The MSME sector is the second-largest contributor to India’s GDP and the government wants to develop it further by raising Rs1,000 crore for its development
The Indian government is planning to raise around Rs1,000 crore for development of micro, small and medium enterprises (MSMEs) under the 11th five-year plan.
Speaking at the second World SME Conference, Dinsha Patel, minister of state for MSME said, “In the Indian economy, the MSME sector is the second-largest contributor in terms of gross domestic product (GDP) after the agriculture sector.
It provides almost 80%-90% of employment to the Indian population and has 45% share in production and 35% in exports." To develop the MSME sector, the government is planning to raise Rs1,000 crore, he added.
In a panel discussion titled 'IT Solutions for MSMEs-Lip Service or Real Solutions', industry experts suggested that to serve the MSME sector profitably, there is a need to understand the market, provide indigenous and simple solutions that build confidence among the MSME community, about the benefits of IT.
Rajeev Karwal, founder-director, Milagrow Business and Management Solutions said, "The SME sector, which contributes almost 40-50% to economic activity, has been an underserved, manipulated and much-abused sector because of a variety of reasons. Because of misplaced regulatory and business compulsions, the sector never got its due. It is my dream that these hidden jewels of the Indian industry shine brighter than ever now, especially when the Indian market place is growing."
Speaking on the hotly-debated topic of growth titled ‘East or West, Growth for SMEs is the Real Test’, management guru Dr Jagdish Sheth said, "Entrepreneurship has no barriers, you can be illiterate but yet innovative.” Dr Sheth also highlighted some of the key reasons behind the lack of attention to Indian MSMEs and laid out a very vital roadmap for the development of MSMEs in India.
A recent ASSOCHAM (Associated Chambers of Commerce and Industry of India) study said that small and medium enterprises (SMEs) are expected to contribute 22% to India's GDP by 2012, up from about 17% currently.
The survey also noted that “(The) SME sector contributes 40% to the country's exports and that this share would increase to over 44% with the help of modernised technology.”
The market may remain under pressure
Last week, we had said that a downmove is quite probable and that may see a dip to below 16,500 before the next leg up. The Sensex ended the week at 16,720, down by 400 points. Speculation that the surge in wholesale price inflation index may add pressure on the central bank to raise interest rates weighed heavily on investors’ sentiments throughout the week.
On Monday, 14 December 2009, the Sensex declined 21 points from Friday’s (11 December 2009) close, ending the day at 17,098. The Nifty closed at 5,106, down 12 points. As per data released by the government, inflation based on the wholesale price index (WPI) surged 4.78% from the previous month’s annual rise of 1.34%. The food article index within the wholesale price index rose 16.71% in November 2009. The manufacturing products index in the WPI rose an annual 3.99%. In its October policy review, the Reserve Bank of India (RBI) had raised its WPI inflation projection for end-March 2010 to 6.5% with an upside bias, from 5% earlier. During trading hours, trade minister Anand Sharma said that rising wholesale prices were a matter of concern and the government is monitoring prices of essential commodities.
On Tuesday, 15 December 2009, the Sensex closed at 16,877, down 220 points, while the Nifty ended the day at 5,033, down 73 points, on fears of monetary tightening by the central bank. The government’s total spending will remain at Rs10,20,000 crore ($218 billion) for the fiscal year to March 2010, same as the budget estimate made in July 2009, said finance minister Pranab Mukherjee. Mr Mukherjee also said that the federal fiscal deficit in 2009-10 would remain within the targeted 6.8% of gross domestic product. On Wednesday, 16 November 2009, the Sensex gained 36 points, ending at 16,913, while the Nifty closed at 5,042, up 9 points. The prime minister’s economic adviser C Rangarajan said that the RBI may tighten monetary policy in this month as inflation could reach 7% by March 2010. He also said that there usually is a seasonal decline, but it certainly appears that inflation by end of March will be higher than what has been projected earlier by the RBI.
After a continuous decline over the last 13 months, exports rose in November 2009, adding to the flurry of positive economic data, but the news was greeted with caution by policymakers and exporters. Exports grew 18.3% to $13.20 billion in November from a small base last year, thanks to the Christmas shopping season.
The finance minister said that the government will take steps to tame rising prices and enable the economy to recover faster. Mr Mukherjee said that the government intends to push tax reforms and cut its already-bloated fiscal deficit to 3% of gross domestic product after 2001-12 fiscal year from 6.8% estimated for the current financial year ending March 2010. The government offered fiscal stimulus in the form of tax-cuts and higher spending, which widened the fiscal deficit that has to be funded by a record borrowing of Rs4.51 trillion ($96.6 billion) in 2009-10. He said that the deficit was “unsustainable”, and the government would reduce it to 5.5% in fiscal year 2010-11 and to 4% in 2011-12. On Thursday, 17 December 2009, the Sensex declined 19 points from the previous day’s close, ending the day at 16,894, while the Nifty remained flat at 5,042. As per data released by the government, the food price index rose 19.95% in the year to 5 December 2009.
The fuel price index rose 3.95% and primary articles index rose 14.98%. The Federal Reserve kept its target range for its bank lending rate at zero to 0.25%, the same level since last December 2008, and it repeated its pledge to keep rates at exceptionally low levels for an extended period.
On Friday, 18 December 2009, the Sensex declined 174 points from the previous day’s close, ending the day at 16,720, while the Nifty slipped 54 points to 4,988. Next week, the market will be on tenterhooks about a possible rate hike. The finance minister said that containing inflation is high on the government’s agenda and the government is monitoring the price situation. If the RBI moves to act, the market will correct even more.
The total potential opportunity for domestic players in the defence segment is worth $5.10 billion. Out of this, $2.1 billion is the total worth of offsets expected. These bright prospects, however, could be delayed due to problems in JVs with overseas companies
The defence sector could have opened prospects worth $5.10 billion for private domestic players in India. However, glitches in the formation of joint ventures (JVs) between domestic companies with their overseas counterparts could hamper these prospects.
The defence sector has a planned capital expenditure (capex) of $10 billion. Though there is no hard and fast rule, historically 30% of this capex is sourced in the form of orders granted to domestic players. A 30% of the $10 billion translates into a whopping $3 billion capex on offer to domestic players.
The remaining 70% of the total $ 10 billion would be sourced from imports. While 30% of the imports have to be sourced to domestic players in the form of offsets, this adds up to another $2.10 billion worth of business for domestic players. Thus, $ 2.10 billion in addition to the $3 billion could mean potential opportunities worth $ 5.10 billion to domestic players like L&T.
However, defence plans for companies like Larsen & Toubro Ltd (L&T) could be delayed, given the difficulties in approvals for JVs with foreign companies. Earlier this month, L&T failed to receive a Foreign Investment Promotion Board (FIPB) clearance for a JV with Franco-German aerospace and defence group EADS, in the area of electronic warfare systems, avionics and radars, as it would exceed the cap on foreign investment.
“I think it would be sometime before L&T starts getting some major orders, except for a project where they have done the advanced technology vehicle (ATV). L&T would be delayed in its defence plans. The major core (from the defence sector) would have come from the JV, which is not happening,” said an analyst from a leading brokerage firm, who did not wish to be named.
Similarly, defence PSU Bharat Electronics Limited's (BEL) attempts to form a JV with foreign partners in the area of precision-guidance seekers for missiles have been hampered by the FDI cap. Potential overseas technology companies perceive the extent of equity allowed to be lower than their expectations. The allowed FDI in defence industries presently is 26%.
"We have been discussing about 10-12 proposals for JVs. One or two (will be) in India, some with foreign companies, especially for sub-sets of items like seekers,” BEL chairman and managing director Ashwani Kumar Datt told PTI.