Ratings help MSMEs attain greater and easier flow of credit, says Parag Patki of SMERA

MSME ratings help raise corporate governance, bring transparency and also improve the reporting standards, according to Parag Patki, CEO of SME Rating Agency of India(SMERA).

He also divulged the information that SMERA would mainly focus on SME ratings and is targeting to achieve cumulative ratings of 25,000 SME ratings this year.

What is the role that SMERA aims to play in India's SME sector?

Parag Patki: SMERA is striving to reduce information asymmetry within the sector by acting as an independent, third party, unbiased risk-opinion provider to the business ecosystem of the SME world. Considering SMERA’s completion of seven years in the business and its experience of rating over 17,000 MSMEs, SMERA is confident of becoming a bridge to plug the information gap between MSME borrowers and lenders such as banks and financial institution and enhance the credit flow to this sector. Moreover, SMERA’s rated universe will also provide comfort to the corporate sector in getting access to quality, well managed and funded pool of units. Policy advocacy is the other role that SMERA aims to play once the rating universe achieves a critical mass in the immediate future.

SMERA also plays the role of an advocator to the MSMEs on the benefits of accepting the good corporate governance practices and bringing transparency within their unit. SMERA has found that the credibility of its consistently rated clients have improved if such units have displayed improvement in successive ratings.

Kindly share the relevance of credit ratings for SMEs?

Parag Patki: The relevance of credit ratings for SMEs are mentioned as follows -

a)Concessional funding & lower collateral: Ratings facilitate greater and easier flow of credit from the banking sector to MSMEs.

b) Better market standing: Acceptance amongst lenders, trading partners (local as well overseas) and prospective customers.

c) Quicker credit decision at the lender’s level: Ratings provide comfort to the lenders thus reducing time to lending and cost of lending.

d) Better Governance: MSME ratings provide an impetus to raise corporate governance, transparency and reporting standards.

How do you think that the Indian SMEs are performing in the present global scenario?

Parag Patki: Slowdown in domestic demand coupled with weak global demand is pressuring both domestic and export oriented (SMEs which are engaged in 100% exports have been adversely impacted vis a vis SMEs having both domestic as well as overseas exposure). Also, stretched receivable cycle is further exacerbating the downward pressure on ratings. The increased financing cost and input cost (due to inflation) has exerted strain on their financial position. However, SMEs catering to domestic market are still exhibiting moderate growth.

As per SMERA, the general direction of the rating has a downward bias (% of ratings in upgrade category have continued to exhibit reducing trend even in the Q1 of FY 12-13). In FY 2010-11, around 38% of the total cases which had approached SMERA for review ratings were upgraded; however the percentage has dropped to around 21% in FY 2011-12. The data is as under:

Year	Upgrade %	Downgrade %
FY 2010-11	37.78%	10.37%
FY 2011-12	21.48%	12.50%

What are the key challenges faced by the Indian SME sector?

Parag Patki: The key challenges faced by the sector are as follows:

· High cost and terms of borrowings.

· Limited and timely access to bank loans.

· Unavailability of requisite volume of affordable skilled labour.

· Constraints on modernisation and expansion and adoption of newer technology.

· Limited bargaining power with the corporates resulting in stretched collection period and squeezed margins.

· Power shortage.

· Lack of infrastructure.

Do you feel that government policies (both Centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues?

Parag Patki: Government have been taking various steps to promote the SMEs such as:

· Extending collateral free loans upto Rs 1 cr under CGTMSE scheme.

· Providing credit linked capital subsidy (CLCSS) for technology upgradation.

· Classifying loans to SMEs as priority sector to increase bank lending to the SME sector.

·SME Stock Exchange for enabling the SMEs to access the capital market.

· MSME Ministry operates a 'NSIC Performance and Credit Rating Scheme' and offers 75% rating fee subsidy for SSI units.

· Ease of bidding for government contracts for rated SME units.

· Lack of awareness is affecting the utility of these schemes.

Do you feel that ICT (information and communication technology) usage by SMEs has gone up?

Parag Patki: Yes, our communication with SMEs indicates that the usage of ICT is increasing exponentially, given the obvious reach and cost advantages that ICT bestows upon the sector.

A recent study conducted by FICCI shares some valuable insights as under-

- Almost 74% of the respondents (SMEs) have their company’s website.

- 79% of the respondents (SMEs) use ICT tools in their day to day business operations. It implies that most of the people are aware about ICT and understand its importance and therefore use ICT tools in their day to day business operations.

- 79% people who use ICT tools in their day to day business operations, maximum usage of ICT tools is done for promoting sales and marketing (79%) by different companies (SMEs), followed by finance (67%) and market research (53%). Very few companies (21%) use ICT tools in their supply chain activities.

- Out of the people who use ICT tools in their day to day business operations, maximum respondents (95%) find them beneficial in one or the other way.

What is the outlook for the SME sector in this year?

Parag Patki: In the next two-three quarters, SMERA expects sharp increase in pressure. Moreover, enhanced risk perception among banks could also lead to lower bank funding for the SMEs. From a medium to long term perspective, structural dynamics of the global slowdown will have the largest bearing on competitiveness of export oriented SMEs. Slowdown in the domestic consumption due to inflation may have a moderate effect on the growth of SMEs. The lower growth of GDP, high inflation and dull export market will have added bearing on the SME sector.

Fitch downgraded the outlook for the domestic retail sector to 'negative' from 'stable'. It has hinted at further rate cut in the future. How do you think it will impact the Indian SMEs?

Parag Patki: Textile oriented retail sector is currently facing high inventory, debt pile up and overall deterioration in the consumption due to reduction in discretionary spending. These factors will impact overall demand (due to lower demand)/ lower credit flow (bank & other lending channels)/ tighter cash flows (due to delayed payments) as the retailers tighten their belt and adopt stricter working capital management to manage their business, thus impacting the Indian SME sector.

RBI's move to leave rates unchanged for the second consecutive policy review has been criticised by India Inc. How do you think it will impact the growth of SMEs?

Parag Patki: Growth of SMEs would be impacted due to lower bank credit as a result of higher risk perception among banks and also prohibitive costs of borrowing at the SME level. This would not change due to RBI move to retain the rates for the second consecutive policy review. The costs of borrowing coupled with high raw material prices, high labour costs are affecting SME profitability. It would also affect the capex plans of SMEs and affect their overall growth. However, inflation is also hitting SMEs sector on account of increased cost of --input and labour cost and therefore regulatory action from a perspective to control uncomfortable level of inflation should be appreciated.
SMERA’s analysis also reveals that bank credit to MSME, as a percentage of total bank credit, is at a six year low of 20.6% (Source- Deployment of Gross Bank Credit by Major Sectors; RBI). This is lower than the average by around 1.2 percent (1.2 per cent translates to Rs.57,000 crs). Hence, bank funding to SMEs has reduced by over Rs 57,000 crore on a relative basis. Also, on an absolute basis MSME credit has grown by only 12 per cent (June 17, 2011 to June 29, 2012) as against overall bank credit growth of over 19 per cent for the same period.

Inflation in India eased in July to 6.87% as compared to June. Do you think it is a signal of the changing times in Indian economy?

Parag Patki: Weak infrastructure and power scenario will continue to remain as bottlenecks. Even though the inflation has eased to 6.87%, the fiscal deficit of India is widening due to continuous decline in exports and increase in oil prices, which is a dominant constituent of our imports. The weakened Rupee has also added to our woes, further pushing up import cost. The food inflation also continues to hover at the 10+% mark. With poor monsoon in India and large scale crop damage in US this year, food inflation may further go up and push the overall inflation rate. Hence, in SMERAs opinion this is still not a clear signal for changing times for our economy.

Kindly share the roadmap of SMERA for the on-going financial year 2012-13.

Parag Patki: While SMERA would primarily focus on SME ratings and is targeting to achieve cumulative ratings of 25,000 SME ratings this year, SEBI licence to rate bonds and IPOs would enable SMERA to diversify its offerings to the corporate sector too. SMERA is also keenly awaiting accreditation from RBI for Bank Loan Ratings which will open doors to the SMEs as well as corporate sector to a choice of better service as well economical pricing advantage. In addition, SMERA would continue to evolve newer products so as to cater to the requirements of bottom of the pyramid SMEs and also play an important role in financial literacy of the sector with the help of technology. Similarly, handholding SMERA rated universe to explore newer avenues of funding for growth such as: SME Exchange/ Private Equity/Risk Capital/Venture Capital will be other focus areas this year for SMERA.

Overdue invoices pose biggest hindrance in SME growth

 Chasing overdue payments is the biggest obstacle in the growth of the small and medium scale enterprises (SMEs). To get rid of this unfair business practice, the small traders have sought government intervention with the setting up of a full-power regulator which will ensure the timely payment of all invoices by the big players.

Reports suggest that the problem of late payment is continuously affecting the cash flows of numerous small companies and severely restricting the efficiency of their business. Hard hit mid-sized traders have demanded the authorities to enforce some rigorous regulation and play a proactive part in doing away with this ailment. Primarily, the irregularities of large players are responsible for the dwindling cash flow of the small scale units.

The SMEs or small scale industries (SSI) say that there are very few big companies who follow the payment norms of 45 days and give a lame excuse of not receiving the bills, which is always sent along with delivery of goods.

The syndrome needs to be cured on an urgent basis as it is continuously hitting the SMEs hard and is the reason for them reeling under the pressure of overdue invoices. Usually, the large companies attribute the delays in settlement of payment of bills to lengthy and complex bill passing procedures, following the cheque preparation, signing and handing-over procedure, which entails a few weeks to months to come up with a final payment.

Besides, the interest retrieving is another matter of concern for the mid-sized companies. In a bid to maintain a healthy and long-term relationship with their clients, small traders turn a blind eye to the interest and the clients leave no stone unturned to take undue advantage of the situation.

The government offers a legal approach for SMEs facing such a problem in Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.. It is aimed to facilitate the promotion and development besides competitiveness enhancement of MSMEs.

In order to curb the growing menace of overdue invoices, the representatives of several small firms have submitted there suggestions in a survey, helping the small traders to get their accounts paid much more quickly while keeping all of their clients happy without facing any confrontation.

The introduction of credit policy in an organisation has been voted as the best way to protect the revenue of the business. An effective credit policy not only ensures good commercial practice but also protects the revenue. The creation of credit policy involves a secured copy of all invoices in a file, along with a weekly check on them and act accordingly.

On the other hand, the constitution of an SME certificate-issuing body has also been hinted as the measure to pause the late payment sequence. Small traders seek the body to have powers to keep a close watch on big firms, conduct audit at frequent intervals, and issue No Objection Certificates (NOCs).

The introduction of a 'credit card type system' can also minimise the problem at some extent. The industry seeks the body to come up with defined credit-period among the parties and in case the period has not been mentioned, it should include the maximum number of days to clear the payments. The system should also include the lenders to offer a collective system of operation of settling the payment and the credit period.

The setting up of a credit-rating body to voice problems and concerns of SME sector has also been proposed by the respondents. The body is recommended to be constituted through a forum or a third party.

The government should come up with a stricter legislation against the bigger companies who are disheartening the potential SMEs with unfair business practices and affecting the small and mid-sized companies who have limited cash flow and limited bank support. The joint cooperation from the fellow-traders and government is highly required to reduce this menace.

ITPO provides needful impetus to MSMEs, says Rita Menon, CMD of ITPO

Accentuating ITPO's major contribution in bringing the Indian businesses particularly those in the SMEs and MSMEs sectors closer to global markets, Rita Menon, chairman & managing director (CMD) of Indian Trade Promotion Organisation (ITPO) said that the organisation puts special focus on SMEs/MSMEs products and services during its B2B specialised activities.

 

ITPO's exhibitions in India and abroad are the most reliable platform for promotion of SMEs, she said in an exclusive interview.

 

 

How would you relate trade fairs with SMEs/MSMEs ?

Rita Menon: ITPO has been playing a pioneering role in the national trade growth dynamics since its inception. As an ideal catalyst for India’s trade promotion, ITPO provides desired impetus to the process of enhancing technological capability of the SMEs and MSMEs. These events offer a unique forum of B2B meetings for promotion of these sectors. 

 

 

What is the current scenario of trade and business in India?

 

Rita Menon: Integrating with the global economy, Indian trade and commerce is in a transition stage. In view of the contemporary challenges in the country, a fresh initiatives have been taken by the Government such as economic reforms and the country is becoming investor-friendly. Indian companies are competitive effectively both at home and abroad. They are also investing around the world.

 

 

 

ITPO primarily aims to promote country's external trade. What new business initiatives your organisation has undertaken in recent years to promote India's external trade?

 

Rita Menon: ITPO organises national level participations in major international trade fairs and exclusive India trade shows overseas in line with the market opportunities. These efforts are made and in keeping with the Government’s focus programmes in the Africa, Latin America, specific CIS countries and also for promotion of products including setting-up exhibitions in different countries where bilateral agreements have been taken place. Currently, ITPO organises India pavilions in around 30 trade fairs. Some of the prominent overseas events in which ITPO organises national participation are: Anuga Food Fair, Cologne, Sial, Paris, AF-L Artigiano de Fiera, Milan, Hospitalar, Sao Paulo, Asia Pacific Leather Fairs, Hong Kong, AApex, Las Vegas, Australia International Sourcing Fair, Sydney, Foodex, Tokyo, Africa Big Seven/Saitex, Johannesburg, National Hardware Show, Las Vegas and Practical World, Cologne. Besides, two highly popular regular ‘India Shows’ are organised in Osaka, Japan annually are India Home Furnishings Fair and India Garment Fair.

 

It is a matter of pride that ITPO has been the official organiser of India’s participation at World Expo series and would be playing the same role in Expo Milan 2015.

 

 

 

How is your organisation helping SMEs in disseminating information about their enterprises and also accessing markets? Rita Menon: Apart from its role in bringing the Indian businesses particularly those in the SMEs and MSMEs sectors closer to global markets, ITPO provides reliable trade information to the foreign buyers and exporters. Its dedicated trade portal: tradeportalofindia.com assists in accessing potential markets for SMEs. Besides, ITPO has always special focus on SMEs & MSMEs products and services during its B2B specialised activities including IITF, an annual magnum opus of the organisation.

 

How, according to you, MSMEs, can extend their reach to customers in different markets in such a competitive environment?

 

Rita Menon: In this fiercely competitive scenario, India MSMEs have to improve, upgrade and acclimatize their products and services, as per the global standards in quality. Promotional back-up through exhibitions and e-commerce play a pivotal role in business expansion and brand promotion
globally. 

 

 

For SMEs, which is the most effective way of promoting trade?

 

Rita Menon: As earlier mentioned, ITPO’s exhibitions in India and abroad are the most reliable platform for promotion of SME’s. Along with interaction with potential buyers, these events offered opportunities in the form of technology transfer, exploration of joint ventures and creating fresh business network.

Nearly 40% Indian engineering exports driven by SMEs, says EEPC India

Indian SMEs are responsible for about 35-40% engineering exports, said Aman Chadha, chairman of EEPC India.
 

He also threw light on the poor conditions of the engineering players in India and also stressed on the importance of government initiatives to strengthen the presence of these firms at the global level.

 

 

 

What is the role that EEPC India aims to play in India's SME sector?
 

Aman Chadha:  60% of EEPC India’s constituents belong to the MSME sector, which is what the SME is called after the 2006 amendment. Hence, our activities are tailor made for the development of the MSME engineering sector of the country. We suggest progressive policy measures to the government, promote MSME products in exhibitions abroad, hold a wide range of developmental activities to enable our members to gather information on market developments, quality standards, regional trade agreements, publish various journals and information materials for both MSME as well as all our members so that India’s engineering industry and its exports thrive.

 

 

What are the current projects being undertaken by EEPC India?
 

Aman Chadha: EEPC India is participating in about 30 to 35 specific engineering exhibitions all over the world. These exhibitions cater to the 34 engineering segments that we cater to and directly benefit the MSME units belonging to these segments. This apart, we hosted over 80 companies at an India Show in Tokyo, Japan in June 2012 and will follow it up with another India Show at Brno, Czech Republic in September 2012. Over 120 companies are expected to participate at the September show.

 

 

In March 2012, we hosted the India Engineering Sourcing Show (IESS 2012) at Mumbai. This was a grand success and we will follow this up with the second edition of IESS, the IESS 2013 in March 2013, again at the Bombay Exhibition Centre, Mumbai.

 

 

How do you think that the Indian SMEs are performing in the engineering sector?
 

Aman Chadha: India’s SMEs account for about 45% of production and between 35 to 40% of engineering exports. Hence, they are an important component for the future progress of the engineering sector. Our focus is towards technological upgradation of the sector, enhancement of innovation at the work place and the ability to move up the value chain.

 

 

India's engineering exports declined by 10 per cent to $27.81 billion in the first half of the current fiscal. What’s your take on it?
 

Aman Chadha: We must remember that we are now globally integrated and hence if the rest of world, especially, the major markets, are facing acute recession, the impact is likely to be felt on our exports, particularly, engineering exports. So these are on expected lines. I also notice that our exports are suffering in regions like West Asia as also rest of Asia. It is quite possible that turmoil in West Asia is affecting our exports while we need to analysis the data for rest of Asia more closely.

 

 

What are the key challenges faced by the Indian SME sector?
 

Aman Chadha: There are two critical challenges - how to combat technological obsolescence by upgrading technology and access to credit, given the high cost of credit, be it for short term requirements, long term or export purposes.

 

 

Do you feel that government policies (both Centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues?
 

Aman Chadha: Given the wide dimensions and problems of the sector, we do believe that some more supportive measures, particularly, with respect to technology upgradation,  affordable credit structures, stable raw material prices and more promotional avenues abroad, can be taken both at the central and state levels.

 

 

What is the outlook for the SME sector in this year?
 

Aman Chadha: Well, as of now things are in the tough phase and hopefully we could be moving up the curve soon.

 

 

In the past, global ratings agencies have cut the outlook for India to negative. Do you think it will impact Indian MSMEs?
 

Aman Chadha: Let me say this that if look around the world, these credit rating agencies will need to downgrade every country, given that we are in the midst of a sharp slowdown. There is certainly a herd mentality among the rating agencies.

 

RBI's move to leave rates unchanged in the monetary policy review has been criticised by India Inc. How do you think it will impact the growth of SMEs?
 

Aman Chadha: I have already raised the issue of high cost as well the lack of access of credit for MSME units, particularly, the tiny units. So the high base rates will hamper the ability of MSMEs to invest, firm up working capital as well as export.

 

 

Kindly share the roadmap of EEPC for the ongoing financial year 2012-13.
 

Aman Chadha: As I mentioned, EEPC India will be participating in about 30 to 35 specific engineering exhibitions all over the world. We also hosted over 80 companies at an India Show in Tokyo, Japan in June 2012 followed by another India Show at Brno, Czech Republic in September 2012. This will be followed by the second edition of IESS, the IESS 2013, in March 2013, again at the Bombay Exhibition Centre, Mumbai.

India's plastic makers in need of level playing field, says Jayesh Rambhia of AIPMA

The Indian plastic manufacturers need level playing field in the current global scenario, as cheap Chinese products have flooded the market, feels Jayesh Rambhia, president of All India Plastics Manufacturers' Association (AIPMA).



 

He also added that plastic packaging increases not just shelf life of food but also prevents wastage. India consumes nearly 12 kg plastic per person every year as compared to the global average of 28 kg.

 

 

 

Although, the consumption is rising at 25% in India but manufacturing is witnessing 5% growth rate.

 

 

 

 

What is the role that AIPMA aims to play in India's SME sector?

 

Jayesh Rambhia: AIPMA has got constant analysis done identifying bottlenecks to growth of SME in plastic sector. It also got strategy study done to work out how we can lead growth into future. Having done this we created master plan for inclusive growth. All above three together form vision for inclusive growth document which is long term plan.

 

 

 

What are the current projects being undertaken by AIPMA?

 

Jayesh Rambhia: Based on above vision for inclusive growth, we started working on factor which need to be addressed to rejuvenate industry.

 

AIPMA is instrumental to get about 1000 acres of industrial land with good infrastructure with single window clearance at affordable rates direct from state governments in Gujarat , Karnataka, MP and UP. We have also worked out a deal with SIDBI to finance our members.

 

We have signed MoU with major plastic associations worldwide,  including US, UK, Italy , European Union to make global opportunities available to Indian plastic manufacturers. To promote export, AIPMA has launched Plastivsion Arabia in UAE & Kenyaplast in Africa.

 

To make latest technology available to Indian entrepreneurs, we have Plastivsion India now in world’s top 10 plastic shows. AIPMA partnered with UNIDO to improve competitive ness of Indian plastic industry.

 

Group purchase agreements from insurance, mobile companies save a bundle for members. We have sent 14 members for training to Italy fully sponsored by Italian government. We also sent 29 members to visit trade fair in Italy.

 

 

 

How do you think that the Indian SMEs engaged in plastic sector are performing in the present global meltdown?

 

Jayesh Rambhia:  Indian market share in US and EU is less than 1% of their total demand.

 

So, global meltdown is not directly responsible for slowdown. Due to taxation with retrospective effect & uncertainty in decision making is preventing large investments to come into India. Many of Indian corporates have declared more projects abroad than in India. This is more responsible for slowdown.

 

Indian growth in consumption is being captured by cheap Chinese imports. They have 25% of market and is growing faster. Much of this import is under invoiced. Result is shelves in Indian chain shops have been captured by Chinese goods.

 

India consumes about 12 kg plastic per head per year against international average of 28 kg.

 

Our consumption is growing at 25% but our manufacturing is growing below 5%.

 

We need to support growth of manufacturing to cater to fast rising Indian consumption.

 

 

 

What are the key challenges faced by the Indian SMEs in plastic sector?

 

Jayesh Rambhia: Free Trade Agreements signed by government makes it cheaper to import finished goods compared to industrial inputs. Government has not generated enough trust and hence they do not get data from SMEs. With no data, SMEs does not get help it needs & deserves.

 

Fragmented short term thinking by government is creating challenge to growth. MNREGA scheme has made availability of workers a major issue in Industry. Power shortage is making it difficult to sustain industry in several states if India. Government has made it compulsory to use jute packaging in agriculture. Such skewed favors does not allow better product to win market.

 

 

 

Do you think that the plastic SMEs are aptly placed for exports?

 

Jayesh Rambhia: In globalised economy, we need level playing field for Indian manufacturers.

 

Price for land, capital, power are much higher in India as compared to China.

 

In India, industry is forced to finance cheaper power to agriculture and consumers. Our tax structure is also higher and we do not get refund of all taxes by export incentives. We are forced to export taxes affecting our export growth. Export of finished goods are losing market share in export basket.

 

However, government does not give more incentives to add value in India. Hence, raw material export is rising. India is behaving like a colony as it is exporting raw material and importing finished goods.

 

 

 

Do you feel that government policies (both Centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues?

 

Jayesh Rambhia: Progressive state governments are active to attract industry. More is desired from Center. We have presented several key policy changes which if adopted can change future of our industry. So far, we have not seen any positive action from central administration.

 

 

 

Analysts feel that technology adoption and marketing are key challenges for SMEs. How far do you think it is correct?

 

Jayesh Rambhia: Low spend on R & D is not generating enough intellectual property rights for industry.  Commoditised products do not generate enough margins to support fresh investment. This bears major impact on the functioning of industry.

 

 

 

RBI's move to leave interest rates unchanged in the recent policy review has been criticised by India Inc. How do you think it will impact the growth of SMEs?

 

Jayesh Rambhia: India is importing more than it is exporting. So devaluation of Dollar is increasing our fuel bill and leading to jump in inflation. Devaluation has not helped our export to the extent it is envisioned since prices of many inputs for export are linked to Dollar price. So, plastic raw material becomes expensive when Dollar goes up. So, plastic exporters do not benefit from devaluation.

But due to inflation our wages and input costs go up. That is affecting competitiveness of India as an investment destination. Vietnam, Bangladesh are emerging as new low cost destination for manufacturing. Due to high interest rates, cost of finance goes up further making us non competitive against China.

 

Kindly share the roadmap of AIPMA for the ongoing financial year 2012-13.

 

Jayesh Rambhia: We will continue to work on vision for growth master plan since its a long term plan. AIPMA will keep supporting member each step on the way to growth. We would keep our efforts on areas such as strategy, planning, land, finance, marketing, operations, learning, exports, purchase, training, etc.

We will continue to build bridges between Indian industry and global opportunities. We also bring all stakeholders in plastic industry together for making strengthening India's presence.

Relevance of business plans for small enterprises and entrepreneurs

In current competitive and ever-changing market conditions, it is pivotal for businesses to define their objectives, create strategies, predict growth and also plan for contingencies. In other words, creating a 'business plan' is a must for every company.

 

Regardless of its size, every business initially kicks off with an idea. A well thought-out business plan helps turn that idea into reality.
It is believed that small and medium-sized enterprises (SMES) need to stress on three key elements - product research and development, effective communication tools and also global market.

 

It is very important to understand the concepts, techniques, frameworks and methodologies of creating a business plan.

 

 

 

Understanding the basic purpose of creating a business plan
 

There are two main objectives for chalking out a business plan. The main aim is to access easy funding which is vital for development and growth of business, while the second one is for enhancing strategic and corporate development. A business plan also proves beneficial by guiding an organisation in meeting its targets.

 

It has been found that well-designed business plans offer a functional framework that increases the profitability of any organisation.

 

A well-developed business plan serves the below mentioned purposes –

 

 

 

- Action plan
A business plan has potential of dividing a difficult task of commencing a business into many smaller and less intimidating tasks. It helps businesses to deal with issues in an organised and systematic way.

 

 

 

- Roadmap
A business plan emerges as an important tool to maintain a close watch on the operationality of any company. Business owners often lose sight of the objectives and goals. A business plan not just increases the focus level but also helps in understanding the vision.

 

 

 

- Performance tool
It can carry out evaluation and also to an extent decide the performance of any enterprise/company by fixing realistic targets.

 

 

 

- Business promotions tool
It has often been found that a business plan plays the role of a promotional tool. Although, external financing is needed to increase the functionality of any company, but a business plan can influence the investment sentiment.
 

In order to increase the effectiveness of any business plan, it should be revised periodically. When any sort of trouble comes up, a written business plan can act as a guide for taking calculative decisions. For instance, when deciding a particular action (acquisition or divestment), it is very crucial to have the vision and mission statements documented in the business plan.
 

Just in case, the outcome of the corporate decision does not conform to vision and mission statements, it is very important to understand the merits of proposition and look at the need for adjusting the business plan to meet the targets.

 

General principles to be followed while writing a business plan

 

 

- Increase the readability of a written business plan
A business plan should be well formatted and easy to understand. The introductory statement is considered as one of the most significant sections as it consists the complete summary of the business. Also, the language used to write the business plan needs to be simple so that no questions can be raised on it.

 

 

- Market analysis
A business plan should not be product-driven. One must realise that investors or customers are keen to know about the reaction of the market. It is significant to keep research work handy to demonstrate to the customers what benefits they can draw from the offered products or services.

 

 

- Distribution Plan

A business owner should know how to disburse its products or services. Sufficient knowledge is needed about important aspects such as logistics, warehousing and delivery arrangements.

 

 

- Throw light on uniqueness of business & develop competitive advantages
Speak about the aspects that will increase the competitiveness of any business in the market.

 

 

- Emphasis on management
It is always advantageous to show that the business is managed by well qualified professionals or people who have good work experience. Focus on policies is makes up as an important part of a business plan.

 

 

- Realistic projections
It is important to create a realistic picture and support it with the help of plausible assumptions. Well-validated predictions are impressive. Any business owner should ensure that the projections are achievable in the real world.

 

 

- Developing business plans for specific parties
As every reader varies from one another, it is important to develop different versions of business plan that suit the need. Business owners should understand that bankers or financiers are more interested in stability, security, cash flow coverage and sound returns, while a venture capitalist leverages from high interests. While mentioning about the exit options, it is also important to focus on how the funds will be used.

 

 

- Terms of payback
If the business plan is meant for the potential investors, it is important to show that the funds are secured.

 

 

Different kinds of business plans

 

A start-up business plan is considered as the most standard one as it comprises of topics such as company, product or service, market, forecasts, strategy, implementation achievements, management team and financial analysis. The financial analysis comprises of estimated sales, profit and loss, balance sheet and also cash flow. The plan usually commences with an executive summary and then concludes with appendices, which puts the monthly estimations for the first year.

 

 

- Internal business plans
It has been found that internal plans are not meant for the outside investors, banks or other third parties. It may not consist of detailed description of a company or the management team. It may or may not comprise of detailed financial projections. It may cover main points in slides (such as PowerPoint slides) instead of detailed texts.

 

 

- Operation Plan
An operation plan is known as an annual plan. It would be more detailed in its approach and consist of points such as implementation milestones, dates, deadlines and responsibilities of teams and managers.

 

 

- Strategic plan
It stresses more on high-level options and also fixing main priorities instead of the detailed dates and responsibilities. It won’t comprise descriptions of the company or the management team. The financial projections may not be part of it.

 

 

- New product plan
Also known as growth plan, it stresses on a specific area of business, or a subset of the business. It may not comprise detailed financial projections for the whole firm, but it should at least consist detailed forecasts of sales and expenses for the new venture.

 

 

- Feasibility Plan
A simple start-up plan that comprises of a summary, mission statement, keys to success, basic market analysis and also initial analysis of costs, pricing, and probable expenses.

 

 

Relevance of  business plan

 

Before venturing into any business, it is essential to have a 'business plan'.
A good and comprehensive business plan comprises of information on how to attain easy finance from a lender or financial institutions.
It assumes significance for start-ups and also existing businesses to identify growth opportunities for businesses.

 

 

Why Indian companies need business plans?

 

According to the Alphawise research report from foreign institutional investor Morgan Stanley, India Inc has decided to emphasis on using more of existing capacity rather than establishing greenfield projects.

 

 

The report claimed that one-third of the corporates will be reviewing the de-bottlenecking strategies to bring considerable improvement in productivity and 30% are eyeing to opt for brownfield expansion. One-fifth of the corporates are hopeful that greenfield expansion will take place within a time span of upcoming 12 months.

 

As currently the economic growth of India is facing heat due to the global meltdown, forecasting and planning will be a challenging task for India Inc. Moreover, the Indian businesses will be needing greater resource to resolve the ongoing crisis in today's time.

 

Recently, central government also stressed on the importance of business plan for successful functioning of any enterprise. Union Civil Aviation Minister Ajit Singh said that Indian carriers may not be allowed to acquire any aircraft unless they have a detailed business plan. The recommendation states that the carriers will be needing to offer business plans three years prior before opting for any acquisition.

 

 

Conclusion

 

Since financing acts as a major growth driver for any business, relevance of good and comprehensive business plan assumes greater relevance. Business plans help entities decide well-informed decision on their future.

 

Human Resource Management ensures productivity, maximum success of an organisation

In the midst of lot of competition not only with big organisations but also within small and medium enterprises (SMEs), it is utmost important for small companies to think smart so as to grow and remain competitive within the marketplace.

 

Now-a-days, the human resources are considered as the most essential business driver for organisation. In the wake of cut-throat competition, both in local and global arena, this is a necessity of an organizations to become more adaptable, resilient, agile, and customer-focused to succeed.

 

 

 

Functions of HR in an organisation

 

The success of an organisation is largely dependent on the Human Resource Management (HRM) as hiring well-qualified and competent workforce is the top priority of an organisation and to bring right person on the right job is efficiently managed by the human resource department of an organisation. Besides, bringing up the best-suited workforce on the board, the department also handles issues like retaining valuable employees, maintaining the motivation level of employees, succession planning, making and implementing policies, time management, leave management and many more spontaneous functions.

 

 

 

The department also sets strategies and develop policies, standards, systems, and processes. The major tasks of HR department of an organisation include:

 

 

 

a. Recruitment and selection of best-suited employees – The HR department manages all aspects of recruitment and selection, orientation and training of new employees. While recruiting, HR zeros in all the recruiting tools like types of questions, scoring systems to be used in interviews.

 

 

 

b. Organizational design and development - HR motivates employees to perform well and maintain an organizational culture of high morale. The companies which consider employees as their most valuable assets lay highest attention on human resource department.

 

 

 

c. Employee Relations – HR department of an organisation provides ample training and orientation to the employees to strengthen employee involvement and boost the overall morale of the workplace.

 

 

 

d. Performance, conduct and behavior management – Managing employees' behaviour, conduct and performance also comes under essential functions of HR as talents and accomplishments of company's employees decides company's long-term success and financial performance.

 

 

 

e. Talent Acquisition and Retention – Recruiting and retaining the best employee is essentially important for the growth of an organisation. In every organisation, HR department is responsible for building and managing the systems that recruit, attract, hire, train, motivate and retain a company's best employees. Such porgrammes involves building potent interviewing and screening processes, readying orientation and training and constructing motivating compensation programs.

 

 

 

f. Compensation and benefits programs – Organisation's compensation and benefits programmes were also handled by HR department, this includes offering competitive compensation packages and supervising the pay schedule of the company.

 

 

 

Importance of effective implementation of HR strategy in an organisation The efficacious implementation of HR strategies is highly important for the success of an organisation as the core function of HR is to develop a strong organizational culture and effective management systems. HR professionals are vital in terms of developing the right strategies for organisation and also to identify the out-of-the-box ideas to drive success.

 

Following points should be considered seriously while implementing an HR strategy in an organisation:

 

 

 

HR strategy must be aligned with the organization's strategic vision. Company's current vision should be kept under kind consideration by HR leaders as it will help them to determine ways in which HR activities can support that vision.

 

 

 

The active consideration on demographics of the employees should be another focus area of HR leaders so as to fill the gaps may occur between current skills and the required skills for the organisation growth. The HR staff should bridge this gap via strategic recruitment, retention and training efforts.

 

 

 

Conclusion

 

The HR department of an organisation is considered as the face value as HR not only plays a pivotal role in any organization but it is also important for the candidate as it treats the candidate right from his/her entry in the organization for interview till he leaves the premises of the organization. The department mainly acts as a bridge between the organization staff and the organization (top management).

EXIM Business: A rewarding & profitable opportunity

 Export-import (EXIM) business or international trade is considered as one of the successful commercial trends. This rewarding industry requires a thorough and better understanding of foreign market. Also, proper guidelines are indispensable to set up an import-export business. A well-organized head and a ceaseless attention towards market trend, documentation, foreign exchange aspects and a familiarity of the export policies of the government are quintessential for this business.  

Last month, the multi-lateral lending agency Asian Development Bank (ADB) had sanctioned a $100-million loan to the Export-Import Bank of India (Exim Bank) to fund small and mid-sized enterprises (SMEs) operating in some of the poorer Indian states. The move will not only elevate and boost smaller firms, but will also create thousands of jobs through increased trade. Being instituted in 1981, the state-owned EXIM Bank is involved in promoting India's foreign trade and channelising funds to SMEs or SME clusters to finance goods and services to and from ADB member countries. “Providing longer-term finance to small and mid-sized exporters in Assam, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, and Uttarakhand should increase trade by $1 billion or more over 10 years and create jobs for at least 50,000 people,” Peter Marro, Principal Financial Sector Specialist of ADB's South Asia Department has said in a release. Before stepping into the EXIM business, an individual must get a better understanding of the commodity one wants to trade.

A thorough foreign market research for the product should be conducted. A mindful and proper consideration should be given to the demand of the product in the international market. The laws and regulations pertaining to International trade and foreign business vary from country to country. So it is also important that the beginner should be fully acquainted with state, federal, and international laws before embarking on an export business.

A. Profitable reasons of exporting   According to the Section 2 (e) of the India Foreign Trade Act (1992), the term export may be defined as 'an act of taking out of India any goods by land, sea or air and with proper transaction of money”.   Exporting not only expands the business penetration but it also reduces the product dependence in the domestic market. Besides, it also provides innovative ideas, enhances marketing proficiency, stirs management practices and instills zeal for global competition.   Forex earning - Foreign exchange (forex) earning is considered as the elementary reason for export as forex not only intensifies exporters' businesses but also improves country's economic conditions.   Reliability - The companies involved in the exporting business are considered as more reliable than their peers on the grounds that the product of exporting company is capable to meet the international standards.   Global trade opportunities – The exchange of ideas with global traders and a better perspective of global culture opens the door of new opportunities in the international arena.   Building new customers – The visit to other countries for selling goods offers an opportunity to the exporter to woo new customers, explore world-class machines and vendors there.  

B. Elementary planning   Ahead of starting an EXIM business, a businessman is required to develop a proper export strategy. Initially, it is required to adopt a simple, applicable and flexible plan of action of exporting which can be easily moulded as per region-specific business sentiments.  

C. International market research   Market research is an integral measure to be undertaken before initiating any new business. Overall, market evaluation process is a prerequisite in the EXIM business considering different political, geographical, economic, legal and cultural factors of the foreign market apart from market characteristics factors like market size, availability of domestic manufacturers among others.  

D. Registration formalities of exporters   A maiden exporter is mandated to be registered with the Director General of Foreign Trade (DGFT), Ministry of Commerce, Government of India. An exporter gets a unique Importer Exporter Code Number or IEC Number by DGFT. The IEC Number is a ten digits code required for the purpose of export as well as import.   In addition, the exporters are also required to get registered with Export Promotion Councils under Indian Company Act. Both Value Added Tax (VAT) and Central Sales Tax (CST) are exempted on the goods exported out of the country and in order to enjoy tax exemption benefit, an exporter is required to get registered with the Tax Authorities.   Similar to export business, import business is also very lucrative business, but it also demands right strategies and a lot of ground-level preparations. The entrepreneurs looking forward for setting up an import business should proceed with a better understanding and knowledge about the international market and foreign market analysis. The import business can be exceedingly fruitful during the periods of unsteady global economy. The merchants who are smart enough to utilize such periods could enjoy a long-term success and profitability from their import business.  

E. Organisations for exporters   There are various organisations and agencies in India working actively to support exporters by providing information on market research in foreign trade.   Export Promotion Councils (EPC) EPCs are non-profit organizations under the Indian Companies Act. Presently, there are twelve export promotion councils are under the administrative control of the Department of Commerce and nine export promotion councils related to textile sector are under the administrative control of Ministry of Textiles.   Commodity Boards Commodity Boards are registered bodies under Ministry of Commerce. The boards are responsible for production, development and export of tea, coffee, rubber, spices and tobacco.   Federation of Indian Export Organisations (FIEO) FIEO is an apex body of Indian export promotion organizations. It is a brainchild of Union Ministry of Commerce and the state industry department. The organization promotes the interests of the Indian exporting community in the international market.   Directorate General of Foreign Trade (DGFT) DGFT is a government organisation and is responsible for the formulation of guidelines and principles for importers and exporters of country.   Besides these prominent organisations, some other organisations are also providing assistance to exporters, namely Indian Institute of Foreign Trade, Indian Institution of Packaging, Export Inspection Council, Indian Council of Arbitration, India Trade Promotion Organisation, Chamber of Commerce & Industry, Federation of Indian Chamber of Commerce & Industry, Bureau of Indian Standards, Marine Products Export Development Authority, India Investment Centre, Director General of Commercial Intelligence Statistics.

Factoring: an alternative option for SMES to access credit

New-age financing mechanisms are often considered as the need of the hour for the credit-starved small and medium enterprises (SMEs) in India. And a trend, which is slowly gaining ground, where the financial service providers are finding it as a lucrative option is factoring services. As the market of SME financing enjoys considerable business opportunity, the new entrants are eyeing to capture the thriving segment.

Market players often say that access to capital is one of the major bottlenecks that impacts the growth of SMEs in India.

Various SME promoters have invested their own funds in fixed assets with the aim to run business effectively. Although, India has witnessed considerable progress in the area of channelising finance to SMEs, but with the ongoing economic slowdown, it assumes significance. Easy access to finance is a prime factor in deciding the competitiveness of the the small businesses in India and this is where the globally practiced tool known as 'Factoring' gains prominence.

Meaning of factoring

Factoring is considered as a type of receivables finance where a company either sells or assigns its accounts (known as invoices) to a finance player (Factor) to bag funding on an urgent basis so that business operations can be continued. It usually comprises of financing short-term receivables, offering credit protection against bad debts, collection of payment proceeds and also management of sales ledgers.

Moreover, it can be differentiated from a bank loan in three ways. Firstly, a bank loan comprises of two parties while factoring consists of three parties such as borrower, buyer and factor. Secondly, the stress is given on the quality of the receivables and not just on company’s credit worthiness. Thirdly, it is considered as an advance on any outstanding invoices.

Can SMEs afford factoring facilities?

Many SMEs ask if factoring is affordable and then the question arises - can a small business survive without using factoring as it is one of the survival tools in the present economic slowdown? All across the globe, factoring is one of the most sought after routes of accessing working capital for SMEs and also for larger organisations.

According to Factors Chain International (FCI), the global factoring turnover for 2010 was at Euro 1648 billion. The overall factoring turnover in India during last financial year 2011-12 touched Rs 19,000 crore, amounting to assets of about Rs 6,000 crore. These figures show that the factoring industry is still is at a nascent stage as it accounts for 0.24% of the banking assets which is lower as compared to the developed countries where it around 3.7%.

Meanwhile, a study by Credit Rating Information Service of India (CRISIL) states that SMEs can strengthen profits by at least 15% if they get payments on time from their big corporate customers. The timely payments from large customers have potential to help SMEs cut interest costs, bring improvement in profitability.

Presence of factoring facilities in India

In 1991, when economic liberalisation programme started in India, Reserve Bank of India (RBI) gave green signal to this facility for SMEs. But, small enterprises suffered due to the absence of adequate knowledge in this regard. But, with changing time, this trend is fading away as two third of the clientele of factoring service providers is now the SME segment and the count is likely to go up further in the coming years.

Factoring has potential to complement the financial supply chain of the clients as it brings improvement in the seller’s cash flow and and cover risks.

Companies offering factoring services in India

Many financial institutions such as banks, mainly foreign players have expressed keenness to foray into the factoring services business.

a) Banks - Foreign banking players like HSBC, Standard Chartered bank, Citibank enjoy some exposure in the business. The banks are foraying into factoring sector as the scope for financing large corporates is reaching to a saturation point. It is better to capture the SME segment as they would pay higher interest rates as compared to the large corporates.

In regard to domestic factoring business, SBI factors, Canbank factor and GTF contribute 90% of the market share, and rest of the share is contributed by the new players.

b) India Factoring & Finance Solutions Pvt Ltd - A joint venture of the state-run Punjab National Bank (PNB), Malta-based FIM BankGroup, Italy- based Banca IFIS, and Blend Financial Services, Mumbai, is slated to start services in cities Pune, Nashik, Nagpur, Aurangabad soon. It is also strengthening its factoring services in Maharashtra for entrepreneurs, small and medium enterprises (SMEs) and small-scale industries.

Presently, India Factoring offers financial solutions to more than 200 SMEs and SSIs in Delhi, Mumbai, Chennai, Bangalore, Kolkata, Ahmedabad and Hyderabad.

While speaking to SME News about factoring services, Sudeb Sarbadhikary, CEO and MD of India Factoring, said, “Factoring services help SME’s in unlocking liquidity from their established trade receivables while enabling them to focus on their core business. The industry has been provided with further impetus after the passing of the Factoring Regulation Act of 2011 wherein the process of assignment, rights and obligations of parties involves and terms of stamp duty exemption have been clearly defined for the first time. This is expected to provide factoring companies further teeth in enabling them to resolve disputes pertaining to collection of debt on factored invoices and is expected to provide a boost to the industry as a whole thus enabling SME’s to further gain under this.”

c) Small Industries Development Bank of India (SIDBI) – This financial institution is focusing on the micro, small and medium enterprises (MSMEs) to create awareness about factoring services among the SMEs.

Understanding the functionality of factoring facilities

A factoring pact for an agreed funding limit is signed, then the funding limit is broken down further for the customers. Thereby approved customers are informed about the assigning of receivables due from them to the factoring company and also they are needed to make direct payment to the factor. The goods/services and invoice to debtor are delivered. Accordingly, invoices are sent to factoring company, which advances up to 85% of invoice as a pre-payment.

After receiving funds, the factoring company waits to get paid by the debtor on the scheduled dates. When the factoring company gets paid, it refunds the remaining amount as the balance paymen.

   

Why factoring is better than traditional lending

- Bank finance needs collateral in the form of mortgage, whereas factoring is decided on the basis of quality of receivables and the buyer profile.

- Factoring is an open account facility and in other words it means that the credit limit rises as sales goes up. The fast growing SMEs who need more and more funding every year, factoring is the best option.

- As factoring is not exactly a loan, this facility offers liquidity and it does not add to the debt of the company.

- Factoring also offers collection services.

How to use factoring services

As factoring is focused on receivables, it is must for SMEs to discuss factoring with their buyers. If the buyer is convinced to pay directly to the factor, then the SME has attained its goal. Proper transaction documents like purchase orders/invoices/ lorry receipt helps in bagging sanction quickly.

Conclusion

If used smartly, factoring provides various benefits for growing SMEs that have rising funding needs. Although, it could be little costlier compared to bank finance, but the benefits have potential to outweigh the cost. It is believed that factoring is best suited for the fast growing SMEs.

Non availability of raw materials, credit crunch putting great pressure on MSMEs' growth, says SGCCI

 Budgetary limitations, skilled labour crunch, technology adaptation and growing competition in market are the major challenges Indian SMEs are often faced with. Government's centralised focus on these areas and wooing industrialists to set up their units in remote rural and tribal areas is a need of the hour, says Rohit S Mehta, Immediate Past President of The Southern Gujarat Chamber of Commerce & Industry (SGCCI), Surat, in an exclusive interview.

What is the role that your association seeks to play in the industry?

Rohit S Mehta: Surat is one of the most progressive cities of India. It has a very strong manufacturing base and the growth is driven by MSME's who constitute almost 95% of the industries activity. SGCCI has all along in its 71 years of existence, catered to the interests of MSME's and will continue to do so. SGCCI is the link between MSME's of South Gujarat and Government.



What is the current scenario of the trade and business among SMEs in Gujarat?

Rohit S Mehta: South Gujarat trade and business are facing challenges. The negative sentiments prevailing at the national and international level are having their toll at the local level. There is an air of uncertainty but we have gone through such situations in the past and we will do so once again this time.



What are the key challenges the Gujarat SMEs are currently facing?

Rohit S Mehta: Non availability and rate of finance, technology adaptation and competition in marketing are the major challenges. The rising dollar is disturbing the equations of even set businesses. Non availability of raw material at the right price is putting great pressure on all industries. Also non availability on skilled and unskilled labour is adding to their misery.



Are the available government policies helping the potential and established entrepreneurs to give fillip to their business?

Rohit S Mehta: Governments are keen to help industries and MSME's by declaring various pro-industries policies. However, they tend to remain only on paper and the benefits are not reaching entrepreneurs. Lack of awareness of these policies is an issue.



Lack of skilled manpower is considered as a key issue for the industry at the moment. What measures should be taken in this regard?

Rohit S Mehta: First of all NREGA is taking a heavy toll on the industry because of easy in availability of money with less effort in their home towns. Also there is a serious mismatch between the need of industry and available man power, with reference to their skills. A serious and rigourous vocational training campaign should be taken up to develop the right type of skilled men power. Also Government should encourage shifting of industries to remote rural and tribal areas to deconcentrate and decongest urban pockets and spread prosperity to rural and tribal areas.



What are the current projects being undertaken by your association for the upliftment of the small traders?

Rohit S Mehta: SGCCI undertakes training seminars and workshops on a regular basis to spread awareness of various government schemes and also update the knowledge of MSME's but our USP is in arranging various subject specific exhibitions for the benefit of Trade & Industry. We organize Udyog for Industry, Vyapar for Trade & Services, Fiber to Fashion for Textiles, Sparkle for Gem & Jewellery, Surat Auto Expo for Automobiles, Women Entrepreneur Exhibition (WEE) to give a platform to women, etc.



What according to you should be the focus area for the government to promote Gujarat SMEs?

Rohit S Mehta: The government should focus on skill development and availability of easy finance. The Centre should also invest in R&D and identify product, and market opportunities for the MSME's to encash because R&D is one area where the MSME's can not enter because of the prohibitive costs. The government should also identify and make available land at reasonable cost to MSME's because in spite of extreme competence, an entrepreneur can not set up a new enterprise by buying land at market price.



What is the importance of technology (ICT) for budding enterprises?

Rohit S Mehta: The best way to do business is to put systems in place. ICT helps entrepreneurs to do exactly that. With ICT they can keep a very good track of their outputs and performance and can take steps to change, alter or modify parameters of performance.



What is the outlook for the sector, especially SMEs, in the next 6 months?

Rohit S Mehta: As I have said earlier MSME's are facing challenges, but they will learn and grow. The next 6 months may be very crucial but if they sustain for this period or up to a year's time, the picture is very good.

Apparel SMEs putting up better performance compared to larger counterparts, says CMAI

In an exclusive interview, Rahul Mehta, President of Clothing Manufacturers Association of India (CMAI) spoke about the overall performance of the Indian apparel sector in the domestic and global markets.

  

What is the role that your organisation aims to play for the SME sector?

Rahul Mehta: CMAI plays a vital role in the promotion of domestic garment manufacturers in the SME Sector. Its NGFs provide a unique platform to the smaller players to showcase their products to over 10,000 retailers at a nominal cost. Its Ivy League provides a stimulating, educative and inspiring network to those who are small today but who aim to be big tomorrow. Its testing lab provides reliable, authentic and approved testing facilities which could be confidently relied upon by the SME players. And of course, CMAI’s constant, consistent and persistent representations to the government brings to the SME sector players access to the highest authorities of the land their grievances, their problems and their perspectives.

What are the current projects being undertaken by Clothing Manufacturers Association of India?

Rahul Mehta: The forthcoming 55th NGF is the biggest fair in recent history, with nearly 400 participants having registered, over 12,000 retailers are expected to visit. Innovative ideas such as 'personalised networking' are likely to add immense benefit to the participants. Setting up of training institutes in Baramati and Bhivandi are on the anvil.

How do you feel the SMEs are performing in the apparel sector?

Rahul Mehta: In fact many feel that the SME sector, with its tighter controls on finance, inventory and credit are faring much better than their larger counterparts in the organised sector. The SMEs may not have the turnover but they definitely have the bottom lines.

Do you feel that exports are placed aptly for these SMEs?

Rahul Mehta: SMEs played a vital role in the growth of India’s exports and to bringing India where it is today. However, the times are changing. The requirement for compliant factories for large scale centralised production and technological upgradation is rapidly growing – and this is where SME players may find themselves falling short. I feel SME players will increasingly play a bigger role in domestic market than exports.

About 45 lakh people in the textile sector have lost jobs in the last two years. How do you think the sector will perform during the present fiscal?

Rahul Mehta: I think overall market factors will continue to hit prospects this fiscal but I expect things to pick up next fiscal onwards.

How do you find the annual supplement to Foreign Trade Policy announced recently?

Rahul Mehta: Although, it is not enough, but it is the right step in this direction.

How is it likely to help apparel exports? Please share some benefits and outline what else could have been incorporated.

Rahul Mehta: It will certainly help in making apparel exports more competitive in the international markets. It may not help in making business more profitable though.

What are the main challenges the SMEs in the apparel sector are witnessing?

Rahul Mehta: Cash crunch, credit, inventory control and immense imbalance in the buyer/seller equation lead to biased trade terms.

Do you feel that government policies are working in favour of the SMEs?

Rahul Mehta: Increasingly, policies are becoming industry centric rather than scale centric. And, I strongly believe this is the right way to go. For too long, far too much preference is being given to SME rather than the industry – providing encouragement to remain small. This will not work in the long run.

It is believed that manpower crunch is a key issue at the moment for SMEs. How do you view it?

Rahul Mehta: The lack of manpower is a major issue for the apparel industry today and SME sector is suffering even more as it is more dependent on manual labour and less on technology. Their ability to pay is also restricted, worsening their problem.

Kindly share the roadmap of your council for this fiscal.

Rahul Mehta: CMAI has begun planning for its 50th year celebrations next year and initial plans already include International Conferences, Size India, an anthropological study, a Fashion Festival and setting up of training institutes.

What is the outlook for the SMEs in the apparel sector in this year?

Rahul Mehta: It will continue to play an important role in the development of the domestic sector although its relevance may start diminishing.

Indian Handicraft Sector: opportunities, challenges and growth prospects

India’s handicrafts sector, which enjoys the potential to display one’s mind, soul, traditions and modern outlook, has emerged as one of the most important sectors for the Indian economy. The basic nature of the Indian handicrafts industry is not just labour intensive but also decentralised since it is spread across both rural and urban areas. It is also considered as a key employment-generating industries since many artisans are involved in craft work on part-time basis. Currently, the industry provides employment to more than 6 million artisans, comprising large number of women and people from the economically backward parts.

 

Reports suggest that the present day Indian handicraft sector displays the example of strong linkage between the traditional designs and modern techniques. As the demand for Indian handicrafts have risen considerably in the past few years, the status of this sector has also upgraded.

 

The handicraft sector assumes significance due to various reasons such as low capital investment, high ratio of value addition, robust potential for export and also foreign exchange earnings.

 

 

Opportunities available in Indian handicraft sector

 

Reports suggest that every Indian state comes with their own style of handicrafts that displays distinctiveness. There are ample growth opportunities present in the Indian handicraft sector such as:

 

- Strong international presence/ interest.

 

- Huge trained and skilled manpower base.

 

- Rising export market for quality products across Europe, Latin America and US.

 

- Social interventions and structures.

 

- Traditional knowledge base.

 

- Rising flow of tourists in India. 

 

- Growing disposable income along with the desire to own multi-faceted artefacts.

 

With the onset of globalisation in 1991, India has undergone many changes in different spheres. The worth of Indian handicrafts in the international market was realised when exports successfully crossed Rs 1220 crore in 1990-91 from Rs 10 crore in the mid fifties. It is believed that the forces of globalisation have positively impacted the growth prospects of the Indian handicraft sector.

 

The handicrafts sector has made considerable contribution to the Indian economy via export and its importance can be judged with the increase in employment potential.

 

 

 

Challenges in handicraft sector

 

Although, many domestic companies are positively responding to the global conditions, but the international-domestic combination also comes with considerable multiplicity. Despite the strong growth momentum, the sector also faces various challenges:

 

 

 

a) Originality faces threat: In any market, emphasis is laid on the consumption pattern. When the demand for any product is high, it should be made available even if the social costs are high. This is leading to the development of contemporary artefacts that address the demands of the people. In many respects, contemporary artisans maintain the traditionalism and also simultaneously meet the demands of the international consumers or local tourist market.

 

The real problem comes up when originality is threatened in the very process of innovation.

 

 

 

b) Changing patron-client network: It is believed that in the present market system, the craft industry has seen many vulnerabilities. With the development of the modern market economy, the old patron-client business network is fast declining. The artisans are dependent on middle men and trader entrepreneurs to sell their products.

 

 

 

c) Changing occupation: Reports suggest that majority of the artisans in India is illiterate as they usually do not have formal education. This is forcing many artisans to shift to other professions rather than just sticking to their hereditary occupation.

 

 

 

d) Hand made vs Machine made: Since mass production and rising mechanisation are becoming the norms of the day, handmade products are fast disappearing.

 

 

 

Government intervention to step up growth

 

Despite the adaption of the liberalisation of policies, the handicrafts sector witnesses intervention from government to strengthen productivity. In the Indian constitution, handicraft has been defined as state subject and it is stated that the responsibility of development and promotion of crafts lies with state governments. The central government via developmental schemes plays the role of supplementing their efforts. To strengthen holistic growth of the sector, quite a few generic schemes have been implemented.

 

 

 

a) Marketing Support and Service Scheme: Aims to create awareness about the Indian craft products among the people via marketing events, providing services in the form of entrepreneurship and providing financial assistance to state handicrafts corporations for setting up new shops.

 

 

 

b) Baba Saheb Ambedkar Hastshilp Vikas Yojana: Government hopes to develop the handicrafts sector via the participation of craftspersons. It is implemented through social, marketing and financial interventions.

 

 

 

c) Design and Technology Upgradation Scheme: It hopes to supply modern tools, upgrade the skills of artisans, revival of rare crafts by offering training along with outsourcing.

 

 

 

d) Export Promotion Scheme: It works for the promotion of export of handicrafts with special emphasis on hand-knotted carpets and floor covering. The main components of this scheme are product development, marketing and also welfare measures.

 

 

 

e) Research and Development Scheme: It aims to get feedback on economic, social, aesthetic and promotional aspects of various craft goods.

 

 

 

f) Training and Extension Scheme: It works in the direction of capacity building.

 

 

 

g) Bima Yojana for Handicrafts Artisans: The Yojana provides life insurance protection to the artisans, either male or female who are in the age group of 18-60 years. It is being implemented in association with the Life Insurance Corporation of India ltd (LIC).

 

 

 

h) Special Handicrafts Training Projects: Under this programme, steps are taken to upgrade the skills of existing and also new craftpersons, enhance employment opportunities in the handicrafts sector.

 

 

Apart from the above mentioned schemes, Centre has been taking special steps for strengthening the crafts by popularising the products.

 

Recently, the Export Promotion Council for Handicrafts (EPCH) inked an agreement with Kazakhstan-based Almaty Chamber of Commerce and Industry to raise the Indian handicrafts exports in the Commonwealth of Independent States (CIS) region.

 

 

 

Handicraft clusters in India

 

India houses about 7200 clusters in the traditional handloom, handicrafts and modern small and medium enterprise (SME) industry sectors. Reports suggest that out of these clusters, 2500 estimated are unmapped rural industry clusters.

 

According to the Policy and Status Paper on Cluster Development in India, Foundation for MSME Clusters, the induction of new and modern technology is the need of the hour for the development of the sector.

 

Moreover, most of the Indian clusters, mainly in the handicrafts sector, are small and do not have more than hundred workers. The handicraft exports may reach $3.2 billion in the current fiscal. During 2011-12, the exports touched USD 2.75 billion.

 

As the global slowdown has impacted the demand for handicrafts in global markets, the textile ministry has decided to exert pressure on the policy makers and also corporate India for the fast adoption of steps to enhance the productivity of handicrafts sector. As 40% of the handicraft sector is consumed domestically and 60% is exported, Indian government is hopeful of 18% growth rate in the 12th Five Year Plan.

 

 

 

Conclusion

 

The future course of action for Indian handicraft sector depends various reasons such as economic crisis, labour crunch, lack of government policies. The handicrafts sector wants Centre to comprise the sector under the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS).

 

As India has seen 10% jump in handicraft exports to touch 497 million in August this year, market insiders are of the opinion that exports will pick up pace in India.

 

Good credit ratings allow SMEs to enjoy interest rate benefits, says Sachin Nigam of CRISIL

Given the problems SMEs face in seeking finance, approaching a credit rating agency is a good option for small companies as a good rating not only help SMEs to gain faster and cheaper credit for venture but it allows them to enjoy interest rate benefits varying between 0.25 per cent and 1.25 per cent from the financial lenders. This and many other aspects of ratings were explored by Sachin Nigam, director, SME Ratings at CRISIL in an exclusive interview.

How do CRISIL SME ratings empower SMEs and drive them to next level of growth?

Sachin Nigam: CRISIL SME ratings empower the SME through the following:

- Assisting them in getting adequate and timely credit

- Bringing in greater level of transparency and corporate governance

- Greater acceptability among customers, suppliers and investors

- Act as a self- improvement tool

The key challenges being faced by the SMEs in India is access to adequate and affordable credit recognizing the key role SMEs play, increasing availability of funding for SMEs has been at the forefront of the policy agenda. . An important element in increasing the comfort of bankers in lending to SMEs is the availability of high quality analysis and independent opinions on SMEs. And that is exactly what CRISIL SME ratings seek to provide. A credit rating provides an objective and high-quality assessment by a credible third party about the SME’s financial and performance capabilities. This helps lending organisations make a more informed choice.

We believe rating is a significant step towards empowering SMEs, increasing their access to funds and at the same time driving the entire SME eco system towards higher levels of transparency and corporate governance. We have received strong feedback from all stakeholders including customers, bankers and industry associations that stand testimony to our belief.

Another advantage of getting rated is that highly rated SMEs get the advantage of interest rate reduction from the Banks. There is wide acceptability of ratings among the bankers and in what is unprecedented in India, more than 20 banks provide interest rate concessions ranging from 0.25% to 1.25% to rated entities depending on their ratings.

A good rating also gives the business more credibility. Many large corporates and government entities have integrated ratings in their vendor/dealer evaluation process. And often the prospect of evaluation enables SMEs to dispassionately examine their own strengths and weaknesses and address issues to strengthen their operations.

Rated SMEs/SSIs get listed free of cost on CRISIL’s RatingScan, a publication used as a reference for lending decisions by many banks, and on the CRISIL website. The company’s name is also featured on CRISIL SME Connect, the monthly newsletter sent out to more than 3,000 bankers and 12,000 companies across India.

Since the inception of ratings concept for the SME sector, how many SMEs has CRISIL rated?

Sachin Nigam: Since CRISIL pioneered SME ratings in India in 2005, we have successfully completed more than 32,000 SME Ratings in a span of just seven years. This is the largest number of SMEs rated anywhere in the world.

What are the measures CRISIL adopts to popularise third party ratings amongst SME units?

Sachin Nigam: Generating awareness about the benefits of rating is of vital importance in the overall quest to bring greater transparency and corporate governance in the sector. CRISIL does these by organising seminars in collaboration with bankers and industry association for smaller enterprises across the country on the process and benefits of ratings.

How do you categorize SMEs for fair evaluation amongst peers?

Sachin Nigam: The SME sector has to be treated differently, because the drivers of credit quality for smaller enterprises and the issues faced by them are different from those applicable to large companies. Therefore, CRISIL has developed a unique two-dimensional scale for SMEs, where parameters for information requirement have been simplified and which can measure both performance capability as well as financial strength. Additionally, our whole SME Rating system is affordable and tailor-made for the sector.

Is it as easier to get reliable financial information about SMEs as in case of big players?

Sachin Nigam: Shortage of reliable financial and other information is a continuing challenge when it comes to rating SMEs. However, having rated more than 32,000 SMEs, CRISIL is able to bridge this information gap with a 360-degree evaluation approach. We don’t just go by the audit reports and CA certification but also mine alternate sources of information, including the firm’s bankers, suppliers and customers.

Each has its benefits. Bankers help us verify details of the working of the corporate account, the company’s actual sales/receivables position and whether it has been honouring its financial commitments. Information about the market position and operating efficiency can be cross-checked by meeting suppliers and discussing the firm’s purchases and sales, order book position, and payments terms. Our associates also visit the facilities of the company to determine whether the company has been truthful in describing its infrastructure, people strength etc.

All these factors, along with our experience of rating more than 32,000 SMEs, help us in bridging the information gap, which we face while rating these SMEs.

It is often seen that SMEs have to undergo fresh ratings assessment by banks when they apply for loans, despite ratings done by renowned credit rating agencies. What is the basic reason behind this?

Sachin Nigam: Banking being a highly-regulated sector, banks have stringent norms for day-to-day functioning. But this does not eliminate the need for rating agencies like ours. In fact, our ratings provide banks with an objective, credible and unbiased assessment of an organisation’s creditworthiness. This is borne out by the facts. Our ratings are used as a key ingredient by more than 40 banks in their decision-making process. And as mentioned earlier, banks give interest rate benefits varying between 0.25 per cent and 1.25 per cent to SMEs that have good credit ratings.

In its monetary policy review on Sept 17, Reserve Bank of India (RBI) kept repo rates unchanged while CRR rates were slashed 25 bps to 4.50%. What is your opinion? Will the additional liquidity in the market help SMEs and manufacturing companies who are looking for credit flow?

Sachin Nigam: The RBI’s move to cut CRR rates will introduce additional liquidity of Rs. 17,000 crore into the banking system. This will unlock cheaper credit for the industry at large, including for smaller enterprises, in the short-to-medium term. SMEs rated highly by CRISIL already enjoy lower loan interest rates from 20 banks.

Please share your roadmap for the current fiscal (2012-13).

Sachin Nigam: We will continue to take the message of ratings to all parts of the country. It will be our endeavor to make a vital difference to the SMEs by facilitating the flow of funds to the sector and empower the SMEs to take next steps in their journey to become a large corporate.