Introduction:  Hiccups in funds flow position has been one of the major perpetual operational problems, small and medium enterprises have been facing. An enterprise may have a hunky-dory situation with substantial amounts as ‘amount receivable’ on paper, but it finds its coffers empty to honor its meager commitments such as making payment of wages to its workers etc., which

cannot be differed, for which it has to beg, borrow or steal.

Government of India has understood this major bottleneck in running small and medium enterprises and addressed the issue among others, by enactment of MSMED Act 2006, which came in to force with effect from 2nd.Oct 2006.

In the Act, small and medium enterprises have been defined and a new concept of micro enterprise has been introduced. I have taken pains to interact with a few entrepreneurs in Bhopal, tried to understand their problems in running enterprises. In the following article an attempt is made to collate some information on the role of micro, small and medium enterprises in the economy of the country and other issues cognate to the theme.

Regulatory main provision of the Act: Under the provisions of the Act, ‘Micro and Small Enterprise Facilitation Councils’ would be set up at state level. The main objective of the Facilitation Council is to help the micro, small and medium enterprises to get their dues from buyers with reduced credit period.
According to Mr. Saurabh Sharma, Managing Partner of M/s Shree Kushal Fabricators, Shed No.8, Govindpura, Industrial Area, Bhopal (whom I have met on
19th.Jan 2008 in his office), under the Act, micro enterprises are expected to get payment from buyers within 30 days from the date of supply of goods/products/services.

In the case of small and medium enterprises, the payment liability period is 45 days. The regulatory mechanism envisaged in the Act is that buyers in their Annual Reports must declare outstanding amounts due to be paid to micro and small enterprises.

Further, it is made mandatory for them to deposit 75% of the decreed amount by the Facilitation Councils before the Appellate Court. Definition of Micro, Small and Medium Enterprise in terms of capital investment is furnished hereunder:

Designation of enterprise       Manufacturing sector    Remarks

Micro Enterprise: Not to Exceed Rs. 25 Lakh.
The criteria in respect service sector are not known.

Source of information is the Website of Bank of India dealing with SME policy.

Small Enterprise:  More than Rs.25 lakh, but does not exceed Rs. 5 Crore.
Medium Enterprise:  More than Rs.5 Crore Rupees but does not exceed Rs. 10 Crore.

Incentives from the government:  There are practically no incentives given by the government to micro, small and medium enterprises. Central Power Research Institute (CPRI) still considers 20% rebate in testing tariff for small scale industries.  For establishment of any industry relating to Accelerated Power Development Reform Programme (APDRP), Government of India used to provide 50% assistance- 25% grant and 25% loan. This incentive had been discontinued since Nov2005.
 
Mr. Saurabh Sharma informs me during informal discussions with him that District Industries Commission reimburses up to 75% of the expenditure incurred in ISO 9000 certification.
Incentives or concessions extended to micro, small and medium scale enterprises are getting dwindled year after year. On the other hand, the industrialists have some genuine grievance for redressing. Street lights in the industrial estate are not glowing. No body bothers to maintain them. There is shortage of water for some industries etc. These issues may be peripheral issues, but are important for creating right Industrial working environment.

Magnitude of operations: The part played by MSME in the economic building activities of our country is of gargantuan scale. According to the report of SME policy of Bank of India put in the website, the contribution of MSME to the GDP in monitory terms is of the order of over Rs 70,000 crore, contributing to exports to a tune of Rs Rs.14, 200 crore and generating employment opportunities to 2.83 crore people.

Strengths: When an enterprise grows to certain size, it loses its organizational effectiveness and it develops bureaucratic style of functioning. On the other hand, Micro, Small and Medium Enterprises (MSME) are agile because of their slender size, close supervision and control and hence they can adapt to changes to market conditions with ease. Their overheads are lesser than that of large enterprises.  They are playing supportive role to large enterprises. Large enterprises like BHEL etc are outsourcing non-core products and services to ancillary units for achieving cost effectiveness.
 There was industrial sickness during late eighties and early nineties and the dismal industrial situation no more exists now. MSME by and large are robust now and it is prospering in tune with the prosperity of the country. It is
heartening to note that the current levels of GDP of the country are close to 9%.  Economic pundits now predict that anticipated global recession may affect the Indian industry to some extent.

Competition:  With the ever increasing integration of Indian economy with global economy, the industrial scenario is fast changing. For instance, Zhengzhou Xianghe Group Electric Equipment Manufacturing Company - a state owned company of China has joined hands with GK Electricals , Bhopal for a joint venture ( an enterprise coming under Medium Scale Enterprise) , for manufacturing Silicon Rubber based High Voltage Insulators to cater to the requirement of the class 765 kV,400kV, HVDC up to 500kV, 230/220kV etc.  With the advent of modern insulators, the traditional ceramic based insulators may soon become obsolete. Integration of markets would bring new players in to the market, new products and unparalleled competition.

With the emerging free economic environment interfacing with global economies with deeper penetration, the existing industrial environment is bound to change further, for better. Higher degree of obsolesce of products may take place due to technological innovations, shrinkage of product cycles due to development of new technologies and higher degree of competition. This calls for  up gradation of in skill profiles, T&D incessantly, for  to be abreast with state – of – the – art technologies, creating compelling conditions for adopting  cost effective operations, for to remain as a player to reckon  with,  in the market.