IMPORTANCE OF IMPORTANCE OF IMPORTANCE OF FINANCIAL …

IMPORTANCE OF FINANCIAL MANAGEMENT FOR SMES' IN RETAIL BUSINESS IN INDIA

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CHAPTER III IMPORTANCE OF FINANCIAL MANAGEMENT

FOR SMES' IN RETAIL BUSINESS IN INDIA

This chapter aims to provide information on the uses of financial management by the small business owner managers to monitor their business performance. Attempts have been made to portray the role of SMEs' in retail business with a focus on knowledge and financial management practices.

The chapter is divided into two sections. Section I deals with the role of SME's in Retail Business. Section II discusses the SME's function of knowledge and financial management practices.

SECTION I ROLE OF SMES' IN RETAIL BUSINESS

In this section the researcher depicts the meaning of small business and their characteristics. It also portrays the role of MSMEs' in retail business.

With the advent of planned economy from 1951 and the subsequent industrial policy followed by the Government of India, both planners and Government earmarked a special role or small-scale industries and medium scale industries in the Indian economy. Due protection was accorded to both sectors, and particularly for small-scale industries from 1951 to 1991, till the nation adopted a policy of liberalization and globalization. Certain products were reserved for small-scale units for a long time, though this list of products is decreasing due to change in industrial policies and climate.

It has been observed that by and large SMEs in India met the expectations in this respect. SMEs developed in a manner which it possible for them to achieve the following objectives:

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? High contribution to domestic production ? Significant export earnings ? Low investment requirements ? Operational flexibility ? Location wise mobility ? Low intensive imports ? Capacities to develop appropriate indigenous technology ? Import substitution ? Contribution towards defense production ? Technology-oriented industries ? Competitiveness in domestic and export markets

At the same time one has to understand the limitations of SMEs, which are ? Low capital base ? Concentration of functions in or two persons ? Inadequate exposure to international environment ? Inability to face impact WTO regime ? Inadequate contribution towards R & D ? Lack of professionalism

In spite of these limitations, the SMEs have made significant contribution towards technological development and exports. SMEs have been established in almost all major sectors in the Indian industry such as

? Food processing ? Agricultural inputs ? Chemicals and Pharmaceuticals ? Engineering , Electricals, Electronics ? Electro-medical equipment ? Textiles and Garments ? Leather and leather goods

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? Meat products ? Bio-engineering ? Sports goods ? Plastic products ? Computer software, etc.

3.1 Small Business in India

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In layman's language, a small scale business can be termed as `project' or `venture' which involves a small budget, or is run by a small group of people. According to the definition provided by the government website for business, .in, a small scale industry (SSI) is a business setup in which the financial commitment towards infrastructure such as building and equipment, on an owner or rental or purchase basis, should not exceed `. 1crore. However, this ceiling on investment is subject to change by the Government of India.

3.1.1 Government Rules and Regulations for Small Scale Industries As per the rules of the government, it is not necessary to procure a

license either from the state or central government to set up a small business venture anywhere in India. Nor is there a need to register for small business. However, registering small scale business with the State Directorate or Commissioner of Industries or DIC's will make it easier for MSME (Micro, Small and Medium Scale Entrepreneurs') to apply for financial assistance from the government bodies such as the Department of Industries. Nowadays, State Financial Corporations and other commercial banks disburse medium to long term MSME loans. The National Small Industries Corporation is also a government body which assists small business owners in availing financial assistance to procure machinery on hire-purchase basis. The government has also eased the rules and regulations to avail the benefits of schemes such as capital subsidy, reduced custom duty on selected items, credit guarantee scheme, various state government benefits and ISO-9000 certification

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reimbursement, and furthermore, it need not register as a small unit in order to avail all these.

3.1.2 Sector-wise Growth of Small Businesses in India The study provides an overview of how small scale industries are

growing sector-wise through figures of employment generated by those sectors. Food products industry comes on top in terms of employment generation, providing jobs to nearly 5 lakhs people. The second rank goes to non-metallic mineral products which created 4.5 lakhs jobs and metal products industry is ranked three with an employment of 3.75 lakhs people.

It is followed by small businesses like wood products, basic metal industries, chemicals and chemical products, machinery parts, hosiery and garment units, repair services, paper products & printing industry, and rubber and plastic products contribution to employment generation somewhere between 10percent and 5percent. Therefore the total contribution in employment generation by the above mentioned sectors is around 50per cent. The rest of the small scale businesses have less than 5per cent part in the total employment creation.

3.1.3 Government Policies to Promote MSME Sectors The government is striving hard to promote smaller scale industries by

announcing different promotional schemes. The first and foremost step of the government in the direction of providing financial benefits was to announce tax concessions and certain exemptions on indirect taxes. As a matter of fact, there were many sick units, where more funds were to be allotted as they needed rehabilitation.

The Reserve Bank of India formed a committee in 2000, headed by the Chairman of Indian Banks Association to handle the issue of rehabilitation of sick small scale units. This committee also undertook the task of providing assistance in marketing through National Small Industries Corporation by

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