The government of India has recently legislated coverage and classification standards for Micro, Small and Medium Enterprises (MSME) of India based on the size of investment in accordance with the Micro, Small and Medium Enterprises Development Act amended in 2006.
According to the census of Micro, Small and Medium Enterprises implemented in 2006/07 based on the newly amended Act of 2006, a number of MSMEs and employment as of 2012 is estimated to be 47 million and hundreds of millions, respectively. And, total production and fixed asset is estimated to be US$344 billion and US$220 billion dollars, respectively. Meanwhile, a proportion accounted for by MSMEs in total production of manufacturing industry and GDP has decreased, respectively, to 37.5%-7.3% in 2011 from 42%-7.8% in 2006 and 2007.
Most MSEMs of India are classified as Micro-enterprises with small scale of investment (under Rs. 2.5 million for manufacturing, Rs. 1 million for non-manufacturing). These enterprises are unregistered so that they are not qualified for any incentives and support from the government, and account for over 90% (in average) of production, investment and employment of total unregistered MSMEs. Meanwhile, in case of registered enterprises, micro-enterprises comprise about 95% of their number, a level similar to the unregistered sector; they accounts for about 40% of total production and investment, which is smaller in relative terms than the unregistered sector.
As mentioned, although most MSMEs of India are small, their contribution to the Indian economy is very significant, especially for generating employment and balancing the regional economy, in addition to boosting exports. MSMEs of India account for about 40% of total employment, and exports from MSMEs have increased by 16% over the last 10years.
To enhance competitiveness of MSMEs, the Indian government provides MSMEs with various support programs and policies such as the National Manufacturing Competitiveness Program and 12th 5-year national development plan.
Entrance of Korean small and medium enterprises into India increased after the mid 2000s and most are from the manufacturing sector. Small and medium companies from Korea tied to large companies have expanded market share with highly valued products. However, the pace of expansion of small and medium, along with large companies, has been slowing down due to the recent economic slowdown.
Recently, Korean small and medium companies are facing difficulties related to securing market information, land acquisition, local financing; and also excessive dependency on large companies. These represent obstacles that could hinder sustained market expansion of Korean companies in the Indian market. Furthermore, Korean small and medium companies are out of coverage regarding any incentives from the Indian government, because the average size of investment of Korean small and medium companies is about US$1.6 million, far beyond the investment cap to be recognized as an MSME in India.
The Korean government needs to review some creative policies for supporting small and medium companies and promoting cooperation between MSMEs of two countries. First establish a ‘Korea-India Public-Private Cooperation Center for MSME’ in both countries so that it could provide a single window, one-stop service. Second, establishment of a ‘Creative Economic Innovation Center’ is also recommended. It would be able to play the role of promoting and developing innovative agenda for Korean small and medium companies trying to enter the Indian market. Lastly, Korean and Indian governments need to consider creating a joint fund for MSMEs that are trying or have already entered the other side of the market, offering an effective solution for companies experiencing financial problems. The India-Israel joint fund is available for anyone looking for a reference and benchmark.