While the slew of announcements made in the Union Budget with regard to the MSMEs would greatly benefit the sector, it is important that the Government puts in place a proper delivery mechanism, according to K Ilango, Chairman, CII, Coimbatore Zone.

He said the Government should also specify the norms concerning the funding of the MSME sector and should make the rules easier for MSME entrepreneurs opting to exit from any failed business.

In an interview to Business Line, Ilango said the move to form a committee to study the `financial architecture’ of the MSMEs was welcome as much of the service sector initiatives were also MSMEs. Rapid urbanisation has also fuelled its growth. He said the entrepreneurs from the service sector running services like small food joints and working as mechanics or electricians, finance was a major constraint as they had to borrow at a hefty interest of 10-20 per cent a day.

Lauding the initiative of the Union Finance Minister to recognise the role of this sector in the local economy as most of them ran their enterprises close to where they lived, he said the service sector entrepreneurs were also vulnerable to vagaries of nature and even if they could not ply their wares, they had to pay daily interest on the money they had borrowed. He felt that the move to understand the financial architecture of this sector would lead to removing the glitches it faced in sourcing finance. He suggested a comprehensive study be made before the report is presented to Government.

Ilango, who was earlier President of the Coimbatore District Small Industries Association (Codissia), representing one of the largest number of MSMEs in the country, said the proposal to create a Rs 10,000 crore fund to act as a catalyst for attracting private capital to aid the MSMEs was welcome.

Generally investment was from the promoter and his close relatives/friends and by asset mortgage. Already SIDBI provides venture capital in a small way and there were efforts by private individuals also to extend financial help for start ups. But he wanted the norms for lending to be spelt out clearly because of the risk involved in funding though the returns also would be great if the ideas proved to be successful. The large size of the venture capital also would make the available pool substantial when others join in.

Referring to the proposal to revisit the question of definition of what constituted a MSME, he said the MSME Development Act, formulated in 2006, specified the ceiling on capital equipment for manufacturing units in the MSME sector as Rs 25 lakh for micro units, Rs 5 crore for small units and Rs 10 crore for medium enterprises. For the service enterprises, the limit on investment in plant and machinery ranged from Rs 10 lakh to Rs 5 crore. Given the rise in investment requirement needed, he felt that this ceiling should be revised upwards.

Ilango said the Budget proposals would greatly benefit the MSME sector but all depended on implementation and the `delivery should be effective’. Even on the issue of evolving a simple exit route for MSMEs, he said the SARFAESI Act contained `draconian’ provisions and even for default of a small portion of a loan availed, lenders opted for auctioning of pledged property worth several times the value of loan taken. 

He urged the creation of a `systematic exit route’ so that the promoters were able to salvage whatever they could do from a failed effort. The intention of the Government was welcome but the real impact of it would depend on the details of the policy once finalised, he said. 

Related Topics
comment COMMENT NOW