In an exclusive interview with SME Times, Madhav Lal, Secretary, Ministry of MSME said they are working to upscale existing schemes and programs of the ministry for the benefit of the Small and Medium Enterprises (SMEs) in the country in order to boost entrepreneurship.
Excerpts of the interview...
The MSME Minister, K H. Muniyappa said recently that the government is working on a special package for welfare of the sector.Could you tell me more about it and how it will benefit the sector?
Madhav Lal: He (the Minister) was referring to was considerably about upscaling certain programs of the ministry. If you take the Khadi sector or let say the Khadi and Village Industries Commission (KVIC), there are few things over there that will be upscaled. One is Prime Minister's Employment Generation Programme (PMEGP), in this, we are looking at covering about 100 new entrepreneurship per district under the proposal. So, let say there are about 600 districts then 60,000 entreprnuership will be created. That is the target. What he was saying is that we will try to double the target of new entrepreneurship to 12,0000. So, per district 200 new entrepreneurship will be created instead of 100. Now, that also require resources and the banks should come on board because it is credit-linked. Even, one has to identify the potential for new enterprises. The total sum of money that will be utilized is about Rs. 900 crores. Actually, we are talking about upscaling this subject to budget free provisions.
Another thing he (the Minister) was referring to is about the announcement in the Finance Minister (FM) speech for considerably upscaling the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) program (i.e., clusters for Khadi and village industries). Since the inception of the scheme just about 80 clusters have been covered. In the 12th plan, we will be covering more than 800 clusters.
There is a program that is Asian Development Bank (ADB) assisted for the Khadi, which we intend to carry it forward. And, the other thing that he was referring to is the skill related infrastructure and our programs. For instance, we have 10 tool rooms at the moment. We will be adding another 15 tool rooms in the 12th plan. Now, tool rooms are essential for skill building as well as to serve the common facilities for the small scale industries. We are accessing fund from the World Bank on the project. It will be over Rs. 2000 crore for funding these tool rooms. We have already submitted our proposal. There team is already here to do the appraisal for the project. Likewise, in the cluster development program and infrastructure development programs of Development Commissioner (DC-MSME), there also we want to speed up the things and come up with a package. And, try to align the technology related intervention, market related intervention, financial intervention and the cluster-level interventions.
Could you tell me about the recent Inter-Ministerial Committee (IMC), headed by Saurabh Chandra, Secretary, Department of Industrial Policy and Promotion (DIPP) set up to boost manufacturing growth in the sector? Are you also a part of it?
Madhav Lal: The inter-ministerial committee was the fall out of a meeting with the Cabinet Secretary, which has been taken in connection with the foreign trade issues i.e. the exports. Now, what we have noticed is that the exports have not been doing too well in particular with the manufacturing is concerned. And, MSMEs constitute a major part of the exports. So, a meeting had been convened by the Cabinet Secretary and various MSME associations who have been traditionally involved in exports they were also called. In that meeting, Ministry of Commerce and Industry has been asked to coordinate. We were there and Department of Industrial Policy and Promotion (DIPP) was also there. Textiles people were there because they are handling handicrafts and other things. And, as a fall out of that meeting it was felt that some of the issues need to be looked into greater depth. As far as our ministry is concerned, we are looking at Micro, Small and Medium Enterprises (MSMEs) cutting across all the sectors. Then there are some ministries who are looking at industry verticals. The textile ministry is looking after textiles, handlooms, and handicrafts. Similarly, food processing ministry is looking after food processing vertical. Likewise pharmaceutical ministry is looking after the pharmaceutical verticals. IT department is looking after the IT verticals. But we are looking at MSMEs across all verticals. To the extend, there is a need to synergise the efforts of those ministries which are looking after some verticals. But MSME ministry needs to look after all SMEs. Basically, as I have mentioned about our own schemes, if we are able to synergise and arrive at some convergence then probably we will not be replicating efforts of each other but we will be complimenting the efforts. So, in that context this committee has been set up that comprises DIPP, Ministry of MSME, Ministry of Labour, and Ministry of Food Processing Industries, Textile Ministry and other department who can be called for this purpose. Our ministry is servicing this committee. We will be making recommendations on how the manufacturing exports from SMEs can be done or help to boost up the exports from India.
Thr Ministry of MSME figures said recently that the MSME exports have come down from 40 percent to 36 percent. Your opinion on this.
Madhav Lal: You have been reading about Current Account Deficit. Basically, the exports have gone down and imports have gone up and that is how the current account deficit increases. Now, how do we intend to address this issue, which is related to the overall competitiveness of what we want to export? And, it is also related to overall competitiveness of the goods, which we are manufacturing here because people can import these goods from outside. So, it is an issue of competitiveness. And, as far as our ministry is concerned we have adopted two approaches. One is, National Manufacturing Competitiveness Program (NMCP), which has several elements to increase the competitiveness of our industry that is connected with processes or improving the processes like lean manufacturing interventions, improving the design content not only of the products which are being made but also of the design processes that go into the manufacturing or structuring of any enterprise. The program also includes IT intervention which can help the small industry. It includes issues connected with quality standards because if you are in the global market then you have to produce things which are in conformity with the global market. It includes thing like intellectual property rights (IPR). It also has a component for providing assistance for marketing support for packaging and so on. There are various components of the National Manufacturing Competitiveness Program. This is one group of interventions. The other group of intervention is MSE cluster development program. But to be short, there is an element of capacity building, bringing about awareness and increasing the capacities. MSEs understand the changing scenario of globalization and what kind of competition can come from outside. And, what kind of opportunities is created by Indian enterprises. The other aspect of this is there are certain processes for which machinery is required or for which individual enterprises are not able to afford. The program also has a component for having common facility centers. So, the numbers of MSMEs can come together to set up a common facility and manage it. The part of the process that they can have are for qualitative or quantitative improvement. For that process, they can take it to that facility. For example, in metal related industry you may require something like electroplating and stamping the metal in appropriate manner, which adds value or embellish the items, which has been created over there. So, these are things in the facility that are permitted. The third component of that is whenever these MSMEs are located in a cluster or industrial state we also provide assistance for upgradation of infrastructure. In many places, we have found that these states are set up long time back. Therefore, there infrastructure over a period have gone out. They may not be having a appropriate facility for affluent disposal. There dreams may be needing up gradation. There may be water supply issue and power related issue. Within the industrial state, roads may be upgraded. There are schemes of the ministry through which we can help the industry to upgrade. I have mentioned to you about the tool rooms. Likewise, there are schemes of the other Ministry such as Textile Ministry have their own schemes like TUFS, skill and training institutions, design institutions, etc.
Can TUFS or similar scheme be extended to other sectors such for SMEs in Gems and Jewelry, Auto component, etc?
Madhav Lal: Yes, it can be. It is applicable to the textile industry. It may be for MSME industry or it may be larger industry. Gems and Jewelry sector is asking for similar scheme for making gems and jewelry. They are asking for similar intervention for gems and jewelry. As far as MSME sector is concerned, we have similar scheme, which is the Credit Linked Capital Subsidy Scheme (CLCS). If an industry wants to upgrade its machinery by bringing in new technology then they can approach a bank under the CLCS and the bank will give a loan. Present limit may be Rs. 1 crore or Rs. 5 crore.
Information flow is one of the biggest problem in the SME sector in India. There is a need to strengthen the associations so that SMEs can avail the benefits of the schemes and technology knowledge available. How are you dealing with this issue within the government?
Madhav Lal: What I believe is that the MSME Associations have to professionalise because there are 40 million MSMEs and it not possible for the government offices to look in to all and it is not even desirable to all the industry. So, you require some kind of intermediation. Secondly, MSME sector is largely unorganized, so, it is very difficult to reach out to segments which are unorganized. There is a requirement for some amount of organization. The sector itself may not get organized at least the associations can get organized. So, we are working on that and what we intend to do is to have a framework in which we encourage the associations to reach a certain professional benchmark level and it is through those associations that we then try to reach out the industry because they are there always. We need to organize these associations and build their capacity.
Did you recommend something to the Ministry of Commerce and Industry on the forthcoming Foreign Trade Policy review?
Madhav Lal: We have already made some recommendations based on our meetings with the MSME associations and interactions so far with the Commerce Ministry including the one which was chaired by the Cabinet Secretary. As I have mentioned, this FTP supplement will be coming out shortly. More detailed exercise covering the short term and medium term measures MSMEs could take with hand-holding and other support from the government. This will be incorporated in our reports, which I was referring to earlier. This is under the inter-ministerial committee. It may go though some changes also. There will be the committee that will include some ministry and based on report of that ministry other measures will be taken. But it may not be possible for that committee to give the report and its recommendations to be incorporated as early as April 18 when the Ministry of Commerce and Industry is planning to come out with a supplement.
What did you recommend now?
Madhav Lal: We have made certain recommendations relating to credit availability, timely credit and terms of credit for MSMEs and its different verticals. We have recommended for creation of more geographically spaced warehousing facility for exporters not only in our country but abroad. So, these are some of the recommendations. We also said that we are focusing on certain sectors like gems and jewelry, apparel, etc. We should look at global opportunity to diversify and give special incentives for some other sectors like pharmaceuticals, chemicals, etc.
The Reserve Bank of India (RBI) has recently reduced the key rates but the industry feels that the reduction made by RBI is minimal. Will that give some breath to the MSME sector as there is huge financial need for their growth?
Madhav Lal: You see credit is one of the important inputs in the costs of the manufactured good. To that extend, I believe that what the industry is seeing is not entirely incorrect. But in producing a good you don't require only one of the elements but there are other elements. If we do certain process, for instance, I will give you the example of lean manufacturing and we have done interventions in MSME units on this. If you go to Faridabad, they have implemented lean manufacturing techniques to bring down their costs of production by almost 25-30 percent. Now, if our industry is able to bring in more efficiency then it is theoretically possible and practically right to bring down the costs. If 25 per cent you are saving then immediately it brings down your costs by 25 percent then your goods become more competitive. If you reduce the interests rates by 10 percent then your goods will come down by 10 percent. There are various inputs that goes into the manufacturing process. If you are not getting the power and you have to use the Diesel Generator (DG) set where instead of Rs 3 per unit you are spending Rs 8 per unit, which also increases the costs. There are various things. Also, credit is one. There is no doubt that interests are high but at the same time for exporters our rupee has appreciated vis-a-vis a dollar then that becomes an advantage for those who are exporting goods.
Also, recently a survey conducted by CII has shown that due to high interests rate the sector's business confidence has declined. What is your observation?
Madhav Lal: I do not know. I have not seen the study on what basis they have done the survey. Now, if you look at things superficially then that is a obvious thing. If you go little bit dipper as I have given you an example of the manufacturing processes which could be improved given by improving the lay out of machinery of the factory. You can look in to issues like how much you are wasting and how much you are conserving? All those things were there and they (Faridabad units) were able to improve and reduce their costs from 25 to 30 percent. We are able to see it. There is a marginal disadvantage, which is existing because of high interest rates. But I would say if industry can get interest at a lower rate certainly it will help.
The government is focusing on the Northeastern State for SME development. Could you tell us about the initiatives government is taking for growth in MSME sector there?
Madhav Lal: Northeast is a priority area for the entire government. And, I believe that the Micro and Small Industries have a role to play in the development of the entire Northeast region from the point of view of growth and employment. So, the purpose of my visit was to meet the mere functionaries in their government to apprise them about the programs of the ministry. How we can help them and what kind of assistance that we require from them? Secondly, we also wanted to have an interaction with the industry associations over there on what are their perception about the industry? Similarly, apprise them about what our ministry can offer to them and how we can facilitate them. All the programs that I have mentioned to you i.e. PMEGP, Cluster Development Program, SFURTI, etc, all these programs have to be done in a much focused manner in the Northeast region. And, the funds that cannot be utilized in the Northeast do not lapse. And, Ministry of Northeast Affairs they are able to recycle this fund for purposes that are useful for that region. But having said that why should the fund lapse in the first place. So, our (MSME Ministry) efforts is to utilize the funds and continuously try to do programs like other ministries who are doing their programs there. We also want to make success of our programs in the Northeast.
The number of sick micro and small enterprises (MSEs) in the country has declined to 88,500 as March 2012 from 90,014 as on March 2011. According to the MSME-Development Institute 79 small business units are turning financially unviable every day in the country and three units are falling sick every hour. What exactly the government doing to revive the situation in the country?
Madhav Lal: There are many reasons for sickness. There may be very genuine reasons which are connected with non-availability of credit on time. There are other regulatory issues which have come in the way as well. And, if you do not have a power connection or he/she is not getting the power then those are genuine reasons. On such circumstances, what can an individual do? It is only the government agencies which would be more sensitive to helping out fresh entrepreneurs and creating a good business environment. On the other hand, there could be issues connected with management. Of course, a person have got everything but being an entrepreneur you have to do the running around to run the industry and whatever goes into that. But if a person is just sitting on a chair and swiveling around then there is a management problem. The unit may not do well for that reason. You have to create a market, proper interface and communication. If these all are bad that is a reason to become sick. It is not necessary that every enterprise set up will flourish. So, some enterprises will grow and flourish but some enterprises will go up to a point and continue at that level and some other enterprises will become sick for reasons beyond their control and some enterprises will become sick because of promoter's attitude and the problems lying up with the promoter's door step. These problems have to be addressed. On the whole, what we believe in the ministry is that every enterprise will not succeed. We also need to create an environment in which exit is facilitated. So, more and more people are enthused to set up industries. I am trying to say if an entrepreneur face a situation in business beyond their control or something happens all of a sudden then he /she can look for more opportunities in some other areas. He/she can shift to other areas and close this (the old business) and set up some other units. So, that is a reason some industry have shut down. If there is no decent way to exit at ease from a certain area then they die. The overall circumstances will be to let it perish in due course. So, exit in decent and timely manner will allow people retain their entrepreneurship spirit and move on. It is more viable to work. Exiting is a big problem today. Our legal requirements of financial institutions or the law itself are creating hindrances. These are many different things involved here.