REPORT NO. 240

PARLIAMENT OF

DEPARTMENT-RELATED PARLIAMENTARY STANDING COMMITTEE ON INDUSTRY

TWO HUNDRED AND FORTIETH REPORT Action Taken Note on the 235th Report of the Committee on the Demands for Grants (2012-13) Pertaining to the Ministry of Micro, Small and Medium Enterprises

(Presented to the Rajya Sabha on 21st March, 2013) (Laid on the Table of the on 21st March, 2013)

Rajya Sabha Secretariat, New Delhi March, 2013/Phalguna, 1934 (Saka) Website:http://rajyasabha.nic.in E-mail:[email protected] Hindi version of this publication is also available

PARLIAMENT OF INDIA RAJYA SABHA

DEPARTMENT-RELATED PARLIAMENTARY STANDING COMMITTEE ON INDUSTRY

TWO HUNDRED AND FORTIETH REPORT

Action Taken Note on the 235th Report of the Committee on the Demands for Grants (2012-13) Pertaining to the Ministry of Micro, Small and Medium Enterprises

(Presented to the Rajya Sabha on 21st March, 2013) (Laid on the Table of the Lok Sabha on 21st March, 2013)

Rajya Sabha Secretariat, New Delhi March, 2013/Phalguna, 1934 (Saka)

CONTENTS

PAGES

1. COMPOSITION OF THE COMMITTEE ...... (i)-(ii)

2. INTRODUCTION ...... (iii)

3. REPORT ...... 1—19

(i) Chapter–I Recommendations/Observations, which have been accepted by the Ministry ...... 2

(ii) Chapter–II Recommendations/Observations, which the Committee does not desire to pursue in view of the Government’s replies...... 3—5 (iii) Chapter–III Recommendations/Observations in respect of which the Committee has either not accepted the replies of the Ministry or has asked the Ministry to review its replies ...... 6—7

(iv) Chapter–IV Recommendations/Observations in respect of which final replies of the Ministry have not been received ...... 8—19

4. MINUTES ...... 21—24

COMPOSITION OF THE COMMITTEE (Constituted w.e.f. 31st August, 2012)

RAJYA SABHA 1. Shri Tiruchi Siva — Chairman 2. Shri Narendra Budania 3. Shri Ashk Ali Tak 4. Shri Ananda Bhaskar Rapolu 5. Shri Natuji Halaji Thakor 6. Shri Basawaraj Patil 7. Prof. S. P. Singh Baghel 8. Shri Vivek Gupta 9. Shri Nandamuri Harikrishna 10. Shri M. P. Achuthan

LOK SABHA 11. Dr. Rattan Singh Ajnala 12. Shri Khiladi Lal Bairwa 13. Shri N.S.V. Chitthan 14. Shrimati Poonamben Veljibhai Jat 15. Shri Ram Singh Kaswan 16. Shri Hassan Khan 17. Shri Kaushalendra Kumar 18. Shrimati Ingrid Mcleod 19. Shri Bharat Ram Meghwal 20. Shri Somen Mitra 21. Shri P. R. Natarajan 22. Shri Gorakhnath Pandey 23. Shri Jayaram Pangi 24. Shri R. K. Singh Patel 25. Shri B. Y. Raghavendra 26. Shri Gopal Singh Shekhawat 27. Shri Ijyaraj Singh 28. Ch. Lal Singh 29. Dr. Kirit Premjibhai Solanki 30. Shri E. G. Sugavanam 31. Shri Ramsinh Rathwa

(i) (ii)

SECRETARIAT Shri S. N. Sahu, Joint Secretary Shrimati Sunita Sekaran, Director Shri Roshan Lal, Deputy Director Shri Ranjan Chaturvedi, Assistant Director INTRODUCTION

I, the Chairman of the Department-related Parliamentary Standing Committee on Industry, having been authorized by the Committee, hereby present this Two Hundred and Fortieth Report on Action Taken Notes furnished by the Ministry of Micro, Small and Medium Enterprises on the recommendations contained in the Committee’s Two Hundred and Thirty-Fifth Report on the Demands for Grants (2012-13).

2. I thank the Ministry of Micro, Small and Medium Enterprises for furnishing the Action Taken Notes on the recommendations contained in the Committee’s Two Hundred and Thirty-Fifth Report.

3. The Committee in its meeting held on the 19th March, 2013 considered and adopted the report.

TIRUCHI SIVA NEW DELHI; Chairman, 19th March, 2013 Department-related Parliamentary Standing Committee on Industry.

(iii)

1

REPORT

The Action Taken Report of the Committee deals with the Action Taken by the Ministry of Micro, Small and Medium Enterprises on the recommendations contained in the Committee’s Two Hundred and Thirty-Fifth Report on the Demands for Grants (2012-13) pertaining to Ministry of Micro, Small and Medium Enterprises. 2. Action Taken Notes have been received from the Ministry of Micro, Small and Medium Enterprises in respect of the recommendations contained in the Report. These have been categorized as follows: Chapter-I – The recommendations/observations, which have been accepted by the Ministry. The Committee is pleased to observe that the Ministry has accepted its recommendations as mentioned in the Chapter–I of the Report. Chapter-II – The recommendations/observations, which the Committee does not desire to pursue in view of the Government’s replies. In respect of these recommendations the Committee is convinced with the logic and explanations advanced by the Ministry and therefore do not want to pursue them for the present. Chapter-III – The recommendations/observations in respect of which the Committee has either not accepted replies of the Ministry or has asked the Ministry to review its reply. The Committee expresses its concern over the non-implementation of recommendations contained in Chapter–III and desires that the Ministry should furnish logical explanations therefore. Chapter-IV – The recommendations/observations in respect of which final replies of the Ministry have not been received. In respect of recommendations placed in Chapter–IV, the Ministry has either furnished the interim replies or couched its language in vague terms like noted for compliance/guidance, therefore, the Committee desires that the Ministry should furnish Action Taken Notes in respects of recommendations categorized in Chapter-IV in detail and to the point, as per the intention and spirit of the recommendations of the Committee. 3. The details of the ATR are being discussed in the succeeding pages. 2

CHAPTER-I

Recommendations/Observations, which have been accepted by the Ministry

Recommendation/Observation 1. The Committee therefore recommends the Government to consider enhancing the allocation for providing assistance for setting up of marketing complexes, exclusively for KVIC products not only in metro cities but also in state capitals. (Para No. 40)

Action Taken/Comments An umbrella scheme for marketing and publicity named ‘Market Promotion (including export promotion) & Publicity’ has been proposed in the Twelfth Five Year Plan, in which a new component for developing ‘Marketing Complexes/Plazas’ has also been proposed.

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CHAPTER-II

Recommendations/Observations, which the Committee does not desire to pursue in view of the Government's replies

Recommendation/Observation 1. The Committee strongly recommends that policies must be adopted whereby the MSMEs showing good performance would get enhanced credit automatically. (Para No. 27)

Action Taken/Comments The recommendation of the Committee was taken up with the RBI, Indian Banks’ Association (IBA) & Small Industries Development Bank of India (SIDBI). The RBI has informed that Bank Boards have been given freedom to frame their own policies based on their commercial judgment. Further, IBA has informed that hassle free credit enhancement can be made available to MSME units showing good performance consistently. However, it would not be possible for banks to sanction higher limits without going through a review/renewal process. The limits are fixed based on the projected turnover. As per SIDBI’s Loan Policy, no deserving and bankable proposal is denied assistance. Accordingly, SIDBI provides enhanced credit to viable projects/good performing MSMEs.

Recommendation/Observation 2. The Committee appreciated this suggestion which would promote the synergy between the large and small industries and feels that such synergy would actually promote research and development capabilities of the MSMEs and encourage innovation. The Committee strongly recommends for measures for establishing synergy between the large industries and MSME sector. (Para No. 28)

Action Taken/Comments It pertains to the proposal/idea of association for providing tax benefits of certain percentage to the large industries if they buy minimum percentage of goods and services from MSMEs sector. The proposal needs to be examined by Ministry of Finance. This Ministry proposes to send this as part of budget proposals annually sent to Ministry of Finance. Regarding other measure for establishing synergy, the procurement policy has been formulated whereby Government and Public Sector body are required to procure 20% of their procurement requirement from the SME sector.

Recommendation/Observation 3. The Committee is of the opinion that the MSME Ministry has fallen short of the target (under KVI). At a time when skill development is being emphasized by the Government and the Ministry is one of the key nodal Ministries for developing the skill of the youth, it is sad to note

3 4 that it has not been able to meet the target. The Committee strongly recommends for measures to achieve the target in this respect. (Para No. 36)

Action Taken/Comments Against the target of 90,000 persons, KVIC had imparted training to 1,07,490 (provisional) persons in 2011-12 under its programmes for skill development [including Entrepreneurship Development Programme (EDP) training under Prime Minister’s Employment Generation Programme (PMEGP)]. An ambitious target of training 1,40,000 persons has been fixed for the year 2012-13.

Recommendation/Observation 4. The Committee feels that the establishment of six Central Sliver Plants are not adequate. It recommends that the Government should consider for opening of new godowns in each State for ensuring uninterrupted supply of raw material. (Para No. 37)

Action Taken/Comments KVIC is arranging, under Khadi Reform and Development Programme (KRDP), introduction of Public Private Partnership (PPP) in the existing Central Sliver Plants (CSPs) whereby major khadi institutions/federations will be initiated to run the CSPs to increase production as well as bring down raw material conversion cost. Additional CSPs will be duly considered on the basis of need and availability of resources.

Recommendation/Observation

5. The Committee feels that to increase the sale of the coir products, it is important to expand the sales network all over India. (Para No. 47)

Action Taken/Comments The total sales of coir and coir products through Coir Board Showrooms and Sales Depots during the year 2011-12 was Rs.13.87 crore. For the expansion in the sales network of coir and coir products all over India, concerted efforts in aggressive marketing are being made. Exclusive coir expos are proposed in major cities of the country. The Showrooms of the Coir Board are also proposed to have a uniform, modern look, showcasing the entire range of coir products. Eco Mark for coir products is being actively pursued with Ministry of Environment and Forests. Coir Mark Scheme is also being strengthened to cover the entire coir products sold in the domestic market so as to ensure the quality of coir products.

Recommendation/Observation 6. The Committee appreciates the overall working of the Coir Board in export promotion and recommends timely and hassle free approval of the Government to the participants in Trade Fair/ Exhibitions. (Para No. 48)

Action Taken/Comments To ensure timely and hassle-free approvals on the participation of the Coir Board in trade fairs/exhibitions, in-principle selection of fairs in established markets as well as in the niche 5 markets, both, is made in the beginning of the financial year itself so that necessary action for the booking of space, etc. could be taken by the Coir Board in time. Efforts are being made for increasing the number of entrepreneurs participating in each international fair so that, on the one hand, the participation in each fair is more cost-effective and, on the other hand, the targets are fully achieved. 6

CHAPTER-III

Recommendations/Observations in respect of which the Committee has either not accepted the replies of the Ministry or has asked the Ministry to review its replies

Recommendation/Observation 1. The Committee fails to understand the reasons behind non-utilization of funds. It is important that the Ministry must use the money allocated to it for meeting its targets. The Committee would like to get an explanation from the Ministry in this regard. (Para No. 14)

Action Taken/Comments Most of the schemes of this Ministry are demand driven and hence, target for the scheme for the forthcoming years are based on projected demands. Every MSME-DIs were assigned target annually i.e. number of MSEs to be given benefits in their areas. Funds allocated under marketing support scheme could not be utilized by field offices as no more MSEs having bar code certification came forward for claiming reimbursement.

Further Recommendation/Observation Considering the scope and role of MSME sector in national economy, such reasons for underutilization of scarce funds betray the lack of scope and preparation before launching such Schemes. The structure of Scheme is complex incomplete and the implementing agencies are unable to use the resources and opportunities. Not enough effort have been made to generate awareness about this scheme by local agencies. The Committee is also of the view that such Schemes should have component for cost of manpower to enable the implementing agency to high adequate and skilled manpower.

Recommendation/Observation 2. The Committee feels that the schemes discontinued could have been implemented initially on a pilot basis. It is rather deplorable that adequate planning was not made to start such schemes which sounded quite good. The committee feels that the plans must be devised by the Ministry by taking into account its Vision and Mission which have been so eloquently outlined by the Ministry. (Para No. 16)

Action Taken/Comments

This Ministry has discontinued various schemes viz. Vertical Shaft Brick Klin (VSBK), WTO, Bio-Tech, Scheme for Tailor made courses for new entrepreneurs through select business schools/Technical Institutes, to support 5 select universities/colleges to run 1200 Entrepreneurship Clubs, Training cum Product Development Centres, Scheme for Capacity Building during 2012-13. Since these schemes were having limited scope and could not achieve the desired targets, these have been discontinued. However, by taking into the broader vision in mind, these schemes have been subsumed into various schemes proposed in the Twelfth plan with exploring the widen objectives and scope taking into account the vision and mission of the Ministry.

6 7

Further Recommendation/Observation The Committee finds such replies as an attempt to discover and discard the Schemes designed by the Ministry itself. The committee would like to be apprised as to how these schemes have been subsumed in Twelfth Plan.

Recommendation/Observation 3. The Committee has taken note of the fact that the MSMEs do not have a level playing field with the other large corporate sectors. Even the common complaint is that the tax rates are skewed in favour of the imported items. As a result, they find it difficult to compete with the industries which import goods from the foreign countries. This is a suggestion which deserves serious and focused attention. The Committee would like to get a detailed explanation on this issue. (Para No. 43)

Action Taken/Comments The tax incidence on inputs sourced by MSMEs from domestic supplies, as compared to the tax incidences on inputs imported by large corporate needs to be studied in order to establish whether large corporate indeed have a cost advantage of paying lower taxes. However, it may be noted that low tax rates on import of inputs puts pressure on domestic suppliers of inputs to reduce prices, which in turn benefits MSMEs. The bottom line, however, is that MSMEs must increase their competitiveness. Government has taken several steps to increase the competitiveness of MSMEs. These includes launching of National Manufacturing Competitiveness Programme (NMCP), enactment of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, credit and infrastructure support, technology up-gradation, skill development, cluster development, marketing support and public procurement policy for micro and small enterprises.

Further Recommendation/Observation The Ministry in its reply has not addressed the issue comprehensively. The MSME also require level playing field to remain competitive vis-à-vis low duty imports. 8

CHAPTER-IV

Recommendations/Observations in respect of which final replies of the Ministry have not been received

Recommendation/Observation 1. The Committee strongly feels that a critical and strategic sector like the MSME deserves higher allocations of funds from the Planning Commission. The Prime Minister Dr. Manmohan Singh while presenting the National Awards to Micro, Small and Medium Enterprises on 28th August, 2009, reiterated Governments’ commitment to “support, nurse and encourage this very important segment and sector of our economy”. The sharp curtailment of the proposals of the MSME Ministry by the Planning Commission is not in consonance with the vision of the Prime Minister to “support, nurse and encourage this very important segment and sector of our economy”. When the country glowingly acknowledge the vital role of MSME sector to increase productivity, enhance exports, create employment opportunities, develop skills of our youth and promote inclusive growth, it is important to give substantially higher allocation to the MSME Ministry. (Para No. 9)

Recommendation/Observation 2. The Committee feels that allocation of inadequate funds for the MSME Ministry is an indication of the mind set of the concerned organization of the Government which is more aligned to the corporate sector than the MSME sector. Given the importance of the MSME sector for our economy, the Committee strongly recommends for the change of such mind set on the part of the Planning Commission and the Ministry of Finance for strengthening the MSME Ministry and the MSME sector. (Para No. 10)

Action Taken/Comments on Para No. 9 and 10 Ministry of MSME proposed an outlay of Rs. 6770.40 crore for 2012-13 in its action plan to Planning Commission. Planning Commission has assessed the requirement of funds for the year 2012-13 based on the expenditure incurred for the 2011-12 in the Eleventh Five Year Plan. As per the record, the expenditure of M/o MSME for the year 2011-12 is Rs.1934.42 crore. M/o MSME has been allocated a budget of Rs. 2835.00 crore for the on-going schemes including Rs. 100.00 crore for National Innovation Fund, which is 46.5% higher than expenditure done by the Ministry during 2011-12. Thus the adequate budgetary outlay has been provided to the Ministry. This Ministry has proposed an outlay of Rs. 64,790.00 crore for the Twelfth Plan.

Further Observation The Committee would like to know if Ministry would require additional funds in Supplementary Demand or has made savings. The Committee may also be informed of quarter-wise release of Plan and Non-Plan funds.

Recommendation/observation 3. The Committee demands an explanation from the Ministry to enable it to understand the real reasons behind such shortfall. (Para No. 12)

8 9

Action Taken/Comments

The under utilization of budgetary funds was attributed to the fact that many schemes are demand driven. Budgetary funds could not be disbursed to beneficiaries as some of them did not come forward to avail the benefits of some of the schemes viz. Implementation of Lean Manufacturing Competitiveness Programme; Promotion of ICT Tools in MSME Sector; Setting up of Mini Tool Rooms under PPP Mode Technology; Upgradation and Quality Certification Support to MSMEs; Support for Entrepreneurial and Managerial Development of SMEs through Incubators; Enabling manufacturing Sector to be competitive through Quality Management Standards and Quality Technology Tools; Marketing Assistance and Technology Upgradation and MSME cluster development programme.

International Cooperation Scheme and Rajiv Gandhi Udyami Mitra Yojana also had their funds underutilized for the reason of being demand driven schemes. Moreover, under the International Cooperation Scheme, many applications could not be processed due to non-receipt of requisite documents from the applicant organization. Under utilization of budgetary funds was also on account of inadequate support from partner agencies. Thus funds under ‘Upgradation of data base’, was under utilized as Census Survey could not be conducted for want of necessary inputs from the State Governments. Funds under ‘Capital Outlay on Public Works’ could not be utilized owing to the inability of CPWD to complete the works on time.

Underutilization of funds under Khadi Reforms and Development Programme was due to non-fulfillment of the conditions given in the Policy Matrix for release of funds. Funds earmarked for erstwhile Prime Minister Rozgar Yojana (PMRY) and Rural Employment Generation Programme (REGP) remained largely unspent due to non-receipt of the requisite certificates from RBI and KVIC as per the conditions laid down by the Expenditure Finance Committee and as approved by the CCEA. The Ministry is emphasizing on RBI and KVIC that the requisite certification may be furnished on timebound priority.

Under the Coir Sector’s ‘Rejuvenation, Modernization and Technology Upgaradation of Coir Industry (REMOT) scheme, the funds could be only partly released as certain pre-requisites under the scheme such as empanelment of machinery manufacturers and endline physical verification (as per the operational guidelines), took longer time to complete than anticipated. The implementation of the scheme subsequently has picked up.

Evaluation of all the above schemes is being done by an independent third party agency and the schemes would be modified, if required, based on the results of the evaluation.

Further Observation

The Committee may be apprised of outcome of such evaluation by third party agency.

Recommendation/Observation

4. The committee strongly recommends that more money must be allocated for establishment of tool rooms across the country. It is understood that the MSME Ministry is also approaching the concerned organizations within the Government to get loans from the International Financial Institutions. If the Planning Commission and the Finance Ministry cannot allocate more funds for this purpose, then necessary permission to the MSME Ministry to get access to borrowings from other International Banks may be given without any delay. However, it is strongly recommended that we must use our own resources for this cause which is good for the youth of our country and the MSME sector. (Para No. 19) 10

Action Taken/Comments Under Tool Room scheme, an allocation of Rs. 55.00 crore (BE) was made during 2011-12 and with the enhancement of Rs. 3.00 crore an amount of Rs. 58.00 crore (BE) has been allocated during 2012-13. Considering the need of establishing more mini Tool Rooms in the country and non-availability of enough budgetary resources, M/o MSME have approached M/o Finance (Deptt. of Economic Affairs) and Planning Commission seeking their approval for having access to multilateral funding from World bank/ADB to the tune of US $350 million for XII Plan.

Further Observation The Committee would like to be apprised on the utilization of the allocation. Given the possibility that the Ministry underutilizes its allocation in other schemes, a possibility could be explored to use the saving to bridge the resource gap for Tool Room Scheme.

Recommendation/Observation 5. People are queuing up to get facilities under PMEGP, but the Committee finds that the money allocated to subsidized the margin money has not been fully utilized. The Ministry of MSME must explain the reasons behind non-utilization of the money. (Para No. 22)

Action Taken/Comments As per the latest available figures, the RE for margin money subsidy in 2011-12 was fully utilized as follows: During the year 2011-12, the Budget Estimates under Prime Minister’s Employment Generation Programme (PMEGP) were Rs. 1037 crore [Rs.800 crore for Margin Money Subsidy + Rs.237 crore for Backward and Forward linkages (including Rs. 205.71 crore for residual liabilities of erstwhile PMRY and REGP)] and the same were enhanced at Revised Estimates (RE) stage to Rs. 1215.95 crore [Rs. 978.95 crore for Margin Money Subsidy + Rs. 237 crore for Backward and Forward linkages (including Rs. 205.71 crore for residual liabilities of erstwhile PMRY and REGP)]. A total of Rs. 1057.06 crore (Rs. 978.95 crore + Rs. 31.29 crore = Rs. 1010.24 crore for Margin Money Subsidy + Rs. 46.82 crore for residual liabilities) were released to KVIC. Rs. 31.29 crore was utilized for Margin Money Subsidy from the amount earlier earmarked for Backward and Forward linkages. Rs. 205.71 crore – Rs. 46.82 crore = Rs. 158.89 crore of the amount earmarked for residual liabilities of erstwhile PMRY and REGP could not be released because of lack of requisite certification from KVIC and RBI. The total Margin Money utilized in 2011-12 was Rs. 1058.51 crore (including un-utilized balance funds of previous year). Hence, not only the allocation of Rs. 978.95 crore for Margin Money Subsidy in 2011-12 was released fully but additional allocation of Rs. 31.29 crore was also made from the unutilized funds originally earmarked for Backward and Forward linkages.

Further Observation The Committee notes that the annual targets for number of projects to be financed under the Scheme have consistently been missed. What is more disconcerting is the fact that the targets have been reduced every successive year. In year 2010-11, against a target of setting up 66,000 micro enterprises, only 49,000 enterprises were assisted, this target was further reduced to 43,000 units for 2011-12 but achievement upto 31.12.11 was even lower at 28,000 units. 11

Recommendation/Observation 6. The Committee is happy to note that the allocation for this programme is increasing on a year to year basis. However, it notes that this increase is not in proportion to the demand from the youth of our country for setting up of projects under PMEGP. Taking into account the increase in budgetary allocation, the Committee strongly recommends that he ceiling limits for the projects which are being set up under this programme must be enhanced. In this context, it recommends that while ceiling limit for the manufacturing sector must be increased from Rs. 25 to Rs. 50 lakhs, such limits in case of service sector may be increase from Rs. 10 to Rs. 15 lakhs. The Committee is satisfied to note that projects under the PMEGP are being electronically monitored right from the application stage to the establishment of the unit. This online tracking system has enabled the implementing agency to ensure transparency and accountability. The Committee also observe with satisfaction that those beneficiaries under the PMEGP who have been trained and passed out from National Small Industries Corporation, National Institute for Entrepreneurs and Small Business Development and MSME Development Institute would be exempted from undergoing entrepreneur development programme under PMEGP. (Para No. 25)

Action Taken/Comments Enhancement in ceiling of project cost will be duly examined for competent decision when the scheme is appraised for continued implementation in the Twelfth Five Year Plan.

Further Observation The Committee also notes that against a stated target of creating 38 lakh additional employment opportunities during Eleventh Plan, till end of February, 2012, only 15 lakh job opportunities were created. In view of above were utilization of allocation should not a relevant standard is measuring the implementation of Scheme.

Recommendation/Observation 7. The Committee regrets that even the public sector banks have failed to reach out to the micro sector by providing adequate credit to it. This is an alarming phenomenon which would lead to stunted and arrested growth of the micro enterprises. The Committee strongly recommends that the Reserve Bank of India and the Ministry of MSME must monitor the credit being issued to the micro sector and take measures to increase the volume of credit to this sector. (Para No. 26)

Action Taken/Comments Pursuant to the recommendations of the Prime Minister’s Task Force on MSMEs, scheduled commercial banks have been advised by Reserve Bank of India (RBI) to achieve the share of Micro enterprises in MSE lending of 60% in stages viz., 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13 with 10% annual growth in the number of micro enterprise accounts and also 20% year-on-year growth in MSE lending. The Reserve Bank is closely monitoring the achievement of targets by banks on quarterly basis. RBI has taken up the matter with the banks that have failed to achieve the targets prescribed by the Task Force.

Further Observation The Committee would like the Ministry to obtain the status report in this respect from the RBI. 12

Recommendation/Observation 8. The Committee has noticed that during the year 2005-06 KVIC was allocated total plan budget of Rs. 400-500 crores. Now keeping in view the need as well requirement and potential the KVIC the plan budget allocation has been increased by the Government to the tune of 1565.54 crores in the year 2012-13. The Committee feels that sufficient and skilled manpower is key to successful implementation of the Schemes and Programmes. KVIC has accepted the challenge with its present manpower but the work has also increased manifold and KVIC has to come to the expectation of the Government. In view of this it seems difficult to cope up the work pressure with existing staff strength. It therefore, recommends that the number of officers and staff should also be increased in KVIC in proportion to the budget allocated to achieve the targets and utilize the budget to the full extent. (Para No. 30)

Action Taken/Comments A study on manpower (staff and officers) in KVIC was concluded by the Staff Inspection Unit (SIU) of Ministry of Finance in January, 2012. The Ministry has forwarded its recommendations to KVIC with the approval of competent authority for implementation. SIU has recommended creation of certain additional posts and reduction in the existing strength of certain other posts; overall the existing strength is recommended to be reduced from 2410 to 2168, inclusive of 85 leave reserve posts. KVIC has taken up the matter with Department of Expenditure for reconsideration of the assessment made by SIU and for approving a staff strength of 2435 under various categories as proposed by KVIC for smooth functioning and effective implementation of the KVI programmes.

Further Observation The Committee has always apprehended that with its existing manpower and network, whether KVIC could effectively implement ambitious schemes like PMEGP at all India level. The Committee is of the opinion that such Schemes should have a built in component for the provision of human resources required to implement and monitor the performance. Ignoring human resource is the biggest folly which led to underachievement of Scheme.

Recommendation/Observation 9. The Committee is of the view that in changing Indian scenario of high growth of the economy and stiff competition from the corporate giants, training system in KVIC needs improvement through development of appropriate courses, introduction of new courses, improvement in infrastructure equipment and adoption of improved technology and training of trainers. (Para No. 31)

Action Taken/Comments KVIC had imparted training to 107,490 (provisional) persons in 2011-12 under its programmes for skill development [including Entrepreneurship Development Programme(EDP) training under Prime Minister’s Employment Generation Programme(PMEGP)]. An ambitious target of training 1,40,000 persons has been fixed for the year 2012-13 in pursuance of target fixed by the Prime Minister’s National Council on Skill Development. Standardization of existing courses, introduction of new and potential courses, training of trainers, adoption of improved technology and system of feed-back from, and tracking of, the trainees, etc., are proposed to be duly addressed in the Twelfth Five Year Plan. 13

Further Observation The Committee may be apprised as to how the vocations and centres for skill development chosen and what is the cost of training per candidate.

Recommendation/Observation 10. The Committee notes that the reduction of the funds for the Khadi sector is a matter of serious concern. In the aforementioned paras, the Committee has taken note of the fact that the banks have not been issuing adequate credit to the micro sector. As per the above table, the funds coming from the Government to the Khadi sector which is part of the small and micro enterprises are also declining. The Committee demands an explanation from the Ministry in this regard. It is well known that some of the poorest of the poor weavers and artisans are associated with this sector. The Khadi and Village Industries embody the vision of the Father of our Nation Mahatma Gandhi. Any neglect shown to this sector is a neglect of that lofty vision. The Committee finds it unacceptable that the Khadi sector is getting such treatment from both the Ministry of Finance and the Planning Commission. The Committee strongly recommends that remedial measures must be taken to ensure fair allocation of funds to the Khadi component of the Khadi and Village Industries. (Para No. 33)

Action Taken/Comments In the Eleventh Five Year Plan, total allocation at RE stage for Khadi and Village Industries (KVI) sector was Rs. 5754.93 crore, of which Rs. 5297.87 crore was released. The Working Group for MSME for the Twelfth Five Year Plan has recommended total outlay of Rs. 14,800 crore for the KVI sector. The Working Group Report is yet to be considered by the Planning Commission. In the Annual Plan for 2012-13, total outlay of Rs. 2788.50 crore was proposed for KVI sector. An allocation of Rs. 1629.79 crore was made for the KVI sector (including SFURTI for KVI and Coir) out of the total budget of Rs. 2835 crore approved for the Ministry as a whole for 2012-13.

Further Observation The Committee has observed that in BE 2011-12 the total allocation of KVI sector was 1619.57 crores which was reduced in RE 2011-12 to 1537.67 crores. Currently though only Planned allocation was reduced to Rs. 1351.95 crores whereas Non-Planned allocation was actually enhanced to Rs. 185.72 crores. Even against the reduced RE, the actual expenditure till 31.12.2011 was only Rs. 1159.95 crores. The Committee will take note of the actual expenditure during 2011-12.

Recommendation/Observation 11. The Committee in its Report on Credit Facility to MSME Sector had recommended that SIDBI should function under the jurisdiction of the MSME Ministry. The Committee reiterates this recommendation for better flow of credit to the MSME sector. Accordingly steps must be taken by the Government (Ministry of Finance) to bring the SIDBI within the jurisdiction of the MSME Ministry. (Para No. 38)

Action Taken/Comments The recommendation of the Committee has been taken up with Ministry of Finance, Department of Financial Services. 14

Further Observation The Committee would like to be apprised of the follow up on its recommendation.

Recommendation/Observation 12. The Committee takes into account the suggestion of some of the representatives of the MSME association for opening up a window or a cell for MSME to avail of the External Commercial Borrowing. It recommends that this suggestion may be actively considered for its final implementation. (Para No. 39)

Action Taken/Comments As informed by RBI, MSMEs registered only as companies under the Companies Act, 1956 are eligible for External Commercial Borrowings (ECB). The ECB benefits for registered eligible companies are as follows: (i) In manufacturing/industrial sector, registered companies are eligible to avail of External Commercial Borrowings (ECBs) up to USD 750 million per financial year under the automatic route subject to compliance with the extant guidelines on ECB; (ii) In hotel, hospital and software, registered companies are eligible to avail of ECBs up to USD 200 million per financial year under the automatic route subject to compliance with the extant guidelines on ECB; and (iii) In other service sector other than (ii) above, they can avail of ECBs from their foreign equity holders under the approval route. Further, it has been informed that considering the deteriorating external debt indicators, the issue of further relaxation in ECB norms to MSMEs will be examined.

Further Observation The Committee may be apprised of the current status in respect of ECB.

Recommendation/Observation 13. As far as the North Eastern part of our country is concerned, there is a persistent feeling that implementation of the programmes as per the industrial policy formulated for that area are not at all satisfactory. Even the incentive in terms of income tax exemption, excise exemption, etc., have been greatly diluted. The Committee urges the Ministry of MSME to take stock of the situation and chalk out a programme to address the problem. (Para No. 41)

Action Taken/Comments In NER region, sufficient number of applications for claiming reimbursement/subsidies/ Grant-in-aid are not received under various schemes of MSME. Receipt of fewer number of proposals under various schemes is also one of the reasons. Apart from this, difficult local condition, shortage of staff and procedural difficulties are major cause for under performance of the programme. However, concerted efforts are being made in the region to train the people to acquire necessary skills for increasing industrial growth.

Further Observation The Committee is of the view that it is worth the extra effort to promote programme 15 in NER, a region traditionally endeavored with skills and has vast market for products. Several Central and centrally sponsored Schemes are benefitted for NER which make a certain percentage of procurement from MSME sector mandatory. Apart from imparting skills, efforts should be made for simply procedurals difficulties.

Recommendation/Observation 14. The Committee agrees with idea of the some representation of the MSME association that those special economic zones which are not being utilized may be declared a MSME zone and MSME units may be established on a PPP mode. (Para No. 42)

Action Taken/Comments As the above matter relates to Ministry of Commerce and Industry, the matter has been taken up with them. The requisite information in the matter will be provided as soon as it is received from Ministry of Commerce and Industry.

Further Observation The Committee may be apprised of the inputs given by Ministry of Commerce and Industry in this regard.

Recommendation/Observation 15. The Committee takes note of the fact that the Coir Board has been allocated Rs. 7.00 crore under Plan (Science and Technology). It feels that the amount is insufficient in the context of the vast area of operation of the Board covering the coastal belt of the Country which includes Lakshadweep and A&N Islands. The Committee feels that appropriate technology needs to be transferred to the Coir Industry. It entails incubator training programmes and provision of one time assistance upto 50% of the funds needed to establish pilot units. (Para No. 44)

Action Taken/Comments For the Twelfth Five Year Plan, an amount of Rs.124 crore has been recommended by the Working Group for MSME for the implementation of various programmes under the Plan (Science and Technology) Scheme of Coir Board. The Working Group Report is yet to be considered by the Planning Commission. An amount of Rs. 7 crore has been allocated for the implementation of Science and Technology Scheme for the year 2012-13, which will be used in broadly the following: 1. Modernization of Production process. 2. Development of Machinery and Equipments. 3. Product Development and Diversification. 4. Development of Environment Friendly Technologies. 5. Technology Transfer, Incubation, Testing and Service Facilities. This shall take care of the transfer of appropriate technology to the coir industry.

Further Observation The Committee considers the allocation too meager to make any significant difference. The Committee is also concerned about low utilization of allocation. In year 16

2011-12, for Rejuvenation, Modernization and Technology Up-gradation of Coir industry against BE of Rs. 18.90 crores, the revised estimate was reduced to Rs. 10.53 crores. The Committee therefore recommends that steps should be taken to explore the scope of technology up-gradation so that allocations are fully justified.

Recommendation/Observation 16. The Committee therefore recommends that it should be modified to provide better financial assistance keeping in view the cost of Plant and Machinery. It also recommends that the limit may be extended to Rs. 10 lakh from Rs. 6 lakhs to benefit the coir industry. (Para No. 46)

Action Taken/Comments Enhancement in project cost will be duly considered by competent authority at the time of appraisal of the scheme for continued implementation in the Twelfth Five Year Plan.

Further Observation The Committee may be apprised of latest status.

Recommendation/Observation 17. The Committee has noted that the Coir Board is running a beneficial scheme Mahila Coir Yojna for self employment of women. The Committee during its study visit at Lakshadweep visited one of the centres under this Scheme and interacted with few spinners and was dismayed over the stipend given to the women spinners which was very insufficient and recommends that the present limit of stipend should be raised in view of the increased cost of living and inflation. (Para No. 49)

Action Taken/Comments Enhancement in stipend will be duly considered for approval by competent authority at the time of appraisal of the scheme for continued implementation in the Twelfth Five Year Plan.

Further Observation The Committee may be apprised of latest status in respect of the recommendation.

Recommendation/Observation 18. The Committee draws the attention of the MSME Ministry to the aforementioned suggestions and recommends appropriate measures to take up these points. The Committee also would like to get a detailed note in this regard. (Para No. 50)

Action Taken/Comments The point-wise comments on the issues raised by the representatives of the MSME association are given below:– (i) Provision for the rehabilitation of sick units as large number of units are becoming sick; A mechanism for rehabilitation of potentially viable sick MSEs already exists as per the extant guidelines of RBI to Scheduled Commercial Banks. The State Level Inter Institutional 17

Committee (SLIIC) has been set up in each State under the Convenorship of RBI to deal with the problems of co-ordination for rehabilitation of sick small enterprises. The Committee is presided by Secretary, Industry of the State Government concerned. It provides a useful forum for interaction between State Government officials and State level institutions on the one hand and term lending institutions and banks on the other hand. Further, at the Regional Offices of RBI, Empowered Committees (EC) have been constituted with the Regional Director of Reserve Bank as the Chairman to review various issues relating to MSE sector particularly, the progress in MSE financing and rehabilitation of sick MSE units and to co-ordinate with other banks/financial institutions and the State Government in removing bottlenecks, if any, to ensure smooth flow of credit to the sector. These Regional level Committees also decide on the need to have similar Committees at cluster/district levels. However, since it was found that there was duplication of deliberations at the meetings of SLIIC and Empowered Committee (EC), it was decided that the matter of continuation or otherwise of the SLIIC forum may be left to the individual State/Union Territory. Further, in order to help the sick MSMEs, SIDBI has been extending rehabilitation package to its assisted and potentially viable MSME sick units which provides for relief and concessions (in the form of reschedulement, reduction in interest rate, funding of overdue/future interest, waiver, etc.) as well as need based additional financial assistance for their revival on viable lines. SIDBI also operates a Refinance Scheme for Rehabilitation of sick small scale industrial units assisted through primary lending institutions, viz., SFCs/SIDCs and Banks.

(ii) Appellate Authority where the problems of individual sick industry may be heard or targets should be fixed for banks that they will have to rehabilitate about 20% sick industries; The modification in definition of sickness and procedure for assessing the viability is under consideration. It is proposed to give a hearing to the MSE borrower before deciding the viability of a unit. It is expected that once the new system is in place, the process of timely rehabilitation of sick units would take place. The RBI is of the view that strengthening the rehabilitation process and making it more inclusive and effective would be in the interest of the MSE sector rather than prescribing targets, which would lead to banks complying to achieve the target rather than putting in place an effective monitoring and rehabilitation process of sick MSEs.

(iii) Discrimination between Small and large industries as the large industries get protection from the Government under BIFR after erosion of 50% or more of their net-worth but such protection is not available to sick MSEs; As mentioned above, modification in definition of sickness and procedure for assessing the viability is under consideration. Once the new system is in place, the process of timely rehabilitation of sick MSE units would take place.

(iv) Venture Fund of Rs. 5000 crore should also be available to Micro Enterprises and not only to Medium and Small Enterprises; In order to channalise more equity funding to the MSME sector, the Union Budget 2012-13 announced setting up of a Rs. 5,000 crore India Opportunities Venture Fund (IOVF) with SIDBI. As informed by SIDBI, the fund would be sector agnostic and utilized for providing equity assistance to MSMEs. SIDBI would act as the Fund of Funds to help create sufficient number of venture equity funds in the country, as also tap various channel partners like Banks, NBFCs, etc., apart from providing such equity/quasi-equity support directly to MSMEs. 18

(v) Enhancement of limit for MSMEs for Plan and machinery from Rs. 10 crore to Rs. 25 crore so as to enable the MSMEs to modernize themselves; The enhancement in the limit of small manufacturing enterprises had been made from Rs. 1 crore to Rs. 5 crore in the year 2006. Similarly, a limit of Rs.10 crore was fixed for medium manufacturing enterprises in the same year.

(vi) Limit of tax audit should be increased from Rs. 60 lakh to Rs. 1 crore; In the Pre-Budget proposals 2012-13 of MoMSME it was recommended that the Tax Audit limit may be enhanced from Rs. 60 lakh to Rs. 2 crore due to sharp increase in various input prices resulting in inflated turnover. However, in the Union Budget 2012-13, the turnover limit for compulsory tax audit of accounts as well as for presumptivetaxation has been raised from Rs. 60 lakh to Rs. 1 crore for SMEs.

(vii) Increasing the limit of excise duty and service tax; The recommendation of the Committee has been taken up with the Ministry of Finance, Department of Revenue. A reminder has been issued on 5.7.2012 and the reply is still awaited.

(viii) Enhancement of Marketing support under Marketing Development Assistance Programme and creation of Export Development Fund; Under MDA scheme, MSEs are encouraged to participate in International Trade fairs to explore the export potential of their products. During the last three years (including current year) i.e. 2010-11, 2011-12 and 2012-13, the budget allocation under this scheme was Rs. 2.40 crore, Rs. 3.45 crore and Rs. 8.85 crore respectively.

(ix) Common Application Form for credit/loan; As informed by RBI, IBA has designed a Uniform loan application for loans up to Rs. 25 lakh and all banks have been advised to make use of the same.

(x) Requirement of collateral security; Banks have been mandated by RBI not to accept collateral security in the case of loans upto Rs. 10 lakh extended to units in the MSE sector. Banks have been also advised to extend collateral- free loans upto Rs. 10 lakh to all units financed under the Prime Minister Employment Generation Programme of KVIC. Further, banks may, on the basis of good track record and financial position of the MSE units, increase the limit of dispensation of collateral requirement for loans up to Rs. 25 lakh (with the approval of the appropriate authority). In order to encourage banks to lend more to this sector, Government of India and SIDBI have set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in July 2000, to provide credit guarantee support to collateral free/third-party guarantee free loans upto Rs. 100 lakh extended by banks and lending institutions for micro and small enterprises (MSEs). Cumulatively, as on March 31, 2012, 7,92,229 lakh guarantees (97% for loans below Rs. 25 lakh) for an amount of Rs. 37,139 crore have been approved under CGS.

(xi) Tax exemption to SMEs which have separate funds for R&D; The recommendation of the Committee has been taken up with the Ministry of Finance, Department of Revenue. 19

(xii) Enhancement of the limit from 90 days to 6 months for NPA; The RBI has informed that the ninety day delinquency norm has been fixed keeping in view the international best practices and standards. All prudential norms have been prescribed with a view to ensuring financial soundness of banks and any deviation would not be desirable.

(xiii) Enhancement of term loan from 7 years to 15 years at par with housing sector; The recommendation was taken up with the RBI. It has been informed that RBI has not issued any specific instructions in this regard since the management of loan sanctioning/recovery activity, in a bank is essentially an internal management function and each bank’s Board is authorized to frame suitable policies. Banks have been advised to prepare a well-defined loan policy approved by their Board of Directors which should lay down exposure limits to individual/group borrowers, documentation standards, margin, security, sectoral exposure limits, delegation of powers, maturity and pricing policies, factors taken into consideration for deciding interest rates etc. Banks consider different loan proposals based on their commercial judgment and merits of each case keeping in view the loan policies approved by their Board of Directors.

Further Observation The Committee shall continue to study these relevant issues in its future meetings.

MINUTES

XI ELEVENTH MEETING

The Committee met at 03.30 P.M. on Tuesday, the 19th March, 2013 in Committee Room ‘A’, Parliament House Annexe, New Delhi.

MEMBERS PRESENT Shri Tiruchi Siva — Chairman

RAJYA SABHA 1. Shri Ashk Ali Tak 2. Shri Ananda Bhaskar Rapolu 3. Shri Natuji Halaji Thakor 4. Shri Basawaraj Patil 5. Prof. S. P. Singh Baghel 6. Shri Vivek Gupta 7. Shri M. P. Achuthan

LOK SABHA 8. Shrimati Poonamben Veljibhai Jat 9. Shri Bharat Ram Meghwal 10. Shri Gorakhnath Pandey 11. Shri Jayaram Pangi 12. Shri Gopal Singh Shekhawat 13. Shri Ijyaraj Singh 14. Shri E. G. Sugavanam

SECRETARIAT Shri S. N. Sahu, Joint Secretary Shrimati Sunita Sekaran, Director Shri Roshan Lal, Deputy Director Shri Ranjan Chaturvedi, Assistant Director

At the outset, the Chairman of the Committee welcomed the Members and briefed them that the agenda for the meeting, was to consider and adopt the 236th ATR pertaining to the Department of Public Enterprises on MoU performance, 239th ATR on the Credit Facilities to MSME sector pertaining to Ministry of MS&ME, 238th, 240th and 241st ATRs pertaining to the Department of Heavy Industry, Ministry of MS&ME and Department of Public Enterprises, respectively, on their respective Demands for Grants (2012-13).

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2. Thereafter, the Committee took up the Reports for consideration. After some deliberation, the Committee unanimously adopted all the Draft Reports. 3. Afterwards, the Committee decided to present/lay five of its reports i.e., the 236th ATR pertaining to the Department of Public Enterprises on MoU performance, 239th ATR on the Credit Facilities to MSME sector pertaining to Ministry of MS&ME, 238th 240th and 241st ATRs pertaining to the Department of Heavy Industry, Ministry of MS&ME and Department of Public Enterprises, respectively on 21st March, 2013 in both the Houses of Parliament. The Committee authorized its Chairman, and in his absence, Shri Ananda Bhaskar Rapolu, Member, Rajya Sabha, and in absence of both Shri M.P. Achuthan, Member, Rajya Sabha to present the 236th, 238th, 239th, 240th and 241st Reports in the Rajya Sabha. The Committee also authorized Shri Ijyaraj Singh Member, Lok Sabha and in his absence Shrimati Poonamben Veljibhai Jat, Member, Lok Sabha to lay copies of the same Reports on the Table of the Lok Sabha.

The meeting adjourned at 03.58 P.M. Printed at : Bengal Offset Works, 335 Khajoor Road, Karol Bagh, New Delhi-110005.