Union of Small and Medium Enterprises for South Asia