More and bigger woes in store for MSMEs

Industrial sector in Telangana plays a vital role in employment generation, providing high standard balanced economic development Apart from contributing around 24 per cent to the State GDP in 2015-16, providing employment opportunities to 17.8 per cent of the work force. It has diversified industrial base with thrust on high tech sectors including nano-technology, bio-technology and Electronic Hardware manufacturing. At the core of its policy is manufacturing and developing Brand Telangana streaming to Make-in–India.

Manufacturing sector contributes to 55% in the total industrial sector of GVA in the state. At 2011-12 constant prices, the industrial growth recorded 8.6% in 2015-16. It is expected to reach 10% in the current year and would have exceeded but for the demonetization affecting the MSMEs most.
The Micro, Small and Medium Enterprises (MSME) sector also plays a key role in the economic and social development of the state that provides direct employment opportunities to around 7,82,406 people of around 69,120 units. Its contribution in terms of direct employment, providing inputs/raw material for other sectors, and export earnings, is immense.

Telangana has secured the number one rank in ‘Ease of Doing Business’, in the country, with focused attention on stabilising the ecosystem in the state. It has unveiled the ‘Telangana State Industrial Project Approval and Self-Certification System (TS-iPASS) Act, 2014’ for speedy processing of applications for issue of various clearances required for setting up of industries at a single point, based on the self-certificate provided by the entrepreneur. It has the most-investor friendly industrial policy, whereby licences are cleared for MSMEs within 30 days through TS-iPASS.

At the time of state formation, the status of MSMEs was not encouraging. Banks reported to the SLBC that around 8,000 MSME accounts had fallen sick by August 2016. Banks conducted viability studies on 90% of them and found no more than 2% as potentially viable, but hardly revived half of them in spite of Master Directions of the RBI.

The Telangana government has decided to set up Telangana Industrial Health Clinic Ltd, an NBFC as an associate of TSIDC, supported by appropriate a Revival and Restructuring Policy. The Clinic will also help those few small enterprises anxious to get into the equity markets with certain support systems. The Corpus Fund proposed has built-in risk balancing mechanisms for ensuring healthy growth of the sector.
But the major problems is financing for this sector.

Banks have by and large lost interest in lending to the MSEs driven by fear of NPAs. In a recent programme on capacity building of the Managers of Banks in the MSME sector held by the RBI in Sangareddy district, the bankers have stated that they hardly lent for the manufacturing sector. Second, their lending through MUDRA scheme has been to the services sector and, that too, to the extent the targets assigned to them.

Third, most of them are unaware of the large number of support schemes of the Union Ministry of MSMEs that actually help them in reducing or sharing their risks in lending. Fourth, they mechanically extend guarantee to the units borrowing less than Rs 10 lakh and to none beyond that amount although till the end of the year the collateral free guarantee cover is available up to Rs 1 crore.

Recent instructions to extend such guarantee cover to loans up to Rs 2 crore do not make any difference in the climate for lending to the sector. However, the insistence on collateral securities leaves no room for innovative practices in lending to the manufacturing MSEs.

Banks are wary of taking guarantee cover as the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) insists legal action on every NPA over which claim is submitted up front and this involves additional cost and elongated process. Banks, therefore, prefer only mandated area for extending the guarantee cover. MSMEs are on streets with their collateral securities attached and sold under the SARFAESI Act for irregularities that are not fully of their making.

Though the MSMEs are facing a plethora of serious problems, MSME Facilitation Council for one reason or other does not meet at regular intervals and even if conciliation mechanism results in proper justice, realising dues has proved a herculean task during which time the 90-day period for declaration of NPA is off the hook and the unit is locked down by the bank as per the rules.

By Gudipati Rajendera Kumar