Credit Flow to SSIs Needs Improvement

A multi-pronged strategy is needed to  bridge the disparity between the  production and credit availability to the Small Scale Sector in the country, says PHD Chamber of Commerce and Industry. According to it while the production of SSIs has increased by 3.4 times in the last decade, credit availability improved only to the extent of 2.9 times during the period.

The provisions under the new Credit Guarantee Scheme needs to be enhanced to Rs. 1,000 crores from the exiting Rs. 100 crores in order to strengthen the small scale sector and enable it to face the challenges of the global market place, suggests PHDCCI.

The banks should set up subsidiaries for bill discounting and other services for facilitating easy flow of credit. RBI and the Government should set up discount houses on priority basis to help SMEs, it says.

The marketing and distribution companies should be given the status of industry for the purpose of getting financial assistance from banks and financial institutions, PHDCCI suggests. Suitable directions should be given to RBI to play a pro-active role for dispensing the credit requirement of this important sector, which plays a crucial role in the emerging liberalized and competitive environment.

Despite the efforts of SIDBI and EXIM Bank to provide venture capital facilities to small and tiny units, the need for setting up of more venture funds in high growth sector such as information technology, bio-technology and food processing is greatly felt. A suitable policy framework be designed expeditiously to promote setting up of such funds in the public as well as private sector, the Chamber says.

The out reach of specialized SSI branches is very inadequate considering that there are 490 SSI clusters in the country. It is recommended that more specialized branch of banks and financial institutions be opened up to increase credit flow to SSIs. The Government should ensure that 20 per cent of the Small Scale Sector's turnover should be made available as working capital credit to SSIs since expansion and modernization of these units is largely dependent on the flow of credit, PHDCCI has suggested. Banks should treat export finance on a priority basis. Automatic and instant sanctions must be granted to export credit against the Letter of Intent. Further, Indian exporters should also be allowed to accept credit card payment by Internet.

PHDCCI has further suggested that the State Governments may create a separate fund with a seed capital of Rs. 5 crores with the purpose of providing collateral of loans sustained by SSIs. Even if a small percentage of SSIs benefit through such a support from the States, the Governments would succeed in creating some industrial enterprises in their respective State.

Meanwhile, PHDCCI has called for formulation of a ten-year perspective development plan in order to achieve the objective of long term sustainable development in Northern Region. According to it, the existing Five Year Plans should be dovetailed within this framework to focus on power, roads, telecom and industrial parks along with water supply, sanitation and housing.

Emphasizing on the importance of excellent infrastructure in the northern states, PHDCCI says that the rate of economic growth is closely linked to the development of infrastructure in any region. It is of greater significance for North India as the region is land locked where simultaneous focus on industry, agriculture and service is desirable to achieve global competitiveness. While it is desirable to strike a balance between developmental and non developmental expenditure on the one hand, there is no escape but to introduce a policy shift in favour of strengthening partnership between the State and private sector to invest in infrastructure projects of power, highways, industrial estates and urban development, PHDCCI emphasizes.

The States should identify the projects, undertake feasibility studies and spell out the investment necessary in order to attract developers. Since resources are limited decision should be taken to develop specific corridors to create the best infrastructure linkages so that investments in industry and services are significant, PHDCCI suggests.

With increasing population pressure new strategies are required to attract private investment in housing and urban development. Private sector participation should be sought in the development of housing, commercial centres, industrial parks and estates, water and transport linkages. Privatization of civic services is inevitable to cope with the increasing demand and financial constraints of the State Government, PHDCCI says.

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