India’s Top 10 MSME Sunrise Sectors

BANGALORE, INDIA:

The Engine that powers India

In the last two decades, there has been a concerted effort to modernize the MSME sector in India. An estimated 2.6 crore units of MSMEs contribute to 8 percent of the country’s GDP of an estimated US$1.5 trillion (source: CNN Country Report). It contributes to 40 per cent of India’s roughly US$210 billion annual exports.

The sector employs over six crore people. An estimated 5 crore are male workers and about a crore are female workers. The workforce is almost equally divided between manufacturing and services sector. About 2.4 crore units are proprietorships. An estimated 65 lakh units depend on coal and oil as primary sources of power and 48 lakh on electricity. This shows which way the country is headed.

In a country of 100 crore people, with over 40 crore engaged in economic activity, MSME’s contribution is perceived to be crucial. MSME sector alone has the ability to minimize the 11 percent unemployment rate in the country. It alone can power a growth hungry developing nation — eyeing over 9 percent growth

in GDP.

The Dare-CRISIL SME Ratings report on the Top 10 MSME sectors covers those that have seen an impressive surge in economic activity.

Also read: Mas Infotainment launches DailDesk For SMEs

The Definition of MSME

The MSME sector still uses a three-tier definition proposed way back in 1999. As per this recommendation, all businesses which have made an investment in plant and machinery upto Rs10 lakh were called “tiny units.” Those with investment between Rs10 lakh to Rs100 Lakh were labelled Small Scale Industries (SSIs); and medium industries had investment of anywhere between  Rs One crore

to Rs10 crore.

The same categories have been retained but the nomenclatures have changed with the times. The tiny units are now called “micro enterprises”. The SSIs are now called Small Enterprises and the Medium units, Medium Enterprises.

MSME cluster density in India

MSMEs in the India are clustered around an estimated 626 locations across India. There is an estimated 6,000 clusters of micro or artisan based industries in India.

{#PageBreak#}MSME issues & challenges

Of the 2.6 crore units, about 95 percent are unregistered, as per the MSME Report submitted by the Prime Minister’s Task Force set up in 2010. This itself poses a huge problem for the government to reach any benefits it announces for this sector.

Among the ground-level realities that face an MSME entrepreneur are access to funds, absence of equity investment, a tough labour policy and limited access to infrastructure such as power, water and roads.

Though the government has earmarked MSME as a core sector for lending, and requires the commercial lending to MSMEs by the banks to at least be at a healthy level of 20 percent of the net bank credit, the task force found that most banks’ lending shrunk by almost 1.5 percentage points to 10.9 percent in 2009-10 as compared to its previous period. The net credit to micro-sector declined by almost half in a span of a decade now standing at 4.9 percent.

Labour policy is a big concern for the sector. A few years ago, an expert committee recommended relaxation of labour laws, at least for enterprises employing upto 50 workers with power and 100 without power. However, they had set a rider that the entrepreneurs should agree to pay for unemployment insurance.

Ironically, in a country which prides itself on being the vanguard of the global outsourcing phenomenon, access to skilled manpower by MSME sector is a serious issue. Thanks to the severe labour laws and a paucity of technology adoption, most modern industries in this sector are fighting a battle on this front. “It’s one thing to skill up an industry but we need to ensure that the entire workforce is aligned with the new global standards both in process skills and technology,” says Yogesh Dixit, Head-SME Ratings, CRISIL.

Infrastructure has been a huge limiting factor in the growth of the sector. MSMEs in the rural areas are the most affected, which is not a good sign since almost 50 percent of the MSMEs are operating out of rural areas. With a more conducive labour policy and access to technology, these industries can scale the heights the economists are claiming they would.

In an interview with Dare, Ramnath Krishnan, CEO of HSBC Private Banking says that if India has to grow beyond China, for instance, it has to focus on building infrastructure with speed. There are many ideas coming up to help find funds for this. “All industries should contribute a fraction of their yearly profits to infrastructure directly and not through a tax cess,” says Sangram Kumar Dash, DGM MSME Credit.

Also read: New Platform can offer a lot to SMEs

The report and its purpose:

Since MSME covers a huge spectrum of activity, this report aims to highlight the most active and promising sectors to showcase their achievements. If Indian economy has to grow at the rate of 9-10 percent year-on-year. that growth engine is powered by MSME and mostly by the sectors we talk about.

It is evident from the 2010 report of the Prime Minister’s Task Force on MSME Sector that most of the issues raised in studies of previous committees still are unaddressed. Dare believes that without a continuous communication with all the stake-holders and highlighting the issues at hand, these issues and the recommendations would continue to languish. This report is a step in putting the focus back on the MSME sector.

How the report is organized

The report has two parts. The first part is an industry snapshot which gives some vital statistics and current state of the industry. The second part is a commentary by CRISIL, partner in this report, on each sector giving a more qualitative analysis.

{#PageBreak#}The top 10 sunrise sectors are:

1. Textile: A Strong Fabric Ailing and unorganised until a few years back, the Indian textile industry today is one of the largest in the world.

2. IT & ITES: Advantage India: India's youngest industry is also a major source of employment for its youth. The nation took its first step in this sector as a hub for providing IT services, but it has become more product-oriented over the years.

3. Food preocessing: A power packed sector: The Indian Foods & Beverage industry is poised for a significant leap forward. As the pace of urban lifestyle quickens, supermarket shelves are bulking up with grab-and-go foods. And that is good news for the industry.

4. Travel & Tourism: Coasting along: India holds a timeless exotie appeal for the world traveller. The staggering diversity of this nation is unmatched, and increasing media build-up is powering the sector to charming heights.

5. Leather: Looking good: The Indian Leather industry has immense potential to generate employment, further growth and utilize available raw materials to increase its export volume.

6. Auto components: Riding a boom: The fast grwoing auto component sector contributes some 2.3 percent to India's GDP and has been riding a boom.

7. Pharmaceuticals: In good health: In July 2010, the highly organised sector reached a whopping US $ 10.04 billion in size. A report by McKinsey & Company states that this figure can touch US$ 55 billion in 2020, with the potential to reach US$ 70 billion if growth is agressive.

8. Manufacturing industry: Making good progress: Notwithstanding the India manufacturing industry's current growth rate of 7 percent and its paltry 17 per cent share of the GDP, India has the unquestionable potential to be a world manufacturing power.

9. Engineering: The engine of growth: Employing over 4 million skilled and semi-skilled workers, the engineering sector is by far the largest sector of the overall industrial segments in India. Highly structured and technology-driven, this sector accounts for 12 per cent of India's economy.

10. Electrical equipment: All charged up: The Rs. 52, 000 crore electrical equipment industry, which sells cables, switchgears, transformers and other large electrical products, is seeing a surge in growth.

Source: www.dare.co.in