Mangalore: KASSIA is delighted to be in Mangalore for an important meeting to discuss subjects that are of concern to MSMEs in the State and the country and to be in Mangalore, the dynamic city of coastal Karnataka which is a very important coastal region. It thrives on enterprise, both manufacturing and trade.

Most of us are aware, that the SMEs in the country are passing through an extremely challenging phase, due to the severe economic slowdown. The industrial growth measured in terms of Index of Industrial Production is one of the lowest in August in the last seven years.  The projections made by the RBI, World Bank, IMF, S&P, and a host of others put the GDP growth for 2019-20, below 6%. As it is likely to be prolonged, it is a serious cause for concern.

The SMEs are in dire straits and this has been in the making for the last two years.  Currently, the severe slow down in the automobile sector, textiles and garments and other manufacturing segments, including, consumer durables has severely damaged the potential of the SMEs to sustain.  Added to this severe flood situation prevailing in Karnataka has affected the MSME Sector. Micro and Small enterprises have had to go through considerable hardship on account of some of the Government actions including demonetisation and the rather hasty introduction of GST.   The micro and small enterprises in the State have been badly hit by the recession and many units have seen a fall in business ranging from 30 to 70%. The number of shifts operated has been curtailed, contract and temporary employees have lost their jobs, payments are difficult to come, and the financing of operations is getting to be very difficult.

We acknowledge that the Government has recently taken many measures which include direction to banks to go slow on recoveries, enforcement of NPA norms, and also ease the flow of credit to micro and small enterprises.   In addition the RBI has also reduced the Repo rate, which now stands at 5.15% with clear direction to the Banks to link this to their lending rates.  The Government has also effected reduction in corporate taxes both for existing and new units, with new units getting more reduction.

However, these measures will not be of any help to micro and small enterprises as most are not incorporated.

The Government has also introduced certain other measures such as infusing additional capital to the banking system.  

However, the MSMEs have yet to see any perceptible improvement in demand for their products and supplies.

While some of these reform measures will no doubt have long term positive impact in the economy, the immediate worry, particularly for the micro and small enterprise remains.

General Challenges faced by MSMEs:

Always the SMEs face major challenges in terms of access to finance, access to markets, access to good infrastructure, availability of trained man power, access to technology, besides the regulatory constraints in terms of red tape and unnecessary compliance requirements, which place enormous burden on them.

The Members of KASSIA in the State, and SMEs in general, face the same problems all the time.  KASSIA has been raising these issues on every available platform to impress upon the government, the need to address these issues.   The situation that prevails now throws up even more challenges, as the business of SMEs is directly hit on account of the absence of demand for their products.


Under these circumstances, we urge the Government to address these issues by provision of incentives for up skilling, relaxation in GST collection, making it quarterly below certain slabs, reduction of GST rates, improvement in grievances redress mechanism of GST, improvement in credit flow to the SMEs, reduction of real interest rates, and also address key issues of the infrastructure deficit, both in terms of physical infrastructure and logistics. Investment in infrastructure will also result in increased demand for goods and services, thereby helping overcome the effects of recession.

We would like to elaborate some of these points and also suggest that the Government focus on the immediate impact of the slowdown in order to serve this important sector of our economy.

Government must pay attention to some of the following issues, which may help SMEs overcome the effect of recession.

Interest Rate:

The rate of interest has been a major issue with the MSMEs  seriously impacting their operations negatively. The Karnataka Government, for example, has put in place a mechanism to finance SMEs at 4% interest through KSFC by subsidizing the interest rates. This has been of great help to SMEs availing finance from KSFC.  We urge the State Government to increase the budget allocation for this.

We urge the Central Government to consider a similar measure and advance money at 4% interest to SMEs through the banks by subsidizing the interest rates and also provide working capital at lower interest rate.


Interest Holiday: 

We would like the Government to consider extending the benefit of interest holiday for a year in view of the severe recession.  This, combined with the introduction of GST, has caused problems to SMEs in terms of cash flow management.  This has now been compounded by recent floods which have caused enormous damage to agriculture and industry in the State, further complicating the situation.

We request the Government to extend time for the repayment of interest due by SMEs for at least one year so that industries can continue to exist.

GST:

The introduction of GST, though a very welcome and needed tax reform in the Country, seems to have created serious problems initially for SMEs in complying with the requirements.  This has occurred due to the complex nature of the tax and  many rates, compliance requirements in terms of filing returns and taking input credit and  related issues.  Though sincere efforts have been made by the Governments at the Centre and the States to help SMEs understand the complexities and comply with the tax, there is no doubt that introduction of the GST has upset the tax filing and compliance process of the SMEs.  The rigidity in the system has also added to the problem.  A more friendly grievance redress would be the need of the hour.

It is therefore necessary that these are addressed with a view to ease the SME operations in these difficult days.  There are many areas such as GST on job works, labour charges, and delay in refunds that need to be sorted out at the earliest.

Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE):

We request the Government to raise the credit guarantee cover up to Rs.5 Crores for SMEs keeping in view the changing business needs and the need for adequate finance for operations.  Banks also must be advised to implement the provisions under the CGTMSE as often they place impediments in the way of such coverage.  Banks must be transparent with regard to CGTMSE loans advanced by displaying the information on their Notice Board.

The entrepreneur taking cover under the CGTMSE ends up paying GST twice, as the banks lead the tax paid by them for want of ITC on the entrepreneur who again pays tax which results in tax on tax.  This comes to about 39% (@ 18%).  This is very unfair and must be looked into.

CGTMSE process fee must also be reduced.

PMs initiative of 59 Minutes Loan;

The Prime Minister’s initiative of providing loans through the 59 minutes window online is found to be only on paper.  It is found that it is hardly possible to access loans under this scheme, as banks place hurdles after giving in principle acceptance online.

It should be mandated that Banks display on notice boards statistical information of loans disbursed under the scheme.

SIDBI:

The SIDBI which is meant for refinancing small industries is found to be ineffective as one hardly perceives the direct role of SIDBI  anywhere in addressing the funding issues faced by SMEs.  This institutional mechanism needs to be reviewed and restructured with a view to reaching the SMEs directly and be of true support in providing financial assistance to the entrepreneurs, as it is now perceived  to be rather remote,  when it comes to supporting the SMEs.

Further KASSIA strongly oppose the shifting the Regional Office from Bengaluru to Hyderabad without any reason.

Labour Laws:

Small Industry requires relaxation in matters of labour laws as it is the job creating sector and tends to be labour intensive employing socially backward sections.  We would like the Government particularly to address these issues in consultation with industry including the minimum wages issue. Also, labour law compliance, returns, procedures and related issues need to be addressed and redtape eliminated at all levels.

KASSIA urge Central Government to approve Small Factories Act which is pending before Parliament.

There are also certain local issues which we have highlighted separately that need to be addressed and KASSIA will do everything possible to redress some of these


Cashew Industries:

We are informed by the Cashew Manufacturers in Mangaluru of the problem of non-acceptance of invoice price as per the Bill of Entry by the customs authorities in Mangaluru. Sizeable quantity of cashew kernels are imported by the manufacturers in Mangaluru as the local production is inadequate to meet the demand.  Therefore the action of the custom authorities who reassess the value of these import upwards in  60 to 80% of such cases has become a big problem.   The industry feels that the reassessment is done on very vague parameters and this has affected the performance of the industries in the region negatively.   It appears that even the Authorised Economic Operators are subject to such reassessment.  This problem needs to be looked into by the Central Government.  KASSIA will of course take this up with the Government immediately for a solution.


Certain local issues:

Mangalore, though, endowed with a major port, unfortunately lacks proper connectivity to the port a problem that needs to be addressed in the interest of industries in the State and the entire region.

Industries in Mangalore also face difficulties in moving large containers freely to the port as the local road infrastructure connecting the port needs to be upgraded suitably.

The infrastructure in the industrial areas needs to be maintained and kept up in good shape.

Though, Mangalore is one of the oldest port cities, the development of trade and industry development in the region needs a great deal to be desired.

It is very unfortunate that the New Mangalore Port which should have been the gateway to this region is not utilised optimally for want of connectivity.   As in the past, we would like to urge the State and the Central Governments to develop the connectivity to the Mangalore Port in terms of National Highway link from Hassan to Mangalore, and also to the hinterland in the region which developed properly, could be a major transhipment port serving the entire region.  

The Planned Tube Road from Sakaleshpur to Uppinangadi should be implemented immediately.

KSIA has also highlighted the need for a multi-modal logistics park and also a properly modelled truck terminal.

There are issues connected with power supply and the need to create industrial townships wherever large industrial clusters are present, so that the managements of the industrial areas is able to meet the requirements of the modern industries.

The DSIA has informed that the Single Window Agency must be streamlined so that decisions taken are followed up on a regular basis.

KASSIA, of course will take up these issues at the Government level both at the State and the Centre, wherever required so that these grievances are redressed.

KASSIA constantly discusses these matters with the governments in order to find solutions in the interest of small industries.