Panel suggests 'sensitivity' model for SSIs

By P. Vikram Reddy

HYDERABAD, DEC. 10. The `Strategy Paper' prepared by a committee working on the first ever Act for Small Scale Industries (SSIs) has suggested development of a `sensitivity' model, where investment in plant and machinery gets indexed to inflation, where employment is a key factor, and where the definition of an SSI would provide for technology upgradation and modernisation.

The sensitivity model concept assumes significance in the backdrop of difficulties involved in fixing investment limits for SSIs, and defining what constitutes an SSI. Another significant suggestion is to set up a national level regulatory authority for SSIs. It also suggests simplification of several Acts, the end result of which would hopefully bring down the `inspections' by as many as 60 inspectors to as low as six to 10 inspectors.

An offshoot of the exercise taken up is the suggestion by the Government to the committee to come out with a ``Limited Liability Partnership Act'', independent of the SSI Act, to cover mostly those in the SSI sector.

In April, the Union Government (Ministry of Small Scale Industries) entrusted the Hyderabad based Administrative Staff College of India (ASCI) the task of going into such aspects and to prepare a final report by March 2001 (other than the Limited Liability Partnership Act). The ASCI bagged the job in a competitive bidding process.

The four-member committee headed by Dr. B. Yerram Raju of ASCI, now the Director of the Institute of Public Enterprise (IPE), submitted its interim draft report and the strategy paper to the Centre recently. Once it is approved, the strategy paper will be put to open debate, and discussed again in two major workshops, one in Delhi and another in the South.

Primarily, the Government had asked the ASCI to prepare a report covering three major issues - (a) Simplification of existing laws, rules and regulations impacting on functioning of SSIs, with a view to reducing the burden of inspector raj; (b) to define SSI on a more rational basis to keep them globally competitive, and (c) to prepare a comprehensive single SSI Law.

Since April, the committee has had interaction with about 125 associations representing the SSIs. In all about 12 States were covered during workshops and discussions held at group and individual levels, involving Government officials and individual SSIs also.

Definition issue

And after such a massive exercise, ``The most daunting task continues to be the definition of SSI'', says Dr. Raju. At present, an SSI in India is defined as one with an investment of up to Rs. 1 crore in plant and machinery.

Globally there are about 75 definitions of what constitutes a small and medium enterprise. For example, in Indonesia an SSI is defined as one with 5 to 19 employees. In Japan, it is up to 300 employees (industrial mining and transport) and less than 50 to 100 for retail and wholesale, while investment should be less than 100 million yen. In Korea, it is less than 20 in manufacturing and five in services.

In most of these countries, incentives are given - some fiscal, some technology and market promotion. Preferential treatment for government purchases is also there. The definition of SSI also has implications under WTO. Mr. Raju says, under WTO, `greenback subsidies' can be given to SSIs and are non-actionable. The main objective of such subsidies is to correct regional imbalances.

All over the globe the definition is a combination of parameters such as investment in plant and machinery, equity, turnover and manpower employed. It is against this background that the strategy paper has suggested a combination of investment levels, and labour, with provision for technological upgradation under the definition of SSI. Tentatively, the SSI law is proposed to be called the ``Small Scale Industries Act 2000''. And the first step in formulating the Act is to define an SSI. It appears that during discussions with officials, the thought of constituting a Limited Liability Partnership Act came up. Such a law exists in the U.K. In India, private limited companies cannot go public, but the Limited Liability Partnership Act would enable them to do so. This will limit partners' liability and provide for exit of partners. Under the existing law, partnership will have to be dissolved, if one of the partners makes an exit. A formal proposal by Dr. Raju to the Government for taking up the task of preparing such an Act is to be submitted next week. The inspiration for a regulatory body seems to be the model available in the U.S., South Korea and China among others. According to the strategy paper proposal, any change in laws anywhere in the country, if they affect the SSIs, will have to be referred to the regulatory body.

It also suggests formal recognition to SSI associations. This could be linked to criteria such as elections to the association and auditing of accounts. Other aspects covered by the strategy paper include fair opportunity for State contracts (to SSIs), protection against unfair specifications, and procurement preferences.

On simplification of rules and regulations, Dr. Raju points out that SSIs now have to submit up to 165 returns (in some States) and are subjected to inspections by up to a maximum of 60 inspectors. The lowest inspections any SSI in India is subjected to is 27. The strategy paper has categorised Acts into three - Acts on public safety, Acts relating to environment and those relating to social welfare. The fiscal laws have been kept out of the purview of this committee. `Self certification', is another possibility being explored, by SSIs other than those in hazardous category.

Besides Dr. Raju, other members of the committee are Mr. Hemnath Rao (ASCI Faculty), Maj. Gen. Bagga, Chairman, IT-ASCI, and Mr. K. Gopalchowdary, Advocate of the Andhra Pradesh High Court.

Send this article to Friends by E-Mail

Section  : Business
Previous : CCS Infotech launches e-group portal
Next     : Govt. help sought to scrap old spindles, looms