CHENNAI: The humming of machines and the cacophony of industrial workers in the Guindy Industrial Estate, home to hundreds of small-scale units, is slowly getting silenced with the mushrooming of swanky Information Technology buildings, highlighting that all is not well with the small-scale sector. More than 75 per cent of Guindy IE, which was home to micro small and medium enterprises, have been converted into large-scale buildings housing software companies and IT-enabled services, says a Small Industries Development Corporation (SIDCO) official.
Hit by floods in 2015, the sector suffered back-to-back blows, thanks to the fund crunch caused by demonetisation and GST. Small businesses were caught between the devil and deep sea — paying taxes with their little funds while not being termed as non-performing asset.
“Everybody has been talking about the MSME sector but no one has been genuinely interested. Schemes have been announced but they have hardly been implemented in the last five years,” says Industrial Estate Manufacturers Association President K V Kanakambaram. Currently, more than 5,000 ancillary industrial units in Ambattur, Guindy and Alandur are dying as they don’t have any orders. The units are kept open so that they are not termed sick by banks, says Kankambaram.
“The small industry is becoming unviable for traders - as a result land is being leased or sold to software majors in Guindy IE,” says V S Narasimhan, former president of Tamil Nadu Small and Tiny Industries Association.Interestingly, small and medium enterprises had high hopes with the launch of the Pradhan Mantri Mudra Yojana in 2015. But to their disappointment, the disbursement was done by micro-finance institutions (MFIs), instead of the banks and these institutions cater to the rich, which left the small enterprises struggling for cash, says Narasimhan.
“During the last five years, the expected growth of the MSME sector as promised by the Union government, is not there,” says Narasimhan. While there is not much data on sick units in the State, it is learnt that a government policy note attributed that 50,000 sick industrial units have been shut down and there has been loss of five lakh jobs. But Kankambaram says it would be more than that. “Currently, there is no proper data on sick industrial units in the State. Many units are being closed under Sarfesi Act, wherein if interest or principal is not paid, the unit will be taken over by banks,” he says.
TV Hariharan, president of Chennai District Small Scale Industries Association, says that the industry is not happy with the position they are in. “The GST should have been simplified. The Union government promised one tax across the country but every now and then, they have been bringing in changes. Why?” he asks. Traders say that they are not afraid to pay GST but the issue is delay in getting payment from public sector units. “This results in paying from our pocket to avoid fine for not paying GST on time,” says Hariharan.
Narasimhan recalls that during the tenure of then PM Atal Behari Vajpayee, small industries were struggling due to excise duties. “The PM then appointed the Gupta Committee which suggested relaxation from taxes. Now lot of units are going into insolvency.”Interestingly, a fifth of micro small and medium enterprises credit requirement is met by banks and the rest comes from money lenders and non banking financial corporations. “Since private lending has stopped, the small traders don’t have liquid cash as the institutional investors will only support the rich,” alleges Narasimhan.
The sick industrial units in IEs have hit the job prospects of engineering graduates who pass out from 526 engineering colleges in the State. Many of them opt for blue collar jobs, some end up as taxi drivers and some switch fields,” says a government official.Kankambaram hailed RBI’s decision to permit one-time restructuring of existing loans to enterprises that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade.
How can NBFCs be encouraged to help SMEs?
Restructuring without an asset classification downgrade will save the lenders from higher provisioning burden. This will encourage banks and non-banking finance companies (NBFCs) to take up restructuring in case of MSMEs