MSMEs for new stimulus package in the Budget: MSME trade lobby survey

(The article was first published in the SME TIMES, a prestigious SME news portal, on July 4, 2009. The site draws over 25, 000 visitors per month.)

RK Rishikesh Sinha

A recent MSME lobby poll has revealed that access to credit for MSMEs has not improved even after the announcement of the two stimulus packages. Around 70 percent respondents agreed that the two stimulus packages have not helped them much, while 81 percent witnessed slump in their domestic sales in the last quarter of 2008-2009.

In the export front, 74 percent respondents accepted there has been drop in exports in the same duration. To the question: Do you expect the government to announce new packages for MSMEs? Out of 100 MSME participants, 78 percent said they do expect the government will doll out special packages for them.

Like many small and medium enterprises of the country, Bangalore-based Ascent Consulting Services Pvt Ltd has not seen any improvement in the credit facility on ground after the government came out with the two stimulus packages.

“Credit isn’t easily accessible. We don’t have any credit facilities at this moment,” said Subramanyam S, CEO, Ascent Consulting Services.

“Access to the credit for SMEs has not improved up to the satisfactory level. Bankers still hesitate to extend credit facilities, particularly to export units,” points out Dekora Arts, a Moradabad-based export unit.

Crisis in the export sector started surfacing from 2007-end when the value of the rupee appreciated sharply and the export community, in particular, had to bear losses as they were not able to meet their export commitments.

Any glimmer of hope to see correction in the value of rupee almost vanished with the severity and suddenness at which the global economic crisis engulfed them and with the coming of countries-of-export in recession. In the last quarter December to March 2009, Vee Kay International saw 50 % dip in its export sales, said Sharad M Maheshwari.

“It is a bitter truth that export sales of almost all SME units have gone down. Under such circumstances bankers are reluctant to renew the Packing Credit Limits of Exporters as according to them evaluation of limit is sales-based,” said Atul Gandhi of Dekora Arts. The global recession and the non-availability of credit forced Giesecke & Devrient India Pvt. Ltd. to close down its manufacturing unit.

All government promises and rhetoric that came with the two stimuli fall flat to assuage the pain of small and medium enterprises. “Except sweet talks, there is no improvement in lending by bankers. The MSME advertisement for collateral free loans is mere waste of money and it is misguiding the small industries,” complains APL Polyfab Pvt Ltd.

“Bankers and others have not reduced interests in line with RBI reduction and low inflation. Every bank was increasing interest at the time of rising inflation and RBI rates. However the same linkage was not followed by bankers at the time of falling rates,” it said.

To the question: Has access to credit for SMEs improved on the ground after measures (two stimulus packages) taken by the government early this year? Out of 100 SMEs surveyed, 76 % responded that there has not been any credit improvement on ground.

CN Mohan, Managing Director, Simplex Systems Ltd., affirmed that though some banks have rescheduled the loans only to the extent pending interest; however additional credit despite having a good track record has been denied in many cases. Banks still favour only large corporates.

The non-availability of credit, banks indifferent approach to the problems of SMEs, and with falling demand, it exacerbated the sector to the hilt. According to the survey, 81 % said that their domestic sales have been affected in the December’08 – March’09 quarter. And those in the export sectors 74 % said their sales have been hit in the same quarter.

During the same period, Gurgaon-based Precision Interlinings Pvt. Ltd. had registered 26 % dip in its export sales; NTF (India) Pvt Ltd fear that things would get worse. “It is an unpredictable situation,” describes Excellent Engineering Syndicate.

“The government must, if they are keen to see revival of MSMEs which in turn will help generate employment,” stated Goa State Industries Association. “We definitely want the new government to think about the MSMEs and help them in the interest of national economy,” opined Avon Cranes Pvt. Ltd.

Responses received from the SMEs bring forth the overarching concerns eating the sector which has become acute in the global recessionary slump. They called for systemic reforms in the structure of taxation, MSME finance and credit policies and on the market conditionality.

“Taxes should be in line to survive in international market,” said Global Fashions Ltd. “Loans should be given on less interest, CST should be removed, SSI should get exemption from service taxes, more financial help should be given on domestic and overseas exhibitions for promoting SMEs,” demanded JEI Bearings.

Excise exemption limit for SSI should be enhanced to 300 lakhs from the present 150 lakhs, procedures for buying / selling land, plant, equipment, in conjunction with the approvals from various government bodies have to be simplified with the creation of a single window scheme. In addition to it, reforms in the labour and taxation rules are some of the contentious and pressing issues where the MSMEs have called for attention in the trade lobby survey.

To the question what the MSME sector expects from the coming Union budget 2009-2010? “The Government needs to bring not only Aam Admi budget but the Industrial-friendly budget to let industries cope with the global competition. This can be done with low taxation and easy accessibility of finance with lesser red tapism in productivity and marketing,” said Enkaysagar holdings Pvt Ltd.

Expectation of the release of ‘special’ packages for the MSME sector in the Union Budget is high and they have pinned their hopes. Over 78 per cent of the respondents in the survey affirmed that the new UPA Government will definitely come out with a new package. To what extent the Union budget will meet their expectations and will bail out the MSMEs, it is still under guess.