For someone who drove positive change at the MSME Ministry, there is optimism in the air. His eyes are focused on February 29 even as he is set to move on. He believes the coming Union Budget would announce path breaking set of policies that would unlock the latent potential of the sector. Meet the man of the moment, Anup Pujari, Secretary, MSME Ministry, as he shares his passion for the sector that he nurtured during his tenure. Pujari relinquishes office on January 31. Excerpts of interview with SMEpost’s K R Sudhaman.

Q: Now it is Budget season and a lot of things are happening and I believe that MSME Ministry has sent its wish list to the government. Do you expect some new initiatives for MSMEs to take this job creating sector to a new high?

A: Earlier budget time used to be very path-breaking for the government and at that time many commodity price used to change because of the change in tax rates. But today it is no longer there. By and large tax rates have stabilized.

 Government is trying to say that it will go for exemption free regime, therefore no new sectors are likely to get exemptions and the existing exemptions are likely to be phased out as a result, Budget from the angle of tax that is Fiscal policy Stimulus will not be very high.

On the expenditure side, if you look at the total tax to GDP ratio it is around 20% of which large amount of revenue will have committed expenditure. So I think we should move out from the time where Budget used to be considered about making events to accepting that incremental changes will take place throughout the year. However in between during the budget changes will come.

First is let us demystify that budgets are going to be a great change or harbinger of change. Secondly, In the MSME sector it is not only the action that we take in our Ministry, the action taken by various other Ministries is also very important.

Let me cite two examples. Firstly, in the Defence Procurement Policy the Minister has recently made a statement that for the offset requirement the threshold is raised from Rs 300 crore to Rs 2000 crore. On one side some of the MSME enterprises might think that because of this the total amount of offset requirement will be reduced as the threshold has been raised. But at the same time, the high technology, Defence Procurment Policy, Capital intensive will have offset, this might bring greater amount of changes.

The second such change is done in the Department of Industrial Policy and Promotion (DIPP) by announcing Technology Acquisition and Development Fund (TADF). The TADF is only for MSME.

We are trying to seek full support from the government on some of the successful scheme. One such scheme is about Prime Minister Employment Generation Programme (PMEGP) which is a flagship credit linked subsidy programme for creation of employment of both rural and urban areas of the country.

Another scheme is about increasing the access to finance for the MSMEs through Credit Guarantee Fund Trust for MSMEs (CGTMSE) and credit rating in which the Ministry is seeking more fund.

Lastly, is about emphasis on cluster development programme twinned with lean manufacturing process which tries to focus on increasing the quality of manufacturing.

There are certain other schemes where the Ministry is negotiating with the government in the forthcoming budget.

Q: MSMEs do not get adequate finance from formal banking sector. They depend largely on informal banking sector where the cost of fund is much higher. What is stopping SMEs from tapping the capital market as the cost of fund is much less. Now there are SME exchanges in the country, yet not much trading takes place. Why?

A: One reason may be listing requirement by SEBI is very tough which should be liberalized. It is true that SMEs that go to the exchange have less demand for fund from to the formal sector to that extent.

The most important thing is that such people don’t get finance from bank and if they do, they receive inadequately and not on time. Bankers try to complain that they are not getting proper loanable proposals from them.  It is quite possible that for large number of SMEs, they may not be very satisfactory.

Last week we had a meeting with Deepak Mohanty, Executive Director, RBI. A new report on ‘Banking Sector and Finances’ has come out under his chairmanship. There is a special chapter 4 for MSMEs. There was a discussion between RBI and MSME Ministry regarding certain recommendations in which we told them that if a banker has certain requirement then that should be re-engineered and must be transparent.

RBI and MSME Ministry are working together to consolidate and collate the type of requirement required by banks from MSMEs for taking the loan. The bankers will know that these are the minimum basic requirement.

Similarly on our side we are trying to develop a system by which the MSMEs who want loan will fill up about a one page questionnaire on their requirement and a two page description regarding what they want to do. It will not be a detailed project report but the minimum requirement as to what a person would like to do, is there a market for their product, is there a possible cash flow situation and therefore the requirement for the funds for which he has X % from his own sources or from somebody else and (100 – X) coming from firm.

So, this type of three page requirement may go a long way in bridging the gap and trust between the bankers and seekers of fund. Let us see how it works.

There is some amount of lack of trust and information. People think that bankers are not helpful; bankers think that proposers are not coming from the correct side so there is lot of role to be played by the state government to make sure that both of them meet, there is a demand side and supply side and both these gaps can be closed.

From our side the simplified application form is ready. We are trying to set the template for three page project report. Our interest is that once this comes to our side and the applicant will suggest which are the two or three banks from where he wants to take the loan will send them to the respective banks so therefore, our better thing is already on testing we also want with the banks some sort of the exchange mechanism by which our information can be reached to them and can be monitored. So hopefully in the first half of the next six months, we should be able to run this out.

Q: You also talked of cluster development as one of thrust areas. There is also a suggestion from Kaushik Basu, who was the Chief Economic Advisor. He had proposed clusters should be developed along rail and road corridors in the country. Do you subscribe to such a proposal?

A: You were speaking of two different things one thing is to create a cluster in a area where there is a transportation corridor and another thing is wherever there is transportation corridor can clusters be created.

 We have our cluster program that tackles people where the producers already exist which is not relocation. There could be a synergy between the two but that is not identical.

Our cluster program as of now tries to encourage those areas where entrepreneur exist and they are brought together so as to create common facility center. Both have merits and demerits. The demerit in relocating them to a new place is that the migration takes place. The merit in relocating them to a new place is you can deliver and design the whole thing and efficiency can be harnessed. Government is working in both the models.  As of now our cluster program are demand driven, in the sense that  people demand, seeing that we have formed the cluster.

Q: There is a view that clusters that come up on their own do well in the country and those which have been planned have not done all that well. Do you agree?

A: There is no conclusive evidence. Anybody who is looking for a common facility centre they have to be together otherwise the common facility centre will have no meaning. In common facility centre, there can be quality testing, packaging, designing, theoretically one can say that my designer can stay in London but I can stay in India. Because design can move seamlessly but in packaging cluster, this will not work. The traditional idea of cluster was only geographical proximity, the design is coming but on the lean manufacturing side.

Q: Do you subscribe to the EEPC demand that MSMEs should be considered as start-up so as to get all those benefits?

A: It is very curious that you had asked about this because there is no startup which is not a small and medium enterprise. So by definition all startups are MSMEs. The way the startup has been defined in the startup policy is that it must get a substantially new product which is technologically on the new frontier. All startups are micro, small and medium enterprise and all medium and micro enterprises cannot be a startup. So therefore to say that the same policy should be there for both of them is not really correct.

Q: Now it’s almost a year that the reservation has been phased out in the country. Has de-reservation helped MSMEs?

A: I think every policy has a context. At a time when we had brought in the number of sectors to be reserved for small scale industries, at that time the thinking was that if we do not reserve things then they will not survive. In 2014, the last 20 items were de-reserved and today we have no reservation for production. I don’t think it has gone to any adverse notice. With de-reservation, we have also increased the help that we provide to micro, small and medium enterprise to compete. Also on the procurement side, irrespective of who produces, there are certain items which are needed to be procured from Micro and small sector. So may be that will also help. But there are no studies so far.

Q: There is a view that whatever MSME Ministry is not fully utilizing the funds provided for various schemes. Is it true?

A: There are areas where the expenditure becomes slow. We have World Bank project as well as the Steering Committee meeting last week and we know that there is some delay in procurement but other than that in every other sector expenditure is very high. There is one innovation and infrastructure renovation fund, and with the emergence of Atal Innovation Mission, there has been a slow progress because earlier the government thought that the innovation fund will be housed in this Ministry but after planning commission has been dismantled, we have been trying to ask them who are the people will be getting it. So it is quite possible that the expenditure was not very high in the scheme. But in Prime Minister Employment Generation Program, CGTSME, with a very small corpus our coverage was very high. In PMEGP, there was great demand from the states for requirement of the funds. In the clusters schemes, each state having the clusters require more funds as there installment is not being released. So therefore it is unfair to say that money that is available is not getting spent.