Representation from FISME for the Union
Budget 2001-2002
1. Anomalies in present duty structure
making SSIs un-competitive
2. Marketing
Support- assistance for Trade Fair participation
3.
Support and encouragement for Research and Studies
4.
Support for Intellectual Property Initiatives
5.
Tax reimbursement mechanisms for Export
6
Un- waivering commitment for early implementation for VAT
7.
Review of the Preferential Trade Agreements
8.
Suggestions for creating winning environment for SMEs
Anomalies in present duty structure
making SSIs un-competitive:
1.1 One
of the fundamental rule of economics is that the import duties
should be less on raw material/ primary products and should
gradually increase for intermediate and finished goods.
1.2 The current duty structure ignores this
principle causing serious injury to domestic manufacturers
of the intermediate and finished goods. Let's take four major
items : Iron and Steel, Copper, Aluminum and Plastic raw materials.
The import duty for these primary products / raw material
is put on higher slab. On top of the basic import duty, safeguard/
anti-dumping duties have been imposed on one pretext or another
providing undue protection to them thus making their import
extremely expensive.
1.3 The fall out of this has been on those
domestic manufacturers who use these primary products to produce
the intermediate products/ finished products and have lesser
duty on their produce than the raw metarial. Due this anomaly
they are finding extremely difficult to compete with imports.
1.4 In such a scenario one of the out let
for sustenance is through exports. The large companies using
these primary products could diversify into exports importing
raw material duty free to avoid damage done by the artificially
expensive raw material. For the small companies even this
route is not possible for most of them export through DEPB/
Drawback route as import in small consignments is not economically
viable. But the DEPB/ Drawback rates do not reflect the 'off
and on' imposition of safeguard/ anti-dumping duties and offer
no solution to the SMEs.
1.5 As the cascading effect of these four
primary products alone is huge on the economy, a large number
of the SMEs have started becoming un-competitive both in domestic
as well as international markets e.g in the Engineering Sector
like the cycle and cycle parts, machinery and parts there
of, auto components, copper/brass rods; in Electrical Sector
e.g. transformers, aluminum and copper conductors; plastics
like HDPE woven bags etc.
1.6 There are clear indications that this
anomaly is the basis on which many manufacturing bases have
come up in neighbouring countries like Nepal - where raw material
is imported at lower duty, processed and exported to India.
It includes HDPE woven sacks, copper wire drawings/ rods,
photo films, vanaspati ghee etc.
1.7 It is interesting to note that the producers
of these primary products are the biggest companies of India
having enormous clout. Is it the pressure group working against
the large number of users or Government is just oblivious
to the these facts?
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2.
Marketing Support- assistance for Trade Fair participation:
2.1 It is a widely acknowledged fact that
marketing is the major weakness of SMEs. Marketing- not just
selling, requires the resources which SMEs find difficult
to muster. The traditional markets for Indian SMEs have undergone
a sea change in the last decade. Marketing in new markets
in changed economic realities requires different tools.
2.2 Trade Fairs are recognized world over
as the one the most effective tools of marketing for SMEs.
In India the significance of Trade Fairs is yet to be appreciated
both by the SMEs as well as by planners. Trade Fairs are still
seen as the extended market for sales. Trade Fairs, on the
contrary, are the most economic mode of gathering market intelligence.
It is through participation in the Fairs that SMEs realize
their shortcomings with respect to market's expectation and
pick up technological gaps which eventually lead to success.
2.3 Participation in Trade Fairs is prohibitively
expensive. All countries, therefore, provide substantial support
to the SMEs for participation in Trade Fairs. The MDA scheme
targets only successful exporting companies and is of no help
to startups. The other schemes administered through DC-SSI
etc are managed with so much of small amount that in the last
10 years not more than 1000 SSIs from 35 lac units would have
benefited from it.
2.4 We request that in international as well
as select national trade fairs, Govt. should provide 'free
space' to the SMEs, while airfare/ lodging etc would be paid
by the SMEs themselves. For this scheme, may we request you
to allocate Rs. 500 crore annually from this budget onwards.
a. With this amount around around 500,000
SMEs could be exposed to International markets annualy and
would prove the most successful initiatives of the Government.
b. SIDBI- which has been providing such assistance
on its own to some extent and has experience of managing such
funds, could be made the nodal agency.
c. It would also give a great fillip to the
image of India as well for the world markets would witness
India through properly laid out collective participation instead
of scanty Janpath-shops like presence in Trade Fairs.
d. This would lead to technology upgradation
initiatives within the SMEs automatically for they would pick
up the technological gaps. Several of Government's initiatives
for technological upgradation would also see the light of
the day.
e. Last but not the least, it is a quality
support, targeted support and WTO compatible support.
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3.
Support and encouragement for Research and Studies
3.1 One
of the chief reasons why the SME sector is so much identified
with rhetoric is because inspite of its size and its contribution
to the economy being so huge, there is hardly any research
related to SMEs. For every problem, the approach is to form
'committee'. There needs to be a shift from the committee
approach to research based policy approach with regard to
SSIs.
3.2 May we request to allocate at least 20
crore for research and given to Ministry of SSI.
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4.
Support for Intellectual Property Initiatives:
4.1 Business- irrespective of the size, is
increasingly becoming knowledge based. With India ratifying
multilateral treaties on IPRs, it is time the SMEs are encouraged
to develop and own their intellectual properties as patents,
industrial designs, copyrights etc.
4.2 We
propose that Government could assist in two ways. One, to
encourage and support collective initiatives of the Industries
meant for sensitizing and encouraging SMEs towards IPRs. Secondly,
Govt. could launch a scheme on the lines of ISO 9001 assistance
scheme, through which a major part of the expense is reimbursed
to the SMEs acquiring IPRs. Further, it would be better if
the delivery mechanism is also decentralised and the industry
associations are made partner into the scheme. A beginning
could be made by allocating Rs. 20 crore this year.
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5.
Tax reimbursement mechanisms for Export :
5.1 It is universally accepted economic principle
now that the local taxes be kept out of the export price.
With fierce competition in International Trade, there would
be hardly any product category which could compete internationally
without shunning local the tax burden. Govt. has also devised
several schemes to reimburse the tax for export. However,
Govt. has till recently, been propagating these schemes as
'incentives'. The result is that 'the rank and file' of the
Customs still treat them as incentive or a favour.
5.2 To cite the specific example, in and
around Delhi, Customs recently stopped registering the DEPB
and started delaying the processing of export shipments under
DEPB. And the explanation forwarded- off course un-officially,
was that they had been instructed from the higher officials
so that fall of revenue could be arrested! At a few places
merchant exporters were targeted specifically. The schemes
like DEPB are not incentives, but part of the costing without
which most of the exports of manufactured goods is just not
possible.
5.3 We would request the Finance Minister
to comment. Secondly, we would request that the orientation
programmes should be organized for the Customs ground staff
so that they could see things in the broader perspective in
the changed economic environment.
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6
Un- waivering commitment for early implementation for VAT:
The need to have full Value Added Tax regime is well recognized
in India now, particularly among planners. Post-globalization
with steady integration of Indian economy with global economy,
we are delaying this only for own peril. One dead-line, to
have got it implemented by 2001, has already been missed.
Let us urge the Government that the dead line of 2002 should
be adhered to at any cost.
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7.
Review of the Preferential Trade Agreements:
7.1 Economy has arrived at the center stage
of diplomacy. Today no bilateral or multilateral trade agreement
is sustainable if it results draining out of national economic
gains. The economic gains from SAPTA or its latter version,
SAFTA are debatable and need to be reviewed. Before trying
to extend a helping hand to other countries, we must not forget
that more poor people live in India than in the rest of the
world put together.
7.2 One
after another, Indian and MNCs are putting up manufacturing
bases in neighbouring countries like Nepal, Bhutan, Sri Lanka
etc. and exporting to India under the preferential agreements.
The lure is irresistible; the companies get better infrastructure,
more efficient system, lower transaction cost, liberal and
supportive policy regime and assured Indian market ! Our wishing
that such manufacturing bases would not come there does not
solve the problem because it makes lot of economic sense to
establish industries there and export to India.
7.3 Though, the volume of such trade may
still be seen as small, it by no means is insignificant. If
the present situations allowed to be continued, it would throw
chilling surprises to the Govt as well as Indian Industries,
sooner than later. The injury to manufacturers of HDPE woven
bags, copper rods, vanaspati etc. is precursor to what is
in store in future.
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8.
Suggestions for creating winning environment for SMEs :
8.1 Life after removal of QRs:
On the face of it looks strange that though it was certain
as early as 1997 that QRs would be removed, no serious study
was undertaken to chalk-out a strategy for SSIs going to be
affected. One or two committees. Of course, were established
that examined the issue from the periphery. It vindicates
our stand that SSI policy is governed by rhetoric and has
a little rational basis for it is seldom based on research
and study. It is not just the question of putting tariff protection
or protection through Non-tariff barriers on the items going
off QRs list. The moot question is inducing competitiveness
in those product categories. Now FISME is constituting a study
with the help of DSIR and SIDBI to study the issue to be completed
before budget . We would request that Hon'ble Minister takes
the results of the study into account.
8.2 De-reservation
and Investment limit:
Now that even the illusory symbol of protection for SSIs -
QRs, is going off, the Govt. should take bold policy measures
towards SSIs. The sector needs to be de-reserved completely.
Further, the investment limit should also be increased to
the realistic levels to Rs.. 5 crore so that SSIs could take
advantage the Technology up-gradation schemes and enter into
joint ventures and technology tie-ups. To ward off the fears
of the smaller SSIs, the priority sector funds should not
be made available to the new bigger SSIs.
8.3 Define Medium
Enterprises and recognize SME as sector for policy support
:
It is not the SSIs but the Medium Enterprises also need attention
of the Govt. Some policy intervention is required at the lower
end of the medium enterprises to facilitate gradual progression
of small to medium. This will break the historical compartmentalization
of SSIs and will augment more linkage formation between, small
and medium and large. Further, in the wake of WTO regime,
there are certain provisions especially available for SMEs-
which is internationally recognized segment for policy support.
WTO provides another reason for defining Medium Enterprises.
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