An analysis of sixty years of small and medium enterprises in India.
Kumar, Pankaj
[ILLUSTRATION OMITTED]
Introduction
The Small and Medium Enterprises (SME) sector is the second largest
employment provider, largest contributor in export and substantial
contributor in GDP. This sector is classified in two types on the basis
of its nature of activity that is traditional SME and modern SME. The
traditional produces Khadhi and Village product, Handloom and Handicraft
product, Sericulture product and Coir product. While, modern SMEs
produce wide range of goods, comparatively simple to sophisticated
products such as television, electronics control system, various
engineering product, ancillaries and export oriented goods. After
independence and enactment of first industrial policy; the modern small
and medium enterprise has voyage of over sixty years. The sector is
known for its contribution in the economy especially in terms of output,
employment and export. In last sixty years government has implemented
various policies for development of this sector; despite various policy
measures the SME units are reflecting features of technologically
backwardness, financial weakness, poor infrastructure, professionally
unsound and lower competitiveness.
This sector has witnessed a significant growth since independence.
As on 1950 there were 16000 registered small scale units, which were
increased up to 36000 on 1961. According to the report of 1st all India
census of registered SSI, total number of registered SSI units were 4.1
6 lac, out of that 54.26 percent were found in working condition and
45.73 percent in sick condition. According to the report of 2nd all
India census of registered SSI, total number of SSI increased up to
15.83 lac, out of which 59.50 percent were found in working condition
and 40.49 percent in sick condition. According to the report of 3rd all
India census of registered and non-registered SSI, total number of small
scale units were increased up to 10521190; out of which 1374974 (13.07
percent) were registered and 914621 6 (86.93 percent) were unregistered
units. The total SSI sick units were 750922. And, quick estimate of 4th
census of MSMEs for reference year 2006-07 reveals that the size of
MSMEs has been increased up to 261.01 lac out of which 15.35 lac are
registered and 245.48 lac are unregistered units, the current MSME
includes micro, small, medium enterprises and Agriculture and Rural
Industries (KVIC and Coir units).
After liberalization of Indian economy as well as being an active
member of various international trade organization, agreement and
treaties we follow constrained to change our various policies and
programmes such as investment policy, de-reservation policy,
quantitative restriction policy, pricing policy, purchase policy, import
substitution policy, export policy and so forth. The changes in these
policies have been affecting our SME sector adversely. The increasing
rate of de-reservation and import substitution reflects influence of
large and multinational companies on this sector. The entry of large and
multinational companies into the production of SMEs items in one side
and import substitution is another factor have been creating competition
for traditional small-scale units; because most of the SSI has
conventional production methods, lower quality, inadequate marketing
network, inadequate capital and poor know-how. As per 4th census of
MSME, 14.47 percent of total registered units are in the sick condition
according to RBI (S.S.Kohli Committee) estimate. The report reveals that
registered MSME units are facing eight major factors of sickness. The
factors of sickness of units with weight are lack of demand (41.94
percent), shortage of working capital (20.49 percent), non availability
of raw material (5.11 percent), power shortage (5.71 percent), labour
problems (5.64 percent), marketing problems (11.48 percent), equipment
problems (3.17 percent) and management problems (6.46 percent).
Regarding the status of reserved items of SSI, prior to 1978 the SSI has
list of 180 reserved items, which was up to increased to 807 on May 1
978 again increased up to 878 items by 2002. But, unfortunately in a
span of last 10 years all reserved items has been removed (except 20
items) from the reserved list due to global economic treaty and WTO
regime.
The Objectives and Methodology
The objectives of this paper are to discuss the industrial policy
related to SME aspects since first industrial policy and comparative
analysis of the performance after 1 st census of SSIs. To achieve the
objectives of the study, secondary data have been used. The data
collected from various Annual Report of SSI and MSME, SIDBI Report on
MSME, Census of SSI, various issues of Economic Survey, RBI Annual
Report and published research. The paper comprises analysis of policy
laid down by the government between 1948 and 2007 and analysis of
performance data of SME between 1973 and 2010. The classification and
analysis of data is categorized in pre-liberalization and post
liberalization period, number of units, output at current price, fixed
investment, employment and export. The performance comparison of SME is
based on pre-liberalization and post liberalization period. The CAGR
(cumulative annual growth rate) and other basic statistical tools such
as mean value standard deviation and average percentage changes have
been used in performance analysis. The comparative analysis has been
done with help of calculated CAGR and Average Percentage Changes. The
CAGR and average percentage changes value can be obtained by using the
following formulae
CAGR(Tn,T0) = [([V.sub.Tn]/[V.sub.T0])1/[T.sup.n-T0]]-1 (i)
Average Percentage Changes =
{[SIGMA]([V.sub.Tn]-[V.sub.Tn-1])/[V.sub.Tn-1]}/N (ii)
Where, CAGR stand for Cumulative Annual Growth Rate, V stand for
value, Tn is the value of current period and [T.sub.0] is the value of
initial period, [T.sub.0]-1 is the previous value of Tn, N is number of
observations, here N =18, Tn = 1990-91, [T.sub.0] = 1973-74 and so forth
as per requirements.
Review of Literature
A number of empirical researches have been conducted on SME, but
none of study covers entire aspect of SME such as analysis of industrial
policies, policy amendment, performance and sickness analysis from 1948
to 2007. The study and survey that is relevant for this paper is
reviewed below--
Small Industries Development Organisation 1st Census of SSI (1973),
the result of survey reflect that the population of registered SSI units
was 4.16 lakh, out of which 54.27 percent were working and 45.73 percent
were found in sick condition. The reasons of sickness were poor
financial position, lack of raw I material, lack of technology and lack
of skilled labor. Some minor reasons were lack of proper marketing, poor
demand of finished product, inefficient management and morethan one
reason. Majumdar and Nag (1975), the study reflect three things, the
life span of units, labour based characteristics and I factors of
mortality. On the basis of life span of SSI units, he revealed that 25
percent units were dead without completion of 2 years, 40 percent SSI
was fully dead just after completion of 2 years, 20 percent dead in 3rd
year and 15 percent dead which have life span of more than 3 years. The
infant SSI (85 percent) has highest in mortality rate. Only 15 percent
units were survived for medium and long term. On the basis of
characteristics of dead unit, 60 percent of dead units have only 5
workers and 10 percent have 9 workers. Major factors of mortality was,
under utilization of capacity, lack of finance, lack of demand of
finished goods, inadequate marketing network and lack of timely raw
material supply.
Small Industries Development Organisation 2nd Census of SSI (1991),
the result of survey report reflects that the population of registered
SSI units was 15.83 lakh, out of which 59.51 percent were working and
40.49 percent SSI units were found in sick condition. The reasons of
sickness were financial problems for 34.7 percent units, marketing
problems 14.4 percent, raw material problems 5.6 percent, disputes among
owners 3.7 percent, natural calamity 3.4 percent, labour problem 2.2
percent, more than one reason 16.5 percent and other reason 19.4
percent. Small Industries Development Organisation 3rd Census of SSI
(2004), according to the report the population of SSI was 10521190 out
of which 1374974 (13.07 percent) are registered and 9146216 (86.93
percent) are unregistered. The status of sick units are 750922 or 7.14
percent SSI were found in sick condition out of which 158023 sick in
registered SSI and 592899 sick in unregistered unit. The cause of
sickness was due to lack of demand for 46 percent units, shortage of
working capital 46 percent, non availability of raw material 12 percent,
power shortage 13 percent, labour problems 5 percent, marketing problem
36 percent, equipment problem 11 percent and management problem 4
percent. Bala Subramanya (2004), in his study it is concluded that small
scale industries in India has found itself in an intensely competitive
environment since 1991. As a result, its growth in terms of number of
units, output, export and employment has come down. He suggests that the
sector need financial, R&D and market support to survive in the
competition through adequate policy.
Rakesh Mohan (2005), in his study there are critical appraisal of
SSI policy regarding the investment ceiling and development phases of
SSI, fiscal incentives to SSI, credit support to priority sector units,
product promotion program, reservation policy of SSI, employment growth
in small scale sector, performance of reserved items in production,
impact of SSI reservation on employment and export and abolition of SSI
reservation has been described. Anand and Murugaiah (2006), reported
that employment intensity, low factor cost and equity as source of fund,
will be the best factor to make SSI more competitive in post
liberalization period to meet competition with large and MNCand import
substitutions. MSME 4th Census of MSME (2007), according to the quick
report, the population of micro small and medium enterprises increased
to 260 lac units up to March 2007 with output value of Rs. 709398
crores, direct employment of 594 lac people, export value Rs. 1 82538
crores. Report reveals that the sickness volume of MSME units increased
to 218667, which is 14 percent according to RBI norms (S.S. Kohli report
of sickness). The cause of sickness was due to lack of demand for 32
percent, shortage of working capital 21 percent, non availability of raw
material 7 percent, power shortage 10 percent, labour problems 3
percent, marketing problem 20 percent, equipment problem 5 percent and
management problem 2 percent.
Policy Analysis of SMEs (1948 to 2007)
The Government of India has been taking continuous initiatives
since 1948 for development of industrial sector through formation and
implementation of various industrial policies, amendment and specific
policy for SME.
1st Industrial Policy--1948: After independence, the country was
facing large number of economic and social problems. The government had
very little fund to meet dire needs like, food, cloth, house, education,
health, rehabilitation, social security, and external problems. The
cottage and small-scale industries had played very important role in the
national economy, means for the rehabilitation of displaced persons and
provided large employment. Through this policy the SSI sector was given
a special role for creation of additional employment, facilitate
rehabilitation and generate income at lower capital investment. In the
Industrial Policy Amendment of 1950, the government of India grouped
small-scale industries into two categories, the units that were using
power with less than 50 employees and the units, which were not using
power with less than 100 employees. In both the cases, the investment in
fixed capital was less than Rs. 5 lac. The start of reservation policy
on 1951, establishment Small Industries Development Organisation (SIDO)
as an apex body on 1954 and establishment of National Small Industries
Corporation Ltd. (NSIC) on 1955 for various types of assistance to SSI.
2nd Industrial Policy--1956: In this policy, some positive steps
were taken for the development of small scale and village and cottage
industries. The government facilitated the cottage and village
industries and the small-scale enterprises with differential taxation
rate, direct subsidies and focused on the improvement of technology and
competitive strength. The Khadhi and Village Industries Commission
(KVIC) was established on 1956. In the Industrial Policy Amendment of
1960 the condition of maximum number of employee with and without use of
electricity was removed. In the amendment of 1966 the ceiling was
increased to Rs. 7.50 lac for SSI and Rs. 10 lac for SSI ancillary. And,
in the Industrial Policy Amendment of 1973 the first SSI census was
conducted by SIDO for the reference year 1972-73 to know actual status
of registered SSI.
3rd Industrial Policy--1977: The substantial steps were taken in
the Industrial Policy 1977 which is also known as the exclusive
industrial policy for small scale industries. The government
concentrated on industrial and economic development through the
encouragement of small scale industries and framed a much favorable
policy for the growth of sector, such as classification of SSI,
reservation of items under SSI production, establishment of District
Industries Centre (DIC) and Directorate of Industries on 1979. In this
policy, the small-scale units were classified into three categories
viz.:
1. The cottage and household industries, which provide
self-employment.
2. The tiny SSI was conceptualized with an investment ceiling of
Rs. 1 lac in machine.
3. The investment limit was increased to Rs. 10 lac for SSI and Rs.
15 lac for Ancillary.
Another milestone of this policy was reservation of SSI items,
which was raised from 180 items to 807 items by May 1978.
4th Industrial Policy--1980: In this policy the government
re-defined the Small Scale Units in order to boost the development and
ensured rapid growth of SSI. The investment limits of all categories of
units were increased; for tiny the limit increased from Rs.1 lakh to
Rs.2 lakhs, from Rs. 10 lakhs to Rs. 20 lakhs for small scale and from
Rs. 15 lakhs to Rs. 25 lakhs for ancillary. The government had made
arrangement for marketing support, increased reservation of items,
promoted suitable industries in rural areas, attention given on
handlooms, handicrafts, khadi and other village industries to achieve
faster rate of growth in the village. In the Industrial Policy Amendment
1985, the investment ceiling was raised from Rs. 20 lac to Rs. 35 lac
for SSI and Rs. 25 lac to Rs. 45 lac for ancillary unit.
5th Industrial Policy 1990: In this policy the government had taken
necessary measures for promotion of small scale and agro-based
industries almost similar to 1977 policy. The investment ceiling was
raised from Rs. 35 lakhs to Rs. 60 lakhs for SSI, from Rs. 45 lakhs to
Rs. 75 lakhs for ancillary and from Rs. 2 lakhs to Rs. 5 lakhs for tiny
units. But the industrial policy of 1990 was scraped after arrival of
industrial policy 1991.
6th Industrial Policy--1991: In this policy the government of India
redefined the SSI without change in investment limit which was fixed on
May 1990; some reformative action were taken like removal of licensing
in some area of SSI, removal of MRTP Act, and enhancement of credit
facility to small scale units. The 807 items reserved for SSI sector. In
this policy emphasis had given on large, core sector and infrastructure
industries only at massive level. In the Industrial Policy Amendment of
1997 the investment ceiling was raised by the government of India after
the recommendation of Abid Husain Committee. The new investment ceiling
was Rs. 300 lac for SSI and ancillary and Rs. 25 lac for the SSI tiny
unit. Again a mid term change were made on 1999, the investment ceiling
was reduced to 100 lac from 300 lac for SSI and ancillary and tiny was
remain unchanged and reclassified all SSI sector into SSI, ancillary,
tiny and Small Scale Service and Business (industry related) Enterprises
(SSSBE) and investment ceiling for SSI and Ancillary Rs. 100 lac, Tiny
Rs. 25 Lac and Small Scale Service and Business (industry related)
Enterprises Rs. 5 lac. The Micro Small and Medium Enterprises Amendment
Act 2006 (MSMED Act 2006) passed on October 2nd 2006. According to MSMED
Act 2006 whole agriculture and rural industries (KVI units and Coir
units) merged into small scale industries and newly named Micro, Small
and Medium Enterprises with enhanced ceiling of investment in plant and
machinery and equipment. The new ceiling of manufacturing micro is Rs.
25 lac, small Rs. 500 lac and medium Rs. 1000 lac; and ceiling of
services micro Rs. 10 lac, small Rs. 200 lac and medium Rs. 500 lac with
effect from 2nd October 2006.
Reservation and De-reservation Policies: The objectives of
reservation policies was to ensure increase in the production of
consumer goods in the small scale sector and expand employment
opportunities through setting up of new small scale industries. Non-SME
units (large and multinational) can undertake manufacture of reserved
items only if they undertake 50 percent export obligations. The
reservation policy was started on 1951 and de-reservation policy was
started on 1997. In between fiscal years of 1996-97 and 2010 all 864
items except 20 have been de-reserved. Removal of Quantitative
Restrictions Policy--the objectives of quantitative restriction was
facilitating safeguard to those small scale units which were engaged in
the manufacturing of items restricted for global operations and imports
in India. As a result of improved balance of payment situation of
country, the government of India was under obligation to remove
quantitative restrictions by 1st April 2001. Finally, government of
India has removed quantitative restriction before 31st March 2002.
Export Promotion Policy : exports from the small scale sector over
a period of time have acquired great significance in India's
foreign trade. The concept of export oriented unit classification by the
SME directorate and facilitation to the units in form of credit, Rand D,
marketing and logistics is one of the appreciable steps of government.
The export promotion from the small scale sector has been accorded a
high priority in the India's export promotion strategy. On 2004,
the investment ceiling was increased for export oriented units upto 5
crores.
Price Preference Policy : The objectives of price preference policy
is to facilitate marketing support to SMEs by NSIC. Under this policy
the purchase of SSI items is a Single Point Registration Scheme of NSIC,
which was launched as a market support measure for the SMEs Sector. The
government has given number of responsibilities to NSIC but result is
being below the benchmark since 1954.
The Purchase Preference Policy : The objectives of purchase
preference policy are to facilitate marketing support to SMEs, the
restriction of minimum purchase of the reserved goods by large and
medium scale units from SSI. Currently under this policy a list of 358
items is listed in reserved items of SME including 8 handicraft items of
handicraft sector.
Apart from above discussed policy and programmes of government,
there are some of the qualitative initiatives have also been taken by
the Ministry of MSME for overall growth of SME. Such schemes, support
facilities and enabled business environment to entrepreneurs are
described below--
a. Credit Guarantee Fund Scheme and Credit Linked Capital Subsidy
Scheme for Technology up-gradation and Small Industries Cluster
Development Programme.
b. The start of NMCP (National Manufacturing Competitiveness
Programme) and establishment of NMCC (National Manufacturing
Competitiveness Council) on 2006 by Ministry of MSME, Govt. of India to
support the manufacturing sector enterprises in their endeavor to become
competitive. The facilities of NMCP are--
(i) Marketing Support (ii) Support to Entrepreneurial and
Managerial Development of SME through INCUBATOR (iii) Setting of Mini
Tool Rooms and Training Centre (iv) Building Awareness on Intellectual
Property Right (v) National Programme for Application of Lean
Manufacturing (vi) Enabling Manufacturing Sector to be Competitive
through Quality Management Standard and Quality Technology Tools (vii)
Technology Up-gradation and Quality Certification Support to SME (viii)
Marketing Assistance for SME and Technology Up-gradation Activities (ix)
Design Clinic Scheme to bring design expertise to the manufacturing
sector and (x) promotion of Integrated Computer Technology in
Manufacturing Sector.
c. Rajiv Gandhi Udammi Mitra Yojna to provide handholding support
to the potential first generation entrepreneur who has completed skill
and or entrepreneurship development programme. For first generation
entrepreneur the Prime Minister Employment Guarantee (PMEG) scheme which
facilitates financial, technological and training support to new
entrepreneur.
d. The National Small Industries Corporation (NSIC) facilitates
hire-purchase of machinery, marketing, technical, financial support,
export promotion and credit rating support to SME for credit from banks.
The Regional Rural Banks (RRB) and National Bank for Agriculture and
Rural Development (NABARD) providing rural finance facilities and rural
industrialization facilities to rural entrepreneurs. SIDC (Small
Industries Development Corporation) provides financial support in form
of project finance, seed capital and infrastructure finance to SME.
SIDBI (Small Industries Development Bank of India) facilitates financial
support in form of project finance and seed capital finance to SME and
priority sector entrepreneurs. The SSI Branches of Commercial Banks
giving credit support to SSI and priority sector (micro/tiny) units.
e. Other qualitative schemes such as ISO-9000/ISO14001
certification reimbursement scheme, Industrial Motivation Campaign,
Entrepreneurship Development Programme (EDP), Skill Development
Programme (SDP), Entrepreneurship Skill Development Programme (ESDP).
Free of cost EDP, SDP and ESDP programme to STand SC and tailor made
free of cost EDP, SDP and ESDP programme to SC, ST, OBC, Minorities and
Women entrepreneurs.
f. WTO sensitization workshop to entrepreneurs in the line with the
WTO Agreement to meet global competition and import substitution.
g. Various Schemes to KVIC entrepreneur are--Financial Assistance
to Khadi Artisan (BPL category only) under Work-shed Scheme, Marketing
Development and Support Programme through Domestic and Export Market
Promotion Scheme, Product Competitiveness Scheme, Interest Subsidy
Eligibility Certification Scheme, Margin money scheme, Design
Intervention and Packaging Schemes, Khadi Karigar Janashree Vima Yojana,
Exhibition and Quality Feedback Programmes and so forth, KVIC provides.
h. Important schemes of Coir Board are--Facility for Domestic
Market Promotion and Export Market Promotion Scheme. Skill Development
under Mahila Coir Yojan to women entrepreneur through National Coir
Training and Design Centre. Financial assistance for quality improvement
of product. Group Personal Accident Insurance Scheme. And, Rejuvenation,
Modernization and Technology Up-gradation (REMOT) Scheme for micro type
coir units.
Entrepreneurship Development Model : The model of entrepreneurship
development are central to several line of research, the model of SME
and entrepreneurship may be analyzed in two broader forms; first one is
known as Case Form of Model or Process Form of Model of entrepreneurship
development and second one is known as Theoretical and Empirical model
of entrepreneurship development. The case based model or process based
model is basically historical and process study of a successful
enterprise. Under this model a unit may be of either type (tiny, small,
medium or large) but a torch bearer for new generation entrepreneur. For
example, the GE Model, the Dell Model, the Microsoft Model, the Reliance
Model, the Tata Model and so forth which was earlier a tiny or small
unit in structure now a multinational/ global firm. A new entrepreneur
may follow any of the models considering quantity of factor of
production and pricing of factor of production especially pricing of
entrepreneurship (profit). Conventional theory of entrepreneurship
development is known as Venture Creation theory, Opportunity
Exploitation theory and Profit Maximization theory. In the Case Form of
Model or Process Form of Model of entrepreneurship development, an
entrepreneur may follow one or more theory during development process of
enterprise.
The second type of model is known as theoretical and empirical
model, which is based on standard database and conceptual framework. The
theoretical and empirical model is analyzing all factors of production
but giving maximum importance on quality of entrepreneurship and pricing
of entrepreneurship (profit). The milestone model of entrepreneurship
was given by F.H. Knight (1921) and enriched by Joseph Schumpeter (1950)
which is still an ultimate model of entrepreneurship's risk,
uncertainty and innovation. Again, the model of Knight and Schumpeter is
renewed by Robert Lucas (1978), and K. Richard and J.J. Laffont (1979)
have examined about self employment and earnings growth of entrepreneur.
Similarly, David Blau (1985), William Brock and David Evans (1986), and
Hedley Rees and Anup Shah (1986) have worked on entrepreneurship
development model known as self employment selection and earning model.
A most modern model of entrepreneurship development is given by Evans
and Leighton (AER, 1989), examined empirically a sample of 4.2 million
entrepreneurs and revealed "entrepreneur think first of all about
self-employment over life cycle and followed by self employment earning
which is the locus of entrepreneur development". Further they
observed, "Only a people can develop entrepreneur who switch from
wage work to self employment tend to be people who were receiving
relatively low wages, who have changed job frequently and who
experienced relatively frequent or long spell of unemployment as wage
worker". The Ministry of MSME, Government of India is not giving
any fixed types of growth model for SME units. The normal nature and
objectives of all SME is based on cost-benefit model,
entrepreneurship's pricing (profit) model, self employment and
earnings model, employment selection and earning model, self-employment
over life cycle followed by self employment earning model, venture
creation model and opportunity exploitation model. But, from given data
of MSME Annual Report 2010-11, out of total population of MSME, 95
percent (tiny units) are following self employment and earning model and
remaining 5 percent (small and medium units) are following venture
creation and/or opportunity exploitation model of entrepreneurship
development.
Even after various policies, programmes, Schemes, entrepreneurship
development model and measure of government since 1948, the performance
of SME is neither significant nor consistent. After start of
de-reservation, complete removal of quantity restriction and emergence
of global competition the sector is facing stiff competition from large
firm global firm and import substitution. The Government of India is
aware of all these challenges and trying to improve the competitiveness
through various measures, but due to various known and unknown reasons
our SME is not performing up to the benchmark. No doubt there are
substantial contributions of this sector in our economy, which may be
the result of different policies and programmes, but the degree of
performance is not sufficient for developing country like India where
SME is the second most important sector in terms employment.
Performance Analysis of SME
The performance analysis comprises simple quantitative analysis,
CAGR Analysis and Average Percentage Analysis of performance indicator.
The indicators are numbers of units, fixed capital investment, output
value, direct employment, export value and number of sick units. The
CAGR exhibit the rate of changes between two periods, the mean value
shows the average value of observations and average percentage
(percentage) changes indicate the average of the percent value of
particular indicator for given period. A time series data of performance
parameters has been grouped in pre-liberalisation period and
post-liberalisation period is given in below in table-I and table-II.
In above are exhibiting the data from 1973-74 to 1 990-91, the
parameter of SMEs are number of SME units, fixed investment, output,
employment, export and sick units. The CAGR, mean (average) value and
average percentage changes value of investment, output and employment
are showing better performance. While, the CAGR, mean value and average
percentage changes value of direct employment, number of units and sick
units are indicating poor result. If CAGR, average and average
percentage value are in higher side the number of units, investment,
employment, output and export it is reflecting sound signals for SME
sector. In contrary if higher CAGR and average percentage changes in
case of sickness of units is treated as weakness for SME sector.
Although there are not any benchmark to estimate the better or worse
performance of this sector but when we apply the
inflationary/deflationary rate, rate of capital formation, rate of
capital inducement, comparative export volume, population growth, need
of employment and characteristics of country then it is possible to
rationalize the mark of better performance and/or worse performance in
this sector.
From above data it can be observed that the CAGR and average
percentage changes value of output and export is above 10 percent, which
indicates better position for SME sector. The CAGR and average
percentage changes value of number of units is approaching to 1 0
percent that is also good for this sector. But, CAGR and average
percentage changes value of employment and capital investment show poor
performance, although average increase in capital investment is 13.82
but in case of India as a developing economy the rate of capital
investment should be more than 35 percent. And lastly one of the
important indicator i.e. sickness condition of SME shows very-very poor
condition, the CAGR and average percentage changes value revealing 28.35
percent and 32,51 percent respectively which is very high, it shows
every 9 units out of 1 00 is either sick or incipient sick or (1.08
million registered units/0.119808 million sick units or 9.01 percent).
The reason of higher sickness may due to one or more than one factors
such as low output rate, policy bottlenecks, lack of infrastructure,
poor professionalism, outdated technologies, lack of fund, less demand
of product, increasing import substations and so forth. Similarly the
reason of lower employment rate may be due to higher sickness, low
productivity, lower investment, lower export and combination of more
than two factors. And, reason of low capital investment is due to higher
cost of production, lower profit, lower per capital income and so forth.
The table-II exhibits post-liberalisation performance of all
indicator from 1991-92 to 2009-10. The post liberalisation performance
indicator is further sub-divided into old series data of SSI for the
period 1 991 -92 to 2005-06 and new series data of MSME for the period
2006-7 to 2009-10.
The above table reveals the data in two parts that is old series
data of SSI or SSI registered and non-registered units data with
observation of 15 years (1991-92 to 2005-06) and new series data of MSME
or SSI and ARI data of 4 years (2006-07 to 2009-10). The old series data
from the period of 1991-92 to 2005-06 revealing that, the CAGR, mean
value and average percentage changes value of output, export and
sickness of SME shows better conditions. While, CAGR, mean value and
average percentage changes value of number of units, investment amount
and direct employment in this sector indicating poor performance during
this period. From above it can be observed that the CAGR and average
percentage changes value in case of output and export are in higher side
(greater than 10 percent), which indicates better position for SME
sector. The CAGR and average percentage changes value in case of
Sickness of SME units is -0.52 percent and 0.45 percent respectively,
which also shows very strong position, but at the same time average
absolute value of sickness shows very higher numbers (2.36 lac units per
annum) are strongly negative signal for this sector. The number of
units, fixed investment and employment rate is again showing weaker
position for this sector. While, the new series data for the period of
2006-07 to 2009-10 revealing that, the CAGR and average percentage
changes value of capital investment and output shows stronger position.
The average percentage CAGR and average percentage changes value of
investment and employment shows weaker position. But in case of export
contribution and sickness of unit shows average performance because in
both case the data is available for two years only. This the CAGR of
export is poor but average absolute value and average percentage changes
value is good, similarly is case of sickness, the CAGR is good but
average volume of sick units and average percentage changes value is
very weak. So, for comparison purpose of export and sick units we
consider old data series instead of new data series.
Comparative Analysis of SME Performance and Sickness: The
comparative analysis of the performance indicator of SME on the basis of
Pre-Liberalisation period data and post liberalisation data (both old
and new series data). Here the CAGR of all performance indicator of
pre-globalisation period was better than post-globalisation period (both
series data) except sickness of SME. The average percentage changes
value of all indicators during pre-globalisation period was better than
post-globalisation period except sickness rate; it is now very good
signal from SME sector that rate of sickness has been declined in post
liberalisation era especially after 2002-03. Thus it is clear that the
number of units, fixed investment amount, output, employment and export
shows better CAGR and average percentage growth in pre-libralisation
period than post liberalisation period.
Conclusion
The study indicates that the investment trend, output and export
are growing in terms of absolute value but CAGR comparatively poor. The
performance trend of direct employment and sickness is in terms of
absolute value is increasing as well as satisfactory in terms of CAGR.
No doubt the Small and Medium Enterprises contributing important role in
business to the Indian economy since 1948 and the sector is second most
important after agriculture. But, overall performance in terms of
output, employment and export are at lower capital investment is good.
The CAGR and average percentage changes figure of all performance
parameters is slipping after globalization except sickness rate. One
important thing has been come out from this study that the employment in
SME units and sickness of SME units shows positive trends. This study
suggest that the government of India must observe and revise the current
investment policy, pricing policy, purchase policy, reservation and
dereservation policy, export-import policy, infrastructure, R&D,
subsidy and employment policy for better performance and reduction of
sick rate of SME (now MSME) sector. There are huge opportunities to
increase the performance of SMEs sector, to realize the dream Government
of India must take corrective steps one by one and shift the opportunity
cost curve upward side and make Indian economy a powerful economy,
without substantial, increasing and sustainable contribution of SME
sector the goal seems non-achievable.
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Table-I
Pre-Liberalisation Performance of SME
No. of Fixed
Units Investment Output (Rs.
Year (Million) (Rs. Billion) Billion)
Old Series After 1st Census : 1973-73 (SSI registered units only)
1973-74 0.42 22.96 72.00
1974-75 0.50 26.97 92.00
1975-76 0.55 32.04 110.00
1976-77 0.59 35.53 124.00
1977-78 0.67 39.59 143.00
1978-79 0.73 44.31 157.00
1979-80 0.81 55.40 216.35
1980-81 0.87 58.50 280.60
1981-82 0.96 62.80 326.00
1982-83 1.06 68.00 350.00
1983-84 1.16 73.60 416.20
1984-85 1.24 83.80 505.20
1985-86 1.35 95.85 612.28
1986-87 1.46 108.81 722.50
1987-88 1.58 126.10 873.00
1988-89 1.71 152.79 1064.00
1989-90 1.82 181.00 1323.20
1990-91 1.95 204.00 1553.40
CAGR 0.094 0.129 0.198
CAGR % 9.451 12.902 19.803
Mean Value 1.08 81.78 496.71
Std. Dev. 0.48 53.60 446.10
Avg. % Changes 9.49 13.82 20.01
No. of
Employment Export (Rs. Sick Units
Year (Million) Billion) (numbers)
Old Series After 1st Census : 1973-73 (SSI registered units only)
1973-74 3.97 3.93 NA
1974-75 4.04 5.41 NA
1975-76 4.59 5.32 NA
1976-77 4.98 7.66 NA
1977-78 5.40 8.45 NA
1978-79 6.38 10.69 NA
1979-80 6.70 12.26 NA
1980-81 7.10 16.43 NA
1981-82 7.50 20.71 23149.00
1982-83 7.90 20.45 25342.00
1983-84 8.42 21.64 58551.00
1984-85 9.00 25.41 78363.00
1985-86 9.60 27.69 91450.00
1986-87 10.14 36.43 111789.00
1987-88 10.70 43.72 145776.00
1988-89 11.00 54.89 204259.00
1989-90 11.96 76.25 240573.00
1990-91 12.53 96.64 218828.00
CAGR 0.069 0.207 0.283
CAGR % 6.994 20.728 28.350
Mean Value 7.88 27.44 119808.00
Std. Dev. 2.72 25.80 79443.08
Avg. % Changes 7.06 21.49 32.51
Table-II
Post-Liberalisation Performance of SME
No. of Fixed
Units Investment Output (Rs.
Year (Million) (Rs. Billion) Billion)
Old Series Data of SSI or Data of SSI Registered and
Non-Registered Units
1991-92 7.06 1003.51 806.15
1992-93 7.35 1096.23 844.13
1993-94 7.65 1157.95 987.96
1994-95 7.96 1237.90 1221.54
1995-96 8.28 1257.50 1477.12
1996-97 8.62 1305.60 1678.05
1997-98 8.97 1332.42 1872.17
1998-99 9.34 1354.82 2104.54
1999-00 9.72 1399.82 2337.60
2000-01 10.11 1468.45 2612.97
2001-02 10.52 1543.49 2822.70
2002-03 10.95 1623.17 3148.50
2003-04 11.40 1702.19 3645.47
2004-05 11.86 1786.99 4297.96
2005-06 12.34 1881.13 4978.42
CAGR 0.0315 0.0355 0.1064
CAGR % 3.1493 3.5526 10.6436
Mean Value 9.48 1410.08 2322.35
Std. Dev. 1.68 255.83 1270.04
Avg. % Changes 4.07 4.61 13.99
New Series Data of MSME or Data of SSI Units +
KVI Units + Coir Units
2006-07 26.10 5007.58 7093.98
2007-08 27.28 5581.90 7907.59
2008-09 28.52 6217.53 8808.05
2009-10 29.81 6938.35 9829.19
CAGR 0.0453 0.1148 0.1148
CAGR % 4.5286 11.4832 11.4832
Mean Value 27.93 5936.34 8409.70
Std. Dev. 1.60 830.93 1177.12
Avg. % Changes 4.53 11.48 11.48
No. of
Employment Export (Rs. Sick Units
Year (Million) Billion) (numbers)
Old Series Data of SSI or Data of SSI Registered and
Non-Registered Units
1991-92 16.60 138.83 221472.00
1992-93 17.48 177.84 245575.00
1993-94 18.26 253.07 238176.00
1994-95 19.14 290.68 256452.00
1995-96 19.79 364.70 268815.00
1996-97 20.59 392.48 262376.00
1997-98 21.32 444.42 235032.00
1998-99 22.06 489.79 221536.00
1999-00 22.91 542.00 306221.00
2000-01 23.82 697.97 304235.00
2001-02 24.93 712.44 249630.00
2002-03 26.02 860.12 177336.00
2003-04 27.14 976.44 167980.00
2004-05 28.26 1244.17 184760.00
2005-06 29.49 1502.42 201540.00
CAGR 0.0324 0.1415 -0.0052
CAGR % 3.2440 14.1462 -0.5226
Mean Value 22.52 605.82 236075.73
Std. Dev. 4.01 396.91 41715.31
Avg. % Changes 4.19 18.98 0.45
New Series Data of MSME or Data of SSI Units +
KVI Units + Coir Units
2006-07 59.46 1825.38 218662.00
2007-08 62.63 2020.17 237400.00
2008-09 65.94 NA NA
2009-10 69.54 NA NA
CAGR 0.0536 0.0344 0.0278
CAGR % 5.3586 3.4375 2.7785
Mean Value 64.39 1922.78 228031.00
Std. Dev. 4.33 137.74 13249.77
Avg. % Changes 5.36 16.08 8.53
