Ref. No.  4/MSME-GOI/11878 4 Mar. 2015

Shri Amarendra Sinha I.A.SAdditional Secretary & Development Commissioner (MSME)Govt. of IndiaNirman Bhawan, 7th Floor -A Wing,Maulana Azad Road, New Delhi-110108Subject: Suggestions for National MSME PolicySir,Indian Industries Association (IIA) biggest representative body of MSME in North India had detailed discussions with more than 7000 MSME members through our 40 Chapters located in U.P, Uttarakhand and Delhi on draft consultation paper on “National MSME Policy”. Based on these discussions, we are submitting following suggestions / comments for your kind consideration:

(A) General Comments / Suggestions IIA welcome the initiative of Ministry of MSME to come out with National MSME Policy as exists in most of the developed and developing Countries World over. This policy if properly laid out and implemented will definitely harness the untapped potential of MSME Sector in India. Any policy is as effective as it is implemented on the ground. It has been observed in the past that policies though look excellent on papers but are not implemented on the ground. Recent example is of Public Procurement Policy which came in to existence in the year 2012 but has not provided the intended benefit to MSEs so far. As such while framing the policy, its implementation strategy should also be laid out. More than 150 Schemes & programme are launched by various Ministries and Departments in Govt. of India for MSMEs. It is difficult for MSME Entrepreneur to access / know about all these schemes / programmes and interact with all these departments & ministries. It is therefore proposed that all these schemes and programme should be made part of this National Policy and implemented through a single window for MSMEs

(B) Specific Comments / suggestions on the draft consultation paper

I. Start-up Regime Framework -

Education system and social set up in India do not encourage entrepreneurship. In our education system there are Graduate or diploma courses in Engineering/ Medical/ Commerce / Management but hardly any course in Entrepreneurship. Entrepreneurship Graduate and

Diploma Courses therefore should be started in all the Educational and professional institutions in India. Entrepreneurship development subject should be introduced from school levels.

State / National level MSME Associations should be encouraged to set up Centers for Entrepreneurship Excellence to organize regular structured programme on Entrepreneurship development and excellence.

IIA have submitted its suggestions as enclosed at Annexure-1 on the draft proposal of Business Accelerator and Startup Programme (BASP). This programme incorporating IIAs suggestions should be a part of the National MSME Policy.

All R&D institutions and MSME Development Institutions developing technologies / products to be manufactured in MSME should be available at one place / through single agency. A MSME Technology Bank should therefore be established giving details of new Technologies and products available and the cost thereof online.

Project profiles available on government website/offices should be updated with current and correct information particularly rates of wages, rates of power, rate of interest and suppliers of machines etc.

Market studies for available raw material, markets for different products and export opportunities for MSMEs should also be carried out regularly and co-ordinated by Office of Development Commissioner MSME Govt. of India with all State Governments, Export Promotion Councils, MSME DIs etc. This updated/ fresh information should be made available on a web portal. Prominent MSME Associations should also be involved in this task giving them the projects for study and surveys.

Systems for Registrations, approvals and no-objections etc is required to be simplified and centralized not only for the start ups but for the existing businesses. Though single window systems are announced by several state governments yet these are not effective / user friendly. National MSME Policy should specify effective solution to this issue.

For prospective entrepreneurs who have product idea and marketing plans, Plug & Play facilities should be created and provided to them in all Districts of the Country without any rent for maximum three years however bills for all utilities Water, Electricity, Internet connectivity and maintenance etc may be recovered on actual basis. In case, the entrepreneur is able to stabilize business / product or services in less than three years , industrial plot as per the requirement of the project should be allotted to the entrepreneur for setting up industry / business and financial institutions should also provide help in extending

adequate credit for land ,plant & machinery as well as working capital. Respective District Industry Center in the district should ensure / facilitate all the registrations / clearances / no-objections / approvals required by the entrepreneur in stipulated time period.

Apart from the promoter (New Entrepreneur contributions) an equal

amount should be made available through risk capital and Bank finance should be made available upto 80% for total project cost of maximum Rs 1 crore. For example if promoter contribution is Rs. Five lacs , equal amount i.e Rs Five Lacs should be made available through risk capital. So an amount of Rs. 10 lac per New Entrepreneur will be available as promoter contribution. Entrepreneur if given 80% Bank Finance i.e Rs 40 lacs, a project of total cost of Rs 50 lacs can be set up.

The mandatory period of one / two months for practice school/ on the job training as exists in the curriculum for Engineering Graduates, MBAs and Polytechnic students is not serving any purpose the way it is implemented. It has been observed that students keep on running from pillar to post to get themselves placed in an industry for such training. In most of the cases they are mainly concerned about getting the industrial training certificate only, at the same time industry also do not want to spend time for their training as it is not going to benefit the industry. This practice is required to be reviewed and such training should be for a period of minimum 6months at a stretch in an incubation center / MSMEs.

Job Reservations for various sections of our society must be done away with. Those who are not able to find jobs should be supported to become entrepreneurs. NSIC promoted or other incubation centers must provide the necessary infrastructure to incubate these enterprises.

Services of Retired professors / ex-employees from both government and private sectors having knowledge and experience of industry services or working with Industry should be utilized . National database of such consultants of specific fields may also be prepared to help young entrepreneurs seeking advice. This data should be published on Ministry of MSME website for the benefit of MSME Entrepreneurs.

II. The regulatory Regime Framework -

Online single point registration for the following should be provided1. LLP/Company/MSME number etc.2. Bank account number3. Labour identification number/Factory act/ESI/PF etc.4. GST number or TIN & customs5. PAN/TAN etc.6. Import Export number7. Pollution

8. Electricity connection 9. Weight & Measurement10.Registration with NSIC11.Quality certifications as BIS/RDSO/BHEL/BEE etc.

The role of all the inspection and regulatory agencies / departments should be in three stages i.e

Stage-1: After first inspection, written advise should be given for given to rectify the deficiencies in a prescribed period without any punitive action.

Stage-2: If the deficiencies are not rectified in the prescribed period , reasons for not doing so should be asked in writing. If the department is not satisfied by the reasons , a warning with possible punishment may be given if deficiencies are not rectified in reasonable time.

Stage-3: If deficiencies still remains, punitive action may be taken.

Pollution control Boards should act as service providers also by designing and constructing ETPs for MSMEs in a time bound manner for which prescribed standard charges may be levied and clearances be given. Generally it happens that ETPs got designed and constructed through private consultants are invariably not cleared by the Pollution Control departments for one or the other reason hence delay in the project / harassment of the entrepreneur.

Labour laws for MSMEs are required to be simplified . The proposed Small Factories (Regulation of Employment and Conditions of Services) Bill, 2014 is an attempt in this direction but lacks pragmatic approach to the problem. IIA have submitted its suggestions and comments on the Bill to the Ministry of Labour, Govt of India as placed at Annexure-II. While framing the National MSME Policy, suggestions as at Annexure-II should to taken in to account.

III. The Subsidy Regime Framework-

After running three years in plug & play shed successfully as proposed at “I” above, land should be made available on priority and on concessional rates and funds for raising infrastructure be made available at base rate by banks/financial institutions to the new Entrepreneurs.

The need for subsidy of an enterprise would vary depending on its size and stage of operation. Different elements of the enterprise that need be to subsidized could be as follows:1) Land & Building2) Plant & Machinery3) Collateral free Loans,

4) Cost of Electricity connection5) Product Approval, Royalty and Certifications (BIS, ISO-9000, etc)6) Exhibition Subsidies including travel and accommodation7) Visit to International Exhibitions / business meets.8) Electricity Duty etc

a. For startup enterprisesi. Land, Building, Plant & Machinery

Primary Place to be an incubation center for maximum three years if preferred.

Incase not preferred or post incubation, capital subsidy on project cost (Land, Building, Plant & machinery etc) should be provided to the extent of 50%. Subsidy should be direct and not linked to Tax Exemptions.

ii. Collaterals free LoansCollateral free loans under CGTMSE Scheme should be made available.

iii. Electrical ConnectionsCost of Electricity connection should be exempted to the start ups as entrepreneurs are already paying demand charges as well as electricity consumption charges.

iv. Interest rates for loansAll loans to Micro and Small Enterprises should be made available at the same rate of interest as is applicable to agriculture loans keeping in view the importance of this sector.

v. Product Approval, Royalty and Certifications Scheme to reimburse 90% expenses may be introduced.

b. For Micro enterprises as per the definition of MSMEs:i. Plant & Machinery

For additional plant & machinery and for modernization soft loans should be provided .

ii. Collaterals free LoansCollateral free loans under CGTMSE Scheme should be made available.

iii. Electrical ConnectionsCost of Electricity connection for additional loads should be exempted as entrepreneurs are already paying demand charges as well as electricity consumption charges.

iv. Interest rates for loansAll loans to Micro and Small Enterprises should be made available at the same rate of interest as is applicable to agriculture loans keeping in view the importance of this sector.

v. Product Approval, Royalty and Certifications Scheme to reimburse 80% expenses may be introduced.

vi. Exhibition Subsidies 95% subsidy for stall charges & transportation of materials

for 1 domestic exhibition per year be provided.

95% subsidy for stall charges & transportation of materials plus 50% Air fare & accommodation charges for 1 international exhibition per year be provided.

vii. Visit to International Exhibitions / business meets Support under International Coopration Scheme of Ministry

of MSME should continue.viii. Electricity Duty Subsidy

Electricity duty should be exempted for first five years of operations.

c. For Small Scale enterprises as per definition of MSME:i. Plant & Machinery

For additional plant & machinery and for modernization soft loans should be provided.

ii. Collaterals free LoansCollateral free loans under CGTMSE Scheme should be made available.

iii. Electrical ConnectionsCost of Electricity connection for additional loads should be exempted as entrepreneurs are already paying demand charges as well as electricity consumption charges.

iv. Interest rates for loansAll loans to Micro and Small Enterprises should be made available at the same rate of interest as is applicable to agriculture loans keeping in view the importance of this sector.

v. Product Approval, Royalty and Certifications Scheme to reimburse 60% expenses may be introduced.

vi. Exhibition Subsidies

75% subsidy for stall charges & transportation of materials for 1 domestic exhibition per year be provided.

75% subsidy for stall charges & transportation of materials plus 50% Air fare & accommodation charges for 1 international exhibition per year be provided.

vii. Visit to International Exhibitions / business meets

Support under International Coopration Scheme of Ministry of MSME should continue.

viii. Electricity Duty Subsidy

Electricity duty should be exempted for first five years of operations.

d. For Medium Scale enterprises as per definition of MSME

i. Plant & MachineryFor additional plant & machinery soft loans should be made available.

ii. Product Approval, Royalty and Certifications Scheme to reimburse 25% expenses

iii. Exhibition Subsidies 50% subsidy for stall charges & transportation of materials

for 1 domestic exhibition per year be provided. 50% subsidy for stall charges & transportation of materials

plus 25% Air fare & accommodation charges for 1 international exhibition per year be provided.

iv. Visit to International Exhibitions / business meets

Support under International Coopration Scheme of Ministry of MSME should continue.

(IV) Environment compliance Framework for Green, Orange and Red categories of Industries-

Pollution control Boards should act as service providers also by designing and constructing ETPs for individual MSMEs outside notified industrial areas in a time bound manner for which prescribed standard charges may be levied and clearances be given. Generally it happens that ETPs got designed and constructed through private consultants are invariably not cleared by the Pollution Control departments for one or the other reason hence delay in the project / harassment of the entrepreneur.

All industrial estate should have a common effluent treatment plant to be designed and constructed by Pollution Control Department under cluster development scheme of the Government by forming a SPV involving local industry users. The facility of this CETP should be provided on reasonable charges to the units discharging solid and liquid effluents.

The role of Pollution Control Boards should shift from inspection to guidance / advisors to SPV and to individual unit.

Requirement of NOC and consent from Pollution Control Boards to identified 220 non polluting industries should be done away with.

Schemes of incentives for energy efficient units and units deploying green technology should be developed.

(V) The Promotional Scheme Framework A national product standard be identified for each product and there

should be one agency responsible for certification of one class of product. For Example BEE for electrical, Railways for mechanicals, BHEL for welding materials and BIS for food items etc. Multiplicity of agencies for single product should be avoided in first step to improve the overall quality of Indian products.

(Updated Indian standards with better compliance mechanism will also be helpful in stopping the import of substandard materials).

Quality Council of India and industrial product standard bodies should be made effective by having representatives of State / National level MSME Associations in respective Governing Bodies .

6 sigma & Kaizen like standards should be promoted in all MSME manufacturing units through adequate promotional schemes involving State / National level MSME Associations.

(VI) New Product Development Framework-

Commercial models for products and technologies developed at Indian Institute of Science (IISc), CSIR, DRDO, BARC and other R&D institutions etc and researches conducted in engineering colleges should be publicized and given to MSMEs at reasonable price through a centralized agency / portal / technology bank as stated above .

Technologies & products developed abroad which can be used by MSMEs in India should also be publicized by Ministry of MSME as well as Ministry of Science & technology through MSME Associations.

Incubation centers in all technical & professional institutions, MSME Development Institutions under the administrative control of Ministry of MSME and other R&D institutions should be made mandatory and their performance should be monitored. State and National level MSME Associations should also be supported to set up incubation facilities.

(VII) The value addition mechanism and framework -

Same as new product development framework.

(VIII) Knowledge & Innovation Framework -

Same as new product development framework.

(IX) Manufacturing and Services “Excellence” Framework :

No comments.(X) Export Promotion & Marketing Framework-

Earlier Export Promotional bodies were used to publish market study reports, these report must be updated at regular intervals.

MSME Associations may also be supported to carry out studies and publish market study reports for domestic as well as international markets.

National level MSME Associations willing to set up Export / Import Facilitation Centers for serving MSMEs should be supported by the Government.

(XI) The Growth Accelerator Framework:

Adequate finance must be available to the growing units and their growth should not be restricted due to non availability of additional collateral security with the promoters.

(XII) Consultative Mechanism Framework:

At National level , NBMSME is constitute and is operational. However its meetings are not held regularly and the agenda for the meeting is also not invited from the members. NBMSME Meetings should be held every three monthly on a fixed date and at a fixed venue.

There is no such consultative Board / Body at Regional / State levels. It should be constituted involving state governments as well as MSME Associations and its meetings should also be held regularly at least bi-monthly. Policy issues which can not be resolved at this level should form the part of NBMSME agenda.

Interactive websites at state and central government level should be operative .

(XIII) Financial Regime Framework:

Adequate finance must be available to the growing units and their growth should not be restricted due to non availability of additional collateral security with the promoters.

After availability, cost of funds also needs regular monitoring by the government. Finance at the interest rate equivalent to that of agriculture sector should be made available to Micro and Small Enterprises.

Recommendations contained in the PM Task Force report related to availability of finance to MSME should be implemented in letter and spirit.

(XIV) Resource Provisioning Framework:

Human Resource

MSMEs are playing role of lifting people from below poverty line to above poverty line and also making them skilled. This is a fact that skilled and professionals do not join MSMEs. As such MSMEs recruits unskilled people and train them first at their own cost. As soon as they acquire skills , they start looking for finding jobs in corporate. Hence MSMEs are always discharging the role of a skill development center . It is therefore recommended that reasonable wages for unskilled employee tob employed by MSME. This will help MSME to fight the global competition to some extent.

Due to cumbersome legislations, impractical labour policies and lack of trust by government, the sector prefers to remain unregistered. Present statistics shows that more than 90% of MSE’s are unregistered and so are their employees. Both are being exploited by the inspectors and unsocial elements in the name of labour leaders.

Minimum Wages-The minimum wages in the country are being fixed on the basis of reports of planning commission etc that what amount of money is required by a family of 4 to 5 people. It has also been observed that we had fixed different minimum wages for different class of workers. It started from Rs 90/- per day for bidi workers, 125/- for home guards, 141/- for aanganbadi workers, 155/- to MNREGA workers and so on. We should make a parity since our constitution does not allow discrimination and it is inhuman also to pay Rs 90/- per day to bidi worker and 300/- to a confectionary worker and Rs.141/- to a home guard and 300/- to a security guard in factory. Requirements of a family are common hence it should be replaced by national floor level minimum wage, additional allowance on the basis of cost of accommodation/city can be given.

(Extract of the Report On The Working of The Minimum Wages Act , 1948 For The Year 2012 dated 04/04/2014 is reproduced below to support our argument:

“But the Committee felt that when such a wage is to be determined, the considerations of national income and the capacity to pay of the industry concerned has to be taken into account and the Committee was of the opinion that living wage had to be the ultimate goal or the target.” )

Minimum wages for an unmarried young person between 18 to 21 years should be different than of a person having a dependent family of 4 or 5. Before the age of 21 years, he is also not legally allowed to marry hence no dependant family so the minimum wages decided on the basis of family of 4 to 5 are not logical.

Provident Fund:- As far as the social security is concerned the capacity to save for a low wage earner is less in comparison to a high wage earner but our policy suggests other way round. Cost of GPF to central government employees is 6 or 10% while cost of EPF to employees & Employers of MSME is 25.69%.

As such the employer & Employee contribution to EPF should also be 10% i.e 5% each. We are suggesting 5% additional contribution to the EPF account of workers upto Rs 15,000/- salary from skill development fund. As such a worker getting 5000/- per month at the age of 21 years and contributing to EPF(5+5+5=15%) will get Rs.93,58,873/- as cumulative EPF and Rs.20,11,647/- as gratuity on retirement at the age of 60 years. (Yearly increment of 8% and present interest rate of 8.75% is considered in arriving at the figure.)

Health Insurance: -Cost of health insurance is 500/- per month to central government employees but it is proposed to be 20% for MSME employees.

We propose that all workers in the Micro & Small Enterprises are covered by Rastriya Swasthya Bima Yojana, where the contribution of Central and State Governments can be paid by the Employer in monthly installments.

In addition an insurance policy approved by IRDA which include a component for insurance towards injury or death arising out of and in course of employment at a rate not less than that prescribed under the Employees Compensation Act 1923 may be taken by the employer.

Working hours -MSMEs of India are facing a tough competition from China, where no strict law particularly for working hours exists. While we in India do not allow the workman to work more than 8 hours and maximum one hour per day overtime is allowed that too on double wage rate. The migrant worker either do not come because of MNREGA or if at all comes wants a job of 12 hours daily. Indians are earning money because of working extra hours even in Europe and United States but we are not allowing them to work more in their own country. We understand that China is also member of WTO where extra working hours much more than us are allowed .

Paid Maternity Leave-

Payments for maternity leave will discourage MSMEs to employ females hence the burden of payment of maternity leaves should be born by the government.

One thing we must keep in mind that the role of government is limited to ensure the minimum requirements of a worker and balance will always be decided by the market forces only.

Raw Materials:-

Raw materials should be made available at par with bulk buyers. MSME Associations should be supported to procure raw materials in Bulk and distribute it to MSMEs.

(XV) Exit Policy Framework:

Ministry of MSME have already proposed to amend MSMED Act to include provisions for Revival and Exit of MSMEs. IIA have submitted its views and comments on this to Ministry of MSME as enclosed at Annexure-III. IIA recommendations as contained in Annexure-III may be considered.

We hope you will be kind enough to consider the suggestions submitted by IIA as above . If you so desire, we are ready to discuss the suggestions with you in details on any day and time convenient to you.

Thanks & regards,

Pramod MiglaniPresident