Limited ability of MSMEs to develop new products, processes: Draft National Policy on Capital Goods
Updated: Oct 26, 2015 04:05:10pm
New Delhi, Oct 26 (KNN) There is limited ability of MSMEs to develop new products & processes; low awareness of standards; inadequate access to capital, said the draft national policy on capital goods while highlighting the issues related to sub-scale units.
The National Democratic Alliance (NDA) government on Friday released the draft of a National Capital Goods Policy that envisages increasing the share of capital goods from 12% to 20% of total value manufacturing by 2025.
On the issue of limited ability of MSMEs to develop new products & processes, it said, “The small operating scale of MSMEs inhibits capacities to acquire technology or develop new products and processes and the units get caught in a self-feeding and vicious cycle. Further, there is an absence of institutional mechanisms in public/ private sector to support MSMEs in product/ process development.”
Noting about the low awareness of standards amongst the SMEs, the policy said, “Awareness and compliance to international standards in export destinations is low for SMEs, which limits their export competitiveness.”
On inadequate access to capital, the draft said, “SMEs also have limited access to capital due to their low scale and need infrastructure and other support to modernize and increase capacity.”
For SMEs, the vision of the draft policy is to promote growth and build capacity of SMEs to compete with established domestic and international firms and become national and global champions of capital goods in the future.
The draft proposes focus on SME development through setting up Advisory Group for Ministry of Micro Small and Medium Enterprises (MSMEs).
For creating an ecosystem for globally competitive Capital Goods sector, the draft proposes to promote modernization of SMEs through interest subvention scheme like Technology Upgradation Fund Scheme (TUFS) and concessional rate of interest at 2-4%.
It suggested, incorporating all capital goods sub-sectors under Credit Linked Capital Subsidy Scheme (CLCSS) and enhancing usage to SMEs by expanding geographical reach to all regions.
The draft also proposed to develop and promote supplier clusters, common manufacturing clusters for SMEs around large manufacturers.
It envisages considering elimination of requirements such as Bank Guarantees or Standby LCs or money deposits for MSMEs and incentivizing large industries and corporates for hand holding micro & small industries, and help in bringing them up to Global Standards.
The draft policy on Capital Goods called for institutionalizing annual awards for "Pride of Promoting Indian MSME" in various categories for Large Corporates/ PSUs and providing MSME tax allowance to Corporates and Public sector companies to purchase a certain percentage from MSMEs and function as "Anchor Industry" to them.
It sought for setting the criteria for MSMEs to get qualified for various initiatives under National Capital Goods Policy as Employment Generation apart from the monetary definition given in MSMED Act 2006.
Elaborating about the issues, the draft said, “High cost of inputs make Indian machines costly to users, especially SMEs.”
“The price of machine tools is high due to higher input costs and local factors such as Excise Duty, VAT, and Entry Tax/Octroi,service tax etc. Some financial measures to reduce price to end users will help spur demand and enable more SMEs to adopt the latest CNC machines,” it said.
The proposal called to provide greater incentives for promoting technology development by SMEs and encourage SMEs to avail of 200 per cent weighted deduction on R&D initiatives.
“..extend „investment allowance‟ measure for a period of five years, as also reducing the permissible limit from Rs. 100 Cr to say, Rs. 25 Cr to enable reaping of benefits by SMEs,” it said.
The other issue highlighted in the draft was “High financial costs”, which said, “Typical lead time for supply of Process plant equipment is 12- 18 months. The differential interest rate between LIBOR and Indian prime lending rate is higher than the import duty. Considering many of Indian manufacturers are SMEs, this by itself can dramatically reduce our competitiveness and hence, the market share. Further, this interest differential inhibits stocking of material and thereby further increases the delivery cycle time.”
Elaborating on the key policy actions, the draft proposes to set up a raw material bank for special materials (Imported High alloys) under Metals and Minerals Trading Corporation (MMTC) or State Trading Corporation (STC) so that this nodal entity stocks / imports such specific materials and sells in small quantities/ need based which will enable MSMEs to meet time schedules for delivery.
Highlighting the other key issues, the draft proposal said there is a need for better infrastructure.
“Need ready to move Infrastructure for Promoting SMEs, Research & Development Centre and Testing Labs for Printing and Packaging Sector.”
In the conclusion, the draft said The Capital Goods sector is a very large and important sector and a key contributor to manufacturing activity in India and one of the key policy actions is to develop manufacturing clusters with shared facilities especially for SMEs.
The capital goods market is fragmented with majority of operational units in the SME sector, beyond few large players. These cater to small segments of a sub-sector, often serving domestic demand only and are significantly challenged vis-à-vis large foreign competitors due to low operating scale. (KNN Bureau)
The National Democratic Alliance (NDA) government on Friday released the draft of a National Capital Goods Policy that envisages increasing the share of capital goods from 12% to 20% of total value manufacturing by 2025.
On the issue of limited ability of MSMEs to develop new products & processes, it said, “The small operating scale of MSMEs inhibits capacities to acquire technology or develop new products and processes and the units get caught in a self-feeding and vicious cycle. Further, there is an absence of institutional mechanisms in public/ private sector to support MSMEs in product/ process development.”
Noting about the low awareness of standards amongst the SMEs, the policy said, “Awareness and compliance to international standards in export destinations is low for SMEs, which limits their export competitiveness.”
On inadequate access to capital, the draft said, “SMEs also have limited access to capital due to their low scale and need infrastructure and other support to modernize and increase capacity.”
For SMEs, the vision of the draft policy is to promote growth and build capacity of SMEs to compete with established domestic and international firms and become national and global champions of capital goods in the future.
The draft proposes focus on SME development through setting up Advisory Group for Ministry of Micro Small and Medium Enterprises (MSMEs).
For creating an ecosystem for globally competitive Capital Goods sector, the draft proposes to promote modernization of SMEs through interest subvention scheme like Technology Upgradation Fund Scheme (TUFS) and concessional rate of interest at 2-4%.
It suggested, incorporating all capital goods sub-sectors under Credit Linked Capital Subsidy Scheme (CLCSS) and enhancing usage to SMEs by expanding geographical reach to all regions.
The draft also proposed to develop and promote supplier clusters, common manufacturing clusters for SMEs around large manufacturers.
It envisages considering elimination of requirements such as Bank Guarantees or Standby LCs or money deposits for MSMEs and incentivizing large industries and corporates for hand holding micro & small industries, and help in bringing them up to Global Standards.
The draft policy on Capital Goods called for institutionalizing annual awards for "Pride of Promoting Indian MSME" in various categories for Large Corporates/ PSUs and providing MSME tax allowance to Corporates and Public sector companies to purchase a certain percentage from MSMEs and function as "Anchor Industry" to them.
It sought for setting the criteria for MSMEs to get qualified for various initiatives under National Capital Goods Policy as Employment Generation apart from the monetary definition given in MSMED Act 2006.
Elaborating about the issues, the draft said, “High cost of inputs make Indian machines costly to users, especially SMEs.”
“The price of machine tools is high due to higher input costs and local factors such as Excise Duty, VAT, and Entry Tax/Octroi,service tax etc. Some financial measures to reduce price to end users will help spur demand and enable more SMEs to adopt the latest CNC machines,” it said.
The proposal called to provide greater incentives for promoting technology development by SMEs and encourage SMEs to avail of 200 per cent weighted deduction on R&D initiatives.
“..extend „investment allowance‟ measure for a period of five years, as also reducing the permissible limit from Rs. 100 Cr to say, Rs. 25 Cr to enable reaping of benefits by SMEs,” it said.
The other issue highlighted in the draft was “High financial costs”, which said, “Typical lead time for supply of Process plant equipment is 12- 18 months. The differential interest rate between LIBOR and Indian prime lending rate is higher than the import duty. Considering many of Indian manufacturers are SMEs, this by itself can dramatically reduce our competitiveness and hence, the market share. Further, this interest differential inhibits stocking of material and thereby further increases the delivery cycle time.”
Elaborating on the key policy actions, the draft proposes to set up a raw material bank for special materials (Imported High alloys) under Metals and Minerals Trading Corporation (MMTC) or State Trading Corporation (STC) so that this nodal entity stocks / imports such specific materials and sells in small quantities/ need based which will enable MSMEs to meet time schedules for delivery.
Highlighting the other key issues, the draft proposal said there is a need for better infrastructure.
“Need ready to move Infrastructure for Promoting SMEs, Research & Development Centre and Testing Labs for Printing and Packaging Sector.”
In the conclusion, the draft said The Capital Goods sector is a very large and important sector and a key contributor to manufacturing activity in India and one of the key policy actions is to develop manufacturing clusters with shared facilities especially for SMEs.
The capital goods market is fragmented with majority of operational units in the SME sector, beyond few large players. These cater to small segments of a sub-sector, often serving domestic demand only and are significantly challenged vis-à-vis large foreign competitors due to low operating scale. (KNN Bureau)
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