Scheme models for Medium industries

By

A V RamanathanTrade Consultant

Colophon: Schemes: Small & Medium Sector by A V Ramanathan, Trade Consultant, 2012. [email protected]

1 June, 2011

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Schemes, Small & Medium Sector

PREFACE

India’s 39% of the manufacturing activity comes from the Micro, Small and Medium sector, while 45% of its output is directed at foreign markets. Its total contribution to the Gross domestic product is little upward of 9.2%. Yet of the total Credit by the Banks, only a small portion of around Rs 2, 50,000 Cr is sanctioned to run the wheels of the SME sector, though this plays a significant, yet robust role in the growth of Indian economy. More than 2.6 Cr units provide employment to around 1 cr while indirect employment is more than 4 times its value.

There are many segments which do not get the importance it deserves. Probably, it may be, that the MSME which controls the industry under the MSME Act, 2006, does not have any dominance over the various sectors which fall under Agriculture, Textiles, IT, Telecom, Large Industries, Chemicals, Commerce ministries. It is beyond the pale of work of the MSME Ministry to understand the rudimentary ground zero problems of each sector, with the result that solution goes abegging. The Cluster Development programme of DC, MS&ME needs a total overhaul, as it does not suit most of the sectors.

Is there a single Scheme for modernizing the medium scale industry(which has an investment between Rs 5 Cr and Rs 10 Cr in machinery and tools)? Has the Ministry bothered to look at the economies of scale of most of the Medium Scale industries for their technology upgradation?

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Unlike some of the high profile ministries, Ministry of MS&ME is low profile. It does not move with the modern times. It needs to be modernized, if Indian Medium scale industries should find its feet.

I have included Three Schemes in this book-let

1. Coir Mission2. Coir Observatory3. Scheme (TUF) exclusive for Medium Scale industry

The Scheme outlay spanning across the 12th Five Year Plan period will consume Rs 12,598 Cr which is inclusive of investment of Rs 1,650 Cr, Bank Credit of Rs 9930 Cr, with the Capital subsidy in the form of Line of credit extending up to Rs 1,650 Cr, interest subsidy of Rs 993 cr (10% Bank interest opting for fraption interest rate Guarantee) and administrative expenses at Rs 25 Cr @ Rs 5 cr per annum. The total number of beneficiaries that would be assisted will be 2,500 units, which would provide direct employment of 12,500 workers and indirect employment to as many as 50,000 workers through offering work at selling and delivery systems in the route and distribution channels.

The Scheme is divided into (Total outlay) of Rs 2 Cr, Rs 2.5 Cr, Rs 3 Cr, Rs 4 Cr or Rs 5 Cr. A total of 100 beneficiaries from each of the medium scale industry will be selected for grant of the loan, if they fulfill the criteria laid out for the Scheme. Any medium scale entrepreneur, who has investment in Plant and machinery worth Rs 5 Cr, and has the unit in working condition for the last 3 years, will qualify.

Each beneficiary has to invest 20% of the capital outlay as his deposit. The technology up gradation under the Scheme will have two specific features- one, 20% as one time capital subsidy, and 10% interest subsidy annually, up to a period of 5 years or closure of the loan, whichever is earlier. The Banks, under an agreement under ‘frapton’ should charge only 10% on the outstanding loan amount. Though fraption is interest rate guarantee option for investors to set up a forward rate agreement during an agreed amount of time that triggers in response to a pre-set strike price, fraptions are used to protect investors from dramatic declines in interest rates. In the present context, fraption term is used to indicate a forward rate agreement during the agreed amount of time (5 years from the date of sanction of the loan), and 10% is the pre-set strike price interest since the Scheme is in the national interest of developing the modernization and

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technology up-gradation of the medium scale industry which is the heart of the industrial spectrum.

The total number of beneficiaries envisaged for benefit under the Scheme is 500 medium scale units who would create new investments up to Rs 2 Cr, Rs 3Cr, Rs 2.5 Cr, Rs 4 cr and Rs 5 Cr per annum for 5 years. The period of re-payment of the loan amount, that is 60% of this outlay is 5 years. The Scheme provides a capital subsidy of 20%, and interest subsidy of 10% (the total interest component of the loan) covering the entire loan period. The capital subsidy is adjusted towards the loan amount at the end of the loan period.

The Line of Credit is a pool of available money that one can borrow. WHEN ONE GETS a LINE OF Credit, the party gets the ability to draw up to the maximum amount. Line of Credit will have a draw period as well as a re-payment period. The present Line of Credit created under the present Scheme, is that the Capital subsidy + loan amount can be drawn in one lump sum and utilized, and just like any other term loan, he can pay in Equated half yearly instalments or quarterly rests, as per Bank’s terms and conditions. The line of Credit proceeds will be adjusted against the loan in the final instalment of the Bank loan, and shall not be credited to the account of beneficiary under any circumstances to minimize its misue. But the money towards the Capital subsidy portion shall remain as Line of Credit, which guarantees 20% part of the loan granted under the Scheme. The interest is released in a periodical basis while the Line of credit covering the entire corpus is released only at the fag end of loan closure and will be kept in a separate designated account by the Bank.

If the Government is serious about implementing the Schemes having special focus on modernization, it needs to promote sector-segment specific Schemes. These Schemes have a commercial content and are not populist in nature. It is a pity that even after 6 years of passage of the MS&ME Act 2006, the government does not promote medium industries through a centric scheme to develop their technological up-gradation and modernization.

Your comments are welcome.

A V Ramanathan1-6-2011

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Schemes: Small & Medium Sector

Contents

No. Description Page Number

1. Coir Mission 6-26

2. Coir Observatory 27-30

3. Medium Scale Industry -modernization, technology

Up-gradation 31-41

Colophon: Schemes: Small & Medium Sector by A V Ramanathan, Trade Consultant, 2012. [email protected]

1 June, 2011

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COIR MISSION

Abstract

An avid Coir knowledgeable expert did conduct an intricate study to understand the dynamics of the Coir Industry. Many of the poorest people in Southern India work in the Coir Industry. Coir products are mainly agrarian in character and its basic raw material is Coconut fibre. Coconut plantations in southern India are in a state of flux, and to recover the lost ground, the Central Government in its 2009-10 budgets has proposed a unique Rs 4200 Cr scheme to cut sterile coconut and for undergoing rejuvenation exercise , on a pilot basis in select destinations.

Coir Industry underwent a series of catastrophes. One sector which was badly hit by the tsunami was this sector; not in the destruction of the crops, but the demand shrunk due to plethora of reasons post tsunami. The dreaded Chicken Gunya, which struck with its devastating fury, took a heavy toll of the Coir worker in Kerala, the important outpost of production of export merchandize.

Our expert’s study which explored the market dynamics that shaped the Coir Industry, both domestically and internationally, concluded that only an increased income through much-added augmented facilities, tools, increased productivity through introduction of state-of-the art machines would tilt the economies of scale, reduce cost of production, reduce power costs, resulting in high quality of end-products reducing the vulnerabilities. If the Coir Industry has to grow, and sustain production, it needs to acquire skills, quality controls,

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networks and technology based methods of production. These series of measures would enable the industry to meet the market needs.

It is true that a large number of workmen in parts of Kerala, Tamilnadu, Andhra and Karnataka, Orissa, West Bengal, depend on the Coir Industry to earn a living. Furthermore, more than 80% of these workers are gender specific. The women: men ratio is of the order of 80:20. Most of the Coir industries are dotted in the rural areas. Coir, or coconut fibre, plays an important role in sustaining the livelihoods of a large number of people in the Southern, and North-Western provinces of India. . Coir fibre extraction, spinning, and weaving, and the processing of other coir products are a source of employment for many people – women in particular - who have few other options available to them. The coir industry is also an important source of income for women in the fishing communities along the western and southern coasts. The industry plays a unique role in expanding the national economy as well as in consolidating India’s position within international markets for coir products. Furthermore, the industry has an indirect impact on the economy through its influence on the transportation, marketing, and financial businesses.

Recent research has shown that markets play an important role in livelihood development and poverty reduction. Markets and the relationships among stakeholders are therefore an important aspect of livelihood analysis, and recognition of the failure of markets to serve the interests of the poor is crucial in such an analysis. Given the significance of the Coir industry to the income of the people in southern India, it is important to understand the market dynamics that shape the industry within local and global settings with a view toward bringing sustainable development to the whole sector.

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HUSK

GREEN HUSK

NATURAL RETTING

WHITE FIBRE

YARN

- MAT

DRY HUSK

SOAKING/MECH EXTRACTION

BROWN FIBRE

MATS MATTINGS GEOTEXTILES MATTRESSES COMPOSITESCOMPOSITES

ROPES

COCOLOGS

FIBRE DRAINS

Various Coir Products made from Coconut Husk

REVIEW OF THE COIR INDUSTRY

In India, the coir industry is characterized by a traditional, labour-intensive, largely female, white-fibre industry in Kerala and the more modernized, mechanized, export-oriented, brown-fibre industry in the Tamilnadu and Karnataka. (Pliable white fibres are harvested from the husks of green coconuts and stiffer brown fibres are extracted from husks of mature nuts.) An estimated 40 percent of fibre comes from traditional coir areas in India, whereas much of the production and 85 percent of the fibre units are based in Kerala. There has been large concentration of coir pith manufacturing units in Tamilnadu, and Karnataka has sound Rubberized mattresses making units. . The current India’s annual production of coconut is around 14 billion nuts; this places India in the first position in so far as Coconut production is concerned.

OVERVIEW OF GLOBAL COIR INDUSTRY MARKETS

Sri Lanka is the single largest supplier of brown coir fibre to the world market, and together with India accounts for almost 90 percent of global coir exports. An estimated 640,000 metric tons of coir fibre are produced each year

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around the world, according to the United Nations Food and Agriculture Organization (UNFAO). Global demand for Coir products declined between the 1980s and 1990s, as synthetic fibres found widespread popularity as a substitute for natural coir products. Since the late 1990s, however, that trend has reversed, with coir products again finding favour among consumers.

Greater demand for woven coir mats in India in recent years has fueled a steady rise in the global Coir market. Tufted Mats are also posting steady growth. Growth of the global market has also been driven by growing demand for natural fibre products from consumers in developed countries as well as in China and other emerging markets. In addition, there is growing global demand for natural Coir Geotextiles (erosion-control materials), good quality twine for horticultural products, and Coir pith as a substitute for peat. Yet synthetic fibres continue to threaten the Coir industry globally, despite rising awareness of the health and environmental benefits of natural fibres. Stagnating international Coir prices have also eroded the profitability of Coir production

India produces four main categories of Coir fibre: bristle, mat, mixed, and mattress. These fibres are either sold as raw material in the international market or processed into products such as brooms, brushes, rope, twine, matting, woven and stitched geotextiles, rubberized Coir mattresses, and upholstery. Coir-related exports accounted for 10 percent of Indian agricultural exports, over 0.12 percent of all exports, and 0.0013 percent of GDP in India in 2008-9. Total export earnings of the entire coconut and coir industry in 2008-9 were $136.17 million. Fibre export earnings increased by 75.14 percent in 2008-9, while fibre pith exports increased by 113 percent between 2002-7. The Indian Inland market has a turnover of Coir products around Rs 1300 Cr in 2008-9, a major chunk coming from the Coir mattresses industry which has been growing with an effective growth rate of 21%+. The basis raw material required is the Coir Yarn, which is supplemented by the Spinning industry. There are around 6.4 lakh workers in the Coir industry which are both Organized and Unorganized. The male: female Coir worker ratio in Kerala, according to Kerala Coir Mission appointed by the Government of Kerala headed by Mr Anathalavattam Anandan, MLA and Coir Board member show that it is 27.30:: 72.30. There are 510 exporters who have registered as Manufacturer/Merchant Exporter and obtained Registered-cum-Membership Certificates from Coir Board, which is an Export promotion Councilnotified by Commerce Ministry (Appendix- 2 of the HBP,Vol 1)

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ItemApril 08- March

2009April 07- March

2008% growth monthly

Q V Q VHandloom Mats 35553.43 23537.53 40917.35 24299.85 -13.11 -3.14Tufted mats 33689.27 22598.15 33950.35 19910.98 -0.77 13.50Powerloom Mats 54.21 40.06 75.06 52.69 -27.77 -23.97Handloom Mattings

2368.45 1716.56 3013.71 1879.33 -21.41 -8.66

Powerloom Mattings

87.52 85.09 115.82 88.30 -24.43 -3.64

Coir pith 96996.32 8462.30 83613 6384.76 16.01 32.54Coir Yarn 5335.09 1925.92 8407 2666.90 -36.54 -27.78Coir geotextiles 3251.52 1591.05 3365 1444.66 -3.36 10.13Coir Rugs & Carpers

63.83 67.63 178 134.40 -64.17 -49.68

Rubberized Coir 1222.59 1174.77 1120 852.19 9.13 37.85Coir Fibre 19443.54 2390.89 11102 1224.14 75.14 95.31Coir Rope 370.28 164.60 372 139.99 -0.53 17.58Curled Coir 1438.38 223.85 1280 152.06 12.37 47.21Coir other sorts** 50.50 19.03 57 57.83 -11.43 -67.10Total 199924.93 63997.43 187567 59288.08 6.59 7.94

Export Comparative Statistics of various Coir items (2007-8) and (2008-9)

Coir Industry’s Paradigm shift:

Coir Industry underwent a paradigm shift during the third millennium. In order to understand this shift, we need to have better understanding of the existing local and global market channels for Coir products at different levels of production, including small-, medium-, and relatively large-scale producers and cooperatives; further, we need to analyze the current policies pursued by the government and international agencies, including the World Trade Organization, and their effect on the Coir industry, and to identify strategies that can help ensure that poor workers benefit as the Coir industry increases its capacity to serve a global marketplace.

Our expert came to the conclusion that there was a need to bring in the smaller players who were at the lower orb, and through methodic steps, these Coir workers needed financial support to first, acquire new machinery by

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throwing away the dilapidated, useless, worn-out ones which has served more than 80 years of life, help them construct a roof over their workplace so that rain or shine, they could carry on with their occupation undeterred, throughout the year. With the present penury situation that they are placed in, they have no way of augmenting their existing savings to buy even an ordinary tool, much less invest in buying machineries. A Scheme known as Rejuvenation, Modernization and Technology Up- gradation of the Coir Industry with an outlay of Rs.243 Cr was sanctioned by the Government of India which aims to propel the preliminary layer of the Coir value chain namely, spinning and tiny/household sector to get a foothold to make quality products using mechanized machines

However, there is a need to design and manufacture spinning machines which are compatible to spin good grade coir yarn. The indigenous machinery manufacturers, are very few, and do not have the capacity to design a modern Spinning machine and the Industry had been suggesting to Coir Board, time andagain, to avail the expertise of Mr. John Wright, who has designed such machines which has given more than the desired result in the Jute Industry, to develop a contemporary Spinning Machine tailor-made for Coir industry.

Capital infusion is an inevitability at the lower fulcrum of the industry; skill up gradation, technological upgradation, innovative tools are very necessary for Coir Industry’s orderly growth; entrepreneur development is a must if the lower limbs of production on which the exporting manufacturing industry has to depend by way of out-sourcing their production needs.

Coir Value Chain

Having considered the elements that constitute the Coir industry, it’s worth turning our attention to a more holistic treatment of the Coir industrial cycle. A value chain describes the full range of activities required to bring a product or service from conception through the different phases of production, involving a combination of physical transformation and the input of various producer services, to delivery to final consumers. In the Coir Value Chain analysis, the distribution of income along the value chain was assessed and the market situation and problems of the coir industry in Kerala/Tamilnadu were evaluated.

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The main stakeholders in the Coir industry are coconut growers, coconut traders, and fiber suppliers and buying agents, Exporters and Importers, and auxiliary service providers. The institutional arrangements among these actors are complicated. Joint production is common in the industry, with some Coconut growers owning Coir yarn-spinning facilities. These are mostly vertically integrated arrangements in the Coir industry. Within each layer of the value chain are several interconnected smaller value chains consisting of intermediaries and subcontractors. Stakeholders with functions and operations close to one another in the value chain interact more intensively with one another.

Survey findings reveal the following problems from the lower end of the value chain:

• High dependency on weather for coconut yield; • A poor system of husk collection; • High energy costs; • Insufficient use of domestic talent for product design and development;

• Inadequate industry collaboration for research and development; • Unstable high freight rates; • Poor product classification and attention to standards, resulting in low

price margins and exploitation by overseas buying agents; • Poor foreign marketing of Coir products; and • Poor consumer satisfaction in some instances.

Constraints of the Coir industryCoir Exporter Manufacturers face challenges relating to retaining workers,

high absenteeism from work, lack of technical capacity, and attracting young people to the industry. As a result, they have to rely on a few trained older workers. Retaining labor is complicated because demand for Coir varies by season. Coir manufacturers are also constrained in adapting to new technology. Unavailability of initial capital requirements for machinery and equipment, blocknew entrants into Coir business while it makes it difficult for existing manufacturers to upgrade.

The people who market Coir fiber and Coir products—whether individual producers, subcontractors, or exporters—also face challenges, including limited access to markets, low prices and profit margins, lack of

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marketing know-how and training, , and inability to garner market intelligence resulting in wide untapped markets.

[Coir Export industry’s perspectives and priorities]

PROPOSAL:

Coir is a natural fibre which is a conversion of Coconut fibre through dehusking. The Coir fibre is converted into various value added products, both hand made and machine made, and because of its natural qualities, it is recyclable, reusable, eco and environment friendly. It is an Environment product. India has emerged as the number one coconut producing country with an annual yield 15 billion coconut nuts. It is a versatile, ubiquitous product. It is an economic resource having immense potential for improving the quality of life of rural and urban communities with environment regeneration qualities like water sequestering.

The world market for Coir and Coir products are unlimited. Coir Pith is used as manure in Netherlands and has been registering high growth from 10,000 tonnes worth Rs 10 Cr (2003-4) to 92,000 worth Rs 84 Cr (2008-9). The ban on peat has been creating an increasing demand for Coir Pith. Plastics, Plywood which has large scale uses world over, needs substitutes as these substances are banned in many countries. Plywood is becoming dearer because of ban on import of round wood, and felling of trees, and the cost factor. Coir Ply could become an important part of the Particle/Micro density Fibre board industry. As wood availability is becoming scare, Coir wood furniture holds promise of good demand like Rub wood which has been gaining popularity and imagination of the discerning public.

Keeping in view, the potential of the Coir, its present poor market linkage and sub optimal level technology application for manufacture of value added products in the industrial and cottage sector, the National Mission on Coir Technology & Trade development need to be mooted by Coir Board with the support and assistance of the Ministry of Micro, Small and Medium Enterprise, Government of India to accord Coir development a strategic role in rural economy, Poverty alleviation and improvement of Coir based handicrafts & industrial development. The Mission document needs to incorporate both the indigenous as well as developed industry. Coir Mat sector include amongst

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others handloom mats, Coir with rubber plait mats, Coir jute mats, Coir sisal mats, the blends being used to supplement value addition and forms a part of the value chain only as an embellishment. It should not be construed that this is not Coir mat, just because supplementary blends complement the value addition of the hand-made mats. The Mission document must envisage the integration of different Ministries/ Departments for the holistic development of this sector. The Report must further envision an integrated programme for development of the Coir sector, its scientific management with the involvement of CCRI/CICT/other Research organizations, local initiatives and entrepreneurship for presenting this raw material for the Industries and assisting the Industry to access and apply modern technology for producing globally competitive new generation Coir products. The other features of the Mission should include Technology Development and Technology intervention on process and products including standards and codes, Product development including training, Trade and MarketDevelopment for Coir products, and Technology/Product development for making new materials.

The estimated fund requirement need to be worked by Coir Boardthrough synthesis with the R& D outlay, Plan outlay for industrial growth, intervention in product development, assisting private exporters/manufacturers to source R& D from reputed private Institutions which are recognized by the Ministry of Science and Technology, funds for allocation towards seed capital, patenting, R&D, and meeting capital cost as well as working capital cost of rejuvenating plants to manufacture new generation products. Presently, Jute Industry has a Scheme wherein 20% subsidy is allowed for starting new industries, Coconut Mission has a Scheme to fund new technology industry going for production utilizing the various Coconut products upto Rs 50 lakhs as subsidy within the total outlay of Rs 2 Cr and through previous arrangement Banks give 60% as term loan. The SSI Technological Upgradtion Scheme has a capital subsidy of 15% on a Scheme which is restricted to a total outlay of Rs 1 Cr only. Coir Industry is also included in it, but not a single Coir entrepreneur has yet availed it, because the ceiling of Rs 1 Cr is grossly inadequate. We have to state, unequivocally, that when the MSME Act 2006 has pegged investment upto Rs 10 Cr as coming under the ambit of the Act, the reason for putting a cap of Rs 1 Cr for Technology Up-gradation Fund is not understandable. Further, in India, there is no definition for Industries which has an investment level upward of Rs 10 Cr. The Industrial policy has not defined the ‘Large Industry’, MSME has defined only Small and Medium Industry. To set up an integrated Tufting Plant, at least Rs 12-13 Cr is needed. If new industries have to be set up in the Coir sector to manufacture new generation Coir products, it is imperative, that no cap

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on investment should be put and appropriate capital subsidy, @ a minimum of 25-30% has to be given. The present promotional assistance for trade and market development (Export Market Assistance Scheme of the Coir Board), and Export promotion is grossly low and the upward ceiling of Rs 2 Cr is insufficient. We need to state that Schemes conceived around 5-10 years ago, has certain percentage as sops. But ten years’ hence, the value has decreased due to inflation. Inflation need to be factored in. This would make Rs 2 Cr contemplated 10 years ago with factoring of inflation about Rs 5.5 Cr. The ceiling cap needs to be raised to commensurate with the contemporary investment range, market possibilities and potential. Commerce Ministry has pegged the limit as Rs 15 Cr for giving benefit under Market Access Initiative Scheme (Para 3.2 of the Foreign Trade Policy) and based on the requests of the export organizations, has agreed to remove the cap at the FIEO Open House meeting held on 17-9-2009 at Chennai so that the funds will be available across the spectrum of export houses whose turnover is much higher than the limit presently prescribed. An exporter, when he participates in a Trade fair, have to cough out Rs 5-6 lakhs, against which Coir Board under the present EMDA Scheme just doles out Rs 1.25 lakhs. Therefore, it is requested that an explicit outlay be earmarked in the Coir Mission to accommodate the exporters to participate under a Promotional Scheme with equal entitlement on par with the Jute/other industries.

The economic and social benefits from all these activities will give a tremendous boost to the economy, to the lower rug manufacturers in the small,tiny and household sector, providing direct and indirect employment all over the Country, and fetching for the Country the much needed foreign exchange, and providing direct fillip to ecology and clean environment as the natural fibre industry will complement and supplement the country’s environment policy to reduce environmental destruction and Earth warming.

Other touch-up areas:

• Raw material needs to be of high quality- better exploitation of resources-conversion of coconut fibre to coir fibre-coir yarn (to make quality end products)

• Storage facility• Modernize the Industry through technology up-gradation• Design machinery to manufacture Coir products through change of

design, application, precision, composition

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• Productivity improvement• Quality enhancement• Design capacity• Product improvement <Innovative new generation products- CCRI/CICT

and commercialize the know-how for a price>• Primitive industry at the lower ebb to be graduated to a modern level• Industry need to be technology savvy• Level playing field with other industries like Jute, Bamboo, Handloom

industries, • In view of the fact that 50% of the total volume of coir emanate from

Pollachi, an Indian Container depot be set up at Pollachi• The SSI Technology Upgradation Fund Scheme allows loans only upto Rs

1 Cr with an interest subsidy of 15%. It is suggested that the limit should be raised and the percentage of assistance also be enhanced

• Reduction in Transportation costs which adds to the cost of variables ending up in the sale price to be uncompetitive; suggest a Scheme which involves granting of cash scrips in the pass book form on production of Intermodal documents (10% of the value of the goods) redeemable at par once in three months may be evolved.

• Enlarge the market through Reach

• Stabilizing power supply through additional transformers and islanding of export production centres etc.

Assistance for setting up common effluent treatment facilities at Alleppey

Facilities sought similar to Jute, Bamboo, and Handloom industry:

Level playing field with other industries like Jute, Bamboo, Handloom industries, and making available resources through the Coir Mission including capital subsidy, interest subsidy, modernization subsidy,. Provide venture capital assistance so that new prototypes can be invented and patented. A line of Credit be opened by Export and Import Bank of India, so that the Coir exporters can use the facility at a subsidized cost. In order to enable the exporter to avail assistance under factoring, a separate window to support Agri/Agro exports be created by EXIM Bank (under its Factoring programme).

Creating Inland Container Depot at Pollachi:

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In view of the fact that 50% of the total volume of Coir Pith emanate from Pollachi, an Indian Container depot be set up at Pollachi. This may be included in the Coir Mission proposal. The project can be undertaken in the Public: private format in which the industry will invest 20% and the outlay to the extent of 80% may be accommodated in the Coir Missionbudget.

Reimbursement of Transportation costs (available to Jute/Handloom industries)

Today, for Jute and Handloom industry freight cost is reimbursed in the form of fixed percentage on the f.o.b. value under MILL GATE PRICESCHEME. Under the Scheme Jute Yarn, yarns made out of wool, seagrass, abaca, sisal etc are eligible for Freight subsidy. However, produces from Coir Yarn are not eligible for any concession or indirect support either in the form of subsidy or reimbursement. Reduction in Transportation costs which adds to the cost of variables ending up in the sale price to be uncompetitive and to balance these costs, we suggest introduction of a sub scheme in the Coir Mission to reimburse 12.5% as incentive to the Exporters who produce documents to prove their despatch particulars in a statement form on a monthly basis. There is also movement of goods either in the intermediary form or in the raw material form from the production centre, or sourcing centre and on production of Multimodal Certificate along with documents, monthly reimbursement of 10% as incentive may be granted. This will reduce the production costs, better margin for the raw material supplier, semi-goods manufacturer-supplier eliminating the role of the middleman altogether.

Enlarge the market through Reach

There are a number of markets which are emerging markets. But the risks in trying to penetrate and show case the various Coir products are risky. In order to overcome this, a study need to be conducted by experts like Indian institute of Foreign Trade (or) some other body who have foreign trade expertise, and ability to anlyse the market. In the outlay for various heads under the Coir Mission, an amount be ear-marked for conducting market surveys/market studies to promote Coir products.

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Alleppey-Shertallai, the bastion of Coir Industry

Statistics shows that around 85% of the value of Coir merchandise meant for export originates from Alleppey-Shertallai belt. Considering this aspect, the Commerce Ministry declared Alleppey as a Town of Export Excellence. In the 2009-14 Foreign Trade Policy, various supportive and infrastructural measures with certain percentage of outlay from the Assistance to States for Infrastructure Development for Exports has been separately ear-marked for removing infrastructure bottlenecks. The TEE has been notified in Appendix-7 of the HBP, Vol I.

Inland Market Development: One distinct area where Coir Mission needs to give special impetus

is the development of inland Market. Like Jute, when a special act was promulgamated compelled Fertilizer, Rice, wheat producers to pack their produces in jute bags which peaked demand for Jute products. Likewise, the Government of MSME must make and take special efforts to develop the Indian market for Coir products through legislative efforts. Secondly, all inter-governmental purchases like Coir Mattresses (for ITDC Hotels, state government owned Hotels), purchase of Coir door mats (for all Government quarters, Guest Houses-both central and state, individual autonomous bodies), door to door matting( for ceremonial purposes, banquet halls, state and central secretariat offices, public sector undertakings, etc), Coir pith ( for developing the ground water level, tapping rain water, through specific Schemes of Indian Scientific Research institute) (agricultural farms, through Horticulture Mission and Agriculture department) , Coir Jewellery ( to be presented as mementoe to the various guests who come from abroad), etc. Defence and railways have a huge vendor list. By developing Coir ply, coir mattresses, we can cater to the Railways, Defence, and other government departments. Coir Board should be able to convince these two Ministries to go in for purchase of Coir products so that there would be regular purchase by these mammoth departments and sale from the Coir manufacturers. Coir Board should not register itself as a vendor. Coir Board should short-list vendors based on their ability, financial capacity, capacity of production, economies of scale. In order to assist small players, a group of small players be grouped with the major player so that he would outsource his

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requirement from this Group. The benefit of the order will cascade uniformally, so that every body would get business.

Both the Ministry and Coir Board concentrates development of Inland market only through the Coir Bhavans, and half of them are running under heavy loss. The representatives posted at these outputs do not have the marketing ability to beget Institutional orders. Some of them are not able to explain the product size, % of blends if needed, costing, difference between tufted mat and handmade mat, etc If the Private sector is involved in this exercise, it would be able to market the Coir products better and more competently because it has the expertise, capacity, and ability to quicken the process of begetting order than these existing Coir Bhavans. These Bhavans are participating in carnivals and local trade fares with their limited wares, that too that presents a dirty look which results in no visibility for good, modern, and pleasing to the eye Coir products. If a cost-benefit analysis of expenditure incurred by Coir Board for participation in these trade fairs is done vis-à-vis business developed, it would show a tilt towards incurring of heavy costs against very little benefits. Inland market development should be the core activity of the Coir Mission.

The Coir Mission should evolve a separate sub Scheme by incorporating the markets and approaches to market development within the Country, which has a huge untapped market. Coir Board can liaison with the builders of flats in Kerala, and offer them one mat for each flat at a concessional rate, and encourage them to provide Coir Mattresses, so that in Kerala there will be a heavy movement of vital Coir products.

Coir Board sees the Inland market development only through the eyes of 30 odd Coir Bhavans whose turnover is apparently around Rs 12 Cr. Presently, Coir Board procures the goods through consignment system by short listing buying from ¾ buyers only.

Marketing:

Raising awareness of the industry’s eco-friendly nature among consumers is a challenge. Yet such opportunities do exist. For example, the Ministry of Tourism could help promote the coir industry through its local outlets. Providing consumers with information about Coir products is essential, focusing on their safety and eco-friendliness.

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Groundwater is first and foremost “a resource for potable water, and should be sparingly used for irrigation, least of all power-generation.”.. Groundwater contributed significantly to the tripling of gross irrigated area between 1970 and 1999, estimated at 33,100,000 hectares. This should not have happened. Not that India has deficient rainfall. The average annual precipitation of 120 cm is adequate. We seldom try to address is the anomalous distribution of rainfall. The distribution pattern is reflected in the number of rainy days, not total rainfall. Nevertheless, total rainfall has relevance to the groundwater situation. Aquifers are expected to be naturally recharged but there lies the rub. Recharge locations have not been treated with the priority they deserve. This results in acceleration of Piezometric depression. We can combat the catastrophic reality, if we make a conscious commitment to the dynamic upkeep of the life support system. This can be done through the Coir pith which will absorb water and retain 40% of it. This enables continuous creation of ground water and retention of the rain water. Rain water harvesting can be successfully done through the 60% wasted Coconut husk, which decays and creates environmental problem. CoirBoard should need to involve Indian Council of Agricultural Research in this exercise so that their testimony would help higher movement of Coir Pith to prevent ground water depletion.

Coir Jewellery can be promoted in a large way as, the Europeans and Americans are crazy to buy cheap jewellery that too made from natural products. The creation of a niche market for Coir jewellery would make a clear impact in the growth of Coir exports.

Coconut shell based activated Carbon and activated carbon made from rice husks, woods, have huge demand in purification of water, gold purification, pharmaceuticals, etc. Coir Pith can be a raw material to produce activated carbon through steam process and the by-product steam can be converted into power generation to the extent of 4 MW and used by the industry as captive power unit.

Display-cum- meeting centre:

Since Coir Shippers Council is setting up a display-cum-meeting centre[with funding from ACCDS and SIDBI], at Shertallai, we suggest

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that whenever there is a delegation or export body or bodies come to Coir board, they may be suggested to come to this Centre, so that the Exporters can disseminate their products and have meetings with them. We request Coir Board to have an inter se arrangement so that the visits can be made customary.

Private initiative R& D for industry’s growth. R&D, Product Development, Innovation, etc

Since there are two scientific institutions with separate outlay within the Coir Board budget, we are not suggesting any new outlay or plan of action in the Coir Mission. But as stated by us earlier, for the growth of any industry, R&D, innovation, designing of new machines which can give higher productivity at a lower electrical consumption, new product development should be made part and parcel of its Technology sub section in the Coir Mission. We suggest, that any experiment or innovation or product development undertaken by the Research institutions must be available on a commercial basis for use by the Industry. The policy must be ‘Lab to ‘Factory’ so that we can harness the findings for commercial gain. We leave it to Coir Board to adopt an appropriate action in this regard.

There is a need for the constitution of high level “Reconstruction and Development Agency (RADA)” at the Government level as part of the Coir Mission to coordinate the various activities and growth of coir industry to ensure an optimal use of resources. To this end, RADA must be involved in developing the appropriate national policies and strategies. The agency which should co-ordinate this work should be Coir Board, which should have highest representation from Coconut Development Board, Manufacturers, Exporters, etc.

Export and Import Bank of India, Export Credit Guarantee CorpnShould also be involved in this exercise, as they have a number of Schemes to fund Design Development, setting up of R&D labs, marketing development, and providing 95% insurance cover on the value of exports. Coir Board and the Ministry should try to forge link with Food and Agricultural Organization (FAO) on a continuous basis to initiate and evolve funding possibilities under the Common Fund for Commodities.

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We can initiate a special project for which United Nations Industrial Development Organization (UNIDO) can fund for creation and building of testing laboratories for the Coir sector and two microbiology and two chemical testing laboratories for strengthening the Testing facilities andthese institutions need to be internationally accredited, which would lead to the immediate acceptance of the Indian test reports on Coir products by international buyers. These facilities are to be extended to Coir fiber, Pith, and Geotextiles. Our proposal would envisage that the Coir Boardinvolve with multinational agencies to provide fillip and support to strengthen its R&D requirements and testing facilities, so that there will be international acceptance of the Testing Reports given by the specialized labs set up for the explicit purpose, as they are internationally accredited.United States Assistance in Development Programme (USAID) has a number of Schemes aimed to help and provide technical assistance at the national level. Coir Board and the Ministry need to touch base with UNIDO/USAID to get suitable projects approved so that R& D labs can be set up with international accredition. It is also suggested that Private entrepreneurs should be supported to set up micro R& D labs by providing an independent outlay in the Coir Mission. AsianDevelopment Bank assistance can be sought for this, as the Ministry of MSME has involved ADB for funding KVIC projects.

A Design clinic can also be part and parcel of the Coir Mission which can sell designs to exporters for a price; once sold, the design sold should be frozen. This can help the small players/exporters. This also can be conceived with aid and assistance from ADB.

Managing Quality

. The absence of an effective quality-control system is a key obstacle facing Indian Coir industry. This is particularly true at fiber manufacturing end, where old and labor-intensive fiber-extraction technologies still predominate. The Coir industry must meet several requirements before Indian products can penetrate the international market and high value-added chains. First, Coir Board must formulate standards and exporters shall adopt them widely so that all exports meet the minimum criteria. Second, these Labs must improve their capacity to implement the lab tests required by various agreements governing international standards, so that exporters can comply with international

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requirements. Third, producers must be able to meet the buyers’ quality requirements and produce in the quantities demanded by other countries.

Stabilizing power supply through additional transformers and islanding of export production centres etc.

One of the most imperative transaction problem lies with thepower situation and grid problems which result in shut down for long hours resulting in our switching on to the generators, and the incidentals on cost would definitely add to the cost of the product. As it is, we are conducting business operations with very low margins as the markets are price sensitive as well as quality sensitive. The only way by which this problem can be overcome is by putting up a private power plant having a capacity to meet the energy needs of the exporters in the Alleppey-Shertallai belt by the Coir Mission by making a Power purchaseAgreement(PPA) with Kerala Electricity Board and charging the exporters at a standard rate, little higher than their cost price and little less than the prevailing price charged by the KEB, so that for maintenance and other charges, the Coir Mission will get augmented money at the same time, it will be a great relief to the exporters to get electricity at a price which is little less than the available commercial rate. This will be a great service rendered by the Coir Mission to the Coir manufacturing community. For this purpose, a register of consumers can be made to whom the supply will be affected so that requirements and utilization can be clearly monitored so as to negate transmission loss.

Assistance for setting up common effluent treatment facilities at Alleppey

This is a requirement considering the fact that any growth in the Coir industry would consequently require a facility where the effluents are recycled and treated. Since there was no planning at the time of setting up of effluent plants of individual units, which are few and far between, it would not be presently possible for the effluent produced in one plant be lifted through lorries and taken to the place where the Common effluent treatment plant is located. A methodology need to be formulated, a plan need to be made, where setting up of a Common effluent treatment plant would become enviable. We therefore, request that an outlay be ear-marked in the Coir Mission budget.

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Training for the personnel in the modern machines/awarding certificates/stipends:

Training of personnel, both at the grass root level, entering level, middle management level, and giving them both practical and ground training is a must, if any industrial sector wants to grow. There are tailor-made scheme for training personnel at the ground level is already in existence in the Coir Board present Schemes. We suggest that an enlarged training programme, covering the various segments of the industry be conceived, and conducted as a Refresher Course, Part-time Course, Evening Course, so that the Industry will be highly benefited. We also suggest that a crash course on ‘Foreign Trade Formalities’, Foreign TradePolicy and procedures, Correct Export Procedure, Taxation, and Marketing etc be organized by inviting guest lecturers or experts, so that the Industry can take the benefit. These courses will be useful to the concerned personnel in the Coir Board as well. A budget may be earmarked in the Coir Mission towards this head.

Industrial Technology Institute:

Coir Board should move the technical institutes, or universities to provide training and advice related to technical matters and technology to the export oriented business community. Though there have been R&D done at the CCRI and CICT, by keeping the developed technology in closed vests, the purpose for which technology has been done is unmet. There is need to set up a special chair for Coir Research particularly in Technology development in developing suitable machines tailor-made for the Coir Industry, fibre-processing technologies and enhancing product reach. There is a need for a Cell within Coir Mission which will collect market related information, co-ordinate various activities and serve as an interface between the public and private sectors. They must play a significant role in coordinating trade activities and advocating for policy formulation. Envisaged Results:

a. We hope to touch Rs 1500 Cr by way of exports by the end of 2014when the present tenure of the 5-Year Foreign Trade Policy will expire;

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b. We believe, that the labour workforce in the Industry would cross 1 million by the terminal year of the present FTP;

c. Presently, our Exports are directed at 105 countries; we hope the direction of exports would enlarge to at least 140 countries by 2014;

c. If ambience is created, we expect an upward investment of at leastRs 500 Cr for improving technology and automation, installation of the state-of-the- art machinery, and fresh investment;

d. Presently, around 510 exporters are on the live register of Coir Board, and we hope there will be enlarged by another 200 exporters;

e. With new products forming the range of products coming under exports, we are hopeful that the mat sector would predominate, while around 25% of the rest of Coir exports would be from the new generation Coir products.

f. We expect during this period, our exports to East Asia in view of the ASEAN FTP would go up considerably. Coir exporters are conscious of the fact that that they need to substantiates their position in the grouping in order to secure its economic strategic interest in the East Asian region. The ASEAN FTA would lead to effective management of regional integration processes, dismantling non tariff barriers so that Indian Coir industry can barge into the East Asian countries. But Coir Industry should beware that some of these countries are Coconut producing countries, and are concentrating developing Coconut based products. But if they step into making Coir based products, Indian Coir Industry need to be wary of such a development which would be a threat to the Indian Coir segment.

g. If the Government takes effective steps to support the Coir Industry, we the exporters look to contribute to an overall effort at consolidation in order to expand into areas of economic and strategic importance.

N.B. Coir Industry is the industry of tomorrow. In a new world where environmental considerations would weigh high, it is possible to anticipate high growth trajectory for natural and environmental friendly products. It is expected to dawn soon. The setting up of a Coir Mission, will open up new vistas and windows of opportunities [under the aegis of the Coir Board and Ministry of MSME

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with the support of multilateral organizations, Asian Development Bank, EXIM Bank, ECGC, Scientific institutions, Export Federation, Manufacturers, State Governments, etc] However, it will not be an end by itself to improve the standing and stature of the Coir Industry; it will only a beginning of the saga.

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Chapter- II

Coir Observatory

1.0 Introduction

Besides being a major export earner, the coir industry in India is one with a high social sensitivity. It contributes significantly to employment and balanced regional development. The schemes of the Coir Board arte varied. They address broadly issues in three areas. (1) Export promotion; (b) Employment; (c) Labour Welfare.

The development of the industry on the cluster mode has much significance. But the cluster approach, to be successful, needs to take care of several economic and social dimensions simultaneously. This makes coir clusters different from other industrial clusters in the country.

Programmes in the coir sector, including that of the Coir Board and of the State governments, are often constrained by lack of an efficient monitoring and evaluation system. Herein lies the role of information technology. The coir sub-sector needs a habitation- mount data base which will help to implement several of the public programmes more efficiently. It will help the clusters to perform more efficiently. It will also help the Coir Board in more efficient monitoring of its programmes. The whole idea can be conceptualized and operationalised in terms of a "Coir Observatory"

2.0 Conceptual Framework

Enterprises come into being, grow over time, become sick, die or survive. The reasons are market-related or technology related. Such natural phenomena are often not appreciated in the right sense by the popular press and the

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platform. Industrial sickness is often depicted as a failure of public policy; similarly, growth in the number of registration of industrial units, a positive indicator.

The reality, however, stands in between. The dynamics of industrial change (alternatively called business demography) is much more complex than it is often perceived to be. Capturing such average behaviour in realistic terms, and to offer policy suggestions, is the key function of an Observatory.

The birth of enterprises, their growth/retardation, and survival/decline, have secondary implications on the economy and society. The course of such distributional effects can be influenced/channelised/regulated, by public policy. But the Coir Board and other implementing agencies need to be informed on such developments within scientifically determined levels of control. It demands the help of a control mechanism aided by IT tools. The whole idea can be conceptualized in terms of a Coir Observatory.

3.0 Objective of the Project

The objective of the project is to design and pilot a Coir Observatory for effective implementation of programmes by the Coir Board.

4.0 Methodology

The methodology of the project involves two parts:(a). Developing a computerized information system on 'coir habitations/

clusters of households predominantly involved in coir activities:

This is capable of being accurately updated.Wherein these coir habitations can be tracked and monitored over a period of timeWherein the basic social, economic and technological data related to these coir habitations can be expanded according to specific needs.

Wherein the data related to each coir habitation can be retrieved and classified for detailed analysis.

(b) To prepare a permanent framework for conduct of research studies on the coir sector, the evaluation/monitoring of various (targeted)

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schemes/programmes, and bringing out Plan documents on the sector periodically.

Part (a) involves the following activities which can be taken up under a pilot project.

(1) The identification of pilot district (Alleppey), and pilot Block within a district, on the basis of secondary data available from various sources relating to the coir sector in India/Kerala.

(2). Updating the baseline Territorial Configuration (TC) already available for the selected pilot Block, all the Grama Panchayats therein, all the Revenue Villages within each Grama Panchayat, and all the Habitations within each Revenue Village. This updating process can be executed using specially designed software, which will take into account all the changes in the TC between the baseline year 2003 and current year 2007/2008. The baseline TC is already available under a Government of India Project.

(3). Conducting a detailed Habitation Survey, to systematically canvass demographic, social, economic and technological data for each household in the habitation.

(4). Cleaning the survey data and verification of its authenticity on a sample basis, as well as selecting and ranking coir habitations for the effective targeting of support services.

(5). Generating basic tables for further analysis and effective targeted interventions/ policies.

(6). Using the updated data base as a baseline for further updating and expanding the database from year to year (the development of a Dynamic Information System.

(7). Further validating the updated database through a Sample Validation Survey.

(8). Incorporating additional data according to needs.

Note 1: Steps (6), (7) and (8) can be repeated annually or as frequently as required.

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Note2: The concept of Territorial Configuration and the changes therein are crucial. It is extremely important to take account of the TC at any point of time, as this provides a unique identification code chain for each habitation over a period of time.

5.0 Implementing Agencies

The implementing agencies shall be the Coir Board and Finesse Consultancy which has been involved in conducting a number of studies in the Coir Industry.

(a). Role of Consultancy

In the pilot phase, Finesse Consultancy shall be responsible for design of the Observatory. The design of the Observatory involves the following steps.

(a).Preparation of the Demographic Outline( parametric research)(b).Development of software(c). Trial Run of the software(d). Field Survey

(b). Role of Coir BoardThe responsibilities of the Coir Board shall be as follows.

(a). Providing the necessary project funds to be agrees upon under this project proposal.

(b). Technical assistance, in the form of access ton all relevant data available with the Board, as also facilitate access to such data available with other stake holders.

(c). Giving due publicity to the project through its own channels, both in the non project and post project stages.

An Enterprises Observatory is a monitoring system for tracking the statistics and dynamics of an enterprise eco-system.

6.0 Time Schedule

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The project is expected to be completed within a year of its launch.

Stages of the project as follows:(a). Preparation of the Demographic Outline (Parametric research)- 4 months(b).Development of software - 2 months(c). Trial Run of the software - 2 months(d). Field Survey - 6 Months

7.0 BudgetThe budget involves two components: (a) fixed; and 2) recurring. The fixed budget involves the cost of developing the Observatory software, cost of initial survey, and that of infrastructure.

Recurring expenses involve the data updating costs.

The fixed costs would come to around Rs.1.5 Cr (including preparation of software one time expense). The Recurring expenses would involve field survey, updating of data, evaluating the data collected and making an analysis of the data to pin point, the emerging trends, filling in bottlenecks etc. The recurring expenses need to be worked out is estimated.

-o-o-o-o-o-o-o-

Chapter- III

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‘Medium Scale Industry’- Scheme formodernization, Technology Up -gradation

1. Plan implementation duration: 12th Five Year Plan (2012-17)2. Implementing Ministry: Ministry of Micro, Small, Medium Enterprises, GoI3. Beneficiaries: ‘Medium scale enterprises that have investment in excess of Rs 5 Cr and within Rs 10 Cr in plant and machinery and registered under the MSME, 2006, will be eligible for the Scheme4. Purpose of the Scheme: Modernization of the existing industry and/or up-gradation of technology of existing industry5. Corpus of the Scheme: Rs 12,598 Cr6. Individual outlay: Between Rs 2 Cr & Rs 5 cr7. Capital subsidy (Line of Credit): Rs 1,650 cr8. Investment: Rs 1,650 Cr9. Interest subsidy: Rs 993 Cr10. No of beneficiaries: 2,500 units11. Employment generation: 12500(direct employment) +50,000(indirect)

The Scheme:

The technology up-gradation of the existing industry is brought under a new Scheme which is meant for modernization and up-gradation of technology in the existing Medium scale industries which has been defined in the MSME Act, 2006. The Scheme will not apply to new industries, as they can directly opt for state-of-the-art machinery from inception itself. For the existing machinery, both modernization and technology up-gradation is required because the machines that are used for manufacture may be obsolete, requiring state-of-the-art, to improve productivity of the machines as well as optimum productivity of the worker. Hence, under definition of the Scheme beneficiaries, it shall be noted that the Scheme is applicable to existing industries to modernize and to up-grade their technology.

Conceptualization:

The Scheme outlay spanning across the 12th Five Year Plan period will consume Rs 12,598 Cr which is inclusive of investment of Rs 1,650 Cr, Bank Credit of Rs 9930 Cr, with the Capital subsidy in the form of Line of credit extending up to Rs 1,650 Cr, interest subsidy of Rs 993 cr (10% Bank interest opting for fraption interest rate Guarantee) and administrative expenses at Rs 25 Cr @ Rs 5 cr per annum. The total number of beneficiaries that would be assisted

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will be 2,500 units, which would provide direct employment of 12,500 workers and indirect employment to as many as 50,000 workers through offering work at selling and delivery systems in the route and distribution channels.

The total outlay of the Scheme is moderated as Rs 12,598 Cr, divided into (Total outlay) of Rs 2 Cr, Rs 2.5 Cr, Rs 3 Cr, Rs 4 Cr or Rs 5 Cr. A total of 100 beneficiaries from each of the medium scale industry will be selected for grant of the loan, if they fulfill the criteria laid out for the Scheme. Any medium scale entrepreneur, who has investment in Plant and machinery worth Rs 5 Cr, and has the unit in working condition for the last 3 years, will be eligible for the Scheme.

Each beneficiary has to invest 20% of the capital outlay as his deposit. The technology up gradation under the Scheme will have two specific features- one, 20% as one time capital subsidy, and 10% interest subsidy annually, up to a period of 5 years or closure of the loan, whichever is earlier. The Banks, under an agreement under ‘frapton’ should charge only 10% on the outstanding loan amount. Though fraption is interest rate guarantee option for investors to set up a forward rate agreement during an agreed amount of time that triggers in response to a pre-set strike price, fraptions are used to protect investors from dramatic declines in interest rates. In the present context, fraption term is used to indicate a forward rate agreement during the agreed amount of time (5 years from the date of sanction of the loan), and 10% is the pre-set strike price interest since the Scheme is in the national interest of developing the modernization and technology up-gradation of the medium scale industry which is the heart of the industrial spectrum.

The total number of beneficiaries envisaged for benefit under the Scheme is 500 medium scale units who would create new investments up to Rs 2 Cr, Rs 3 Cr, Rs 2.5 Cr, Rs 4 cr and Rs 5 Cr per annum for 5 years. The period of re-payment of the loan amount, that is 60% of this outlay is 5 years. The Scheme provides a capital subsidy of 20%, and interest subsidy of 10% (the total interest component of the loan) covering the entire loan period. The capital subsidy is adjusted towards the loan amount at the end of the loan period. The size of the Scheme is Rs 12,598 Cr.

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The Line of Credit is a pool of available money that one can borrow. WHEN ONE GETS a LINE OF Credit, the party gets the ability to draw up to the maximum amount. Line of Credit will have a draw period as well as a re-payment period. The present Line of Credit created under the present Scheme, is that the Capital subsidy + loan amount can be drawn in one lump sum and utilized, and just like any other term loan, he can pay in Equated half yearly instalments or quarterly rests, as per Bank’s terms and conditions. The line of Credit proceeds will be adjusted against the loan in the final instalment of the Bank loan, and shall not be credited to the account of beneficiary under any circumstances to minimize its misue. But the money towards the Capital subsidy portion shall remain as Line of Credit, which guarantees 20% part of the loan granted under the Scheme. The interest is released in a periodical basis while the Line of credit covering the entire corpus is released only at the fag end of loan closure and will be kept in a separate designated account by the Bank.

Table – 1

Table showing the details of Loan amount with Bank loan, investment, subsidy, interest etc

Sl No. Amount of Loan

Bank Loan

Investment@ 20% of the unit cost

One-time capital subsidy@20% of the unit cost)

Interest subsidy@ 10% of the unit cost

No of Beneficiaries

Total

1. Rs 2 Cr Rs 1.20 cr

Rs 0.40 Cr Rs 0.40 Cr

Rs 0.12 Cr

100 Rs200.00Cr

2. Rs 2.5 Cr Rs 1.50 Cr

Rs 0.50 cr Rs0.50 Cr Rs 0.15 Cr

100 Rs 250.00 Cr

3. Rs 3.0Cr Rs 1.80 Cr

Rs 0.60 Cr Rs 0.60 Cr

Rs 0.18 cr 100 300.00 Cr

4. Rs 4.00 Cr

Rs 2.40 Cr

Rs 0.80 Cr Rs 0.80 Cr

Rs 0.24 Cr

100 Rs 400 Cr

5. Rs 5.00 Cr

Rs 3.00 Cr

Rs 1.00 Cr` Rs 1.00 Cr

Rs 0.30 Cr

1000 Rs 500 Cr

Rs 16.5 Cr

Rs 9.90 Cr

Rs 3.3 Cr Rs 3.3 Cr Rs0.33 Cr 500 Rs 1,650 Cr

Table – 1(b)

Total amount outlay in each term loan amount segment

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Total Loan amount

(1)

Investment(2)

Bank Loan

(3)

Capital subsidy

(4)

Interest Subsidy

(5)

Total:(6)

(2+3+4+5)Rs 2.00 Cr Rs 0.40 Cr Rs 1.20 Cr Rs 0.40 Cr Rs 0.12 Cr Rs.120 CrRs 2.50 Cr Rs 0.50 Cr Rs 1.50 Cr Rs 0.50 Cr Rs 0.15 Cr Rs 2.65 CrRs 3.00 Cr Rs 0.60 Cr Rs 1.80 Cr Rs 0.60 Cr Rs 0.18 Cr Rs3.18 CrRs 4.00 Cr Rs 0.80 Cr Rs 2.40 Cr Rs 0.80 Cr Rs 0.24 Cr Rs4.24 CrRs 5.00 Cr Rs 1.00 Cr Rs 3.00 Cr Rs 1.00 Cr Rs 0.33 Cr Rs5.33 CrRs16.5 Cr Rs 3.30 Cr Rs 9.90 Cr Rs 3.30 Cr Rs1.02 Cr Rs17.52 CrRs1650 Cr Rs 330.00 Cr Rs 990.00 Cr Rs 330.00 Cr Rs 102.00 Cr Rs 1752. Cr

Table 1©

Total loan amount, investment, Bank loan, subsidy, etc Year wise(Rs in Cr)

Year Bank Loan Interest

2012-13 990.00 99.002013-14 1710.00 171.002014-15 2052.00 205.202015-16 2424.00 242.402016-17 2754.00 275.40

Total: 9,930.00 993.00

Every year, the amount of Bank loan will shrink to the extent of 20%, and by the end of 5 years, what is reflected as cumulative interest is the amount that is apportioned by the Government as interest subsidy that would be transferred to the Bank by the implementing agency.

Table- II

Summary of the Scheme in its totality(Rs in Crores)

Year Bank Loan Interest Capital subsidy (Line of Credit)

Administrative & allied charges*

2012-13 Rs 990.00 99.00 330.00 5.002013-14 Rs 1710.00 171.00 330.00 5.002014-15 Rs 2052.00 205.20 330.00 5.002015-16 Rs 2424.00 242.40 330.00 5.002016-17 Rs 2754.00 275.40 330.00 5.00

Total: Rs 9,930.00 993.00 1,650.00 25.00(*)Implementation, Publicity, Evaluation, Awareness, Printing, Consultancy charges

Table- 3 (a)

Rs 2 Cr Technology Up-gradation project (Medium scale industry)

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Year Loan amt(Rs in Cr)

Investment Capital subsidy

Interest subsidy Loan amt+interest

2012-13

120.00 40.00 40.00 12.00 132.00

2013-14

120+96(216) - - 12+9.60(21.6) 237.60

2014-15

120+96+72(288) 12+9.60+7.20(28.80)

316.80

2015-16

120+96+72+48(336)

12+9.60+7.20+4.80(33.60) 369.60

2016-17

120+96+72+48+24(360) 12+9.6+7.2+4.8+2.4(36.00)

396.00

Total: 1320 40.00 40.00 132.00 1452.00

Table- 3(b)

Rs 2.5 Cr TUP for Medium Scale Industry


Investment Capital subsidy Interest subsidy

Loan amt+interest

2012-13 150.oo 50.00 50.00 15.00 165.002013-14 150+120(270) - - 27.00 297-00

2014-15 150+120+90(360) 36.00 396.002015-16 150+120-

90+60(420)42.00 462.00

2016-17 150+120+90+60+30(450)

45.00 495.00

Total: 1650 50.00 50.00 165.00 1815.00

Table- 3©

Rs 3.0 Cr TUP for Medium scale industry



Interest subsidy

Loan amt+interest

2012-13 180 60.00 60.00 18.00 198.002013-14 180+180-36)=324 32.40 356.40

2014-15 180+144+108(360) 36.00 396.002015-16 180+144+108+72

=43243.20 475.20

2016-17 180+144+108+72+36= 468

46.80 514.80

Total: 1764.00 60.00 60.00 176.40 1940.40

Table 3 (d)


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Interest subsidy

Loan amt+interest

2012-13 240 80.00 80.00 24.00 264.002013-14 240+192(432) 43.20 475.20

2014-15 240+192+144(480) 48.00 528.002015-16 240+192+144+96(576) 57.60 633.602016-17 240+192+144+96+48

=624.0062.40 686.40

Total: 2352.00 80.00 80.00 235.20 2587.20Table 3 (e)




Interest subsidy

Loan amt+interest

2012-13 300.00 100.00 100.00 30.00 330.002013-14 300+240(540) 54.00 594.00

2014-15 300+240+180(600) 60.00 660.002015-16 300+240+180+120(660) 66.00 726.002016-17 300+240+180+120+60

=720.0072.00 792.00

Total: 2820.00 100.00 100.00 282.00 3102.00

Table 4 (a)

All the Segments during 2012-13

(Rs in Crores)Beneficiaries

(1)

Investment

(ii)

Bank Loan(iii)

Capital subsidy(iv)

Interest subsidy(v)

Bank Loan+Interest(vi)

100(Rs 2 Cr) 40.00 120.00 40.00 12.00 132.00100(Rs2.5Cr) 50.00 150.00 50.00 15.00 165.00100(Rs 3 cr) 60.00 180.00 60.00 18.00 198.00100(Rs 4 Cr) 80.00 240.00 80.00 24.00 264.00100(Rs 5 cr) 100.00 300.00 100.00 30.00 330.00

Total: 330.00 990.00 330.00 99.00 1089.00Beneficiaries: 500; New Total investment Rs 1749 Cr

Table 4 (b)


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(Rs in Crores)Beneficiaries

(1)

Investment

(ii)

Bank Loan(iii)

Capital subsidy(iv)

Interest subsidy(v)

Bank Loan+Interest(vi)


Total: 330.00 1710.00 330.00 171.00 1881.00Beneficiaries: 500;

Bank loan would be inclusive of fresh loans for new beneficiaries, and loan outstanding against previous beneficiaries who would have paid 20% of the loan amount by way of recovery. Rs 200 Cr was given as loan in the first year. At the end of the first year, Bank loan component (20%) of Rs 40 lakhs would have been returned towards Quarterly/Half Yearly instalments. Hence Balance of Bank loan in their records will be Rs 120 Cr (2015-16) + (120-24) = 120+96 + interest of Rs 21.60= Rs 237.60 Cr.

Table- 4©


(Rs in Crores)Beneficiaries Investment Bank

LoanCapital subsidy

Interest subsidy

Bank Loan+Interest



Table 4 (d)


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LoanCapital subsidy

Interest subsidy

Bank Loan+Interest



Table 4 (e)All the Segments during 2016-17


LoanCapital subsidy

Interest subsidy

Bank Loan+Interest


Total: 330.00 2754.00 330.00 275.40 3029.40Beneficiaries: 500; New Total investment Rs 1650 Cr

Table- 5

SUMMARY

Outlay(Rs in Cr)

Total Bank Loan(Rs in Cr)

Interest on Bank LoanInterest subsidy(Rs in Cr)

No of units(numerical no)

Line of Credit(Capital subsidy)(Rs in Cr)

Implementation,publicity,evaluation, awareness,publicity,

consultancy, or any other activity

12,598 Cr

990.00 99.00 500.00 Rs 330.00 Cr Rs 5.00 Cr

1710.00 171.00 500.00 Rs 330.00 Cr Rs 5.00 Cr2052.00 205.20 500.00 Rs 330.00 Cr Rs 5.00 Cr2424.00 242.40 500.00 Rs 330.00 Cr Rs 5.00 Cr2754.00 275.40 500.00 Rs 330.00 Cr Rs 5.00 Cr9930.00 993.00 2500.00 Rs 1,650.00 Cr Rs. 25.00 Cr

Total Outlay: Rs 12,598 Cr

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Investment: Rs 1,650 CrBank Loan: Rs 9,930.00 CrCapital Subsidy: 1,650.00 Cr (Line of Credit adjusted towards loan after the loan is liquidated in full. No reimbursement, but adjustment against Loan only)Interest subsidy: Rs 993.00 CrExtra Expenses: Rs 25.00 CrPeriod of the TUF Loan: 5 years from the sanction of the LoanRepayment: Not earlier than 3 years and not later than 5 yearsCollateral security and/or third party guarantee as per Banks’ terms.

The machineries that are eligible for technology up- gradation for various industries will be shown in the Schedule and only those machines will be eligible for Government support.

Total Cost to the Government: Rs 1650 Cr (staggered at Rs 330 Cr per annum) and interest subsidy of various denominations equaling Rs 993 Cr. The interest be released to the Bank quarterly.

Basel II Rating: MSME Scheme may be modified to include the beneficiaries under the Technology Up-gradation Scheme for TUF.

The Scheme may be brought under the Credit Guarantee Trust Fund Scheme under the MSME by upgrading the total amount to Rs 5 cr with sufficient instalments, annuity. It may be noted that the MSME Ministry and the CGTFS officials interpret the rules in the same manner and in synergy. My experience has been, when Rs 243 Cr REMOTE Scheme was conceptualized by me, and brought under the Credit Guarantee trust Fund Scheme, the DC office gave different interpretation from the one provided by the Scheme officials based in Bombay, so much so, the Scheme implementation was delayed by over 8 months. This is not meant as Criticism, but suggested for course correction, please.

Who are the beneficiaries?: Any industry falling in line with the definition of Medium scale industry would be eligible to take advantage of the Scheme. As the Scheme is representative in character, 10% outlay of North Eastern region, the mandatory reservation for SC/ST etc has not been made. This is a skeleton Scheme submitted for perusal.

Under the present Scheme of things, it is suggested, that handicrafts, handloom and any other sector which requires involvement of hand made produces, once the technology up-gradation is applied, it would become handloom(power loom), handicrafts(machine made crafts) destroying the basic structure of the Product. Furthermore, there are Schemes for the Textiles and jute sector for technology up- gradation under the Textiles Ministry, another Scheme for Handicrafts, and Handlooms by the same Textiles Ministry. It is

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suggested that these sectors be omitted by the TUF to be implemented by MSME for Medium Scale Industries.

This Scheme may cover light engineering, heavy engineering, leather, chemicals, auto spare parts and components industry, plane spare parts(since the number of private airlines have increased, it is quiet possible to invite foreign investors), food processing, electrical, chemical, hospitality, logistical, infrastructure, textiles, tourist etc.

No new industry need to be given admission to the Scheme, because, a new unit can straight away go for the state-of-the-art machineries as it is a new unit commencing from the scratch. Except the plane spare parts, I mentioned earlier, other new companies may be covered in the next phase of the Scheme.

Conclusion:

This is only a synopsis. If the Ministry is interested, a draft proposal meeting the Govt of India norms can be prepared and eventually submitted to Expenditure Finance Committee of dept of Expenditure, Ministry of Finance.

The Scheme may be implemented by DC, MSME or SIDBI or any other agency which the Ministry may choose. But the opportunity to increase the output and productivity and economies of scale of the Medium Scale industry is long overdue.

-o-o-o-o-o-o-

Copyright: @ With A V Ramanathan ([email protected])

Scheme models for Medium industries

Documents

indian container

medium scale

plane spare

forward rate

stabilizing

medium scale

foreign trade

medium scale