Seminar on SMALL AND MEDIUM ENTERPRISES FOR GOWTH AND EMPLOYMENT

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Seminar onSMALL AND MEDIUM ENTERPRISES FOR GOWTH
AND EMPLOYMENT

• Thursday, 5th April, 2007

Session on Indias Future Policy Framework for
SMEs
SMEs Point of View
SMEs Point of View
Presentation by A . SHANMUGAVELAYUTHAN Presiden
t - TANSTIA
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OverviewThe Micro, Small and Medium Enterprises
are the Backbone of the Indian Economy
Considering the employment generation the Micro
and Small Enterprises overtook the Medium
Enterprises.
Why ? Easy to Start an SSI - less capital
enough SSI contributes 40 of the gross value
output in manufacturing Creates nearly 3
crore employment next to agriculture Employs
local people, particularly illeterate and
semi- literate and reduces the regional
imbalances Produces goods for downtrodden
people, especially for those below the
poverty line
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Contribution of SSI
At the end of 2005-2006 Nof of SSI
Units - 12.34 million Production at Current
prices - Rs.4.76,201 crores Employment
(2005-06) - 2.95 crores persons Exports - Rs.1
,24,416 crores
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Database on SSI
There is no authenticated database on SSI in
India There is no compulsory registration. There
is only birth (new) registration and no death
(closure) registration So no efficient
monitoring and scientific framing new
policies. Closed units should be weeded out from
the live register.
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Government Support to SSI
Government support means policy support,
fiscal support Infrastructure Support,
etc.
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Priority Sector Lending Purchase and Price
Preference (proposed to be dispensed
with.Reservation for exclusive manufacture of
items (Dereservation affects the SSI)
1. POLICY SUPPORT
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2. FISCAL SUPPORT
Capital Subsidy (for individual SSIs)IFST -
Interest Free Sale Tax Concession
(withdrawn)Central Excise Exemption (upto 1.5
Crore) Hire Purchase / Outright purchase
allotment of sheds by SIDCOReduced registration
cost for SSI (50 stamp duty concession) Power
Subsidy (LT PT Subsidy) Credit Guarantee Fund
Scheme - CGFT (not being strictly implemented by
banks) Back ended subsidy - 3 Credit Linked
Capital Subsidy for Modernisation and
Upgradation (lapsed as on 31st March, 2007 and
extension is still not announced)
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3. INFRASTRUCTURE SUPPORT
Development of Sheds / Plots (SIDCO unable to
purchase lands) Development of Industrial
estates, Road, Port, Railway lines,
Communication, etc.
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RESERVATION
The Government reserved the products for
Exclusive manufacture of SSI

• Milestones in Reservation
• In the year 1967, 47 products were reserved. It
  was increased to 324
• in a decade.
• In 1988, it was 846. After 18 years, it is 114.
• So a beginning rise then a curve to the bottom.
  This phenomenon
• Change in a way indicates the policy of the
  Government. Earlier, the
• Governments promoted and protected the SSI. Now
  it says it is
• promoting only. So, the reservation is reduced
  to the possible
• minimum. The data will highlight this.

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Trend in Reservation of Items for the Small Scale
Sector
Date of Number of Number of Cumulative
Notification Reserved Dereserved
Total Phase 1 April 11, 1967 47 0 47 Feb
19, 1970 8 0 55 Feb 24, 1971 73 0
128 Nov 11, 1971 0 4 124 Feb 26,1974 53
0 177 June 5, 1976 3 0 180 April 26,
1978 324 0 504 Phase 2 April 26,1978 303
807 Dec 30, 1978 1 806 May 12, 1980 27
0 833 Feb 19,1981 1 1 833 Aug 3, 1981 9
842
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• Dec 23, 1981 02 13 831
• Oct 14,1982 3 828
• Oct 19,1982 9 837
• Sep 3, 1983 35 872
• Oct 18, 1984 1 873
• May 30, 1986 7 11 869
• Oct 30,1986 1 7 863
• Feb 13, 1987 0 13 850
• July 20,1987 0 3 847
• March 18, 1988 0 1 846
• March 3, 1989 3 14 835
• July 31,1989 1 836
• April 3, 1997 0 15 821
• Feb 3, 1999 0 9 812
• Jan 1,2001 0 1 811
• June 29,2001 0 72 799
• May 20,2002 0 50 749
• June 3, 2003 0 74 675
• Oct 20,2004 0 70 605

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MSMED ACT AND MSME DEFINITIONS

• The Governments support to the SSI units were
  announced
• Through industrial policy resolutions in the
  past.
• Example 1948, 1950, 1952.
• The Government supported the small scale industry
  to achieve
• diversified growth all over India. To achieve
  decentralised money
• And industrial power.
• The Definitions were changed along with the time
  and at present,
• We have the definitions as per the MSMED Act, 2006

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• Definition is based on Investment in Plant and
  Machinery.

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(No Transcript)
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As per the new definition under MSMED Act, 2006,
the medium industries becomes small scale
industries. It could be rightly said that
college students become high school
students Creamy layer and the Medium Scale
Industries would derive all concessions at the
cost of Small Scale Sector.
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SME DEFINITION - WORLD SCENARIO
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In all the above countries and various other
countries also, the Turnover or Labour Force is
the criteria for defining the SME Sector except
in India, where the Investment in Plant and
Machinery is considered for definition.
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Government Procurement Policy

• No Single Taxation Law in the States of India
• Certain States enjoy 100 Excise Duty Exemptions,
  Nil Sales
• Tax, Lower Power Tariff, etc. This creates
  differences in cost of
• production and thereby affects a particular state
  SSIs when the
• tender prices are compared.
• There are 350 items reserved for exclusive
  purchase from the
• SSI.
• 15 price Preference
• Central Government Organisations and Undertakings
  reluctant to
• adhere the same

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Tamilnadu State Government Procurement

• The State Government Deptartments and
  Undertakings
• Are strictly implementing the Procurement policy.
• Important G.Os.
• 1. G.O. Ms No.110 (Industries Dept) dt.
  31.01.1977
• (Governors Rule)
• 2. G.O. Ms No.1141 (Industries Dept) dt.
  27.10.1988
• (Governors Rule )
• 3. G.O. Ms.No.330 (Finance -BPE Dept) . dt.
  03.05.1991
• (Governors Rule)

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ROLE OF ASSOCIATIONS

• No Compulsory Registration with Associations
• No Statutory Powers for Associations
• Bonafide and Democratically run associations will
  find it difficult, where as informal letter pad
  associations with their tongue power will
  dominate
• Hesitation to discuss the Government policies
  with Associations.
• Particularly, Government of India convenes
  policy level discussion meetings with
  Associations as rituals rather than analysing and
  getting the real point of views of SSI.
• Government does not want to benchmark the SSI
  Associations for the reasons known only to them.

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• In Germany,
• The Berlin Chamber of Commerce and Industry has
  more statutory
• powers Liaison with the Government.
• There,
• The Chamber Membership is automatic and
  mandatory.
• The reason for the mandatory membership is that
  the chambers
• represent the interests of their member companies
  in dealings with the
• Government.
• They also take on interim and final examinations
  for employee training,
• draw up reports and therefore carryout more than
  just the typical association tasks.
• The costs for chamber membership are based on the
  companys turnover.

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Statutory Obligations for SSIs

• Acts for SSI will cover even for tiny units.
• 1. Trade Union Act
• 2. Industrial Employment and Standing Order Act
• 3. Industrial Disputes Act
• 4. Factories Act
• 5. Payment of Wages Act
• 6. Minimum Wages Act
• 7. Payment of Bonus Act
• 8. Workmens Compensation Act
• 9. Equal Remuneration Act
• 10. Maternity Benefit Act
• 11. Contract Labour Act
• 12. Payment of Gratuity Act
• 13. Child Labur Act
• 14. Bonded Labour System Abolishing Act
• 15. ESI Act
• 16. EPF Act

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• Threats
• SSI feel Inspector seek undue advantage from the
  industry.
• Inspector Raj is a Threat and SSI want its
  immediate curb.
• Other obligations and difficulties of SSI
  includes,
• Encroach of SSI by Medium and Creamy layer
  industries
• Demand for International Quality Standards in
  the WTO regime Cost Reduction by Customers and
  other barriers
• Need of Fund for Modernisation and technology
  upgradation
• Stringent Statutory laws of Government
• Exploitation by major industries
• Increase of MNCs with Modern Technology
  machines

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Plight of Sick Unit Entrepreneurs

• No Social Security Scheme for the entrepreneurs
  when their unit become sick
• All the property including the Home will be
  seized by the lenders and the entrepreneurs
  family is left in the street
• Entrepreneurs life become worse than those of
  their own employees
• Combursome procedure in closure of unit
  and absence of easy exit policy for sick units
• In India,
• It is easy to start an SSI unit,
• it is difficult to run and
• it is impossible to close the same.

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Immediate Requirements of SSI

• Definition of SSI based on the Turnover Limit
  along with the fixed assets
• Clear demaraction between Manufacturing and
  Service Sector
• Single Taxation Law each for all Direct and
  Indirect Taxes
• Single Comprehensive Labour Policy
• Reservation (Procurement) Policy - Price
  Preference and Purchase Reservation should be
  continued for SSI
• Compulsory Registration for SSI and thereby
  creating authenticated data and statistics on
  SSI.

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• Proper Monitoring System for Implementation of
  Government Laws, schemes, etc. just like in SBA
  Act of USA.
• Benchmarking of SSI Associations and compulsory
  registration of SSI units with such Associations
• Quality Impprovements - Testing Centres and
  Laboratories and availability of various
  standards specifications
• Infrastructure development like worksheds, etc.
  at affordable cost including practical FSI rule

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• Updated Industrial Training Centres in all
  districts for industrial needs
• Maintaining Stability of Raw material prices
• Credit Flow and Awareness of schemes among SSIs
• Promotion of Clusters
• Sick Unit Rehabilitation Scheme
• Easy Exit Policy for SICK Units

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Thank You
Tamilnadu Small Tiny Industries
Association No.10, G.S.T. Road, Guindy, Chennai -
600 032 Ph 044-22341305, 22341939. Email
tanstiaassn_at_yahoo.co.in