“Evidence says procurement for SMEs is on course & will only get better”
Barely about three months into the new job, K K Jalan, Secretary, MSME Ministry is pretty comfortable articulating his stance on all complex issues facing the sector. Buoyed by the potential of his universe, Jalan exudes confidence about the future. His assertions are polite but firm. As he buys time ahead of a new MSME policy under his watch, his terse message to bankers is that rating for micro and small entrepreneurs is a means to an end and not the end itself. Jalan is emphatic that only manufacturing MSMEs need rating to receive funding. In a freewheeling interview to K R Sudhaman, he delves on diverse issues from core definitions, cluster road map, budgetary allocation and spirit of entrepreneurship in the country. Edited excerpts:
Q: What exactly Prabhat Kumar Committee propose to do with regard to MSME policy?
A: The draft MSME policy was put on our website sometime back, about four months ago. We got around 1300 comments on the policy on our website. To oversee these comments, MSME Minister Kalraj Mishra has constituted a one man committee headed by Prabhat Kumar. His mandate is to look at various suggestions made and put the right ones together to help prepare the new MSME policy. The committee has already held two meetings in February and March.
Q: Why has there been a need felt now for a comprehensive MSME policy?
A: A new MSME policy is being devised as it is argued that there is a need to give fillip to MSME sector in the country. Prabhat Kumar is examining how it should fructify. It is true that MSME is not a homogeneous sector. Textiles MSMEs are totally different from IT MSMEs. There is also difference between sectors within manufacturing. The purpose of the MSME policy is to develop holistic approach to the entire sector. But that itself is a challenge.
Q: There is a view that whatever has been allocated in the budget for MSMEs is not fully spent. Therefore, what is the purpose of Rs 3000 crore increase in budget allocation for 2015-16?
A: It is not true that allocated money is not being utilised. That impression though is there. But actually 95 per cent of the money allocated for the sector is utilised. I am satisfied that MSME sector has got 15 per cent increase for 2015-15 and that is quite good considering the fiscal constraints for the government.
Q: Cluster development has not picked up when it is being well promoted? Only those that have come up on their own are doing well. Why is it difficult to replicate success for uniform gains?
A: Small towns have basically become clusters for specific products (like Faridabad, Tiruppur and Sivakasi). These clusters take years to develop. For example Faridabad had taken several decades to develop. What we are trying to do is that to try making these clusters competitive. For example some products of Faridabad have not become competitive, so we do hand holding. Our cluster development is not town development as such. We never thought of creating ecosystem of say a town like Tiruppur. We only provide technological support. Government clusters are clusters of 25-30 units and not townships. Our clusters involve investment of Rs 15-20 crores. The township clusters require Rs 50,000 crore or so and they come up on their own.
Q: Public enterprises are not fulfilling mandatory 20 per cent procurement from SMEs. How do you propose to deal with the problem?
A: Mandatory Public Procurement policy is effective only from this financialyear. It was not mandatory earlier. It is not correct to say Central public sector undertakings are not doing much to procure from SMEs. We had a meeting in Chandigarh recently in this regard. What came out of it was that 90 per cent of PSUs were fulfilling the stipulated 20 per cent target. The 2015-16 data that will come out after this year ends will clearly reflect it. The problem lies in fulfilling target procuring 20 per cent of this 20 per cent from SC/ST MSMEs. This is not happening because there are not many SC/ST SMEs that could supply to public enterprises. We have to do lot of work on that. We hope that the ‘Stand-Up India’ programme helps achieve the breakthrough.
Q: How do you see MUDRA helping develop SC/ST entrepreneurs? There are also complaints of leakage?
A: Mudra loans have been stepped up to Rs 1.8 lakh crore in the latest Budget. Mudra scheme has been quite successful in the country. It is a major entrepreneurship programme. I am not aware of leakage. The only complaint is that loans are of small size. For higher loans there are other schemes.
Q: There are problems with regard to availability of skilled workers for MSMEs?
A: Skill development ministry has done a lot of work in this area. I think in a year or two we may not be having shortage of skilled workers. But there will always be movement of workers. The overall availability of skilled workers will improve in the country and that will help MSMEs.
Q: Majority of five crore MSMEs have no credit ratings and this was coming in the way of getting loans from formal banking sector. Why are banks not lending to the sector when its NPA is much less compared to that of large companies?
A: Yes, NPAs in micro and small industries are less. As far as credit rating scheme of the ministry is concerned, it has taken off. We have allocated Rs 200 crore for credit rating. The credit rating off-take is good. I agree with you credit rating of all MSMEs have not been done but there is no need to do rating of all MSMEs. Only manufacturing MSMEs have to be rated. There is no need for rating of service sector MSMEs or micro industries in the manufacturing sector. The SMEs that have to be rated is only 5-6 per cent of all MSMES put together. So the problem of rating is for that 5-6 per cent MSMEs. RBI has issued circular recently. Of course the problem of rating will still remain as bankers cannot give loans just like that to start ups. Bank managers will have to be responsible for the loans provided and hence they cannot give loans without asking questions and getting convinced of the project.
Unfortunately we somehow overstate the problem. Good entrepreneurs are never refused loans. The percentage of rejection of loans in such cases is negligible. We must have more finance facilitation centres to enable micro and small companies get loans. NBFCS and money lenders certainly take greater risk in providing loans and that’s why the cost of their funds is much higher.
Image Courtesy: livemint