MSME Policy Statement

Date : 6th August, 1991

A. SMALL AND TINY ENTERPRISES

1.0 INTRODUCTION

1.1 The Small Scale Industrial Sector has emerged as a dynamic and vibrant sector of the economy during the eighties. At the end of the Seventh Plan period, it accounted for nearly 35 percent of the gross value of output in the manufacturing sector and over 40 percent of the total exports from the country. It also provided employment opportunities to around 12 million people.

1.2 The primary objective of the Small Scale Industrial Policy during the nineties would be to impart more vitality and growth-impetus to the sector to enable it to contribute its mite fully to the economy, particularly in terms of growth of output, employment and exports. The sector has been substantially delicensed. Further efforts would be made to deregulate and debureaucratise the sector with a view to remove all fetters on its growth potential, reposing greater faith in small and young entrepreneurs.

1.3 All statutes, regulations and procedures would be reviewed and modified, wherever necessary, to ensure that their operations do not militate against the interests of the small and village enterprises.

2.0 TINY ENTERPRISES

2.1 Government have already announced increase in the investment limits in plant and machinery of small scale industries, ancillary units and export – oriented units to Rs 6 million, Rs 7.5 million, and Rs 200 thousand respectively. Such limits in respect of "TINY" ENTERPRISES would now be increased from the present Rs 200 thousand to Rs. 500 thousand, irrespective of location of the unit. Limit in plant and machinery for determining the status of MSME/Ancillary units as on date is Rs 10 million. For tiny it is Rs 2.5 million and for SSSBE Rs 500 thousand.

2.2 Service sub-sector is a fast growing area and there is need to provide support to it in view of its recognised potential for generating employment. Hence all Industry-related service and business enterprises, recognised as small scale industries and their investment ceilings would correspond to those of Tiny enterprises.

2.3 A separate package for the promotion of Tiny Enterprises is now being introduced. This constitutes the main thrust of Government’s new policy.

2.4 While the small scale sector (other than ‘Tiny Enterprises’) would be mainly entitled to one-time benefits (like preference in land allocation/power connection, access to facilities for skill/technology upgradation), the ‘Tiny’ enterprises would also be eligible for additional support on a continuing basis, including easier access to institutional finance, priority in the Government Purchase Programme and relaxation from certain provisions of labour laws.

2.5 It has also been decided to widen the scope of the National Equity Fund Scheme to cover projects upto Rs. 1 million for equity support (upto 15 per cent). Single Window Loan Scheme has also been enlarged to cover projects upto Rs 2 million with working capital margin upto Rs 1 million. Composite loans under Single Window Scheme, now available only through State Financial Corporations (SFCs) and twin function State Small Industries Development Corporation (MSMEDCs), would also be channelised through commercial banks. This would facilitate access to a larger number of entrepreneurs.

3.0 FINANCIAL SUPPORT MEASURES

3.1 Inadequate access to credit – both short term and long term – remains a perennial problem facing the small scale sector. Emphasis would henceforth shift from subsidised/cheap credit, except for specified target groups, and efforts would be made to ensure both adequate flow of credit on a normative basis, and the quality of its delivery, for viable operations of this sector. A special monitoring agency would be set up to oversee that the genuine credit needs of the small scale sector are fully met.

3.2 To provide access to the capital market and to encourage modernisation and technological upgradation, it has been decided to allow equity participation by other industrial undertakings in the MSME, not exceeding 24 per cent of the total shareholding. This would also provide a powerful boost to ancillarisation & sub-contracting, leading to expansion of employment opportunities.

3.3 Regulatory provisions relating to the management of private limited companies are being liberalised. A Limited Partnership Act will be introduced to enhance the supply of risk capital to the small scale sector. Such an Act would limit the financial liability of the new and non-active partners/entrepreneurs to the capital invested.

3.4 A beginning has been made towards solving the problem of delayed payments to small industries by setting up of ‘factoring’ services through Small Industries Development Bank of India (SIDBI). Network of such services would be set up throughout the country and operated through commercial banks. A suitable legislation will be introduced to ensure prompt payment of Small Industries’ bills.

4.0 INFRASTRUCTURAL FACILITIES

4.1 To facilitate location of industries in rural/backward areas and to promote stronger linkages between agriculture and industry, a new Scheme of Integrated Infrastructural Development (including Technological Back-up Services) for Small Scale Industries would be implemented with the active participation of State Governments and financial institutions. A beginning in this direction will be made this year itself.

4.2 A Technology Development Cell (TDC) would be set up in the Small Industries Development Organisation (SIDO) which would provide technology inputs to improve productivity and competitiveness of the products of the small scale sector. The TDC would coordinate the activities of the Tool Rooms, Process-cum-Product Development Centres (PPDCs), existing as well as to be established under SIDO, and would also interact with the other industrial research and development organisations to achieve its objectives.

4.3 Adequacy and equitable distribution of indigenous and imported raw materials would be ensured to the small scale sector, particularly the tiny sub-sector. Policies would be so designed that they do not militate against entry of new units. Based on the capacity needs, Tiny/Small Scale units would be given priority in allocation of indigenous raw materials.

4.4 A proper and adequate arrangement for delivery of total package of incentives and services at the District level will be evolved and implemented.

5.0 MARKETING AND EXPORTS

5.1 In spite of the vast domestic market, marketing remains a problem area for small and tiny enterprises. Mass consumption labour intensive products are predominently being marketed by the organised sector. The tiny/small scale sector will be enabled to have a significant share of such markets. In addition to the existing support mechanism, market promotion would be undertaken through cooperative/public sector institutions, other specialised/professional marketing agencies and consortia approach, backed up by such incentives, as considered necessary.

5.2 National Small Industries Corporation (NSIC) would concentrate on marketing of mass consumption items under common brand name and organic links between NSIC and MSMEDCs would be established.

5.3 Government recognises the need to widen and deepen complementarily in production programmes of large/medium and small industrial sectors. Parts, components, sub-assemblies, etc. required by large public/private sector undertakings would be encouraged for production in a techno-economically viable manner through small scale ancillary units. Industry associations would be encouraged to establish sub-contracting exchanges, in addition to strengthening the existing ones under the SIDO. Emphasis would also be laid on promotion of a viable and competitive ‘component’ market.

5.4 Though the Small Scale Sector is making significant contribution to total exports, both direct and indirect, a large potential remains untapped. The SIDO has been recognised as the nodal agency to support the small scale industries in export promotion. An Export Development Centre would be set up in SIDO to serve the small scale industries through its network of field offices to further augment export activities of this sector.

6.0 MODERNISATION, TECHNOLOGICAL AND QUALITY UPGRADATION

6.1 A greater degree of awareness to produce goods and services conforming to national and international standards would be created among the small scale sector.

6.2 Industry Associations would be encouraged and supported to establish quality counselling and common testing facilities. Technology Information Centres to provide updated knowledge on technology and markets would be established.

6.3 Where non-conformity with quality and standards involves risk to human life and public health, compulsory quality control would be enforced.

6.4 A reoriented programme of modernisation and technological upgradation aimed at improving productivity, efficiency and cost effectiveness in the small scale sector would be pursued. Specific industries in large concentrations/clusters would be identified for studies in conjunction with SIDBI and other banks. Such studies will establish commercial viability of modernisation prescriptions, and financial support would be provided for modernisation of these industries on a priority basis.

6.5 Indian Institutes of Technology (IITs) and selected Regional/other Engineering Colleges will serve as Technological Information, Design and Development Centres in their respective command areas.

7.0 PROMOTION OF ENTREPRENEURSHIP

7.1 Government will continue to support first generation entrepreneurs through training and will support their efforts. Large number of EDP trainers and motivators will be trained to significantly expand the Entrepreneurship Development Programmes (EDP). Industry Associations would also be encouraged to participate in this venture effectively.

7.2 EDP would be built into the curricula of vocational and other degree level courses.

7.3 Women entrepreneurs will receive support through special training programme. Definition of "Women Enterprises" would be simplified. The present stipulation regarding employment of majority of women workers would be dispensed with and units in which women entrepreneurs have a majority shareholding and management control, would be defined as "Women Enterprises".

8.0 SIMPLIFICATION OF RULES AND PROCEDURES

8.1 The persistent complaint of small scale units of being subjected to a large number of Acts and Laws, being required to maintain a number of registers and submit returns, and face an army of inspectors, would be attended to within a specified time frame of three months.

8.2 Procedures would be simplified, bureaucratic controls effectively reduced, unnecessary interference eliminated and paper work cut down to the minimum to enable the entrepreneurs to concentrate on production and marketing functions.

B. VILLAGE INDUSTRIES

9.0 HANDLOOM SECTOR

9.1 Handloom sector contributes about 30 per cent of the total textile production in the country. It is the policy of Government to promote handlooms to sustain employment in rural areas and to improve the quality of life for handloom weavers.

9.2 Schemes for the handloom sector will be redesigned keeping in mind the local and regional needs. Constraints of coverage will be removed so as to include bulk of the weavers who are outside the corporate/cooperative fold.

9.3 Existing schemes will be re-drawn and suitably revised under three major heads:

(a) Project Package Scheme: Under this scheme, area-based projects for product development, upgradation of technology, improvement of marketing facilities will be drawn up.

(b) Welfare Package Scheme: Number of welfare schemes and quantum of funds earmarked for them will be substantially augmented.

(c) Organisation Development Package: Schemes for participation in the share capital will be re-drawn under organisational development scheme for imparting a better management system in the existing state agencies.

9.4 Janta cloth scheme which sustains weavers often on a minimum level of livelihood will be phased out by the terminal year of the VIII Plan ad replaced by the omnibus project package scheme under which substantial funds will be provided for modernisation of looms, training, provision of better designs, provision of better dyes and chemicals and marketing assistance.

9.5 A vastly expanded role for the National Handloom Development Corporation (NHDC) is envisaged. NHDC would be the nodal agency for increasing the supply of hank yarn and of dyes and chemicals. Spinning capacity in the co-operative sector will be increased. National Co-operative Development Corporation will provide more assistance for this in the form of Seed Money, both for cotton growers spinning mills and weavers spinning mills.

9.6 For improving marketing of handloom products, a more intensive implementation of schemes for design and product improvement by national level publicity, exhibitions, and design exercise will be undertaken. A special scheme will be drawn up to graduate the handloom production, which is often of low value items, to high value products suitable for export markets. This will be done by better design inputs, upgradation of technology, diversion of weavers from cotton to silk and tassar weaving. Special projects for modernisation of looms for products suitable for export markets will be drawn up.

10.0 HANDICRAFTS SECTOR

10.1 The key areas in handicrafts that could contribute towards a faster pace of rural industrialisation are production and marketing. Schemes for training and design development and for production and marketing assistance will be given encouragement.

10.2 Considering the importance of this sector from the point of view of employment and exports, it is proposed to provide an integrated development thrust to this sector with a view to enlarging the production base, thus enhancing the opportunities for employment and income through crafts as an economic activity and to giving it necessary inputs for quality improvement and effective marketing support both internal and overseas. Efforts will be made not only to preserve the traditional richness of the crafts but to engage the hereditary skills of the craftspersons to suit modern requirements.

10.3 Emphasis will be given to the following:-

- Extension of services like supply of raw materials, design and technical guidance, market support, training and procuring of related materials/inputs in an integrated and area-based manner through the setting up of craft development centres in identified clusters of villages.

- Market development support in the form of a package of assistance through expansion of marketing infrastructure, exhibitions, publicity, etc., through Central and State Handicrafts Corporations, voluntary organisations and support to direct marketing activity by craftspersons.

- Expansion of training activities by greater involvement of State Handicrafts Development Corporations, Co-operatives and voluntary organisations.

- Measures to sustain an increased exports of handicrafts through new marketing channels like trading companies, departmental stores, etc.

11.0 OTHER VILLAGE INDUSTRIES

11.1 Government recognise the need to enhance the spread of rural and cottage industries towards stepping up non-farm employment opportunities.

11.2 The activities of the Khadi and Village Industries Commission and the State Khadi and Village Industries Boards will be expanded and the organisations strengthened to discharge their responsibilities more effectively.

11.3 There will be greater emphasis on improving the quality and marketability of the products pari passu with consumer preferences instead of merely depending on rebates and subsidies.

11.4 While the plan allocation for rural industries will be augmented, effective steps will also be taken to ensure better flow of credit from the financial institutions and a more coordinated and optimal utilisation of different development schemes and agencies operating in the rural sector. Bankability of projects undertaken in this sector would be stressed.

11.5 The programmes of intensive development of KVI through area approach with tie-up with DRDA, TRYSEM and ongoing developmental programmes relating to weaker sections like Scheduled Castes, Scheduled Tribes and Women would be extended throughout the country.

11.6 The traditional village industries would be given greater thrust. Involvement of traditional and reputed voluntary organisations will be encouraged.

11.7 Agro processing and food processing industries in KVI sector using appropriate technologies would be promoted with a view to utilise locally available agricultural produce and promote employment/resource generation in the countryside.

11.8 Functional industrial estates would be established in areas with concentration of agricultural/horticultural produce.

11.9 R & D in KVI sector would be strengthened through greater linkages with CSIR and other research institutions in the areas of production, finishing/packaging, processes and development of new tools and implements.

11.10 The training programmes would be upgraded and augmented to cover the expanded list of industries under the purview of the KVIC.