Kanpur chamber wants more credit for SSIs

The Indian Industries Association (IIA), a body of small and medium units, has asked the finance minister to facilitate the flow of credit to the small-scale sector.

In its pre-budget memorandum to the Union finance minister, it said the flow of adequate credit and its timely disbursement were not happening due to adverse risk perceptions of banks and financial institutions, and the lack of experience and expertise of entrepreneurs in submitting presentable proposals.

It wanted the fund supply to SSIs to be increased, and the existing systems of lending changed.

The former will increase competition amongst lenders. The government can invite institutions/business houses to set up large fund-based banks with the mandate that they should finance SSIs. Lower CRR/SLR may be stipulated as an incentive. Future cuts in these ratios should be made conditional on lending to SSIs or used for setting up specialised SSI banks. Similarly, risk capital should be provided for SSIs.

Indian and/or foreign institutions and pension funds should be encouraged to set up venture capital fund companies. More such funds are needed for more capital flow to SSIs. Large companies could be asked to set aside a part of their bill limits for payment of bills to SSI. The law on late payment should be have teeth and relief under the Act must be made available to factoring companies to secure their interests.

The chamber further says that it is safer to lend to them than to large companies and defaults occur due to not only to the lack of expertise with the entrepreneurs but also due to lack of adequate training in extending credit on the part of bankers and insufficient interaction with the borrowers and supervision of their accounts. Consultants like McKinsey can be asked to recommend appropriate structures and systems.

The consortium approach could be solution. Lastly, the SSIs should be treated separately rather than clubbed with others.

Besides, industry associations should be taken into confidence and made part of the process of lending; leasehold properties and village lands should be accepted as collaterals, etc.

While recommending that the excise exemption limit for the SSI should be increased from Rs 1 crore to Rs 2 crore, it wants that the Notification No 9/2003, should be restored. and the change brought about for informing the authorities by reducing it to Rs 40 lakh from the earlier prevailing Rs 90 lakh, should not only be done away with but it be enhanced to Rs 1.75 crore.

Till the notification existed, the IIA argues, the SSI units could avail themselves of CENVAT credit on inputs and pay excise duty at a concessional rate, which was 60 per cent of the normal tariff rate.

Further, the terms of credit range from 60 to 120 days, but the duty is to be paid in the next month by 5th day for the products cleared for sale in the previous month. Which means that the SSI unit will have to maintain a higher working capital quantum and the IIA's calculation shows this will be 6-8 per cent higher than before.

Thus the sales tax in such instance would be calculated on the basis of the product price plus excise duty, costing the SSI more, nullifying the advantage derived from the lesser excise duty which the SSI has to pay.

Besides, the memorandum says, the notification should not be seen as an exemption, but as an incentive for the unorganised SSI to get into organised SSI sector.

Other issues raised are:
1. For Marketing: space should be provided free to the SME's to participate in trade fairs both for the national and the international fairs. Which will help build 'made in India' brand ...collective participation will be impressive for the world, exposure to technology in these fairs will help indirectly in upgrading the products of the SME's.

2.No research is being done keeping in mind the needs of the Small and the medium scale enterprises, SME. This should be rectified.

3.The SME sector should be encouraged and helped in acquiring filing for patents and developing intellectual property. Those trying for it, their money should be reimbursed. . Fund should be created for this purpose.

4.large number of entrepreneurs is being jailed for violation of various laws.like electricity, labour etc. The jail term clauses should be deleted from these laws.

5.There is nothing, which the government is going to get by imposing fringe benefit tax on the SSI. If it makes a cost-benefit analyses m the govern mint will reach the same conclusion, says the memorandum. Therefore it should not impose this tax on this sector.