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Monday, Aug 15, 2005

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You may speak as small as you will

D. Murali

Jerry Hall, he was so small, a rat could eat him, hat and all. That's what we learned as a nursery rhyme. I'm sure Jerry would have grown up, just as we did, though that frightful line may now well suit small and medium enterprises (SME), deep in woes. So much so, the Government unveiled a new package for the sector, with the FM talking of big numbers. Such as, a minimum 20 per cent year-on-year growth for funding small and medium enterprises, with the aim of doubling the credit to the sector from Rs 67,600 crore in 2004-05 to Rs 1,35,000 crore by 2009-10.

"Small showers last long, but sudden storms are short," is a quote from King Richard II, and that can make us apprehensive of the latest announcements of what is apparently a bounty or positive measures. And, as if to prove right King Lear who said, "Through tatter'd clothes small vices do appear," I have a mail from a reader narrating the woes of the small players.

There is no special interest reduction for long and short-term funding from any of the public sector banks and lending institutions, nor are there any special import/export incentives offered to SMEs, rues the correspondent. "The new proposals seem to be favouring the sick SMEs rather than the running ones. The incentives in fact should be targeted more towards successfully running SMEs for contributing to the economic growth."

If you remember, it was in his Budget speech that Chidambaram had extolled the importance of manufacturing in driving growth. To revive the SME manufacturing sector, and to enable them to adjust to the competitive pressures caused by liberalisation and moderation of tariff rates, he'd proposed to launch "a new scheme that will help them strengthen their operations and sharpen their competitiveness".

That was MCP, not Microsoft Certified Professional or other expansions that will readily offer, but "Manufacturing Competitiveness Programme," design of which was to be worked out by the National Manufacturing Competitiveness Council in consultation with the industry. Wonder if that stays still in the future tense.

A section on SME in the February 28 speech of the FM spoke about capital subsidy scheme being liberalised, `promotion of SSI schemes' getting more crores, Small Industries Development Bank of India (SIDBI) establishing `SME Growth Fund' with a corpus of Rs 500 crore to help units in knowledge-based industries such as pharma, biotech, and IT. And the Minister of Small Scale Industries was to introduce the Small and Medium Enterprises Development Bill, something that did happen too.

On Sidbi's site ( , one can find a whole page of stuff about `Credit Linked Capital Subsidy Scheme for Technology Upgradation of the Small Scale Industries' aka CLCSS. About this, the mail from an aggrieved small entrepreneur has something to say: "The ceiling of about Rs 4 lakh for subsidy has been in force from 2000 when the scheme was launched.

It seems the ceiling was increased to Rs 15 lakh (?) though the nodal agency SIDBI says it has not received order from the Government for increasing the ceiling." I guess there can be many a slip between the announcement and implementation, but what's clear is that ample ambiguity appears to prevail at the field-level.

Interestingly, a story dated July 22 on titled `UK SME manufacturing output falling' has many reasons to complain such as "poor retail sales, customer de-stocking, the fallout from the Rover closure, the loss of work to low cost labour areas, the relocation of factories overseas, the slowdown of the housing market, and increasing customer caution and reluctance to make capital investment," but not bank finance.

For the avid, let me suggest a March 2005 paper posted on, about the usefulness of tax incentives for business angels and SME owners, by Cécile Carpentier and Jean-Marc Suret. They conclude that poorly designed programs cannot attain the objective of promoting small business capitalisation. Quite true.

"You may speak as small as you will," advises Quince in A Midsummer Night's Dream. With SMEs, though, speaking is big, you'd agree.


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