To encourage large companies to invest in smaller ones, the draft policy paper recommends raising of investment ceiling from the present level of 24 to 49 per cent. The raised limit will encourage long-term alliance between large and small for technology, the paper says. Incentives for start-ups and first-generation entrepreneurs, emphasis on adequate and timely flow of credit, promotion of tiny unit clusters and excise concessions are some of theother features of the draft policy.

"The need for a separate policy for tiny and small-scale service and village enterprises has been a long felt one," says Gurpal Singh, senior director, CII, who heads the association's small industry cell. "With the investment ceiling for small industry raised to Rs 3 crore, a package for tiny units has become imperative."

The tiny sector accounts for about 95 per cent of the small units in the country. The government defines a tiny enterprise as an industrial undertaking having up to Rs 25 lakh as investment in fixed assets in plant and machinery. In the decentralised sector artisans, khadi and village industries, handloom, sericulture, coir, etc., have been categorised as "village industries".

To strengthen industry-academic interface, the government must encourage the Industrial Training Institutes (ITIs) to provide trained manpower to the tiny sector. A pilot project should be initiated in association with industry associations for technology developmentprogrammes catering specifically to tiny units.

The draft policy envisages a more pro-active role for the district industrial centres (DICs) which will be more promotional than regulatory in nature. The DICs will have representation from various departments such as that of industry, labour, environment and sales tax, banking institutions, state financial institutions, state industry corporations, small industry associations and local governments and regularly organise problem shooting sessions for the tiny sector.

The government efforts would be directed to providing incentives to start-ups. Measures would be taken to develop alternate financing modes such as venture capital finance.

To encourage private sector technical support for tiny units, the DICs would promote support agencies to help other tiny enterprises. The draft policy envisages greater role for private sector in collection of data relating to markets, technology, business opportunities, etc. "The computerised data would then be madeavailable to entrepreneurs, business counsellors, etc., on a payment basis," says the policy paper.

Business and industry associations would be encouraged to start counselling services. A group of young business counsellors equipped with the knowledge and skills of opportunity identification, business planning and knowledge about procedures and formalities would be attached to the DICs and existing service institutions.

Emphasising the need for adequate and timely flow of credit, the policy paper calls for making the Nayak Committee recommendations the single important benchmark for appraising the working capital requirements of the tiny sector. As per Nayak committee norms, the banks will have to sanction minimum 20 per cent of sales turnover as the credit limit and higher in cases where the bank assesses the specific needs of a particular unit.

The draft paper proposes raising net bank credit for units having investment in plant and machinery between Rs 5 lakh and Rs 25 lakh from the present level of20 to 30 per cent. While units having investment up to Rs 5 lakh will continue to get 40 per cent of the allocated SSI credit, the balance 30 per cent will go to units with investment between Rs 25 lakh and Rs 3 crore.

The policy document raises the limit of composite loans (term loans plus working capital) from the present level of Rs 50,000 to Rs 15 lakh. While scheduling the repayment, only the term loan component would be considered. To reduce the cost of institutional finance, the draft policy paper calls upon banks to reduce their spread over the PLR. While the limit for not asking collateral security by the bankers would be raised to Rs 5 lakh, the collateral would be more in nature of business assets of the entrepreneur rather than personal assets.

To deal with the bane of delayed payments, the DICs would be entrusted with the task of assisting tiny units in getting timely payments from large buyers. They would be authorised to take legal action on behalf of tiny units. Measures would be taken toencourage factoring organisations address the needs of the tiny sector.

A special cell in each SSI branch, manned by trained staff, would lay emphasis on tiny and village industries. Following a carrot and stick policy, the paper suggests that banks which continue to default in meeting their targets for lending to priority sector will see a downward slide in their rates of interest. Banks which will continue to default in a 3-year time-frame would be allowed a nominal return of only 1-2 per cent.

With a view to provide support to first-generation entrepreneurs, the draft policy paper suggests the setting up of a collateral reserve fund with an initial corpus of Rs 100 crore. With help from state and central governments and banks such as SIDBI and Nabard, the fund will be limited to projects costing up to Rs 10 lakh.

The draft policy also calls for expanding the corpus of the National Equity Fund from Rs 69 crore to Rs 150 crore.

The paper suggests a more focussed role for Nabard in ensuring that atleast 20 per cent of the co-operative credit flow of banks goes to artisans, village industry and rural SSI sector. It also envisages setting up of an equity fund, on the lines of NEF, to cater to the needs of rural industrial units.

Advocating a clusters policy to address special needs of tiny units, the draft calls for a comprehensive and intensified policy and action programme for promoting clusters. Such a programme will concentrate on technology upgradation, skill enhancement, information dissemination and entrepreneurial competency development.

It proposes the formation of an autonomous body, Clusters Small Enterprise Association (CSEA), a joint venture between local authorities and business associations, to serve the needs of various clusters.

The draft policy also calls for excise incentives for tiny units which graduate beyond the investment limit of Rs 25 lakh. For such units, exemption limit should be raised to Rs 1 crore for a period of 5 years after crossing the tiny sector investmentlimit. The paper calls for giving incentives to large units to encourage them to sub-contract and outsource their branded products to tiny units.

On the marketing front, the draft policy suggests the setting up of special outlets for the tiny sector. Efforts should be made to develop common brand names for such products, says the policy paper.

To curtail harassment by inspectors, the tiny sector should be exempted from the Factories Act. "Laws that are a barrier to technological progress will be amended or repealed." The draft policy document suggests several measures to keep the scourge of inspector raj away from the tiny sector.

The CII has submitted the draft to all the concerned departments. "We are aggressively pursuing it with the government," says Singh. But with the debate over SSI definition still on, the tiny sector is likely to suffer unless the government comes out with a clear policy for this vulnerable sector.