Prime Minister Meets SMEs to Finalize Response To Economic Slowdown

New Delhi. 8th Dec 2008: Prime Minister Dr. Manomohan Singh met representatives of SMEs today and discussed policy response required to address challenges faced by them amidst economic slowdown. Mr. V.K. Agarwal - Sr. Vice President handed the FISME's Representation to the Prime Minister. Besides the Minister of MSME and Principal Secretary to the PM, Secretary of MSME and DC-MSME were also present.

FISME's representation advocates that the problem needs to be addressed at two levels: financial crunch and demand recession. Measures are required that on one hand enable affected small industries to tide the tight financial year with bearable pain and on the other new initiates are taken up that push demand for their produce. The representation notes:

Firstly, the need is to provide a moratorium on repayment of loans for at least 12-15 months and norms for debt restructuring and of NPAs liberalized substantially.

Secondly, there is immediate need to address their enhanced working capital requirement and of converting the sticky receivables from corporates into working capital term loans. There is strong demand for interest rate subvention of at least 2% for small industries.

Thirdly, as in spite of improved liquidity in the system lately, banks are husbanding capital and have turned risk averse, the Credit Guarantee coverage for small units may be made mandatory and its cost may be borne temporarily by the government. 

Fourthly, although every body is advocating adoption of Keynesian principles for augmenting demand, the fruits of enhanced government spending would not reach the masses, unless participation of small industries is ensured. It is time India adopted policies of set-asides in public procurement as in the US and earmark 20-25% procurement from small industries. And while doing so ensure that they are not crowded out through ‘bundling’ of contracts. 

Finally, the crisis is an opportunity to effect critical reforms as there is remarkable consensus to take corrective measures to arrest economic slow-down. Such an agenda should encompass pre-poning of GST before 2010, adoption of modern codes of Insolvency and Bankruptcy for individuals and small businesses; and, steps to reverse the prevailing ‘risk-reward’ ratio skewed against manufacturing. The residual growth 7~8% of GDP being projected, constitutes of agriculture and services and excludes manufacturing. Without the sustained growth of manufacturing where would the mass of un-skilled and semi-skilled labour force turn for employment?

What has been rather surprising in the context is that top policy makers have been in a mode of denial for larger part of the crisis period. The gravity of the problem is yet to sink in. The enormous lob losses in small industries across production centers in the country may not attract the publicity that a few hundred well dressed employees of Jet Airways would, but the anger in masses would be too hot to handle economically, socially and politically.