Minutes of 46^th SSI Board Meeting

Shri S.K. Tuteja, AS&DC(SSI) welcomed the members and special invitees to the 46^th Meeting of the SSI Board . He highlighted the importance of the sector and its growing contribution to the national economy.

Dr. S.P. Gupta, Member, Planning Commission, was requested by MOS (SSI&ARI) to flag the recommendations of the Study Group before the SSI Board for discussions. Dr. Gupta, while indicating the background against which the Group was constituted, brought out the special place of the SSI sector in view of the fact that it was now the largest employment generating sector. Thus, the report had recognised its labour intensive nature but, at the same time, kept enhanced productivity in mind. The three tier definition of SSIs, the need for graduation of small industry to medium industry, continuation of reservation etc., were highlighted by Dr. Gupta.

In her inaugural address, Smt. Vasundhara Raje, MOS (SSI&ARI), informed the members about the progress made in the implementation of the Comprehensive Policy Package announced on 30^th & 31^st August 2000. She highlighted that the sector had been performing well and had already exceeded the employment target of 180 lakhs set for it during the 9^th Five Year Plan. The 10^th Plan aimed to take this process forward and had accorded due recognition to the sector. Thus, even the growth rate for the SSI sector had been kept at a level higher than that for the economy as a whole. Small units today had greater possibilities of natural growth to medium size through the opportunities that had now become available. Smt. Vasundhara Raje also mentioned the need for a continuing dialogue between Government of India, State Governments and industry associations for the welfare of the sector.

Three presentations were made during the course of the meeting for the benefit of the members of the Board. The first presentation was by Shri G.K. Saxena, Dy. Managing Director, SIDBI, on the Credit Linked Capital Subsidy Scheme for Technology Upgradation. The presentation highlighted the guidelines of the scheme, eligibility, duration, attractions for borrowers and the modalities involved in availing the benefits of the scheme.

Shri N. Venkat Subramanyam, Chief Executive Officer of the Credit Guarantee Fund Trust for Small Industry, made a presentation on the Credit Guarantee Scheme, which was launched in the year 2000. The scheme was operational and upto 30^th April 2001 more than 1200 units had been granted guarantee cover from the Trust.

The presentation on 'Impact of Globalization on the Indian Small Scale Industries' was made by Shri S.K. Tuteja, AS&DC (SSI). The presentation highlighted the main WTO agreements, implications in respect of the IPR Regime, trade related investment measures, sanitary and phyto-sanitary measures, technical barriers to trade etc. The presentation also highlighted the measures taken by the Ministry of SSI&ARI, alongwith other Ministries of the Government of India, towards enabling SSIs to meet the challenges posed by globalization. Progress made in respect of anti-dumping action was also highlighted.

The business session began with the MOS (SSI&ARI) inviting national level associations to present their views and suggestions. These were as follows:-

Dr. S.S. Aggarwal, President, Laghu Udyog Bharati, raised the issue of reform in the present labour laws and the need to check free flow of imported goods through illegal channels. He argued that credit to the SSI sector still remains a bottleneck and there was need for more specialised bank branches for SSIs. Sickness in the sector should be detected and checked in the initial stages by financial institutions who should appropriately support rehabilitation. The irrationalities in the excise policy were also highlighted. He suggested that the excise exemption of Rs. 1 crore should be available across the board and should not be sector specific. He also appealed for liberalisation of the Electricity Act. In respect of marketing, Dr. Aggarwal suggested that in Government purchases, ISI mark should be mandatory and purchases should not be against brand names.

Shri S.S. Singhania, President, Indian Council of Small Industries, placed on record his appreciation for creation of a separate Ministry for SSI sector as well as the regular conduct of SSI Board meetings. He also complimented the MOS (SSI&ARI) for her active interface with SSIs by visiting them all over the country. Shri Singhania argued for revival of the Standing Committees of the SSI Board. He also argued that SSI representatives should be made members on the boards of various banks. In addition, in respect of credit, Shri Singhania submitted that the Nayak Committee report should be implemented in letter and spirit and SIDBI should play a more pro-active role for development of the SSI sector. The removal of SIDBI's income tax exemption was a matter of concern and this should be restored. He argued that reservations for SSI sector should stay and should in fact be further strengthened. In respect of marketing, Shri Singhania suggested that a cess could perhaps be imposed on advertisements made by large companies, which could then be utilised as a Market Development Fund for the SSI sector.

Shri V.N. Prasad of WASME highlighted the need for proper and workable linkages between MNCs and SSIs and the need to build up technical and managerial capacity of the SSI sector. In his view, since registration for SSIs was not mandatory, registration certification should not be insisted upon by Government Departments while extending any assistance to the unit. As a measure of marketing support, a quota of purchase from the SSI sector should be fixed.

Shri J.K. Paul of FOSMI highlighted the need for a separate legislation for the SSI sector. He also argued the need for amending the labour laws and abolition of ESI. In respect of marketing, the State level Marketing Corporations should be financially supported by Government of India so that these could be revived. He felt that the SSI sector should also be given differential income tax rates rather than treating the sector at par with medium and large sectors. Government directives on purchases should be implemented in letter and spirit. In respect of payments due to the SSI sector, he contented that once a large scale units goes to the BIFR, the outstandings of the SSI sector are held up and there was a need to work out a via media so that SSIs could get their outstandings on priority, even if the large unit comes under the purview of the BIFR. He suggested that a special technology support package for development of Neem industry in West Bengal should be worked out.

Shri Anil Bhardwaj of FISME highlighted the need for a exit route for SSIs which have become terminally sick. A more humane approach to this problem was required on similar lines of that in the United States. In respect of marketing, Shri Bhardwaj suggested that SIDBI should financially support this sector to participate in trade fairs domestically and abroad.

Shri Gurpal Singh of CII suggested that other known sources of finance should be tapped for financial requirements of SSI sector and technology upgradation must be encouraged to reduce the cost of production in the sector.

Shri Vijay Kalantri of FICCI highlighted the need for amendment of labour laws and replacement of the ESI and PF system with a simpler Social Security Act. He informed that the interaction of the association with State Governments in respect of labour laws had not been very encouraging. Similarly, States are continuously increasing the cost of power and this high cost was making the sector uncompetitive vis-a-vis China. He argued that reservation should continue except in areas where SSI sector is not able to produce.

Shri J.M. Pawar, President, FASII, detailed various issues which he felt needed to be considered by the SSI Board. These included the following:-

• Continuation of reservation.

• Need for a comprehensive SSI policy/act.

• Mandatory reservation in Government purchases from SSI sector.

• Enhancing availability of cheaper credit.

• Incorporation of clause for ancillary development/outsourcing from SSI sector in global tenders as well as in FDI proposals.

• Incentives to large industry for out-sourcing from SSI sector.

• NSIC should initiate a marketing consortium of SSI products for Government purchase programme. NSIC should also work as Export Development Corporation for the sector.

• Labour laws require major amendments; no inspections should be undertaken on a SSI unit during the first five years of its existence.

• CSIR labs should provide technologies to the SSI sector at reasonable cost.

• SSI associations should take the initiative of bringing to the notice of all their members various policy measures taken by the Government to enable them to make use of facilities and incentives provided by the Government.

Shri Jayant Pal Singh of ASSOCHAM highlighted the need for amendment in labour laws to enhance competitiveness. He felt that there was a need for creating greater awareness on WTO at grass root levels and a package worked out to combat the same.

Shri G.P. Dalmia highlighted the infringement of the reservation policy by large scale units. He felt that there should be a proper monitoring mechanism for this and felt that exemplary punishments should be awarded. The monitoring mechanism may include a role for the SSI associations as well. He argued that the recommendations of the Nayak Committee on Credit to the SSI sector should be strictly implemented.

Shri Sudin Nayak from the Goa SSI Association submitted that all items already on OGL should be dereserved. He felt that the SSI sector needed better infrastructure and market support. The present Delayed Payments Act did not serve any function since it had no coercive powers and was thus of no assistance to the SSIs. He pleaded for rationalisation of duty structure on finished products and raw materials. In case of exporting units self-declaration schemes should be introduced instead of present input/output norms which are not properly fixed.

Shri V.S. Narasimhan, former President of FASII, made a presentation highlighting the problems affecting the SSI sector. This included the problem of credit in terms of cost of funds and the credit flow system. He felt that SIDBI needs to be more pro-active instead of limiting its role to refinancing only. Infrastructure needs to be built up afresh. NSIC needs to go in for aggressive marketing for both domestic and export markets. SIDO should redefine its role for technology support activities. Reservation should be continued and the Standing Committees of the SSI Board should be revived.

Shri Haji Shaikh Hassan Haroon highlighted the investment potential of Goa. A study sponsored by the CII has placed Goa at No. 4 out of 18 states in investment rankings. He requested that the MOS use her good offices to continue Goa's income tax exemption beyond March 2002. The Government of Goa is also proposing to extend the exemption under sales tax for 5 years and will be establishing an Export Processing Zone in Murmungaon Taluka as well as IT Park and a Biotech Park. He submitted that Goa should be treated at par with the North East states, especially in respect of IID Scheme. In his opinion, reservation for SSIs should be continued and restrictions placed on imports of items manufactured by SSIs.

Shri Yadav mentioned that the committee required to be constituted as per the decision of the 45^th meeting of the SSI Board had perhaps not been constituted. MOS (SSI&ARI) informed him that a Committee had already been constituted through Director, SISI Patna and the Directorate of Industries of the Government of Bihar. Shri Yadav submitted that there was considerable potential for horticulture based units in Bihar but this had not yet been exploited. He pleaded for extension of North East Industrial Policy to the truncated state of Bihar and for a Research & Development Centre for food processing alongwith a Central Food Research Institute. An NSIC office should be opened in Bihar and a Tool Room & Training Center be established, as the existing one at Jamshedpur was now in the State of Jharkhand. He also argued that an Inter-Ministerial Task Force be set up for distribution of raw materials controlled by public sector undertakings. In his opinion, Bihar also needed a Computer Aided Design & Training Institute for handloom & handicrafts and assistance from NSIC in marketing of SSI products. He also submitted that the performance of PMRY in the state had not been satisfactory. He submitted that the need of the hour was survival of the SSIs after the WTO agreement.

Shri Pashupati Nath Singh mentioned that the State Government was on the verge of finalising its industrial policy and special preference would be given to the small and cottage industries sector. The Single Window System at the district level is also being revamped. He suggested that Jharkhand required a Small Scale Industries Resource Centre for making available consultancy and technical services. Food processing and silk industry could be encouraged in the state. He also prayed for enhancement of the PMRY target to at least 10000 for the year.

Shri K.V. Singh Deo submitted that Orissa qualifies to be a special category state. Post-WTO interest rate and power tariffs should be brought at par with international levels. Schemes such as the National Equity Fund, Credit Guarantee Fund and Credit Linked Capital Subsidy Scheme should cover loans of OSFC and IPICOL. The Orissa State Financial Corporation should be revitalised and special adhoc limits sanctioned for OSFC and IPICOL. He deplored the decrease in investment limit from Rs. 3 crores to Rs. 1 crore and requested that the previous limit be restored. The State Government may also be permitted to change the location of select Growth Centers if demand does not pick up as anticipated. He raised the issue of poor states being unable to match the incentives being given to industries by richer states. He suggested that the Government of India may prescribe a uniform policy in this regard. He informed the Board that the State of Orissa had accepted the national consensus with regard to sales tax. He finally requested that MOS (SSI&ARI) may take up the issue of encouraging local purchase by public sector undertakings from the small scale sector.

Prof. Bhullar highlighted the fact that industrial scenario of Punjab was dominated by SSIs with over 2 lakh industries in the state employing over 9 lakh persons. As much as 60% of the exports of the state were from SSI sector. A special SSI Wing has been established in the Directorate of Industries to assist the SSIs. Similarly, a WTO Cell has been set up in the Directorate of Industries to assist SSI units as a safeguard against dumping of industrial goods. State Government has also allocated more funds under its technology upgradation scheme and is alongside strengthening the R&D Centres for bicycle, sewing machines, machine parts, auto parts and machine tools. A technology bank has been set up in the Directorate of Industries. State Government departments and agencies will effect 25% of their purchases from the SSIs of the state. It has also been decided to set up an SSI Board under the Chairmanship of the Chief Minister of Punjab. In respect of credit, the State Financial Corporation will charge concessional rate of 1% on term loans to tiny units. The Single Window Clearance System is being strengthened by including representatives of Electricity Board, Labour Department, Pollution Control Board, financial institutions and Sales Tax. The Minister suggested that a suitable monitoring mechanism be devised for Central Government Schemes such as the Technology Upgradation Fund and Credit Guarantee Scheme. In respect of sickness, the Government of Punjab has already decided to treat sick industrial units purchased by entrepreneurs from SFC or other agencies of State and Central Government as new units for the purpose of incentives. He requested that the Government of India should consider the establishment of a BIFR like mechanism exclusively for sick SSI units. He also suggested that freight subsidy may be provided to SSI units in Punjab and import duty on raw materials used by SSIs should be reduced to 'zero' or brought to minimum level to improve their competitiveness. He argued that a single legislation be enacted for the SSI sector. He suggested that Government may also consider promotion of a Venture Capital Fund and a larger sum of money may be allocated to State Governments under the IID Scheme.

Shri B. Chowdhary complimented the MOS (SSI&ARI) for holding the next meeting of the SSI Board in quick succession. He submitted that to prepare the SSI sector to face the challenges posed by WTO Agreements, strong institutional support in the area of technology upgradation, basic infrastructure, entrepreneurship training, marketing and credit flow is essential. He also suggested that the MOS (SSI&ARI) could perhaps call a separate meeting with the Ministers of States, financial institutions and associations. He submitted that there was a need for greater emphasis on entrepreneurship development programme. The Government of West Bengal has recommended a proposal to set up an Institute of Entrepreneurship Development with the Bengal National Chamber of Commerce and he solicited financial support from the Government of India. He also requested that the Ministry take a view regarding IT service sector in respect of their recognition as SSI. He highlighted the need for developing market intelligence for SSI sector and the need for reducing the interest rate for loans covered under the Credit Guarantee Fund Scheme.

Shri Pandurangan highlighted the condition of SSIs in the state of Tamil Nadu, wherein out of 3.88 lakh SSI units, 20% were already closed and another 25% were awaiting closure owing to general recessionary trend in the economy. He requested that the Government of India may take up with bankers the question of credit flow and with SIDBI the effective implementation of the two new schemes on credit announced last year. Banks should be directed to implement RBI circulars on collateral security from SSI units. He requested that IT enabled services and software industries should be recognised as SSIs at the earliest so that incentives and concessions could flow to the sector. An Export Marketing Assistance Wing be established exclusively for SSIs in each State.

Shri N.N. Jha highlighted the unique problems confronting the Islands. The Andaman & Nicobar Islands have 5 medium scale units and 1361 SSI units. In all about 10,000 persons are engaged in these industrial units. However, out of the 1361 registered SSI units, more than 40% of the units are closed due to scarcity of raw materials, low level of investment, markets, etc., despite the very rich resource base in the Islands, especially in respect of forest resources. He therefore requested that immediate attention be paid to some of the relevant issues in this regard. There is the need for Freight Equilisation Scheme or special freight rates for the Islands. Marketing of SSI products on the mainland should be taken up in an organised manner by the Ministry. He also suggested that a special Task Force could be appointed to look into the entire range of problems confronting the Islands. This Task Force could monitor the developments in this regard. In respect of the upgradation of technology in the sector, he submitted that this upgradation must be done in a manner that it does not result in loss of jobs.

Dr. Chandra Bhan began by complimenting the Minister for organising the 46^th meeting so soon after the 45^th meeting. He felt that the advent of the second generation of reforms and the increasing debate on the implications of WTO amongst the general public had made the meeting extremely timely. He submitted that we had moved from an era where emphasis was on production to an era where consumption and marketing of the product had become more crucial. He also suggested that awareness in respect of WTO conditionalities should have been created much earlier so that people would have got time to prepare. He highlighted the reduction of energy charges in Rajasthan. Highlighting the problem of credit, he stated that SSI and artisanal units are still unable to get 20% of their turnover as credit. He requested that the excise exemption scheme may cover marble, which effects Rajasthan in a significant way. He also thanked the Minister for her assistance in raising of duty in respect of edible oils.

(The speeches of Dr. Patangrao Kadam and Sh. Dhirpal Singh were circulated in their absence)

Dr. Patangrao Kadam complimented the MOS (SSI&ARI) on convening the Board meeting in quick succession. He observed that Maharashtra continues to be India's industrial leader and a favourite destination. Industry in Maharashtra was going through a transition period but was better prepared to meet the challenges of international competition and WTO Agreements. There was very little coordination and exchange of information between Central and State Governments and SSI Associations on WTO and Dr. Kadam requested MOS (SSI&ARI) to set up a Standing Committee of officials on WTO matters which affect SSIs in particular. Maharashtra had dealt with some of the issues relevant to SSIsin its New Industrial Policy. This included amendment in certain labour laws and simplifying labour procedures. Self-governing Industrial Townships were being set up at 12 locations. He felt that borrowers were turning away from SIDBI and State Financial Corporations because of their high refinance rates and that the guidelines of SIDBI were not being monitored effectively. He felt that concentrating on potentially viable units was a way out of sickness. He highlighted the steps taken by various banks to make PMRY loans productive and recovery better. He welcomed the scheme for Mini Tool Rooms but felt that they could be better run by agencies other than Government.

Shri Dhirpal Singh praised the MOS (SSI&ARI) for quick implementation of the Comprehensive Policy Package announced on 30^th August 2000. He felt that marketing for SSIs was a very big issue and they had to be strengthened in this regard. Single Window System was not functioning up to the mark and timely credit flow to SSIs was of utmost importance. The development of Data Banks and Information Network were a priority for providing timely and correct information to the SSIs. Lifting of barriers on skins and semi-finished leather would adversely affect the small and medium establishments in the country. The Minister stressed the need for greater investment in research by Indian industries. Haryana was encouraging investment and had formed the Haryana Small & Medium Entrepreneurs' Modernisation Fund and was in the process of forming an Infrastructure Development Board. These would concentrate on Technology Upgradation, Modernisation and production development. Welcoming the Code of Ethics issued by CII, the Minister stated that the Haryana Government was in agreement with the suggestions given by Dr. S.P. Gupta Committee regarding WTO. Import duty on sports goods, hand tools, leather items, household electrical goods, etc. should be raised to strengthen domestic SSIs against international competition.

Shri Nalin Kohli of Association of Small & Medium Electronics highlighted the WTO conditionalities and the change in the banking scenario was affecting the manner of doing business. The phenomena of globalisation had impacted in making easier the availability of imported raw materials as well as free foreign exchange for overseas travel. He suggested that the Ministry should concentrate on knowledge based industries such as software and bio-technology. Incubation venture funding and global linkages would go a long way in this respect. The small scale sector can benefit immensely from the IT and IT enabled services revolution. However, for this, good quality telecom structure and promotion measures would be required. He also highlighted the problem of sales tax, whereby high rates of sales tax are encouraging import and discouraging local manufacture. In this respect he suggested that an Inter-Ministerial Committee with representatives of Central Board of Excise & Customs and the Ministry of SSI&ARI could take up issues relating to customs and excise and simultaneously, another Inter-Ministerial Committee could look into banking related issues of the SSIs. He supported the proposal for inclusion of the medium sector under the Ministry of SSI&ARI without any incentives for the medium sector. He also submitted that reservation had become a non-issue and could be used as a trade to obtain more for the sector.

Shri Pradeep Azad, representative of All India Industries Association, Lucknow, speaking on behalf of the Association raised the issue of improving working capital financing from banks through transparent procedures and norms. Further, cost of lending should be linked to PLR and not at the high rates which were currently prevailing.

Shri Suresh Deshmukh speaking on behalf of Spun Pipe Manufacturers' Association of Maharashtra raised the issue of purchase of cement pipes by Central and State Government Departments. He suggested that purchases should be only in respect of ISI marked pipes.

Shri Vishnu Swarup Aggrawal of Toy Association of India requested the State Governments present that electronic toys should not be taxed at 12% and be brought at par with sales tax applicable on other toys.

Shri Kumar Pal S. Shah of All India Small Scale Watch Manufacturers' Association raised the issues of non-availability of excise exemption for wristwatches made in the SSI sector. As a result, the number of units manufacturing such watches has come down from 500 in 1991 to 200 units today and these units are working at only 40% of their capacity.

Shri A. Selvaraj from Tamil Nadu Small & Tiny Industries Association (TANSTIA) argued that the cost of raw material, cost of funding and cost of power are all so high that they make operations non-competitive. He suggested that the Government of India go in for mandatory purchases from SSIs and efforts be made for strengthening Associations through funding.

Shri T.V.R. Murty from Federation of Andhra Pradesh Small Industries Association raised the issue of harassment to the SSI sector through inspections by five different Departments of the Central Excise. He pleaded that inspections by Excise should be confined to one Superintendent.

Shri Shailendra Narain, Former CMD, SIDBI, highlighted certain concerns of the sector. He submitted that effective delivery mechanism needs to be evolved to implement the SSI credit policy. He suggested that a Task Force could perhaps be constituted to look into this aspect. The SSI sector should be corporatized to allow greater access to the capital market. A National Informatic System for the SSI sector should be created whereby SSI Associations could also play a major role. A National Technology Bank should be operationalised. Credit delivery on the lines of Kissan Card or Credit Card should be introduced alongwith putting in place a Bills System. The performance of specialised SSI bank branches established earlier must be assessed and measures taken for their improvement. He also pleaded that in the interest of the sector as a whole, SIDBI's tax exemption status should be restored. Marketing for the SSI sector remains a concern and this should address the rural market, the domestic market and the export market. In this respect, there should be synergies with the Commerce Ministry and the NSIC should be converted into a National Marketing Organisation for SSIs.

The Secretary (SSI&ARI) summed up the deliberations of the meeting. He highlighted the concerns of the members in respect of onerous labour laws and the need to curb illegal trade from across the border. Cost of credit needs to be reduced and funds without collateral be made effective. Marketing support to SSI units needs to be improved and SIDBI be restored its tax exemption status. The continuum of growth for SSIs was touched upon in the context of the recommendations of the Dr. S.P. Gupta Committee. The importance of knowledge based industries in the SSI sector and the involvement of associations in study and analysis of issues concerning the sector were also articulated.

The Chairperson in her concluding remarks referred to the mission which the Ministry had given to itself and the direction in which it was moving. She emphasised the need for various agencies concerned with the SSI sector to work together. In some cases, Task Forces could be set up subjectwise or zonewise. She emphasised that this was the time to stop looking back and moving ahead in the direction and the path which we had laid for ourselves. She thanked all State Governments, Central Agencies and SSI Associations for their active participation and valuable suggestions during the deliberations.

Shri S.K. Tuteja, AS&DC(SSI), proposed a vote of thanks to the Chair, the Board Members and the Special Invitees for attending the meeting and their active participation in the discussions.

The day long deliberations at the 46^th SSI Board meeting threw up a number of issues. At the end of the day, the following decisions were taken:-