PUNE, March 22: It is not often that the small industry gets what it wants from the government. So when the government acted with such swiftness and large heartedness while raising the investment limits from Rs 60 lakh to Rs 3 crore for the SSI sector it was met with total disbelief and fear.The response to the change depends on which end of the spectrum an individual unit finds itself in. While many have seen it as an opportunity, others consider it a threat to their existence and some are suspicious of the government's intentions.
Small scale industry has been defined in terms of the investment made in plant and machinery. In December 1997 government announced that any industrial unit having such investment of up to Rs 3 crore would be treated as a small enterprise. Even after accounting for inflation this is perceived to be a huge jump.
It is this five-time jump that has been the cause for worry. With this change in definition many medium scale industries are going to come under the SSI umbrella.Under the earlier limit of Rs 60 lakh there were nearly 27 lakh units in the SSI sector. Significantly nearly 95 per cent of these are very small units. And barely five per cent of the SSIs are anywhere near the Rs 60 lakh investment mark. From the perspective of the very small enterprises and the tiny sector which constitute 95 per cent of the sector, this development is seen as a threat.
They fear that their share in the finance cake may be reduced considerably. The new entrants, that is the bigger companies, would now eat into their share of priority sector lending resulting in a fierce competition among the SSI undertakings.
The apprehension of the industry is that banks would prefer to lend to the bigger and the more established players than service many tiny units. The latter feel that the medium scale industry does not need protection.
Apart from the financial worries, raising limits would also imply a partial de-reresvation of items reserved for SSI units. Now the bigger units will be able toget into items which were earlier reserved thereby bring in an element of competition.
It is this small per cent of SSIs and the medium size industries in the SSI sector that stands to benefit from this change.
Earlier there existed a fear among small industries graduatimg to medium and large sector of losing their SSI status and so they were reluctant to grow. But now they can expand their operations or modernise without any problem. Also a significant number of medium scale industry will now get the SSI status which means support in the form of incentives, exemption or favourable treatment, tax and excise reliefs abd above all reservation of articles for the SSI sector.
"Lots of units which had stalled expansion plans or avoided setting up new projects can now go in for expansion and modernisation," says C J Nawathe, manager, government schemes, Western Maharashtra Development Corporation.
He predicts many amalgamations and mergers in this sector so that as bigger units they achieve economies ofscale. He rules out problems as far as term financing goes, saying smaller people will remain in the priority sector.
A SIDBI official agrees. "There is no dearth of funds for good clients," he says. "More competition in the sector will result in improvement in quality of products and services and modernisation of the existing enterprises." One problem could be working capital for financially weaker companies.
Some of the fears of the tiny sector are real and small industry has been calling for a revamp of the institutional support framework. A FICCI-MCCI paper states that the small industries get only about 13 per cent of the production value by way of credit (both long-term and working capital). "Although at the policy level, the government has laid down directions for the flow of credit to SMEs, in actual practice, due to stringent norms and rules adopted by the lending institutions, the actual flow is not of a significant magnitude," the paper notes.
The industry is still waiting for the governmentto deliver on its seven year-old promise of a policy package (reported to be nearly ready) for the tiny sector. Till it does, new opportunities for growth will benefit only those who opportunities but the government may soon find it can no longer ignore issues facing this large if silent majority.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
