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Fears over new grouping of small and medium units

Graduation of units to SMEs will have to be gradual

CREATING WEALTH: The tiny home-based religious articles industry in Koonamavu, near Kochi, provides livelihood to about 1,000 families in the Kottuvally panchayat.

A PARADIGM shift in the mindset of the UPA government talks of an all encompassing continuum of the existing small scale industries and tiny units along with medium enterprises, with a new nomenclature of SMEs. This grouping is a disturbing development that will sound the death knell of the small and tiny sectors as they exist today.

That the SSIs and the tiny sector need to graduate to the medium sector given the dynamics of the present globalised and liberalised scenario cannot be gainsaid. However, any such graduation will have to be a natural progression. The concept should not be thrust on them as is being done now.

Calling each and every small and tiny enterprise to graduate to the medium sector is an invitation to disaster, when considered against the present ground realities. One ground reality as reflected by the Third All India 100 per cent Census 2001-02, of SSI's and tiny units is that registered SSIs constitute less than 15 per cent of the total of this generic grouping which includes artisans, khadi & village industries and craftsmen. Again, of these SSIs 90 per cent proprietary in nature, 7 per cent partnership firms and 3 per cent private limited companies.

Thus it can be clearly seen that the grouping together of the existing small and tiny enterprises with medium enterprises as a continuum and calling them SMEs will in no way help the existing SSIs and tiny units. It is in fact feared that this may even take them out of the ambit of institutional financing.

Such institutional financing is important if at all the small and tiny enterprises are to survive and be competitive even within the country; not to speak of the global markets. The priority sector lending mandate as originally envisaged was only for agriculture and the SSI sector. The avowed objective was to give priority in supporting sustainable productivity, with a clear development orientation. Additions of other sectors/segments were made to this mandate diluting it beyond recognition in character, quality and quantity.

On the one hand, the targets for lending were not attained by banks under this mandate. On the other hand, the extension to other sectors made the priority sector lending cake shrink to levels that reduced direct lending to SSIs a mere ritual.

A very disturbing trend over the last decade has been the steady decline in the percentage of total bank credit extended to SSIs, as also in the absolute number of units so financed.

The share of SSIs which was 16-17 per cent, financing about 32.75 lakh units in the early 1990s, gradually and irreversibly declined during the last decade to 11.1 per cant of bank credit, financing only about 17 lakh units, by March 31, 2004.

A paradox however has been that though the number of units financed and the percentage of finance to these units has come down drastically, the amounts lent to such units has increased substantially. The only logical conclusion based on these ground realities is that the banks even in this dispensation favour and have financed only the larger of the SSIs. Thus the banks have chosen to ignore the smaller among them, for their own convenience and comfort, defeating the very purpose of the priority sector lending mandate.

This aspect in particular gives rise to fears about the proposed grouping based on the assumption that all existing SSIs and tiny units will graduate to SMEs. It will definitely starve them of bank funds.

DE. RAMAKRISHNAN

(President, National Confederation of Small Industry. He can be contacted at derkr@vsnl.com)

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