ACTIVITIES OF COSIDICI

    COSIDICI to assist Government of Uttaranchal in the formation of Industrial Development Corporation 

    We are happy to report that the Government of Uttaranchal has invited COSIDICI to associate itself with the State Industries Department in the setting up of an Industrial Infrastructure, Investment and Promotional  Corporation for Uttaranchal.  The Additional Secretary (Industries), Shri Parag Gupta, IAS, had in his D.O. letter of 18th March, 2002, invited the Secretary General COSIDICI, Shri K.K. Mudgil, to visit Dehradun (Capital of Uttaranchal) for a couple of days to work out the modalities for the formation of the State Corporation.  The matter was brought to the notice of the President COSIDICI and he had expressed his happiness over this development and had advised the Secretary General to visit Dehradun in this connection.  The Secretary General had visited Dehradun on 21st and 22nd March, 2002, and had a detailed discussion with the Principal Secretary (Industries), Shri S. Krishnan, IAS, and other senior officer of the Industries Department.  The preliminary  discussions revolved around the need for having an integrated corporation for the State for financing of large-scale, small-scale and tiny sectors and also creating industrial infrastructure in the State such as industrial estates, industrial townships, etc.  The Secretary General had advised the State Government that it could draw upon the experiences of both the SIDCs and SFCs, which have been functioning in other States for more than four decades, in preparing a blue print for setting up of the above Corporation.  It was suggested that, keeping in view the merits and demerits of setting up a separate corporation for industrial development, i.e. SFC/SIDC, as they exist at present in other States, the Government of Uttaranchal should preferably set up a single Corporation to look after the industrial development of the State, which would integrate all the functions presently being performed by SIDCs and SFCs in all the States.  While the pitfalls and deficiencies observed in the present set up could be avoided, the good features of both SFCs and SIDCs could be adopted by the State Government.  Since Uttaranchal will be starting with a clean slate, it would be advisable that redeeming features of both SIDCs and SFCs should be incorporated in the Memorandum and Articles of Association of the proposed Corporation, which may be set up under the Companies Act, 1956.  Preliminary draft of the Memorandum & Articles of Association of the proposed Corporation was also attempted after perusing the Memorandums of few other Corporations working in different States.  It was also suggested that the Managing Director-designate of the proposed Corporation may visit a few successful Corporations functioning in Maharashtra, Tamil Nadu and Rajasthan to study their working and the loan policies pursued by them.  The visit of the Secretary General was concluded with the drafting of a draft note for being placed before the State Cabinet for approval.  The Principal Secretary (Industries) (Shri S. Krishnan)  desired that the Secretary General COSIDICI may visit Dehradun in connection with the setting up of this Corporation in future, as and when the State Government considered it necessary.

    Uttaranchal, 27th State of India, came into being on 9th November, 2000. The total geographical area of the State is 54,483 Sq. km. and its total population is 84,79,562.  As much as 64.81% of the total area is covered by forest.  There were 41,216 small scale industrial units in the State involving  an investment of Rs.305.58 crore and providing employment to 1,53,229 persons. There were 191 units of medium/heavy industries in the State involving an investment of Rs.2,694.66 crore giving employment to 50,802 persons. 78.6% of the total number of villages are electrified and 41% of them  were 3 to 6 kms. away from the roads.

    The main objective for the creation of this new State was to ensure rapid economic development of this area.  Various factors have contributed to the economic backwardness of Uttaranchal; one of the foremost being slow industrial growth.  The reasons for this include the hilly and difficult terrain; gaps in infrastructure, lack of connectivity,  problems of raw-material availability, limited access to markets and most importantly the absence of a specific policy for industrial development.  It was in this context that the State Government has formulated its industrial policy 2001, which is presently under various stages of implementation.  The strategy detailed in the industrial policy aims at ensuring rapid, balanced and sustainable industrial development of Uttaranchal.  Special emphasis has been paid to the revival and growth of traditional industries with a view to ensuring the economic development of the remote and hilly areas of the State.  This industrial policy endeavours to establish an industry-friendly environment in the State with  the State Government playing the role of a facilitator in industrial development.

    The setting up of the proposed Corporation for integrated industrial development of the State is an important step for the accomplishment of the objectives outlined in the industrial policy framed by the State Government. 

    E.C. Meeting  :

    The Executive Committee meeting of COSIDICI was held on February 18, 2002 at College of Agricultural Banking (RBI), Pune (Maharashtra).  Among others the items for discussions included disqualification  of Directors u/s 274 (i)(g) of the Companies Act, 1956.   As reported in the previous issue (November-December, 2001) of  “COSIDICI COURIER” , the Secretary General, COSIDICI had requested the Secretary, Deptt. of Company Affairs that the provisions of section 27 of SFCs Act, be made applicable to all SIDCs u/s 46 of the SFCs Act.   The Secretary, had agreed on the matter.  Formal notification is awaited from the Govt. of India in this regard.   The Executive Committee suggested that those SIDCs, which have not yet acquired powers u/s 27 of SFCs Act, 1951, may immediately approach the Central Government through their respective State Governments for this purpose.   The list of SIDCs which are seeking exemption from the provision of section 274(i)(g) of the Companies Act, was forwarded to Deptt. of Company Affairs vide COSIDICI letter dated February 20, 2002.

    Training :

    The second training programme for Junior & Middle level officers was held successfully from 28th January to 2nd February, 2002. 

    A two days workshop for Chairmen and Managing Directors of our Members Corporations was organised at CAB, (RBI), Pune on “Economic Reforms and Future Role of SFCs” with additional focus on (a) management of non-performing assets; (b) mobilization and deployment of resources and (c) corporate governance.  The Executive Committee unanimously expressed their satisfaction about the quality of the workshop.   There was a suggestion that instead of deliberating on a number of subjects the workshop should focus on a single subject and this would be more beneficial as the time available was very short. 

    Implementation of the recommendations of Gupta Committee on Restructuring of SFC

    Members expressed serious concern on the future prospects of SFCs in view of  de-regulation of the financial sector and resultant competition which they had to face from the commercial banks.  The situation had further aggravated on account of delay in the implementation of the Gupta Committee recommendations regarding re-capitalization of SFCs.  The SFCs were in  the grip of a serious  financial crisis and the Members expressed in one voice that if some short-term measures were not initiated by SIDBI, it will be well-nigh difficult, if not impossible, for them to carry on with their business operations.  The Members also expressed their resentment over the reluctance of the Govt. of India to accept the Gupta Committee recommendations for re-capitalization of SFCs and said that, unless the SFCs were re-capitalized on the lines of commercial banks and RRBs, they would not be able to take advantage of the relaxations made in the SFCs (Amendment) Act, 2000, regarding mobilization of resources from the market on their own. Good clients were making premature repayment and going over to commercial banks as they offered a much lower rate of interests.  In addition the level of refinance was low and as a result there was a  mismatch in their assets and liabilities. 

    In view of the prevailing recession in the economy, particularly in the small scale sector, extraordinary measures are required to revive and sustain the industrial units.   With this aim, several SFCs have introduced schemes which provide varying degree of relief to their borrowers in the form of reduced interest rate, waiver of penalty or prepayment premium and reschedulement and restructuring of borrowers’ accounts. These measures are likely to have an adverse impact on the Balance Sheet and Profitability of the SFCs in the long run, yet have been introduced to provide an impetus to the industrial growth. 

    As SIDBI is an equal partner in financing industrial units through SFCs, it was     resolved that SIDBI, as the main refinancing agency, should be requested to consider following measures to support SFCs in this endeavour : 

    (i) It should bring down the interest on outstanding loans to SFCs to the current level. 

    (ii) It should consider rescheduling of repayment liability of the SFCs upto three years to enable SFCs to tide over the impeding liquidity crunch as and when approached by individual SFCs. 

    (iii) Wherever SFCs reduce interest rate of existing borrowers, it should agree to share the resulting loss in income. 

    (iv) Wherever SFCs are compelled to settle an account due to sickness of individual units, it should agree to share the amount of future income so waived.

    SIDBI has now convened a meeting on March 08, 2002 of the Chief Executives of SFCs to discuss the emerging scenario in which SFCs are operating and issues connected therewith -- the details of which would be reported in the next Issue of “COSIDICI COURIER”.