1

PROBLEMS AND PROSPECTS OF MICRO, SMALL AND MEDIUM

ENTERPRISES (MSMEs) IN INDIA IN THE ERA OF
GLOBALIZATION
RAJIB LAHIRI,
ASSISTANT PROFESSOR OF COMMERCE
DEROZIO MEMORIAL COLLEGE
KOLKATA -70013
!EST BENGAL, INDIA EMAIL
ID" #$%&'&('$)*('$)&+,-.$&#(/0.
O'
'$)&+121,3$%00(&4
M0+&#5 6230727117
ABSTRACT
With the introduction of reform measures in India since 1991, the Govt. has withdrawn many
protective policies for the Micro, Small and Medium Enterprise (MSMEs and introduced
promotional policies to increase competitiveness of the sector. !hou"h "lo#ali$ation process has
e%panded the mar&et facilitatin" supply of superior technolo"y, this has also forced the MSMEs to
face ruthless competition from lar"e domestic firms and the M'(s. !he sector has under"one
several chan"es re"ardin" definition. !he Small Scale Industries (SSI has #een renamed as
Micro, Small and Medium Enterprises (MSMEs with the introduction of MSME) *ct, +,,-. !he
current paper is an attempt to critically analy$e the definitional aspect of MSMEs and e%plore the
opportunities en.oyed and the constraints faced #y them in the era of "lo#ali$ation. *nnual
*vera"e Growth rate (**G/ has #een used as the ma.or statistical tool to compare the
performances of MSMEs durin" pre and post0li#erali$ation period with the help of four economic
parameters namely 'o. of units, production, employment and e%port. !he study results show that
e%cept mar"inal increase in "rowth rate in employment "eneration, the "rowth rate in other
parameters is not encoura"in" durin" the li#erali$ation period.
Keywords: Micro, Small and Medium Enterprise (MSMEs, Glo#ali$ation, 1i#erali$ation, *nnual
*vera"e Growth rate (**G/, Employment, E%port.
1( INTRODUCTION
Micro, small and Medium Enterprises (MSMEs) are one of the most vibrant and sensitive sectors
in Indian economy. The significance of Micro, small and Medium Enterprises (MSMEs) is
attributable to its capacity of employment generation, lo capital and technology re!uirement, use
of traditional or inherited s"ill, use of local resources, mobili#ation of resources and e$portability
of products.
1( RE8IE! OF LITERATURE
S$495s$'$ (1663) studied the performance of SSIs producing reserved items collecting data from
the second census conducted by the Ministry of SSIs. The study e$amined the null hypothesis that
the SSI firms producing reserved category items should perform better than the SSIs producing
non%reserved items. The study result revealed that capacity utili#ation in 1&'(%'' and aggregate
change in production in 1&'(%'' ere both loer for reserved than for unreserved items. This
belo par performance of the SSI firms producing reserved items as surprising as
)
those firms did not have to face competition from the large firms. The author observed that this
could be due to the entrance of e$cess SSI firms into the protected areas.
S04&$ $49 K$4s$& R$)55: (1006) studied the effects of globali#ation on Micro, Small and
Medium Enterprises (MSMEs) during pre and post liberali#ation from 1&(*%(+ to ),,'%,&. They
used four economic parameters namely number of units, production, employment and e$port and
interpreted study results based on -nnual -verage .roth /ate (--./) calculation. --./ in pre
liberali#ation period (1&(*%(+ to 1&'&%&,) as higher in all selected parameters than that of post
liberali#ation period (1&&1%&) to ),,(%,'). They concluded that MSMEs failed to put up an
impressive performance in post reform era.
B%$:$4& T(A( (1010) highlights the issue of !uality employment generation by the SSIs and
negates the short term attitude of increasing the volume of employment generation compromising
ith !uality. The author argues that employment generation by the SSIs may be high in
!uantitative term but very lo in !uality. Technological upgradation ould enable the small firms
to create !uality employment improving remuneration, duration and s"ill. This structural shift may
reduce the rate of employment generation in the short run but ould ensure high%income
employment generation in the long run
S*+'$%.$43$ B$#$ (1011) has probed the impact of globali#ation on the e$ports potentials of the
small enterprises. The study shos that share of SSI e$port in total e$port has increased in
protection period but remain more or less stagnated during the liberali#ation period. 0oever, the
correlation co%efficient in liberali#ation period is higher than that of protection period suggesting
that the relationship beteen the total e$port and SSI e$port has become stronger in liberali#ation
period. This may be due to the drastic change in composition of SSI e$port items from traditional
to non%traditional and groth in its contribution to total e$port through trading houses, e$port
houses and subcontracting relation ith large enterprises. Thus, the current policy of increasing
competitiveness through infusion of improved technology, finance, and mar"eting techni!ues
should be emphasi#ed.
3( OBJECTI8E OF THE STUD;
The ma1or ob1ectives of the study are as follos2
1) To e$amine the changing pattern of definition of the Micro, Small and Medium Enterprises
(MSMEs) in India and critically analyse the impact of Micro, Small and Medium
Enterprise 3evelopment (MSME3) -ct, ),,4.
)) To analyse the opportunities and threats of MSMEs in India during the liberali#ation period
*) To analyse the performance of MSMEs in India during the pre and post liberali#ation
period.
7( DATABASE AND METHODOLOG;
3ata used in the study are secondary in nature and mostly collected from the -nnual /eports
published by the Ministry of Micro, Small and Medium Enterprises. The study covers a period
from 1&(*%(+ to ),,&%1,. 5our parameters namely 6o. of units, production, employment and
e$port have been used for performance analysis of MSMEs during pre and post liberali#ation
period. I have started from 1&(*%(+ because the first census for the MSMEs in India as initiated
during 1&(*%(+ and no authentic data about the small enterprises as available prior to this period.
*
<( ANAL;SIS
G0:=( >0#&/&5s '5-$'9&4- M&/'0, S.$## $49 M59&*. E4=5'>'&s5s (MSMEs)
-fter independence, the .ovt. too" up the policy of accelerating industriali#ation since Second
5ive 7ear 8lan. The 8olicy resolution 1&+' emphasi#ed that cottage and small%scale industries can
ensure best utili#ation of local resources, achieve 9local%self%sufficiency: in production, increase
employment generation through rehabilitation of displaced persons and ensure balanced economic
groth. Industrial 8olicy Statement 1&(( introduced the concept of 3istrict Industries ;enters
(3I;s) for SSIs to ensure supply of ra materials and machinery, mar"et survey of the district,
generating ne business ideas, arrangement of credit facility, maintenance of !uality of products
etc. The Industrial 8olicy Statement 1&', too" some path brea"ing measures li"e increase in
Investment limit for tiny, small, and ancillary units, ithdraal of industrial location restriction,
elimination of provisions regarding e$pansion, increase in private participation.
The 6e Industrial 8olicy in 1&&1 emphasi#ed on raising the investment ceiling for the purpose of
definition of a small unit to 4 million ( /s (.< million if the unit concerned underta"es to e$port *,
percent of its output or if it is an ancillary unit i.e. a firm supplying at least <, percent of its output
to large scale industries) , alloing other investors (including large%scale enterprises and foreign
investors) )+ percent e!uity participation in a small%scale unit, introduction of the -ct on delayed
payment to small and ancillary enterprises, encouraging ban"s to open speciali#ed SSI =ranches
and giving better priority to the sector in their annual credit budgets . ;omprehensive 8olicy
8ac"age for SSIs and Tiny Sector ),,, increased the e$emption for e$cise duty limit from <,
la"hs to /s >ne crore to increase competitiveness, conducted the third census of small%scale
industries and motivated the SSI associations to develop and operate testing laboratories. -s per
the 8olicy 8ac"age for SME ),,<%,4 Small and Medium Enterprises ere recogni#ed in the
services sector, and treated at par ith SSIs in the manufacturing sector and emphasi#ed on ;luster
3evelopment Model.
D5?&4&=&04$# As>5/= 0? M&/'0, S.$## $49 M59&*. E4=5'>'&s5s (MSMEs)
The definition of Small Scale Industries has undergone changes for many times. The main
criterion for definition as mainly the investment level and number of employees. The chart belo
shos the changing pattern of SSI definition.
C%$4-&4- >$==5'4 0? I4:5s=.54=s &4 SSIs
;EAR IN8ESTMENT LIMIT (Rs()
1&<, ?p to /s. ,.< million in fi$ed assets
1&44 ?p to /s. ,.(< million in 8lant @ Machinery
1&(< ?p to /s. 1 million in 8lant @ Machinery
1&', ?p to /s. ) million in 8lant @ Machinery
1&'< ?p to /s. *.< million in 8lant @ Machinery
1&&1 ?p to /s. 4 million in 8lant @ Machinery
1&&( ?p to /s. 1, million in 8lant @ Machinery
1&&&A ?p to /s. *, million in 8lant @ Machinery
S0*'/5" M&4&s='3 0? S.$## S/$#5 I49*s='&5s
- ma1or change too" place in ),,4 ith the enactment of MSME 3evelopment -ct, ),,4.
In accordance ith the provision of Micro, Small @ Medium Enterprises 3evelopment (MSME3)
-ct, ),,4 the Micro, Small and Medium Enterprises (MSME) are classified into to categories.
+
(a) M$4*?$/=*'&4- E4=5'>'&s5s% The enterprises engaged in the manufacture or production of
goods pertaining to any industry specified in the first schedule to the industries (3evelopment and
regulation) -ct, 1&<1. The Manufacturing Enterprise is defined in terms of investment level in
plant @ machinery.
(b) S5':&/5 E4=5'>'&s5s2 The enterprises engaged in providing or rendering of services and are
defined in terms of investment in e!uipment.
The limit for investment in plant and machinery B e!uipment for manufacturing B service
enterprises, as notified are as under2
M$4*?$/=*'&4- S5/=0'
E4=5'>'&s5s I4:5s=.54= &4 >#$4= @ .$/%&45'3
Micro Enterprises 3oes not e$ceed tenty five la"h rupees
Small Enterprises More than tenty five la"h rupees but does not e$ceed five crore
rupees
Medium Enterprises More than five crore rupees but does not e$ceed ten crore rupees
S5':&/5 S5/=0'
E4=5'>'&s5s I4:5s=.54= &4 5A*&>.54=s
Micro Enterprises 3oes not e$ceed ten la"h rupees2
Small Enterprises More than ten la"h rupees but does not e$ceed to crore rupees
Medium Enterprises More than to crore rupees but does not e$ceed five core rupees
S0*'/5" MSME D5:5#0>.54= A/= 100, M&4&s='3 0? =%5 D&s='&/= I49*s='3 C54=5's (DIC)
MSME, G0:5'4.54= 0? I49&$(
I.>0'=$4/5 0? MSME D5:5#0>.54= A/=, 100
Cith the introduction of ne MSME -ct ),,4, the .ovt. has tried to resolve some ma1or issues
related to the MSMEs li"e complicated bureaucratic registration procedures, lac" of finance, lac"
of managerial s"ills etc. The most important thing the -ct has done is to increase the significance
of the sector and to offer a clear definition of MSMEs.
5urther, the act mandated the composition of the 6ational =oard of MSME' ith clear long run
ob1ective of overseeing and regulating the development of micro, small and medium enterprises in
India. The broad functions of this board are to manage cluster development, train entrepreneurs,
develop infrastructure and promote financial access to this sector.
The MSME -ct ),,4 has frame or"ed a strict rule regarding payment of dues by increasing
penalties substantially for delay in payment. 5or e$ample, the -ct mandates that all payments be
made ithin +< days failing hich the creditor must pay compound Interest hich is higher than
the ban" rate notified by the /=I.
-s noted in section ).1, registration in the MSME sector is voluntary and unregistered firms
constitute a significant proportion of the total firms constitute a significant proportion of the total.
-s a result, proper maintenance of records becomes e$tremely difficult. The ne MSME
3evelopment -ct ),,4 has made the registration procedure much simple and less time ta"ing.
D5+$=$+#5 &ss*5s &4&=&$=59 +3 =%5 MSME D5:5#0>.54= A/=, 100
To policies introduced by the MSME3 -ct, ),,4 have initiated much debate. >ne is proposed
8rocurement 8reference 8olicy and the other is E$it 8olicy or a ;lose of =usiness (;>=) policy.
The first policy ill determine ho much supplies should be purchased by the .ovt. agencies
from the MSMEs and the second policy ill determine hen and ho to close a sic" MSME unit.
<
The first policy tends to create a cold ar beteen the small and medium enterprises. The
5ederation of -ssociations of ;ottage and Small Industries (5-;SI) has placed a demand for a
separate policy e$clusively for the small units regarding the purchase of supplies. Many omen%
run small and cottage industries have as"ed for separate !uota for themselves. Thus, the issue has
ta"en a complicated shape.
/egarding the ;lose of =usiness (;>=) to ma1or issues remain unsettled. The first one is at hat
level The .ovt. should intervene to close a sic" MSME unit. The second issue is about the relative
priorities of different parties associated ith the MSME units li"e oners, shareholders and
employees, in case of conflict.
The -ct has e$panded the investment range and has clubbed small and medium enterprises. In the
process of doing so, it does not consider the 9croding out: effect of smaller firms ithin the
sector. MSME sector falls into the 8riority Sector here the ban"s and many other financial
institutions have to e$tend at least +,D of their total portfolio. -s the investment level have been
increased many bigger firms fall into MSME category. The ban"s prefer to e$tend their stipulated
percentage of loan to those comparatively bigger firms effectively croding out smaller firms.
Thus the small units again get bac" to their original position of lac" of or"ing capital and some
financially strong firms get benefited. >ne possible solution that can be offered is to create on
priority pac"age for different sectors to negate the croding off effect of the large firms.
-nother ma1or problem for MSMEs is their less capacity of collective bargaining in the credit
mar"et. MSMEs ith net orth less than /s.1,, million cannot raise capital through stoc" mar"et.
Thus they became fully dependent on ban"s and have to ta"e loans at a higher rate than the 8rime
Eending /ate (8E/).The larger businesses can bargain ith the ban"s and often can get loans at a
loer rate. >ne possible solution may be to regulate the ban"s more effectively and establish a
uniform rate of lending.
>ut of the total counts of MSMEs, a significant portion is run by the omen entrepreneurs and
they must be provided sufficient encouragement. The -ct is not very specific about this area. This
gap can be fulfilled by alloing some reservation of procurement preference policies in omen%
run small units, creation of shared facilities for female employees li"e day care services and single
indo interfaces to reduce the information gap etc.
O>>0'=*4&=&5s $49 /04s='$&4=s 0? -#0+$#&B$=&04 ?'0. =%5 :&5C >0&4= 0? MSMEs
C04/5>= 0? G#0+$#&B$=&04
.lobali#ation may be defined as the process of integrating various economies of the orld ithout
creating any hindrances in the free flo of goods and services, technology, capital and even labour
or human capital. Therefore, it signifies internationali#ation plus liberali#ation, through hich the
orld has become a small global village.
OPPORTUNITIES
ED>0s*'5 =0 ?0'5&-4 .$'E5=s .lobali#ation has opened up the economy and integrated it ith the
orld economy. The MSMEs en1oy the benefits of selling their products and services to the orld
mar"et rather than being confined into domestic mar"et. The free economy ushers in accessibility
to bigger mar"ets, greater lin"ages for SMEs ith larger companies and mar"eting outfits,
improved manufacturing techni!ues and processes.
F#0C 0? ?0'5&-4 &4:5s=.54= $49 =5/%40#0-3
The MSMEs in India suffer from outdated technology and sub%optimal scale of operation. Many
foreign companies have tied up ith Indian MSMEs and helped them to use better technology,
managerial s"ill etc. Thus, a proper collaboration beteen the small and large companies can
4
help small firms to develop technology base through /esearch @ 3evelopment activities,
contribution from the technological institutes, universities etc.
E.5'-&4- $'5$s 0? +*s&45ss
MSMEs have been able to identify many uncommon but highly promising business areas li"e
outsourcing, medical transcription, clinical research trials, sub%contracting, ancillari#ation and
many ne technologies li"e biotechnology, nanotechnology etc hich are attractive for the ne
generation MSME entrepreneurs.
L5ss G0:=( I4=5':54=&04
-s the economy is mainly mar"et drivenF there is less .ovt. intervention, red tapes, less control on
import and e$port etc. The MSMEs ould be alloed to or" in a free environment.
E.>#03.54= -545'$=&04
=eing labour%intensive in nature, the MSMEs ma"e significant contribution in employment
generation and e$panding industrial netor" in rural areas. This sector nurtures the traditional
s"ills and "noledge based small and cottage industries. The or"ers inherit and transfer s"ills
from generation to generation. The handicrafts and other products produced by this sector have
good demand in mar"et. The MSMEs have been a good source of employment generation and can
be even more if the sector gets support in terms of infusion of technology, capital and innovative
mar"eting techni!ues etc.
B5==5' >5'?0'.$4/5 +3 =%5 MSMEs
=efore globali#ation, the MSME sector as a highly protected sector. Suddenly, after globali#ation
they discover that many of such protective measures ere ithdran and they have to fight for
their e$istence. This competitiveness in domestic and global mar"et may bring out superior
performance.
B5==5' C*s=0.5' S$=&s?$/=&04
-s the domestic mar"et gets competitive, small and medium firms try to satisfy the consumers in
every possible ay. They try to produce products as per the needs and preferences of the
consumers and satisfy the customers in best possible ay.
S%0'= $49 #04- =5'. /$>&=$#
In a liberali#ed economy, ban"s ould try to find out ne avenues of giving credits to increase
their profitability. Thus, supply of funds may be easier. 3evelopment in money mar"et ould
initiate development in capital mar"et.
ED>0'= /04='&+*=&04
The products produced by MSME sector (li"e sports goods, readymade garments, oolen
garments and "nitear, plastic products, processed food and leather products, handicrafts etc) have
an e$cellent foreign mar"et. -s per the results of fourth MSME census (),,4%,(), this sector has
registered an e$port earning of /s ),),1( crores in ),,(%,'.
R5.0:$# 0? R5-&04$# 9&s>$'&=3
8eople from remote areas have the tendency to migrate to urban areas in search of 1obs. This
creates e$cessive pressure on urban areas and initiates social and personal problems. This problem
can be addressed by setting up a netor" of micro, small and medium enterprises in economically
bac"ard areas. MSME sector can ta"e care of local needs, improve economic condition of the
area and most importantly, can bring a !ualitative change in the economy of the country.
(
B5==5' &49*s='&$# '5#$=&04s
The MSMEs are less prone to industrial disputes. 0oever, the truth behind the scene is the
or"ers in small sectors are mostly from unorgani#ed sector and cannot raise their voice
collectively. Thus, apparently, they share harmonious relation ith the firm oners.
CONSTRAINTS
8rocess of globali#ation has resulted in some serious constraints on the MSMEs
F&4$4/&4- P'0+#5.s
5inancing has alays been a ma1or problem for the small and medium industries in India. The
MSMEs mostly depend on internal sources of finance (personal savings, loan from relatives, and
loan from local money lenders) than that of institutional financing by ban"s and other financing
institutions.
F#0C 0? /'59&= ?'0. /0..5'/&$# +$4Es =0 MSME s5/=0's
7ear 6et ban" -nnual ;redit
t
o -nnual .roth
MSM
E
a
s
credit(In .roth
MSME(
In (percent)
perce
nt
o
f
crores) (percent) crores) 6et =an"
;redit
1&&+%&< 1&)+)+ %%%% )&1(< %%%% 1<.1(
1&&<%&4 ))'1&' 1'.(< *+)+4 1(.1) 1+.&'
1&&4%&( )+<&&& 1(.'& *'1&4 11.+, 1<.<)
1&&(%&' )&()4< )1.), +<((1 1&.4, 1<.+,
1&&'%&& **&+(( 1+.1+ <14(& 1).44 1<.))
1&&&%,, *&'),< 1(.+, <(,*< 1,.+4 1+.*1
),,,%,1 +4(),4 1(.** 4,1+1 <.+* 1).'4
),,1%,) <*<,4* 1+.<4 4(1,( 11.4< 1).<*
),,)%,* 44'<(4 )<.,+ 4+(,( (%)*.4, ,&.4(
),,*%,+ (4*'<< 1+.), (1),& 1,.,+ ,&.*)
),,+%,< &(1',& )(.)) '*+&' 14.(1 ,'.<<
),,<%,4 1*<,+4( *'.&4 1,1)'< )1.*, ,(.<
),,4%,( 1(4'*(4 *,.&< 1)(*)* )<.(1 ,(.)
),,(%,' 1'+,'<* ,+.,& )1*<*& 4(.() 11.4
),,'%,& ))44411 )*.1* )<41)( 1&.& 11.*
),,&%1, )(14<,( 1&.'< *4+,1) +).1 1*.+
(8rovisional)
S0*'/5" A44*$# R5>0'= 1010-11 G0:=( 0? I49&$, M&4&s='3 0? M&/'0, S.$## $49 M59&*.
E4=5'>'&s5s
-s the charts sho, the annual groth rate in terms of 6et =an" ;redit, ;redit to MSMEs and
8ercentage of 6et =an" ;redit offered to MSMEs sho fluctuating trend. In ),,)%,*, the annual
groth rate of credit to MSMEs shoed a negative result. -ll the Scheduled ban"s offered credit
to SSI sector to the tune of /s 4+(,( crores hich as less than that of the last year (),,)%,*) by
/s +,, crores. -nother noteorthy year is ),,(%,' hich itnessed high annual groth rate in
terms of credit to MSME Sector (4(.( percent). The annual groth rate of credit offered by 8ublic
Sector =an"s in ),,' over ),,( is +(.+ percent, for 8rivate =an"s )<(.1 percent and for foreign
ban"s 4(.( percent. This abnormally high groth rate as due to re%classification of MSEs as per
MSME3 -ct, ),,4. 0oever, annual groth rate in terms of 6et =an" ;redit is e$tremely lo
(+.,& percent). The annual groth rate of percentage of 6et =an" ;redit offered
'
as credit to MSMEs has not shon sufficient increase even after re%classification of MSEs as per
MSME3 -ct, ),,4.
The Scheduled ban"s do not consider the MSMEs preferred area of investment. Traditionally,
ban"ing sector considers Small industries a ris"y field of investment due to reasonably lo groth
rate of the small firms, firms folloing informal business practices, inability of the MSME
entrepreneurs to maintain collateral securities, lac" of creditorthiness, relatively high processing
cost, and poor flo of information. Moreover, incidence of 6on%8erforming -ssets (68-) in
Small and Medium Sector is about 1< percent compared to about & percent in large business
houses.
ED='5.5 /0.>5=&=&04
The MSMEs face ruthless competition from the large domestic firms and multinationals armed
ith improved technology, managerial ability, s"illed or"ers, mar"eting s"ills, better product
!uality, and ide range of products. The small firms find it difficult to maintain their e$istence as
the cases of merger and ac!uisition are continuously increasing.
P00' T5/%40#0-3 B$s5
There e$ists considerable heterogeneity among the MSMEs in India. - small percentage of firms
operate ith sophisticated technology base hereas ma1ority of firms use outdated technology.
They suffer from lo productivity and poor product !uality. 3ue to their small si#e, they cannot
en1oy large%scale production economies.
L$/E 0? &4?'$s='*/=*'5
Infrastructural lac"ing includes inade!uate poer supply, transportation, ater supply etc. Small
firms cannot bear the cost of setting up independent poer supply unit. They have to depend on
irregular poer supply from the electricity boards. Inade!uate transportation system increases cost
of production. The MSMEs producing beverages, tobacco products, medicines etc face the
problem of inade!uate ater supply. -s per the study conducted by Geshab 3as and Sebastian
Morris (),,1), out of 1,4* surveyed firms, (14 firms (more than si$ty%seven percent) confessed
that they have serious infrastructural problems.
L$/E 0? SE&##59 C0'E5's
Though India has no shortage of human resource, most of them are uns"illed or"ers. Earge firms
pay higher remuneration and employ s"illed or"ers. The MSMEs have to operate ith uns"illed
or semi%s"illed or"ers. Thus, the MSMEs suffer from lo managerial capabilities.
M$'E5=&4- $49 D&s='&+*=&04 P'0+#5.s
Mar"eting is probably the most neglected and less e$plored problem for Micro and Small firms.
Most of them do not have any ell formulated mar"eting strategy, mar"et research programmes,
innovative advertisement techni!ues etc. Most of the MSMEs do not have ade!uate monetary
support to develop mar"eting section and many are not aare of modern lo%cost mar"eting
techni!ues (blogging, sending mails, developing ebsite for the company).
D5#$359 >$3.54=s
The small firms find it difficult to recover their dues from the large firms and even from .ovt.
departments due to comple$ payment procedure and corruption. 3ue to lac" of funds, they cannot
employ credit collection machineries (li"e factoring services). The large firms force them to offer
long credit period and even pay advance to ensure timely supply of materials.
G'$9*$# C&=%9'$C$# 0? R5s5':$=&04 P0#&/3
/eservation 8olicy, introduced in 1&4( emphasi#ed that some products ould be earmar"ed for
e$clusive production by the small enterprises and 6on%MSME units can underta"e manufacture of
reserved items only if they underta"e <, percent e$port obligations. Cithdraal of reservation
&
policy alloed M6;s and large domestic firms to produce reserved items ithout any restrictions
and increased the degree of competition for the small firms. 0oever, Several E$pert ;ommittees
li"e -bid 0ussain (1&&<), Shri T.S. Hi1ayaraghavan (1&&(), ;onfederation of Indian Industries
(;II) (1&&() etc concluded that reservation policy is no longer helpful for MSMEs as MSME units
ith no reservation facility have performed better than those units ith reservation support.
Moreover many MSMEs do not produce the reserved items and many MSME Entrepreneurs do
not consider it a relevant policy.
M&49s5= P'0+#5.s
The mindset of the many MSME entrepreneurs has not yet changed. They still e$pect protection
policies and preferential treatment for the MSMEs. 5ortunately, this tendency is lo in the ne
generation entrepreneurs. Cor"shops, success story based approach may help reduce this tendency
even more.
O*=?#0C 0? C5$#=%
.lobali#ation process seems to favour the developed countries and the multinationals more than
that of developing countries and the MSMEs. The M6;s use domestic ealth, infrastructure, and
local uns"illed or"ers at a loer cost and repatriate huge profits to their on countries.
M0'5 >'045 =0 -#0+$# ?#*/=*$=&04s
- ell liberali#ed economy reacts more sharply ith the changes in global mar"et. The demand
and supply ould be determined by global fluctuations and not by the needs of the consumers.
S0/&$# C5#?$'5 $'5$s 45-#5/=59
The M6;s are more illing to produce consumer goods to ma$imi#e their profit. The !ualitative
services li"e health, education etc hich re!uire huge investment but generate less and time ta"ing
return on investment, ould be neglected.
P5'?0'.$4/5 A4$#3s&s 0? M&/'0, S.$## $49 M59&*. E4=5'>'&s5s (MSMEs) &4 P'5 $49 P0s=-
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S0*'/5" A44*$# R5>0'= 1010-11 G0:=( 0? I49&$, M&4&s='3 0? M&/'0, S.$## $49 M59&*.
E4=5'>'&s5s
N0=5" 1) D$=$ *> =0 100<-0 &s 04#3 ?0' SSI s5/=0'( S*+s5A*54= =0 100<-0, 9$=$ '5#$=59 =0
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)) ED>0'= 9$=$ ?0' 1002-06 $49 06-10 $'5 40= $:$&#$+#5
*) F P'0)5/=59 GS0*'/5" S@D D&:&s&04 H O??&/5 0? =%5 DC (MSME)I
+) S&4/5 1001-01, P'09*/=&04 ?&-*'5s $'5 $= 1001-01 >'&/5s(
<) AAGR '5?5's =0 A44*$# A:5'$-5 G'0C=% R$=5
8eriod from 1&(*%(+ to 1&'&%&, is considered pre globali#ation period and from 1&&,%&1 to ),,&%
1, post globali#ation period. -nnual -verage .roth /ate (--./) has been considered a ma1or
statistical measure to compare performance of MSMEs during 8re and 8ost Eiberali#ation period.
--./ in respect of 6o of units of MSMEs, 8roduction and E$port is loer in 8ost Eiberali#ation
period compared to 8re .lobali#ation period. In case of Employment, 8ost Eiberali#ation --./
is mildly high than that of 8re .lobali#ation --./. 5all in groth rate in number of units of SSIs
in post reforms period may be due to disappearance of 9protection see"ers:. Though the groth
rate of in case of employment is mildly high in post reforms period, the groth rate is not
satisfactory. This may be due to adoption of capital%intensive technology by the small firms to
some e$tent during the post globali#ation period. Thus, the performance of MSMEs in
.lobali#ation period has not been satisfactory.
( CONCLUSION
The MSMEs in India face a tough situation due to e$treme competition from large industries due
to ithdraal of subsidy, lac" of infrastructure, anti dumping policy, challenges on product
standardi#ation, total !uality management etc. Though .lobali#ation has increased
competitiveness in Indian MSMEs to certain e$tent, still Indian MSMEs are not ade!uately
prepared to compete ith the global players. There has been a definite change in attitude of the
.ovt. from protection to promotion of the MSMEs. The .ovt. has ta"en several policy initiatives
but needs to ensure proper co%ordination and implementation of such schemes. The MSMEs must
convert the threats of globali#ation into opportunities through increased productivity, product
diversification, supply chain management, /esearch and 3evelopment activities.
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