EMBARGOED : FOR PUBLICATION ON MONDAY, AUGUST 23, 2010

SMEs need healthy policy environment for growth & survival : PHD Chamber survey

Effective Central government schemes, simpler tax laws, assistance in technological upgradation, flexible labour laws, and creation of an Indian Common Market by ensuring free trade of goods across borders,  are some of the key requirements of Small and Medium Enterprises (SMEs) for the growth  and survival .

In a survey conducted by PHD Chamber for small and medium units located in Uttar Pradesh, Haryana, Punjab, Rajasthan, Madhya Pradesh, Himachal Pradesh,  J&K, Uttarakhand, Chattisgarh, Chandigarh and Delhi, it was found that  high tax rates, cumbersome procedures and local regulations, rigid labour laws, deficiencies of finance, technology and marketing hamper growth of SMEs by raising the transaction cost of business. 

 Following are some of the highlights of the survey:-

Highlights

Implementation of Central Government schemes for SMEs should be made more effective.

Simplification in tax administration and rationalisation of tax structure to promote cost-effectiveness in industry and help companies undertake corporate planning.  All taxes and levies should be integrated under GST which should be implemented by the target date of April 2011 .

 Cost-reduction through technological upgradation is vital for the survival and growth of SMEs. Government may provide technological assistance to SMEs through national research laboratories and other scientific institutions as most of the units lack resources to undertake R&D projects on their own. Skill development facility for workers to be enhanced to boost productivity.

Labour laws should be made flexible to improve industrial competitiveness in both domestic and global market.

Creation of a  common market to ensure free trade of goods across borders.

 The respondents cited credit and finance as the most important factors for business development out of the four factors which are instrumental in developing the competitive advantage of small firms. This was followed by technology up-gradation and skill development. Next in line was marketing support and research and development. 

The respondents maintained that there are various constraints which come in the way of doing business in the market place. From among the 10 parameters identified as problem areas for small businesses operating in the domestic and export markets, a major concern was about the prevalence of the inspector raj system which continues to affect SMEs. This is followed by problems relating to cost, availability and timeliness of credit and marketing support. Lack of business and policy related information has also been identified as a major problem which affects small units. Other factors which have been cited as having a major influence on business relate to deficient technology, non-adherence to quality norms, rigid labour laws and corruption.

The excise concessions offered by the Government to SMEs was perceived to be out of sync with the current reality of rising production costs in industry. A large majority of respondents have  strongly recommended that the limit of excise duty should be raised from the present level to help SMEs offset the rise in raw material prices, cost of services, high rate of interest and help the sector maintain current level of production and increase their competitive advantage in the market-place.

The rise in excise limits for SMEs would help units to upgrade their operations, produce more at lower cost and thereby raise their turnover. It would also help Government generate more revenue through rise in sales volumes. In fact, SMEs feel that cost of raw material, machinery and equipment etc has gone up manifold from the stipulated limit. As a result, the excise duty component has also gone up considerably. Hence, there is a demand for raising the limit.

Around 84 per cent of survey results overwhelmingly indicated a preference for raising the excise duty exemption limit from the current level of Rs. 1.5 crore. A break up shows that around 53 per cent preferred that the cap should go up to Rs. 5 crore while 30 per cent felt that the figure should be ramped up to Rs. 3 crore. A minority of 17 per cent mentioned that they would be satisfied if the threshold level was increased to Rs. 2 crore.

Respondents were divided on whether the influx of imports is detrimental to their business. Around 50 per cent of small businesses in North India did not feel threatened by competition from imports. Nevertheless, the remaining half was of the view that availability of cheap imports was eroding the competitive advantage of the indigenous product. This is mainly due to under - invoicing of imports, and dumping by the foreign supplier.

Back to Archive-2010