SME Business Journal of Small Business and Enterprise

Inside This Issue TOP STORY Pg5

Small Means Big: Finance Availability For MSMEs

TECHNOLOGY Pg13 Go For Growth

HUMAN CAPITAL Pg17 Time To Act

SMALL WORLD RoadMap INTERNATIONAL CURTAIN RAISER

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Pg2 Pg4 Pg11 Pg19

Vol 6, No. 2, November 2009

FROM THE CHAIRMAN’S DESK Salil Singhal Chairman CII National MSME Council

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he last few months have been full of activities and your National MSME Council has been able to take some qualitative steps to help the development of the MSME sector in India. Representing your Council in the meeting with the Hon'ble Prime Minister Dr Manmohan Singh in New Delhi on August 26, 2009, I called for appointing a Taskforce to look at the various issues concerning the SME sector. I am very pleased to report that our dynamic Prime Minister announced the appointment of such a Taskforce the very next day. The Task Force has been divided into seven sub-groups to look into specific issues covering labour laws, taxation, credit, exit policy, initiatives in the North East & J&K, marketing, infrastructure, technology and skill development. I was nominated on the sub-groups pertaining to the Simplification of Labour Laws and Direct/ Indirect Taxation Laws. These Committees are headed by the respective Secretaries to the Government of India and the sub-group reports have been submitted to the Prime Minister's Office (PMO). Let me add here that the discussions within the sub-groups had been tough, and needed a lot of persuasion and efforts. The issues raised by us have now been sent to the PMO for further action. The CII National MSME Council is committed to work with the Government of India and create synergies to sustain the momentum for the growth, development and promotion of this sector. The Conference on Finance Availability for MSMEs in New Delhi, organised by CII ensured a collective approach involving all key stakeholders, such as the Reserve Bank of India (RBI), National Small

Industries Corporation (NSIC), private and public banks, venture capitalists/private equity funds, financial service providers and the Ministry of MSME, for discussing the key issues. At the same time CII is also providing the Indian Banks Association (IBA), with suggestions and recommendations to alleviate the credit problems that MSMEs face. I do believe that given the Indian entrepreneurial mettle, a great future beckons our MSMEs. The CII MSME Outlook Survey for the second quarter of 2009-10 (July-September) reveals that 45% of the respondents have registered an increase in turnover, 42% registered an increase in production, and 38% registered an increase in order booking vis-a-vis the first quarter of 2009- 2010. This is expected to carry forward into the third and fourth quarters of the current fiscal. The Council has taken the initiative to introduce a journal that provides key perspectives on the developments in the MSME sector. SME Business has been developed to fulfil this objective. This initiative is a reiteration of the importance that we attach to the growth and development of MSMEs. As our readers, we seek your valued engagement through contribution of your thoughts, ideas and suggestions for this journal and also your support and participation in the various CII MSME initiatives and activities.

I would be really pleased to be posted with your views and suggestions on [email protected]

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Micro, small and medium enterprises (MSMEs) have reported increase in production, demand and overall turnover for the quarter ended September, as per a CII survey. The survey revealed that 45% of the respondents registered an increase in turnover for September quarter, compared with 38% in previous quarter. Similarly, 42% of MSMEs registered an increase in their production in Q2, compared to 37% in the first quarter of the current fiscal. Also, a higher proportion of respondents reported an increase in order books over the previous quarter and a lower number of MSMEs registered a decline in turnover. About 22% of MSMEs surveyed also reported an increase in their exports, compared to only 17% for the previous quarter ended June.

The study highlighted that this positive sentiment is expected to carry forward into the second half of the fiscal as well. It appears that the worst of the crisis is over and a turnaround seems within sight for most of the industry, said CII National MSME Council Chairman Salil Singhal. The positive shift in demand and turnover in the second quarter could be attributed to the trickle down affect of the various measures announced as part of the stimulus packages introduced by the government and RBI, the Survey said. This includes measures such as reduction in CENVAT, interest rate cut of 0.5% for small and 1% for micro enterprises by PSU banks, besides other initiatives.

ADB booster for SME exports The Asian Development Bank (ADB) is extending a $100 million loan facility to India's state-owned Export-Import Bank (Exim Bank) to boost the export potential of SMEs in poor and disadvantaged regions that have largely missed out on the country's trade boom. The non-sovereign facility will be used by Exim Bank to provide medium- and longterm loans to export oriented client SMEs. The terms of the loan include assurances that Exim Bank will target increased trade and competitiveness amongst small exporters in selected states such as Assam, Madhya Pradesh, Orissa and Uttar Pradesh. India has made the expansion of SME exports, employment and income in its poorest regions a key objective of its foreign trade pol-

icy, as it seeks to mitigate the adverse impacts of the global economic crisis. ADB's loan will support that goal by providing Exim Bank with longer term funds for SME development that it has been unable to source through normal commercial financing channels, such as bank loans. The loan facility can be expected to generate employment for 50,000 or more people in strengthened SME export clusters, with an incremental trade volume of $1 billion or more over 10 years, says a media report.

The Ministry of Micro, Small and Medium Enterprises (MSME) has appointed Pune-based Venture Center to operate a funding support scheme for entrepreneurs and micro and small entrepreneurs. The centre will support technology commercialisation activities of MSMEs whose proposals are cleared by the Ministry. Venture Center, an initiative of the Council for Scientific & Industrial Research (CSIR), is an independent not-for-profit company hosted by the National Chemical Laboratory (NCL) and funded by the Department of Science and Technology. "If technology entrepreneurs in the field of electronics, mechanical, chemical and material science, biotechnology among others want to transform their idea into a product, they will need Rs 10-15 lakh as there is a lot of experimentation involved. We will bridge the gap between the entrepreneurs and the government by seeking funds from various government agencies which are perfectly aimed at technology innovation and commercialisation," said Kaushik Gala, Business Development Manager, Venture Center. Besides, the Venture Center has created a database of various government schemes which are presently available for entrepreneurs has listed several government funding schemes for entrepreneurs at various stages of technology commercialisation, ranging from proof-of-concept and prototyping to market trials and commercial production. The database can be accessed at http://www.venturecenter.co.in/ funding/funding.php.

Small pharma firms demand fair deal The small and medium pharma enterprises plan to approach the Task Force on SMEs constituted by Prime Minister Dr Manmohan Singh to reverse two decisions, namely: (i) notification of the Drugs and Cosmetics (Amendment) Act and (ii) centralisation of Certificate of Pharmaceutical Product (CoPP) by the Drugs Controller General of India (DCGI). The SME pharma firms view these changes as an attempt by certain vested interests to eliminate the around 5,000 pharma SMEs in the country. Recently, union health ministry had notified the Drugs and Cosmetics (Amendment) Bill stipulating stricter penalties for manufacturing and marketing spurious drugs. Besides, the offence has been made a non-bailable one. By amending the Act, the government was eager to clean the country's drug market of spurious drugs. But, the industry is wary of the unintended consequences and the resultant ha-

UKIBC keen on IT-SMEs Kevin McCole, chief operating officer, UK India Business Council (UKIBC), was quoted in the media saying that UK firms are keen to invest in West Bengal, especially in the IT-SME sector. "This sector has highly skilled workforce with availability of top-quality commercial infrastructure in the state," said McCole. He said that UKIBC is working with its main agenda of promoting business opportunities in India to the British companies as well as promoting UK as the business destination to the Indian companies. "We are putting a special emphasis on bringing British investments in India as well as in West Bengal in the field of IT & ITeS with a special thrust on SMEs," he said.

rassment to the licensed and bonafide manufacturers. A major concern of the industry is the lack of provisions to safeguard the interests of the genuine drug manufacturers. There is no mention of definition on substandard drugs in the Bill. Hence, if any drug is found substandard the manufacturer in question might be charged for manufacturing and selling of adulterated or spurious drugs. Though the government has come out with guidelines in this regard, the ministry did not notify it, so it is not binding on the authorities to follow. On the CoPP issue also, the SMEs argue that a Uniform Format and not centralisation can be the best remedy in a vast country like India. Instead of centralisation, the answer is creation of a common format which can be circulated to all states to which exporters have no objections. Handling 35 states by a centralisation office will always remain a challenge and delays are imminent.

‘Adopt Six Sigma for competitiveness’ The Small & Medium Business Development Chamber of India (SME Chamber of India) has urged Indian SMEs to avail the multiple benefits that Six Sigma as an approach has on offer such that they become competitive and productive enough to not just face the recessionary times better but emerge as a winner. The chamber observed that lean Six Sigma, through its empirical methods, can enable Indian SMEs to reduce

wastage, reduce cycle time, sustain improvements, become customer oriented, lower manufacturing costs, enhancing product or service quality and capture greater market share by improving their competitiveness. It not just identifies but also removes the cause of defects and variability in manufacturing and business processes. It brings about dramatic improvements in their bottom-line profitability.

IPO eligibility norms won’t apply to SMEs Sebi has exempted SMEs from the usual eligibility norms applicable for IPOs and follow-on public offerings. These norms include a minimum preissue networth and profit-making track record. The regulator has ruled out the need for a separate SME exchange and said stocks can be listed on a separate trading platform of an existing exchange. For companies seeking to list on the SME exchange, the cut-off limit in terms of paid-up capital has been fixed at Rs 25 crore. An ET report says companies listed on the SME exchange/platform shall compulsorily migrate to an equity exchange/segment on exceeding the Rs 25 crore post issue paid-up capital limit. Further also, if follow-on offer/rights issue results in triggering of the above limit (of Rs 25 crore) then the company would have to migrate to the main board.

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Agenda For Development

Improve Finance Availability

CII presents key recommendations to enhance the competitiveness of the MSME sector

The MSME sector is the biggest contributor to industrial output, employment and exports. Yet, credit flow to the sector is highly restrictive. Industry heads reflect upon the key imponderables. Read on

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II presented `An Agenda for Development of Indian MSMEs' in a meeting of industry bodies with Prime Minister Manmohan Singh in New Delhi on August 26. It was cited that measures like reduction in CENVAT rate, interest rate cut, additional liquidity creation, export support through interest subvention, reduction in lockin period under the Credit Guarantee Scheme, additional plan expenditure of Rs 20,000 crore, etc., had helped the MSME sector to tide over the difficult times. However, to sustain the MSME growth in the short to medium term, the following steps were recommended: Provide tax benefits to companies to source from MSMEs and adhere to the payment schedule as per the terms of the contract agreed upon with their vendors.

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cleared and the software is original (genuine)/duly licensed. l Formulate a Purchase Preference Policy, as per Section 11 of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, that enables the Central and state governments to notify from time to time, preference policies in respect of procurement of goods and services, produced and provided by MSEs, by its Ministries or Departments or its added institutions/ public sector enterprises. l The recommendations made by the Working Group or Labour Laws by the Planning Commission and referred in the Report of the 2nd National Labour Commission must be discussed with industry and the various labour regulations be suitably amended.

The tedious process of land acquisition, land use change/conversion and very high cost of the same is a major deterrent for establishing/expanding MSME units. It is imperative to strengthen the infrastructure and increase the speed of facilitation for establishing an MSME unit, in line with the Chinese model of low initial capital investment on land and building.

l l Facilitate the establishment of an SME exchange without compromising the risk management. For this, SEBI would have to devise separate standards of disclosure and compliance requirements to minimise the cost of listing and compliance.

To encourage ICT use by MSMEs, there is a need for enhanced depreciation on IT products. Government should consider according 100% depreciation, once in a block of three financial years, for an annual investment in IT equipment and software up to a limit of Rs 25 lakh to the MSMEs. The ICT hardware/software equipment for which this depreciation is accorded should be excise duty paid/

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Effort should be made to adhere to a schedule of introduction of GST w.e.f April 1, 2010 and for this purpose, announce time schedule for each important step. The most preferred option is a unified, single rate of 12% for GST. This would be the biggest stimulus package for economic revival and the first step towards unification of the Indian market.

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Revise the NPA norms for a period of 2-3 years to enable banks to restructure the financial facilities offered to this sector. There is also the need to revisit the margins required for working capital requirements: higher working capital ratios should be provided by banks with reduced margins from the industry.

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RBI could constitute a group along with the Indian Banks Association and the credit rating agencies to work out a uniform credit rating format and processes.

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Government should declare the possibility to offer differential rate of interest for MSMEs. In the past, to boost exports, differential rates of interest were made available.

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l Earmark 15% for MSEs (Micro & Small Enterprises) within the overall priority sector lending, as recommended by the Working Group on Micro & Small Scale Enterprises for the eleventh Five Year Plan (2007-12).

All registered enterprises graduating from Micro & Small category to Medium category be treated at par for the applicability of all promotional schemes announced and implemented by the Office of the Development Commissioner (MSME).

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Revise the definition of MSME in keeping with international practice. The definition should not be merely on the basis of investment, but also take into number of employees, annual turnover, and possibly location.

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icro, small and medium enterprises (MSMEs) provide employment to over 42 million people, account for about 45% of the domestic manufacturing output and nearly 35% of the country"s exports. Underscoring the criticality of the sector, Prime Minister Manmohan Singh had said in his address at the presentation of National Awards to Micro, Small and Medium Enterprises last year that MSMEs have an important role to play in ensuring the processes of economic growth are inclusive, employ-

ment-friendly and lead to greater regional balance in development. When such is the significance of the sector, there is every reason to wonder why over 90% of the MSMEs in the country face financial exclusion. The global economic slowdown only worsened the situation for many MSMEs that were dependent on export earnings for their sustenance. As the world markets contracted, demand fell and payments ceased, leaving several domestic enterprises in financial distress. Many large Indian companies, which are among the most important customers for MSMEs, too began to delay or default on payments. The RBI-initiated bank rate cuts somewhat reduced the MSMEs burden of interest payments, but staying afloat in business contin-

‘We need a robust eco-system for MSMEs' Deep Kapuria Do you see a forward movement on the MSME front? Not quite. The issues being talked about today are just the same as they were over the last five years. What is needed is a holistic approach and due recognition of the fact that MSMEs are part of the value chain of large enterprises. A piecemeal approach has not worked to the benefit of MSMEs. What is a holistic approach in your view? The challenge lies in creating a robust eco-system for

MSMEs collectively. This eco-system will coalesce with individuals, society, supply-side players and regulatory environment and the solutions that emerge will be durable and equitable. Where should it all come from? The policy matters are well addressed. Affirmative action from industry is also seen. But, on the supply-side, a lot needs to be done. Deep Kapuria is Past Chairman, CII National MSME Council

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Apart from bank credit, MSMEs need easy access to risk capital to finance both start-up and expansion activities capital for expansion l Absence of a primary market for MSME companies l Negligible access to private equity (PE) / venture capital funds l Absence of a BIFR-like mechanism to address the recovery of sick MSME units l Lack of access to external commercial borrowing (ECBs) / foreign currency convertible bonds (FCCBs).

Stating that MSMEs are heavily dependent on banks for financing, he said the strangulation of NBFCs over the years has dried up alternative funding sources for the sector. Apart from bank credit, MSMEs need easy access to risk capital to finance both start-up and expansion activities. The fund requirement was partially addressed by the Government with the setting up of a Rs 2,000-crore fund under SIDBI, provided by Budget 2009-10, but its impact on the sector is not ascertained yet. At the core of MSME financing is the need for an efficient rating system. While most banks have developed their own rating system, Mr Singhal said there is a need for a common approach to credit rating of MSMEs. Noting that procurements and delayed payments are key concerns for MSMEs, he said a governance code on procurements and payments has been developed by CII which is currently under review. He said that the CII National Committee on MSME has also approached

‘Rule of law should prevail' Kiron Chopra What are the imperatives for MSME growth? The present legal system allows misuse of facilities. Some MSMEs befriend bankers and obtain credit on the basis of fictitious businesses. Hence, scams and frauds galore. There is unfortunately no fear of law. Do you think a rating system will improve matters? The rating system is a cumbersome process. First, the micro enterprises need to be educated on the processes. Besides, clarity is needed on the evaluation process and the parameters for the same. The entrepreneurs have to be groomed for taking calculated risk, and to make them credit worthy. The focus should be on how to quality for credit and how to develop progressive business models. Entrepreneurs need to know which window to knock on and figure out documentation. Above all, both lendee and lendor should have fear of law. Unfortunately, there is no BIFR for small enterprises. There are more casualties for MSMEs due to limited access to capital. It is important to institute a robust mechanism here.

What was your journey like? We entered the fray as an auto component manufacturer in 1978 addressing a limited market. We looked at the export market upfront and became a JV partner to tap the German market. Then, India's brand reputation was low and the domestic supply base limited. We told our buyers to pay only after we met their accepted standards. This led to confidence building. Now we propagate the potential for MSME exports. India is a global player today. Even China is a buyer now. We produce at 60% of global average cost. The cost arbitrage will work to our advantage. What are the show-stoppers? There is a plethora of paperwork and compliances. Meeting the archaic laws is unproductive work. What advise would you give upcoming entrepreneurs? Simple. Know your product. Know your markets. Understand technology. Reach out to global markets. In terms of technology, IT should be used not only for administrative purposes but also for manufacturing. Kiron Chopra is Chairman, CII Northern Region MSME Subcommittee

(L-R): Mr H P Kumar, CMD, NSIC; Mr K C Chakarbarty, Dy. Governor, RBI; Mr Salil Singhal, Chairman, CII National MSME Council; and Mr Marut Sengupta, Senior Director, CII

SEBI to usher in a transparent trading platform, while adding that innovative financing is necessary for equitable growth. Referring to some of the bottlenecks in the finance availability for MSMEs, Mr H P Kumar, Chairman and Managing Director, The National Small Industries Corp Ltd (NSIC), said that as banks are called upon to be increasingly competitive, the focus on priority sector lending is getting diluted. This conflict has to be managed,

he said. However, some banks have taken strident steps to enhance credit flow to MSMEs. State Bank of Hyderabad, for instance, is reportedly targeting to increase advances to SMEs by almost Rs 1,600 crore in the current fiscal. The banks Managing Director Ms Renu Challu told Business Standard that `our current exposure to the SME sector stands at Rs 6,490 crore and we are looking at a growth of 20-25% in this segment'. She stated that last year the segment grew by 22% and collateral was not required for loans up to Rs

1 crore as per RBI guidelines. We have restructured and rescheduled Rs 4,000-crore loans to the SME sector till June 2009 to enable them to cope with the economic downturn, she said. Similarly, Bank of India has opened SME hubs in many zones, and plans to open them in all 48 districts where it is the lead bank. The bank is setting up credit counseling centres in different parts of the country to assist people who have borrowed beyond their means of income, create awareness about financial management, counsel those who are struggling with current

‘Develop a hybrid funding model' Salil Singhal What kind of leadership is CII expected to provide to MSMEs? CII plays an active role in providing critical inputs and ideas for the sector's growth and development. We also take up advocacy on behalf of industry on issues linked to policies, etc. At the same time, we urge MSMEs to think out of the box to forge ahead in business.

could a Rs 5,000 crore fund in the form of venture capital to finance entrepreneurs with bankable ideas. The resources could go in as capex, to be paid back as repayment for loan when the business breaks even. Such a hybrid system might work well for Indian MSMEs. The returns could be set to PLR plus 2-3%. This could be modeled on the lines of the Department of Science (DST) providing 50% funding for promoting new ideas.

As risk capital is not forthcoming for most MSMEs, what is the way out? As such, SIDBI has a Rs 2,000 crore fund. On similar lines, there

What are the other imperatives? All approved schemes announced by the government should be implemented in right earnest. Salil Singhal is Chairman, CII National MSME Council

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ued to be a major challenge with little or no credit coming their way. Limited access to capital and credit has indeed been the bane of Indian MSMEs for long. The CII Conference on Finance Availability for MSMEs, held in New Delhi on October 10, addressed the key issues that underpin the financing options for the sector. Stating that the MSME sector is a priority area for CII, Mr Salil Singhal, Chairman, CII National MSME Council, said in his welcome address that suggestions put forth by CII have been taken up for consideration by the 11-member Prime Minister's Task Force on MSME headed by Prime Minister's Principal Secretary T K A Nair. He said the key imponderables for the sector are: l Limited access to institutional funding l Limited access to additional

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A buyer seller need in progress at the conference of finance availability for MSMEs

financial problems, and spread financial literacy amongst farmers/ weaker sections of society, prone to problems in managing credit. Private banks too are gravitating towards the MSMEs. For instance, ICICI Bank, expects to increase revenues from its SME business segment by 15-20% in the current financial year.

The banks SME loan book increased marginally to Rs 7,924 crore in the quarter ended June 30, 2009, from Rs 7,845 crore in the April-June 2008 quarter. Nevertheless, Mr Kumar said at the conference that reduction in the share of credit flow to MSMEs is a concern to be addressed. As such, banks have met the government target of directing 20% credit flow to

the MSMEs, but the percentage of total credit flow has declined, he said, adding that there should be a subtarget for the micro segment. He observed that while 40% of all credit is going into housing, banks seldom advertise the credit facilities available for MSMEs which indicates the general reluctance to provide credit to the sector. Stating that interest rate restruc-

‘VCs will surface to provide a fillip

to MSMEs’ risk capital needs’ T R Bajalia

turing is another key concern for MSMEs, Mr Kumar said the prime lending rate (PLR) is too high and diverse (14-17%) and financing to MSMEs is going at a high 9-10%. The PLR is too high and there is confusion between banks on rates. Some benchmarks are needed in this regard, he said. Credit rating is yet another concern area for MSMEs. As such, RBI has prescribed that all unrated exposures of banks over Rs 50 crore migrating to BASEL II w.e.f. March 31, 2008 would carry a 150% risk weight for the financial year 200809. The threshold was brought down to Rs 10 crore w.e.f. April 1, 2009. This level too can come down further, said Mr Kumar. From the bankers perspective, with the introduction of Basel II norms stipulating that funding of firms by banks must be linked to ratings by independent agencies, banks can now justifiably claim to have a well-researched rule of thumb for initial filtering of SME loan-seekers. Many bankers can even insist that those small enterprises that do not necessarily come under the purview of Basel-II must also get their ratings. Considering

the fact that credit accessibility is the sore point of the SME sector, the impact of compulsory rating on credit deserves careful scrutiny. However, for SMEs, mostly operating under hard budget constraints, credit rating imposes additional costs and hence must bring tangible benefits to the firms. Logically, a high credit score improves the chances of securing external finance and also boost the confidence of the entrepreneur since a high score essentially confirms the soundness of the firm's internal systems and processes. In addition, a good score helps in building reputation among buyers, suppliers and other stakeholders and thus enhances the firm's brand value. Though Basel-II can potentially assist the banks to increase their financial and operational risks-mitigating ability by providing better information on the SMEs, there is also a real danger that it may end up reducing credit flow to SMEs, cautions, Mr Abhijit Bhattacharya, Dean, Globsyn Business School and director, Asian Institute of Family Business, Gandhinagar. In an article published in The Economic Times, Mr Bhattacharya wrote: A good rating by itself does not ensure investment, because rating is not

a recommendation to invest. Actual investment decision depends upon the combination of various factors including credit history, pricing, innovation, market volatility, etc., and both the creditor and the borrower must come to an agreement regarding structuring, monitoring or enforcing the exchange. It is quite possible that even after securing a high score (say, AAA) a borrower still may not be able to access cheap credit. The situation can be much worse for firms with low credit rating, particularly for those firms whose low score is not always a reflection of their actual potential. He noted that many of these firms come with their innovative projects with associated high uncertainties and ambiguities. A low credit rating can instantly goad an average riskaverse banker to look at the entrepreneur with a much higher level of suspicion from the very beginning and thus impose a very difficult hurdle criteria. Expressing his apprehension on the current credit rating of MSMEs, Mr Kumar said the RBI has so far recognised only four credit rating agencies to rate thousands of MSMEs. It would help if more credit rating agencies

Graffiti The government has a lot of schemes for innovators and entrepreneurs but not many know about it. Kaushik Gala, Business Development Manager, Venture Center, Pune

What initiatives have you taken to address the credit needs of MSMEs? IDBI has been pro-active in meeting the credit needs of MSMEs. In two years, we have disbursed Rs 13,000 crore to SMEs. Further, we maintain dedicated SME branches in several cities across the country. This will go up to 40 by the year-end. Also, our SME credit products are very client-friendly. Notably, it takes mere 10 days from loan sanction to disbursement.

Which are the promising sectors in the MSME universe? At the outset, auto ancillary, pharma, chemicals, light engineering, cement, constructions, educational institutions, and hotels look promising.

There are many avenues available for MSMEs to borrow funds from, including commercial banks, but they often find it difficult to borrow at short notice, and particularly collateral-free loans. It is even more difficult for firms without a proper credit history.

How do you reach out to MSME's? A relationship based approach should work. SMEs have not taken benefit from the credit guarantee scheme.

Entrepreneurs should look to completely eliminate wastage in their manufacturing process. They should implement high standards of quality control measures, in which trade bodies could extend valuable assistance.

How is the question of risk capital for MSMEs to be addressed? As the recession ends, VCs will resurface to provide a fillip to MSMEs’ risk capital needs. IDBI has set up a Rs 10 crore fund. The repayment terms are: 1% surcharge in the first year; repayment at PLR in the second year onwards.

What advise would you give both lenders and enterprises? A pro-active approach from both sides, trust-based client-vendor relationship, prudence in lending, shorter turnaround time, and friendly hand-holding.

Exporters in the small and medium sector are not getting dollar credit, and if made available, the same is much above the RBI's fixed rate of 3 per cent plus benchmark global interest rate (LIBOR).

T R Bajalia is Executive Director, IDBI Bank

Suresh K Krishna, Managing Director, Grameen Koota

D. Rajendran, Chairman and Managing Director, Tamil Nadu Small Industries Development Corporation (TANSIDCO)

A Sakthivel, President, FIEO

It is the government's duty to create infrastructure and not solely depend on Public Private Partnership (PPP) models. Besides, a single-window clearance system in approving projects is the call of the hour. Irshad Mirza, Chairman, Mirza International

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‘Despite the global financial crisis, there is enough liquidity in the Indian banking system and banks are willing to extend extend for viable projects.’ money. `Your problem is you do not require credit, you require money. Credit has to be self-liquidating on a viable project and has a cost', he said. On the question, who will give risk capital, he said some industry heads should emerge as angel investors for MSMEs, adding that banks give debt finance and cannot give market risk linked finance. If it is too risky for you, why will banks burn fingers, he asked. Equity will eventually come about but the MSMEs need to be groomed for it, he said. Regarding credit rating of MSMEs, he said that 90% of the MSMEs cannot be rated due to lack of information base. As such, the credibility of rating agencies is also at a new low. There is instead a need to develop a scoring model. However, he said that with rating or scoring models in place, banks will still do their own assessment though the process can be simplified. Responding to the issue of interest rate restricting, he wondered why industry is talking about PLR being high as the rates have been liberalised and cannot be regulated by RBI. Competition alone will not bring down cost of funds, he said, adding that the cost of alternative funds is in fact double. RBI will nevertheless ensure the rates are not exorbitant, he said. Mr Chakrabarty said that MSMEs

should collectively ensure self-regulation in repaying credit. Responding to Mr Kumar's comments, he said that credit flow to MSMEs in percentage terms is not an issue as banks are lending more to infrastructure and retail sectors. The question is, is credit flow to MSMEs increasing. He said what is necessary to know is, what is the credit requirement of MSMEs. He said he would welcome a proposal in this regard. Mr Chakrabarty suggested to banks that they should not be as aggressive as venture capitalists and must do their own assessment before advancing loans without depending on the credit rating agencies. He added the country needs a robust MSME sector to grow at a rate of 10% for the next 20 years. There are 30 million MSMEs in the country. The SME sector has showed an average growth of 18% in the last five years. About 98% of the manufacturing units are in the SME sector. He said that MSMEs are the basis of MNCs. To go global, MSME is the route to take. The spirit of entrepreneurship can only be sustained through MSMEs. We need to create local demand in times of global economic slowdown, This can be done by MSMEs, he said. He also said that 96% of the MSMEs are faced with financial exclusion. For example, a vegetable vendor pays 3,600% annual interest for doing business. But, he manages to do business as his returns are 10,800%. 95% of the villages in India have no bank branches. This financial exclusion needs to be addressed, he said. Mr Singhal said the future lies in good governance, even as the risk capital challenge continues. If Rs 60,000 farm credit could be waived, why not create a risk capital fund for MSMEs which can be managed by a designated NGO, he asked. Finance availability to MSMEs is a multi-pronged issue no silver bullet can resolve. All stakeholders will have to come on a common platform and create a robust eco-system that runs efficiently and according to rule of law.

Destination Romania Romanian industry looks to enter into JVs with Indian MSMEs

(L-R) : Her Excellency Valerica Epure, Ambassador of Romania in India addressing the seminar on Opportunities in Romania for MSMEs, (Seated) Ms Dorin Stefan Refca, Counsellor (Asia-Oceania Division), Government of Romania, Ministry of SME, Trade and Business Environment, Ms Amelia Popescu, Executive Director, Employers' Organization of Romanian Oil Industry, Mr Salil Singhal, Chairman, CII National MSME Council, and Mr Radu Zaharia, Director General, Romanian Ministry of SMEs, Trade and Business Environment (Foreign Trade Department).

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here is a perceptible increase in global interest in Indian MSMEs evidenced by the recent India visit of a high-powered Romanian delegation to promote collaborations between Romanian and Indian SMEs. Senior officials from the Romanian ministries of SME, commerce and business environment and economy and industry leaders from the metallurgy, central power plant, environment protection, material handling equipment, infrastructure, oilfield equipment and hydro power equipment sector were in New Delhi to hold B2B meetings with their Indian counterparts. Coinciding with the delegation's visit, CII organised an interactive session in New Delhi on October 26. Addressing the gathering, Mr Radu Zaharia, Director General, Romanian Ministry of SME's, Trade and Business Environment (Foreign Trade Department), said that there are five strong reasons to invest in Romania, namely, strong market potential, a functional market economy, high skilled labour force, significant economic growth and a competitive tax policy. Mr Zaharia pointed to Romania's improved physical infrastructure as a rallying point for foreign investments. This

includes a well-developed networks of mobile telecommunications in GSM systems, highly developed industrial infrastructure, including oil and petrochemicals, branch offices and representatives of various well-known international banks, newly developed highway infrastructure, commitment to improve the highway infrastructure to EU standards, and extensive maritime and river navigation facilities. The potential areas for investment were cited as manufacturing, automotive parts, IT and communication, electric and electronics, wood processing, construction materials, textile, food processing, infrastructure, and outsourcing and logistics. Mr Salil Singhal, Chairman, CII National MSME Council & Chairman, Secure Meters Limited, and Ms Amelia Popescu, Director International Relations, The General Confederation of the Romanian Industrial Employers (UGIR-1903) also addressed the session. Among the Romanian companies looking for collaborations with Indian MSMEs, Uzinsider Techno SA, a leading private manufacturer with activities related to projecting, manufacturing and trading auto spare parts for the Romanian af-

termarket, first-assembly auto parts for Dacia Group Renault and parts for rolling stock, and oil equipment for internal and external customers, is looking enter into a joint venture with an Indian manufacturer of agricultural equipment and parts for the opening of an assembling factory in Romania. Likewise, UTI Systems SA, with its expertise in general contracting for civil works, electro-mechanical and sanitary installations, development of intelligent traffic systems, traffic management and automation projects, turn-key security systems solutions for critical infrastructure, emergency management, border security and defense systems, and complex IT & C systems and solutions, advanced technologies, and hi-tech products, is looking for potential customers in the transport sector (airports, ports, railways, highways, roads and public transport), power (power stations, substations and transmission network), oil and gas (refineries storage, tank farms, gas stations, pipelines and pump stations), and administration and government (local administration , Central government development programs for ministries, national companies and national distributed infrastructure). Further details on investment opportunities in Romania may be obtained from the: l Ministry for SMEs, Trade, Tourism and Liberal (Foreign Trade Dept), Bucharest, 16, Campineanu St., Ph: 00-40-214010560, e-mail: [email protected]; website: www.dce.gov.ro l Romanian Center for Trade Promotion, Bucharest, 17, Apolodor St., Ph: 00-4021-3185067, e-mail: [email protected], website: www.traderom.ro l General Confederation of the Romanian

Industrial Employers (UGIR-1903), Bucharest, 27-29, George Enescu St., Ph: 0040-21-3100027, e-mail: [email protected], website: www.ugir-1903.ro

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are empanelled for this. He also focused attention on the credit guarantee mechanism which has not been fully tapped by MSMEs. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was set up by Ministry of Micro, Small & Medium Enterprises (MSME) and Small Industries Development Bank of India (SIDBI) in August 2000."The Government and SIDBI as settlors of the Trust have committed to raise a corpus of Rs 2,500 crore in the ratio of 4:1 to provide CGTMSE a sound financial base. CGTMSE operates the "Credit Guarantee Scheme" (CGS) which facilitates provision of collateral-free and/or third party guarantee-free credit facilities to units in the micro and small enterprises sector. Yet, banks are reluctant to lend. What is required is greater awareness regarding this facility, said Mr Kumar. He also said that while venture capital funding is in vogue for over 15 years, only 5-10% of this is going into MSME sector. The majority of such funding goes towards existing companies and barely anything for new ventures. In his view, the key show-stoppers are: (i) high perceived risk (ii) lack of understanding of MSME sector (iii) lack of a defined exit route (iv) absence of an MSME trading platform (cost of listing on national exchanges is prohibitive) (v) and high cost of fund raising. On a different tack, Reserve Bank of India (RBI) Deputy Governor KC Chakrabarty said despite the global financial crisis, there was enough liquidity in the Indian banking system and banks were willing to extend credit to viable projects. There is no dearth of money in the system, he said. Addressing the industry's concerns that banks were not lending to the MSME sector, he said credit flow to MSMEs had doubled from Rs 1,27,000 crore in 2006-07 to Rs 2,57,000 crore in 2008-09. In 200708, credit flow to the sector was Rs 2,13,000 crore. Today, there is no bank in this country that will refuse

international

November 2009

November 2009

top story

international

More The Merrier

Go for Growth

US SBA proposes revision of size standards to expand opportunities for small biz

Adoption of appropriate technologies is central to MSMEs’ long-term growth and sustainability

SME Business

Mills has said. "SBA's lending and government contracting programmes provide effective opportunities for small businesses to help them expand and create jobs, especially during these tough economic times. This review and proposed changes will help make these critical programmes available to more small businesses and ensure SBA is in a position to be a real partner in helping our nation's entrepreneurs and small business owners succeed." SBA recognises that in some industries, existing size standards have been affected by changes in industry structure, market conditions and business models. SBA is therefore conducting a comprehensive review of all its small business size standards, and these three proposed rules are

the first in the series. The body is examining every industry to ensure that existing size standards are based on current economic data and SBA will propose to revise those where it believes it is necessary. The newly proposed rules give the public an opportunity to review and comment on SBA's proposed standards as well as on the data and methodology that SBA uses to evaluate and revise size standards. Before this comprehensive review, the last overall review of size standards occurred more than 25 years ago. Since then, most reviews of size standards have been limited to indepth analyses of specific industries requested by the public and federal agencies. SBA also makes periodic inflation adjustments to its dollar-denominated size standards.

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“There’s only one corner of the Universe you can be certain of improving, and that’s your own self.” -- Aldous Huxley, Novelist

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he majority of the thirteen million MSMEs in India employing over 31 million people are embattled with technological obsolescence that seriously undermine their competitiveness in the domestic and global markets. The Government has focused attention on promoting the technological upgradation of MSMEs by setting up dedicated funds and schemes and through assistance for obtaining quality certifications. However, the onus rests of technology adoption clearly rests on the individual enterprises. The Sub-Group of the MSME Task Force has urged the Government to facilitate, incentivise and support technology transfer to the MSMEs. Government research and development (R&D) institutes have also been invoked to channel appropriate and affordable technologies to the MSMEs. It has been suggested that a cluster approach would

help many MSMEs to manage the relatively high cost of technology upgradation. Also, the existing mechanism of providing training through industrial training institutes (ITIs) and polytechnics needs to be strengthened. Along side, the MSMEs themselves are testing technologies that will help them to move up the value chain.

Going online Recent trends indicate that MSMEs are indeed warming up to new technologies, especially in the IT spectrum, to boost business. They are interested to leverage the Web technologies to reach people and markets beyond their immediate circle but quite often they are unaware of how to go about it. Country Manager of VeriSign India, Mr Shekhar Kirani was recently quoted in the media saying, “They are not interested in finding out how they can establish an online presence, instead lament

that no one has reached out to them. The Hindu Business Line recently quoted Mr Kirani as saying that most MSME professionals use the Net to access mails. They have still not moved from email to Web, whereas the market dynamics is witnessing a sea change, particularly in the way products are consumed or sold on the Web. It is time the SMEs took the online route to generate leads, at least from an efficiency perspective. They may not be interested to grow, but if they do not grow, they will not be able to sustain in business in the long run, he said. The business daily reported that there are an estimated 7.6 million registered SMEs in India but only around 1.2 million websites, indicating poor penetration online in the sector.

IT spend Yet, a greater number of MSMEs are reportedly entertaining thoughts of adopting IT

SME Business

he US Small Business Administration (SBA) is proposing increases in the size definitions for three broad commercial sectors. The proposed increases cover size standards for 71 different types of businesses, two-thirds of them in retail trade sectors. The rest are in accommodations and food services, and other services. The changes, if adopted, will expand eligibility to small businesses and help them gain access to SBA's financial assistance, contracting and other programmes. "SBA has undertaken a comprehensive review of our size standards to ensure they are current and reflect changes in the economy and the marketplace," SBA Administrator Karen

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technology

Robotics Robotics and automation is also becoming somewhat visible in the MSME sector. Many SMEs are seen to be gearing up to invest in robotics to increase their global competitiveness. The increasing demand for quality from customers, especially global customers, also justifies the use of robots. In two prominent industries in the SME sector—forging and diamonds, the use of robotics can provide a major boost. The Economic Times reported that SMEs form a major chunk of the Rs 10,000-crore forging industry in India and exports account for about 10–15% of the total output. Robots can contribute substantially towards rationalising

cost-effective automation solutions in all areas of the forging industry. Robotics can be especially useful for applications in harsh ambient conditions, as these applications are unsafe for human beings to perform. Trends suggest that the diamond industry is moving towards high-precision workmanship. Robots can play a critical role in this industry as well. The diamond industry is pegged at Rs 60,000 crore and SMEs represent over 25% of the pie, says The Economic Times. The report also says that technological improvements in communications (remote operation and optimised human-machine dataprocessing interfaces) will lead to increased user-friendliness and meet the requirements of a much wider group of customers.

Schemes As stated earlier, the Government introduced various schemes to promote the adoption of technology in the MSME sector. The notable schemes underway and on the anvil are:

Technology and Quality Upgradation Support to MSMEs (TEQUP): The National

l

Manufacturing Competitiveness Council (NMCC) developed a National Manufacturing Competitiveness Programme (NMCP) to support MSMEs in their endeavour to become globally competitive. TEQUP has been conceptualised as a component of NMCP. The objective of the scheme is to sensitise the MSMEs in the manufacturing sector to upgrade their technologies, use energy efficient technologies to reduce emissions of greenhouse gases, improve their quality and reduce cost of production etc. towards becoming globally competitive. l Promotion of Information & Communi-

cation Technology (ICT) in Indian MSME Sector: This programme is currently under consideration. Under this, MSME clusters with

high quality production and export potential shall be identified, encouraged and assisted in adopting ICT application to achieve competitiveness in the national and global markets. The broad activities planned under the scheme include identifying target clusters for ICT intervention, setting up of e-readiness infrastructure, developing web portals for clusters, skill development of MSME staff in ICT application, preparation of local software solution for MSMEs to enhance their competitiveness, construction of e-catalogue, e-commerce etc., and networking MSME cluster portal with a national level portal to outreach MSMEs into global markets. l Design Clinics Scheme: The main objective of the Design Clinic would be to bring the MSME sector and design expertise on a common platform, to provide expert advice and solutions on real time design problems, resulting in continuous improvement and value addition for existing products. It also aims at value added cost effective solutions. The broad activities planned under the scheme include creation of design clinics centre along with four regional centres for intervention on the design needs of the MSME sector. Further, these centres will have linkages with engineering, management, design institutes of the country. The scheme will be implemented in a Public Private Partnership (PPP) Mode. The scheme is under final stage of approval.

Marketing Assistance and Technology Upgradation Scheme for MSMEs: The

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broad activities planned under the scheme include technology upgradation in packaging, skills upgradation/development for modern marketing techniques, competition studies of threatened products, special components for North Eastern Region (NER), identification of new markets through state/district level, local exhibitions/trade fairs, corporate governance practices, marketing hubs and reimbursement to ISO 18000/22000/27000 certification. The scheme will be implemented in a Public Private Partnership (PPP) Mode. The scheme is under final stage of approval. The MSME sector has a key role cut out in the current process of economic recovery. The adoption of appropriate and affordable technologies will enable the manufacturing MSMEs to scale up their competitiveness in the world markets and develop into large industrial houses.

Innovation & IT – Propelling SMBs To New Heights

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tools to improve their productivity levels and quality standards. The Economic Times recently reported that SMEs in the country are trimming flab accumulated over the years to become more efficient and competitive. The daily quoted Mr Ramesh Narasimhan, director, general business, IBM India/South Asia saying that midsize companies are investing in the future. They are making changes and taking risks to survive, compete and thrive when the economy improves. IT service vendors are hence making the most of the opportunity by educating small businesses about the potential benefits of a robust IT system. Mr Thomas Abraham, Managing Director, Sage Software India, a company which provides CRM, ERP, sales force automation, payroll and lead management services, was quoted saying the SMEs are wiser now. They want to know if a new ERP or CRM would work for them. Encouraged by this trend, IT majors like IBM and Cisco are moving rapidly in the direction of SME clusters and cities and towns where small businesses sprout. For instance, Cisco is expanding its presence in Tirupur through its WebEx collaborative software that allows companies in this textiles cluster to showcase their products, talk to clients and importantly, communicate between themselves in real time over video-conferencing. The Economic Times reported that the Tirupur cluster companies, which had exports of about Rs 11,000 crore last year, spend about Rs 200 crore on IT every year, which mostly includes ERP systems. The collaboration software, which comes for Rs 3,500 for a monthly subscription, can be accessed over mobile phones as well.

technology

November 2009

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technology

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hat do you most identify Indian success with? Cricket? Bollywood? Fashion queens? We often find ourselves asking this question during our outreach to small and medium business customers. And the unequivocal answer - undoubtedly Indians love cricket, Bollywood; there are successful fashion queens. But if there is one thing that has put India on the global map, it is business success. It is the passion, commitment and perseverance of Indian entrepreneurs, big and small, that has transformed India into the success story it is today. This is not just about the marquee names that dominate the media with their global acquisitions but about many unsung heroes in far-flung parts of the country, doing business quite

successfully and profitably across different parts of India and even across countries. Besides their entrepreneurial spirit, a common denominator is the use of technology as a key driver for business development and growth - to drive economies of scale by looking for growth beyond geographical boundaries. SMBs are the hidden engine of the Indian economy. According to AMIpartners, a third of the global SMBs are located in Asia Pacific out of which Chinese, Korean and Indian SMBs make up more than 50% of the Asia Pacific spending. India has about 7.6 million SMBs that are propelling India towards economic and social development. Additionally, more than 500 million new businesses will set up shop over the next five years (ICSB). Many of these

new enterprises will come from fastgrowing economies such as the BRIC countries (Brazil, Russia, India and China), and others including Israel, Turkey, Indonesia, Vietnam, Poland and countries throughout Latin America. Technology and the way it is used is proving to be a key differentiator today. However, it is absolutely imperative that the SMB owners are able to use technology in a way that is simple and easily managed, offering clear ROI and can be seamlessly scaled up as business grows. This means: Technology solutions that Do Not demand huge cash investments, recognise cash flow constraints l Technology that offers open standards that Do Not lock in the company with one vendor with proprietary technology l

mark for themselves. The campaign not only recognises these heroes but also celebrates the spirit of entrepreneurship across the country. An ever increasing number of SMBs are realising the value that technology adoption has to offer. However, more often than not they don't always know how to go about it. www.takeyourownpath.com, an online community portal for the SMBs not only offers small businesses a comprehensive portfolio of products and services but a way to access and optimise these. There is no dearth of innovation in a country like India. Innovative use of technology is what will take Indian businesses to their pinnacle. Small businesses, in India and across the world, are increasingly leveraging technology in innovative ways to reach out to their customers effectively. A simple tool like social media platforms are being used to tap and communicate with consumers and potential customers. The spirit of innovation is the backbone of any business. It gives impetus and ignites enthusiasm. Wiggly Wigglers, 2008 global and U.K. national winner of the Dell small business excellence awards, is a natural gardening supply company. They earned recognition for using social media to grow beyond the borders of

their small town to ultimately serve 90,000 customers worldwide. Technology powered their marketing strategy and helped them reduce their advertising budget by 80%. This is a mainstream business using technology in innovative ways to engage customers and grow. The Small Business Excellence awards recognise and honour small businesses for their innovative use of technology and how technology is helping them better serve their customers. Indian businesses too can showcase innovation and technology best practices. Open to small business in India with 100 employees or less, the awards give small business owners a chance to win up to US$50,000 in Dell solutions and a meeting with Dell Chairman and CEO, Michael Dell. Small business owners can log on to www. dell.co.in/ceaward to register. In the current economic slowdown, SMBs will propel global economy. The current times stress on an effective adoption of technology solutions among SMBs in India and across the world which means going beyond the routine investment in PCs and laptops. It is a combination of innovation and technology that will catapult Indian entrepreneurship and economy to its pinnacle.

TECHNO BEAT Charting own path Dell's has made serious inroads into the SME sector. In October last year, its market share in the segment was just 3.2 per cent. A year later, the figure has improved to 5.2 percent a creditable performance considering that PC sales have been hit in this period. Dell says the credit goes to its campaign -- Take Your Own Path -- launched in October, 2008. It was the first such campaign by Dell anywhere in the world as the company mainly relied on direct marketing earlier. Mr P Krishnakumar, SMB Product Marketing for Dell Asia-Pacific Japan (APJ) told Business Standard recently that enterprise clients plan at least six to eight months in advance for their IT requirements, but selling to SMEs was a challenge as they usually follow an unstructured buying pattern.

Time to Act

Archaic labour laws are seen to fetter the growth and competitiveness of most manufacturing MSMEs in the country. CII recommends simplification of several labour laws governing the sector

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anufacturing MSMEs in the country are governed by several labour laws and regulations purported to protect the interests of workers. However, many of these labour laws have become archaic and detrimental to the interests of all stakeholders in the sector. CII has put together certain suggestions for simplification of labour laws governing the MSMEs, which are presented below:

The Factories Act, 1948: (i) For industries not involving hazardous process as defined in Section 2(cb) of the Act, the term "Factory" should mean any premises including the precincts thereof (a) whereon 50 or more work-

ers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or (b) whereon 100 or more workers are working, or were working on any day of the preceding twelve months , and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on; (ii) For industries involving hazardous process as defined in the Act, the term "Factory" should means any premises including the precincts thereof (a) whereon 25 or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing

process is being carried on with the aid of power, or is ordinarily so carried on, or (ii) whereon 50 or more workers are working, or were working on any day of the preceding twelve months , and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on. However, CII has maintained that employers in such cases should take care of the health, safety and welfare of the workers working in their unit and submit a declaration to the effect to the Government. Further, to address the issue of fabricated over-time charges, CII has suggested a revision of Section 59 Clause (I) under the Factories Act 1948 to the effect that a worker working in a factory

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l Technology that offers low total cost of ownership from manageability and service options right down to efficient power management. l A company that partners with you as an IT consultant, offers great service and does not cost as high as a consultant. Dell, as a company, had modest beginnings when Michael Dell started it in a college dorm. The humble beginnings helped realise the limitless potential of small businesses across the world. Fully aware of the challenges that small and medium sized business face, Dell recognises the relevance of technology solutions that are simple, reliable, affordable, scalable and focused on helping small businesses keep their customers happy. `Take your own path', a campaign launched first in India in October 2008, is aimed to reach out to the Indian SMBs with role models, offerings and an online portal on how technology can help. Prominent business personalities - entrepreneurs like the pioneer of India's BPO industry, Raman Roy, CEO of Quatrro, P Rajendran, Co-founder and CEO of NIIT, Neeraj Roy, CEO & MD of Hungama, India's premier digital and mobile entertainment company to name a few - have done something different and heroic and have made a

human capital

November 2009

November 2009

technology

The Employees Provident Funds and Miscellaneous Provisions Act, 1952: Under Section 1 sub-section 3(A), the Act may be applicable to a factory engaged in any industry specified in Schedule I and in which 50 (as against 20 now) or more persons are employed. Also, under Para 26 of Employees PF Scheme 1952, an employee (including part-time workers and those employed by or through contractors) shall be entitled to become a member of the scheme after six months of service from the date of joining the factory or the other establishment. At present an employee becomes the member of Provident Fund on the day when he entered into employment, even on casual basis. SMEs having less than fifty employees should be exempted from the application of this act. This would help SMEs to focus more on the core activities without worrying about such hassles of regulations.

ee contribution. The employer shall be required to submit a copy of the paid up challan along with a statement of contribution every month. To avoid any hardship to new SME establishments, a provision should be made for exempting them for a period of three years.

The Employees State Insurance Act, 1948: This may be applicable to (i) factories using power in the manufacturing process and employing 50 or more persons (10 at present) and (ii) nonpower using factories or establishments employing 100 (20 at present) or more persons for wages.

Definition of wage: It is also suggested that the definition of wage, under ESI Act. should be same as given in Employees Provident Funds and Misc. Provisions Act, 1952 (basic wages with dearness allowance).

reinstatement of the workman on such terms and conditions, if any, as it thinks fit, or give such other relief to the workman including the award of any lesser punishment in lieu of discharge or dismissal as the circumstances of the case may require. It is suggested that suitable amendment be made for SMEs in Section 11-A pinpointing the misconducts where such powers can be used by the Tribunal and misconducts relating to theft, riotous behavior, manhandling, refusal to obey lawful orders, drinking while on duty should not attract the powers given in Section 11A. The labour court should have the right to reinstate the dismissed workman if and only if it is a case of human rights violation by the employer. Also the disciplinary proceedings for termination of employment are so elaborate, complex and technical in nature that SME unit is unable to cope up with the same. As a result the management is either unable to or avoids taking action against an indisciplined worker or is forced to punish guilty person without following the laid down procedures.

The Contract Labour (Regulation and Abolition) Act, 1970: Section 10 of the Act empowering the appropriate Government to prohibit employment of contract labour in any industry should be re-drafted to exclude SME sector from this prohibition clause and to cover employment of contract labour in core and non core activities. Suitable amendments to the Act are needed to widen the scope of engagement of contract labour to cover employment of contract labour in core and non-core activities.

The Industrial Disputes Act, 1947: Mode of payment of contribution (Para 38 OF EPF Scheme 1952, EP Scheme,1995 & Para 8 OF EDLI Scheme): Instead of multiple deposits under different heads on account of EPF, EPS, EDLI and admin charges, the details under different heads should be kept by the department and the employer shall only require to pay a certain percentage of wages through a single challan as employer and employ-

Under Section 11A, where an industrial dispute relating to the discharge or dismissal of a workman has been referred to a Labour Court, Tribunal or National Tribunal for adjudication and, in the course of the adjudication proceedings, the Labour Court, Tribunal or National Tribunal, as the case may be, is satisfied that the order of discharge or dismissal was not justified, it may, by its award, set aside the order of discharge or dismissal and direct

India Global Summit on MSMEs 2009

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he 2009 edition of the India Global Summit on MSMEs will get underway at The Lalit in New Delhi on November 21. The twoday event will see the presence of decision makers and planners from international, national and state governments, NRIs and PIOs, industry leaders, potential investors and entrepreneurs, financial institutions, banks, consultants, academia, media, diplomats, bureaucrats and representatives of MSMEs Associations in India and abroad. The Summit's with its main theme being Building the next generation

MSMEs will see focused discussions on themes such as: l Integrating with Global Value Chain l Investing with Technology upgradation ICT adoption and R&D l Dealing with Economic Cycles: How to adapt the changed economic cycles? l Capital Requirement: What is the right mix of credit and risk capital? l Developing people power: Challenges and solutions. The Summit will also have oneto-one Buyer Seller Meets between MSMEs and OEMs, large corporations, and PSUs. An MSME Mart will be set up at the

venue to showcase new and innovative products, technologies, machines, equipment and tools. The Mart will also give the exhibitors the opportunity to display their competitive strengths and capabilities in providing business solutions to SMEs in various fields. Overseas participants are expected from the US, China, Japan, Singapore, Korea, Taiwan, Russia, Italy, the UK, Germany, and CIS, ASEAN, West Asian, Latin American, African and European countries. Last year's summit saw participation of around 300 delegates from 30 different countries and 234 business meetings were held at the venue.

Published by: The SME Division, Confederation of Indian Industry The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi-110 003, India Tel: +91-11-2462 9994-7 Fax: +91-11-2463 3168, Email: [email protected], Website: www.cii.in

The Industrial Employment (Standing Order) Act, 1946:

Join Us On This Onward Journey

Workmen apart from being classified as permanent, probationers, badlis, temporary, casual and apprentices, should also be classified as fixed term employment. The provision of Fixed Term Employment provides greater flexibility to SMEs and encourages employment on fixed term basis with the benefits of regular employees.

SME Business is your best bet to reach policy makers, decision makers and industry leaders in the MSME sector. The journal provides well-researched content, quality reach, a long product shelf-life and competitive advertising rates. To advertise with us, contact Marut Sengupta, Confederation of Indian Industry, 23 Institutional Area , Lodi Road - 110 003, New Delhi; Ph: 9350800950, Direct Tel: 91-11-24653006; Tel: +91-11–24629994–97 Ext 407; Fax: +91-11–24682229; Email: [email protected]

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for more than 48 hours in any week be entitled to overtime wages at the rate of one and half times (instead of double the rate) his ordinary rate of wages. To make available skilled and trained manpower over a longer period, the permissible number of hours of overtime under Section 64 sub-section (4) clause (IV) be raised from 50 to 120 a quarter. This will help the firms to meet their time-bound commitments and also help the workers to earn extra income. Employees working in a supervisory or managerial category should be out of the purview with regard to the provisions under Section 59

curtain raiser

November 2009

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human capital