Huge defence offset policy obligations is set to be the growth driver for the MSMEs in the coming years, said Dr H.P. Kumar, Chairman and Managing Director of the National Small Industries Corporation.
Presiding over the 5th edition of ‘SUBCON 2011' – a three-day event that aims to highlight the sub-contracting opportunities for the micro, small and medium enterprises with Government enterprises and large scale units, at the Codissia Trade Fair Complex, he said, “in the next five years, offset opportunities for the SMEs is estimated at $20 billion”.
“With several big ticket defence purchases on the cards, the offset business would expand the horizon of the SMEs,” he said and explained: “the import component in defence procurement could be huge, accounting for about 70 per cent, leaving the remaining 30 per cent of the contract value as offset obligation. This alone would throw up huge opportunity for the MSMEs; the sector would have to consider upgradation of technology and capacity expansion to bridge the supply gap.”
He said when large corporates offload sub-contracting works to smaller units, the expectations would be high, and these suppliers (smaller units) would have to honour their commitment without compromising on quality, keeping up the delivery schedule and being competitive on the pricing front.
The NSIC, he said, played the role of a facilitator by helping the MSMEs procure the raw material at cost effective rates, helping the units upgrade on the technology front, liaise with banks and help them avail finance support and so on.
Private equity route
While highlighting the various schemes offered by the Corporation, Dr Kumar urged the MSMEs to take the private equity route to raise capital instead of voicing concerns about difficulties in raising funds from within.
Stating that raising private equity would be the way forward for the small enterprises, he observed that a good number of units had existed for decades and it was time such units did a valuation of the enterprise.
“The sector might not have considered such a fund raising proposition, but it's time the promoters of such units offloaded a tiny percentage of their holding instead of pledging their properties and solely depending on bank/institutional finance,” he said.
Rating is vital
Emphasising the importance of being a rated unit, he told Business Line that the Corporation did the ‘performance and credit rating' for around 10,000 units last year and was targeting to rate another 18,000 units this fiscal.
“We help these small, micro units get international rating, which places them in good position. While this rating is for a fee, it is heavily subsidised by the Government,” Dr Kumar added.
The Executive Director of Pricol, Ms Vanitha Mohan, said that it had become imperative for the company, which is a global supplier of auto components, to build a strong supplier base.
Conceding that Pricol had hitherto been quite conservative in its outlook, she said, “We are at cross-roads today. We want a lot of partners who will co-make our products for us. Co-makers are important for us.”
Later, in a chat with Business Line , Dr Kumar said the MSMEs were adversely affected due to the sharp increase in the price of inputs such as aluminium, steel, zinc, plastic material, coal, urea and so on. “We make a bulk indent on behalf of these units and distribute it to them through our distribution points at cost effective rates. We also offer them 90 days credit.”
NSIC operates 80 distribution points across the country. It plans to add 10 more this year.