Amar Vazalwar
FOUNDER SECRETARY, SARATHI
‘Keshav Bhavan’, Vazalwar Colony, Dharampeth, Nagpur-440 010.
Ph-(0712) Res-2526649 off 2536608 / 2527842 M-9422504134
Email : amarvazalwar@hotmail.com / amar.vazalwar@gmail.com
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MSME-AN APPROACH
The Vice President of All India Congress Party, Rahul Gandhi has recently told in one of his address that India has been divided in two parts, one is rich India and another is poor Bharat. One could realize from the recent policies of Government that all efforts have been made by the policy makers to protect interest of rich or wealthy people. The policy makers are seen more interested in making rich, more rich and showering lot of facilities on them to protect their interests. The rich India is busy in availing more and more facilities or concessions while the poor India has worries about how to get day to day food, clothing and shelter. Even the life saving medicines is out of the reach of these poor. The same situation is seen when the position of Micro, Small and Medium Enterprises (MSME) and big corporate houses or Multinational Companies have been considered.
There are now two categories, India and Bharat. These categories are not seen in rural or urban part of the country but more precisely they could be termed as ‘haves’ and ‘have not’. On one hand there are big corporate or business houses which had collected big amounts through shares. Without investing a single rupee, these business houses are receiving crores of rupees through shares. On the other hand, the businesses of MSME sector are not getting finance even by giving co-lateral security to the financial institutions. It is a fact that income could be generated through hard work and investment in MSME sector is more important. In the country like India which has a population of more than 125 crores, there is no meaning for the term ‘Jobless Development’. After the nationalization of banking sector, agriculture and small scale industries were included in priority sector, but today, it has become more difficult for the small scale industries to get loans or financial support for purchase of plant and machinery. The situation of employees, politicians and pensioners of ‘so called India’ could easily get the loans from banks.
The practice of acquisition of lands from poor farmers for fewer amounts and giving them to big business houses has now got a momentum in India. The big corporate houses are getting capital to start business at negligible interest rates. Apart from these, the big business houses are getting lot of concessions and facilities. This is not the case with MSME sector. The business groups from this sector could get land or readymade shed as per the norms and rates framed by MIDC. The interest rates on financial support for MSME are more as compared to big business groups. In addition, the MSME sector companies require more periods to get the loans sanctioned. This is resulting in the increasing the cost of original project and from the very first day of their start MSME units becomes sick. About 20 years ago, a study group of SARATHI, had mentioned in a booklet that production of Small Scale Industries in those days was 40 percent and export was 35 percent. The Small Scale Units had generated employment for one to 1.25 crore population. This statistic was for registered Small Scale Units. A study based on 3,481 SSI units clearly revealed that only 28.7 units were registered and 68.3 percent units were having 10 or less than 10 workers. According to recently published information of MSME sector by Government of India, MSME sector generate 40 percent production. 69 million or seven crore employees are working in about 2.6 crore units in the country and produce about 6,000 different products. The report further states that the inclusiveness of sectors is underlined by the fact that 50 percent of MSME are owned by disadvantaged groups of society.
The ratio of labour to capital in MSME and overall growth of MSME sector is much higher than in large industries. Moreover the grographic distribution of MSME is also more even. Thus, MSMEs are important for the national objectives of growth with unity and conclusion.
Going back in the history of the country, India was the agriculture country in past. The constant attacks by Moghals and other intrusions for last 850 years, the traditional and artisans industries were destroyed cruelly. The industrial revolution was started during British period. But in that period of 150 years, British also encouraged those industries that were profitable to their country. The rules and regulations for these industries were made by British to get more benefit to England. The many Indians started industries in that period, but these were based on one single objective to provide raw material to England. After independence, the industrialization got some acceleration, but the real momentum was gained after reorganization of states after 1960. The then late Prime Minister Mrs Indira Gandhi had realized the importance of Small Scale Industries and she thought for special concessions, easy procedure to make loans available to SSI units, sick SSI units etc. But after Indira Gandhi, the entire political and social situation in the country started changing. The mission based politics became commission oriented. The change has badly affected SSI units as big business houses had started getting more benefits, concessions and facilities. Due to wrong policies of Government, the price hike of essential commodities in India has been witnessed and the SSI units have been killed in the race.
In reality, the capital requirement for SSI unit is very less and these units could generate more employment. But in the name of dead investment capital in sick units, Government brought the new industrial policy and started demoralizing SSI units. The financial budget of Economist Dr Manmohan Singh has no consideration about SSI units. The prime minister scheme for small scale workers has been abandoned on this simple reason only. As compared to big scam of crore of rupees, the dead investment capital of SSI unit is very less. If this dead investment capital of all SSI units in the country is considered, it is very less than that of the multi crore scam of big corporate house or a political leader. The balance sheet of State Bank of India has shown the non receipt of loan amount to Rs 29,289 crore. The debt loss amount of Punjab National Bank, Bank Of India and Canara Bank are also increased and this rise is more than listed companies in capital market.
Out of the 406 listed companies in capital market, the debt of 143 companies is more than their market values. Total debt amount is Rs13 lakh crore and the market values of these companies are even not more than Rs six lakh crore. The market value of companies is decided on the basis of shares capital. On the basis of Fixed Assets, the market value of companies is always less. Hence, it is not practical to harass MSME. During Indira Gandhi’s tenure, it was opined that a small scale unit was providing employment to many people. Hence, if he was able to repay the loans, the banks should not sale his assets. Banks should allow that unit to continue with the same business because he has to repay the interest amount on loans. But the same policy has been changed and Government has started targeting only SSI units.
Reserve Bank of India has published a report about 5 to 6 years ago. The details about Non Performing Assets (NPA) of Big and Small Scale Units in India are as under:
Total debt amount in NPA is Rs 1.80 thousand crore. Out of this Rs 6,500 crores NPA is in SSI or present MSME sector and Rs 11,000 crores in Agriculture Sector. The remaining entire amount is in Big or Multinational Business houses. In short, four percent business houses in India have 96 percent NPA and MSME which is 96 percent has 3 to 4 percent NPA. Most of all the big industrial houses are coming under BIFR and their assets are always of very less amount. According to Statistics, the assets of these big houses are 10 percent and Government’s Financial Institutions are not doing any effort for its recovery. But why these institutions are continuously harassing MSMES having less than 3 to 4 percent assets and more co-lateral security or mortgage amounts?
As per PF rules, the big industrial houses are getting 100 percent rebate in BIFR and concession in fines and interest rates. But despite of having been certified by District Industry Centre, MSME are required to pay 36 percent amount as rate of interest and fine of about four times (for delay in repayment of amount). MSME are not getting any concession on the contrary MSME has been compelled to sale his machinery and forced him to imprisonment. If this is true, the MSME should be accommodated in BIFR like big industries.
Complexities in rules, laws and regulations, delay in getting loan from the financial institutions and banks, difficulties in mortgaging residential houses or immoveable property of parents or relatives to get loan, has badly affected MSMEs. The cost of mortgaged property is always higher than the actual loan disbursed by the banks to MSME sector; the banks in association of Government have started pressurizing MSMEs to recovery of loan amounts. The big industrial houses have never kept mortgage of their properties of higher cost to get loans from the banks. These limitations of MSME and paucity of running capital amount have resulted in selling their residential houses or properties and came on the roads. Earlier, there was a provision to knock the doors of court for justice for MSME, in those days also the sick unit owners did not have money to travel from their small town to the city where financial institution was situated. The payment of court fees was also very difficult for them. But even if they have continued to run the sick unit, the workers in the unit were getting medical benefits. But the SSI Owner did not have amount to treat the diseases.
As discussed above, the banks are harassing the SSI unit owners in the name of recovery of loan. These banks built pressure on Government and made Government to bring act of Debt Recovery Tribunal way back before 12 to 15 years. In addition, Government has brought Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (Securitization Act) and totally killed the small scale industries.
Why the Government is harassing small scale industries and relaxing big industries under BIFR? Is the question remained in the minds of SSI unit owners in the country? Even I have not heard the big industry owner had sold his entire assets or properties after the industry was labeled as sick unit. Even no financial institution had auctioned his industry in the name of recovery of debt.
I am also surprised to know that on one hand the financial institutions are showing rules and regulations to small scale unit owners if they had shortage of some thousand rupees while on the other hand there are no rules to big industries even if they have shortage of funds. SSI units had already mortgaged their properties costing more than the loan amount. People read from the new papers that such and such big industry has in loss or not performing well. But it is surprised to see the owners of such big companies are maintaining their lavish living standards, there is no cut in their budget of advertisements, and they are travelling by air or by first class. How the big business houses could sustain even after incurred the big losses? To give recent example, in last year a big business house had incurred losses of several crores rupees. There were news about the loans and debts on this company by Government and other big financial houses. Though there was media report and many discussions about the losses, no financial institution in India had harassed the businessman, also they had not recovered his debts by selling his assets or property. Another businessman was planning to construct residential building for Rs 700 crores and Government was planning to Bellout scheme for him. It is very difficult for a common man to understand how this happens in the country?
These one sided acts (many such one sided and biased acts are already existing in the country and these acts are responsible for anarchy and unrest in the country) are being misused by the financial institutions in India.
As per the provisions of Securitization Act the banks have started publishing names, photographs and other details of the person want to avail loan facility and guarantors of the person in ‘Public Notice’ in news papers. This is also a sort of defaming the SSI unit owner.
Considering the role and guidelines of Reserve Bank of India and Ministry of Finance, the action of banks is contradictory to the legal provisions; it is injustice on the part of SSI units, illegal etc. The verdict of Kolkata High Court in April 2013 has also mentioned the action as illegal. The verdict came after the decisions of Madras and Madhya Pradesh High Courts up healing the action of banks in 2006.
Failure to repay the loan is not the criminal offence but is civil offence. Hence, the action of banks to publish the names of persons not repaying the loans is reminding the tradition of punishing thief publically in 18th century. This action is also contradictory to Securitization Act. As introduction of the act has mentioned; ‘reconstruction of assets in mortgage, possession of the assets, selling the assets and recovery of debt from the amount,’ but the banks are publically defaming the person in the name of debt recovery through media. Public Defamation is not mentioned in any act and banks are taking the action illegally.
In this regard, Indian Banks Association had appointed a study group in October 2003 to suggest amendments in Mortgage Act. The group in its observation had mentioned that the person or unit using loan amount for other purpose and deliberately denying the payment of loan amount should be termed as accused under criminal act and should be punished. But the person or unit has some justifiable reason for nonpayment of loans should be relieved from the action. This will encourage the persons repaying their debts regularly and punish the culprits not paying the debts.
Reserve Bank of India on July 12, 2007 had sent a letter to Chairman of State Bank of India on this issue. The letter clearly mentions the stand of RBI in this respect. (The letter has been mentioned in verdict of Madras and Kolkata High Court). As per the letter there is no mention about publishing the photograph of person’s non paying debt in news papers. While publishing the notice regarding the possession of assets in mortgage, banks should furnish the details of the assets, warning about the dealing and repayment of the debt to the bank while dealing etc.
Reserve Bank has issued the guideline after witnessing the harassment of banks to customers through muscle power. The banks should not discriminate between the groups of persons availed loans from them. I have personally and through SARATHI have protested against the procedure of banks to recover debts by using muscle power or by threatening through anti social elements. Eknath Thakur, Shiv Sena MP on Rajyasabha and former President of Maharashtra Chamber of Commerce, Industry and Agriculture had supported me in this regards and a notice was also published regarding the same.
On one hand the law makers are telling even if 99 criminals are spared, no single innocent should be punished but on the other hand they are harassing the persons under the provisions of Securitization Act and DRT.
MSME should be compared with cycling. When a person riding on bicycle stops pedaling, he bound to fall on ground. In the same way, if Government should think about the debt of big industry and small industry; the debts of small industry are negligible. The amount of debt of small industry is less than the amount of big industrialists spending on lunch or dinner and betel leaf chewing. The present mechanism available in India for MSME is archaic. It does not focus on revival. Hence, business failure in India is viewed as stigma which adversely impacts individual’s creativity and development of the country.
Spending sleepless nights and no happiness in day time, when I asked God is it a sign of love? God replied with a smile ‘Oh Son it is a condition of MSME’
In short if one has to empower MSME, he should study from basics. The efforts should be made to curb the adverse conditions not suitable for its growth. The step motherly attitude for MSME should be stopped. Here are some suggestions:
-Government should implement protective law like BIFR for MSME.
-Biased acts like Debt Recovery Tribunal, Securitization Act which attacks directly on the fundamental rights should be cancelled.
-The tri-monthly assessment of performance of SSI unit should be cancelled. The performance of unit in losses should be monitored for three years. If the losses will continue, there should be some provisions of nursing. Even if the unit suffers with losses, the action as per the provisions of acts should be taken, but the provisions of hearing the side of MSME, allowing him to seek justice from the court and assessment of balance sheet etc should be amended.
-The financial institutions making mistakes should be punished along with the persons responsible for sanctioning the loans. The financial institutions should be made answerable.
-Government of India has appointed a Task Force in 2009. The issues the force has mentioned in its reports are same from that of since 15 to 20 years. The members of Task Force belong to big industrial house or from higher posts of Government jobs. These members never understand the problems and issues of MSME. A person having lunch and dinner in five star hotel daily could not understand the problems of people getting food once in blue moon. Therefore, a person from MSME should be given a chance to work as member of Task Force.
-From Rajya Sabha to Tehsil Level like Graduate Constituency, a constituency of MSME should be developed.
-Government is encouraging the sports organization or sports persons with awards like Chhatrapati Award, similarly, the central and state Government should award to a person running MSME successfully for 10 years. Unfortunately, the organizations of MSME do not encourage the small scale industrialist by giving award. The organizations feel proud of felicitating the rich and financially sound industrialist. This attitude should be changed. Charity begins at home. The small scale industrialists and businessmen should find out the persons working selflessly and working hard and felicitate them.
It is mentioned in history that in ancient times when the king of another nation attacks on one kingdom kills the defeated king. Also the winner cut the king’s head and hangs it on border. In Mahabharat, Kauravas also insulted dead body of Abhimanyu. In the same way, DRT and Securitization Acts started killing MSME and hanging their dead bodies on the borders. The financial institutions and helpless Government seems not happy on these two acts, like the hitting of last nail on coffin three new acts are in pipeline. These acts are illogical, undemocratic and violating the fundamental rights. We as the members of MSME should register strong protest against the acts otherwise our future generations will not forgive us. The sections of these acts read as under:
1)As per the logics and fundamental rights, after selling the industrial unit (and the mortgaged property), the financial institution used to recover complete debt amount (after deducting exorbitant interest, basic loan amount, fees of advocate, court, stamps etc) and return the balance amount to the SSI unit owners. Now as per new section of act, the financial institutions will not return the balance amount but will deposit as profit in their own accounts. (Zizia Tax was much better)
2)The financial institutions are not required to sell the seized assets but they are allowed to keep with them for years. This is not sufficient, when the financial institution conducts an auction of seized assets in their possessions, the institutions can participate in the auction. These amendments are attacking the fundamental rights of MSME owners.
I am not a legal advisor or a lawyer, but each Indian should condemn such acts. Recently, a minister has made a statement about proposed land ceiling act. If the act is being passed, the common people, poor farmers, institutions and MSME sectors have remain no alternative than to vacate the country. The proposed act will bring 25 acres non irrigated land and 15 acres irrigated land under ceiling. On one hand big businessmen could purchase thousands of acres land in the name of development but the real owners of land are not allowed to keep own land. The new act will also leads to more farmers’ suicide. MSME should unite on this issue.
Today, the businessmen and industrialists are spending 60 to 80 percent on payments of taxes, loans returns of different financial institutions. The industrialists and businessmen have to deal with following departments…
Central and States Excise Duty, Sales Tax, Turnover Tax, Service Tax, Professional Tax, Capital Gain Tax, Wealth Tax, Gift Tax, Property Tax, Storage License Tax etc. Stamp Duty, Income Tax, Octroi, Local Body Tax, VAT, ESI etc. In addition, Labour Law, Consumer Protection Act, Fair Trade Practice, Weights and Measures Act, Packaged Commodities Act, Drug Control Act, Drugs and Cosmetic Act, Drugs Price Control Act etc.
The businessmen and industrialists are required to complete all paper work without any argument and should submit to the different Government departments in stipulated period. Failing to which, they have to pay fine. The Government employees are getting high salaries for these works; they also get different allowances, facilities, pension etc. The businessmen or industrialists are producing the goods and helping the development of nation, but they have to pay fine. They can get punishment and threats about actions under criminal act.
If the situation will continue, the farmers or SSI unit owners have remained no alternative than to commit suicide. Otherwise, these persons may get converted as criminals. Here, I recall the movie Mother India. As per the then tradition, Nurgis took loan from money lender (in those days no banks were operating in the country). Sunil Dutt son of Nurgis gets frustrated with the harassment and exploitation of money lender. He then took weapons in hand and become dacoit. The innocent people who tolerate the harassment get suffered at large. Government should think about these social repercussions and adopt policy like Indira Gandhi to encourage MSME.
One important suggestion, from last many years i.e. from existence of the then SSI, it may be medium, large or today’s MSME or large industry, the classification was done on the basis of machinery, building, plot land etc. But after the IT revolution, the situation has been changed. Now business houses require less land, few people and minimum machinery and they have spent huge amount on them. This is the reason, the classification should be done on the basis of Turnover not on present land, building, machinery and investment.
The DRT and Securitization Act should be cancelled to revive the small scale sector. The new amendments will encourage MSME and help to generate employment in India. As everyone knows, MSME has limitations to get loans from Banks. The credit limits are based on 60 to 70 percent amount of the hypothecation or pledge, or assets in mortgage or the items to the industrialist. The biased and one sided act suggests action against the industrialist in case of 2/3 quarterly defaults. Credit Limits to the units given by banks are working as pedaling of bicycle. Banks should not take strong action on the units in case of defaults because the strong action of bank always result in the unemployment of 10 to 15 workers and 50 to 60 family members of them. The condition of MSME is similar to that of farmers. The small scale industrialist is helping 10-15 workers for their livelihood. And more than 500 to 600 people depend on this unit. The MSME owner is always running business in pressure of Government rules, taxes and red tapes. Government never helps MSME but he always gets engaged in court cases.
He has to spend money right from Advocate fees, family expenditure and it is always become difficult for MSME owner to sustain in case of hospitalization or injury. The banks or financial institutions or Government Departments are running their operations on the basis of such thousands of MSMEs. But the employees of these departments or institutions are getting number of facilities, high salaries, travel concessions and pensions etc.
Unfortunately, the MSME units which are responsible in production, growth or employment generation, paying taxes to the Government are neglected by the Government. The MSME sector is needed momentum or support to grow from Government, but Government is reluctant to consider. The terrorists like Dinda are getting costly treatment in AIIMS like advanced hospitals, they are getting facilities of modern health care, Government is spending crores of rupees on the arrested terrorists in jail but the farmers and MSME owners in the country are being neglected. DRT and Securitization Act should be cancelled and the small scale industrialists should basic facilities as a citizen of the country like legal aid, health care, education etc. Only production will help country to prosper. Hence, the Government should pay regular pension after completing 60 years of age to the small scale industry owner after successfully running the industry for at least five years. In case of closure of industry, the legal heirs of the industrialists should be given pension in proportion of revenue and employment generated by him.
All small scale industrialists under MSME are required to get united under one flag to get their demands fulfilled by the Government.
SARATHI has taken an initiative and developed a flag of Indian Industries with a message ‘Unity is Strength’. The flag will help to inspire and motivate the small scale industrialists and businessmen to get their fundamental rights.
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Amarji,
You also need some systematic and Long-Term efforts in this direction. For example Make a list of top-25 national banks and get info of their NPA with following break-up
- NPA status given from 2001-2005
- NPA status given from 2006-2010
- NPA status given from 2011-2015 (so far)
- Under each of the above 3 catagories, NPA status given to Foreign Investors their list with amount of NP Assets
- Under each of the above 3 catagories, NPA status given to bigger (Non-MSME) investors -- their Total no and total NPA and the names of top-10 among them with amount of NPA for each
- Under each of the above 3 catagories, NPA status given to MSME Investors -- Total no and total NPA amoun
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The author, presently Member CAT Mumbai in the rank of High Court Judge, is an accomplished administrator, teacher, thinker and writer. She has travelled over 400 out of 650 districts in India and is proficient in many Indian languages. As an administrator she has worked in various departments which include education, women, children, industries, petroleum, agriculture, and health.
However, in any financial year, if there is surplus revenue available with government or if government is able to borrow against future earnings, then such available funds are utilised through a process of planning – by designing new schemes which are likely to generate accelerated development, thereby also bringing more revenue to the government.
