Trade Fiscal Deficit Obstacles in India

TM

Regd. No.26363D

TRADE

FISCAL DEFICIT OBSTACLES IN INDIA

UNITED HUMAN RIGHTS FEDERATION(UHRF) UHRF is a society registered in India under the provisions of Societies Registration Act, 1860. It is a non-political and non-sectarian national organization devoted to promote, strengthen and preserve democratic bereft of favoritism, nepotism and corruption in the country and to protect rights, interested and dignity of common man.

It is an organization of international ramifications and working in different fields all over the world.

UHRF with the help of experts, volunteers and in association with several agencies is closely observing the affairs and activities of various countries in the field of polities, economy, foreign, business, and also safety & security measures ensured by the respective governments to its citizen. We Make efforts to provide solution to the problem by appraising the cause and extending help to the people.

UHRF also keeps a close watch and check on the financial frauds, money laundering and scams committed by big groups and organization. The UHRF has been able to unearth various frauds, scams & irregularities of corporate and individuals. On these irregularities and frauds of corporate & Companies, UHRF has already filed Public Interest Litigations (PIL) before the Hon'ble Supreme Court of India.

Vision: The vision of UHRF is to form fearless and non-succumbing society on the basis of truthfulness & non-violence. This society believes in peaceful co-existence of physically challenged, schedule castes and tribes, people below poverty line, old-aged, widow & deserted women and down trodden people, irrespective of their caste, creed, sex and religion. UHRF visualizes a society of human rights followers.

Objectives: To be one of the prime organizations of the world ensuring basic human rights and encouraging human rights activities.

To organize and process UHRF is working by opening up different cell viz. Human Rights Help line, Family Discipline, Advisory Centers, Public Justice Legal Aid Centers, Crime Prevention Team, Information Gain Centers, National and International Committees, Accident Relief Centers, Scheduled Castes and Scheduled Tribes Help Centers, Women and Labor Welfare Centers, Medical Legal Relief Centers for helpless, Consumer Grievance Cell, Inquiry Committees, Centers for Government's project etc.

To create awareness among the masses to voice their complaints/ grievances to and fight against injustice.

To bring under the banner of human rights, all the likeminded people of the world. The organization appeals international community to join UHRF, its philanthropic missions and contribute some of their valuable time for the cause of human rights. UHRF paves way for a risk-free, threat –free society coupled with equality for once and all.

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UNITED HUMAN RIGHTS FEDERATION UHRF believes that the terrorist groups all over the world are encouraging and intimidating people to abandon their families and join the terrorist organizations. These outfits pretends a family-like roles and relationships and focuses a great amount of peer pressure on its members, compelling them to do acts of terrorism. In some instances, terrorist groups targets specific types of people having characteristics of making them receptive to their ideas. For example, some may look for university students who are close to dropping out and are disgruntled over their efforts to political or societal change. UHRF has done intensive studies on 'terrorism' to ascertain as to why a person become a terrorist and how can the society bring him back in mainstream.

UHRF works for the children and strongly believe that all children have the right to grow up like a flower. The society must provide an environment that protects children from violence, exploitation, abuse and neglect. They must be protected from any sort of sexual abuse. UHRF sponsored article on Child Abuse 'Save Me from Bad Uncle' is appreciated globally. One can learn how to keep our children safe by going through this article.

Ever since the beginning of civilization, war and violence have been inescapably woven with the long continuing journey of human race which has been the continuous yearning for peace and security. With 'Peace in Pieces' movement, UHRF is trying to bring peace all over the world.

UHRF is Managing and Publishing two valuable magazines, dedicated to the humanity 'RadiationToday' and 'Maanvita'. Radiation Today is about impact of radiation on our everyday life while Maanvita is all about good governance & advancement of human rights.

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UNITED HUMAN RIGHTS FEDERATION Frauds and Misappropriation of Funds by Cooperative Societies: The UHRF has done wide research on the irregularities and frauds of a Multi-state cooperative Society dealing in the production and distribution of fertilizers to the Indian Farmers. The society is suspected to have committed huge subsidy frauds and its management and officials are facing allegations for using society's assets for their personal gains, manipulation of accounts, and misappropriation of thousands of crores of rupees of the poor Indian farmers etc. Besides this the society has diverted huge funds to other sectors in foreign countries other than the manufacturing and production of fertilizers grossly deviating from its primary task to serve the Indian farmers for which it was formed.

Forged Orders/Judgments of Judicial Proceedings: UHRF also came across cases of forging the Orders/Judgments of various Courts, Tribunals, and Law Boards including High Courts. Since using the forged orders to get the relief is a serious threat to the society and judicial system as a whole. UHRF considers its duty and responsibility to bring out such serious illegalities, after conducting a thorough and extensive research.

Under Trial Prisoners: The Hon'ble Supreme Court of India has recently ordered the release of all under-trial prisoners who have spent half of the maximum sentence prescribed for the offences they are charged with. UHRF has sent representation to various government/ judicial authorities for the release of the under trial prisoners who are unable to arrange for their sureties after grant of bail for the offences. It is estimated that out of around 3.81 lakhs prisoners across the country, about 2.54 lakhs, are under trials. In many cases, the accused have spent more time in jail than the actual sentence which might be awarded in case of conviction.

Current Assignment: UHRF is conducting a survey in High-Rise Buildings, Multiplexes, Hospitals, Nursing Homes, Shopping Malls, Five Star Hotels & Resorts, Schools, Colleges, Universities, Commercial Hubs, Metro, Railway Stations, Modern Airports etc. which are not functioning as per the approved plans, rules, regulations, guidelines and by-laws as formed. They use premises after getting occupation certificate as they want and not follow the sanction plan.

UHRF is keeping vigilant view on the commercial premises like Malls, Hospitals, commercial complex, and mega multinational schools etc. as you know these organizations are misusing the parking area, basement area and the safety passages provided under rules of fire safety regulations. They are using these areas for commercial uses and manipulating with safety rules and regulations.

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DEFICIENT IN INDIAN COMMERCE AND INDUSTRIES Foregoing analysis shows that India has made sufficient achievement in industrial development during the last five decades and has emerged as the tenth largest industrialized country of the world. But considering the size of the country this development is far from satisfactory.

There are many areas where despite requisite facilities industrial development is either insufficient or completely absent. The pace of industrial progress has been very slow and the growth has always lagged behind the target (except in 7th Five Year Plan).

Despite industrial progress self- sufficiency is a distant dream and import substitution a major problem. Underutilization of existing capacity is another major problem which is due to lack of power, raw material and demand.

Industry has developed elite oriented pattern. Concentration of economic power in the hands of few, regional imbalances, sickness of industries, loss in public sector industries, unsatisfactory labour relations, lack of capital and industrial raw materials, changing policy of the government, and defective licensing policy are some of the problems which are hindering the overall industrial development in the country. In following paragraphs an attempt has been made to highlight some of these problems.

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Unbalanced Industrial Structure: Despite all efforts India has not been able to attain self sufficiency in respect of industrial material. India is still dependent on foreign imports for transport equipments, machineries (electrical and non-electrical), iron and steel, paper, chemicals and fertilisers, plastic material etc. In the total industrial production consumer goods contribute 38 per cent. In newly industrialised countries like Singapore, South Korea and Malaysia this percentage is 52, 29 and 28 respectively. This shows that import substitution is still a distant goal for the country.

Low Demand: There is low demand for industrial products in the country due to low consumption level, weak purchasing power and poor standard of living. The domestic market is chronically underdeveloped through lack of enthusiasm generated by the middle and upper class segment who do not wish to raise their standard and improve their living conditions.

Regional Concentration: In India most of the industries are located in few selected areas leaving out vast expanse of the country devoid of industrial establishments. Most of the industries are located in and around metropolitan cities like Mumbai, Kolkata, Delhi etc. Tables 18.1 and 18.11 present uneven concentration of industries. While the states like Maharashtra, Gujarat, Tamil Nadu etc are well ahead in industrial development others like Meghalaya, Manipur, Jammu and Kashmir, Himachal Pradesh, Tripura, Orissa, Assam etc are far behind. This has not only created regional imbalance and regional disparity but has encouraged fissiparous tendency including unrest, violence and terrorism.

Loss in Public Sector Industries: Owing to focus on socialistic pattern of development investment under public sector industries increased phenomenally during early five year plans. But due to defective policy of the government characterizes by red tops and inefficiency and strained labourmanagement relations most of these public sector enterprises are running in loss.

Every year the government has to incur huge expenditure to cover up this loss and meet obligations of paying wages to the employees.

This hardly leaves surplus money to go for new industrial ventures and launch schemes for social development. To avoid this burden on exchequer the government is promoting privatization and disinvestment of shares of public sector undertakings. This goes against the Peruvian model of development initiated during the fifties of the last century.

Loss in Public Sector Industries: Owing to focus on socialistic pattern of development investment under public sector industries increased phenomenally during early five year plans. But due to defective policy of the government characterised by redtops and inefficiency and strained labourmanagement relations most of these public sector enterprises are running in loss.

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Every year the government has to incur huge expenditure to cover up this loss and meet obligations of paying wages to the employees.

This hardly leaves surplus money to go for new industrial ventures and launch schemes for social development. To avoid this burden on exchequer the government is promoting privatisation and disinvestment of shares of public sector undertakings. This goes against the Peruvian model of development initiated during the fifties of the last century.

Industrial Sickness: In the private industrial sector a growing number of industrial units are becoming sick.

Widespread sickness has, indeed, become a major problem of this sector. The causal factors for this sickness are: (i) deficient management, (ii) under-utilisation of capacity due to shortage of raw materials, coal and power and transport, (iii) obsolete machinery, equipment and production techniques, (iv) uneconomical scale of production, (v) faulty choice of products and processes, (vi) difficulties in selling the products, (vii) diversion of funds to new units under same ownership, and (viii) conflict between different interest groups among the owners. As at the end of March 1999 there were 3, 09,013 sick/weak units (3, 06,221 in SSI and 2,792 in non-SSI sectors). A total of Rs. 19,464 crores of bank credit was locked up in these sick units. Sometimes, the government takes over sick units which further worsen the problem.

In order to provide a focal point for the revival of sick units, the Industrial Reconstruction Corporation was reconstituted in 1985 as the Industrial Reconstruction Bank. It is now the principal agency for reconstruction and rehabilitation of sick units.

The Central Government set up in 1986 two Funds, the Textile Modernisation Fund (TMF) and the Jute Modernisation Fund (JMF) to provide assistance on concessional terms to healthy as well as sick units for modernisation. These two Funds are being administered by the IDBI and the IFCI respectively. There is also a need for constant monitoring and deterrent penalties to the parties responsible for sickness.

Lack of Infrastructure: An inadequate infrastructural facility is another major problem faced by the Indian industries. Energy crisis has a great bearing on the industrial development and production. Although the installed capacity of electricity increased from 66.08 million km in 1990-91 to 85.79 million km in 1996-97 but it is much short of the actual demand.

It leads to power cut and rostering which hampers the industrial production. Most of the State Electricity Boards are running in loss and are in deplorable condition. Rail transport is overburdened while road transport is

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plagued with many problems. Even national highways in many places are in bad shape.

Telecommunication facilities are mainly confined to big cities.

Improper Location Base: Industrial locations, in several instances, were established without reference to costeffective points. Each state clamors for the establishment of major industries in the public sector within its boundaries, and the location decisions are often politically motivated.

Lack of Capital: Indian industrial development is facing acute shortage of capital. The short-term and long-term loans from international agencies like World Bank and Asian Development Bank etc have done more harm to the economy than taking it out from the crisis. A lot of foreign exchange is being utilised in the payment of these loans.

The situation becomes acute when fresh loans are taken to pay the installments of the old loans. Due to liberalisation, the foreign exchange reserve position has improved in recent years and flow of foreign capital has started in industrial sector. These foreign investors also do not like to invest in such industries which require large capital, need long gestation period and where recovery is slow or more risk is involved. Instead of depending on foreign capital we have to place more reliance on indigenous capital with greater emphasis on the development of priority industries.

Shortage of Industrial Raw Material: Indian Agricore, the major source of industrial raw material, is still dependent on the monsoon. Natural calamities like drought, famine, flood etc badly affect agricultural production as well the supply of industrial raw material. Failure of monsoon even affects the purchasing power of the people and also the demand for industrial products. It sometimes creates glut in the market and industrial plumpness. Cement industry is recently facing such crisis.

Higher Cost of Production and Low Quality of Goods: Indian industries mostly survive on home demands. These have been given a number of concessions and even protection from foreign industries. Here most of the work is done by hand on old and obsolete machines.

This increases the cost of production and brings down the quality of products produced.

Since these industries have virtual monopoly they hardly bother to improve their quality.

Public sector units, under direct control of the government, frequently increase the prices which provide golden opportunity to private industrialists also to increase the prices. Our industrial products are not able to make wide market abroad.

The low purchasing power of the people even reduces home demand. The situtation is likely to change during globalisation when there is apprehension of wide spread closure of these industries due to stiff competition offered by multinational companies. This is also not good for the country and the Indian industries.

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License Policy: The license policy approving the site, capacity, type and expansion of industries is a typical example of excessive state interference and red tapes which hinder the industrial development. Recently some examples of political vendetta have come to surface whereby central government over delayed the approval of industries from such states where hostile political party is in power. Ministers and inuential political leaders are pressurising industrialists to install industries in their electoral area so as to approve their licenses. With the introduction of liberalisation policy many of the shortcomings of the license policy have been removed.

Lack of Institutional Organization: A major development thrust during the Five Year Plans was toward the establishment of a vigorous public sector developed hastily without the creation of a base of administrative machinery capable of undertaking this enormous task. Preparatory work for such tremendous institutional reorganization was poor. High performance was rarely insisted on even after the construction of an administrative base. The result was non-achievement of targets. During the Fourth, Fifth and Sixth Plans, achievement levels fell short of targets by 15-18 per cent. This malady is still persisting even after liberalization. There is no clear-cut planning at state level to attract foreign capital and promote industrialization.

Industrialization started in India roughly a century later than in the developed countries.

That is why, when it was in mature stage in the Western countries it was in infantile stage in India. Hence, India had to perform dual task of promoting industrialization as well as to equip herself with latest technology in the ďŹ eld of electronics, nuclear science, space research etc.

This slowed down the pace of industrial progress. Frequent change in the approachsometimes emphasis on rural industrialization, sometimes on urban-nucleated industrialization or rural led employment-oriented strategy or creation of employmentoriented agro-based industries-confuse the situation. Indian industrialization has passed through great odds. Besides being victim of 'economics of scarcity' it has been mauled by political indecision, prejudices and confusion.

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Trends and Issues in Tax Policy and Reform in India

Business Opportunities in India - Tax and Legal Issues While looking at the prospect of doing business in India it would be prudent to see what options are available to a Non Indian company to invest in India. Since 1991 India has undergone a sea of change in its outlook toward foreign investment and global collaboration. Add to that the phenomenon called Internet and you really have an explosive combination. It's no wonder that software and Internet services have really led India's outward push.

Having your own setup Many foreign investors prefer to have their own setup in India. This gives them better control over management of the organization. It is also the best guarantee that the company's processes are being followed. Furthermore this may in some cases tend to be preferable, especially if the volume of work is large or the work is sensitive in nature. However there are also disadvantages in this approach.

One is regarding exibility. Often these branches or subsidiaries are bound by the policies of the parent company and this may make it unwieldy when it comes to Indian legal and cultural framework. Secondly, management of a remote setup is always more diďŹƒcult, especially if the work involved is intermittent and small in volume.

Basically there are four types of direct foreign investment businesses in India: a).

Branch OďŹƒce

b).

100% Subsidiary

c).

Joint Venture Companies

d).

Acquiring Existing Indian companies

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a). Branch office: It's really simple to set up a branch office in India. You are allowed to open a branch office if you are engaged in manufacturing or trading for the following activities: Ÿ

To represent your company in various matters in India e.g., acting as buying/selling agents in India, etc.

Ÿ

To conduct research work in which the parent company is engaged provided the results of the research work are made available to the Indian companies

Ÿ

To undertake export and import trading activities

Ÿ

To promote the possible technical and financial collaborations between the Indian companies and overseas companies

Under this setup, you will not be allowed to do any sales in India for any of your products or services. However if you are only looking at doing your software development or IT enabled services, then this is the easiest option. For this you need to fill up Form FNC 12 to the address given below: The Controller Exchange Control Department Reserve Bank of India, Foreign Investment Division Central Office, Central Office Building, 11th Floor Bombay - 400 023.

Any Chartered accountant in India will be able to source you this form.

Outsource to outsource2india and leverage the advantages of offshore outsourcing.

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b). Wholly Owned Companies (100% Subsidiary) If you would like to hand over control to the local management or would like to sell your products in India then look at this option. For the software industry, the Government of India allows up to 100% ownership by the Foreign Investor. Also, if you were to set up your office in an Export Processing Zone (EPZ), Software Technology Park (STP) or Electronic Hardware Technology Park (EHTP), then you will automatically be given permission for 100% ownership. The catch though is that you will have to export at least 75% of the final output out of India. Many of India's States have at least one of these Parks. Automatic approvals are given by the Secretariat for Industrial Approval for setting up 100% Export Oriented Units ("EOU"). These zones are designed to provide internationally competitive infrastructure facilities and duty-free and low cost environment. Various monetary and non-monetary incentives are granted which include import duty exemption, complete tax holiday, decentralized "single window clearance," etc.

Establishing units in EPZ or STPs have the following advantages: Ÿ

Duty Free imports

Ÿ

Tax free income

Ÿ

Readymade infrastructure

Ÿ

Housing and living facilities (in some cases)

For setting up units under 100% Export Oriented Unit Scheme you must submit an application to: The Secretariat for the Industrial Approvals (SIA) Department of Industrial Development, Udyog Bhawan, New Delhi - 110 001 For setting up units in EPZs, you can apply to the Development Commissioner of the concerned Export Processing Zone in 10 copies along with a crossed Demand Draft of Rs 2500/= (approx $60) drawn in favor of The Pay & Accounts Officer, Department of Industrial Development, Ministry of Industry, and payable at the State Bank of India, Nirman Bhawan Branch, New Delhi.

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c). Joint Venture Companies: This is a common form of investment, because it allows the Foreign Investor and the Indian partner to do what each does best - the foreign partner brings in technology, systems and products and the Indian partner takes care of Human resources, marketing and legal and tax issues. This is a special favorite for foreign companies just moving into India, since it gives you the distribution channel to get sales moving quickly. However over the long term you may prefer to move to a 100% subsidiary, to establish greater control. This is commonly done by means of stock buyouts or fresh investments. Both Wholly owned Companies and Joint ventures may be registered as Private Limited Liability (Pvt. Ltd.) or Public Limited Liability (Public Ltd.). Currently the government allows 51% shareholding by foreign companies in all but a small list of companies (these companies are essential to India's national security).

d). Acquisition of existing Indian Companies: You have also the option of acquiring a company already existing in India. Such acquisition could take place through the issue of fresh capital and /or transfer of shares of an existing Indian company to the foreign investor with the eect of transferring control. Shares of an Indian company could be acquired from another foreign investor, subject to RBI approval. This will give you the advantage of a readymade setup. The Foreign Exchange Regulations Act (FERA) makes it necessary that Reserve Bank of India (India's Federal Reserve Bank) permission be taken prior to acquisition of shares in an Indian company by a foreign investor. Similar permission is required in case of transfer of shares from you to a person resident in India. Either the transferor or the transferee can apply for permission.. However be careful with this one. If the company is listed on the stock exchange, then you cannot hold more that 5% of the total paid up capital and all Foreign investors and Non Resident Indians (in case there's more than one) cannot own in total more than 24% of the capital.

Outsource to outsource2india and give your organization a competitive advantage.

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Corporate Tax and other Incentives: The corporate income tax effective rate for domestic companies is 35% while the profits of branches in India of foreign companies are taxed at 45%. Companies incorporated in India (any setup other than a branch) even with 100% foreign ownership, are considered domestic companies under the Indian laws.

However, the New Export-Import Policy of 1992 provides substantial tax incentives for investments in Export. Major exporters are allowed to operate bank accounts abroad to facilitate trade. Companies that sell in the Indian market as well as international markets may deduct export earnings from their tax liabilities.

Exporters and other foreign exchange earners have been permitted to retain 25% of their foreign exchange earnings in foreign currency. For 100% Export Oriented Units and units in Export Processing Zones, Electronic Hardware Technology Parks, retention up to 50% is allowed.

Other incentives include: Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ

Tax holiday for a period of 5 continuous years in the first 8 years from the year of commencement of production Exemption from taxes on exports earnings even after the period of tax holiday Exemption from central and state taxes on production and sale Permission to install machinery on lease Freedom to borrow self-liquidating foreign currency loans at the prime rate of interest Inter-unit transfers of finished goods among exporting units

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2. Outsourcing your work to India The other option is to completely outsource your work to Indian companies. This has it's own advantages. For example For intermittent jobs, it may make better sense to pay only when you have work Also if the volume of work were small, it would always be difficult to achieve economy of scale Outsourcing ensures that while you may not be the best in a certain area, you are giving the work to someone who's really good at it. That leaves you to focus on what you do best Many Indian companies do a lot of business with International customers, so they would often be able to bring in expertise and advice from their earlier work Lastly but definitely not least, you have no legal hurdles to overcome when you outsource Due to these benefits many Companies prefer to get their work outsourced, leaving you to do the things that directly impact your success.

What ever you decide, you can be assured that our international team would be happy to work with you in making your business succeed.

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PROSPECTS AND PROBLEMS OF MSMES IN INDIA In India, the Micro, Small and Medium enterprises (MSMEs) play a leading role in propelling economic growth sustaining livelihood and in promoting equitable regional development. The MSMEs constitute over 90% of total enterprises in most of the developing economies and credited with generating the highest rate of employment growth and accounting for a major share of industrial production and exports . In India too, the MSMEs play a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for about 39% of the Manufacturing output and around 33% of the total export of the country. Further, in recent years the MSME sector has consistently registered a higher growth rate compared to the overall industrial sector.

Micro, Small and Medium Enterprises (MSMEs) play a vital role for the growth of Indian economy by contributing 45% of industrial output, 40% of exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. MSME’s Contribution towards GDP in 2011 was 17% which is expected to increase to 22% by 2012. There are approximately 30 million MSME Units in India and 12 million persons are expected to join the workforce in the next 3 years. MSMEs are the

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fountain head of several innovations in manufacturing and service sectors, the major link in the supply chain to corporate and the PSUs. By promoting MSMEs, the rural areas of India will be developed.

MSMEs are now exposed to greater opportunities than ever for expansion and diversification across the sectors. Indian market is growing rapidly and Indian entrepreneurs are making remarkable progress in various Industries like Manufacturing, Precision Engineering Design, Food Processing, Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro and Service sector.

Definitions of MSMEs The MSMEs of manufacturing enterprises have been classified into micro, small and medium enterprises based on the amount of investment in plant and machinery as follows; Manufacturing Enterprises – Investment in Plant & Machinery Description

INR

·

Micro Enterprises

·

Small Enterprises

·

Medium Enterprises

USD($)

·

Up to Rs. 25Lakhs

·

Up to $ 62,500

·

above Rs. 25 Lakhs & up to Rs. 5 Crores

·

above $ 62,500 & up to $ 1.25 million

·

above Rs. 5 Crores & up to Rs. 10 Crores

·

above $ 1.25 million & up to $ 2.5 million

The MSMEs of service enterprises have been classified into micro, small and medium enterprises based on the amount of investment in equipments as follows Service Enterprises – Investment in Equipments Description ·

Micro Enterprises

·

Small Enterprises

·

Medium Enterprises

INR

USD($)

·

Up to Rs. 10Lakhs

·

Up to $ 25,000

·

above Rs. 10 Lakhs & up to Rs. 2 Crores

·

above $ 25,000 & up to $ 0.5 million

·

above Rs. 2 Crores & up to Rs. 5 Crores

·

above $ 0.5 million & up to $ 1.5 million

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Objectives The main objectives of the present study are: ·

To examine the growth and performance MSMEs,

·

To reveal the contribution of MSMEs to the growth of the GDP and

·

To analyse the problems of MSMEs.

Methodology The present study has based on both primary and secondary data. The secondary data are collected from the website of the Ministry of Small and Medium Enterprises, the government of India. The primary data are collected through the personal discussion with entrepreneurs of these industries located in Dharwad district.

Analysis of prospects and problems of MSMEs It is clear from table 1 that the total numbers of MSMEs have increased from 105.21 lakhs in 2001-02 to 298.08 lakhs in 2009-10. The MSMEs have grown around three times in a span of ten years. However, they grow consistently till 2005-06 but in 2006-07 growth rate was unimaginable (i.e. 111.18 per cent) and thereafter the growth rate has been around 4.5 per cent till 2009-10 as compared to their respective previous years.. The fixed investments in these industries have gone up from Rs.154349 crores in 2001-02 to Rs.693835 crores in 2009-10. The fixed investments in these industries have increased by more than four times in 10 years. Like the growth rate in number of industries, the fixed investment in these industries grow at around 5 per cent but in 2006-07, the growth rate was 264.70 per cent. The fixed investment in these industries after 2006-07 till 2009-10 has grown consistently around 11.50 per cent. This indicates that lot of investment has been made in MSMEs to increase their development in the interest of nation. The production from these industries has gone by around four times from 2001-02 to 2009-10. Further, these industries contributed lot in providing employment opportunities to unemployed workforce. The numbers of persons employed in these industries have increased from 249.33 lakhs in 2001-02 to 695.38 lakhs in 2009-10, which indicates that there has around three time increase in employment in a span of ten years. The growth rate in employment except 2006-07 has been consistent over a period of the study. In addition, these industries also

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contributed lot in earning foreign exchange to India. The exports from these industries have increased from Rs.71244 crores in 2001-02 to Rs.2022017 crores in 2007-08. This also signiďŹ es that there has an around three time increase in exports in a span of seven years.

Table 1; Growth and Performance of MSMEs in India

Year

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Total MSMEs

Fixed Investment

(lakh numbers)

(Rs. Crore)

105.21 109.49 (04.06) 113.95 (04.07) 118.59 (04.07) 123.42 (04.07) 261.01 (111.48) 272.79 (04.51) 285.16 (04.53) 298.08 (04.53)

154349 162317 (05.16) 170219 (04.87) 178699 (04.98) 188113 (05.27) 500758 (264.70) 558190 (11.47) 621753 (11.39) 693835 (11.59)

Production

Employment

Exports

(Rs crore)

(lakh persons)

(Rs. crore)

282270 314850 (11.54) 364547 (15.78) 429796 (17.90) 497842 (15.83) 709398 (42.79) 790759 (11.47) 880805 (11.39) 982919 (11.59)

249.33 260.21 (04.36) 271.42 (04.31) 282.57 (04.11) 294.91 (04.37) 594.61 (101.62) 626.34 (05.34) 659.35 (05.27) 695.38 (05.46)

71244 86013 (23.73) 97644 (13.52) 124417 (27.41) 150242 (20.76) 182538 (21.50) 202017 (10.67) NA NA

Source; Annual Reports of Ministry of Small and Medium Enterprises Figures in parentheses indicate growth rate in percentage as compared to their respective previous years.

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Table 2;Contribution of MSE (%) at 1999 - 2000 prices in tota l industrial Production and GDP Year Percentage share in total Percentage share in total industrial production GDP 39.74 5.86 1999-2000 39.71 6.04 2000-2001 39.12 5.77 2001-2002 38.89 5.91 2002-2003 38.74 5.79 2003-2004 38.62 5.84 2004-2005 38.56 5.83 2005-2006 38.57 5.94 2006-2007 Source: Annual Report, 2008-09. Ministry of Micro, Small and Medium Enterprises, It can be witnessed from table 2 that the contribution of the MSME sector to overall industrial production has declined marginally from 39.74 per cent in 1999-2000 to 38.57 per cent in 200607. The contribution of the MSME sector to the Gross Domestic Product (GDP) has increased from 5.86 per cent in 1999-2000 to 5.94 per cent in 2006-07. This signiďŹ es that the need of MSMEs in the growth and development of Indian economy.

Table 3; Comparative Growth Rates Year

Growth rate of MSMEs

Overall Industrial sector

(%)

(%)

2002-2003

8.68

5.70

2003-2004

9.64

6.90

2004-2005

10.88

8.40

2005-2006

12.32

8.10

2006-2007

12.60

11.5

2007-2008*

13.00*

8.0

*Projected Source: Annual Report, 2008-09. Ministry of Micro, Small and Medium Enterprises,

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The MSME sector has maintained a higher rate of growth vis-à-vis the overall industrial sector.

It is clear from the data of table 3 that the growth rate of MSMEs has increased from 8.68 per cent in 2002-03 to 13.00 per cent in 2007-08 where as the growth rate in overall industrial sector has increased from 5.70 per cent to 8.00 per cent during the same period with increasing trend till 2006-07 but declined in 2007-08. This indicates that the contribution of MSMEs has been much higher as compared to over industrial sector in India. The father of nation, Mahatma Gandhiji said that the small and micro enterprises are the backbone of Indian industrial sector. Th e sayings of father of nation has been holding true in Indian economy. Therefore, the central as well as state governments should give priority in the development of this sector by making them more competitive.

Problems of MSMEs Despite of commendable contribution to the nation's economy, the MSME sector does not get the required support from the concerned Government Departments, Banks, Financial Institutions and Corporate, which become a handicap for more competitive in the National and International Markets. The MSMEs faces a number of problems. The main problems of MSMEs in India are: ·

Absence of adequate and timely supply of bank finance,

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Limited capital and knowledge,

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Lack of power,

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Low quality inputs,

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Low return,

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Non-availability of suitable technology,

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Low production capacity,

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Ineffective marketing strategies,

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Identification of new markets,

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Constraints in modernisation and expansions,

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Transportation problems,

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Lack of adequate warehousing,

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Lack of information,

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Lack of training,

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High competition,

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Non availability of highly skilled labour at affordable cost.

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Increase in excise duty, service tax and lack of road map to control ďŹ scal deďŹ cit is worry sign for the market

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