CII, Ficci demand bailout package for small firms

Call for cut in interest rate to tide over the rupee crisis.

Industry chambers like the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (Ficci) are demanding a slew of fiscal incentives to bail out small and medium enterprises (SMEs), from the havoc of rising rupee.

The chambers are unanimous on the issue of reducing interest rates as it will go a long way in lowering the operating costs of SMEs and exporters.

To improve Information Technology (IT) consumption in SMEs, CII feels that a central research and development (R&D) fund for the use of SMEs should be created in which private companies can voluntarily contribute and get 200 per cent weighted tax deduction on contribution.

Henceforth, the Income Tax Act should be amended by insertion of a new section allowing weighted average deduction of 200 per cent on contribution made to engineering institutes.

"Protecting the SMEs from the impact of appreciating rupee is extremely important considering their vital role in the country's manufacturing sector and the overall economy. We are lobbying for slew of initiatives to safeguard the SME sector," S S Mehta, director general, CII said.

The rupee has appreciated by over 17 per cent in the last one year, hitting the Indian industry hard. The sectors that have been worst hit include textiles, automobiles, Information Technology (IT).

The ministry of Micro, Small & Medium Enterprises (MSME) had recently, set up a committee to look into the matter of sick SMEs. According to the ministry, of the 10 million SMEs in the country, around 8,00,000 were sick and un-viable.

According to Ficci, according priority sector lending to textiles and sectors that have been hit the most due to the appreciating rupee will help SMEs tide over the situation in the short term.

Ficci, however, has recommended a long-term solution to the appreciating rupee, that is, to invest around 10- 15 per cent of the foreign exchange (forex) reserves, in a special purpose vehicle, into prudentially analysed properties abroad.

"The moment a foreign currency is converted into rupee or sterilised, demand for rupee strengthens, thereby leading to its appreciation. However, if the same amount flowing in is invested in the same currency abroad, the pressure on rupee lessens," Amit Mitra, secretary general, explains.

According to Sarita Nagpal, deputy director, general and head, Manufacturing and SMEs, CII, revision of provisions related to collateral requirement of the banks and the cost of capital or the bank lending rates, specifically with the backdrop of the Credit Guarantee Fund Scheme, is a must.

"Providing an exit route for private investors and venture capitalists and promoting non-traditional means of financing for SMEs is another important measure. In this regard, stock exchanges meant for raising funds by the SMEs should be encouraged," Nagpal added.

THEIR DEMANDS...

Reducing interest rates will go a long way in reducing the operating costs of SMEs and exporters.

The income tax exemption under section 10B for EoUs be extended for another 5 years.

Deemed exports made by EoUs and supplies made to an EoU also be allowed as deduction under section 10B.

Renewal/continuation of the credit-linked capital subsidy scheme for technology upgradation for micro, small and medium enterprises.

The deductions available under 80 HHC, 80 HHE be re-introduced

A special concessional rate of interest to be charged by banks for working capital loan requirements of exporters, especially for the textiles & apparel, handicrafts and the leather products sector

Extension of tax benefits under section 10A for STP units providing for exemption from tax on profits from software exports by another 3 years to 31 march 2012.