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SSI shackled by high credit cost, inspector raj

Thursday, December 26, 2002 (New Delhi):

   Survival and future of the small scale industry, one of the largest employment providers in the economy, remained uncertain during 2002 as government continued to dereserve industries from its fold while the sector battled adverse conditions of high cost loans and vagaries of the inspector raj.

    The sector, which contributes significantly to both GDP and exports, could not have however found a better sympathizer than Prime Minister Atal Bihari Vajpayee when he sought speedier liberalisation of SSIs from plethora of rules and regulations and made a case for bringing it at par with other segments of the industry for availing bank loans.

   "All enterprises especially small and medium enterprises must be speedily liberated from the heavy burden of untenable constraints and hurdles they face," Vajpayee said addressing a global seminar recently.

   Building a case for reducing the interest burden of the sector, Vajpayee said there was a need to change legal and administrative framework wherever necessary to bail out the SSI sector whose contribution to the economy was "truly big".

   Despite these problems, the Tenth Five year plan period has set an ambitious 12 per cent growth target for the SSI sector and estimated that the sector would generate 4.5 million jobs over the period.

   Though the sector has outperformed the industrial growth rate, government policy initiatives particularly the move towards a comprehensive single legislation for the SSI, has not shown much progress. Similarly, much delayed legislations such as the Limited Partnership Act and the Factoring Services Act have not yet got the Finance Ministry's nod.

   Though dereservation remains a contentious issue for the government, pruning of the reserved list continued with the dereservation of 51 items from the list, which still contains 749 items.

   SSI Minister Vasundhara Raje has already indicated that her ministry is examining requests for dereservation or enhancement in investment limit for as many as 40 to 50 items. Hence, the forthcoming Union Budget is expected to contain announcements of more items being dereserved.

   In addition to the dereservation of items, the ministry has also cleared hike in investment limit to Rs five crore from Rs one crore earlier for over 15 items including sports goods, pharmaceuticals and stationery products.

   A study by UNDP for the ministry on 15 dereserved items indicated that there has been no negative impact on the sector with exception of marginal impact in case of biscuits.

   Though dereservation has not had much adverse impact, there is concern over how this 12 per cent growth target in the Tenth Plan would be achieved in the face of sickness in the sector coupled with a decline in bank credit.

   As per official estimates, flow of credit to the sector as per percentage of net bank credit declined to 12.5 per cent in the first quarter this fiscal from 14.2 per cent in 2001.

   Given the employment generating capacity of the sector as also its 35 per cent share in exports, Planning Commission has roped in the Finance Ministry and Reserve Bank to suggest urgent measures to enhance credit flow to the sector.

   The measures being considered include setting up of a venture capital fund, hiking the loan limit at prime lending rates and on collateral security and legislations for delayed payments and factoring services. (PTI)

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