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Home arrow News arrow Business News arrow National Manufacturing Policy ascribes a key role for SMEs: CII
National Manufacturing Policy ascribes a key role for SMEs: CII Print E-mail
Written by Ganesh   
Tuesday, 15 November 2011
New Delhi: According to CII, the NMP provides for adequate support to promote and strengthen employment-intensive industries to ensure job creation. CII welcomed the special emphasis on MSME manufacturing under the National Manufacturing Policy (NMP).

Sharing the concern (as highlighted in the NMP), regarding the MSME access to finance, CII has mentioned that one of the major challenges faced by SMEs is inadequate access to adequate and timely finance, mainly due to lack of financial information and non-formal business practices, as they are largely dependent on promoter’s resources and loans from financial institutions and banks.

According to CII, the Capital Markets are difficult to access, due to high costs, difficulties in complying with regulatory requirements etc. Bank finances access is limited, due to the inability of SMEs to create tangible assets, as also the debt-equity ratio norms followed by banks. Also the first generation entrepreneurs investing in SMEs have also found access to VC funds difficult, despite the Venture Capital (VC) and Private Equity (PE) market having grown considerably in India.

Welcoming the NMP proposals for improving the MSME access to finance, Mr Ramesh Datla, Chairman, CII National MSME Council and Managing Director, ELICO Ltd, mentioned that the measures such as the Rollover relief from long term capital gains tax to individuals on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up MSME unit in the manufacturing sector for the purchase of new plant and machinery, will enable a large number of entrepreneurs to raise equity by selling of ancestral properties and to raise the level of investments in the MSMEs in the manufacturing sector, apart from boosting employment.

Mr Datla mentioned that specific measures, as highlighted in the NMP, such as the setting up of a stock exchange for SMEs and implementation of SEBI‘s ‘framework for recognition and supervision of stock exchanges/platforms of stock exchanges for SMEs”, the Tax pass-through status for Venture Capital Funds (VCFs) will a focus on SMEs in the manufacturing sector. Liberalisation of RBI norms for banks investing in, and IRDA guidelines to provide for investments by insurance companies in Venture Capital Funds (VCFs) with a focus on MSMEs in the manufacturing sector, will also provide an impetus to the VC funding for the first generation SME entrepreneurs, added Mr Datla.

On meeting Statutory Compliance, the National Manufacturing Policy (NMP) has observed that the compliance burden of laws and regulations is particularly severe on SMEs. “By their very nature, SMEs have limited manpower and resources which could be used more fruitfully in production activities if there is a mechanism to take care of the statutory compliances. For instance, there are a number of payouts which a company has to make under the EPF Act; Employees Pension Scheme; ESI Act; Payment of Gratuity Act; Personal Injuries Act; Workman‘s Compensation Act; etc,” it says.

Welcoming the NMP proposal to set up one or more service organizations to undertake the responsibility of collecting dues from the companies and making the necessary payouts in return for a charge linked to the wage bill of the company, CII suggested that such an organization(s) can be licensed by the Government and the industry will have the option to use the services of such licensed organization, while the statutory liabilities under the laws would however be of the MSMEs themselves.

Mr Gurpal Singh, Deputy Director General, CII mentioned that the implementation of the policy is as important as policy making itself, as unless properly implemented, the policy by itself will not deliver the desired result. Hence, to ensure effective implementation of the policy, a ‘MSME focussed’, manufacturing policy review mechanism will have  to be instituted and a high-level committee chaired by Secretary, Department of Industrial Policy and Promotion and Co-Chaired by the Secretary, Ministry of MSME, may monitor the implementation on a regular basis.

Finally the proposed Manufacturing Industry Promotion Board (MIPB) at the level of Union Minister of Commerce and Industry that will be constituted to ensure coordination among Central ministries and state governments must have a representation from the MSME and the Ministry of MSME, added CII.

It is estimated that, in terms of value, the small sector accounts for about 45% of the manufacturing output and 40% of the total exports of the country. The sector is estimated to employ about 59 million persons in over 26 million units throughout the country. Further, this sector has consistently registered a higher growth rate than the rest of the industrial sector. There are over 6,000 products, ranging from traditional to high-tech items, which are being manufactured by the MSMEs in India.

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