Create greater Industry-Govt. synergies to develop SMEs

Emphasising on the need for creating greater synergies between the Industry and the Government, Shri D.P. Bagchi, Secretary, Ministry of SSI and ARI said that with limited Government resources, the industry must pool in its resources to build partnerships, especially in the area of research and development. Shri Bagchi was speaking at a seminar on the implications of WTO on SMEs - Need for an Appropriate Strategy organised by the Confederation of Indian Industry in New Delhi.

Commenting on the removal of Quantitative Restrictions, Shri Bagchi said that the SMEs in India have learnt to live with it particularly in view of the absence of a surge in imports. He also outlined the initiatives taken by the Government in terms of setting up the Technology Upgradation Fund, encouraging ISO 9000 certification and providing an umbrella brand under the National Small Industries Corporation in view of the fact that marketing continues to be a weak area of Indian SMEs.

Shri Bagchi also promised to look into the issues faced by the small scale pharmaceutical sector presented to him at the meeting by the Core Group on Pharma for the Small Industry. The issues included the clause of a minimum turnover of Rs.5-10 crores imposed on SMEs supplying medicines to Government hospitals and the need for market forces to determine prices rather than putting  controls on it.

Body to simplify central and state industrial laws

The government has constituted a group under the Chairmanship of the Cabinet Secretary to make recommendations regarding central and state industrial laws to make them simple and useful for the Small Scale Industries (SSI).  The group will also recommend substitution of routine inspections by self-certification, minister of state for SSI and agro and rural industries Ms. Vasundhara Raje said  on 22.9.2 k while inaugurating the Expo-2000. 

Ms. Raje said that the Marketing Development Assistance (MDA) scheme is being formulated for providing assistance to the small and tiny industrial units and would be launched from April 01, 2001.

“The government has agreed to consider the Purchase Preference Scheme for giving priority to SSI products for purchases by its departments”, she said. She also called upon SSI units to take initiative, improve quality and grab the opportunities thrown up by the globalisation alongwith the challenges of competition.

SSIs to have $ 1.4 billion VC, incubation funds

International Finance Corporation alongwith Indian government agencies like the Small Industries Development Bank of India is to set up venture capital and incubation funds with a corpus of over $ 1.4 billion for the small scale sector.

The incubation fund will have a corpus of Rs. 1,500 crore. IFC was likely to operate the fund through non-governmental organisations for improving the scope and target of the fund and also enhance the coverage.

In its interm report, the study panel on the small scale sector headed by Planning Commission memebr Shri S.P. Gupta had also recommended the establishment of venture capital and incubation funds.   It had recommended a separate legislation to be enacted to promote the growth of VC funding for the sector.

Loan amount under SSI fund may be hiked

The government is expected to increase the loan amount under the credit guarantee fund for small industries (CGFSI) to be operated by SIDBI from Rs. 10 lakh to Rs. 25 lakh. 

The corpus of the fund has also been increased from Rs. 125 crore to Rs. 2,500 crore with the government contributing Rs. 2,000 crore and SIDBI contributing the rest.

At present the scheme envisages to guarantee loans up to Rs.10 lakh, both term and working capital, extended by banks to SSI manufacturing units without collaterals, including third party guarantees.   The amount will now be raised to Rs.25 lakh.   CGFSI will also guarantee upto 75 per cent of the principal of the credit extended by the lender and the lender would pay 2.5 per cent guarantee fee of the loan upfront and also pay one percent of the outstanding amount as annual service charge. The interest rate will be 3 per cent over the prime lending rate, excluding annual service fee. The scheme, like it is at present, will also have a lock-in period of two years from the date of disbursement. 

GoI  identifies key SSI sectors for hike in investment ceiling

The government has identified four key Small Scale Industry (SSI) sectors where the investment ceiling would be raised from Rs. 1 crore to Rs.5 crore. These include : hosiery, handtools, auto components and granities.

The ministry is now preparing a specific list of high-tech and export oriented industries where investment limit could be raised upto Rs.5 crore to enable them to upgrade technology in order to maintain their competitive edge.

Besides hiking investment ceiling the government has already decided to give a capital subsidy of 12 per cent for investment in technology in select sectors.

An inter-ministerial group will define the scope of technology upgradation.   To tackle the problem of credit availability, the government has decided to raise the limit for composite loans from Rs.10 lakh to Rs. 25 lakh.  

Entrepreneurs will now be able to secure term loans and working capital from the same agency.   Enterprises with a maximum investment of Rs.10 lakh will qualify for priority lending.

However, the investment limit for plant and machinery for the tiny sector will continue at Rs.25 lakh with the eligibility for credit guarantee also at Rs. 25 lakh. The limit for composite loan facility would be revised from Rs. 10 lakh to Rs. 25 lakh and 20 per cent of the projected annual turnover of the tiny units would qualify for working capital loan.

FICCI wants SSIs off MAT list

The Federation of Indian Chambers of Commerce and Industry (FICCI) has asked the Finance Ministry for withdrawl of minimum alternate tax (MAT) from corporatised small scale industries and corporatised industrial units in backward areas.

It said with the introduction of MAT in the Finance Act 2000, the special tax would be 7.5 per cent on the book profit, whereas the tax payable in case of such a company as computed under the provisions of the Act was less than 7.5 per cent of book profit.

It will also be a deviation from the government policy of extending full tax holiday as an incentive to encourage setting up of industries in industrially backward areas.


The Group of Ministers on Small - Scale Industries under the Chairmanship of Hon’ble Home Minister, has recommended the mechanism of sub-allocation of limits, within the overall working capital limits sanctioned to their corporate borrowers, for meeting their payment obligations to SSI units.

2. In view of the above, Banks have consequently been advised by RBI vide its circular dated 16.10.2000 to take following measures with immediate effect :

  • Banks may, while sanctioning/renewing credit limits to their large corporate borrowers - (having working capital limits of Rs.10 crore and above from the banking system), fix separate sub-limits, within the overall limits, specifically for meeting payment obligations in respect of purchases from SSIs either on cash basis or on bill basis. 
  • The size of such sub-limits may be decided taking into account the projected purchases by corporate borrowers from the SSIs during a year in relation to their total purchases and other relevant factors.
  • Further, with a view to ensuring availability of adequate balance in the account for meeting the payment obligations to SSI units, banks may ensure that sale proceeds/ other receipts of the borrower are credited to this account on a pro rata basis. 
3. The above arrangement is expected to ensure availability of adequate funds for making timely payment by the corporate borrowers of banks to their SSI creditors.  However, banks should closely monitor the operations in the sub-limits, particularly with reference to their corporate borrowers’ dues to SSI units. For the purpose, banks may ascertain periodically from their corporate borrowers, the extent of their dues to SSI suppliers and ensure that the corporates pay off such dues before the appointed day/agreed date as defined/indicated in Section 2(b) and 3 of the Interest on Delayed Payments to Small Scale and Ancillar Undertakings Act, 1993 (32 of 1993) by using the balance available in the sub-limit so credited. If, at any time, the sub-limit is exhausted there is no bar on such payments being made from the other segment of the working capital limit.   Similarly, if no payments are due to SSI suppliers, and the sub-limit remains unutilised/partly utilised, banks may allow their corporate borrowers to operate this limit for meeting other working capital expenses.