CHAPTER - 10

Micro, Small and Medium 349

Enterprises in Karnataka

Summary

Karnataka is the home for more than 8.5 lakh Micro, Small and Medium Enterprises
(MSMEs) and provided employment to over 55 lakh people. In Karnataka over the last
5 years, about Rs. 4 lakh crore has been invested and the state stands in 5th place in
the country in industrial growth. MSMEs play an important role in economic growth
by fostering entrepreneurship and generating large employment opportunities.
MSMEs provide support to large firms as suppliers of input goods and services, thereby
contributing to industrial development. Many programs and policies, incentives and
concessions have been in place for promoting MSMEs.

The state’s industries today have suffered losses from lockdown and stagnant exports
caused by the outbreak of the infectious virus Covid-19, two years ago. Some industries
have disappeared. In the meantime, the state and central governments have provided
some assistance. However, these industries still need time to reach their former level.
MSMEs face many challenges that can be addressed through the following measures:
Improving access to capital, Infusion of Equity Capital, Enhanced productivity through
management practices, and improving Ease of Doing of Business. Recently, Government
of India released draft MSME policy encompassing 8 action areas to overhaul the MSME
sector.

10.1 Introduction

Karnataka is known as an ideal place for industries. Today there are more than 8.5 lakh
Micro, Small and Medium Enterprises (MSMEs) in Karnataka which employ over 55
lakh people. The major industries are food processing units, engineering units, ready-
made garments manufacturing units, foundry units, automobile units, chemical plants,
handicrafts units, etc. In addition, Karnataka has lineage industries like handicrafts and
small-scale industries such as handicrafts, khadi and rural industries.

Bengaluru’s Peenya Industrial Area is one of the Asia’s largest industrial areas and is
home to many MSMEs. The products produced here are internationally renowned.

The state of Karnataka is famous for its many vantages.

RR Aerospace capital of India

RR Apparel and Silk Hub of India
RR Automobile Hub of India
RR Bio tech capital of India
RR Silicon Valley of the East
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In Karnataka over the last 5 years, about Rs. 4 lakh crore has been invested and the state
stands in 5th place in the country in industrial growth. The role of MSMEs is important
in the economic development of the state. The contribution of MSME sector to the GDP
of the country is about 40% and the MSME sector is the 2nd largest employer after
agriculture.

The state has been focusing on the economic and industrial development with a
progressive outlook for changing needs over the years. In today’s globalization era, in
order to establish and succeed in a competitive market, entrepreneurial skills, credit,
technology adoption, quality production, competitiveness in the market will be the
challenges.

The State Government has at each stage devised specific programs to provide assistance
and help to a new generation of entrepreneurs.

The Department of Industry and Commerce runs a number of programs on how to

start self-employment and help unemployed graduates learn about self-employment.
Prominent among them is the “Be an employer-provide employment” program.

The Government of Karnataka has set up and distributed sites and stores through the
Karnataka Industrial Area Development Board (KIADB) and Karnataka State Small
Industrial Development Corporation Ltd (KSSIDC) to facilitate entrepreneurs to set up
industries.

Karnataka ranks first in shaping industrial policy. In the ‘80s, the Karnataka government
first implemented an “industrial policy” to utilize the resources of the state to create
employment and economic growth. Keeping this as a model, other states set their
own industrial policies. Today the Government of Karnataka has implemented the
“New Industrial Policy - 2020-25” from 13/8/2020 with emphasis on holistic industrial
development in the Tier II and Tier III cities. Many incentives and concessions are being
offered for this.

Moreover, the state of Karnataka is in the forefront in formulating territorial policies.

RR Suvarna Vastra Policy

RR Retail Trade Policy
RR Karnataka Electric Vehicle & Energy Storage Policy
RR Aerospace Policy
RR Karnataka Agribusiness & Food Processing Policy
RR KalpavrikshaKayaka Policy
Karnataka has secured 46 geographical Indication (GI) tags and is in the verge of being
geographically recognized states. Among them are Molakulmuru sarees, Ilkal Sarees,
Dharwad Peda, NanjangudRasbhale, Mysore Agarbathi, Coorg Orange, Udupi Mallige,
Bidar Bamboo handicrafts, Mysore Sandal Soap, Kinhal toys, Channapatna Toys to name
a few.

The state’s industries today have suffered losses from lockdown and stagnant exports
caused by the outbreak of the infectious virus Covid-19, two years ago. Some industries

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have disappeared. In the meantime, the state and central governments have provided
some assistance. However, these industries still need time to reach their former level.

10.2 Micro, Small & Medium Enterprises

Micro, Small & Medium Enterprises (MSMEs) form an important and growing segment
of Karnataka’s industrial sector. As the definition of MSME is amended since 01/07/2020,
Under the amended Act, Micro, Small and Medium Enterprises (MSMEs) are classified
based on two factors - investment and annual turnover as shown in Table 10.1:

Table 10.1 : Classification of MSMEs

Manufacturing and Service

Category Investment on Plant and
Annual Turnover
Machinery

Micro Up to Rs. 1.00 Crore Up to Rs. 5 Crore

Small Up to Rs.10.00 Crore Up to Rs. 50 Crore

Medium Up to Rs. 50.00 Crore Up to Rs. 250 Crore

During the year 2021-22, the registration of all the industries is freshly done based on the
newly introduced udyam registration portal of Govt. of India which replaced the old data
that was extracted earlier through udyogadhar portal. Hence the new data extracted
fromUdyam Registration portal will be authentic here onwards.All the industrial units
should transform to Udyam registration before 31/12/2021 as per GoI circular.

As per earlier registration details there are 8.75 lakh Micro, Small-Scale units in the State,
these units have invested Rs. 1.03 lakh crores and provided employment to 60.21 lakh
persons. Similarly, in the large and medium sector 2,235 units in the State, these units
have invested Rs. 3.07 lakh crores and provided employment to 5.58 lakh persons.

Meanwhile on account of Covid-19 Pandemic effects many units have been closed or in-
operative. Hence, they could not transform to udyam registration. As on 30th November
2021 underudyam registration portal there are 3.32 lakhMSME units registered in the
State with the investment of about Rs. 0.60 lakh crores and provided employment to
36.31 lakh persons. The transformation process will continue till the end of December
2021.

Table 10.2 : The number of registered Micro units, Investment and Employment for the
year 2020-21 upto 30 November 2021

Sl. Micro (Up to Rs. 1.00 Crore Investment or 5 crore Turnover)

Districts
No. Units Investment (Rs. crs) Employment
1 Bagalkot 1769 40.24 9668
2 Ballari 2081 46.2 12439
3 Belagavi 5851 117.81 57888

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Table 10.2 : The number of registered Micro units, Investment and Employment for the
year 2020-21 upto 30 November 2021

Sl. Micro (Up to Rs. 1.00 Crore Investment or 5 crore Turnover)

Districts
No. Units Investment (Rs. crs) Employment
4 Bengaluru (Rural) 4618 90.66 62659
Bengaluru
5 28301 558.19 178793
(Urban)
6 Bidar 901 25.41 9413
7 Chamarajnagar 444 4.51 2089
8 Chikballapur 951 53.54 8491
9 Chikkamagaluru 1108 25.26 5145
10 Chitradurga 1191 17.54 6435
11 Dakshin kannad 2940 59.12 21682
12 Davangere 1616 34.57 8859
13 Dharwad 3199 55.2 35129
14 Gadag 750 16.34 4179
15 Hassan 1930 37.54 30867
16 Haveri 1044 21.99 5116
17 Kalaburagi 1792 55.76 14470
18 Kodagu 619 12.86 4692
19 Kolar 1384 34.44 13467
20 Koppal 856 41.02 8625
21 Mandya 1523 32.69 23421
22 Mysuru 3108 56.86 27341
23 Raichur 986 22.53 14359
24 Ramanagara 900 28.94 10445
25 Shivamogga 1756 34.97 7679
26 Tumakuru 2248 49.94 14929
27 Udupi 1536 46.46 8209
28 Uttar kannad 1492 30.84 7493
29 Vijayapura 2067 39.37 12774
30 Yadgir 1166 18.44 13636
Grand Total 80127 1709.23 640392
Source : Udyam Registration Portal GoI

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Table 10.3 : The number of registered small units, investment and employment for the
year 2020-21 up to 30 November 2021

Small (Up to Rs. 10.00 Crore

Investment or 50 crore turnover)
Sl. No Districts
Units Investment (Rs.crs) Employment

1 Bagalkot 12 22.81 321

2 Ballari 22 21.44 611

3 Belagavi 31 81.99 799

4 Bengaluru (Rural) 35 63.18 648

5 Bengaluru (Urban) 170 242.84 2915

6 Bidar 15 31.89 235

7 Chamarajnagar 4 12.14 56

8 Chikballapur 6 16.84 64

9 Chikkamagaluru 9 8.17 172

10 Chitradurga 6 4.26 70

11 Dakshin kannad 12 10.22 97

12 Davangere 11 12.02 218

13 Dharwad 26 28.43 380

14 Gadag 7 7.96 68

15 Hassan 14 14.87 242

16 Haveri 9 18.37 75

17 Kalaburagi 23 37.84 285

18 Kodagu 2 2.1 35

19 Kolar 17 27.07 296

20 Koppal 18 23.7 198

21 Mandya 13 15.02 318

22 Mysuru 22 39.42 434

23 Raichur 27 34.05 390

24 Ramanagara 4 3.78 31

25 Shivamogga 8 17.42 91
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Table 10.3 : The number of registered small units, investment and employment for the
year 2020-21 up to 30 November 2021

Small (Up to Rs. 10.00 Crore

Investment or 50 crore turnover)
Sl. No Districts
Units Investment (Rs.crs) Employment

26 Tumakuru 22 24.13 446

27 Udupi 11 16.3 94

28 Uttar Kannad 9 18.82 145

29 Vijayapura 10 18.91 118

30 Yadgir 5 13.11 78

Grand Total 580 889.1 9930

(Source : Udyam Registration Portal GoI)

Table 10.4: The number of registered medium units, investment and employment
for the year 2020-21 up to 30 November 2021
Medium (Up to Rs. 50.00 Crore
Sl. No Districts Investment or 250 crore turnover)
Units Investment (Rs.crs) Employment
1 Bagalkot - - -
2 Ballari - - -
3 Belagavi 1 48.00 10
4 Bengaluru (Rural) 2 4.68 22
5 Bengaluru (Urban) 12 64.62 1084
6 Bidar - - -
7 Chamarajnagar - - -
8 Chikballapur 1 17.00 25
9 Chikkamagaluru - - -
10 Chitradurga - - -
11 Dakshin kannad - - -
12 Davangere - - -
13 Dharwad 2 58.56 90
14 Gadag - - -
15 Hassan - - -

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Table 10.4: The number of registered medium units, investment and employment
for the year 2020-21 up to 30 November 2021
Medium (Up to Rs. 50.00 Crore
Sl. No Districts Investment or 250 crore turnover)
Units Investment (Rs.crs) Employment
16 Haveri 1 0.86 11
17 Kalaburagi 1 32.21 30
18 Kodagu - - -
19 Kolar - - -
20 Koppal - - -
21 Mandya - - -
22 Mysuru 5 89.68 137
23 Raichur 1 16.65 86
24 Ramanagara - - -
25 Shivamogga - - -
26 Tumakuru - - -
27 Udupi - - -
28 Uttar kannad - - -
29 Vijayapura 2 34.26 117
30 Yadgir - - -

Grand Total 28 366.53 1612

Source : Udyam Registration Portal GoI

Table 10.5: Registration of small-scale industrial units in Karnataka (Cumulative)

Investment
Year / Item No of SSI Units Employment in 000s
(Rs. in Lakh)
2005-06 334386 735616 1888
2006-07 346966 782158 1946
2007-08 361950 894817 2069
2008-09 377655 996434 2174
2009-10 394850 1119250 2285
2010-11 413284 1239873 2396
2011-12 434305 1399514 2524
2012-13 458511 1616365 2680
2013-14 484549 1901082 2846
2014-15 513291 2180373 3022

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Table 10.5: Registration of small-scale industrial units in Karnataka (Cumulative)

Investment
Year / Item No of SSI Units Employment in 000s
(Rs. in Lakh)
2015-16 538947 2674965 3243
2016-17 578117 3941379 3752
2017-18 626599 5099954 4193
2018-19 695877 6587652 4776
2019-20 793109 8447379 5478
2020-21* 332233 6000678 3631
Note: * As Udyog Aadhar Portal is transformed into Udyam Registration, the details of no. of registered
units till November 2021 are mentioned above.

10.3 Industrial Policy 2020-2025

This policy has been effective from date13.08.2020(G.O.No. CI 199 SPI 2018 BENGALURU)
and will be valid for a period of 5 years or till a new policy is announced.

Vision

To emerge as a global leaderin advanced manufacturing research and development,

innovation and to create an ecosystem for an inclusive balanced and sustainable
development of the state.

Mission

To retain Karnataka position as a global manufacturing hub and to achieve higher and
sustainable industrial growth through capital infusion technology transfer world class
industrial infrastructure skill up gradation and benchmarking of policies and practices to
best Global standards

Objectives

RR To attract investments worth INR 5 lakh crore

RR To create employment opportunities for 20 lakh people

RR To reach third position in merchandise export in the next five years

RR To maintain an industrial growth rate of 10% per annum

RR To provide an enabling ecosystem for technology adoption and innovation

Strategies

RR Promote sustainable, balanced and inclusive industrial growth.

RR Enable Employment generation and increase labour market flexibility, regulatorylabour

reforms.

RR Create strategic tie UPS for the emergence of Karnataka as the knowledge and R&D

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hub

RR Focus on development and promotion of the MSME sector

RR Facilitate availability of industrial land.

RR Remote tier II and III cities of the state engines of economic growth.

RR Place Karnataka in the forefront of India’s international trade.

RR Showcase Karnataka as the “Factory of the Future” industry 4.0.

RR Engage with various stakeholders to develop sector specific skill development

strategy.

RR Attract private investment in development of integrated multi sectoral industrial

parks and flatted factories.

RR Create an environment to enhance case of doing business in the state.

RR Support R& D and Technology up gradation

10.4 Initiatives of the central and state government for promoting MSMEs

10.4.1 Prime Minister’s Employment Generation Programme (PMEGP)

Prime Minister’s Employment Generation Programme (PMEGP) is being implemented

from the year 2008-09. The objective of the scheme is to provide employment to the
educated unemployed youth by setting up industries in rural and urban areas under
Manufacturing and Service Sectors, based on the local resources. Demand oriented
Industries such as packaged drinking water, food-processing units and the entrepreneurs
adopting latest technologies, resulting in producing quality products and taking up
vehicle repairs are covered in this scheme. Under this scheme, financial assistance up to
Rs. 25 lakh for manufacturing sector and upto Rs. 10 lakh for Service Sector is extended
in the form of loan through various banks. The details of the subsidy available under the
scheme are as below:

Table 10.6 : Progress made under PM self-employment schemes from 2018-19 to 2021-22

Achievement 2021-22 up to November

Programme/
Unit
Scheme
2018-19 2019-20 2020-21 Target Achievement

PMEGP
a) Projects No 3366 3560 4384 4563 2651
b) Persons
No 2670 2847 4886 -- 3141
Trained
c) Employed
No 26928 28480 35072 36504 21208
generated

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Table 10.6 : Progress made under PM self-employment schemes from 2018-19 to 2021-22

Achievement 2021-22 up to November

Programme/
Unit
Scheme
2018-19 2019-20 2020-21 Target Achievement

d) Total amount
spent (Margin
Money released
from Khadi and Rs. Lakh 10156.7 10378.06 12367.00 13749.00 7406.81
village Industries
Commission
GoI)
Source: Rural Industries section, Industries & Commerce Dept.

10.4.2 Micro, Small enterprises – Cluster Development Programme (MSE-CDP)

The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India
(GoI) has adopted the Cluster Development approach as a key strategy for enhancing
the productivity and competitiveness as well as capacity building of Micro and Small
Enterprises (MSEs) and their collectives in the country.

A cluster is a group of enterprises located within an identifiable and as far as practicable,

contiguous area or a value chain that goes beyond a geographical area and producing
same/similar products/complementary products/services, which can be linked together
by common physical infrastructure facilities that help address their common challenges.

Table 10.7 : Details of cluster development programmesof GoI undertaken inthe state up
to November 2021

Sl. Project Cost

Details Number
No. (Rs. In lakhs)
1 Clusters Implemented 11 9810.93
2 Clusters finally approvedby GoI 01 1994.09
3 Clusters to be approved by GoI 02 3494.00
4 Cluster proposals in pipeline 11 12987.00
Source: KCTU, Industries & Commerce Dept.

10.4.3 Incentives and concessions to MSME units

During the year 2021-22 Rs.292.25 Crores have been allotted under the HOA 2851-00-
102-0-83(106) to sanction investment promotion subsidy and other incentives and
concessions to Micro, Small and Medium Industries. Govt. has released Rs.73.06 Crores
up to 30th November 2021.

During the year up to30thNovember 2021 Rs.0.75 crores of financial assistance is provided
in the sector of Handicrafts. In the Khadi sector, Rs.7.50 crores are provided as marketing
and wage incentive subsidy to2790 artisans of Khaadi, Coir and Handicrafts sectors.

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Under SCP Rs.41.38 crores for 228 beneficiaries and under TSP programmes Rs.16.78
crores for 106 beneficiaries have been spent for providing subsidized industrial sites, soft
seed subsidies etc.

Table 10.8 : Financial Assistance provided to Micro, Small & Medium Industries
from 2015-16 to 2021-22

Subsidy released to the units

Sl. No. Year Units
(Rs. in Lakhs)

1 2015-16 2297 8920.00

2 2016-17 1555 10575.00

3 2017-18 2344 11688.50

4 2018-19 2801 13754.04

5 2019-20 1001 11153.75

6 2020-21 735 9520.72

2021-22
7 314 5645.16
(up to Nov. 2021)

Total 11047 71257.17

Source: MSME section, Industries & Commerce Dept.

10.4.4 Section 109, The Karnataka Land Reforms Act, 1961

Taking note of delay in getting permission under Section 109 of KLR Act, 1961, the State
Government has proposed the following steps:

i. The State Government vide Notification No. DPAL 08 SHASANA 2020, Bengaluru,
dated April 27, 2020 has amended the Section 109 of Karnataka Land Reforms Act,
1961 to address the issues and simplified the procedure which will benefit both the
land owner and the industry.
ii. With this amendment, any industrial projects approved by State High Level Clearance
Committee (SHLCC) or the State Level Single Window Clearance Committee (SLSWCC)
constituted under the Karnataka Industries (Facilitation) Act, 2002 shall be deemed
to be exempted by the Government from the provisions of Section 63, 79A, 79B or 80
of Karnataka Land Reforms Act, 1961.
iii. These project proponents can directly procure lands from land owners and certain
lands required for this kind of projectsmay be approved by the Government.
10.4.5 Private industrial parks.

Government proposes to encourage establishment of industrial areas and estates in the

State either by private investors or through PPP mode. These would be approved by
SHLCC / SLSWCC.

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Table 10.9: Category of Private Industrial Parks and Minimum Acreage

Sl No. Category Minimum Acreage

1 Knowledge Based Industries / Flatted Factories 5

2 Logistics 50

3 Multi / Sector Specific Industrial Parks 75

4 Integrated Industrial Parks 250

Source: Policy & Promotion section, Industries & Commerce Dept.

Government of India released draft MSME policy. It has proposed 8 ‘action areas’ to overhaul
the sector: intergovernmental role and responsibility,legislation/regulatory framework
for MSMEs in India, access to finance/ financial assistance for MSMEs, technology
upgradation, knowledge management,ease of doing business, skill development and
exit code.

10.5 Conclusions and Way Forward

MSMEs play an important role in economic growth by fostering entrepreneurship and

generating large employment opportunities. MSMEs provide support to large firms as
suppliers of input goods and services, thereby contributing to industrial development.
MSMEs face many challenges that can be addressed through the following measures.

1. Improving access to capital – Karnataka is relatively underbanked compared to

its neighboring states. Businesses in Karnataka receive a lesser share of bank credit
relative to their economic size, as many firms within the MSME sector are credit
constrained. Karnataka’s share of loans sanctioned under CGTMSE during FY 2020-
21 is 9.2%, which is higher than its share of GDP. This shows that banks are ready to
provide credit to constrained firms if part of the credit risk is shared by the government.
Yet Karnataka’s share of credit given through ECLGS is lower than its GDP share. The
State Government should encourage banks and NBFCs through SLBCs to provide
credit to businesses affected by Covid under ECLGS. The state government can also
devise a credit-linked subsidy scheme to encourage borrowing to small and medium
businesses in specific sectors that are identified as highly credit constrained.
2. Infusion of Equity Capital - The MSME sector depends heavily on debt financing
to meet its capital demand. High levels of debt without enough equity distort the
incentives of the entrepreneur and encourage them to make poor investment
choices. In this respect, State government can establish a Fund of Funds to infuse
equity capital into MSME sector. In order to address these challenges associated
with operating MSME fund, government intervention is required to allay the fears
of the investors worried about these problems. Government should guarantee the
principal value invested for a limited number of years, while building an operating
model for fund management that mitigates the risks and challenges associated with
investing in SMEs. Therefore, government guarantee is essential to attract diverse set
of investors.
3. Enhanced productivity through management practices – State government
should hold workshops and training programs to impart management practices

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based on simple principles of operation management to small business owners and

entrepreneurs. Research by a group of management researchers investigated the
impact of improved management practices by running field experiment on large
Indian textile firms. They provided free consulting on management practices to
randomly chosen treatment plants and found that management practices raised
productivity by 17% in the first year through improved efficiency, better quality and
lower inventory
4. Ease of doing of business – Karnataka’s rank on the ease of doing business index has
fallen to 17 in 2019. Reducing regulatory burden and the compliance costs of small
businesses would facilitate a business-friendly environment. Another hindrance in
growth of small businesses is the applicability of stringent labour laws on becoming
medium sized businesses. Karnataka government can amend the threshold for
labour laws by increasing it to 300 workers like other states such as Rajasthan and
Gujarat.
Government of India released draft MSME policy. It has proposed 8 ‘action areas’ to overhaul
the sector: intergovernmental role and responsibility,legislation/regulatory framework
for MSMEs in India, access to finance/ financial assistance for MSMEs, technology
upgradation, knowledge management,ease of doing business, skill development and
exit code. Implementation of this policy will significantly contribute to the growth of the
MSME sector.

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Karnataka Economic Survey 2021-22