The Centre is planning to introduce a public procurement policy that will require all its departments and PSUs to target over a stipulated period at least 20 per cent of their annual purchases from micro, small and medium enterprises (MSME sector), Dinesh Rai, secretary, MSME ministry, said on Thursday.
“We currently have a system of price preferences in procurement, which often doesn’t work to the advantage of MSME sector. The new policy requires departments and PSUs to purchase from the MSMEs at least 20 per cent of their orders, which could be distributed to many units,” Rai said at a conference on ‘SMEs: finance with governance’, hosted by ASSOCHAM.
The ministry had been trying to expand government purchases from MSMEs even though some ministries had had quality issues, said Rai at the conference in which Governance Now has been a media partner.
The government also hopes that bank credit to MSMEs will get a boost of Rs 50,000 crore as a result of RBI’s directions to banks to increase advances, especially, to micro-enterprises.
Banks had been asked to ensure that from April 01, 2010, 60 per cent of their total lending to MSMEs went to micro-enterprises; any shortfall would go into a separate fund reserved for such businesses, Rai said.
All scheduled commercial banks have also been set the target of achieving 15 per cent growth in new accounts for micro-enterprises. It’s also proposed that MSMEs should get collateral-free loans up to Rs 10 lakh as against the current ceiling of Rs five lakh.
The government has proposed that there be a common loan application form for all MSME borrowers. Besides, banks have created ‘MSME care centres’ to cater exclusively to the clients from the sector.
Rai said his ministry was alive to suggestions from MSMEs on what they wanted in terms of tax incentives and pass throughs.
The ministry has also been encouraging the process of setting up a stock exchange for the sector, “which should have low compliance costs for the MSMEs”.
Paul Joseph, Principal Advisor, MCX-SX, said the MSMEs had not been able to attract long-term risk capital because equity investors did not currently have an exit route in the form of a stock exchange for the sector.
In proposing a stock exchange for the MSMEs, the SEBI had already decided that such businesses should be exempted from stringent listing norms applicable to bigger business and there should be no minimum capital limit even though the ceiling has been fixed at Rs 25 crore, he said.
Also, in order to provide liquidity to MSME stock, merchant banks would be required to file offer document for issuance of shares and would become responsible for three years to buy shares from investors and providing shares to the buyers.
“I believe that the market makers should be supported by the RBI and should also be allowed lending and borrowing of shares,” Joseph said, adding, however, that the legal and regulatory issues for an MSME exchange might take 1-3 years to be decided.
Arun Maira, member, Planning Commission, large enterprises must become sensitive to the fact that prompt payments were like oxygen for MSMEs.
The MSMEs must also swarm together like fire flies in order to demand a more favourable environment from the government and better terms of business with larger businesses, he added.
Dinesh Agarwal of IndiaMart.com said the MSMEs must not fall in the trap of deliberately setting up many businesses in order to keep their revenue figures artificially below the limits set for tax exemptions.
“Small business will never be able to achieve scale if they have a mindset that they should remain in the bracket of small business in order to take advantage of concessions.”
Rajesh Dubey, executive director of ICRA, the credit rating agency, said the MSMEs must ensure that their financial statements inspired confidence in the investors.
“While the MSMEs want easy availability of loans, lenders face information asymmetry and a bewildering diversity of clients. Honest and lucid financial statements can win the trust of lenders,” he said.
Sushil Mittal, CEO of Innova Thinking, said there was no dearth of finance from MSMEs provided they were willing to invest in customer-oriented people, businesses processes and product development.
Rakesh Kapoor, managing director of IFCI Factors, called for workable legal options for securitization of trade credit receivables and for the promotion of factoring services.