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MSME sector in Telangana

Updated: Mar 07, 2017 05:55:16am
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MSME sector in Telangana

Hyderabad, Mar 7 (KNN) Industrial sector contributes around 24% to the State GDP providing employment opportunities to 17.8% of the Work Force. (SEO-16,GoTe). 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 9.5% in 2015-16. We hope to reach 10% in the current year and would have exceeded but for the demonetization affecting the MSMEs most.

It is important to note that the State has preponderance of the corporate sector – 89% of the net value addition is in corporate sector. This is the main reason for a specific focus on the MSME Sector. The cursed NPAs in the sector mounting to Rs.50000cr at the end of December 2016 are no less concern than those of their elder brothers. Unhealthy corporate sector and healthy MSME sector can hardly co-exist in a growing economy.

Ecosystem for growth has stabilized in the State with the Ease of Doing Business getting topmost attention of the Government. The State took pride of place in EODB, ranking number one in the country within just one year graduating from the 13th rank. The State is not complacent. It is committed to enhancing the facilitation to entrepreneurs, particularly in the rural areas. The State is predominantly rural and also industrially backward and therefore, it is rightly focusing on the core manufacturing sector.

Industrial licenses are cleared the fastest – 30 days for MSMEs through TSiPASS and 15 days for the large industries. Industrial Guidance Cell and Facilitation Cell in the CoI office and chasing cell in the CMO ensure speed of delivery with no speed money tag.

Infrastructure: The State has a land bank of 1.50 lakh acres. TSIIC is in full preparedness to respond to the needs of upcoming MSMEs. The State has plan to facilitate exports through establishment of four dry ports with state of art logistics. Industrial Parks like Textiles in Warangal, IKEA Furniture Park, Plastics Park, Food Park at Buggapadu Sattupalli, Aeropark, NIMZ are all in the making.

It is acutely conscious of the baggage of sickness in MSMEs when the State was formed. Banks have reported to the SLBC around 8000 MSE accounts have fallen sick by August 2016 of which banks report conducting viability studies of 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.

Realizing that the banks have genuine constraints of properly diagnosing and handholding the incipient sick and sick enterprises on one side and to actually do fresh lending to micro manufacturing units, State Government has therefore decided to set up Telangana Industrial Health Clinic Ltd, a NBFC as associate of TSIDC, supported by appropriate Revival and Restructuring Policy.  The Clinic also helps 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.

Pain points have been in financing the sector. Banks have by and large lost interest in lending to the MSEs driven by fear of NPAs, to which their own contribution is no less than the enterprises themselves. Perceived risks in financing the sector are more than the actual risks.

At a recent programme on capacity building of the Managers of Banks in the MSME sector held by the RBI attended by 60 of them at Sangareddy, it was a revelation that they hardly lent for the manufacturing sector. Second, their lending through MUDRA scheme has been to the service 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 CGTMSE guarantee to the units borrowing less than Rs.10lakhs and to none beyond that amount although till the end of the year the collateral free guarantee cover is available up to Rs.100lakhs. Recent instructions to extend such guarantee cover to loans up to Rs.200lakhs do not make any difference in the climate for lending to the sector. Their well entrenched mindset to insist on collateral securities has no room for innovative practices in lending to the manufacturing MSEs.

Banks are weary of taking guarantee cover as the CGTMSE insists legal action on every NPA over which claim is submitted up front and this involves additional cost and elongated process. It therefore prefers only mandated area for extending the guarantee cover.

MSEs are on streets with their collateral securities attached and sold under the SARFAESI Act for irregularities that are not fully of their making.

If there are thousand reasons for the Mahabharat hero Karna’s death so are for the MSMEs ranging from delayed release of loan sanctions, denial of timely enhancement of sanctioned limits based on the order book, balance sheet approach to cash based approach to lending for working capital from the banker’s side etc., to inordinate delays in release of subsidies for the announced schemes on one score or the other, to the borrower’s luxurious indulgence of non-compliance of terms of sanction and proper maintenance of books of accounts and tax avoidance. Their bills get stuck with the Government or PSUs for supplies made by them.

MSE Facilitation Council for one reason or other does not meet at regular intervals and even if conciliation mechanism results in proper justice realizing 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 bolted by the Bank as per the rules.

Bolt from the blue is the Bankrupt Code, which presumes that when the account goes into default and beyond repair, the blame rests only with the debtor and the creditor is virtuous. (KNN/ YR)

*About the Author: The Author is an economist and risk management specialist. He is at present Adviser, MSE Facilitation, Govt. of Telangana. The views are personal.

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