'Mid-size enterprises neglected under MSME ministry'

In its budget recommendation to the Finance Minister, the industry body has suggested several steps for better support of medium scale industries, which it says, have not been adequately supported on the policy front.

It mentioned that the medium scale enterprises are barred from the public procurement policy which mandates 25 per cent procurement from micro and small enterprises.

"It even bars medium enterprises from seeking relief against delayed payment through facilitation councils. The ministry seems to have much bias against medium enterprises," said the pre-budget recommendations.

It added: "Keeping in view that medium enterprises have specific needs and they do require policy attention, it would be better that their administrative control is shifted from Ministry of MSMEs to Ministry of Commerce and Industries."

FISME in its note, observed that in recent years countries like China, Vietnam and even Bangladesh leveraged the medium-sized exporting companies to garner higher export share in world market. All these countries have looked at middle-size companies distinct from small and large, while considering developmental policies, while in India there is a "strange deep rooted" bias against medium enterprises.

They are "specifically excluded" from major MSME support schemes in India, according to the body.

It has also suggested that that Reserve Bank of India (RBI) can come up with an advisory on requirement of collateral security for raising funds. The recommendation to the Finance Minister noted that entrepreneurs have to keep reinvesting the internal accruals back into the firm and are not able to build new properties which could be offered as collaterals to meet the additional requirement of funds for continued growth of the company.

"RBI could issue advisory/guidelines on requirement of collateral security. Initial collateral security should suffice for accessing more funds if a unit is in growth phase. In other words requirement of collaterals in percentage terms should be lowered gradually and as experience of the lender with the firms increases and conduct found satisfactory," FISME's recommendation said.

The organisation also suggested changes in the Companies Act saying some sections of the Companies Act, 2013, threaten medium-sized enterprises and discourage them from registering as a company.

It has suggested making Companies Act simple for small businesses so that it is affordable to comply.

"The 'Small Companies' provisions in the Act provide some relief but the eligibility limit has been kept so low that even 'small' MSMEs cannot utilise the provision," it said.

Further, FISME also recommended that limited and listed companies, and limited but not listed companies should be classified under different regulatory frameworks.

"Put 'Limited and listed' & 'Limited but not listed' companies' in different regulatory buckets. The regulatory compliance for the non-listed companies (e.g. requirement of independent directors, women directors etc ), has to be eased substantially, as concerns for public shareholders' interest are not present in these closely held companies," it said.

Among other suggestions, it also said that the criteria for appointment of Independent Director's urgently need modifications to provide more flexibility for compliance of mid cap and small cap companies.