Implementation of credit delivery norms to save MSMEs from big fish: Tanstia

Written by Economy Bureau | chennai | Updated: Dec 30 2008, 07:02am hrs
The medium, small and micro enterprises (MSMEs) have sought the intervention of Prime Minister Manmohan Singh to get their payments from the large companies to whom they sold their products.

We pray the Prime Minister to intervene and take necessary steps so that MSMEs will get their payment from the large-scale corporates within the prescribed time limit, G Gandhikumar, president of the Tamilnadu Small & Tiny Industries Association (Tanstia) has said in a letter sent to the Prime Minister.

Tanstia has also proposed a way out. The association wants the Prime Minister to instruct all the commercial banks to implement the credit delivery mechanism guidelines issued by the Reserve Bank of India which has asked the banks to sanction credit limit to large corporate borrowers for Rs 10 crore and above and fix a sub-limit for meeting the payment obligations for purchases from small scale industries.

The MSMEs are worried over the demand from some large companies to offer 10% to15% reduction in the payment due to them for an early settlement. Otherwise, MSMES are asked to wait for over six months for full settlement of the payment.

Gandhikumar said that the small industries were the worst affected by the global recession and banks were not lending even for their working capital. Our margin is only 2% to 4% which is not enough to meet the basic expenses for existence, he said.

He said the large corporates were earning profit over 25% and their delayed payment would bring the entire activities of the MSMEs to a grinding halt. Since the payment to MSMEs are delayed beyond 120 days, their accounts become NPA which will make them financially very vulnerable, he said.

Tanstia members believe that the demand for discount was only a ploy to pass on their losses to the unprotected section of the business chain, the MSMEs.

They also said that, when the raw material prices increased substantially, the major industries were not prepared to go for negotiations stating that the prices were already fixed. But when the raw material prices have come down, they try to negotiate with their suppliers for reduction of payment.

Large companies, both Indian and MNCs, have the option of raising funds through share capital and foreign investments. But the MSMEs rely entirely on the banks, financial institutions and the payments from their clients, the large industries, for their financial needs, they said.

Gandhikumar said the the tactics of the large industries would put MSMEs into great trouble and might lead to the closure of large number of units. He said in the letter to the Prime Minister that, the closure of MSMEs will lead to unemployment of lakhs of workers that will destroy the social fabric of the country.