The Small Scale Industry (SSI) sector has emerged over four decades as a highly vibrant and dynamic sector of the Indian economy. Today, this sector accounts for about 95 per cent of the industrial units and is contributing more than 40 per cent of value addition in the manufacturing sector and about 35 per cent of exports (both direct and indirect). More than 31 lakh units are spread all over the country producing over 7,500 itmes.
As to the contribution to employment, it has added nearly 46.3 lacs more jobs between 1990 and 1998, i.e., 4.0 per cent per annum, in sharp contrast to organised manufacturing where according to Gols Economy Survey there has been an additional employment of hardly 5.2 lacs, growing at a less than 1 per cent per annum. Indeed the employment elasticity of late in the organised sector has come down even below 0.166- almost a jobless growth.
Small enterprises, i.e., small scale units, not only play a crucial role in providing large scale employment opportunities at lower capital cost than large scale industries, but also help in industrialization of rural and backward areas, thereby reducing regional imbalance, assuring more equitable distribution of national income and wealth. SSI units are also supplementing and complimentary to large and medium scale units as ancillary units.
The Government of India has helped the small scale sector through supportive policy measures since adoption of planned economy model. The basic policy support for SSI sector has its roots in the Industrial Policy Resolution of 1956. Further, the Industrial Policy Statement, 1977, laid emphasis on reservation of items. The reservation of economically viable and technologically feasible products to be exclusively manufactured by SSIs began with a list of 47 items which was gradually extended to many products. Presently, 812 items are on the reserved list. Other policy supports which could be listed are excise exemption, credit under priority sector lending from banks and financial institutions, marketing support through reservation of items for products from SSI sector for government purchases, providing infrastructure facilities like sheds, plots in industrial estates, technological support, new management techniques, training and entrepreneurship development.
Performance of the SSI sector in terms of number of units, production, employment and exports from 1973-74 to 1998-99 has been enclosed as Annexure-I. There were about 20 lakh SSI units in 1990-91, producing goods worth Rs.1,55,340 crore, exports of the order of Rs.9,661 crore and providing employment to about 125 lakh persons. Achievements of the SSI sector in 1998-99 were 31 lakh units, production of Rs.5,27,515 crore, exports at Rs.48,979 crore and providing employment to 171 lakh persons.
Though this sector has shown substantial progress, its major problems like inadequate credit flow from banks and financial institutions (Fis), inadequate infrastructure facilities, low quality standards of products, use of obsolete technology, plant and machinery and equipment, inefficient management techniques, etc, are still inhibiting the sector, Besides, this sector has to face challenges of competition from the opening up of economy, to globalisation, need for increasing exports, and meet WTO commitments.
The policy support provided so far has acted a catalyst in promoting this sector However, the Planning Commission felt an urgent need to review the policy measures so as to make this sector more growth oriented and enable it to withstand the pressure from global competition.
At the instance of the Deputy Chairman, Planning Commission, a Study Group on Development of Small Enterprises (hereafter expressed as Study Group) was set vide O. M. No. VSI/8(10)/99 dated 20th May 1999 (Annexure-II) under the chairmanship or Dr. S. P. Gupta, Member, Planning Commission. While constituting the Study Group, wide representation was given to SSI associations, economists, Management Institute, Ahmedabad, SSI entrepreneurs, secretaries of various departments like SSIA&RI and Banking, RBI, SIDBI, FICCI, etc. Annexure-II also gives the terms of reference and the composition of the Study Group.
As per the desire of the Deputy Chairman, Planning Commission, an interim report now is placed before the Planning Commission for consideration and necessary advance actions.
The major and important recommendations of the Study Group are listed in following chapters.
POLICY, LEGAL FRAMEWORK, RESERVATION & OTHER ISSUES ROLE OF SMALL SCALE ENTERPRISES IN THE TWENTY FIREST CENTURY
1.1 The Small Scale Enterprise (SSE) sector has emerged as an engine of growth in most of the developed and newly industrialized countries. India’s vision of emerging as an economic power in the 21st century can be realised through the promotion and development of the Small and Medium Enterprises (SMEs) In fact, the SME is the sector of the Millennium. The role that small scale enterprise sector has have to play in the next ten years must be viewed in the dynamic context of a changing world. It must address to the requirements of the time and the changes which are taking place both within and outside the country.
1.2 Liberalisation and globalisation are the order of the day. Market forces will determine the systems and manner of production. The allocation of resources within the sector must be governed by the criteria of efficiency, productivity and competitiveness. The SSEs will have to move from a regime of a protective environment to a competitive environment. The role of Government is to be that of a facilitator.
1.3 The emergence of World Trade Organisation (WTO) is a significant event in the realm of world trade. The WTO prescribes the rules of the game based on nondiscrimination. These are:-
India is a member of the WTO. Thus the policy of SSE Sector in India will have to be WTO compliant. The policies must be in tune with the provisions of the WTO on all issues including the basic issues like actionable and non-actionable subsidies, patents, tariff and non-tariff barriers, sanitary and phytosanitary measures etc. Subsidies, support and incentives to the SME sector do not come under the category of actionable subsidies as long as they are horizontal in their application. The Government should take up adequate measures to increase awareness on WTO provisions among the SSI entrepreneurs and take appropriate measures to protect Indian SSI sector through bound rates, information/data to prove dumping and help in introduction of anti-dumping measures, create a legal cell to take care of legal problems faced by the SSI units on account of WTO conditions. The DC (SSI) should create a separate Division on WTO supported by adequate experts in various disciplines.
1.4 The concept of market is changing very fast. The term domestic market is gradually vanishing. For that matter the term international market also may become irrelevant soon. There will only one market and hence the products of the SSI sector must be competitive within the country as well as outside. The products are to be sold increasingly with brand names hence the future of SSE development must focus on promoting brands for SSI products.
1.5 Rapid scientific and technological advancement is taking place in the developed world. The developing countries experience problems relating to technology, raw material and capital. Besides, these countries are under server pressure to brace up for global competition and to upgrade their skills, competence and technology. More focussed attention needs to be placed on these three areas. Information technology should be utilised to the fullest at all levels. SSEs should take advantage of e-commerce, e-marketing, etc, and internet facilities by making their presence felt through websites.
1.6 While formulating policies and programmes for the development of small scale enterprises the following points must be remembered: (a) at a time when employment is stagnant in the agricultural sector and large industry sector is passing through near zero employment growth it is only in the small enterprises, besides the service sector, where employment has been growing. In a labour surplus economy like India, the need for policies and programmes for employment generation is of prime importance, and (b) The SSE Sector suffer from certain handicaps and as such needs special support. The SME sector does get special attention and support all the world over.
DEFINITION AND SCOPE
1.7 A three tier definition is recommended for Tiny sector, SSI sector and Medium sector separately which is as under: Tiny Unit: Up to Rs.10 Lakh investment in plant & machinery; SSI unit: Above Rs.10 Lakh to Rs.100 lakh in plant & machinery; and Medium unit: Rs.1 crore to 10 crore in plant & machinery.
1.8 The supportive measures to be made available to the three sectors will have to be decided by the Government from time to time. The endeavour will be to provide maximum support and protection to tiny units, somewhat lesser support to the SSI units and still lesser facilities/support to the Medium Enterprises. Medium enterprises would not be supported through reservation, fiscal concessions or credit from banks and Financial Institutions (Fis) under priority lending sector, etc, which is normally made available to tiny and SSI units. However, medium enterprises could be helped for technology up-gradation and modernization. Through a separate fund.
1.9 The investment ceilings indicated above should be revised upwards every three years, to account to inflation. For this purpose, the wholesale price index of the Government of India should be used.
1.10 Industry related service and business enterprises up to investment of Rs.10 lakh in fixed capital including land and building should also be included, and should be tr4eated at par with tiny industries for priority sector lending excepting for financing of truck operators, cars, heavy vehicles, taxis, auto-rickshaws and tempos.
1.11 The term small scale industry should be replaced by “Small Enterprises” which will consist of the following segments:.
REGULATORY LAWS FOR SSIs
1.11 The vision for the 21st century cannot be realised with a plethora of laws and rules and regulations governing the SSE sector and there is need for a Single Unified Act governing the promotion and development of Small Scale Enterprises in the country. There should be a separate Small Enterprises Development Act for SSEs as the Industrial Development and Regulation (IDR) Act which regulates SSI units covers the industries as a whole.
1.12 The SSE units should be free from laws/procedures which cause undue harassment. Inspection should be generally replaced by self certification. Procedures should be transparent and hassle free. There is need for similar simplifications in other fields as well. Inspections could be prescribed under three conditions: (i) on receipt of complaint, (ii) selection of unit for sample check (10% of total units), and (iii) for audit purposes.
1.13 For new units, single window clearances should be arranged irrespective of whether they relate to clearances from Central Authorities or State Authorities or local Authorities.
1.14 The reservation of products for exclusive manufacture in the SSI sector should continue for the present because the reserved items of the SSI sector are making significant contribution to employment, output and exports. The position may be reviewed from time to time taking into account the developments and strength of the concerned sector and the market situation and implications of GOI agreements with WTO.
1.15 De-reservation of some selected export thrust items could also be considered since the country is losing valuable foreign exchange by production of low value added items by using traditional or low grade technology. Production of reserved items could be allowed to be taken up by non-SSI units, subject to minimum export obligation of 30 per cent to be achieved in first three years. Thereon 30 per cent export each year is to be achieved. Presently it is 50 per cent.
1.16 In the context of quantitative restrictions getting removed by April, 2001 which may affect the manufacturers of SSI reserved products, the endeavour of the government should be to make the sector WTO compliant and more competitive during the transition period by way of sensitization to WTO provisions, keeping import duty at bound rates, maintenance of duty differential on raw materials and finished goods, providing interest support for technology upgradation and easy access of credit to them.
1.17 In order to make SSI products competitive in both the internal and international markets it is necessary to adopt State of the Art technology. Hence the investment ceiling of those items which are important from the angle of exports and also play an important role in employment generation, could be suitably enhanced to Rs.5 crores e.g. leather products, readymade garments, hosiery, hand tools, packaging material, auto components, pharmaceuticals, food processing, etc.
1.18 The Office of DCSSI should conduct the Third Census of Registered SSI units urgently. The data of last census are old by 12 years. Adequate Plan provision should be made for this purpose. The new census should capture the impact of liberalisation/globalisation on the growth of the SSI sector. The Census should also cover issues like sickness, closure, impact DC(SSI) should conduct census of registered SSI Units regularly at 10 year intervals.
1.19 The existing financial provisions for infrastructure development are grossly inadequate. Most of the industrial estates have degenerated into industrial slums due to improper upkeep. New industrial estates also need to be set up in potential areas but they must be equipped with the required infrastructure. While some infrastructure like roads, water supply, banks, telecommunications, etc., could be arranged, other facilities like power could be coordinated with the State Electricity Boards to overcome this constraint an Infrastructure Development Fund for SSEs with a suitable corpus of around Rs.2000 crores needs to be created. This fund should be utilised to help the States/UTs in creating, revamping and upgrading the industrial infrastructure for SSEs including upgrading the infrastructure in the existing industrial estates.
1.20 The Integrated Infrastructure Development (IID) Scheme should cover all areas of the country with 50 per cent reservation for backward and rural areas.
1.21 The Industrial estates need to be managed by levying charges to the user industries so that these could become self-sustainable in the long run. Maintenance of these industrial estates should be done by the associations of user industries and paying charges for utilities, services, facilities, roads, etc. These industrial estates should be self-sufficient in maintenance.
1.22 An Incubation Infrastructure Development Fund of the order of Rs.1,000 crores should be created aimed at setting up adequate number of Incubation centres in the Tenth Five Year Plan to help the skilled young entrepreneurs to start their own ventures with all the required facilities including computers, video conferencing and e-commerce facilities etc. being available at one place. These centres are aimed at providing an ‘address’ to the entrepreneurs for a period of three years. These Centres would cater to sunrise industries like electronics, information technology, bio-technology, pharmaceuticals or any activity which is coming up and for which commercial viabllity is yet to be established.
HUMAN RESOURCE DEVELOPMENT AND TRAINING
1.23 Training should cover both the entrepreneurs as well as the workers (labour) and future programmes should be built up at the Central and State Government levels through the Entrepreneurship Development Institutes (EDIs) and Industry Association. Training has to be forward looking in order to be compatible with the fast changing economic, technological and global scenario. Training for self-employed persons should be encouraged should also address to the requirements of the ‘service sector’.
1.24 Various Institutes providing training for small scale enterpreneurs must be brought under the umbrella of the National Entrepreneurship Board to provide uniformity in training and to avoid duplication of efforts.
1.25 Adequate funds should be provided for upgrading the training equipment particularly the latest machines being used by the industry.
1.26 The syllabus of various training courses/modules should be regularly updated. For this purpose, Standing Committees should be constituted by the institutes in which Industry Associations should be given a role.
1.27 Efforts should be made by the Government to avail of external sources of funding for Training and Entrepreneurship Development programmes. National Renewal Fund should be used for training and skill development.
INTEREST ON DELAYED PAYMENT ACT
1.28 All States/Uts should set up Industry Facilitation Councils (IFCs) expeditiously. There should be constant monitoring of the working of the IFCs both by the Central and the State Governments.
1.29 The Associations should take a lead role, the way CII has done, by issuing a code of ethics on Prompt Payment, to its members. This may prove more effective than the Act itself as fair dealing and friendly relations are key to the success of business. If the same course of action is followed by other Industrial Associations, the large ones in particular, the problem could be solved to a great extent.
1.30 A provision should be made in the Interest on Delayed Payment Act to deny MODVAT Credit to those buyers who have defaulted in payment for more than 120 days and making it incumbent on the buyers to reverse the MODVAT Credit earlier taken, unless the supplies have been paid for by the due date.
1.31 The Income Tax Act should be amended to disallow unpaid bills from being treated as business expenditure.
1.32 Factoring services should be strengthened and popularized and should be encouraged ‘without recourse’ to the SSI suppliers.
1.33 The Office of the Development Commissioner (DC) for Small Scale Industries (SSI) should also monitor the implementation of the Interest on delayed Payment Act.
PROVIDING BETTER LINKAGE AND HARMONIOUS RELATIONSHIP BETWEEN LARGE AND SMALL UNITS
1.34 The present ceiling of equity participation in SSI units should be raised from 24 per cent to 49 per cent for export oriented items and hi-tech items in which collaborations are forthcoming. Government, while issuing orders, should clearly spell out the products/areas which would be eligible for higher equity participation. This would encourage more foreign collaborations, induction of latest technology, modernisation, higher foreign direct investment, marketing inputs, etc, in SSI sector. For encouraging technology transfer, foreign investment need not be completely discouraged in the SSI sector. The mechanism to encourage technology transfer would be provided by the partneriates and buyer-seller meets organised in India and abroad.
1.35 Excise exemption on manufacture of goods by the SSI units on the brand name of other units should be extended to urban areas also as against only for rural areas at present. Names of the manufacturers (including SSI units) should also be indicated on the branded products. This would help the SSI units in marketing their products through a ‘brand name’.
1.36 National MODVAT (CENVAT) credit of 5% which was available to units purchasing their raw material/intermediates from the SSI units till 1994-95, should be restored. It will help in the marketing of SSI products apart from providing the necessary linkages.
LIMTED PARTNERSHIP ACT
1.37 The Study Group recommends that the government should expedite the enactment of the Limited Partnership Act for injecting equity into the SSI sector. The Bhat Committee (1972) had recommended limited liability for SSI entrepreneurs so that more persons could be persuaded to invest in new small enterprises. This would also ensure a greater flow of risk capital, bring in the concept of partnership with limited liability. The Nayak committee (1992) and Abid Hussain Committee (1997) have also recommended enactment of limited Partnership Act.
1.38 The Study-Group recommends that a separate Division be created in the Office of DC(SSI) for women entrepreneurs. Special programmes for women entrepreneurs should be formulated for credit and marketing and for export promotion of their products.
1.39 A common Facility Support Fund for the clusters may be created. The Fund should be created with support from the Central Government, the Small Industries Development Bank of India and the Associations. The responsibility for running the same should be that of the NGOs/SSI Associations. Private Sector may be encouraged to set up the Computer Aided Design/Computer Aided Manufacturing (CAD/CAM) Centres.
1.40 SSI Associations should be represented in the Board of Directors of all the Public Sector Banks. 20 per cent of the strength in the Board of Directors of the SIDBI should come from the SSI Associations.
1.41 A Committee to monitor all the provisions announced for the promotion and development of SSIs by the Government and other institutions should be created in the Ministry of SSI & ARI on the pattern of the Advocacy Organisation in USA which ensures compliance of guidelines, instructions, provisions.
1.42 A separate Division should be created in the Office of DC(SSI) for empowering, assisting and facilitating NGOs/SSI Associations through Finance, Information on Rules/Regulation, relevant to SSE Sector and other support instruments.
1.43 Government should come out with a bold, effective and meaningful TINY SECTOR PACKAGE, a package which ensures support to tiny units on continuous basis such as excise exemption, priority sector lending reservation and earmarking of plots etc. Tiny units should have better and easier access to critical inputs like credit and raw materials. Government should make special arrangement for the marketing of their products.
1.44 SSI units should be allowed additional 10 percentage abatement over and above the existing rate of abatement under MRP based assessment to levy excise duty in order to provide level playing field to SSI units.
1.45 For the large number of non-viable units, it is essential to provide an EXIT route. There are instances that sick units have been fighting legal battles for the last 15 to 20 years and the total liability has exceeded the principal by several times. For them, the Government should come out with a SAMADHAN Scheme by way of one time settlement. The liability of sick units should be limited to double of principal amount including the interest.
PRIORITY SECTOR LENDING
2.1 Equal treatment should be given to SSI sector as is provided to the agriculture sector under priority sector lending.
2.2 Banks should fulfil these targets by lending directly to SSI sector instead of adopting soft approaches like subscription to bonds of SFCs/ NABARD/HUDCO etc.
2.3 The limit for waiver of collateral for loans upto Rs.5 lakh implemented in pursuance of budget announcement for FY 2000-01 may be raised to Rs.10 lakh.
2.4 Within the amount earmarked for SSIs, sub-targets might be continued to be fixed for lending on incremental basis to micro, tiny and other SSI units. Micro units, having investments in plant and machinery upto Rs.5 lakh could be made entitled to 40 per cent of total bank credit flowing to SSIs. Another 20 per cent of credit to SSI could be earmarked for units having investment between Rs.10 lakh. The Reserve Bank of India (RBI) may advise commercial banks that their respective boards should ensure compliance of norms regarding sub-targets for micro/tiny units within the overall credit to SSI, as per limits prescribed by RBI.
COST OF CREDIT
2.5 There is a need for special packages for financing tiny and village industries at reasonable rate such as Primary Lending Rate (PLR) plus 3 per cent (to be brought down to PLR plus 2.5 per cent for loans upto Rs.10 lakh). In order to appreciate the ground realities of the SSI sector, Indian Bankers’ Association (IBA) might hold consultations with SSI associations at periodical intervals.
BLURRING OF DISTINCTION BETWEEN DEVELOPMENT FINANCIAL INSTITUTIONS (DFIS) VIS-À-VIS COMMERCIAL BANKS
2.6 In order to encourage tiny sector to avail both investment assistance and working finance from single institution, the existing limit of composite loan should be increased from Rs.10 lakh to Rs.25 lakh.
2.7 Commercial banks may be instructed by RBI not to take all future fixed assets of an assisted units for securing its existing advances. This will help units going in for technology upgradation, modernisation etc. to avail assistance form Fis for such programmes without difficulties.
2.8 A special working group be set up by RBI with representatives from the Small Industries Development Bank of India (SIDBI), SFCs, banks Industry Association to work out modalities for ensuring better coordination between DFIs and banks.
STATE FINANCIAL CORPORATION (SFCS)
2.9 SFCs are in urgent need for financial restructuring so as to clean up their balance sheet. The respective State Governments, SIDBI and the Industrial development Bank of India (IDB) would have to play a major role in revamping the SFCs in their States. On the whole, financial restructuring of SFCs calls for active participation of State Governments, SIDBI and IDBI. Expedient action may be taken for recapitalisation/restructuring of SFCs.
SPECIALISED BRANCHES FOR SSIs
2.10 As announced in the Union Budget (2000-01), the banks should set up more SSI specialised brnaches in the clusters/districts having concentration of SSI units. Specialised SSI branches should be set up in every district and also one atleast in important SSI clusters.
2.11 The Government/RBI should create a conducive environment and appropriate self regulatory framework for orderly growth and development of micro credit movement in the country. The Small Business Administration (SBA) the United States of America (USA) model of franchising village/district level cooperative banks might be studied in this regard.
NATIONAL EQUITY FUND (NEF) SCHEME
2.12 Project cost limit under NEF has since been enhanced to Rs.25 lakh. Government may consider increasing the said NEF limit to Rs.50 lakh and soft loan limit may be retained at 25 per cent of project cost subject to a maximum of Rs.10 lakh per project. Assistance under the NEF may be provided at a service charge of 5 per cent, per annum.
DIRECT LENDING BY SIDBI
2.13 SIDBI may enter into some working arrangement with the Lead Bank in each State for meeting the credit requirements as also enabling the reach of specialised programmes aimed at strengthening clients of the specialised branches of the banks concerned.
2.14 SIDBI should promote financial intermediaries as Venture Capital Funds (VCFs), equity funds, marketing consortiums, cooperative industrial bank, incubators, consultancy services, at national, state & district levels to be operated by different agencies including industry asociations.
RESOURCE SUPPORT FOR SIDBI
2.15 The Study Group endorses the recommendations of the Nayak and Kapur Committees for providing low cost fund to SIDBI to enable it to play the Apex role enshrined to it in its charter more effectively. The fund support could be on the following lines as already recommended by the Nayak and Kapur Committees:
- Allocations out of the National Industrial Country (NIC) Long Term operation (LTO) Fund for meeting the specific funds created/to becreated by SIDBI for onlending at concessional rate.
- Permitting SIDBI to float tax free bonds, infrastructure bonds etc. with a GOI subsidy towards interest differential between the LTD Fund rate and the bone rate.
- Increased share of Statutory Liquidity Ratio (SLR) bonds.
- Encouraging SIDBI to mobilise deposits with suitable tax incentives to the depositors.
- The Life Insurance Corporation (LIC), General Insurance Corporation (GIC) and private insurance companies (to be set up) should be persuaded to lend a portion of their funds to SIDBI for on-lending to intermediaries/SSI units.
- Government providing exchange risk cover for SIDBI’s international borrowings.
2.1 To encourage SIDBI to provide more funds for development of infrastructure particularly in rural and backward areas, SIDBI may be given adequate resource support besides launching Infrastructure Bonds. Commercial banks should be encouraged to contribute to these bonds, which should be taken for meeting the SLR requirements.
2.2 Indian and foreign banks were earlier advised by RBI to deposit amounts equivalent to the shortfall in respect of their priority sector lending targets with NABARD/SIDBI. However, the access of SIDBI to these funds has now been restricted to foreign banks only. It is recommended that the facility of SIDBI’s access to the deposits on account of Indian banks’ shortfall in meeting priority sector targets, be restored.
2.17 SIDBI should be provided access to the Rural Infrastructure Development Fund (RIDF) for utilisation towards development of industrial infrastructure in rural areas.
VENTURE CAPITAL FOR SSIs
2.3 The policy measures required for pupularising venture capital concept may be initiated by Ministry of Small Scale Industries, Agro & Rural Industries (SIS & RI). A seprate legislation be enacted to promote the growth of venture capita in the country.
EQUITY TYPE ASSISTANCE FOR SSIS IN ORDER TO PROVIDE A SPECIAL THRUST FOR ENTRY OF FIRST GENERATION ENTERPRENEURS
2.4 In order to provide a special thrust for entry of first generation entrepreneurs preferably by educated youth and technocrats, a special venture type fund of Rs.500 crore for equity support viz. Laghu Udyog Nirman Nidhi with initial contribution from Government of India and All India Financial/Investment Institutions may be set up in SIDBI.
DISPOSAL OF LOAN APPLICATIONS
2.5 RBI may prescribe time schedule of one month for disposal of loans upto Rs.5 lakh.
2.6 Owing to large scale complaints continued to be received from the sector such as non-availability of information, application forms, loan processing beyond the RBI stipulated time schedule, contrary to the instructions of RBI insistence of furnishing of collaterals, inordinate delay in processing of rehabilitation proposals, RBI should assign the job of verification of this to its field level formation presently being looked after under lead Bank Programme for suitable reporting to the central office of RBI for further action. RBI may, after due consideration, take up the matter with the bank concerned for redressal of the grievances.
2.7 In case of loans above Rs.2 lakh disbursement should be affected on the basis of matching contribution of promoters instead of insisting on entire promoters’ contribution to be brought-in before disbursement, atleast in deserving cases.
SECURITY RELATED ISSUES
2.8 Equitable mortage need to be encouraged to ensure simplified procedures for mortage for land, assets etc. with the Banks/FIs and to avoid of stamp duty (which is quiet substantial) thereby unabling the SSIs units to obtain credit from Banks/FIs against mortage. This would also simplify pledging of title/paper to Banks/FIs.
2.9 The security for the loan should confine to assets financed therefor and lenders should not insist on securing the loans out of future fixed assets acquired by the enterprise out of its own resources, unless there is greater dilution in minimum margin requirement.
2.10 The Nayak Committee norms should be made as a rule rather than as guiding factor. Any deviation should be explicitly speclt out in the appraisal memorandum and justified with the reasons for non-compliance.
WORKING CAPITAL LIMITS TO COVER SSI SUPPLIES
2.11 RBI may take up the matter with the banks for sub-allocating the overall limits sanctioned by banks to such large borrowers specifically for meeting the payment obligations in respect of purchases from SSIs either on cash basis or bills basis.
2.12 In order to mitigate the post sale problems of SSI there is a need to encourage bills culture without recourse to SSI. In this context, Government of India be requested to help creating conducive climate for development of factoring services through appropriate policy prescriptions/legislative changes to ease the problems relating to stamp duty, registration fee, assignment of debt etc. A Task Force comprising Govt./RBI/SIDBI should be appointed to look into these problems. The provisions of Delayed Payments Act should be extended to factors.
2.13 The government should enact a legislation to simplify recovery procedures without resorting to civil courts. This will result in recycling of funds held up in irretrievably sick SSI units.
SICKNESS RELATED ISSUES
2.14 Wherever the unit is not in a position to rehabilitate, it should be allowed to be closed down. Thus, there is an urgent need to have Exit Policy which should not only focus on labour but also on entrepreneur.
2.15 State Level Inter Institutional Committees (SLIICs) should be revitalised and scope of SLIIC should be expanded. The Ministry of SSI, A&RI should take steps in this direction in consultation with RBI and Banking Division.
2.16 There is a need to provide rehabilitation finance to potentially viable sick SSI units and banks should do away with the distance lending approach.
2.17 All rehabilitation proposals should be duly registered and monitored at the board level of the FIs and banks.
2.18 When a unit is categorised as sick, merely making provisions for NPA would not suffice but the Fis/banks concerned should continue operational facilities for the unit which would help recovery of loan. Rehabilitation measures to be taken in a specified time bound manner. Revised guidelines for One Time Settlement (OTS) be framed and circulated by RBI to banks/FIs.
II. FISCAL MEASURES
EXEMPTION FROM EXCISE REGISTRATION UNTIL TURNOVER REACHES EXEMPTION LIMIT
2.1 The present limit of excise exemption of Rs.50 lac may be raised to Rs.100 lac so as to make SSI units more competitive and enable them to market their products in competition with large units.
2.2 Government may consider exemption to SSI units from registration as also visits by Excise Inspectors till their turnover reaches the present exemption limit of Rs.50 lakh. A system of self declaration may be put in place to ensure compliance of various regulations by SSIs.
SPECIAL POLICY PACKAGES FOR UNDERDEVELOPED STATES
2.36 Keeping in view the problems faced by the industries in underdeveloped regions such as North Eastern Region, J&K and Himachal Pradesh, there is need to devise liberal policy packages incorporating both fiscal and financial measures. Government has earmarked 10% of the total plan outlay for the region and consistent with this allocation, FIs/Banks should also ensure suitable allocation of funds in these regions in conformity with the requirement of the regions.
2.37 The Credit Guarantee Fund Scheme (CGFS) for SSI sector approved by the Government on pilot basis for a period of one year may be extended with a corpus of Rs.2,500 crore to be contributed by the Government and SIDBI in the ratio of 4:1. At this level, the operations of the scheme are self-sustainable and the scheme may be continued upto 10 years period.
One of the major problems faced by the SSI units, particularly tiny units in technological obsolescence, use of outdated plant and machinery, equipment, etc. Technology up-gradation is the need of the hour. In order that Small Scale Enterprises (SSEs) remain competitive in the era of globalisation, it is imperative that Indian SSEs must upgrade their technology and adopt new technologies which may involve (i) Introduction of new tools and equipments for production, (ii) changes in the manufacturing process, (iii) improvement in the quality of products and quality assurance, (iv) introduction of new designs & diversification, (v) use of new raw materials and (vi) usage of modern management and I.T. tools. This requires an integrated approach encompassing identification, technology transfer, adaptation and absorption. The Government should provide financial assistance to the SSI units/SSEs for technology up-gradation and modernisation. The following are the salient observations and recommendations for s uch an integrated approach :
I. TECHNOLOGY INFORMATION
3.1 Setting up of a Technology Bank is recommended, which will have information on technologies available and their sources. In addition, it could provide information on technology policy, technologies for different sectors and their applications, institutional infrastructure, sources of finance for acquiring technology within the country and from abroad. To start with, in the first phase, it will disseminate information on upgradation of technology, process know-how and design alongwith institutions and also provide consultancy services or any other inputs required. The information can also be retrieved by the regional centres located at Chennal, Bangalore, Calcutta, Mumbai, Guwahati, etc, in the second phase. In the third phase, all the state capitals and major industry clusters, Industry Association and all the districts would be linked. All the district headquarters could be networked and SSEs and entrepreneurs could have easy access through and Information Technology (IT) Portal.
3.2 To start with, a compendium of available technologies from R & D institutions in India and abroad could be brought out on sectoral basis and circulated amongst the facilitating institutions, industry associations and SSEs for dissemination of technology related information.
II. FINANCING FOR TECHNOLOGY MODERNISATION PROGRAM
3.3 It is recommended that funds should be made available for modernisation of SSEs at a concessional rate of interest on easy terms. The concessional rate of interest be made applicable as is available for modernisation of textile sector under Technology Up-gradation and Modernisation Fund (TUMF). It is estimated that Rs.1000 crores annually may be required to meet with the needs of the SSEs. Encouragement through this facility for a period of at least five at a concession of 5 per cent in interest rates.
3.4 Financing may also be provided to units entering into collaboration for technical know-how and technology up-gradation with a view to enhance the marketability of their products or enter into buy back arrangements for exports.
3.5 Concessional rate of customs duty of 5 per cent may be applicable for importing equipments for technology up-gradation for SSEs as is applicable to export oriented units, so that small enterprises sector may be encouraged to enhance exports.
3.6 SIDBI is lending for technology up-gradation at PLR. Other commercial banks should also be asked to extend such assistance at PLR irrespective of their availing refinance from SIDBI.
3.7 In order to encourage SSI to take up modernisation and technological up-gradation programme, accelerated depreciation benefit may be provided to such units.
III. INDUSTRY CLUSTERS
3.8 It is estimated that 60 per cent of the exports of SSEs emerge from industrial clusters. Hence massive program needs be launched to modernise export oriented industrial clusters in the first phase.
IV. TECHNOLOGY MISSION MODE
3.9 With a view to meet with the challenge of the above referred observations and implement the recommendations, the Study Group strongly recommends setting up of a Technology Mission.
V. QUALITY ASSURANCE AND TESTING LABORATIOREIS
3.10 More number of SSEs to be encouraged to obtain ISO 9000 so that it gains momentum and become a movement. The existing scheme of grant of Rs.75,000 to each SSEs who has obtained ISO 9000 may be continued for a period of five years. Ten per cent excise duty concession could be given to SSEs that have acquired ISO 9000 and Certification under BIS specifications.
3.11 Encouragement could be given to Small Industry Associations in the form of 50 per cent grant/incentives to set up and operate testing laboratories. Strengthening of existing testing facilities in technical institutions would be necessary. At least one testing facility for each major cluster should be set up to fulfill their needs. There is a need to set up at least 100 such testing centres in the next five years. Accelerated depreciation may be provided for all investments in testing labs within a period of one year.
VI. TECHNOLOGICAL THRUST FOR EXPORT
3.12 Joint ventures for obtaining new technologies should be encouraged. As per present EXIM POLICY, SSEs can import capital goods on payment of 5 per cent custom duty provided they accept the export obligations. In addition to this, they can be provided with 5 per cent interest subsidy in line with textile modernisation fund as already recommended.
4.1 In order to promote the marketing of small-scale industries products, the Government has been running two schemes. These are (i) Price preference upto 15% to SSI products under Government purchase scheme, and (ii) Purchase preference in respect of 358 items on purchases by the Government Departments (Central State and Public Sector Undertakings). The Price Preference and the Purchase Preference Schemes and the National Small Industries Corporations (NSICs) Single Point Registration Scheme should be given a statutory backing.
4.2 All over the world, the Government is the single largest buyer so is the case in India. A minimum of 33 per cent of the Government purchases (by Central Govt, State UT Govt and Urban Local Authorities in Metros and Cities) should be mandatorily obtained from the small industries sector and a report to this effect should be placed before the Parliament every year as done by the Small Business administration of USA. The Development Commissioner (SSI) should monitor and enforce this provision through a special cell under him. Those Government Departments (Central State UTs and Local Authorities) who for some technical or economic reasons are not able to meet the stipulated purchase requirement or if it is found that the goods required are not available in the SSI sector, must get a permission from the DCSSI in writing in this regard.
4.3 All types of consortium of industries i.e. single discipline or multi discipline which have a legal entity, should be given the status of an industry for the purpose of credit facilities from the banks and other financial institutions.
4.4 Government should promote/encourage setting up of more consortia for SSI marketing and should also provide them financial and other support.
4.5 The scope of participation in domestic trade fairs should be expanded. The DC (SSI) should have a plan scheme for the purpose of not only for subsidising participation in major trade fairs all over the country but also to help the State Governments and the SSI Associations organise these fairs right up to District level having clusters of industries. Similarly state governments, NSIC, SIDBI and SSI Associations should also have programmes/schemes to assist the SSI units for participation in domestic fairs.
4.6 The number of buyer-seller meets should be increased. Apart from the ones organised by the DC (SSI), financial help should be provided to major industry associations and chambers of commerce and other involved users for the purpose.
4.7 Subcontracting facilities should be augmented and strengthened. The DC(SSI) should fix annual targets and sufficient funds be provided for this purpose. The system for grant of the sub-contracting exchanges should also be simplified. Special measures should be taken to create authentic database for the purpose. There should be specific programmes for technical upgradation of the vendors/sub-contractors to enable them meet the quality standards. The progress of the scheme be constantly monitored. A time limit be fixed for clearing the applications preferably within 3 months.
4.8 The Institution of Udyog Bandhu (working at State Govt. level) should be strengthened and modernised so as to provide one stop shop for information and match making activities. It should also have net work with the DC(SSI), the NSIC, the SIDBI and the Industry Associations.
4.9 Major industrial centres, head offices of the SSI associations should have permanent display windows for SSI products.
B. INTERNATIONAL LINKAGES IN THE ORGANISATION OF PRODUCTION
4.10 An important aspect neglected by the reforms and liberalisation is that of international linkages of industrial force and the organisation of production in a system of networks. The SSI units not having the wherewithal could have derived benefits from the Market Development Assistance (MDA) scheme of Ministry of Commerce. This, however, is not sufficient. The DC (SSI) should have a separate scheme on similar lines to help small-scale units in this area. Brand building through such exercises should be encouraged to create a distinct geographical identity of items coming out of India. This will help highlighting the strengths of the SSI sector to the rest of the world.
4.11 The Vendor Development Programme and the Buyer - Seller Meets should be organised in target countries in the form of SSE partneriates in select countries. The participation of the units should be subsidised to the extent of 50% including airfare. The DC (SSI) should formulate a scheme to help the industry for this purpose.
4.12 Plant level intervention for technology upgradation either through sub-contracting mechanism or by deputing national/international experts directly to exporting and potentially exporting units must be undertaken. Financial assistance should be provided to SSI units for obtaining such experts and meeting their cost partially, say about 50 per cent.
4.13 The small units lack the capability to meet bulk orders. For the export, consortia be formed. The NSIC should provide necessary support for facilitating the setting up of such consortia.
4.14 One of the major problems faced in the timely execution of order is delay in release of institutional credit. Marry times the SSI units have to lose the orders. The SIDBI should evolve suitable facilities in co-ordination with the banks.
YOJANA BHAWAN, SANSAD MARG
SUB : SETTING UP OF A STUDY GROUP ON THE DEVELOPMENT OF SMALL ENTERPRISES :
It has been decided to set up a Study Group on the “Development of Small Enterprises” to review the problems faced by small enterprises and to suggest new programmes and modifications in the existing policies for the development and growth of small enterprises in the country in the light of international experience and recent economic policy reforms under implementation by the government.
The composition and terms of reference of the Study Group are given below :
Besides the above members, three more members can be co-opted by the Study Group as and when required.
TERMS OF REFERENCE
The Study Group should preferably meet once every 2nd month and will complete its study within six months.
TA/DA of non-official members will be paid by the Planing Commission.
FINANCIAL AND FISCAL MEASURES FOR SSEs
TECHNOLGY AND MODERNISATION, R & D AND
All the three Sub-Groups would submit the reports to the Chairman of the Study Goupt within period of two months. Each Sub-Group would work with the Terms of Reference of the main Study Group (copy enclosed).
TA/DA of non-official members will be paid the Planning Commission.
YOJANA BHAWAN, SANSAD MARG
24 MAY 1999
SUB: CONSTITUTION OF THE SUB GROUP-IV UNDER THE STUDY GROUP ON DEVELOPMENT OF SMALL ENTERPRISES:
As decided in the 2nd meeting of the Study Group on Development of Small Enterprises, held under the chairmanship of Dr. S. P. Gupta, Member, Planning Commission, on 1/9/1999, the Sub-Group. IV on Marketing Inputs & Exports has been constituted as under:
MARKETING INPUTS AND EXPORTS
The Sub-Group would submit the report to the Chairman of the Study Group within a period of two months and would within the Terms of Reference of the main Study Group (copy enclosed).
TA/DA of non-official members will be paid the planning Commission.