Government initiatives

based on reports from the

Reserve Bank of India
(RBI)

Government Schemes and Outreach

The evolution of an enterprise from micro to small and medium is a continuous process in the
entrepreneurial domain. This is possible by harnessing the resources and support that is prevalent and
created by the Government through various ministries. The Ministry of MSME, through its various
schemes, helps and facilitates the promotion and development of entrepreneurs’ especially small
businesses in attaining a level playing field in the market. Various other Ministries also extend support
in the areas of skill development, market development assistance, technology support, credit flow,
public procurement policies, etc.
Supportive Role of the Government
At the Centre level, MSMED Act, 2006 has been enacted to provide for facilitating the promotion,
programs on technology up-gradation and skilling, marketing assistance, infrastructure facilities,
cluster development, backward and forward linkages.
Apart from these initiatives, Pradhan Mantri MUDRA Yojana, Make in India, Startup India, ease of doing
business and GST are some of the other major initiatives facilitating the growth of the sector. A major
decision regarding the change in classification of MSMEs from ‘investment in plant and
machinery/equipment to ‘annual turnover’ has been proposed. Taking turnover as a criterion can be
pegged with reliable figures available e.g., in GST Network and other methods of ascertaining will help
in having a non-discretionary, transparent, and objective mechanism that will eliminate the need for
inspections, make the classification system progressive and evolutionary and improve the ease of
doing business. This is one of the many reform steps taken by the Ministry aligned to Maximum
Governance, Minimum Government. The consequent amendment to the MSMED Act, 2006 for changing
the basis of classification needs to be expedited.
Mapping Elements of an Enabling Ecosystem for MSMEs
with various Government Initiatives:
The experience on the ground and available indicators have led to the creation of seven pillars that
contribute towards an enabling ecosystem for an enterprise to be born, germinate, blossom, and sustain.
Skill Mapping for MSMEs
 Skill Mapping is the process of identifying the specific skills, knowledge, abilities, and behaviors
required to operate effectively in a specific trade, profession, or job position. M/o MSME has
compiled district-wise Skill Development requirements (skill maps) for 652 districts of the
country. The district-wise skill development needs have been formulated based on industry
clusters situated in the respective districts. Further, based on industry clusters, the type of
skills required to produce products and subsequently, the need for training programs to be
conducted for skilling un-employed youth have been identified.

 Skill Map of each district contains details on the number of training institutes and engineering
colleges in each district, including the names of the technical institutions (ITIs, Polytechnics,
and Engineering Colleges with the facilities), availability of various raw materials, and types of
existing industries in that district.

 District Industrial Profiles of each of these districts enable entrepreneurs to find the most
suitable place to locate their business. The district-wise skill profiles have been prepared in
consultation with stakeholders, such as the State Governments, Industry associations, and
various universities and have been validated by Industry associations and universities.
Entrepreneurship and Skill Development Initiatives
The Ministry of MSME in India organizes Entrepreneurship and Skill Development Programs (ESDP) for
the existing and potential entrepreneurs, to build their capacity to take up successful ventures. The
objective is to motivate young people representing different sections of society to consider self-
employment or entrepreneurship as one of the career options. The objective is to promote new
enterprises, capacity building of existing MSMEs, and inculcate entrepreneurial culture in the country.

The program includes the following:

 Industrial Motivation Campaigns (IMCs) - Industrial Motivation Campaigns are organized to

identify and motivate traditional/non-traditional entrepreneurs having potential for setting up
MSEs and to lead them towards self-employment. IMCs are also organized for Clusters SPVs/
Industry Associations/ Chambers for propagating schemes for the promotion and development
of MSMEs.

 Entrepreneurship Awareness Programs (EAPs) -Entrepreneurship Awareness Programs are

being organized to nurture the talent of youth by enlightening them on various aspects of
industrial activity required for setting up MSEs. These EAPs are generally conducted in ITIs,
Polytechnics, and other technical institutions, where skill is available to motivate them towards
self-employment.

 Entrepreneurship-cum-Skill Development Program (E-SDP) - Comprehensive training programs

are organized to upgrade the skills of prospective entrepreneurs, the existing workforce and
also develop skills of new workers and technicians of MSEs by organizing various technical cum
skill development training programs. The basic objective is to provide training for their skill up-
gradation and to equip them with better and improved technological skills of production.

 Management Development Programs (MDPs) -The objective of imparting training on

management practice systems is to improve the decision-making capabilities of existing &
potential entrepreneurs resulting in higher productivity and profitability. These programs are of
short duration and the curriculum is designed based on the needs of the industry and is
customized if required by the clients.

 Vocational and Educational Training - The Regional Testing Centers, Field Testing Stations, and
Autonomous bodies like Tool Rooms and Technology Development Centers (TDCs) of the Ministry
conduct long term, short term, trade/field-specific, and industry-specific tailor-made courses
as well as vocational training programs.
  Enterprise Development Centre (EDC) - DC MSME through its field offices i.e., Micro Small and
Medium Enterprises Development Institutes (MSME-Dls) and Technology Centers (TCs) not only
caters to the needs of aspiring entrepreneurs across the country but also imparts skill sets to
the youth to equip themselves for the job market. However, due to the presence of MSME-Dls
and TCs only in the state capitals and a few cities, their outreach is very limited. To enhance
outreach and to further consolidate the enterprise facilitation process, the EDC has been
conceptualized to provide impetus to the entrepreneurship development initiatives and business
incubation of the DC MSME through handholding support to new and budding entrepreneurs in
the country.

SME Incubators
Innovative entrepreneurial ideas must be fostered and developed in a supportive environment before
they become attractive for venture capital. Hence the need arises for incubation centers - to promote
and support the untapped creativity of individual innovators and to assist them to become technology-
based entrepreneurs. The objective is to provide early-stage funding to nurture innovative business
ideas (new indigenous technology, processes, products, procedures, etc.) that could be commercialized
in a year. Ministry provides financial assistance for setting up business incubators.

Technical Assistance
MSMEs in rural areas suffer disadvantages in the form of the higher cost of logistics, limited market
access, lack of knowledge, uneven connectivity, limited access to finance, a labor market lacking in
skills, and poor infrastructure. Together, these add up to lower productivity and shorter life spans for
such enterprises. The Committee recommends an urgent focus to implement broadband connectivity in
all parts of the country which will benefit rural MSMEs. Access to digital payments requires more
demand-side incentives. As has been suggested by the High-Level Committee on Deepening Digital
Payments (Chairman: Nandan Nilekani), the acceptance network in rural areas needs significant
improvement. This Committee supports the recommendation to set up an Acceptance Development Fund
to support merchants in rural areas.
Startups in India, both tech and non-tech, face a dearth of funding beyond the Series B stage. A board
that allows equities exchange of these SMEs can effectively help address this problem. It will also give
the wider public to participate in the dynamic Indian startup ecosystem. The Innovators Growth Platform
(IGP) proposed by SEBI is a welcome development. Some modifications are required for the success of
IGP. SEBI must relax the norms defining the Accredited Investors (AIs) who could participate. Currently,
it recommended these AIs as individuals with a total gross income of 50 lakh INR (67,000 USD) per
annum and minimum liquid net worth of 5 crore INR (669,860 USD), or a corporate body with a net worth
of 25 crore INR (33,49,300 USD). But these should be akin to the Angel Investor requirements for Angel
Funds - an individual investor who has net tangible assets of at least 2 crore INR (267,944 USD)
excluding the value of his principal residence or a body corporate with a net worth of at least 10 crore
INR (1,339,720 USD). To create enough liquidity, participation of HNIs, Mutual Funds, FIIs, etc. must be
encouraged. Most technology startups or high-growth startups are often loss-making hence there
should be no profitability requirement to list. SEBI should facilitate a dual-class share structure that is
very popular with tech startups worldwide. Further, standards for the internal governance of MSMEs
may be developed that can help MSMEs identify current gaps and areas of improvement.

Equity and Venture Capital Funding for MSMEs

MSMEs in India largely rely on informal sources for equity, i.e., own saved funds and funding from family
& friends. Debt has been the preferred mode of borrowing for entrepreneurial activity in India through
products such as Loan Against Property (LAP) and Jewel Loans, while equity as a source of finance is
being utilized by very few enterprises. Formal sources of equity or equity-like capital for MSMEs are
Angel Investors (pre-seed and seed-stage) and Venture Capital Investors (early stage but where
revenues are available). Venture Debt is a relatively new instrument in the Indian market that provides
high-risk debt to early-stage enterprises.

Challenges in Equity Financing of MSMEs:

MSMEs have limited access to external equity primarily because only a handful of players provide
early-stage equity capital. Even if the equity were made available, the uptake would remain low due to:

 Legal structure of enterprises prevents infusion of external equity

 Smaller investment sizes per enterprise tend to increase transaction and management costs
for equity investors, making this segment relatively less attractive
 Information asymmetry between promoters, investors, and other stakeholders
 Entrepreneur’s concern regarding control and management
 Low probability of non-linear returns
Listing on SME Exchange
While listing on an exchange provides many benefits to SMEs and their stakeholders, SMEs often shy
away from listing due to increased disclosure requirements and compliance burden. Most SMEs in India
are not aware of the long-term growth benefits of listing on SME exchanges. It is important to
communicate to the promoters of SMEs how a listing can help not only in personal wealth creation and
liquidity for promoters but also help their businesses to grow faster and more sustainable over the long
term.

A combination of Digital Public Infrastructure, progressive regulation, and new market forces have the
potential to energize the MSME Lending Sector. The emergence of a digital lending value chain will
provide fast turnaround and easy accessibility for MSME borrowers and use new data and credit scoring
algorithms to provide new types of risk-adjusted lending products. This infrastructure can operate at a
scale, break access barriers, and provide MSMEs with the ability to access finance and scale to reach
their potential.
Government initiatives for extending marketing support
to MSMEs:
International Cooperation Scheme: Visit of MSME delegations to other countries in international
exhibitions/ trade fairs, conferences/ summits/workshops, etc., for exploring new areas of technology
infusion/up-gradation, joint ventures, improving market of MSMEs products, etc. is supported by the
Government.

Marketing Assistance Scheme: The maximum net budgetary support for participating in an international
exhibition/ trade fairs.

Procurement and Marketing Support Scheme: To encourage MSEs to develop domestic markets and
promotion of new market access initiatives.

 GeM facilitates online procurement of common use Goods & Services required by various
Government Departments / Organizations / PSUs. GeM aims to enhance transparency, efficiency,
and speed in public procurement. Existing governments support schemes aim to provide support
on market creation (mandatory public sector procurement from MSEs) as well as provisioning of
marketing and trade promotion services to SMEs through direct service delivery and cost
subsidy for buyer-seller meets, participation in trade events, provision of market intelligence,
trade finance, etc.

In addition to the support provided by the Office of DCMSME and other agencies of the Ministry such as
NSIC, KVIC, Coir Board, specialized agencies such as the Export Promotion Councils and the Indian Trade
Promotion Organization (ITPO) have programs that serve the needs of MSMEs. Provisioning of effective
marketing support services depends on market intelligence infrastructure, distribution channels, and
last-mile connectivity. However, there is no centralized mechanism for collating market data and
performing regular analysis and distribution networks for SMEs.
Startup India Scheme
Startup India Scheme is an initiative of the Indian government, the primary objective of which is the
promotion of startups, generation of employment, and wealth creation. It was launched in January 2016.
Startups are incorporated as a private limited company (as defined in the Companies Act, 2013) or
registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited
liability partnership (under the Limited Liability Partnership Act, 2008) in India. These enterprises can be
called Startups up to ten years from the date of incorporation/ registration provided turnover for any of
the financial years since incorporation/ registration has not exceeded 100 crore INR (13,400,000 USD).
The profits of recognized Startups are exempted from income tax for 3 years out of 7 years since
incorporation.

Cluster Development in India

A study by United Nations Industrial Development Organization (UNIDO) has mapped over six thousand
Clusters in traditional handloom, handicrafts, and modern SME industry segments. MSMEs constitute the
largest segment of most Indian clusters. Few clusters produce more than 70 - 80% of India’s total
production of certain products.

The cluster development approach has been adopted by many central government ministries, state
governments as well as financial and support institutions. Subsequently, the Ministry of MSME has also
launched a cluster development scheme viz., SFURTI for traditional khadi and village industries. Certain
interventions in the erstwhile National Manufacturing Competitiveness Program (NMCP) of the Ministry
of MSME also followed the cluster approach. Department of Industrial Policy and Promotion (now known
as Department for Promotion of Industry and Internal Trade) launched an Industrial Infrastructure
Upgradation Scheme (IIUS) in 2003 as a Central Sector Scheme to enhance the competitiveness of
industry by providing quality infrastructure through public-private partnership in selected functional
clusters.