With economies of Europe and US are hard-hit by recession, SMEs in India has also witnessed decline in the last three quarters of 2008. The strong linkage with agricultural sector is one reason for micro, small and medium enterprises’’ (MSMEs) economic recession. But it would be wrong to conclude that this sector will not withstand the crisis as Indian SMEs are resilient lot.

There are sectors and business places in India that are hard-hit and are struggling in the aftermath of the recession.

1. Decline in IT and ITeS sectors (IT enabled services) have curved the graph of negative consequences on industries like Tourism and consumer durables.
2. Moradabad, famous in the entire world for its handicraft industry is now witnessing closing of its workshops due to price rise of raw materials like brass. The artisans are left unemployed.
3. Kanpur, the Manchester of India, is neglected, has a poor infrastructure and its industries are closing down.
4. The famous Tussar silk fabric of Bhagalpur, exported to places like US, Europe, West Asia and Japan, is jeopardized by competition from new silk manufacturing centres like Bangalore and Ahmedabad. Lack of credit and power shortage has added to the decline of this big trade centre of Eastern India.
5. Tirupur has serious infrastructural constraints, despite Union and State government’s support in the past. For past several months, the city is struggling with power cuts and poor transport system.

Neo Liberal policy

Neo liberal policies offer solutions to problems faced by SMEs. The policies offer reduction in taxes, credit guarantee and related measures.

The efficacy of such policies can be analyzed from the impacts on SMEs. The impact can be categorized as under:-

1. Shadow entrepreneurship where an individual is left with no other choice but to become an entrepreneur.
2. Pseudo entrepreneurship meaning the start up and sustenance of entrepreneurs who are lacking in the key elements of entrepreneurship like value creation and business ethics.

Recessionary Trend

The symptoms of recessionary trend spread from financial sector to real sector. Its effects on MSMEs follow this pattern. Recessionary trend shows up in the economy in terms of effects like ‘Sentiment’ and ‘Expenditure’. The sentiment effect results from signals received from financial system. It may be failure of stock markets and crisis in leading sectors. In such a case, financial institutions become more cautious about their lending policies. The expenditure effect is a curb on expenditure by MSMEs as business orders start reducing due to recession. Postponement of payments to creditors and workforce also become common due to the expenditure effect.

Less Protection

Initiative taken to improve labor laws is half-way inspite of efforts to liberalise labor laws. Paradigms like ‘flexible specialisation’ and ‘global value chains’ as found in international level are absent in MSME sector in India as it functions as ‘Sweat shops’. Then ‘blanket freedom’ in some sectors is another key problem that has hidden the policy advantages related to MSMEs.

The interests of MSME sector is jeopardized by distortions in public policy. However, attempts are being made to bring about improvements. For example, the ‘MSME cluster development programme,’ enhances individual firm’s competitiveness on a ‘collective efficiency’ mode. The advantage of the Indian manufacturing sector is its highly distributed character. So, because of its distinct economics and sociology, any recessionary shock does not straightway percolate in the sector. To provides resistance to economic downturns and toendure upon this situation, public policy needs to amplify from its current neo-liberal approach. When policies are broad-based, it will be possible to distribute the loads of a recession in the entire economy.

Tags: blanket freedom, business, economies, financial system, global value chains, industry, linkage with agricultural sector, MSMEs, Neo Liberal policy, raw materials, Recessionary Trend
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A new national level call-centre, named Udayami Helpline is about to be launched to help entrepreneurs of the country seek information and to redress their grievances. The call centre is given a single window model with a single toll-free number to serve entrepreneurs in India. Under the XIth plan, the helpline has received a sanction of Rs. 7.6 crore from the government.

The ministry of micro, small and medium enterprises (MSME) took the initiative to model the call-centre. The initiative started in 2009, after the appointment of turnkey consultant, the ‘Telecommunications Consultants India Limited’ (TCIL). This consultant did its job by inviting bids to operate Udyami Helpline.

Caretel Infotech has been given the responsibility to operate Udyami. The MSME ministry has provided all support in the form of finance, data base and monitoring of the centre. The database has the details of banks, financial institutions, stakeholders and other related agencies.

” This call-centre is an innovative idea of the ministry to disseminate information, help and support a large number of entrepreneurs based in far-removed destinations. It’s ready to be launched soon and its staff members are undergoing skill-development training. An appropriate interface will be established with each bank to ensure that the queries of MSMEs are satisfactorily replied and monitored till closure,”said Dinesh Rai, secretary ministry of MSME.

Tags: bank, call centre, Caretel Infotech, government, MSME, TCIL, Udyami
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MSMEs are facing a lot of hurdles according to a report published by Sidbi (Small Industries Development Bank of India). One major concern of Micro, Small and Medium Enterprises is lack of proper infrastructure support needed for their growth and development. The 2010 report is based on survey conducted on 200 MSMEs from every place of India.

Non-availability of infrastructure is not just one concern. There are other issues of concern to the MSMEs . The other key issues that need to be addressed are

1. Inadequate and Non-availability of timely credit.
2. Non-availability of skilled personnel.
3. Non-responsive cost competitiveness due to unavailability of greater automation in production facilities.
4. Inefficiency of energy in production processes.
5. Inadequate R&D and lack of brand building support.
6. Improper knowledge of government schemes with reference to information and communication technology (ICT).

These findings are part of a recent survey conducted by SIDBI among 42 micro, 114 small, and 44 medium enterprises spread across cities like Chandigarh, Hyderabad, Jamshedpur, Surat, Rajkot and Bangalore. The research has been conducted based on questionnaires, on-field discussions and interviews with MSME associations and trade chambers representing different sectors located in different places of India.

Tags: government schemes, MSMEs, Sidbi
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The Indian information technology (IT) sector does not seem to be detached from the sanguine trends of the world market. The small and medium enterprises in the IT sector contribute 10 -15 percent of the output in India. This may seem to be insignificant but then it gains importance in the light that the overall Indian IT sector amounts to $50 billion (Rs 230,000 crore).

The Indian government’s extension of fiscal benefits offered under section 10A/10B supports the SMEs as the step mitigates recession aftereffects and the protectionist measures of the US, commented Som Mittal, Nasscom’s president. This would help SMEs grow, bring parity in the SEZ scheme and guide industries to move in smaller cities.

Though the downturn made things difficult for the IT industry but many companies providing baseline services glided unscathed. Companies like Connectiva Systems that had been receiving two to three requests for proposals (RFPs) per month are now receiving five-to-seven RFPs in a month. However, there are far greater challenges faced by smaller players than the downturn offers. “Small players can survive only when they are able to carve out a niche for themselves. This they can achieve by focusing on specialised models and products tailored for specific markets. The idea, therefore, is to be as cost-effective as possible.” says Kalyan Kar, managing director, Acclaris.

Tags: IT Industry, SEZ, SMEs grow
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Coimbatore has become a hot bed of e-marketing. The adoption of internet based marketing has resulted in rise of job orders from overseas customers. Coimbatore has more than 50,000 SMEs, and this initiative has reduced marketing costs and increased international job orders.

The Tamil Nadu Association of Cottage and Micro Enterprises (TACT) disclosed that 15 percent of units in Coimbatore are having their own websites. The major industry types that Coimbatore houses are engineering, automotive components, textile machinery and pumps. Industries in Coimbatore have recorded 10 -15 percent increase in job orders from abroad. J. James, president of TACT, says, “What we thought would be a cost-cutting measure — adoption of e-marketing — has yielded more profits.”

K Raja, in December 2009, started a website for his engineering unit in Coimbatore and for the first time secured a job order from a German customer this year. He comments that by building links and creating valuable content help to gain traffic. Then M Saravanakumar, the owner of a Coimbatore-based Auto Engineering Works company, has 40 % orders from overseas customers. He says that, ‘profit margins in the domestic market were a fraction of those on foreign orders’. He recently purchased five new machines worth Rs 26 lakh each for his unit.

E-marketing can help SMEs perform efficiently in the global market. The reason is it gives SMEs global reach, makes lower cost interactive campaigns that brings measurable results and improves upon organizations’ marketing goals.

Tags: automotive components, e-marketing, foreign orders’, internet based marketing, job orders, marketing goals, Micro Enterprises, SMEs, textile machinery
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In a recent development, 20% of government purchases are slated to be procured from the MSMEs. This is proposed by the National Small Industries Corporation (NSIC), in order, to boost the annual sales of micro, small and medium enterprises (MSMEs). Though the proposal is still in the consultation stage, but within 3 to 6 months, NSIC expects it to become legislation after receiving notification from the ministry of Micro, Small & Medium Enterprises.

NSIC Chairman and Managing director H P Kumar, said that the rules are framed to boost the MSME sector. He attended a seminar in Chandigarh where he said that the state governments will also have to frame similar rules to make 20% of purchases from MSMEs mandatory. According to the proposed rule, PSUs will have to make 20% of total purchases from micro units, at-least for three years and then on a yearly basis. NSIC will conduct inspections to give certifications of quality under the single point registration scheme.

NSIC is also responsible for raw material distribution under the raw material assistance scheme. This scheme, is meant to help MSMEs procure raw materials easily and to enable small enterprises finance the purchase of indigenous and imported raw materials. There are already 40 NSIC raw material distribution centres and 10 more are yet to open. The centres distribute steel, aluminum and other ferrous metals across India and are trying to add zinc, non-ferrous metals and plastic raw materials to the list. “NSIC distributed raw material to the tune of Rs 4,300 crore last year and we look forward to having a turnover of Rs 6,000 crore this year,” Kumar said.

Around 358 items are classified out of 6,000 products produced by the Indian MSMEs which should be included in government purchases from MSMEs. Enterprises registered with NSIC are entitled to various schemes and benefits like tender sets’ free availability and exemptions from payment of earnest money.

A L Agarwal, vice-chairman, Haryana Chamber of Commerce and Industry, said “This is definitely going to help Indian MSMEs. Once the rules become legislation it will give a fillip to MSMEs.”

Tags: help Indian MSMEs, NSIC, raw material distribution centres
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Most of the SMEs lack proper financial reporting systems leading to non availability of credit from banks. Credit ratings which can be defined as assessment of credit worthiness of the business based on industry comparables as well as non quantitative variables can benefit both parties by coming up with uniform standards. Credit ratings help financial institutions to get an insight of the strengths and weaknesses of an SME making it possible for them to take a quick-decision.

The ratings track record in India is not very encouraging as many small firms depend more on the advice of brokers and recommendations of others whom they consider to be experts. Even large corporate get credit ratings done as the regulators like SEBI have made in mandatory for publicly listed companies in order to access debt financing. Only in recent past adoption of international standards like Basel II has made it mandatory for any business having an exposure of Rs. 5 crs plus to get credit rated. This has lead to an increased trend in credit ratings among large and medium size corporate.

The credit-rating of SMEs is determined by balance sheet size, sales turnover, growth trends and credit limits enjoyed by them.

The credit concerns have led to more interaction between SMEs and banks on this issue. The concerns of credit professionals can be summarized as under:

• The need to establish a “credit risk differentiation process” whereby it becomes possible for financial institutions to evaluate credit risk involved in a small, medium and large SME segment so that they can increase the lending to such business segments.
• Low rated SMEs to be differentiated into a different pool altogether and then funding them accordingly based on some parameterized schemes.
• Development of modules that can be used to conduct credit quality tests of banks and asset quality tests of SMEs.
• Empower front end credit managers to take decisions of credit delivery in order to speed up the process.
• To develop robust internal policies on SME lending so that the conceptual framework is kept free from ambiguities. SME need to be financed more based on their ‘business and revenue’ models and less based on collaterals.

SMEs play a very significant role in the growing Indian economy. There are around 13.6 million SMEs in India that contribute to over 45% of the industrial output. With consistent growth in bank credit, SMEs are more optimistic and starting to increasingly adopt credit ratings.

Tags: Banks, Credit ratings, Growing indian economy, Securities and Exchange Board of India (Sebi), SMEs
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Managing an SME can be a difficult task as it involves a lot of challenges to keep the company going. The key aspects to manage are like production, staffing, logistics and finance. Besides, ‘sale and marketing’ has to be dealt with business acumen and planning. Real success comes from finding more clients and the ability to market product and services. The need to discover more effective marketing systems is growing everyday.

Resorting to traditional marketing systems is good but then they have their own niches and a limited access to customers. TV, radio, newspapers, magazines, direct mail, and yellow pages are all confined in their own boundaries and can meet the demands of finding just a limited number of customers. Advertising in these Social media is good for SMEs publicity but won’t always add large no. of customers. So, SME owners need to depend on Online Social media that can really generate increased traffic flow and shape their future.

SMEs are, nowadays, getting more interested to use ‘online social media channels’. It has taken the advertisement world by storm for large no. of customer additions and its immense reach. This serves multiple purpose like Lead Generation, Brand Awareness, Online Reputation Management, Customer Relations and Customer Retention.

Online Social media marketing has the potential to increase your net profit without raising the costs. There are several means to improve its effectiveness. The social media tools has proved effective in recent times. Blogging, for example, is used by businesses to make their online presence felt and to connect directly with customers with updates about products, deals, news and services. With blogging, SMEs will always find groups of people who would love to know more about their products and with whom they can form a community. Relying on Social networking websites like Twitter, Facebook and YouTube can also be very fruitful as they are a window to connect and interact with customers directly. It is not just that one shares information, but it also give an opportunity to post photos, videos and messages to promote a business. Facebook gives the option to create mini web pages for the growth of business. Youtube is valuable for posting videos. So, SMEs can use ‘Online Social media’ to attract huge traffic.

Tags: online social media, online social media channels, online social media marketing, SME, social media tools
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