MSME Success Stories: The Zero Defect, Zero Effect (ZED) scheme launched by Prime Minister Narendra Modi in October 2016 had targetted certifying 22,222 micro, small and medium enterprises (MSMEs) for their high-quality manufacturing processes and products. Now, how did the government arrive at the unique 22,222 figure is not known, but only 329 MSMEs were certified across bronze, silver, gold, and diamond certifications under the scheme, according to the information shared by MoS MSME Bhanu Pratap Singh Verma in a written reply to the Lok Sabha on March 24, 2022.
The diamond certification was secured by only four companies including Mohali (Punjab)-based automotive switches (which control the entire electrical equipment installed in a vehicle) manufacturer Gilard Electronics. Launched in 1961, the company had secured the top certification in January 2019. Currently led by the second generation entrepreneur Sanjiv Singh, Gilard was the first diamond-certified MSME in Punjab and India’s automotive sector; and also second in the country’s overall MSME sector, Singh told Financial Express Online.
Right after his schooling back in 1979, Singh joined the family business to support his father while he simultaneously pursued his graduation. Over the years, he has scaled the business to over 100 customers across automotive, electronics, defence, and white goods including Mahindra & Mahindra, Honda, etc. and Rs 40 crore turnover. However, Singh had little idea about the ZED scheme until late 2018, around two years after the launch of the scheme, when he started receiving email alerts from the Quality Council of India (QCI) — the monitoring and implementation body for ZED – detailing benefits of the scheme.
“When I read about it and the various parameters, I found it interesting because we already had those processes in place that were required for certification. The list of parameters showed the maturity level by the government in auditing companies,” said Singh.
Getting the certification was almost a cakewalk, added Singh as he cited multiple certifications and awards his company had already received for compliance with top safety and quality procedures. For instance, IATF 16949:2016 — an international standard for automotive quality management systems focusing on the development of a quality management system that provides for continuous improvement, defect prevention, and waste reduction in a company’s supply chain.
Another certification was ISO 14001:2015 which specifies the requirements for an effective environmental management system. According to the standard, it helps companies improve their environmental performance through more efficient use of resources and gain a competitive advantage and the trust of stakeholders.
For example, Gilard adopted the Restriction of Hazardous Substances (RoHS) Directive by the European Union (EU) which is essentially a criterion set up to regulate the usage of toxic materials or chemicals in electrical and electronic devices, systems, and toys. The materials include lead, cadmium, mercury, hexavalent chromium, and more.
“We don’t use these substances in our manufacturing process. For treating our wastewater, we have a captive effluent treatment plant (ETP). The recycled water is used largely for watering plants in our facility,” said Singh.
Other recognitions the company had were ISO 45001:2018 related to providing safe and healthy workplaces by preventing work-related injury and ill health, awards for long term sustainability in operations, on-time delivery of goods to customers, employee engagement activities, and CSR activities, etc.
“Even in terms of technology adoption, we had adopted ERP solutions back in the 2000s when hardly any small business knew about using software to manage finance, supply chain, operations, manufacturing, HR, etc. We didn’t have to make any changes in our processes to get the certification neither there was a need to get a consultant to help us in compliance with the parameters,” said Singh.
Under the scheme, the assessment of an MSME carried out by QCI-accredited rating agencies was based on a minimum of 30 out of 50 parameters, of which 20 were mandatory including quality management, workplace safety, timely delivery of goods, environment management, waste management, corporate social responsibility, human resource management, etc.
While Singh was able to secure diamond certification, there were still some parameters he had to skip. For instance, intellectual property. “There was one parameter that asked for a number of patents but we had none. So, we had to skip it. Another was around after-sales service which was also not relevant to us. However, getting diamond certification is a big achievement,” he added.
The cost of assessment of a unit including desktop and site assessment ranged from Rs 18,000 for a micro unit to Rs 36,000 for a small business, and Rs 45,000 for a medium enterprise even as the government provided 80 per cent, 60 per cent, and 50 per cent subsidy in the cost for units across three sizes to make it affordable. “It cost us around Rs 40,000,” said Singh. Gilard was a medium enterprise with less than Rs 10 crore investment in plant and machinery as per the previous MSME definition.
Overall, ZED certification helped Gilard gain credibility in the market. “Our clients respect us more. Honda invites us during vendor meets to highlight us as an example of bringing efficiency to the manufacturing process. So, the loyalty among your customers strengthens but it doesn’t mean that your revenue or customer base jumps drastically. You continue to do what you have been doing while it differentiates you from others. Last year we added new customers like air conditioning company Daikin and home appliance company IFB,” said Singh.
Gilard was also showcased as a case study during the recent launch of the revamped ZED scheme by MSME Minister Narayan Rane with the reduced number of parameters to 20 from 50 for MSMEs to comply. The revamped scheme would allow certified MSMEs for concession in banks’ processing fees and rate of interest along with preference in lending. Also, the credit rating of certified MSMEs is also expected to be better.
“We have been working with various credit bureaus to look at how credit rating of ZED certified MSMEs will improve,” Ateesh Kumar Singh, Joint Secretary, Ministry of MSME had said during the launch of the revamped scheme.
However, Singh said he has enough credit currently. “Without scheme also, we were getting best credit limits from our bank but we don’t need money as of now. We might explore the benefit later.” Gilard had recorded 33 per cent growth in FY22 revenues and is now looking at 40 per cent growth this year. The company has an overall portfolio of 100 products and employs 370 people.