Capital subsidy fails to work

Neeraj Kedia, who runs a mid-size chemical manufacturing unit at Muzaffarnagar, is yet to receive the Rs 12.5 lakh due to him as subsidy from the credit-linked capital subsidy scheme offered by the central government.

Under the scheme, during the Tenth Five-Year Plan (2002- 07), small and medium enterprises (SMEs) that improved on their technological capability were eligible for 15 per cent subsidy on equipment-cost.

The problem for Kedia and around 1,000 such small and medium enterprises that borrowed funds from Small Industries Development Bank of India (SIDBI), the principal financial institution for financing the small scale sector, is that the scheme expired on March 31 last year, but they are still being compelled to pay the instalments.

Moreover, the scheme has not been included in the Eleventh Plan.

"The entrepreneurs who availed the credit-linked capital subsidy scheme feel cheated," Kedia added.

The issue has raised questions over government's claims that credit flows to the sector will be monitored and improved in the Eleventh Five-Year Plan (2007- 12).

"There is no point in increasing allocations to the sector on paper if the benefits do not reach small and medium enterprises," Anil Bhardwaj, secretary general, the Federation of Indian Small and Medium Enterprises (FISME), said.

Chandrapal, secretary, MSME ministry, said: "There has been no holding back from our side. We are trying to locate where the problem is and the matter should be solved soon."

FISME is now looking at legal options to help the small and medium enterprises.

"The government has dealt with the matter insensitively. We have written to the Prime Minister's economic council, the MSME ministry and others. If nothing works out, we might take the matter to the court. We are also advocating the inclusion of the scheme in the Eleventh plan," Bhardwaj said.

To add to the woes of the small and medium enterprises, Small Industries Development Bank of India is charging a penalty of two per cent on enterprises that wish to return the loan amount.

"Though charging the penalty is a usual norm but SIDBI, in the first place, has failed to live up to the terms of the agreement by not disbursing the subsidy amount. Charging penalty in this case is unfair," Bhardwaj added.

"It is for the government whether to support the sector or not, but at least it should not waste the limited resources of the sector. As it is the sector faces shortage of funds and failure of schemes like this pushes us back several steps," Kedia said.