Federation of Punjab Small Industries Associations suggests for improvement of MSME Sector

Ludhiana, May 7, 2016: Federation of Punjab Small Industries Associations president Badish Jindal has written to K.K.Jalan, Secretary, MSME, GoI, giving few suggestions to be implemented immediately for improvement of MSME Sector.
The letter addressed to Janan reads as under:
• Setting up of MSME EXPORT CORPORATION
Ministry of MSME requires a “MSME EXPORT CORPORATION” a dedicated department for organizing exhibitions at national & international level along with this it requires to open offices in different countries for promotion of Exports. Further, such corporation should facilitate MSME units for all formalities related to exports.
MSME requires Different Departments for Different Schemes for Proper Implementation:
Presently the Ministry of MSME just have NSIC/SIDBI/COIR BOARD/KVIC to implement its schemes.
There are various schemes in ministry of MSME those requires different departments such as finance/ quality/cluster/skill development/marketing/export/rating/tool rooms/static’s/raw material/procurement/agro based/technology up gradation and other.
• More Allocation of Funds Needed for MSME Sector:
Micro, Small and Medium Enterprises (MSMEs) play a vital role for the growth of Indian economy by contributing 45% of industrial output, 40% of exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. There are approximately 30 million MSME Units in India and 12 million persons are expected to join the workforce in the next 3 years.
The entrepreneurs such as textiles or exporters who come under other Ministries get benefits from different schemes of the same single Ministry. A rough estimate reveals that the funds allocated to MSME Ministry comes to Rs.2000 per enterprise. And, the funds allocated in terms of employment comes to below Rs.1000 per enterprise. In terms of Price Index, the MSME Ministry should get Rs.25000 crores. It is a fact that the assistance from MSME Ministry flows only to less than 10% of the total MSMEs. Even beneficiaries under the NREGA are less but getting higher benefits.
Therefore, the MSME Ministry needs more allocation.
Problems of MSMEs
Despite of commendable contribution to the nation's economy, the MSME sector does not get the required support from the concerned Government Departments, Banks, Financial Institutions and Corporate, which become a handicap for more competitive in the National and International Markets. The MSMEs faces a number of problems. The main problems of MSMEs in India are:
• Absence of adequate and timely supply of bank finance,
• Limited capital and knowledge,
• Lack of power,
• Low quality inputs,
• Low return,
• Non-availability of suitable technology,
• Low production capacity,
• Ineffective marketing strategies,
• Identification of new markets,
• Constraints in modernisation and expansions,
• Transportation problems,
• Lack of adequate warehousing,
• Lack of information,
• Lack of training,
• High competition,
• Non availability of highly skilled labour at affordable cost.
• An Authority like BIFR to Tackle Sickness in MSMEs:
It is known that when a business of the Micro or Small Enterprise fails, not only do the assets of the business but the entrepreneur’s personal assets also get attached to pay off business dues. Presently identification and declaration of sick micro & small units is with the banks. It has been experienced that normally banks do not take timely steps to identify sickness. Recommendations of State Level Committee also are seldom honoured by the concerned Banks. Hence it is necessary that the identification should be done by a separate agency. Nayak committee has already recommended for formation of an authority on the lines of BIFR. As soon as large industries apply to BIFR after erosion of 50% or more of their net-worth, they immediately get protection. No pending liabilities of MSE sellers of goods can be realized from them, and tax arrears etc. are also frozen. Such protection is not available to sick MSEs. Even the ESI and EPF recoveries are stalled once the large units apply to BIFR. However, the Micro and Small Enterprises have to continue paying the ESI and EPF dues even during their heightened sickness. It is therefore requested that an authority on the lines of BIFR be formed with reference to sick Micro and Small Enterprises which will help them to come out from their dire-straits.
• Interest Rate – Large pays less interest and MSME Pays More:
The large industries and MNCs are able to negotiate with the Bankers and the interest rate is settled with 4-5% for such large enterprises through Foreign Funding whereas Whereas, MSMEs pays interest at the rate of 13.5%. It’s the need of the hour that Ministry should come forward to subsidize the rate of Interest for MSE’s as Banks are adamant on their policy and busy in making money. .
• Imbalance Trade with China and MSMEs need assistance on Anti-Dumping:
At present imports from China stands at Rs.3.5 lakh crores which are mainly finished goods. And the exports from India to China stands at Rs.63000 crore only which are mostly raw-materials. The mainly affected category is micro sector in India. The process of implementation of anti dumping duties against the imports of such products is very hard and difficult as 90% of the units manufacturing such parts in India belong to micro-enterprise category. Necessary assistance should be given in this regard to the Micro enterprises.
There is need to impose MSME cess at the rate of 2% on the imports of the products which are reserved for manufacturing only by MSMEs. Such fund should be utilized for welfare of MSMEs.
• Adverse Effects of SAFTA & ASEAN:
All the Commodities, mainly, items of Micro & Small Enterprises(MSE) have started coming through imports from Bangladesh, Sri Lanka and other countries under SAFTA & ASEAN. Majority of these items are Chinese-made but have the trade-mark of Bangladesh & Sri Lanka. This trend has terribly hit the domestic Micro and Small Enterprises. We, therefore, request you to take effective steps to curb such imports. The MSME Products should not have zero percent import/customs duty.
• Procurement Policy and States implementing Central Government Schemes:
It is known that all the State governments are implementing many of the Central Government schemes. For example, State governments of Karnataka and Rajasthan have accorded bicycles to students of their states under the implementation of a central government scheme. But they are not following the norms of procurement policy of MSME as tenders are issued by the State Govts which results that three major companies earn around 90% of the total tenders which amounts to Rs. 1500 crore (approx) for around 50lakh bicycles. The large companies are providing the bicycles at Around 3500/- Rs. whereas Small Companies sell the same bicycle at Rs.2500/-(approx)
Women Empowerment – Need of the Hour
Women are equal in number to the men in India but have less than 2% share in total wealth and less then 5% share in number of enterprises.
Thus it is prayed that some prime schemes requires to be started in this ministry with a dedicated fund to uplift the share of Women in Nations economy in respect to Industries sector. The payment of subsidies to the women entrepreneur should be upfront.
• Survey to be conducted to monitor the conversion rate of Industry from Micro to small and small to medium and Medium to Large
Prime purpose of Ministry of MSME was technology upgradation and supporting the small industry financially as well technically to convert those small companies to medium and large companies. However, there is no monitoring of such conversions. A survey may be conducted by the Ministry to record the actual growth of MSMEs by monitoring the number of companies that has been converted from Micro to Small, Small to Medium and Medium to large.
• Agro Based Industry Board under MSME Ministry:
A huge number of entrepreneurs are opting for Agro based industries. At the same time drought conditions are threatening in Maharashtra and Paddy situation in Punjab is a matter of concern. In order to tackle such problems and other difficulties faced by the enterprises, a separate Board for Agro Based Industries under the Ministry of MSME should be established on the lines of Coir Board and KVIC. This will give a huge boost to the Agro based industries. For this common infrastructure facilities for packing/testing/preserving and export are required for this sector.
• Marketing Centres for Coir and KVIC Industries:
More Promotional Centres and Marketing Outlets should be established in India as well as abroad with reference to Coir and KVIC Industries. These products have good marketing and export potentials. The Indian Missions abroad should be activated in this regard.
• Earmark more funds to Credit Linked Capital Subsidy Scheme:
CLCSS was brought vide Union Budget 2004-2005 for Upgradation of Technology both in the process of manufacture and plant and machinery of the small enterprises to reduce the cost of production and remain price competitive in the global market. This scheme has been giving a very good help and support to the Micro and Small Enterprises in their technological upgradation efforts. There is absolutely a need for more funds allocation to this scheme.
Of late, many small enterprises submitted their application for subsidy in time. Delay, if any, had and has never been on the part of the small enterprises but mainly on the part of SIDBI. Therefore, the small enterprises cannot be penalized for factors beyond their control and at the same time merit is on their side. In the circumstances, we earnestly request that the small enterprises whose applications are pending for payment for subsidy be disbursed the subsidy amount under CLCSS for their sincere efforts of upgrading their technologies.
Most of the time the ministry was forced to drop this scheme in midterm due to crunch of funds and the applications applied were cancelled by the ministry.
Thus it is prayed that the limit of CLCSS requires to be enhanced from 1 to 3 crore atleast with senction to all kind of Industries under MSE’s.
Moreover, the scheme should not be linked with credit as the credit procedure make it cumbersome and expensive to the micro and small units.
As the tare IV industry requires a lot of upgradation the subsidy to the tiny sector should be 50% for the machinery upto 5 Lacs.
• Credit Guarantee Scheme:
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was set up by Ministry of Micro, Small & Medium Enterprises (MSME), Government of India (GOI) and Small Industries Development Bank of India (SIDBI) in August 2000." The main objective of the “Credit Guarantee Scheme” is to make available bank credit to the micro and small enterprises without the hassles of collaterals and third party guarantees.
The Banks cannot demand collaterals upto a Loan limit of Rs.10 lakhs under this scheme as per RBI Guidelines. However, the Banks stress for collaterals. According to the National Commission for Enterprises in the Unorganised Sector, only a megre percentage of the micro enterprises have got credit without collaterals. The Government and RBI should ensure that the RBI Guidelines are fully met.
• Portal for Support of MSE’s by Banks:
We suggest that Banks should display in their Portals about the Number of Applications received for Credit Guarantee and other schemes under MSME, Number of applications sanctioned for Nil collaterals, Number of applications rejected with the reason.
• Brand Development:
With the Global Economy in vogue, it has become imperative to increase awareness and loyalty among the customers in the highly competitive world as consumers have endless choice. Therefore, Brand Development is an essential requirement. Micro and Small Enterprises find it very difficult develop brand. The government should do the needful for a Micro or Small Unit’s brand to stand out from the competition.
• NSIC’s Banking Credit Scheme:
Interest rate against credit under the scheme should be at base rate of nationalized banks which ranges from 9.75% to 10.5% per annum against the prevailing interest rate of 12.95% you are charging since unit need to pay 2-3% extra to the bank for Securing Bank Gurantee beside other charges and effective cost of finance goes to 16% - 17% which is eroding the profitability of MSEs.
Therefore we suggest interest on RMA finance should not be more than 10.25% per annum.
• Single Point Registration Scheme- NSIC

The fees for Single Point Registration of NSIC is on a higher side. There is dire need to revise the rates and same should be based on basis of investment in machinery rather than basis of turnover.
• The Micro & Small Enterprises need Raw-material Banks & Freight equalization:
Most of the Micro and Small Units are forced to buy their raw-materials from Traders which, in fact, pushes up their cost factor. The Government should consider in this regard. Beside this a freight equalization scheme is requires for MSE’s situated away from natural resources for a balanced growth.
• Cluster Development Scheme be administered directly by the Union Government:
The main objectives of the Cluster Development Scheme are: (1) To address common issues such as improvement of technology, skills and quality, market access, access to capital, etc. (2) To create/upgrade infrastructural facilities in the new/existing industrial areas/ clusters of MSEs. (3) To set up common facility centres (for testing, training centre, raw material depot, effluent treatment, complementing production processes, etc). As such, the scheme needs more funds. Construction activity should also be allowed under this scheme.
• Registration of Travel Agencies for International Co-operation Scheme, and upfront subsidy through these agencies.:
The ministry should empanel the travel agencies for implementation of International cooperation scheme, as the most of the micro sector entrepreneurs & women entrepreneurs unable to pay the full amount in advance. This system will help them a lot.
• Ban on Subsidy to Chinese tours:
The imports are growing a lot from China and Chinese exhibitions attracts a lot of Indian importers for such events. The direct imports from China increased from 1 Lac crores to 4 Lac crores in last 10 years. Whereas our exports dipped down from 80000 crores to 58000crores in last four years.
Thus it is suggested that there should be a complete ban on subsides on visits to China untill and unless the entrepreneur is not participating in the by putting the stall.
An undertaking should be taken from the entrepreneur that he is not an importer from such country and will not import any finished product from that country.
One entrepreneur should be allowed once in a year including the office bearer and the subsidy should be allowed once for any country for the same event.
• DELAYED PAYMENT ACT
The large corporate sector is required to disclose the dues payable to SSI sector as on 31st March of every year in their Balance Sheet. The Auditor should be duty bound to certify that all the dues of SSI sector is correctly disclosed by the corporate in their Balance Sheet and applicable interest is also paid for overdue payment. We request that a provision be incorporated in the Income Tax Act to the effect that if the payable amount to the SSI sector as disclosed in the Balance Sheet is not paid by the corporates before filing of the IT Returns, the same will be added to the Income of the Corporate like statutory payments under section 43 B of IT Act.
• Union Government’s Reservation and Manufacturing Policy – State Governments are callous and uncaring:
358 items have been earmarked under Procurement Policy and 20 items under the manufacturing Policy. Many large and medium enterprises are intruding into these realms. It’s the duty of the State Government to monitor such evasions but many State Governments have taken no action on these violations by the large and medium enterprises.
• Industrial Estates with Single Window (IID Schemes through SPVs):
The need of the hour is the building-up of well planned industrial estates. Most of the industrial estates have degenerated into industrial slums. Industrial Estates should have proper roads, adequate water & power supply, drainage, sewage, banks, telecommunications, video-conferencing, e-commerce facilities, pollution treatment amenities, Hospitals etc. Industrial Estates should also have “Single Window Clearance” connected with Central & State aspects.
As regards the Integrated Infrastructural Development Scheme (IID), the State Governments are the implementing agencies of this scheme. However, owing to lack of funds in the State Governments, they avoid implementation of this scheme. Therefore we suggests that the Special Purpose Vehicles(SPVs) should be made the implementing agencies. In that case, the SPVs will develop and maintain the focal points/Industrial Areas in their sites. A committee consisting of the stakeholders should be formed to monitor the implementation of the scheme at every state. The involvement of the state government results in delay of this scheme so the scheme can be directly implemented by the Ministry of MSME and the ministry may impanel the construction agencies for the implementation of this scheme.
• MSME Departments in States:
Very few States are having separate Ministry of MSMEs and separate Department of MSMEs. It should be made mandatory for the States to have Separate Ministry and Department of MSME.
Even the number of Development Institutes requires to be enhanced in all the states and the industry is also suffering a lot due to staff crunch in the MSME-DI’s
• Many Valuable Schemes dropped:
To strengthen the database for the MSE sector, a ‘Scheme for capacity building, strengthening of database and advocacy by Industry/Enterprise Associations’ was in existence. The scheme, however, has been dropped owing to lack of funds. Some of other valuable schemes have also been dropped for lack of funds. The Government should revive these schemes.
• SME Stock Exchange:
The SME Stock Exchange gives preference to the medium units rather than the Small Units. Efforts should be taken for preference to small units.
• Registration of Exhibitors:
The International Cooperation Scheme, Marketing Development Assistance, etc have been formulated for noble purpose. Sanction is given to some of the Exhibitors whose activities are in no way beneficial to the Micro and Small Enterprises. The Government should ensure that the Exhibitors provide due benefits to the Micro or Small Enterprises only such exhibitors should be registered.
• Advisory Panel of Retired Officials of MSME
Ministry of MSME has provided the industry with the most efficient, knowledgeable, experienced officers. Such officers retire every year, so there is a huge ocean of knowledge that is unused. An advisory panel may be made in each city with the retired officials as the members of such panel.
• Need of inclusion of a new Category –TINY in definition of MSME
As 70% of industry of India is a kind of industry with investment in machinery less that 10 lakhs. So a new category ‘’TINY’’ should be included whose investment in plant and machinery is upto Rs. 10.00 lakhs. The amount of subsidy to such units should be on a higher side and preference should be given to these unit’s subsidies. “