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Dinesh Rai: The challenge of implementation

The union budget and the Prime Ministerís Task Force has outlined several policy recommendations for the development of the MSME sector. A host of measures have been proposed to increase the flow of credit to this cash strapped sector and to revive sick u

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BY Taslima Khan | April 21, 2010 | COMMENTS ( 3 ) |

Dinesh Rai: The challenge of implementation
Dinesh Rai Secretary, Ministry of MSME GoI

The union budget and the Prime Minister’s Task Force has outlined several policy recommendations for the development of the MSME sector. A host of measures have been proposed to increase the flow of credit to this cash strapped sector and to revive sick units. However, as of now, implementation remains the most challenging task before the government. In a candid conversation with Taslima Khan, Dinesh Rai, Secretary, Ministry of MSME, Government of India spoke on the plan of action for bringing these schemes to fruition.

 

Taslima Khan (TK): The budget is being touted as a progressive budget.  How satisfactory do you think is the budget with the perspective of MSMEs?

 

Dinesh Rai (DR) There have been many positive provisions for MSMEs in the budget. Firstly, the allocation for this sector has been raised from Rs.1,794 crore to Rs.2,400 crore for the year 2010-11.The interest subvention of 2 per cent on pre-shipment export credit has been extended for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises. Moreover, there have been many provisions for the unorganized sector including setting up a National Social Security Fund for unorganised sector workers with an initial allocation of Rs.1,000 crore. Further, to encourage R&D across all sectors of the economy, the weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research has been enhanced from from 125 per cent to 175 per cent.

 

As far as issues related to taxation are concerned, the budget enhanced turnover limit for businesses to Rs 60 lakh for auditing of accounts and for presumptive taxes. Moreover, to facilitate the conversion of small companies into LLPs, this process will not be subject to capital gains tax.

 

To ease the cash flow position for small-scale manufacturers hard hit by the economic slowdown, MSMEs have been permitted to take full credit of Central Excise duty paid on capital goods in a single instalment in the year of their receipt. Secondly, they would be permitted to pay Central Excise duty on a quarterly, rather than monthly basis.

 

TK: What is the reaction of the Committee of Secretaries(CoS) to the new Procurement policy for SMEs? How long will it take to get implemented?

 

DR: The Committee of Secretaries has been generally supportinve of the Public Procurement Policy for MSEs.  As per the decisions taken by the Committee of Secretaries, the Ministry is in the process of consultations with the concerned Ministries/Department and will take up the matter for final approval shortly.

 

 

TK: How far have the recommendations of the Task Force been implemented?  (The deadline for the same is six months).

 

DR: The recommendations of the Task Force could be broadly categorized into (i) those where the action need to be completed within 3 months, (ii) Action need to be completed in a period of 6 months-1 year, and (iii) long-term measures involving longer time duration.  On several of the recommendations where the action need to be completed in 3 months, the Department/agencies have already completed the action. On the remaining recommendations actions have already been initiated and the same is expected to be completed within the time frame laid down in the report.

 

TK: The ministry is spending around Rs.5 crores to set up incubators in Africa joint action plan formed by the government of India and Africa Union Commission to implement the provisions of the Delhi deliberations during the First India Africa Forum Summit in 2008.  What are the details of the plan? What are the benefits that Indian SMEs will derive from the same?

 

DR: Under the Indo-Africa Forum Summit, National Small Industries Corporation (NSIC) has been mandated to set up ten Vocational Training Centres (VTCs) in African countries at the cost of Rs.5 crore each.  A provision of Rs.50 crore has been made under the Plan Budget of Ministry of External Affairs for the same.  Ministry of External Affairs shall be providing names of the countries and the specific locations for VTCs to be set up.  We are awaiting the response from Ministry of External Affairs.

 

TK: Which other countries are you looking forward to form trade ties with?

DR: M/o MSME has entered into long term agreement (Memorandum of Understanding/Joint Action Plan) with 11 countries viz. Tunisia, Rwanda, Mexico, Uzbekistan, Lesotho, Shri Lanka, Algeria, Sudan, Cote d’lvoire and Egypt.  In addition to this, the various organizations under this Ministry have also been maintaining close interaction with their counterparts in the foreign countries for the development of Indian MSMEs.  M/o MSME takes pro active steps in exploring the possibility of cooperation for mutual benefit of the MSME sector with other countries.  It is also ready to offer its services in the MSME sector to other developing countries of Asia and Africa.

 

TK: The ministry is proactive in formulating policies to encourage small and medium businesses in the country.  But the situation at the ground level has not changed much.  Entrepreneurs still find the situation not conducive enough.  What are the steps that the ministry has taken to see to the implementation of these policies?

 

DR: For wide publicity of the Scheme, copies of the guidelines are circulated to all the State Governments and its agencies, known MSME associations and all the branches of Office of Development Commissioner (MSME) and National Small Industries Corporation (NSIC ) for further disseminating the benefits of the schemes amongst their clients.  The Ministry also takes up the individual problems/request of the entrepreneurs and bring it to the notice of the concerned Department/Ministry for providing necessary help.

 

TK: SMEs get between 8-10% of bank loans as compared to 40-60% of banking loans in other developed and developing economies.  The government allocates 40% to priority sector lending of which SMEs should be allocated at least 20%.  What is your take?

 

DR: The Ministry of MSME had been pursuing the matter of a separate sub-target for the MSE sectors under the priority sector lending targets but for various reasons, the Departments/agencies concerned were not agreeable to such a separate earmarking. The issue was discussed in details by the Task Force and it has recommended that the already stipulated targets of 20% year-on-year growth for MSE sector and apportionment of 60% thereof to the micro enterprises should be ensured by the banks.  Further, in case of any shortfall the, the same should be deposited in a fund with SIDBI, which should be utilized exclusively for lending to the micro enterprises.  A Standing Review Committee under the Chairmanship of Member (Industry), Planning Commission has been constituted to monitor the credit flow and its apportionment.

TK: This is the main problem for their sickness or turning to other sources of credit at much higher rates.  What can be done to address this issue?

 

DR: While non-availability of timely and adequate credit is one of the major factors for units turning sick, there are various other factors like infrastructure bottleneck, obsolete technology, labour problems, poor management, etc. that impact the viability of a unit.  The Ministry of MSME is implementing several schemes/programmes for assisting the MSMEs for technology upgradation, marketing support, infrastructure development, skill development, etc. Further, the Task Force has recommended setting up a Rehabilitation Fund that could support the schemes of State Governments that involve sacrifices by them as well as the financial institutions.  The Ministry is in the process of consultations with the State Governments and financial institutions for finalizing the modalities of the schemes.

 

In order to facilitate access to credit, Micro and Small Enterprises (MSEs) are encouraged to undertake performance and credit rating at subsidized rate by renowned empanelled credit rating agencies under the Performance and Credit Rating Scheme being implemented by the Ministry.  It helps MSEs in obtaining loan/credit in less time at concessional rates.  In additional to this MSEs are also helped through this rating in enhancing their productivity and performance.

 

TK: The CGTMSE has got an initial budget of 73 crore, increasing the expenditure under this programme from 99 crore to 172 crore.  However MLIs have no compulsion or incentive to extend this facility to the needy.  This is because the trust is not expedient enough to settle bad debts if any.  How can we settle the issue?

 

DR: The size of the corpus set up under the Credit Guarantee Scheme has been gradually increased to Rs. 1,906.55 crore by the end-March 2010.  This has helped in greater participation of the Members Lending Institutions (MLIs) under the scheme.  During 2009-10, about 1.51 lakh proposals for an amount of Rs. 6875.11 crore were approved under the scheme which is higher than the cumulative proposals approved in the preceding nine years.  Cumulatively, over 3 lakh proposals for an amount of Rs.11,559.61 crore has been approved under the scheme upto March 2010. Further, based on the feedback received from MLIs, several modifications have been undertaken for making the scheme more user friendly.  To facilitate expedient settlement of claims under the scheme, the lock-in-period under the scheme has been reduced from 24 months to 18 months.  The Trust is also in the process of examining the recommendations relating to settlement of claims made by the Working Group set by the Reserve Bank of India to review the Credit Guarantee Scheme.

 

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