Small Scale Industry

Small Scale Industry
16. The SSI sector makes a valuable contribution of about 40 per cent to our total manufacturing sector production, 35 per cent to exports and employs over 160 lakh workers. Our commitment to the SSI sector is total. The commonest complaint of SSI entrepreneurs and associations are the insufficiency of timely credit and the harassment of the "Inspector Raj".

17. On the credit problems of the SSI sector, I propose the following initiatives: At present, for SSI units having aggregate working capital requirements up to Rs.2 crore, the working capital limit is determined by the banks on the basis of a simple calculation of 20 per cent of their annual turnover. This facility is being doubled to Rs.4 crore. This will ease the flow of bank credit to SSI.

To moderate the cost of credit to SSI units, RBI will advise the banks to accord SSI units with a good track record, the benefit of lower spreads over the prime lending rate.Enhanced powers would be delegated to bank managers of specialised SSI branches to ensure that most credit proposals are decided at the branch level.

At present, Small Industrial Development Bank of India (SIDBI) is a subsidiary of IDBI and IDBI is the major shareholder in State Finance Corporations (SFCs). To equip SIDBI to play its apex role in SSI credit provision more effectively, SIDBI will be delinked from IDBI and IDBI shareholding in SFCs will be transferred to SIDBI.

SSI units are often handicapped by delays in the settlement of their dues from larger companies. To tackle this problem, I am asking RBI to strengthen the existing mechanisms available to SSI for discounting of bills. RBI will also modify its guidelines to commercial banks on credit appraisal to give greater weight to the amount of overdue outstandings that large units have in respect of SSI supplier. My colleague, the Minister of Industry is separately bringing amendments in the Interest on Delayed Payments to Small Scale and Ancillary Industry Undertaking Act,1993 to make the existing legislation more effective.

18. As for the pervasive problem of the "Inspector Raj", I shall be announcing far reaching changes in the administration of Central Excise which should help SSI units significantly. I urge all States to review their laws and regulations and make necessary changes to lighten the burden of the inspector raj problem of SSI units.

19. I shall also be announcing some tax concessions to the SSI sector later in my speech.