sam fea LAGHU UDYOG BHARATI HO. : 16/11, Swami Ramtith Nagar, Jhandewalan Exin., New Delhi-110055_ BS ret free, -¥ feeet-110055 Phone : 011- 23626084, 41840772, 23525082 ‘BENT: 0F7-23625084, 41540772, 23525052 E-mail : headoffice@lubindia.com / Website : www-lubindia.com we fra ay seine and 4871, ear TR AR, PRD IAMONe CELEBRATING SILVER JUBILEE YEAR-2019 Ref.No. LUB/2018-19/463 Dated 31/01/2019 Shri U.K Sinha Chairman, Expert Committee on MSME, Reserve Bank of India, Mumbai Sub:- Expert Committee on MSME- Suggestions from MSME Associations. Respected Sir, In response to your letter and call for submission from different associations of MSME we are submitting our memorandum herewith for your reference. A. Introduction: Laghu Udyog Bharati was established in 1994 with very specific intend to Promote & Protect Indian Micro & Small Industry for the progress of Indian micro ecosystem. We believe in “UBTERY HY SAH”. We have strong membership of 20,000 plus across the country having 450 units in 385 districts. Our members are from grass root level “MICRO & SMALL INDUSTRY” (MSI) from all sectors of industry from Agriculture & Food products to Pharma & Ayurved; general engineering to plastics & polymers. We have members who have their own products manufacturing & as well who extend service to large industries as ancillary units. As a result we have very broad and authentic information related to issues and requirements of Micro & Small Industry. Our organization operates via regular monthly meetings at the individual local unit (<7) level to state, zonal & national committee meetings with regular intervals. Every year we conduct Annual General Body meeting and have bi-yearly election procedure for election of honorary officials at every working unit to national level. We are representing Micro & Small Industry at different government committees by deputing our knowledgeable & experienced entrepreneurs. Our district & state units conduct variety of programs for the betterment of MSI and also held seminars & training sessions on subjects related to MSI. B. Regulatory & Policy Bottlenecks: Background: The Labor Bureau in its latest report of Annual employment - unemployment" survey has reported that unemployment has risen to 5 year high of 5% in 2015-16. In addition more than 10 lakh youth join the workforce every month. ‘These youth need to be provided with career and productive Jobs lest the democracy Corporate Office : 48, Deen Dayal Upadhyay Marg, Rouse Avenue, New Delhi-110002. Ph, : 011-23238582 Regd. Office : Anantrao Bhide SmratiParisar, Central Bazar Road, 184, Shivaji Nagar, Nagpur - 440010 Tele/Fax : 0712-2560826 Raga. No. : 14-78609 Di, 26-05-1994Cont. Sheet and society should plunge into lawlessness and chaos. Having been exposed to information age, these youth, who join the work force, are not likely to be satisfied with MNREGA subsidy amount, They aspire for career jobs. It is universally accepted that Micro and Small Enterprises not only have highest potential to create productive jobs but they also ensure equitable and inclusive growth thereby achieving “ANTODAYA” goal of present government. Therefore, it becomes imperative to encourage, promote, support and protect entrepreneurship and development of MSIs at every stage of all policies of Government. As a theme of holistic and comprehensive strategy, MSIs should be focus not only of Ministry of MSME but of policies in all departments like: education, commerce and industry, export- import, FDI and Bilateral/ multilateral trade agreements, electricity and power, environment protection, production and procurement of defense items, transport, labor and social security laws, and financial matters like adequate credit flow at affordable rates and direct and indirect taxes. Interventions are required in these fields, some as immediate measures and others as long term measures. Holistic Policy for MSI’s: Currently MSI’s are monitored by different departments such as MSME; LABOR; ENVIRONMENT; ETC. Further the individual states are also having different acts and laws related to MSE’s. We feel that all subjects and acts are required to be brought under one department with full authority and control so that the MSE sector will have realistic “Ease of Doing Business” through the nation. ‘The nodal agency should be “District Industries Centre” with sufficient and adequate authority and responsibility for effective implementation of MSI promotion and nurturing. All of us accept that the MSI's play very important role in the “micro economy and ecosystem” of the national ecosystem, but the needs and issues are addressed on the perception of the authorities at the top who have very limited exposure to the “reality of MSI’s” at the village or town level. We also request attention to the “single man committee report 2017" by Shri Prabhat Kumar, in which the committee has recommended special attention to the MSE’s by all related authorities with “I CARE “attitude towards MSE’s. This is sufficient to understand the need and importance of MSE’s in the ecosystem of the nation, Labour: 1. Mindset At present all labor policies are based on paradigm that employer and employee are ‘two classes of people—one is exploiter and other is exploited, so laws should be made to protect the exploited. However, with this paradigm there will always be trust deficit which can never be filled. At best there would be controlled suppressionMy Cont. Sheet of underlined animosity. This concept is exotic to Indian ethos and has been borrowed from abroad hence has proved total failure, It has failed to protect the interest of either employer or employees. We have worked for centuries where ‘employer and employee worked together as family members. In micro and small enterprise the work culture is that even today. If we visit any micro unit many a times it becomes difficult to identify who is employer and employee. We feel that labor laws for Micro and Small enterprises should be suitably adapted in such a way which promotes mutual trust like what have been in case of LOk Adalat and Counseling police posts. 2 Separate Labor Acts for MSIs: It was unanimous recommendation of 2“** Labor Commission that there should be separate Labor Act for MSIs. This has been also recommended by various other committees from time to time including the latest one man Committee under Sh Prabhat Kumar to recommend MSME policy. LUB has been relentlessly pursuing this demand since last more than 10 years. LUB’s efforts final! lly succeeded when it ‘was unanimously adopted in 45**" ILC in 2013 that a separate comprehensive single Labor Act should be enacted for MSEs, Subsequently a draft act was also formed in the name of “Small Factories Act “However, for some reasons it has been put in cold storage. This should be enacted immediately to eliminate fear of archaic Labor laws prevailing in the minds of new entrepreneurs and act as hindrance in setting up of new enterprises, Banking & Finance: 1, NPA Norms: Currently the average period of eredit enjoyed by the buyers from the suppliers is 120 days. Which is extraordinary and is pain full and root cause of the difficulties of MSI’s resulting into financial crisis for the MSI’s? We demand that the NPA norm for the MSE’s finance from the Banks to be revised to 180 days from 90 days. It is also important that the NPA classification is done annually and not quarterly as the “Business Cycle of MSI’s are totally dependent on the buyers and market scenario. 2 Creation of Payment Exchange for MSE’s: We wish to draw your kind attention to the report of “M.V.KAMAT COMMITTEE 2015” on the MSE sector. It mentions a system in the MEXICO which is called as NAFIN which guarantees the timely payment of MSE’s via an exchange at which the Buyer and the Supplier both are registered and submit the transaction details in the system. The system on the due date of payment the exchange is authorized to debits the Bank Account of Buyer and credits the MSE supplier to avoid the delay in the payment. Any mismatch of funds and permissible Bank limit is charged to the Buyer and considered it to be liability ofCont. Sheet the buyer assuring the supplier to be relieved from the unfortunate incidences of NPA. We suggest and demand similar “RECOVERY NETWORK FOR THE MSE’S”. We also wish to mention that now with the support of GSTN all the ‘transactions will be registered in the GSTN network and will be essentially accepted by the buyer in GSTR II providing the all data to the exchange proposed. We feel this is @ great opportunity to resolve the perpetual problem of delayed payments through this and gain the compliments from the MSE sector. 3. Insolvency & Bankruptcy Code 2016: it is observed that the whenever any large corporate goes for insolvency & bankruptcy the receivables by the MSME suppliers are not at all considered during the whole procedure. Though there is a water fall ‘mechanism laid down in the code it does not consider the payables of the MSME’s. Due to this the MSME’s whose receivables do not realize go into trouble and they become NPA if it is a “ONE TO ONE” SUPPLIER CUSTOMER TYPE OF ACTIVITY. We suggest addressing this issue and evolving a solution to overcome these lacunae. GST: We are aware that GST is reviewed by the GST Act review advisory committee of which Laghu Udyog Bharati’s representative is member. We have been submitting our suggestions through the committee time to time with all details related to the issues and glitches. However, there are some points which must be mentioned here also with the blame of repetition as they are of importance to the MSE sector. |. Composition Scheme limit: We welcome & thank the Government for the latest amendment for increase in the limit to Rs. 150.00 Lakhs. However, the permission to conduct inter-state business within this scheme is yet to be included in the scheme which is very much important for MSI’s operating on the border of two states, 2. Rebate of CGST to MSI’s: Since the GST is subsumption of all indirect taxes it is implicit that all provisions of earlier Tax regime also to be subsumed for the different relief provisions. In earlier Tax Regime, many MSI's were availing Small industry benefit for Central Excise and were not covered under the same, Now with the current provisions of GST, all such MSI's are covered for full rate of GST which includes CGST & SGST. Due to this the prices of their products are increased to that extent to the consumer. This has resulted into the loss of competitiveness against the corporate sector players in the market. The turnover of such MSI’s is average in the tune of Rs. 300.00 lakh maximum. To make these MSI’s competitive and survive we suggest to give 50% rebate of GST which will give a relief to all MSI’s who are having their turnover not more than Rs, 300.00 lakh. 3. Job Work tariff rate: The prevailing GST tari 83 & 84 chapter attract 18% rate of GST. The tari on Job Work falling under HSN F rate for Job Work in Textile &Cont. Sheet Diamond industry is already brought down to 5%. It is very much discriminative Policy towards one class of industry. It is well known fact that such job work is carried out by all ancillary units of large industry customers, Due to this the working capital requirements of ail such “Job Work MSi’s” has increased three times as they are required to remit the GST every month & where as the payment cycle from the customer industry which is Large industry is of 90 to 180 days. The Large industries receive & enjoy the Input Tax Credit immediately on the receipt of supply of job work & the finance cost is borne by the Micro & Small Industry Job Worker. Hence it is requested that the Job Work shall tariff shall be made at par with the textile & diamond industry, Social Security for MSI’s entrepreneurs: Today MSEs have to compete globally. They are at a great disadvantage viz-a-viz their competitors, both MNCs as well indigenous large sector, in terms of all input costs like: cost of credit, raw materials cost of energy etc. There is no level playing field. On top of that they have to bear cost of delayed payments of their bills despite MSME Act 2006 prohibiting it. If due to some reason beyond their control, the unit fails after having survived many years then the entrepreneur and his whole family literally comes on road. Therefore, let there be some social security to entrepreneur proportionate to his total revenue paid to Government at time of his retirement or if Unit fails due to some reason. This will encourage entrepreneurs to take risk in setting up of new units. National Welfare Commission for MSEs: Despite various directions and guide lines issued by RBI as well as Government the credit flow by banks to MSEs remains unsatisfactory, As far as delayed payment of bills is concemed MSME Act 2006 is violated, with total impunity, more as a rule rather an exception by almost all companies including PSUs. There is lot of hassles in getting various clearances for setting up a new unit. Therefore, there should be a Welfare Commission for MSEs with Quasi Judicial Powers to act as a watch dog that all policies, directions and guidelines issued by Government are followed in letter (MSMED Act, 2006 including definitions and registration related issues ] We understand that a bill recommending amendments in definition of MSME in the MSME Act 2006 is under active consideration. In the interest of Micro & Small Industries, and thereby in the interest of whole Nation, we urge you to kindly consider our submissions given below.BACKGROUND: * Small scale industries have made considerable contribution to the socioeconomic development of almost all the countries including India. In our country, the increasing Pressure of population and unemployment has made this contribution even more significant. For sake of brevity, we refrain from giving all the data showing significant contribution by MSEs to Indian GDP and exports, as they are already available with you. Suffice is to state that this sector is especially suitable to Indian conditions as with less ‘amount of capital investment, this seetor contributes more towards GDP, provides more employment opportunities, offers unique product and service offerings, and serves customers with personal attention. While large and medium sector gives production mostly with help of automation; the MSEs provide maximum job opportunities thereby ensuring equitable and inclusive growth. * To bring focus on MSIs, Shri Vajpayee’s Government carved out separate ministry for Micro and Small Industries, * On 17 February 1999, Shri Vajpayee’s Government reduced the threshold limit of investment in plant and machinery from Rs 3 crore to Rs lerore as it was felt that with larger threshold t, credit flow marked for MSIs will be diverted to medium or large industries. However, later on this limit was enhanced to Rs 5 crore by UPA Government. As apprehended, this led to continuous decrease in credit flow to MSIS as percentage of total credit extended by commercial banks. To window dress it, medium industries were clubbed with MSEs to rename it as MSME Ministry in 2006. * On February 7, 2018, Cabinet approved a proposal to amend definition of MSME% as per MSME Act 2006 from present basis of investment in plant and machinery such that definition is to be on basis of turnover only. As per proposed amendment, business with revenue up to Rs 5 Cr will be called Micro; between Rs 5 Cr and Rs 75 Cr called Small and between Rs75 Cr and Rs 250 Cr as Medium. LUB’s Submissions: - 1, This matter was considered by One Man Commission constituted by this Government to give recommendation for National Policy for MSME. After stake holders, it has given its considered recommendation on this subject which we quote as below: (Para 3.2.8 and 3.2.9) The Committee examined the 2 suggested bases of redefining the MSMEs ie. turnover and employment and found that they do not add anything worthwhile over the present system. Cont. SheetCont. Sheet (Para 3.2.10) “The committee is of the view that a change in the criterion of defining MSMEs will not add any value to the development, sustenance and growth of the enterprise.... Therefore, the present criterion may be continued.” 2 As per Fourth Alll India Census of Micro, Small and Medium Enterprises in registered sector the average turnover of MSMEs is as follows: - Micro Rs 0.21 Cr ‘Small Rs4.19 Cr Medium Rs 25,24 Cr This figure will be much smaller of all unt enterprises, are taken into account, 3 Since as per this Census Medium Enterprises constitute only 0.17 % of total registered Units, hence almost all registered units will be re-designated as Micro and all Medium and most of large sector units will be designated as Small. 4 So there all the benefits/ incentives which the Government desires to reserve for MSEs will be comered by presently classified Medium and large sector units. This apprehension has been highlighted by the One-Man Commission as follows: - red units, which constitute 95.7% of total (Para 3.2.14) “The moment we raise the upper limit for small manufacturing to say 15 erores, a small group medium enterprise will henceforth become small and will corner all the benefits meant for MSEs in the credit and procurement. “ (Para 3.5.4) At the end of FY 2011-12, the total credit supply was meeting only 38 % of the total credit leaving 62% credit gap. (Para 3.5.5) In terms of percentage, the share of finance gap in the three sub groups of MSMEs worked out to: Micro 77%, Small 19% and Medium 4% 5. There is no country in the world which has only turn over as sole criterion for classifyin; industries in different categories except USA. Mostly use a combination of investment in plant and machinery along with number of persons employed by respective unit. In USA also there is no definition for Small Industry. They define it as Small Business and the threshold limit of turnover is not uniform but varies from sector to sector. They also take into account the dominance of a unit in market share while classifying it. 6 To start with, registration is required by a new unit for getting electric connection, water supply, NOC from pollution contro! board and loans sanction from banks. Initially the turnover will be zero for all units whether Micro or large and hence all units will be registered as Micro. 7 The new criterion does not take into account the type of activity whether manufacturing or trading. If trading is registered as industrial enterprise then it will encourage trading only and manufacturing will get hurt. This will be against the objective of making India a ‘manufacturing hub and Make in India scheme, 8 Since there is no limit on plant and machinery investment hence the units will tend to Procure costly automatic machines thereby reducing job opportunities further.9 Once registered as Micro or Small enterprise, any MNC can produce product worth thousands of rupees and then market it through various subsidiaries all registered as Micro /Small under GSTN. 10 With PPP policy where it is mandatory to procure minimum 20% even by defense, railways and all PSUs, any MNC may establish assembly line of imported sub assemblies here and then supply the same under PPP policy. Thus real local MSEs will be robbed of incentives which Government wants to give them. 11. The criterion is dynamic in nature and may change from one quarter to quarter. This will create more confusion. 12 The basic objective of creating separate MSME Ministry to promote, support and protect. MSEs will be defeated. MSEs not only provide maximum job opportunities but also censure equitable and inclusive growth. LUB’s SUGGESTIONS:- 1, The definition criterion of Micro & Small Industry to be based on threshold limits of “Investment in Plant Machinery” with limits as * MICRO: Less than Rs. 50 lakhs. * SMALL: More than Rs SOLakh & less than Rs 500 Lakh. 2. To formulate separate Micro & Small Industry policy, and exclude the enterprises and Medium sector from the purview of current MSME ACT 2006 and make it as “Micro & Small Industry Act, 3. The MSI status to be appl MANAGEMENT” Industties. icable ONLY TO “INDIAN OWNERSHIP AND We urge you to give your careful and judicial consideration on this. LUB has only interest to have ecosystem which will provide PROMOTION, PREFERENCE for PROGRESS of Indian Micro & Small Industry for inclusive prosperity & growth of to all stake holders of micro economy of India, We have apprehension that various lobbies may be active to have a decision in their favor to guard interest of large & multinational corporates to gain different benefits of MSME’S by changing the “definition criterion based on the Sale Tumover”. I [Infrastructure related issues = ‘We wish to highlight some of the major issues related to the Infrastructure as under: + Availability of Land: Currently land at different industrial areas promoted by state governments is not available. If any time, any new Industrial Area is declared the plot of lands are “auctioned” and not allotted on any priority system or requirement basis. The bidding process is totally dominated by high net worth bidders as they are capable of high bidding. In the past the State Government Industrial Development Corporations use to Cont. SheetSaxe S(O = allot the Plot of land by assessment of requirement & on priority to the new MSI entrepreneurs at special rate of premium. Today, it is observed that the large corporates are offered very large areas of land at very low and special rates under the veil of industrial promotion and potential employment generation. It is well known fact that the employment per meter square by MSI is far more than by large corporates as they are focused more on automation where as the MSI rely more on the available local skill set. We propose that it is important that “every new declared industrial area must reserve 40% area for allotment to new MSI entrepreneurs and that also at special low rate, Power, water supply: Currently every small unit entering into business need to acquire the power, water from the authorities separately. Not only that but in some industrial township areas they are needed to pay very heavy installation charges if the power line & water lines are not available, We submit that the responsibility of providing Power & Water Supply shall be rested with the Industrial Township Development Authorities. Pollution control facilities: There is very big skew in the policy of Pollution Control provisions. The large corporate units & MSI's are put to task with the same norms of Pollution Control by the authorities. We are aware that the “Pollution” is very important issue and it is prime responsibility of the unit who is crating pollution. However, it is also important to understand the capacity & financial feasibility of MSI to provide and comply with the different norms of Pollution Control authorities. We submit that the Industrial Development Corporations shall make arrangements of “Common Effluent Treatment” plants at every industrial township. The services of such facility may be charged to the industrial units same as Power & Water supply. Property Tax by Local Government Authorities: The industrial units which are established in the authorized Industrial Townships developed by State Corporations are currently required to pay the “Property Tax” annually charged by the Local Government Bodies. This is actually a double taxation as the Industrial Township Development Corporations collect Development Charges annually. We propose to set a National Policy ‘on this in line with the” Andhra Pradesh Industrial Local Authority Act” as a resolution Some State Governments like Rajasthan & Uttar Pradesh have already done away with this issue by changing the Local Body Property Tax rules. i [Access to technology related issues Itis a fact today that the Micro & Small Industry lag behind in the R & D and upgradation of the technol logy. The root cause for this are Cont. Sheeta) The majority Micro & Small Industries are “single man” organizations. b) Limited resources of money, man power & marketing. ©) They lack in Research, Development & Technology up gradation due to inherent limitations of resources. They enter into any kind of such development not by choice but by compulsion from the market & customer, 4) They are unable to approach different R & D Laboratories or institutions due to apathetic attitudinal approach from such inst We submit that + The CSIR laboratories and institutions facilities to be made available with specific product clusters development for new markets & up gradation. ‘* A scheme to be promoted for soft loans by Banks & financial institutes for the approved R&D projects. IV | Credit Rating of MSMEs Cont. Sheet It is observed that currently, the credit ratings of MSI’s are conducted not by the Bank officials but are off loaded to “Credit Rating Agencies” who typically follow the international norms of credit rating irrespective of size & type of business cycles of the activities. It is important to understand and address that there is a vast difference in the ecosystem of Indian and that also particularly of MSI's who are exposed to many different eventualities under different circumstances which drive the financials of the MSI. The business cycles of MSI’s in India have large spectrum from 15 days to 270 days. There are some small businesses in Food products who have daily cash receipts but need to invest in the long term inventory of their raw materials due to seasonal availability. On the other hand there are some ancillary units of large industries who require extending credits to customer up to 270 days. As a result, it is important that the “credit rating norms” must be redefined to suit the Indian business economics and cycles. We take an opportunity to include a report by the Parliamentary Standing Committee on Commerce of 14” August 2018, which is very much self explanatory. It mentions “different weight age to different sectors of the industry by credit rating agencies, to ensure that banks don't deprive the micro small and medium enterprises (MSME) of credit. The observations came after the committee noted that the rules introduced by RBI to help banks to counter the NPA problem have hit the MSMEs very hard has resulted in a reduction in credit flow to MSMEs" 10The committee also pointed out that “preference and concessions given by banks 10 the 'AAA' or ‘AA’ credit rated firms has deprived a large part of MSME sector from easy access to bank finance. "The credit rating agencies assess every firm with the same scale without taking into account the characteristic, nature and size of the unit. Instead of strengthening their internal risk appraisal mechanism, the banks have assigned their responsibility to third party agencies. Banks must be alive to their responsibility. The prudence expected of the banks should not be used as an alibi to kill entrepreneurship," The committee recommends that, “due weight age to local vagaries specific to the industry must be taken into consideration by the credit rating agencies while awarding ratings 10 the firms." The SEBI must be engaged to take necessary action in this regard. Further, the ‘banks must also strengthen their credit appraisal frameworks so that they can undertake in-house risk appraisals of a project in a professional manner," the committee suggested”. We submit our views as under: The credit rating by external credit rating of MSMEs availing credit facilities up to Rs.25 Cores must be discontinued. Itis observed that, the Rating Agencies are free to decide their rating fee and the portion of the fee is subsidized by the MSME Ministry. As per last data available the subsidy of Rs.88 Cores was provide for rating 23,048 accounts by MSME Ministry. It is very much disturbing & ironical that the Banks collect the fees of credit rating from the MSI; s whose credit rating is done. We are happy to mention that some major Public Sector Banks have already discontinued credit rating by external credit rating of MSMEs availing credit facilities up to Rs.25 Crores. However, it is important that RBI needs to take a realistic approach and issue suitable guidelines to banks in this regard. V_ [Restructuring / Rehabilitation of Stressed accounts/ Insolvency . Inclusion of Non GST Micro enterprises: It important that the guidelines are more comprehensive to include all MSEs GST registered or Unregistered with GST. This will also be in line with your Master Circular. No. RBI/2017-18/186 DBR.No.BP.BC.108/21.04.048/2017-18 dtd June 6, 2018 which had relaxed IRAC ‘norms to units not registered under GST. This will certainly provide a big relief to large number of stressed Micro and Small units. Priority to restructuring of Micro & Small enterprises: It is important that the restructuring of advances to Micro & Small enterprises having exposure less than Rs 2 Crote shall be extended on priority as they constitute more than 90% of the advances to Bt Cont. Sheetz = Cont. Sheet ‘vert at \lidy a SRG S) 6. MSME sector by number. It will extend the expected benefit to the majority & needy enterprises in spirit & words. Interest rate to Micro & Small Enterprises: Currently Micro & Small Enterprises sector is charged with highest rate of interest under the pretext to be most risky advances. But the fact is they are the most faithful as well as responsible & secured borrower, as he has burden of social defame also. Hence, we request you to recommend all bankers to charge the interest rate at par with basic lending rate. You will appreciate that in absence of a monitoring mechanism at RBI level for overseeing the implementation of various guidelines issued by RBI for facilitating the credit flow to MSME sector, the implementation of these guidelines is not up to the expected level and benefits envisaged by RBI are not reaching to deserving MSMEs. We would like to submit few examples to illustrate our point. Time and again RBI is advising Banks to extend credit facilities to MSMEs without any collateral security and cover eligible units under CGTMSE scheme. But the response of banks is very lukewarm to these directions. Banks need to be sensitized that no eligible unit should be deprived of adequate credit for want of collateral security Banks are asking for very higher amount of collateral security for those units which are not covered under CGTMSE. This is more glaring among PCA banks which have prescribed collateral coverage ratio of more than sixty percent of the advance, not only for new units but for existing units also at the time of review of accounts. This is greatly hampering flow of credit to MSME sector. RBI had issued FIDD.MSME & NFS.BC.No.21/06.02.31/2015-16 March 17, 2016 prescribing Framework for Revival and Rehabilitation of MSMEs. The framework has prescribed formation of Committee for a Corrective Action Plan at Zonal level of each bank with detailed guidelines on (a) Rectification, (b) Restructuring, (c) Recovery. We observe that Banks have totally ignored this circular and are applying draconian measures of recovery without providing opportunity for Revival and Rehabilitation of MSMEs envisaged in the captioned framework. RBI had issued FIDD.MSME & NFS.12/06.02.31/2017-18 July 24, 2017 (Updated as on April 25, 2018) to All Scheduled Commercial Banks directing them to give le publicity to the One Time settlement scheme to be implemented by them for MSMEs, by placing it on the bank’s website and through other possible modes of dissemination. For your ready reference, we are reproducing the Para 4.7 (ii) a & b of captioned Master Direction. 2Cont. Sheet “4.7 Debt Restructuring Mechanism for MSMEs-(ii) all commercial banks are also advised in terms of our circular RPCD.SME&NFS.BC.No. 102/06.04.01/2008-09 dated May 4, 2009 t0 do the following: @ put in place loan policies governing extension of credit facilities, Restructuring/Rehabilitation policy for revival of potentially viable sick units / enterprises (now read with guidelines on Framework for Revival and Rehabilitation of MSMESs issued on March 17, 2016) and non- discretionary One Time Settlement scheme for recovery of nonperforming loans for the MSME sector, with the approval of the Board of Directors and 4) Give wide publicity to the One Time settlement scheme implemented by them, by lacing it on the bank's website and through other possible modes of dissemination. They may allow reasonable time to the borrowers to submit the application and also make Payment of the dues in order to extend the benefits of the scheme to eligible borrowers. Itis observed that in a sample check of the websites of Banks it is unfortunately revealed that even large number of Public Sector Banks HAVE NOT DISPLAYED IT ON THEIR WEBSITE. Shockingly some senior executives of PSBs went to the extent of denying the very existence of such RBI guidelines. This is unnecessarily creating harassment to MSMEs who want to exit the activity because of the stress caused by factors beyond their control and more importantly banks and borrowers are also locked in avoidable legal battles blocking banks funds. 9. NCLT & Insolvency of Large sector: Normally the lending Banks or Financial Institutes enter in to the claims of the dues from large sector for the settlement. We ‘observe one lacuna in it, as the receivables of MSME’s get no attention in the total process. We apprehend due to such NCLT & Insolvency settlements, the receivable of MSE vendors are just wiped out by the new investor companies which results into non standard accounts of MSE’s. We request you to recommend a solution on such cases & give guidelines to the claimant Banks to include the receivables of MSE’s in their claim. 10. We wish to submit our request to establish a “monitoring mechanism with web portal” to upload grievance of non receipt of the benefits of the guidelines from the Banks to the MSME’s who are always at the mercy of local branch level Bank authorities. In view of the above mentioned faets, we also request you to establish a monitoring committee of RBI comprising of representatives of MSME’s from LUB for overseeing the effective implementation of various guide lines issued by RBI to provide the time & adequate credit to MSME"s. VI ]frade Receivables Discounting System (TReDS) ] We welcome the efforts of the Government & RBI to evolve a system which will address the issue of Trade Receivables from Large corporate & Public Sector organizations. We 13Cont. Sheet observe that there are some areas where in the TReDS is required to be made more inclusive & compulsive so that itis effective & resultive, We submit as under: * The TReDS system shall be linked to GSTN so as to make it more effective. * The GST ITC shall be extended to the recipient companies only when the payment of MSI supplier is effected via TReDS. * If the payments of MSI's are not made in stipulated time of 45 days as per MSME Act 2006 then the “liability of such unpaid receivables which are discounted” shall be transferred to the recipient company, * The discounting charges and interest for delayed payments to be transferred and recovered from the recipient companies. We wish to draw attention to the M.V. Kamat Committee report of 2015 set up to review the architecture of MSME on the subject & quote them as under: 3.1 NAFIN productive chains model A relevant example of increasing access to working capital for SMEs in the developing World is the National Financiera (NAFIN) model in Mexico. NAFIN is a Mexican state-owned Development bank created in 1934 to promote Mexico's industrial development. NAFIN Provides SME suppliers with automated reverse factoring through its ‘Cadenas Productivas’ (Productive chains) programme, linking “small suppliers” to “big buyers". Through this Model small, risky enterprises that lack access 10 formal credit are able to use their Receivables from big buyers to secure working capital finance, thereby transferring an SME's Credit risk to their lower-risk customers. 3.2 Mode of operation DO Large buyers provide NAFIN with lists of their suppliers (i.e., the small firms holding Their accounts receivables), who are then invited to register for the factoring service For their respective large buyer. Working with only the large, established buyers Reduces both the cost of assessing accounts receivable risk and the risk of non26 Payment itself As a result, all factoring services facilitated through NAFIN are Provided “without recourse.” 10Once the goods have been delivered and the buyer has been invoiced, the large Buyer posts a negotiable instrument online OO The supplier can access NAFIN’s website, and locates a list of lenders willing to Factor the receivable, with their corresponding interest rate quotes (1UOnce the supplier chooses the preferred lender, the amount to be factored is Transferred electronically to the supplier's bank account GOWhen the invoice becomes due, the buyer pays the lender directly 3.3 Enablers Factoring transactions are completed through NAFIN’s elecironie platform, which reduces Transaction costs and improves security. The platform also facilitates the participation of all Commercial banks in the programme and introduces the element of competition for Suppliers’ receivables. NAFIN covers all costs associated with the electronic. platform and Legal expenses, such as document preparation, signing and transfers. The small supplier 14Cont. Sheet And NAFIN sign a pre-agreement allowing electronic sale and transfer of receivables; other Documents establish buyer/NAFIN obligations, including the buyer’s obligation to remit Factored receivables to the banks directly. In 2001, NAFIN had a 2% market share; and by 2004 it accounted for 60% of the factoring Market in Mexico. VII [Creation of Awareness / Capacity Building of Entrepreneurs ] We understand the importance of the creating awareness & capacity building of entrepreneurs to achieve the perpetual growth & success of his industry & enterprise. We offer from our organization to work with any Government agency for such efforts via conducting different Programs at the root level of ecosystem. We wish to mention herewith that our many districts units are already working in tandem with the District administration after the Hon Prime Minister's Video Conference on MSME. We suggest organizing awareness programs by all policy makers to educate & make aware about the different proactive policies from Government. It is needed that a “dialogue & interaction” between policy makers & the grass root level MSI is evolved so that the policies are in line with their requirements & the MSI's will take benefit of the same appropriately. VIII [Issues related to debt financing It is a fact that the MSI’s are so small and have such a low level financial requirements & understanding that they are not aware or rather are not worried about the schemes of “debt financing” and issues related to it. It is a requirement of time to understand the reality of the Indian Micro & Small Industry at the ground level by a paradigm shift from the conventional historical approach of with the bias of international MSI standard and ascertain the needs of the Indian MSI's. IX Issues relating to equity financing / venture capital / Angel Investment / private lequity /FDI It is needed to understand the real difficulty of majority MSI’s for to avail the equity finance or venture capital or Angel Investment or Private equity due to their “proprietary & partnership” structure of constitution. It is important to understand the social psychology of business structures over the ages. Though it is advisable to form a company structure of any business activity, the technicalities of the company law and its compliances keep the MSI away from opting for it. As a result’majority of MSI’s are not exposed to all these schemes of equity financing. We feel it is important to evolve some kind of system to make the equity financing available to the proprietary & partnership firms to make the more capital adequate and feasible activities,Cont. Sheet G a = \ 2 ‘vera are xX \ihdy, 4a TRY 5) TTS [Role of SIDBI and CGTMSE programs SIDBI should directly start financing the working capital term loan along with Term loan for capital assets which will ensure that the entrepreneurs will get the loans against CGTMSE and no collateral security will be required. To incentivize the PSB, CGTMSE should improve upon their claim settlement procedures & the percentage of the claim being offered should also be increased. This in fact is presently acting as a deterrent to the bankers. We feel it appropriate to request you to refer to the “ONE MAN COMMITTEE REPORT” ON MSME TO MAKE RECOMMENDATIONS ON THE NATIONAL POLICY FOR MSME UNDER THE CHAIRMANSHIP OF DR PRABHAT KUMAR, EX CABINET SECRETARY, GOVERNMENT OF INDIA IN 2017” which elaborately discusses all aspects of MSME is of very much of importance to the ensuing time to come for Indian MSME. We also would like to request you to give us an opportunity to present our statements to the review committee as and when found appropriate. Should you require any more information and clarification on our submission please let us know so as to submit it to your satisfaction, With warm regards Yours Sincerely, S05 Jitendra Gupta National President Mobile: 0-94250-10856 Email:-president@lubindi 16