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Performance Evaluation of MSMEs – An Empirical Study Abstract
D.Sudarsana Murthy
Sree Vidyanikethan Institute of Management Sree Sainath Nagar, A.Rangampe, TIRUPATI – 517 102, Andhra Pradesh, INDIA
Abstract : It will not be less than correct to say that India got the political freedom on 15th August, 1947, but not the economic freedom i.e., emancipation from poverty and unemployment was the biggest challenge before the country. As a result Small Scale Sector was recognized as employment oriented sector during the early sixties. The employment oriented thinking for Small Scale Sector underwent changes by the end of sixties and now Small Scale Sector was recognized as an effective instrument to utilize the entrepreneurial potential remained hitherto dormant in the country. Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades.
The study is based on both primary and secondary data.
The secondary data with regard operational performance and forms of business were collected from the Annual Reports of MSMEs, Books, Journals and daily news papers etc., Besides this, a field study related to MSMEs in Chittoor District of Andhra Pradesh has been conducted to collect primary data with regard to problems faced by entrepreneurs of MSMEs through pretested schedules.
In order to identify the majour problems of Micro Small and Medium Enterprises, 50 entrepreneurs are selected at random from different forms of business in Chittoor District of Andhra Pradesh.
In the current scenario for the SSI sector to achieve economic efficiency and international quality standards, there is an imminent need to upgrade its technology.
While the setting up of the Technology Bank, as announced in the comprehensive policy package for MSMEs would facilitate technology transfer and match making, creation of a separate Small Industries Development Fund at the earliest would meet the much needed financial requirements of the sector for mass scale technology up gradation. The suggested fund would also provide access of resources for infrastructure, marketing development and other similar requirements of the sector. These measures are expected to help in accelerating the pace of growth of the sector.
Keywords: MSMEs, Technology, employees, performance, Small Scale Industries, Large Scale Industries etc.,
It will not be less than correct to say that India got the political freedom on 15th August, 1947, but not the economic freedom i.e., emancipation from poverty and unemployment was the biggest challenge before the country. The war for economic freedom started in 1950s in the form of planned economic development.
Then, it was realized that the way to get rid of poverty and unemployment lies in the effective exploitation of hidden potential of human resource in the country. For this, the policy makers started advocating the promotion and development of Small Scale Industries in the country. As a result Small Scale Sector was recognized as employment oriented sector during the early sixties. The employment oriented thinking for Small Scale Sector underwent changes by the end of sixties and now Small Scale Sector was recognized as an effective instrument to utilize the entrepreneurial potential remained hitherto dormant in the country.
MSMEs – A PARADIGM SHIFT:
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural and backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs are complementary to large scale industries as ancillary units and this sector contributes enormously to the socio - economic development of the country.
The Micro, Small and Medium Enterprises Development (MSMED) Act was notified in 2006 to address policy issues affecting MSMEs as well as the coverage and investment ceiling of the sector. The Act seeks to facilitate the development of these enterprises as also enhance their competitiveness. It provides the first-ever legal framework for recognition of the concept of “enterprise” which comprises both manufacturing and service entities. It defines medium enterprises for the first time and seeks to integrate the three tiers of these enterprises, namely, Micro, Small and Medium. The Act also provides for a statutory consultative mechanism at the national level with balanced representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions.
Allocation of specific funds for the promotion, development and enhancing competitiveness of these enterprises, notification of schemes / programmemes for this purpose, progressive credit policies and practices, preference in Government procurements to products and
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services of the micro and small enterprises, more effective mechanisms for mitigating the problems of delayed payments to micro and all enterprises and assurance of a scheme for easing the closure of business by these enterprises are some of the other features of the Act.
MSMEs – Its Classification
In accordance with the provision of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the Micro, Small and Medium Enterprises (MSME) are classified into two classes.
a) Manufacturing Enterprises: The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first scheduled to the Industries (Development and Regulation) Act, 1951. The manufacturing Enterprises are defined in terms of investment in Plant and Machinery.
b) Service Enterprises: The enterprises engaged in providing or rendering of services are defined in terms of investment in equipment.
Literature Review
1. Khanka (1990) studied 50 Small Scale Entrepreneurs which were in backward region of the Kumaun Division of Utter Pradesh regarding the emergence, performance and problems of entrepreneurship. He has traced some problems of Small Scale Enterprises.
2. Bhatia, B.S., and Sharma, P.K., (1989) surveyed 108 Small Entrepreneurs in the State of Punjab to know the influence of various socio-economic variables on the performance of the enterprises. The study came to a conclusion that the variables such as specific occupation, family background, technical education etc., had a positive influence on the performance of the enterprise.
Design and Methodology
The study is based on both primary and secondary data.
The secondary data with regard operational performance and forms of business were collected from the Annual Reports of MSMEs, Books, Journals and daily news papers etc., Besides this, a field study related to MSMEs in Chittoor District of Andhra Pradesh has been conducted to collect primary data with regard to problems faced by entrepreneurs of MSMEs through pretested schedules.
In order to identify the majour problems of Micro Small and Medium Enterprises, 50 entrepreneurs are selected
at random from different forms of business in Chittoor District of Andhra Pradesh.
Period of the Study
So as to draw meaningful inferences, the study has been undertaken for 5 years i.e., from 2009-10 to 2013-14.
Objectives of the Study
The following are the specific objectives of the study:
1. to Review the genesis of MSMEs
2. to Analyse the operational performance of MSMEs in the country
3. to Examine the forms of business in MSMEs 4. to evaluate the problems and prospects of MSMEs 5. to evolve a package of suggestions for future
prospects of MSMEs.
OPERATIOAL PERFORMANCE OF MSMEs – A REVIEW
Performance evaluation of MSMEs in the country is done by taking indicators such as of number units, employment opportunities generated by MSMEs and Gross Output.
MSMEs Growth Rate:
Table – 1: Number of MSMEs and Growth Rate (in lakhs)
Year No. of Units Growth Rate in %age
2009-10 410.80 -
2010-11 428.73 4.19
2011-12 447.64 4.38
2012-13 467.54 4.26
2013-14 488.56 4.49
Source: Annual Report 2014-15, Govt. of India, Ministry of Micro Small and Medium Enterprises, New Delhi.
It is obvious from the Table - 1 that the number of MSME enterprises has been increasing and growth rate also showing upward trend except the year 2012-13.
The number of units started increasing from 410.80 lakh units to 488.56 lakh units which shows nearly 20 per cent increasing trend during the study period. After implementing MSMED Act, 2006 the number of MSME units started increasing. The calculated growth rate with regard to number of units shown increasing trend starting from 4.19 per cent in 2010-11 and to 4.49 per cent during the study period. Fig.1 depicts the growth rate of units established.
Fig.1: Showing the Growth Rate of No. of Units established
Classification of MSMEs by Nature of Activity:
Table – 2: Classification of MSMEs (In Lakhs) Sl.
No.
Sector Number Percentage
to Total 1. Manufacturing /
Assembling /
Processing
115.00 31.79
2. Service Sector 246.76 68.21
Total: 361.76 100.00
The break – up of MSMEs in terms of their nature of activity is shown in Table – 2. Nearly, two thirds of total enterprises were engaged in service sector and only 31.79 per cent were engaged in Manufacturing / Assembling/ Processing Activities.
The researcher tried to get the recent data with regards to total number of enterprises for classification purpose.
In various Annual Reports the required data along with classification and social strata etc., were not available.
Hence, 2006-07 datahas treated as recent data.
Table – 3: Operational Performance of MSMEs Year Employment
(in lakhs)
Growth Rate in
%age
Gross output (in crores)
Growth Rate in
%age 2009-10 921.79 - 1619355.53 - 2010-11 965.15 4.49 1721553.42 5.93 2011-12 1011.69 4.60 1834332.05 6.19
2012-13 1061.40 4.68 NA -
2013-14 1114.29 4.75 NA -
Source: Ibid.,
A cursory look at the Table-3 indicates that the total number of employees have been increasing. As on 2009-10 it was 921.79 lakh and increased to 1114.29 lakh which increased nearly 8 times. The same trend could be observed in gross output also. In the year 2009-10 the gross output was Rs.1619355.53 crore, slowly increased to 1834332.05 crore which was recorded the growth rate of 6.19 per cent.
Forms of Business – A Cursory Look
Small Industrial Units are by and large started by persons who value independence and are desirous of obtaining the highest rewards for their initiative, innovation, technical skills, business acumen and
experience. As Nihal Singh has aptly observed: “The owner of a small industry values his undertaking for the job it provides him as well as for any return it may make on his investment capital”. The chief forms of an ownership and number of units of MSMEs are presented in table – 4.
Table – 4: Forms of Business of MSMEs (in lakhs) Type of Ownership Number of Units Proprietary 341.54 (94.41)
Partnership 4.28 (1.18)
Private Company 0.49 (0.01) Co-operatives 1.21 (0.33)
Others 14.24 (3.93)
Total 361.76 (100)
Source: Annual Report 2014-15, Govt. of India, Ministry of Micro Small and Medium Enterprises, New Delhi.
Figures in parentheses represents percentage to total The ownership pattern of MSMEs is highly lopsided and skewed in favour of proprietary enterprises is well indicated by 94.41% of enterprises are as proprietary type. These are followed by partnership forms (1.18%), Private Companies (0.01%), Co-operative firms (0.33%). Other form of business is account for only 3.93 per cent. Sole Proprietary form of business is more in MSMEs, which accounts for 94.41 per cent. This kind of business form generally faces the financial and managerial problems. Fig.2 can explain the type of ownership.
Fig. 2 shows the forms of business
Social Strata of the enterprises:
Table - 5: Social strata of the Enterprises (In Lakhs) Sl.
No.
Social
Strata Registered Un-
registered Total
1. SC 1.19
(4.20)
27.15 (95.80)
28.34 (100)
2. ST 0.45
(2.16)
20.40 (97.84)
20.84 (100)
3. OBC 5.99
(3.90)
147.74 (96.10)
153.73 (100)
4. OC 8.01
(5.04)
150.83 (94.96)
158.83 (100)
Total 15.64
(4.32)
346.12 (95.68)
361.76 (100) Source: 1. Annual Report 2012-13, Govt. of India, Ministry of Micro Small and Medium Enterprises, New
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Delhi.
2. Figures in parentheses represent percentage to total
As evidenced from the Table – 5 that majority of the entrepreneurs belong to O.C. category followed by O.B.C. category. ST Category is very low because of existence of various financial problems. The down trodden and retarded sections like SC and ST are fewer in number. This may be due to unfavourble economic, political, social and administrative conditions. Fig.3 can given clear picture of social strata of the total enterprises.
Fig.3 Showing Social Status of MSMEs Established
Field Study – An Analysis
In this field study the problems with regarding to MSMEs is highlighted. To know the actual problems of MSMEs 50 sample respondents are selected at random.
Majority of the sample respondents are related to sole proprietors. The problems brought by the sample respondents to the notice of the researcher were presented in tables form:
Table – 6: The Educational Background of the Sample Repondents
Sl.
No.
Qualifications No. of Respondents
1. Post-Graduation 08 (16) 2. Graduation 26 (52) 3. Intermediate 14 (28)
4. SSC 02 (04)
5. Illiterarates Nil
Total 50 (100)
Source: Field Study
Figures in parentheses represent percentage to total It can be observed from the table-6 that among 50 respondents 16 per cent belongs to Post-Graduation, 52 per cent graduation and 28 per cent belongs to under graduation and only four belongs to SSC/SSLC. It can be concluded that most of the entrepreneurs are educators.
Table – 7: Entrepreneur and Forms of Business Sl.
No.
Form of Business Number of Respondents
1. Sole Trading 42 (84)
2. Partnership 05 (10)
3. Hindu Un-divided Family 02 (04) 4. Private Ltd., Company 01 (02)
Total 50 (100)
Source: Field Study
Figures in parentheses represent percentage to total It can be observed from Table-7 that sole trading form of business occupied first place (84 per cent) followed by partnership, Hindu Un-divided Family and Company form of business. In MSME sector most of the entrepreneurs are sole traders.
Table – 8: Problems reported by the sample respondents Sl.
No.
Type of Problem No. of Respondents
% to total*
1. Raw-materials 25 50
2. Marketing 34 57
3. Manpower 20 40
4. Competition from
Large Scale
Industries
32 64
5. Financial 40 67
6. Technological 27 54
7. Under utilization of capacity
26 52
8. Other Problems 22 44
Source: Field Study
* Multiple Responses
Table No.8 reveals that majority of the respondents (entrepreneurs) reported that Finance is the majour problem (67 per cent) followed by the competition from large scale industries (64 per cent). Next to competition marketing problems have been reported by 34 respondents, constituting 57 per cent. Technology is also playing a vital role on the competition where in 27 respondents which constitutes 54 per cent.
Findings
The MSME Units mainly fall in sole trading and partnership form of business. These forms of businesses naturally face financial and managerial problems:
The growth rate of number of units established during the study period has shown upward trend
which ranges from 4.19 per cent to 4.49.
MSMEs created more employment opportunities which increased from 921.79 lakh to 1114.29 lakh during the study period.
The output of MSMEs recorded in the year 2009- 10 at 1619355.53 crores and rose to 1834332.05 crore.
In forms of Entrepreneurship, the sole proprietorship recorded 94.41 per cent.
Majority of the entrepreneurs have not registered their enterprises.
The MSMEs are facing lot of competition from domestic and global companies.
Technological problem is also a majour problem to compete with global companies while selling the products.
Due to lack of sufficient knowledge, the entrepreneurs are not in a position to utilize resources effectively.
Some MSMEs are poor in procuring the required raw-materials due to their financial inability.
Further, it is found that the entrepreneurs of MSMEs need entrepreneur skills.
In many instances, business ideas and exposures are not upto date and adequate, rules and regulations are less understood, product and market knowledge are not upto the mark, business remains confined within local or regional market.
Suggestions
The Government of India has taken some steps to save MSMEs. A separate Ministry for MSMEs was setup.
The following steps are to be taken by the government to develop MSMEs:
Small business started without proper planning have more chances of failure than those that have proper planning strategies.
Most of the entrepreneurs are Sole Traders who don’t have all skills which are required to maintain the business unit and for which they need training.
The Government should identify such persons and provide training facilities.
The infrastructural facilities are very less. The government should concentrate to develop such facilities to MSME entrepreneurs through
establishing further centres in rural areas.
Many entrepreneurs suffers due to finance problem. Banks and other financial institutions should come forward and provide liberal finances on time especially in purchasing of raw materials etc.,
National Small Industries Corporation [NSIC] has to procure the large orders and distribute them to
MSMEs to create marketing facilities.
Extended financial assistance for locational shift of affected units in addition to the provision of infrastructural facilities to enable MSMEs to conform to environment cleanliness.
Summing-up
To sumup, the entrepreneurs are facing a plethora of problems in the functional areas of production, finance, marketing and other related areas of management. Their contribution to industrial development is unique and noteworthy. It is high time to explore new strategies and programmes to promote entrepreneurship in the country.
In the current scenario for the SSI sector to achieve economic efficiency and international quality standards, there is an imminent need to upgrade its technology.
While the setting up of the Technology Bank, as announced in the comprehensive policy package for MSMEs would facilitate technology transfer and match making, creation of a separate Small Industries Development Fund at the earliest would meet the much needed financial requirements of the sector for mass scale technology up gradation. The suggested fund would also provide access of resources for infrastructure, marketing development and other similar requirements of the sector. These measures are expected to help in accelerating the pace of growth of the sector.
The process of liberalization and globalization has necessitated technological up-gradation and the building of appropriate marketing and other related infrastructure.
Entrepreneurs need to hasten the transition from existing levels to higher standards in terms of quality and design in order to become internationally competitive.
Thereafter, constant adaptation and innovation would hold the key to sustained competitiveness. In order to do so, there is need for internalizing, not only new technology, but also effective management techniques and economies of scale. The government has already enhanced the limit of investment in plant and machinery in select subsectors of the SSI sector to facilitate their vertical expansion and building of competitive strength.
REFERENCES
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“Entrepreneurship”, McGraw Hill Education (India) Private Limited, New Delhi, Pp.2-8.
[4] Vasant Desai, (2011), “Small Scale Industries and Entrepreneurship”, Himalaya Publishing House, Mumbai, Pp.120-2-125.
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[5] Vasant Desai., (2012), “Theories of Entrepreeurship”, Himalaya Publishing House, Mumbai, Pp. 225-232.
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