MICROCAPITAL STORY: The Confederation of Indian Industry Reviews a Survey of MSMEs

The Confederation of Indian Industry (CII) published a 2008 Business Outlook Survey on the micro, small, and medium enterprises (MSMEs) sector in India. Providing a general overview of MSMEs, the survey also prioritized key policy initiatives and discussed future scenarios for the sector. Furthermore, the CII National SME Forum changed its 2007-2008 theme to “Building MSMEs, Building India”.

To reposition the Indian Small Industry in the changing global scenario, respondents felt the top three key issues were the simplification of labor laws, the promotion of innovations, and regulatory changes. However, the three most important financial obstacles to the growth of the Small Industry are high interest rates, collateral requirements of financial institutions, and bank paperwork or bureaucracy.

Regarding financing, 43 percent respondents of the Small and Medium Industry foresee non-traditional sources replacing the traditional banking sources. Moreover, 10 percent of respondents use the capital markets as an alternative source of financing; 8 percent use venture capital financing; while 12 percent use credit guarantee schemes. The Credit Guarantee Fund by the Small Industries Development Bank of India guarantees loans for up to Rs 5 million (roughly USD 123,563). In addition, 52 percent of those surveyed viewed the guarantee as a substitute for collateral security, while 82 percent felt that the limit of RS 5 million was not sufficient.

The survey also showed that 32 percent of respondent companies are rated by an external credit rating agency. This generally led to improved loan conditions. Out of the 32 percent, 4 percent received lower collateral requirements, 7 percent availed simplified lending norms, and 11 percent gained reduced interest rates.

Another policy addressed was the Procurement Preference Policy for MSMEs. This policy assist in the procurement of goods and services produced and offered by micro and small enterprises by the Central Government, its aided institutions, and Public sector Undertakings. 81 percent of respondents supported making the policy mandatory. Earlier the policy was non-statutory and thus not enforceable by law.

The CII is a non-government, not-for-profit, industry led and managed organization. This business association was founded over 112 years ago and has a direct membership of over 7000 organizations, including SMEs and multinational companies. Its goal is “to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes.”

by Jennifer Lee

Additional Resources:

Machinist.in: “CII Business Outlook Survey for micro, small & medium Enterprises”, by Viswanath, April 25, 2008.

CII: Home, MSMEs

Government of India: Procurement Policy

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