{"id":50842,"date":"2019-08-02T19:00:39","date_gmt":"2019-08-02T13:30:39","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?p=50842"},"modified":"2019-08-02T15:25:53","modified_gmt":"2019-08-02T09:55:53","slug":"7-pm-the-problem-of-low-investment-in-msmes-and-what-we-can-do-2nd-july-2019","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/7-pm-the-problem-of-low-investment-in-msmes-and-what-we-can-do-2nd-july-2019\/","title":{"rendered":"7 PM | The problem of low investment in MSMEs and what we can do | 2nd July, 2019"},"content":{"rendered":"\n<p><strong>Context:<\/strong>\nsignificance of Micro Small Medium Enterprises (MSMEs) and its structural\nreforms<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>In accordance with the provision of Micro, Small &amp; Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified as below: <\/li><li>Manufacturing Sector Enterprise Category Investment in plant &amp; machinery: <ul><li>Micro Enterprises Does not exceed twenty five lakh rupees <\/li><li>Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees <\/li><li>Medium Enterprises More than five crore rupees but does not exceed ten crore rupees <\/li><\/ul><\/li><li>Service Sector Enterprise Category Investment in equipment:<ul><li>the Micro Enterprises Does not exceed ten lakh rupees<\/li><li>Small Enterprises More than ten lakh rupees but does not exceed two crore rupees<\/li><li>Medium Enterprises More than two crore rupees but does not exceed five core rupees<\/li><\/ul><\/li><\/ul>\n\n\n\n<p><strong>Contribution\nof MSMEs to Indian economy:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>MSMEs account for about 45 per cent of\nIndia\u2019s manufacturing output. As per estimation, a lakh rupee of investment in\nfixed assets in the sector produces 4.62 lakh worth of goods or services with\nan approximate value addition of ten percentage points<\/li><li>MSMEs accounts for about 40 per cent of\nIndia\u2019s total exports. The product groups which dominate the exports comprises\nof sports goods, readymade garments, woolen garments and knitwear, plastic\nproducts, processed food and leather products.<\/li><li>The sector employs more than 73 million\npeople in more than 31 million units spread across the country. MSME in India\ncreates largest employment opportunities, next only to Agriculture. It has been\nestimated that a lakh rupee invested in fixed assets in the sector results in\ngenerating employment for four persons<\/li><li>MSMEs manufacture more than 6,000\nproducts ranging from traditional to high tech items<\/li><li>MSMEs sector is ideally suited to build\non the strengths of traditional skills and knowledge, by infusion of\ntechnologies, capital and innovative marketing practices.<\/li><\/ul>\n\n\n\n<p><strong>Structural\nproblems facing by MSMEs:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Loan\nFinance:<\/strong>\nThe most dominant factor affecting the MSME sector has been access to loan\nfinance, adequately and timely. There are strong structural underpinnings to\nthe inadequate flow.<\/li><li>The organizational structure of banks,\nand processes within them, has taken them far from task orientation, and has\ncreated a specific bias against small loan portfolios.<\/li><li>It is also\nobserved that the\nproblem faced by Indian finance system is that there is no transparency\nregarding the financial conditions of MSMEs<\/li><li><strong>Labor\nregulation:<\/strong> India has a plethora of labor laws, regulations and\nrules, both at the centre and state levels. Example the Industrial Disputes Act\n(IDA), 1947 mandates firms with more than 100 employees, to get permission from\ngovernment before retrenchment of employees.<\/li><li><strong>Employment\nand Productivity:<\/strong> an average 40-year old firm in the USA\ngenerates 5 times more employment and 2.5 times more productive than the\naverage 40-year old Indian firm.<\/li><li><strong>NPAs\nin MSMEs:<\/strong>\nThe main reason that is keeping commercial banks away from MSME lending is high\ntransaction cost and NPAs thus leading to a perception of the MSME sector being\nnon profitable for lending.<\/li><li><strong>Product\nreservation:<\/strong> This rather\nlong-standing and unusual policy of reserving certain products to be\nexclusively produced by the small scale sector has come to be interpreted as a\nbottleneck to productive efficiency of the small enterprises.<\/li><\/ul>\n\n\n\n<p><strong>Structural\nreforms of MSMEs:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Alternative funding:<\/strong> the\npolicy support to MSMEs and increase in bank credit to this sector in recent\nyears, access to adequate credit at a reasonable cost is still a critical\nproblem for the sector.<\/li><li><strong>Angel\nFunds \/ Venture Capital Funds:<\/strong> Venture\/ Risk capital are often\na more appropriate financing instrument for high-growth potential and start-up\nMSMEs.<\/li><li><strong>Private\nEquity Funding:<\/strong> These financial enterprises are typically focused\non funding a company early, adding value to them and making an exit at a later\nstage. They are stable sources of capital and tend to have an investment\nhorizon of 3-5 years looking at a multiple return on their investment.<\/li><li>PE investors not only bring capital but\nalso expertise and experience and expertise from established businesses and\nfrom the global markets.<\/li><li><strong>Labor\nregulations:<\/strong> Companies in Madhya Pradesh that employ up to 300\npeople will be allowed to retrench workers or shut shop without government\napproval (the current provision is for those employing up to 100 workers.) <\/li><li>There should be relaxation in complex\nlabor laws to avoid the inconvenience in compliance. The must be sooth running\nof the concern not to create a problem for them. Every effort must do to avoid\nthe unnecessary red tape.<\/li><li><strong>Proper\nresearch and development:<\/strong> There should proper research and\ndevelopment in respect of innovative method of production and service\nrendering. The innovative products will provide the cheaper products and the\nMSME\u2019S will be able to cope up with the situation.<\/li><\/ul>\n\n\n\n<p><strong>Way\nforward: <\/strong>MSME\u2019s\nprovide job and employment and ultimately self- dependency. Therefore, MSME\u2019s\ncan be boon and a hope for Indian economy in near future. The MSME\u2019S are\nproviding the uniform development to the society and can be a strong mean to\nutilize the natural resources of the India. The MSME\u2019s are very helpful to remove\nthe regional imbalances if it is establish in the underdeveloped areas.\n\nSource: <a href=\"https:\/\/www.livemint.com\/opinion\/online-views\/opinion-the-problem-of-low-investment-in-msmes-and-what-we-can-do-1564669940792.html\">https:\/\/www.livemint.com\/opinion\/online-views\/opinion-the-problem-of-low-investment-in-msmes-and-what-we-can-do-1564669940792.html<\/a>.\n\n\n\n<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context: significance of Micro Small Medium Enterprises (MSMEs) and its structural reforms In accordance with the provision of Micro, Small &amp; Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified as below: Manufacturing Sector Enterprise Category Investment in plant &amp; machinery: Micro Enterprises Does not exceed twenty five lakh&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/7-pm-the-problem-of-low-investment-in-msmes-and-what-we-can-do-2nd-july-2019\/\">Continue reading <span class=\"screen-reader-text\">7 PM | The problem of low investment in MSMEs and what we can do | 2nd July, 2019<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":49370,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,9],"tags":[],"class_list":["post-50842","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-7-pm","category-public","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2019\/07\/7-PM.png?fit=1000%2C500&ssl=1","views":{"total":0,"cached_at":"","cached_date":1704857461},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/50842","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=50842"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/50842\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/49370"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=50842"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=50842"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=50842"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}