India’s trade deficit stood at USD 160 billon or 6% of the country’s GDP in 2019-20, although it fell marginally from USD 184 billion in the previous year. Major cause of this trade deficit is India’s huge import of crude oil, gold & other precious metals and electronic goods. It is not possible to eliminate this trade deficit in the near future. However, we can reduce this deficit by promoting indigenous production of those items where India is dependent on imports. India may not become self-sufficient in production of electronic goods and heavy engineering goods overnight as manufacturing these goods require huge capital investment and technology transfer from foreign countries. But there are some goods which are less technology intensive and local manufacturing of which can be promoted by supporting micro, small and medium enterprises (MSMEs). These goods fall under the broad category of glass, rubber and plastic products, paints and inks.
In case of glass and glassware, India’s import stood at USD 1.33 billion, higher than export of USD 856 billion in 2019-20. China was the major supplier of these products as it accounted for 53% of our total imports in this category.
In the category of paints, printing ink and related products, India’s import was USD 2.24 billion, higher than its export of USD 1.02 billion. China accounted for 24% of our imports, while other major sources of imports were South Korea, Germany and USA.
Another major category where India is dependent on import is rubber products. India’s import of rubber products stood at USD 2.21 billion, while its export was USD 1.43 billion. South Korea was the major source, accounting for 13% of our total imports, while Japan, China, Singapore were other leading suppliers.
India needs targeted policy intervention to support local MSMEs to manufacture these products. Government can support MSMEs through capital subsidy, concessional financing, cluster financing and other ways.
India can also focus on reducing import reliance in plastic sheets and film products. While India’s import in this category stood at USD 1.94 billion, its export stood at 1.42 billion. Around 41% of India’s import came from China, while USA, South Korea, Hong Kong were other major suppliers of these products.
Although India has a trade surplus in leather products, it is not self-sufficient in footwear made of rubber or canvas. In this category, India’s imports stood at USD 332 million, while its export was USD 283 million. China was the major supplier of these goods, as it accounted for 59% of our total imports, while other major suppliers were Vietnam, Hong Kong and Thailand.
In the engineering sector, India can reduce its import reliance in hand tools and machine tools, where the country’s total imports stood at USD 1.05 billion, while export was USD 752 billion. China accounted for 29% of our overall imports, while other leading suppliers were South Korea, Japan and Germany.
Government of India should handhold local MSMEs in indigenous manufacturing of these products by supporting them in technology, capital and skill development. The technology tool rooms or technology centres of the Ministry of MSME and the MSME DI can play a major role in enhancing the capacity of local MSMEs to produce these goods.
The district industries centre (DIC) of the state government should also coordinate with the Ministry of MSME in this effort to form clusters for manufacturing these products.
A coordinated effort of all stakeholders can lead to grassroot innovations in these sectors and this can form the initial step towards our goal of Aatma Nirbhar India.
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Showing posts with label MSMEs. Show all posts
Showing posts with label MSMEs. Show all posts
Tuesday, 21 July 2020
MSMEs can play a major role in attaining self-sufficiency in select sectors
Thursday, 16 July 2020
RIL procures Rs. 15,371 crore goods and services from local MSMEs
Reliance Industries Ltd (RIL), the most valued company in India and one of the 50 most valued companies in the world, in terms of market capitalization held its 43rd Annual General Meeting (AGM) on July 15, 2020.
As usual, the event witnessed several ambitious announcements, including a plan to introduce low cost smartphone, mixed reality Jio Glass, developing products and solutions for 5G technology, digital healthcare platforms etc.
This newsletter examines the company’s export performance and its recent initiatives to support micro, small and medium enterprises (MSMEs) during 2019-20, based on the information provided in its annual report.
With a total shipment of Rs. 2.02 lakh crore or USD 26.8 billion, RIL accounts for more than 9% of India’s merchandise exports during 2019-20. The company exports refined petroleum products, polymers and polyesters, besides other products to around 109 countries globally. As of July 2020, RIL has engaged with more than 100 banks and financial institutions, besides 14 Export Credit Agencies (ECAs) globally – the highest number for any corporate entity in the world.
Before the COVID outbreak, exports accounted for 20% of the total business; However, after the outbreak of this crisis, the company rapidly increased the share of exports to 80% of overall business because of slowdown in domestic demand.
Supporting MSMEs
RIL has developed a robust vendor ecosystem for procuring goods and services, required for its business operations. The company procures goods and services worth more than Rs 15,371 crore from indigenous suppliers, which includes engineering companies, raw material and industrial goods suppliers. RIL has contributed to India’s chemical and engineering supplier base as a result of its continuous investments in mega projects and operations.
According to its Annual Report for 2019-20, the Group supports and encourages its suppliers to indigenise and to expand their capabilities and increase their economic value. The Report mentions that RIL supports its suppliers to update their entity status with MSME registration / UAN details in order to ensure compliance with the MSMED Act.
RIL adopts a rigorous screening process for registration and assessment of all suppliers. The company promotes adoption of sustainable business practices among its supplier base by developing Supplier Code of Conduct, which emphasizes on labour and human rights, health and safety, environmental protection, ethical conduct, business integrity, among other values.
More importantly, RIL has taken various steps in recent times towards digital transformation of MSMEs. Specifically, RIL’s Jio Platforms works with Facebook Inc to digitally enable and empower India’s 60 million MSMEs, 120 million farmers, 30 million small merchants and millions of SMEs in the informal sector. Last year, the company partnered with Microsoft to support MSMEs adopt data analytics, Artificial Intelligence (AI), cognitive services, Blockchain, Internet of Things (IoT), and edge computing.
More information can be accessed from the Annual Report of RIL in the following weblink:
Wednesday, 15 July 2020
Government support can boost global competitiveness of MSMEs
India is a member of the G-20 group of countries, which aims at international coordination of economic policy and governance of the global economy. With 19 of the world’s largest economies and the European Union as its members, it represents over 66% of world population, 75% of global trade and 80% of world GDP.
In order to mitigate the adverse impact of the COVID-19 crisis, these countries have announced stimulus measures equaling over USD 11 trillion. These measures have varied from country to country; however, these broadly include supporting sectors that have been directly impacted by the pandemic such as airlines and hospitality, providing fiscal incentives to sectors such as automobile, real estate etc. that have the potential of generating jobs, social security measures such as putting money in the accounts of the people who have lost their jobs or of the elderly, providing food to the underprivileged and migrant workers and addressing supply-side issues such as providing loan moratorium, equity infusion and government guarantee on loan repayments.
The Indian government has also taken steps to address economic challenges by adopting some of these measures, as also the RBI has infused liquidity into the system by lowering key interest rates. However, we need demand-side measures for speedy recovery from the aftermath of the crisis such as rationalisation of tax rates, as also the government needs to kick start infrastructure projects, especially in the rural areas, to provide employment to the migrant labourers, which can have a multiplier effect on the growth of the rural economy.
Further, government leaders need to uphold the virtues of globalisation as it can improve the lives of the people by enhancing their standard of living. MSMEs in India contribute significantly to exports and are major livelihood providers. While protecting these enterprises against unfair competition and dumping activities is critical, it is also important to provide them access to technology and skill sets necessary to be globally competitive. Indian MSMEs have the potential to scale, albeit with handholding from regulatory organisations.
Tuesday, 14 July 2020
TIFAC White Paper calls for sectoral interventions to support MSMEs
Technology Information, Forecasting and Assessment Council (TIFAC), an autonomous body under Department of Science and Technology, Government of India, released a white paper on ‘Focused Interventions for Make in India Post COVID 19’ on July 11, 2020.
The white paper lists out policy measures to be adopted to promote self-reliance in five sectors, viz, Healthcare, Machinery, Information & Communication Technology, Agriculture, Machinery & Manufacturing and Electronics.
The white paper lays special emphasis on supporting micro, small and medium enterprises (MSMEs) by addressing their liquidity needs, easing their statutory compliance burden and supporting them with modern technologies. The paper emphasizes that MSMEs need special stimulus as they are heavily impacted but have the right potential and flexibility to transform leveraging new technologies. The paper also calls for promoting international partnerships with German companies to support Indian MSMEs.
The white paper lists out some of the interventions needed to support MSMEs across various sectors. For instance, in the pharmaceutical sector, the authors suggest supporting MSMEs on quality monitoring system (QMS) and complying with global Good Manufacturing Practices (GMP). India needs to prioritize production of 53 raw materials and Active Pharmaceutical Ingredients as part of its ‘China-plus one’ policy to fill in supply gaps, the paper notes.
There are approximately 24,000 MSME units in India’s pharmaceutical industry and they contribute 70% of production by volume and 50% by value on ex-factory basis. MSMEs contribute almost 50% to exports of pharmaceutical products, the paper points out. Listing out the key challenges faced by MSMEs in this sector, the paper mentions lack of awareness about regulatory compliance of stringent quality norms, ever changing technology in the drug making procedures, meeting international standards requirements.
The paper suggests supporting MSMEs in manufacturing high end masks using latest technologies. Specifically, the White Paper calls for establishing manufacturing infrastructure for: nano fibers, coatings of silver nitrate and titanium dioxide, biopolymer coated, etc. There is also a need for fast evaluation and validation of the product to reduce time taken to market.
In the metal sector, the White Paper makes a case for using the base of MSMEs in Pune and Chennai for plasma and laser based metal cutting technologies. According to the White Paper, Indian MSMEs can deliver metal cutting for railway bogies, bio toilets, metro coaches, pre -engineering buildings & sheds, panels and formworks for station buildings, control rooms etc.
Indian MSMEs can also contribute to formwork for tunnels and sub structures, bus and truck bodies and frames, aerospace and defence artillery, the paper notes.
In the automobile sector, the White Paper suggests collaboration between MSMEs and large enterprises in the areas of Internet of Things (IoT). MSMEs and large companies should collaborate to leverage IoT capabilities in gear, steering and braking system for automation and digitalization in vehicle and component design.
The detailed report can be accessed from:
Friday, 10 July 2020
Schemes for Supporting MSMEs
Micro, small and medium enterprises (MSMEs) account for more than 90% of all enterprises in Europe and Asia. In India, they account for 99% of all enterprises, according to a recent article published in Times of India. Most of the enterprises in India have come under the MSME category after Government of India expanded the criteria for defining these enterprises in May 2020.
The Union government revised the definition of MSMEs in order to enable more number of entities take benefit of the various schemes announced for this sector. Accordingly, manufacturing and services units with an investment up to Rs. 1 Crore and turnover upto Rs. 5 Crore are termed as micro enterprises. Units having an investment up to Rs. 10 Crore and turnover up to Rs. 50 Crore are termed as small enterprises; while those having an investment up to Rs. 50 Crore and turnover up to Rs. 250 Crore are termed as medium enterprises.
Further, exports have been excluded from the counting of turnover, therebyencouraging MSMEs to enhance their exports, without fearing to lose their benefits as MSME units. These steps are welcome as MSMEs are significant contributors to India’s employment, exports and output. The upward revision of investment and turnover criteria and exclusion of export turnover will lead to MSME growth.
However, MSMEs should be abreast with government schemes that can help them during this crisis.
Following are some National Small Industries Corporation (NSIC) schemes that can help MSMEs in this time of crisis:
RMA against Bank Guarantee Scheme
Raw Material Assistance (RMA) Scheme aims at helping MSMEs by way of financing the purchase of Raw Material (both indigenous & imported). This gives an opportunity to MSMEs to focus better on manufacturing quality products.
Benefits of the Scheme:
Financial Assistance for procurement of Raw Material upto 180 days.
MSMEs helped to avail Economies of Purchases like bulk purchase, cash discount etc.
Process of Application:
Duly filled application form is to be submitted along with the Application to the nearest Branch Office of NSIC.
Preliminary appraisal and Unit inspection is carried out by NSIC.
Sanction of Limit to the Unit.
Signing of agreement between NSIC and Unit.
Disbursement of assistance to the unit.
Terms and Conditions:
Security in the form of Bank Guarantee from Approved Banks.
Charges:
Rate of interest in respect of assistance availed on or after 01.06.2020 will range between 8.00 - 9.50% p.a..
Processing fee on new sanctions and renewals will range between 0.5 - 1.00% p.a..
Bill Discounting Scheme
The Scheme will cover discounting of bills arising out of genuine trade transactions i.e. supplies made by Micro, Small and Medium Enterprises (MSMEs) to reputed Public Limited Companies / State and Central Govt. Departments / Undertakings / Private Limited Companies (not traders), engaged in manufacturing / service activities.
Grant of Seller-wise Limits:
Bills (Bill of exchange) drawn by MSMEs against their supplies made, duly accepted by the purchaser will be discounted. Annual limits can be fixed for such units by obtaining information as per the prescribed application form.
Period of Usance of Bills to be considered for Discounting:
The maximum usance period of the bills (Bill of Exchange) shall not exceed 180 days.
Security:
- Bank guarantees issued by approved banks equivalent to the value of assistance.
- Personal guarantee of proprietor, partners of firms and Directors of the company.
Charges:
Discounting Charges (Effective from 01.06.2020) range between 7.00 - 8.50% p.a.
Processing fee on new sanctions and renewals will range between 0.5 - 1.00% p.a.
Source: https://www.nsic.co.in/Schemes
At a time when MSMEs are marred by the COVID-19 crisis, and require government support to tide over their difficulties, assistance provided by the government can go a long way in helping them mitigate the adverse impact of the crisis.
Friday, 19 June 2020
MSMEs must focus on quality and reliability
MSMEs in India are bearing the brunt of the greatest economic turmoil India has ever faced in recent history, as Covid-19 pandemic spreads itself across the length and breadth of the country. As an immediate measure to curb damages done to trade and industry, Finance Minister Nirmala Sitharaman rolled out a stimulus package, the first of which was for MSMEs, with the sole purpose of providing liquidity to restart business.
The government plans to aggressively push its Make in India programme and MSMEs could seize the opportunity in gearing up themselves to the new normal and play a major role in making India a manufacturing hub. In an interview to MVIRDC World Trade Center Mumbai, Professor Manoj Pant, Director, Indian Institute of Foreign Trade says that revival of MSMEs will only take place when economic activity revives. Meanwhile, MSMEs should stress on improving quality of products and reliability of production. This would bring about better integration into supply chains and further build domestic and international trade.
Excerpts of the interview:
Q1. Could you shed light on the extent of the impact of COVID-19 on the overall economy of India?
Well the immediate impact is severe because of the shut down of all economic activity globally. In India, the close link of production with population due to the labour surplus nature of the economy and the large informal economy involved in distribution necessitated a shutdown of not only production but all timely, world production and consumption came to a stop in all sectors barring food grains and medical supplies. Therefore, for the months of April-May, it would be safe to say that only 10-15 percent of GDP was in production.
Q2. How should MSMEs that are worst it by the pandemic get back on track and sustain themselves during these times?
The MSMEs were hit particularly hard because of their dominance in the export sector. They account for about 40 percent of exports and merchandise exports which fell by about 60 percent in April alone. Second, MSMEs are highly labour intensive and shut down of labour service sector also impacted them. It seems to me that as the economic activity picks up, revival of MSMEs will follow. To aid this, government has announced some measures specifically for MSMEs in five packages announced by Finance Minister.The first package was specifically for MSMEs with the main objective to underwrite loans which are stressed and for other MSMEs that have taken loans from banks to restart operations. There are many other options but the idea is that MSMEs need in particular small operational loans to pay for initial advances. The government has also extended this facility to service sector MSMEs. The government is also building up to meet 20 per cent of contingent liability when MSMEs obtain loans from the banks. So, a considerable part of the riskiness of loans to MSMEs is underwritten which will induce banks to advance loans. On the demand side, as the world market is now opening up, and exports for June seem to be on track, it would seem that MSMEs need to start operations once more using supply side leverage given by the government.
Q3. What is your opinion on FM Stimulus package and RBI’s initiatives to help the economy revive?
Very small unit owners were also beneficiaries of the one time grant of Rs. 5000 given for maintenance in the strict lockdown month of April. In the first package announced by FM, about Rs. 26000 crores was committed to MSME subordinate debt, for their equity fund, for a partial credit guarantee scheme (which is mentioned earlier) and for also assuming Provident Fund (PF) liability of employers for their employees. These measures reduce both risk and cost of operations to MSMEs which should see things looking up soon. In addition, there are also state level schemes announced separately.
Q4. How should businesses align themselves to the new normal?
I think while physical distancing seems to be what all businesses, large and small, will have to learn to live with for some time, I don’t see the strong service-manufacturing link changing dramatically so that the close link between big and small businesses should continue. In addition, given the unique close links between consumers and small business shown in recent lockdown, big aggregators like Amazon, Flipkart, etc. have found it useful to integrate small business owners into their vast distributional networks. I think, in the new normal, MSMEs might find that with the aggregators looking after marketing and distribution cost (which are substantial), MSMEs can concentrate on maintaining quality and reliability of production. Aggregators bring to MSMEs a much larger national and global market at no additional cost. However, quality in supply will have to be ramped up. So, the partnership can be cooperative rather than antagonistic. This will also allow MSMEs to integrate better in supply chains which govern domestic and international trade.
Q5. Exports of the country have declined considerably since the lockdown. What needs to be done to bounce back?
Even during the lockdown of March most ministries were working online to clear bottlenecks in production be they in supply movements or in port clearances. We now hear that the world market is at least back on track to hit Feb 2020 levels. Here, the pandemic might well see the world market react more positively than expected to a lifting of world-wide pandemic induced gloom. However, to move beyond long-term levels, MSMEs will have to pay greater attention to quality. In particular, MSMEs in gold and jewellery segments and in apparel will have to pay particular attention as, even before the pandemic, their exports had started to slow down.
Wednesday, 17 June 2020
Aatmanirbhar Bharat Abhiyan: Special Economic Package for MSMEs
The contribution of MSMEs to our economy is noteworthy. According to the recent Government announcements, about 6.5 crore MSME units contribute nearly 29 per cent to the GDP and 48 per cent of the nation’s exports, apart from providing jobs to nearly 11 crore people. In the last three months, the government has taken several steps to address the struggle and plight of MSMEs. This includes a stimulus package, new definition, funding mechanism and a special technology platform – CHAMPION.
New definition of MSMEs
On June 3, 2020 Government of India modified the criteria of MSMEs by implementing an upward revision in the definition and criteria of MSMEs. The new definition and criterion will come into effect from July 1, 2020. Also, a new composite formula of classification for manufacturing and service units has been notified. Now, there will be no difference between manufacturing and service sectors.
Micro Units - The definition of Micro units is increased to Rs. 1 cr. of investment and Rs. 5 cr. of turnover.
Small Units - The limit of small unit is increased to Rs. 10 cr. of investment and Rs 50 cr. of turnover.
Medium Units - It will be Rs. 50 cr. of investment and Rs. 250 cr. of turnover.
As part of the new definition, exports will not be counted in turnover for any MSMEs. This is expected to exponentially add to exports from the country leading to more growth and economic activity and jobs creation.
Stimulus package in lockdown period
Finance Minister Nirmala Sitharaman, on May 13, 2020 announced a tranche of six measures for the MSME sector. According to the Finance Minister, the first of the six measures deals with standard MSMEs.
- This includes Rs 3 lakh cr. collateral-free automatic loans for businesses, including SMEs. Borrowers with upto Rs 25 cr. outstanding and Rs 100 cr. turnover are eligible. This will enable 45 lakh MSME units to resume business activity and also safeguard jobs. Government will also provide stressed MSMEs with equity support. Government has also promised to facilitate the provision of Rs. 20,000 cr. as subordinate debt.
- For government procurement, tenders up to Rs. 200 cr. will no longer be on global tender route.
- Government is also developing an e-market linkage across the board for MSMEs.
- Post-COVID, trade fairs and exhibitions will be difficult so e-market linkage will be provided for MSMEs so that they will be able to find their market.
Two funds for MSMEs
Government has also set up two funds for MSMEs — a distress fund and a fund of funds (FoF). The distress fund, with a corpus of Rs. 20,000 cr. will offer loans of up to Rs. 75 lakh each to MSME units in distress. It can help two lakh units.
The FoF, with a corpus of Rs. 10,000 cr. will be operated through a mother fund and a few daughter funds. The fund structure will help leverage Rs. 50,000 cr. at the daughter funds level. It will provide support to MSMEs to get listed on stock exchanges.
CHAMPIONS: Technology Platform to empower MSMEs
Prime Minister Shri Narendra Modi launched a technology platform CHAMPIONS to empower MSMEs on June 1, 2020. CHAMPIONS stand for ‘Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength’. It is a real one-stop-shop solution of MSME Ministry.
This portal will support, help, encourage and solve the grievances of smaller companies, and help them grow. This ICT based system is designed to help the MSMEs withstand the current COVID-19 situation, and can potentially help them in becoming national, or international players, in the future.
Objectives
- To help MSMEs with finance, raw materials, labour, permissions, etc.
- To help MSMEs capture new opportunities including manufacturing of medical items & accessories.
- To identify the sparks, i.e., the bright MSMEs who can withstand at present and become national and international champions.
CHAMPIONS is a technology driven control room-cum-management information system. In addition to ICT tools including telephone, internet and video conference, the system is enabled by AI, Data Analytics and ML. It is also fully integrated on real time basis with the Government’s main grievances portal CPGRAMS and MSME Ministry’s other web based mechanisms.
CHAMPIONS is based on a Hub & Spoke Model. The Hub is situated in New Delhi in the Secretary of MSME’s office. The spokes are in the States in various offices and institutions of MSME Ministry. The website can be accessed at
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