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MINISTRY WORKING ON SWEETENING BANKRUPTCY PILL FOR SICK UNITS

inNEW DELHI: The government is working on developing a bankruptcy framework to offer easier exit routes to sick companies while helping revive those with viable options, said Kalraj Mishra, the new minister for micro small & medium enterprises (MSMEs).

 

Another issue the ministry is dealing with is availability of land for industrial units. It is asking states to create land pools by listing out all unused land available with them.

 

“Entrepreneur bankruptcy framework will be developed to enable easy exit of sick units,” Mishra told ET. “It has been a major demand of the MSME sector for a very long time. The details will be worked out soon.”

 

SMEs employ close to 40 per cent of India’s population and contribute more than 15 per cent to its gross domestic product. The slowdown in the Indian economy in the past two years has badly affected MSMEs, along with the broader manufacturing sector where output contracted for the first time in more than two decades in 2013-14.

 

The government will first make efforts to revive units that have become sick, the minister said. “We will sit with the units and figure out those which are viable and help them revive,” he added. Of India’s 2.22 lakh sick units, 12,000 are viable, while feasibility of another 35,000 is being explored, he said.

 

With land availability being a major constraint for setting up manufacturing units, the MSME ministry will focus on engaging with states.

 

“We are working with state governments to create land banks. They can do a survey and identify the available land, or where a unit did not start operations,” said Mishra. The final decision on this matter will however be made by states, he said.

 

The ministry is also looking at the special economic zone (SEZ) space to derive benefits for the sector and has sought details on the availability of land in these duty free zones to be used by the small enterprises.

 

“We have got a list of vacant plots from the commerce ministry and we would jointly publicise their availability to attract MSMEs into that space,” said Mishra. Finance Minister Arun Jaitley had announced a Rs 10,000 crore venture capital fund for MSME start-ups in the Union Budget last month.

 

This fund will act as a catalyst to attract private capital, Mishra said. “The methodology of investment has been left open. It can be angel fund, venture capital, quasi fund, self-loan and other risk capitals,” he said.

 

The impact of this however will be huge as it would lead to a total investment of more than Rs 75,000 crore, he added. The current investment thresholds towards plant and machinery for defining MSMEs have become outdated on account of high inflation. The limit stands at .`25 lakh for micro and up to Rs 10 crore for medium enterprises.

 

A committee with representatives from ministries of finance and MSME and the central bank will give its recommendations on revision in definitions. “Besides changing the definition, a programme to facilitate forward and backward linkage with multiple value chain of manufacturing and service delivery will also be put in place,” said Mishra.

(Source: The Economic Times, August 5, 2014)

 

INDIA MAY FOLLOW CHINA SUBSIDY MODEL IN TELECOM MANUFACTURING

 

NEW DELHI: To encourage manufacturing of telecom products in India and reduce import, the government is likely to follow the subsidy model of the Chinese government. Following a directive by the commerce ministry, the department of telecommunications (DoT) has set up a committee, which will study the viability of the Chinese subsidy model and submit its report in the next few months.

 

The ministry had earlier commissioned the Indian Council for Research on International Economic Relation (ICRIER) to study innovative incentive schemes in other countries and recommend measures that India could follow. The ministry gave the directive on the basis of this report.

 

“India’s subsidies in telecom are several years behind those of China and there is a need to synergise product and service development in an integrated way like China has done,” according to the ICRIER report. Subsidy and incentive schemes for the telecom sector in India are at a nascent stage, especially in the areas of product development, indigenisation of technology and research and development (R&D). According to a DoT official, the committee would prepare a detailed report on the possible subsidy schemes that India could replicate or innovate, based on the existing practices in China.

 

One of such schemes, said the official, the financial support that the Chinese government offers to companies such as Huawei, has helped them to be competitive, while Indian companies lag. The DoT official said incentives like 10-year income-tax holiday, excise waiver and low-cost bank loans are likely to be considered initially. At present, 10 per cent excise duty is levied on domestic telecom equipment producers who are not located in special economic zones. India is projected to import electronic goods worth about $400 billion by 2020, from about $45 billion now. “A large part of this would be telecom products. We need to reduce this as much possible and we are working towards it,” said the official. Besides imposing tax on import of telecom products, the government needs to look at rationalisation of taxes, tax incentives and developing integrated infrastructure and sale, as has been demanded by the industry for years, according to the ICRIER report.

 

The proposed concessions, said the official, seeking anonymity, are likely to enable telecom equipment makers competitive against their global counterparts. The government might also look at providing an interest subsidy of three per cent to telecom product makers for export of their products. The government has also finalised a blueprint to set up three specific funds, with a combined corpus of Rs 17,500 crore; to help the telecom sector develop a strong domestic manufacturing base, encourage entrepreneurship and promote R&D. These funds would provide its recipients start-up and angel funding, finance incubation centres and offer soft loans, besides giving interest subsidy to banks lending to telecom companies.

 

According to a study by research agency Ovum, Indian companies will constitute 6.6 per cent of the global demand for telecommunication equipment in 2014-15. The industry is expected to spend about Rs 46,000 crore on buying telecom equipment, excluding handsets. The bulk of this money will, however, be spent on buying imported equipment, mainly from Europe and China.

 

The telecom equipment business in India is controlled by five companies — Huawei, ZTE, Ericsson, Nokia Networks, and Alcatel — which have financial muscle to heft in big deals. According to the Telecom Systems Design and Manufacturing Association (TSDMA), Indian firms that design and manufacture and also have intellectual property, had a three per cent share of the nearly Rs 50,000-crore telecom equipment market in 2012-13.

 

Foreign companies that have factories in India would raise the share to 10-12 per cent. But the value added in India is less than 11 per cent, limited to system integration and packaging.

 

According to the Telecom Equipment Manufacturers’ Association, the Indian market for core network equipment, excluding towers and batteries, is worth around Rs 25,000 crore but local firms do not contribute more than Rs 1,000 crore.

 

According to local telecom equipment makers, Chinese companies get support from their government and Chinese banks have billions of dollars in credit lines for companies buying Chinese equipment. The banks offer credit at two per cent interest, payable in 15-20 years and the interest becomes due only from the fifth year.

 

In February 2012, the government announced a preference policy in which 30 per cent of the orders of government departments would be reserved for local telecom gear makers, which would have to undertake a minimum value addition of 25 per cent.The policy extended the quota to the private sector, too, asking it to source sensitive equipment from local manufacturers.

(Source: Business Standard, August 5, 2014)

 

PM WANTS ZERO BALANCE FOR ELECTRONICS’ IMPORT- EXPORT

 

NEW DELHI: Prime Minister Narendra Modi is said to have directed the department of electronics and information technology to ensure the net import-export balance for the sector be brought down to zero by 2020.

 

The department is reviewing the relevant policy to meet the directive, said an official.

 

Experts, however, question the feasibility of such a mandate. Unless radical policies are announced, meeting the target would be a challenge, they argue. India currently imports to meet a majority of its demand for electronics. Estimates suggest the import bill here will exceed that of oil by 2020, unless domestic manufacturing is incentivised.

 

According to industry projections, India will have to import $300 billion of electronics out of the total demand of $400 billion over the next six years.

 

“We are in the process of working out a strategy to meet the PM’s directive,” the official said. The Union Budget had addressed some demands of the sector, by taking corrective measures on inverted duty structures which made it cheaper to import electronic goods than manufacture these in India, the official added. The department is also in the process of reviewing the Modified Special Incentives Scheme (MSIS), under which manufacturers of electronics get a capital subsidy from the government of 20-25 per cent. The policy’s three-year term, which has received proposals close to Rs 80,000 crore so far, is coming to an end and the government is seeking feedback on how to to make it faster and more efficient in the next phase.

 

Chetan Bijesure, director and team leader of manufacturing at the Federation of Indian Chambers of Commerce and Industry, said the government was trying to attract more investments through various ways. “The minister is going to Germany and a delegation recently went to Japan, but the impression is that the East Asian countries are giving more incentives to electronics manufacturers than what is being given here.” There is scope for more incentives, added Bijesure. “If not zero, the balance can be minimised to a small amount for sure,” he said.

 

Under the National Electronics Policy unveiled in 2011, the government launched a series of proposals to lure electronic manufacturers to invest in the country. Apart from the MSIS policy, there have been other measures such as setting up of electronic clusters, an innovation fund and a policy to promote domestically manufactured goods in government procurement, called preferential market access, along with setting up chip fabrication units.

 

These high-end units, supposed to act as anchors for development of a components industry around them, are expected to start operations only by 2017.

 

Niju V who heads the electronics and security practice for Frost & Sullivan’s South Asia & Middle East region, said we don’t export much. “Currently, there is not more than 15-20 per cent of local value addition that goes into a product, with 85 per cent of it being imported, which makes us rely on screwdriver technology,” he said. India has been a laggard in this area and the aim should be to gradually increase the value-add percentage in products to between 30 and 50 per cent, he added.

(Source: Business Standard, August 5, 2014)

 

UN BODY BACKS INDIA’S TOUGH STAND AT WTO

 

NEW DELHI: Supporting India’s tough stand at WTO on the food security issue, UN body for development of agriculture IFAD on Monday said ensuring food for its people is more important than creating jobs in certain other nations.

 

“Creating jobs for some other country, while people are still hungry, doesn’t make sense… If I was in the position of feeding my own family or creating jobs for someone else, what would I do? What would you do?,” International Fund for Agriculture Development President Kanayo Nwanze said.

 

“The bottom line is that every government has the responsibility to ensure that it can feed its own people,” he said while replying to a question whether he supports India’s tough stand in the World Trade Organization. Echoing similar sentiments, IFAD’s Country Director for India Nigel Brett said India has a big task to feed its people. “You have a population of 1.2 billion people. You have a mammoth task in your hand of feeding people…in this case government has to do everything what it can do to feed its population in the interest…”

 

India decided last week not to ratify WTO’s Trade Facilitation Agreement (TFA), which is dear to the developed world, without any concrete movement in finding a permanent solution to its public food stock-holding issue for food security purposes.

 

It has asked WTO to amend the norms for calculating agri subsidies in order to procure foodgrains from farmers at minimum support price and sell that to poor at cheaper rates.

 

The current WTO norms limit the value of food subsidies at 10% of the total value of foodgrain production. However, the support is calculated at the prices that are over two decades old.

(Source: The Times of India, August 5, 2014)

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