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Ad-hocism continues

THE LATEST SET of sops for the SSIs is one more instance of the continuing ad-hoc treatment of this crucial sector. More disappointingly, the accent of the so-called `new package' once again seems to be on providing crutches rather than improvin g the competitive strength of the sector.

For instance, the major concession in the package relates to the decision to raise the excise duty exemption limit from Rs. 50 lakhs to Rs. 1 crore rather than addressing the real problems confronting the industry.

The raising of the excise duty exemption limit is clearly misguided considering the havoc played by the existing concession in a number of industrial sectors and the malpractices it has engendered. For instance, the mill sector of the textile industry is in ruins because of the proliferation of powerlooms riding on large-scale evasion of excise duty; the powerloom sector has also become sick because of its failure to modernise owing to its mini-scale operations. The dyestuff industry could have emerged as a major exporter but the splitting of larger units and the proliferation of small units to take advantage of the excise exemption resulted in higher conversion costs and poor quality production. The pharmaceutical sector saw the spread of the system o f loan licensing for the purpose of excise evasion. The list goes on. The system not only acted as a major disincentive for the smaller units to expand but also provided incentives to larger industrial organisations to float benami SSI units to save on t axes. In the process, many big units lost the will to improve their competitive strength by modernising, cost-cutting or productivity enhancing. Not surprisingly, today they find it that much more difficult to survive in the new business environment and particularly to compete in the export markets.

Some of the other concessions, such as the hike in composite loan limit, capital subsidy of 12 per cent for investment in technology in select sectors and one-time capital grant of 50 per cent to SSI units wishing to develop and operate testing labs of g lobal standards, are well taken. However, all these taken together, do not amount to much in terms of real promotional effort. But, then, this package is only a part of a larger SSI policy promised by the Government; hopefully, the full policy will addre ss the real problems facing the sector. Decisions are awaited on a number of issues, such as raising the investment limit on plant and machinery, the cap on foreign direct investment (FDI), the question of dereservation of items from the SSI list, a chan ge in the definition of SSI and so on. However, the most formidable problem which needs to be addressed urgently is the availability of institutional credit to this sector. Unfortunately, even the persistent efforts made by the Government and the RBI ove r the last decade to improve the flow of institutional credit to this sector have proved bootless. While the overall flow of institutional credit to the SSI sector is hardly 20 per cent of the total requirement, the plight of the tiny sector, which const itutes about 90 per cent of all SSIs, is worse. According the latest RBI Annual Report, against the target of 60 per cent of the total SSI credit, the actual flow to the tiny sector actually declined from 27 per cent at the end of March 1998 to 20.7 per cent at the end of March 1999.

The large-scale sickness in the small-scale sector is mostly the result of the high cost of borrowings from private sources and the long delays in receiving payments for final products from the corporate customers. Resolving this twin problem, dereservat ion of products and providing suitable institutional support for technology upgradation should form the core of a WTO-compatible SSI policy.