The Hindu Business Line : SSI sector unimpressed by Budget proposals

The Finance Minister, Mr P. Chidambaram, announced in the Budget a proposal to raise certain limits under the `credit-linked capital subsidy scheme.' At present, if a small-scale unit wants to expand its capacity, it could borrow under this scheme up to Rs 40 lakh. The unit need not pay back 12 per cent of this, or Rs 4.8 lakh. The `Rs 4.8 lakh' is the `capital subsidy' element.

Actually, not all SSIs are eligible to borrow up to Rs 40 lakh. Units with an investment in plant and machinery of less than Rs 10 lakh may borrow only up to Rs 8 lakh (in which case the capital subsidy works out to Rs 96,000). Units with investments in plant and machinery between Rs 10 lakh and Rs 25 lakh, may be given a credit of Rs 20 lakh, and get a capital subsidy of Rs 2.4 lakh.

Now, the Budget proposes to raise the credit limit from Rs 40 lakh to Rs 1 crore. It also speaks of increasing the rate of capital subsidy from 12 per cent to 15 per cent.

The SSI sector is unimpressed.

First of all, the scheme (which anyway will close on September 30, 2005) has been a non-starter. Because of the "stiff conditionalities and procedural wrangles" most SSI units have not benefited from it, says Mr D.E. Ramakrishnan, President, INFRASTE, an SSI association.

It is understood that barely a 100 small-scale units (there are 34 lakh of them in India!) have received credit and subsidy under the scheme. The annual report of the Small Industries Development Corporation, the nodal agency for operating the scheme, is silent on the offtake from the scheme, whereas it provides figures of the number of beneficiaries under other schemes.

According to Mr Ramakrishnan, there are a number of reasons why the scheme has failed to take off. For example, the very definition of `technological upgradation,' (which the scheme is intended for) gives a large leeway for subjective selection.

The scheme says the lending agencies may "stipulate conditions as may be considered necessary" to ensure that the management of the borrowing company is "competent to carry out to the upgradation programme." Assessment of the competence of the management is a part of project appraisal and hence need not be included also under special schemes, feel SSI leaders. Also, the scheme says that lending agencies should assure themselves that the borrower has made adequate arrangements for meeting working capital requirements." Reluctant bankers hide behind such technicalities and refuse to lend, say SSI units.

In case, a SSI wishes to upgrade with second hand machinery, the scheme offers no help.