The Hindu Business Line : SME sector unimpressed by Govt package

Chennai April 1 On Saturday, a national scheme for the small industry called `credit-linked capital subsidy scheme', came to a quiet end. The scheme, which envisaged a 15 per cent capital subsidy for some specified projects of SMEs, lapsed into oblivion as its end-date was not extended.

Yet, the `package for promotion of micro and small enterprises' announced by the Government only on March 2, states under the head `recent initiatives' that "significant improvements have also been made in the Credit Linked Capital Subsidy Scheme for Technological Upgradation, leading to a spurt in the number of units availing of its benefits."

If "significant improvements" led to a "spurt" in the number of beneficiaries, then should the scheme be allowed to expire? Why did the Government not bother to extend the scheme, when another scheme, meant for the large industries, namely, the Technology Upgradation Fund, was not only extended by was given an enhanced budgetary support.

The demise of the scheme is seen by the small-scale industry as an example of "the ritualistic attitude of the Government" towards the sector.

There are plenty of other examples even in the `package of promotions' announced on March 2, says Mr DE Ramakrishnan , President, Industrial and Financial Reconstruction Association for Small and Tiny Enterprises and National Confederation of Small Industry. For example, it is now six months since the Micro, Small and Medium Enterprises Act, 2006, was notified. Yet the package still says the "Government will take up effective and expeditious implementation of this legislation in close collaboration with all stakeholders."

For a small-scale unit, there is very little take-home in the package, Mr Ramakrishnan says. It speaks of "examining the feasibility" of allowing tax deductions on contributions to the Credit Guarantee Fund by public sector banks and institutions. "If you are announcing a policy, you should give me something that I can use and not just inane platitudes," he says.

Other promises

The package makes other promises without financial commitment. It speaks of grants to two funds of Small Industries Development Bank of India (SIDBI), but does not make any financial commitment.

It says that SIDBI would "scale up and strengthen" its credit operations to cover an additional 50 lakh micro enterprises over five years "beginning 2006-07". The number of SIDBI's branches is also to be raised from 56 to 100 "in two years beginning 2006-07". 2006-07 is already over. Anyway, these are not instruments that a small-scale unit could use, says Mr Ramakrishnan.

The coverage of the credit guarantee scheme is to be raised from 75 per cent to 80 per cent of the loans. But, anyway, under the existing guidelines of the RBI, all loans under Rs 5 lakh are to be given collateral-free. So what does the package offer?

The Budget speech of 2006-07 promised to raise the corpus of the Credit Guarantee Fund, which provides money to the scheme, to Rs 2,500 crore over the following five years. The Budget allocated Rs 132 crore to the fund, so as to raise the corpus to Rs 1,250 crore.

However, the Budget for 2007-08 makes no allocation to the fund. The absence of such allocation demonstrates a lack of commitment, Mr Ramakrishnan says.

The package "talks about the statutory consultative mechanism, with a wide range of advisory functions at the national level, with wide representation of all sections of stakeholders." But there are only four representatives for 1.3 crore small units in the consultative mechanism. The association has demanded more representation.

Even the strides made by some of the SME-related initiatives have at best helped only the top 3 per cent of the 1.3 crore units. The other 97 per cent are left to fend for themselves, he says.