The National Small Industries Corporation (NSIC) has grown stronger by building competencies to serve the emerging needs of micro, small and medium enterprises (MSMEs) in today’s competitive environment. The company has created several innovative schemes to provide integrated support in terms of marketing, technology, credit and information to MSMEs. As a result of these initiatives, NSIC has achieved a record operational and financial performance in 2010-11. In a conversation with Srabani Sen of Electronics Bazaar, HP Kumar, chairman and managing director, NSIC, talks about the MSME sector and the role NSIC plays in supporting it
EB: Overall, how has the MSME sector in India grown, particularly in 2010-2011?
The micro, small and medium enterprises (MSME) sector in India has proved to be a model that other developing economies look to emulate. The sector has been growing at a much higher rate than the average economy of the country or the industrial sector, in particular. While the industrial sector has been growing at 8-9 per cent over the last two decades, the MSME sector has grown at over 10 per cent. The same trend continues even now despite the problems that the economy has faced during the global recession in 2009 and the recent difficulties in the financial markets. Indian MSMEs have not been much affected because they have a lot of resilience and inner strength. The programmes and policies that the government has implemented for them, along with the framework that has been originally laid out for the promotion and growth of this sector has been really beneficial for them. So I am very upbeat about this sector. Since I have been dealing with this sector for a long time now, I am very confident that it is a problem solver for any economy, not only India.
EB: Does the MSME sector have a bigger target for next year?
We are targeting a growth of about 11-12 per cent over the next year. However, looking at the past trends, the potential is much more. The changes this sector has been asking for are taking place gradually. There are issues related to credit, marketing, the need for technology upgradation, and competitiveness, which the sector is overcoming gradually. For the last two decades, China and other nations have been flooding our markets with their products. These domestic markets can be captured by the MSMEs. So even though there is greater potential, an 11-12 per cent growth target is what I see from this sector.
EB: What about the growth projections for the electronics MSME sector?
I can see the electronics MSME sector growing at a much higher pace because, if you look at India, electronics has touched only 30 per cent of the consumers. The market comprising about 70 per cent of the consumers is still untapped by electronics consumer products. So I see the growth in the electronics sector being more than the average growth of the economy and the MSME sector.
EB: When we speak to people in MSMEs in India, some of them say that they don’t want to grow out of this sector as they will then lose the benefits that the government gives them. Can you please comment on this?
I would say it is a myth, caused by a lack of proper understanding and awareness within these companies. While it is a fact that the MSMEs get benefits from the government in terms of tax concessions, that doesn’t play a hindering role in the growth of the company. The companies that are really looking to grow will not confine their expansion just for the sake of that small benefit with regard to taxation. It involves a comparison between how much you are losing and how much you will gain. If you gain by the expansion and increase in the turnover of your company, then the loss of those concessions shouldn’t matter. For example, if a firm, that has reached a turnover of Rs 6 million, which is the limit for a tax audit, gets an order for Rs 30 million, do you think the promoters will continue with the turnover of Rs 6 million just because they can continue not to audit their accounts to remain an MSME? I don’t think so.
EB: Compared to bigger companies, we know that MSMEs need handholding from the government to some extent. What role does NSIC play in this regard?
While the larger support comes from the government, NSIC, which is a part of the government effort, shares some of its responsibilities. The major policy framework for facilitating the MSMEs is in the form of financing through banks, technology upgradation programmes, assistance in marketing efforts by helping enterprises to sell to government departments, international exhibitions, etc. Some of the programmes that the government has implemented for the MSMEs involve employment generation, setting up new enterprises, incubation, etc.
Coming to NSIC, its role is very focused. It works in two directions—to help set up new small businesses where we provide support in the form of complete incubation of the new project by training the entrepreneurs, helping them to choose the right project, the right market and the right technology. This is done particularly for those who are looking for self-employment opportunities.
We also help them in getting credit from banks because we have agreements with some of the banks and on our recommendation the banks accept loan proposals from MSMEs. Thereafter, technology and marketing support follow as a part of this package for first generation entrepreneurs.
NSIC is also working towards upgrading the capacities of existing small enterprises, which is done by providing them raw material support. This results in them getting a 10-15 per cent price advantage as a result of bulk buying by NSIC, contracting with the manufacturers directly. If small industries are unable to get big orders because of their small capacity, we club some of them into a consortium, aggregate their capacity and then apply for big tenders on their behalf.
We also run a Marketing Intelligence Cell, which was set up two years back on the recommendation of the Prime Minister’s task force because there was no intelligence network available to the MSME sector with regard to marketing. It gives information about the countries that they can export to, what products they can export and at what price. So we have tried to collate this information through this cell.
Another important scheme that we run is credit facilitation. We have signed agreements with major banks (nationalised and foreign) in the country whereby we work as an intermediary between the banks and the small enterprises because MSMEs face problems getting credit from the banks directly.
EB: When you help MSMEs in getting credit from the banks, do you have to be the guarantor?
No, there is no need for NSIC to be a guarantor. We are the facilitator between the bank and the borrower. We look at the credentials and credit worthiness of the borrower and the banks trust us.
EB: So, do you study the credentials of the MSMEs before recommending them to the banks?
Yes, we do some part of it on behalf of the banks and that is why we levy a service fee to the bank and not the borrower.
EB: Do you have qualified staff to give technical support to MSME startups, or do you outsource that service?
We have eight big technical centres of our own in major cities including Delhi, Chennai and Kolkata.
We also have contracts with private sector companies under a public-private partnership and have set up around 40 incubation centres with the help of the private sector.
EB: How does an individual or organisation get to know about these incubation centres?
We advertise them and people have to apply for the services offered by them. Then there is the initial scrutiny of the applicants prior to selection.
EB: Is this training free or paid for?
We charge when an organisation can afford to pay but we also help those who cannot with free training.
EB: Are these procedures cumbersome?
No, we have simplified the procedures because if people are not happy with our procedures, they won’t come to us. Our corporation is basically a PSU; we levy a service fee for all the services we offer, so in order to benefit from our services, the procedures should not be complicated. We have to keep our services simple and user friendly.
EB: Is NSIC a profit making company?
Yes, we have been a profit making, dividend paying company for the past many years. The government has asked us to work on commercial lines, so we have to price our services. People value our services, which is why they are paying for them. Expansion is continuously taking place within the company.
EB: How did you perform in the last financial year?
We had a turnover of Rs 79 billion in the last financial year with a profit of Rs 350 million. This is the profit earned from all our schemes put together.
EB: For MSMEs, the main hindrance in competing with the bigger enterprises is technology and when MSMEs export, they have to compete with the technology of other countries. How do you help them to upgrade their technology?
We expose them to the advanced technologies of Indian companies as well as what’s available in various countries. While doing so, we tell them what the consumers need. Technology helps in two ways—one is in scaling up and increasing the productivity of the company, and the other is for quality improvement. So the appropriate technology is chosen according to these two factors. Once the suitable technology is identified by an MSME, we help in sourcing it.
EB: Do you also hold sector specific or technology specific training programmes?
We have started sector wise interventions because it is easy to address the issues faced by a particular sector in a concerted manner rather than addressing issues of individual enterprises.
EB: How aware are MSMEs about NSIC’s schemes?
We are an old organisation so there is sufficient awareness, and over the last six years we have re-established our credentials for the benefit of MSMEs. Our schemes have been well accepted by the MSMEs and they are aware of them through our campaigns, which we conduct throughout the country. These campaigns include holding workshops with industry clusters on different products.
EB: Which NSIC scheme is the most in demand?
Our marketing schemes are very popular, where we help the private industries to supply to different government departments and PSUs. Another popular scheme is related to performance and credit rating, which empowers the MSMEs to establish their credit worthiness.
EB: Does NSIC face competition from organisations in the private sector that also provide the same services to MSMEs?
Some of the programmes that we are running have no private sector participation, while some like raw material distribution do have private players. But a buyer will go only to those who offer good quality and low prices. So the challenge is to maintain the good quality of our services so that the MSMEs keep coming to us.
EB: Do you fund or invest in research-based programmes?
We have not focused on that particular activity as yet, but we are open to it if it is for the benefit of MSMEs.
