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Improving the state of MSMEs

Centre must implement Prabhat Kumar Committee recommendations.

Improving the state of MSMEs
Late last month, the National Board of Micro, Small, and Medium Enterprises, organised by the Ministry of Micro, Small, and Medium Enterprises (MSME) including khadi/coir with all States and Union Territories' Ministers and Secretaries met in the Capital. With a welter of as many as fifteen items on the agenda, the most significant discussion pertained to the far-reaching recommendations of the one-man Committee headed by the former Cabinet Secretary, Prabhat Kumar.

The Secretary, MSME, K.K. Jalan told this correspondent that the Committee submitted its report on January 27 this year. The report was published on the website of the Development Commissioner (MSME) to elicit wider feedback from all the stakeholders in a bid to take a definitive call on what this important sector needs. It is an open secret that MSMEs by and large confront a spate of challenges regarding infrastructure, logistics, the cost of credit and availability of technology that directly affect their competitiveness. Besides, these enterprises face competition from imported products, mostly from China and least-cost destinations as well as large domestic manufacturers who have the manifest benefit of economies of scale embedded in their operations.

A particularly noteworthy facet of their uneven development at this juncture is that on the recommendation of the Advisory Committee, the Government did away with the lingering twenty odd items on April 20, 2015, from the erstwhile list of items reserved for exclusive manufacture in small scale sector, now christened as Micro and Small Enterprises-MSE-Sector. Still, this has not detracted or diminished the aggregate contribution of this sector to the country's overall manufacturing growth, its exports and employment generation given the diversity of products and processes they deploy to stay competitive to earn their spurs. According to the 4-digit ITC-HS(Harmonised System), as captured by the Department of Commerce hosted by Directorate General of Commercial Intelligence & Statistics (DGCI&S), the value of products exported by MSMEs had been fluctuating from $130.65 billion to $138.89 billion in the three years from 2013-14 to 2015-16.

In its bid to render the export base of the MSME dynamic, the Prabhat Kumar Committee has suggested that the National Small Industries Corporation (NSIC) should be restructured primarily to be an apex body for MSME marketing both for domestic and overseas marketing needs of the MSME sector. It urged the NSIC to focus more on Consortia and Tender Marketing and enable MSMEs to purvey to the Government departments and public sector corporations to achieve the target of 20 per cent procurement as per Government policy.

It further favours the establishment of 'MSME Cluster Marketing Consortiums' (MCMCs) through the formation of 'Special Purpose Vehicles' (SPVs) in the form of Co-operative Societies or Companies to support MSME to organise their marketing infrastructure and undertake marketing of their products. These SPVs with an appellation "MSMEs Cluster Marketing Consortiums" (MCMCs) can ensure participation of MSME units located in the cluster, State Small Industries Corporations (SSICs)/State Industrial Development Corporations (SIDCs) and local industries associations.

It also recommends that the Central bank, the Reserve Bank of India, should let the setting up of MSME-centric banking finance companies and specially tailored 'MSMEs' Receivables Financing Funds' for the specific purpose of promoting financing against receivables and discounting of their supply bills. These NBFCs or Special Purpose Funds can be encouraged in joint sector by the government through banks or other institutions jointly with the private sector.

Further, these NBFCs and Funds can be allowed to attract investment from domestic and international sources and could be operated by banks or the private sector to finance MSMEs' book debts or to discount MSME supply bills. This seems a sensible suggestion worthy of a try because as per RBI data, against total MSME (amount outstanding) as on March 31, 2016, of Rs. 9.96 lakh crore, the non-performing advances/assets (NPA) in MSME amount to Rs. 83,183crore, constituting 8.35 per cent of NPA in MSME. Considering the sordid spectacle of corporate tycoons fleeing the country after contracting hefty loans from the banking system, the entrepreneurs of this genre with a basic conviction not to hoodwink by design may be the right class to be backed by the formal banking sector if it is keen on reviving industrial growth and the concomitant job generation it spawns.

Another important recommendation of the one-man committee is its proposal for establishing a Rs 1000 crore fund under the MSME Ministry to be operated by the Small Industries Development Bank of India (SIDBI). This would go a long way to put the export-oriented small and medium enterprises in the growth loop to leverage several inherent advantages the MSME sector is privy to. It noted that the risks for this fund could be assuaged through the CGTMSE or the Export Credit Guarantee Corporation (ECGC) cover for exports through a direct charge on the activities and assets financed. This fund is proposed initially for a spell of five years to be renewed, based on the experiences mastered and teething troubles tackled.

In the weighty words of the Prabhat Kumar Committee, "changing mindset of the institutional stakeholders, honouring the entrepreneurship spirit and restoring the dignity of entrepreneurship should be the guiding mantras of our MSME policy". It has rightly suggested utilising the capabilities and resources of the private sector in providing much-need business development services including infrastructure development for MSMEs. It has after due deliberations, and deep reflections proposed to strike a due balance between "the interests of the upwardly mobile small and medium manufacturing sub-sector and the vast aggregation of livelihood oriented micro-enterprises."

Stating that the turnover and employment norms for MSMEs do not add anything worthwhile to the extant system, the Committee has come out with the revised definition for micro manufacturing up to Rs 50 lakh and for micro services up to Rs 25 lakh, for small manufacturing units above Rs 50 lakhs and up to Rs 7 crore and for small services from above Rs 1 lakh and up to Rs 4 crore and for medium manufacturing units, above Rs 7 crore and up to Rs 25 crore and for medium services units, it is above Rs 4 crore and up to Rs 15 crore. Rightly the Committee has plumped for empowering the Centre to alter the investment limits for micro, small and medium enterprises from time to time instead of being forced to go to the Parliament? Hence it pitches for amending the 2006 Act accordingly.

It is time the NDA government gave serious thought to implement the plethora of prudent policy prescriptions laid out by the Prabhat Kumar Committee if its intention is to 'Make in India' the mantra for the deliverance of the country's manufacturing prowess scattered in the MSME sector.

(The views expressed are strictly personal.)
G Srinivasan

G Srinivasan

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