Suggested innovative Schemes for SME Industry

8/2/2019 Suggested innovative Schemes for SME Industry

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By

A V Ramanathan

Trade Consultant

Coloph on: Schem es: Small & Medium Sector by A V Raman athan,

Trad e Consu ltan t, 2012. [email protected]

1 June, 2011


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Schem es, Small & Med ium Sector

PREFACE

Indias 39% of the manufacturing activity comes from the Micro,

Small and Medium sector, while 45% of its output is directed at

foreign markets. Its total contribution to the Gross domestic product

is little upward of 9.2%. Yet of the total Credit by the Banks, only a

small portion of around Rs 2, 50,000 Cr is sanctioned to run the

wheels of the SME sector, though this plays a significant, yet robust

role in the grow th of Indian economy. More than 2.6 Cr units

provide emp loyment to around 1 cr w hile indirect employment ismore than 4 times its value.

There are many segments which do not get the importance it

deserves. Probably, it may be, that the MSME which controls the

industry under the MSME Act, 2006, does not have any dominance

over the various sectors which fall under Agriculture, Textiles, IT,

Telecom, Large Industries, Chemicals, Commerce ministries. It is

beyond the pale of work of the MSME Ministry to understand therud imentary groun d zero problems of each sector, w ith the result

that solution goes abegging. The Cluster Development programme of

DC, MS&ME needs a total overhaul, as it does not suit most of the

sectors.

Is there a single Scheme for modernizing the medium scale industry

(which has an investment betw een Rs 5 Cr and Rs 10 Cr in machinery

and tools)? Has the Ministry bothered to look at the economies of

scale of most of the Medium Scale industries for their technology

upgradation?


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Unlike some of the h igh p rofile ministries, Ministry of MS&ME is low

profile. It does not move with the modern times. It needs to be

mod ernized, if Indian Med ium scale industries shou ld find its feet.

I have included Three Schemes in this book-let

1. Coir Mission

2. Coir Observatory

3. Scheme (TUF) exclusive for Medium Scale ind ustry

The Scheme ou tlay spanning across the 12th Five Year Plan period will consume

Rs 12,598 Cr which is inclusive of investment of Rs 1,650 Cr, Bank Credit of Rs

9930 Cr, with the Capital subsidy in the form of Line of credit extend ing up to Rs

1,650 Cr, interest subsidy of Rs 993 cr (10% Bank interest opting for fraption

interest ra te Guaran tee) and administrative expenses at Rs 25 Cr @ Rs 5 cr per

annum. The total number of beneficiaries that would be assisted will be 2,500

units, which would provide direct employment of 12,500 workers and indirect

employment to as many as 50,000 workers through offering work at selling and

delivery systems in the rou te and distribution channels.

The Scheme is divided into (Total outlay) of Rs 2 Cr, Rs 2.5 Cr, Rs 3 Cr, Rs

4 Cr or Rs 5 Cr. A total of 100 beneficiaries from each of the medium scale

industry will be selected for grant of the loan, if they fulfill the criteria laid out

for the Scheme. Any medium scale entrepreneur, who has investment in Plant

and machinery worth Rs 5 Cr, and has the un it in w orking condition for the last 3

years, will qualify.

Each beneficiary has to invest 20% of the capital outlay as his deposit. The

technology up grad ation und er the Scheme will have two specific features- one,

20% as one time capital subsidy, and 10% interest subsidy annually, up to a

period of 5 years or closure of the loan, whichever is earlier. The Banks, under an

agreement under frapton should charge only 10% on the outstanding loan

amount. Though fraption is interest rate guarantee option for investors to set up

a forward rate agreement during an agreed amount of time that triggers inresponse to a pre-set strike price, fraptions are used to protect investors from

dramatic declines in interest rates. In the present context, fraption term is used to

indicate a forward rate agreement during the agreed amount of time (5 years

from the date of sanction of the loan), and 10% is the pre-set strike price interest

since the Scheme is in the national interest of developing the mod ernization and


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technology up-gradation of the medium scale industry which is the heart of the

industrial spectrum.

The total number of beneficiaries envisaged for benefit under the Scheme

is 500 medium scale units who would create new investments up to Rs 2 Cr, Rs 3

Cr, Rs 2.5 Cr, Rs 4 cr and Rs 5 Cr per annum for 5 years. The period of re-payment of the loan amount, that is 60% of this outlay is 5 years. The Scheme

provid es a capital subsidy of 20%, and interest subsidy of 10% (the total interest

component of the loan) covering the entire loan period. The capital subsidy is

adjusted towards the loan amou nt at the end of the loan period.

The Line of Credit is a pool of available money that one can borrow.

WHEN ONE GETS a LINE OF Credit, the party gets the ability to draw u p to the

maximum amount. Line of Credit will have a draw period as well as a re-

paym ent period. The present Line of Credit created u nd er the present Scheme, is

that the Capital subsidy + loan amount can be drawn in one lump sum andutilized, and just like any other term loan, he can pay in Equated half yearly

instalmen ts or quarterly rests, as per Banks terms and cond itions. The line of

Credit proceeds will be adjusted against the loan in the final instalment of the

Bank loan, and shall not be credited to the account of beneficiary under any

circumstances to minimize its misue. But th e money tow ards the Capital subsidy

portion shall remain as Line of Credit, which guarantees 20% part of the loan

granted un der t he Scheme. The interest is released in a p eriodical basis while the

Line of credit covering the entire corpus is released only at the fag end of loan

closure and will be kept in a separate d esignated accoun t by the Bank.

If the Government is serious about implementing the Schemes

having special focus on modernization, it needs to promote sector-

segment sp ecific Schemes. These Schemes have a commercial content

and are not populist in nature. It is a pity that even after 6 years of

passage of the MS&ME Act 2006, the government does not promote

medium industries through a centric scheme to develop their

technological up-gradation and modernization.

Your comm ents are welcome.

A V R a m an a t ha n

1-6-2011


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Schem es: Small & Med ium Sector

Contents

No. Descript ion Page Number

1. Coir Mission 6-26

2. Coir Observatory 27-30

3. Medium Scale Indu stry

-modernization, technology

Up-gradation 31-41

Coloph on: Schem es: Small & Medium Sector by A V Raman athan,

Trad e Consu ltan t, 2012. [email protected]

1 June, 2011


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COIR MISSION

Abstract

An avid Coir knowledgeable expert did conduct an intricate study to

understand the dynamics of the Coir Industry. Many of the poorest people in

Southern India work in the Coir Ind ustry. Coir prod ucts are mainly agrarian in

character and its basic raw material is Coconu t fibre. Coconu t p lantations in

southern India are in a state of flux, and to recover the lost ground, the Central

Government in its 2009-10 budgets has proposed a unique Rs 4200 Cr scheme to

cut sterile coconu t and for und ergoing rejuvenation exercise , on a p ilot basis in

select d estinations.

Coir Industry underwent a series of catastrophes. One sector which was

badly hit by the tsunam i was this sector; not in the d estruction of the crops, but

the dem and shru nk due to plethora of reasons post tsunami. The dread ed

Chicken Gunya, which struck with its devastating fury, took a heavy toll of the

Coir worker in Kerala, the important outpost of production of export

merchandize.

Our experts study which explored the market dynamics that shaped the

Coir Industry, both domestically and internationally, concluded that only an

increased income through much-added augmented facilities, tools, increased

productivity through introduction of state-of-the art machines would tilt the

economies of scale, reduce cost of production, reduce pow er costs, resulting in

high quality of end-products reducing the vulnerabilities. If the Coir Industry

has to grow, and sustain production, it needs to acquire skills, quality controls,


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networks and technology based methods of prod uction. These series of

measures would enable the ind ustry to meet the market needs.

It is true that a large number of workm en in p arts of Kerala, Tamilnad u,

And hra an d Karnataka, Orissa, West Bengal, dep end on the Coir Indu stry to

earn a living. Furthermore, more than 80% of these workers are gender specific.

The women: men ratio is of the order of 80:20. Most of the Coir industries are

dotted in the ru ral areas. Coir, or coconut fibre, p lays an important role in

sustaining the livelihoods of a large number of people in the Southern, and

North-Western p rovinces of India. . Coir fibre extraction, spinning , and w eaving,

and the p rocessing of other coir p rodu cts are a sou rce of emp loyment for m any

people women in particular - who h ave few other options available to them.

The coir industry is also an important source of income for women in the fishing

comm un ities along the w estern and sou thern coasts. The ind ustry p lays a un ique

role in expanding the national economy as well as in consolidating Indiasposition within international markets for coir products. Furthermore, the

indu stry has an indirect imp act on the economy throu gh its influence on the

transportation, marketing, and financial businesses.

Recent research has shown that markets play an important role in

livelihood d evelopm ent and poverty reduction. Markets and the relationships

among stakeholders are therefore an important aspect of livelihood analysis, and

recognition of the failure of markets to serve the interests of the poor is crucial in

such an analysis. Given the significance of the Coir indu stry to the income of thepeop le in southern Ind ia, it is important to un derstand the market dyn amics that

shape the indu stry within local and global settings with a view toward bringing

sustainable d evelopm ent to the wh ole sector.


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HUSK

GREEN HUSK

NATURAL RETTI NG

W HI TE FI BRE

YARN

- MA T

DRY HUSK

SOAKING/ MECH EXTRACTION

BROWN FIBRE

MATS MATTINGS GEOTEXTILESMATTRESSES COMPOSITESCOMPOSITES

ROPES

COCOLOGS

FIBRE DRAINS

Various Coir Products made from Coconut Husk

REVIEW OF THE COIR IND USTRY

In India, the coir industry is characterized by a traditional, labour-

intensive, largely female, white-fibre industry in Kerala and the more

modernized, mechanized, export-oriented, brown-fibre industry in theTamilnad u and Karnataka. (Pliable wh ite fibres are harvested from the husks of

green coconu ts and stiffer brow n fibres are extracted from hu sks of mature n uts.)

An estimated 40 percent of fibre comes from traditional coir areas in India,

whereas much of the production and 85 percent of the fibre units are based in

Kerala. There has been large concentration of coir pith manufacturing units in

Tamilnad u, and Karnataka has soun d Rubberized mattresses making u nits. . The

current Indias annual prod uction of coconut is arou nd 14 billion nu ts; this places

India in the first position in so far as Coconu t prod uction is concerned .

OVERVIEW OF GLOBAL COIR IND USTRY MARKETS

Sri Lanka is the single largest supplier of brown coir fibre to the world

market, and together with India accounts for almost 90 percent of global coir

exports. An estimated 640,000 metric tons of coir fibre are prod uced each year


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around the world, according to the United Nations Food and Agriculture

Organization (UNFAO). Global demand for Coir prod ucts declined between the

1980s and 1990s, as synthetic fibres found widespread popularity as a substitute

for natural coir products. Since the late 1990s, however, that trend has reversed,

with coir prod ucts again find ing favour am ong consumers.

Greater d emand for w oven coir mats in Ind ia in recent years has fueled a

steady rise in the global Coir market. Tufted Mats are also posting steady

growth. Growth of the global market has also been driven by growing demand

for natural fibre products from consumers in developed countries as well as in

China and other emerging markets. In ad dition, there is growing global dem and

for natural Coir Geotextiles (erosion-control materials), good quality twine for

horticultural p rodu cts, and Coir p ith as a substitute for p eat. Yet synthetic fibres

continue to threaten the Coir industry globally, despite rising awareness of the

health and environmen tal benefits of nat ural fibres. Stagna ting interna tional Coir

pr ices have also eroded th e profitability of Coir prod uction

India p roduces four main categories of Coir fibre: bristle, mat, mixed, and

mattress. These fibres are either sold as raw material in the international market

or p rocessed into prod ucts such as brooms, brushes, rope, twine, matting, woven

and stitched geotextiles, rubberized Coir mattr esses, and uph olstery. Coir-related

exports accounted for 10 percent of Ind ian agricultural exports, over 0.12 percent

of all exports, and 0.0013 percent of GDP in Ind ia in 2008-9. Total export earnings

of the entire coconut and coir industry in 2008-9 were $136.17 million. Fibreexport earnings increased by 75.14 percent in 2008-9, while fibre pith exports

increased by 113 percent between 2002-7. The Ind ian Inland market has a

turnover of Coir prod ucts arou nd Rs 1300 Cr in 2008-9, a major chun k coming

from the Coir mattresses ind ustry which has been grow ing with an effective

growth rate of 21%+. The basis raw material required is the Coir Yarn, which is

supplemented by the Spinning industry. There are around 6.4 lakh workers in

the Coir ind ustry w hich are both Organized and Unorganized. The male: female

Coir worker ratio in Kerala, according to Kerala Coir Mission appointed by the

Government of Kerala headed by Mr Anathalavattam Anandan, MLA and CoirBoard member show that it is 27.30:: 72.30. There are 510 exporters who have

registered as Manufacturer/Merchant Exporter and obtained Registered-cum-

Membership Certificates from Coir Board , which is an Export prom ot ion Council

notified by Comm erce Ministry (Appendix- 2 of the HBP,Vol 1)


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Item

April 08- March

2009

April 07- March

2008

% growth

monthly

Q V Q V

Handloom Mats 35553.43 23537.53 40917.35 24299.85 -13.11 -3.14

Tufted m ats 33689.27 22598.15 33950.35 19910.98 -0.77 13.50Powerloom Mats 54.21 40.06 75.06 52.69 -27.77 -23.97

Handloom

Mattings

2368.45 1716.56 3013.71 1879.33 -21.41 -8.66

Powerloom

Mattings

87.52 85.09 115.82 88.30 -24.43 -3.64

Coir p ith 96996.32 8462.30 83613 6384.76 16.01 32.54

Coir Yarn 5335.09 1925.92 8407 2666.90 -36.54 -27.78

Coir geotextiles 3251.52 1591.05 3365 1444.66 -3.36 10.13

Coir Rugs &

Carpers

63.83 67.63 178 134.40 -64.17 -49.68

Rubberized Coir 1222.59 1174.77 1120 852.19 9.13 37.85

Coir Fibre 19443.54 2390.89 11102 1224.14 75.14 95.31

Coir Rope 370.28 164.60 372 139.99 -0.53 17.58

Curled Coir 1438.38 223.85 1280 152.06 12.37 47.21

Coir other sorts** 50.50 19.03 57 57.83 -11.43 -67.10

Total 199924.93 63997.43 187567 59288.08 6.59 7.94

Export Comparative Statistics of various Coir items (2007-8) and (2008-9)

Coir Indu strys Paradigm shift:

Coir Ind ustry u nd erwent a paradigm shift du ring the third millennium . In

order to understand this shift, we need to have better understanding of the

existing local and global market channels for Coir products at different levels of

production, including small-, medium-, and relatively large-scale producers and

cooperatives; further, we need to analyze the current policies pursued by the

governmen t and international agencies, includ ing the World Trade Organization,

and their effect on the Coir indu stry, and to identify strategies that can help

ensure that poor workers benefit as the Coir industry increases its capacity to

serve a global marketp lace.

Our expert came to the conclusion that there was a need to bring in the

smaller players who were at the lower orb, and through methodic steps, these

Coir workers needed financial support to first, acquire new machinery by


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throwing away the dilapidated, useless, worn-out ones which has served more

than 80 years of life, help them construct a roof over their workplace so that rain

or shine, they could carry on with their occupation undeterred, throughout the

year. With the present penu ry situation that they are placed in, they have no

way of augmenting their existing savings to bu y even an ord inary tool, much less

invest in buying machineries. A Scheme know n as Rejuvenat ion,

Moderni zat ion and Technology Up- grada t ion of the Coir Indus try with an

outlay ofRs.243 Cr was sanctioned by the Government of India which aims to

propel the preliminary layer of the Coir value chain namely, spinning and

tiny/household sector to get a foothold to make quality products using

mechanized machines

How ever, there is a need to d esign and manu facture spinning machines

which are compatible to spin good grade coir yarn. The indigenous machinery

manufacturers, are very few, and do not have the capacity to design a modern

Spinning m achine and the Indu stry had been suggesting to Coir Board, time and

again, to avail the expertise of Mr. John Wrigh t, wh o has designed such machines

which has given more than the desired result in the Jute Industry, to develop a

contemp orary Spinning Machine tailor-mad e for Coir indu stry.

Capital infusion is an inevitability at the lower fulcrum of the industry;

skill up grad ation, technological up grad ation, innovative tools are very

necessary for Coir Industrys orderly growth; entrepreneur development is a

must if the lower limbs of production on which the exporting manufacturingindu stry has to depend by way of out-sourcing their prod uction needs.

Coir Value Chain

Having considered the elements that constitute the Coir industry, its

worth turning our attention to a more holistic treatment of the Coir industrial

cycle. A value chain describes the full range of activities required to bring a

product or service from conception through the different phases of production,

involving a combination of physical transformation and the input of variousproducer services, to delivery to final consumers. In the Coir Value Chain

analysis, the distribution of income along the value chain was assessed and the

market situation and problems of the coir industry in Kerala/Tamilnadu were

evaluated.


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The main stakeholders in the Coir indu stry are coconu t growers, coconu t

traders, and fiber suppliers and buying agents, Exporters and Importers, and

auxiliary service providers. The institutional arran gements among these actors

are complicated. Joint prod uction is common in the ind ustry, with some Coconu t

growers owning Coir yarn-spinning facilities. These are mostly vertically

integrated arrangements in the Coir industry. Within each layer of the value

chain are several interconnected smaller value chains consisting of

intermediaries and subcontractors. Stakeholders with functions and operations

close to one another in the value chain interact more intensively with one

another.

Survey findings reveal the following problems from the lower end of the

value chain:

High depend ency on weather for coconu t yield;

A poor system of husk collection;

High energy costs;

Insufficient u se of dom estic talent for prod uct design and development;

Inadequate ind ustry collaboration for research and d evelopm ent;

Unstable high freight rates;

Poor p rodu ct classification and attention to standard s, resulting in low

price margins and exploitation by overseas buying agents;

Poor foreign m arketing of Coir prod ucts; and

Poor consumer satisfaction in some instances.

Constraints of the Coir ind ustry

Coir Exporter Manu facturers face challenges relating to retaining w orkers,

high absenteeism from work, lack of technical capacity, and attracting young

people to the industry. As a result, they have to rely on a few trained older

workers. Retaining labor is complicated because demand for Coir varies by

season. Coir manu facturers are also constrained in ad apting to new technology.

Unavailability of initial capital requiremen ts for machinery and equipment, blocknew en trants into Coir business while it makes it difficult for existing

manu facturers to up grade.

The people who market Coir fiber and Coir productswh ether

individual producers, subcontractors, or exportersalso face challenges,

including limited access to markets, low prices and profit margins, lack of


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marketing know-how and training, , and inability to garner market intelligence

resulting in wide untapped m arkets.

[Coir Export in du strys perspectives and priorities]

PROPOSAL:

Coir is a natural fibre which is a conversion of Coconut fibre throughdehusking. The Coir fibre is converted into various value add ed prod ucts, both

hand made and machine made, and because of its natural qualities, it is

recyclable, reusable, eco and environment friendly. It is an Environment product.

India has emerged as the num ber one coconu t producing country with an annual

yield 15 billion coconut nuts. It is a versatile, ubiquitous product. It is aneconomic resource having immense potential for improving the quality of life of

rural and urban comm unities with environment regeneration qu alities like water

sequestering .

The world market for Coir and Coir products are unlimited. Coir Pith is

used as manure in Netherlands and has been registering high growth from

10,000 tonnes wor th Rs 10 Cr (2003-4) to 92,000 worth Rs 84 Cr (2008-9). The ban

on peat has been creating an increasing demand for Coir Pith. Plastics, Plywood

wh ich h as large scale uses w orld over, needs substitutes as these substances are

banned in many countries. Plywood is becoming dearer because of ban on

import of round wood , and felling of trees, and the cost factor. Coir Ply could

become an important part of the Particle/Micro density Fibre board industry. As

wood availability is becoming scare, Coir wood furniture holds promise of good

demand like Rub wood which has been gaining popularity and imagination of

the discerning public.

Keeping in view, the potential of the Coir, its present poor market linkage

and sub optimal level technology application for manufacture of value added

products in the industrial and cottage sector, the National Mission on CoirTechnology & Trade development need to be mooted by Coir Boardwith the

support and assistance of the Ministry of Micro, Small and Medium Enterprise,

Government of India to accord Coir development a strategic role in rural

economy, Poverty alleviation and improvem ent of Coir based han dicrafts &

industrial development. The Mission document needs to incorporate both the

indigenous as well as developed industry. Coir Mat sector include amongst


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others handloom mats, Coir with rubber plait mats, Coir jute mats, Coir sisal

mats, the blend s being used to supplement value add ition and forms a part of the

value chain only as an embellishm ent. It shou ld not be construed that this is not

Coir mat, just because sup plementary blends complement the value addition of

the hand-made mats. The Mission document must envisage the integration of

d ifferent Ministries/ Departm ents for the holistic developmen t of this sector. The

Report must further envision an integrated programme for development of the

Coir sector, its scientific management with the involvemen t of CCRI/CICT/other

Research organizations, local initiatives and entrepreneurship for presenting this

raw material for the Industries and assisting the Industry to access and apply

modern technology for producing globally competitive new generation Coir

products. The other features of the Mission should include Technology

Development and Technology intervention on process and products including

standard s and codes, Prod uct development includ ing training, Trade and Market

Development for Coir products, and Technology/Product development formaking new materials.

The estimated fund requirement need to be worked by Coir Board

through synthesis with the R& D outlay, Plan outlay for industrial growth,

intervention in p rodu ct developmen t, assisting p rivate exporters/manu facturers

to source R& D from reputed private Institutions which are recognized by the

Ministry of Science and Technology, funds for allocation toward s seed capital,

patenting, R&D, and meeting capital cost as well as working capital cost of

rejuvenating plants to manufacture new generation products. Presently, JuteIndustry has a Scheme wherein 20% subsidy is allowed for starting new

industries, Coconut Mission has a Scheme to fund new technology industry

going for p rodu ction utilizing the various Coconut p rodu cts up to Rs 50 lakhs as

subsidy within the total outlay of Rs 2 Cr and through previous arrangement

Banks give 60% as term loan. The SSI Techn ological Up gradtion Schem e has a

capital subsidy of15% on a Scheme which is restricted to a total outlay of Rs 1 Cr

only. Coir Industry is also included in it, but not a single Coir entrepreneur has

yet availed it, because the ceiling of Rs 1 Cr is grossly inadequate. We have to

state, unequivocally, that when theMSM E A ct 2006has pegged investment u pto

Rs 10 Cr as coming un der the am bit of the Act, the reason for putting a cap of Rs

1 Cr for Technology Up-gradation Fund is not un derstand able. Further, in India,

there is no d efinition for Ind ustries wh ich has an investment level upw ard of Rs

10 Cr. The Industrial policy has not defined the Large Industry, MSME has

defined only Small and Medium Indu stry. To set up an integrated Tufting Plant,

at least Rs 12-13 Cr is needed . If new indu stries have to be set up in the Coir

sector to m anu facture new generation Coir prod ucts, it is imp erative, that no cap


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on investment should be put and appropriate capital subsidy, @a minimum of

25-30% has to be given. The present promotional assistance for trad e and

market development (Export Market Assistance Scheme of the Coir Board), and

Export p romotion is grossly low and the upw ard ceiling of Rs 2 Cr is insu fficient.

We need to state that Schemes conceived around 5-10 years ago, has certain

percentage as sops. But ten years hence, the value has decreased du e to

inflation. Inflation need to be factored in. This would make Rs 2 Cr

contemp lated 10 years ago with factoring of inflation abou t Rs 5.5 Cr. The ceiling

cap needs to be raised to commensurate with the contemporary investment

range, market possibilities and p otential. Comm erce Ministry has pegged the

limit as Rs 15 Cr for giving benefit und er Mark et Access Initiative Scheme (Para

3.2 of the Foreign Trade Policy) and based on the requests of the export

organizations, has agreed to remove the cap at the FIEO Open H ouse meeting

held on 17-9-2009 at Chennai so that the funds will be available across the

spectrum of export houses whose turnover is much higher than the limitpresently prescribed. An exporter, when he participates in a Trade fair, have to

cough ou t Rs 5-6 lakhs, against which Coir Board u nd er the present EMDA

Scheme just doles out Rs 1.25 lakhs. Therefore, it is requested that an explicit

outlay be earmarked in the Coir Mission to accommodate the exporters to

participate under a Promotional Scheme with equal entitlement on par with the

Jute/other industries.

The economic and social benefits from all these activities will give a

tremendous boost to the economy, to the lower rug manufacturers in the small,

tiny an d household sector, providing d irect and indirect emp loyment all over the

Country, and fetching for the Country the much needed foreign exchange, and

providing direct fillip to ecology and clean environment as the natural fibre

industry will complement and supplement the countrys environment policy to

reduce environmental destruction and Earth warm ing.

Other touch-up areas:

Raw material need s to be of high qu ality- better exploitation of resources-conversion of coconu t fibre to coir fibre-coir yarn (to make qu ality end

products)

Storage facility

Modernize the Ind ustry through technology up -gradation

Design machinery to man ufacture Coir prod ucts through change of

design, app lication, precision, composition


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Produ ctivity imp rovement

Quality enhan cement

Design capacity

Produ ct imp rovement

Primitive ind ustry at the lower ebb to be gradu ated to a mod ern level

Indu stry need to be technology savvy

Level playing field with other indu stries like Ju te, Bamboo, Hand loom

industries,

In view of the fact that 50% of the total volume of coir emanate from

Pollachi, an Ind ian Container d epot be set up at Pollachi

The SSI Technology Upgradation Fund Scheme allows loans only upto Rs

1 Cr with an interest subsidy of 15%. It is suggested th at the limit shou ld

be raised and the percentage of assistance also be enhanced

Reduction in Transportation costs which add s to the cost of variablesend ing up in the sale pr ice to be un competitive; suggest a Scheme w hich

involves granting of cash scrips in the pass book form on prod uction of

Intermod al documen ts (10% of the value of the goods) redeemable at par

once in three m onths m ay be evolved.

Enlarge the m arket through Reach

Stabilizing p ower su pp ly through add itional transformers and islanding

of export prod uction centres etc.

Assistance for setting up common effluent tr eatment facilities at Allepp ey

Facilities sough t similar to Jute, Bamb oo, and Han dloom ind ustry:

Level playing field w ith other indu stries like Jute, Bamboo, Hand loom

industries, and making available resources through the Coir Mission

including capital subsidy, interest subsidy, modernization subsidy,.

Provide venture capital assistance so that new p rototypes can be invented

and patented. A line of Credit be opened by Export and Import Bank of

India, so that the Coir exporter s can use the facility at a subsidized cost. Inorder to enable the exporter to avail assistance under factoring, a separate

wind ow to sup port Agr i/Agro exports be created by EXIM Bank (un der its

Factoring program me).

Creating Inland Con tainer Dep ot at Pollachi :


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In view of the fact that 50% of the total volum e of Coir Pith em anate

from Pollachi, an Indian Cont ainer depot be set up at Pollachi. This may

be includ ed in the Coir Mission proposal. The project can be un dertaken

in the Public: pr ivate form at in wh ich the ind ustry will invest 20% and the

outlay to the extent of 80% may be accommodated in the Coir Mission

budget.

Reimbu rsement of Transportation costs (available to Jute/Han dloom

industries)

Today, for Jute and Handloom industry freight cost is reimbursed in

the form of fixed p ercentage on th e f.o.b. value un der MILL GATE PRICE

SCHEME. Und er the Scheme Jute Yarn, yarns made ou t of w ool, sea

grass, abaca, sisal etc are eligible for Freight subsidy. However,

prod uces from Coir Yarn are not eligible for any concession or indirectsup port either in the form of subsidy or reimbu rsement. Redu ction in

Transportation costs wh ich adds to the cost of variables ending up in the

sale price to be uncompetitive and to balance these costs, we suggest

introduction of a sub scheme in the Coir Mission to reimburse 12.5% as

incentive to the Exporters who produce documents to prove their

despatch par ticulars in a statement form on a month ly basis. There is also

movem ent of goods either in the intermed iary form or in the raw material

form from the p rodu ction centre, or sourcing centre and on p rodu ction of

Multimod al Certificate along w ith d ocum ents, monthly reimbursement of

10% as incentive may be granted . This will reduce the prod uction costs,

better margin for the raw material supplier, semi-goods manufacturer-

supplier eliminating the role of the middleman altogether.

Enlarge the m arket throu gh Reach

There are a number of markets which are emerging markets. But

the risks in trying to penetrate and show case the various Coir products

are risky. In order to overcome this, a study need to be cond ucted by

experts like Indian institute of Foreign Trade (or) some other body whohave foreign trade expertise, and ability to anlyse the market. In the

outlay for various heads under the Coir Mission , an amount be ear-

marked for conducting market surveys/market studies to promote Coir

products.


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Allepp ey-Shertallai, the b astion of Coir Indu stry

Statistics shows that around 85% of the value of Coir merchandise

meant for export originates from Alleppey-Shertallai belt. Considering

this aspect, the Commerce Ministry declared Alleppey as a Town of

Export Excellence. In the 2009-14 Foreign Trade Policy, various

sup portive and infrastructural measures w ith certain percentage of outlay

from the Assistance to States for Infrastructure Development for Exports

has been separately ear-marked for removing infrastructure bottlenecks.

The TEE has been notified in Appen dix-7 of the HBP, Vol I.

Inland Market Developmen t:One d istinct area wh ere Coir Mission needs to give special imp etus

is the development of inland Market. Like Jute, when a special act was

promulgamated compelled Fertilizer, Rice, wheat producers to pack their

produces in jute bags which peaked demand for Jute products. Likewise,

the Government of MSME mu st make and take special efforts to d evelop

the Indian market for Coir products through legislative efforts. Secondly,

all inter-governmental purchases like Coir Mattresses (for ITDC Hotels,

state government owned Hotels), purchase of Coir door mats (for all

Government quarters, Guest Houses-both central and state, individualautonomous bodies), door to door matting( for ceremonial purposes,

banquet halls, state and central secretariat offices, public sector

undertakings, etc), Coir pith ( for developing the ground water level,

tapping rain water, throu gh specific Schemes of Indian Scientific Research

institute) (agricultural farms, through Horticulture Mission and

Agriculture depar tmen t) , Coir Jewellery ( to be presented as mementoe to

the various guests who come from abroad ), etc. Defence and railways

have a huge vendor list. By developing Coir ply, coir mattresses, we can

cater to the Railways, Defence, and other governm ent d epartmen ts. Coir

Board should be able to convince these two Ministries to go in for

purchase of Coir products so that there would be regular purchase by

these mammoth departments and sale from the Coir manufacturers. Coir

Board should not register itself as a vendor. Coir Board should short-list

vendors based on their ability, financial capacity, capacity of production,

economies of scale. In order to assist small players, a group of small

players be grouped with the major player so that he would outsource his


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requ irement from this Group. The benefit of the order will cascad e

un iformally, so that every bod y w ould get business.

Both the Ministry and Coir Board concentrates development of

Inland market only through the Coir Bhavans, and half of them are

run ning un der heavy loss. The representatives posted at these outpu ts do

not have the marketing ability to beget Institutional orders. Some of them

are not able to explain the product size, % of blends if needed, costing,

difference between tu fted mat and hand mad e m at, etc If the Private sector

is involved in this exercise, it would be able to market the Coir products

better and more competently because it has the expertise, capacity, and

ability to quicken the process of begetting order than these existing Coir

Bhavans. These Bhavans are participa ting in carnivals and local trad e

fares with their limited wares, that too that presents a dirty look which

results in no visibility for good, modern, and pleasing to the eye Coirproducts. If a cost-benefit ana lysis of expend iture incurred by Coir Board

for participation in these trade fairs is done vis--vis business developed,

it would show a tilt towards incurring of heavy costs against very little

benefits. Inland market developm ent shou ld be the core activity of the

Coir Mission .

The Coir Mission should evolve a separate sub Scheme by

incorporating the markets and approaches to market development within

the Country, which h as a hu ge untapp ed m arket. Coir Board can liaisonwith the bu ilders of flats in Kerala, and offer them one m at for each flat at

a concessional rate, and encourage them to provide Coir Mattresses, so

that in Kerala there w ill be a heavy m ovement of vital Coir products.

Coir Board sees the Inland market development only through the

eyes of 30 odd Coir Bhavans wh ose turnover is app arently around Rs 12

Cr. Presently, Coir Board procures the goods through consignment system

by short listing buying from buyers only.

Marketing:

Raising awareness of the industrys eco-friendly nature among

consumers is a challenge. Yet such opportunities do exist. For example,

the Ministry of Tourism could h elp prom ote the coir ind ustry throu gh its

local outlets. Providing consum ers with information abou t Coir prod ucts

is essential, focusing on their safety and eco-friend liness.


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Groundwater is first and foremost a resource for potable water,

and should be sparingly used for irrigation, least of all power-

generation... Groundwater contributed significantly to the tripling of

gross irrigated area between 1970 and 1999, estimated at 33,100,000

hectares. This should not have happened. Not that India has deficient

rainfall. The average annual precipitation of 120 cm is adequate. We

seldom try to address is the anomalous distribution of rainfall. The

distribution pattern is reflected in the number of rainy days, not total

rainfall. Nevertheless, total rainfall has relevance to the groundwater

situation. Aquifers are expected to be naturally recharged but there lies

the rub. Recharge locations have not been treated with the priority they

deserve. This results in acceleration of Piezometric depression. We can

combat the catastrop hic reality, if we m ake a conscious commitment to the

dyn amic up keep of the life supp ort system. This can be done through theCoir pith which will absorb water and retain 40% of it. This enables

continuous creation of ground water and retention of the rain water. Rain

water harvesting can be successfully done through the 60% wasted

Coconut husk, which decays and creates environmental problem. Coir

Board should need to involve Indian Council of Agricultural Research in

this exercise so that their testimony would help higher movement of Coir

Pith to prevent ground water depletion.

Coir Jewellery can be promoted in a large way as, the Europeans

and Americans are crazy to buy cheap jewellery that too made from

natu ral prod ucts. The creation of a niche market for Coir jewellery wou ld

make a clear impact in the grow th of Coir exports.

Coconut shell based activated Carbon and activated carbon made

from rice hu sks, woods, have h uge d emand in pu rification of water, gold

purification, pharmaceuticals, etc. Coir Pith can be a raw material to

produce activated carbon through steam process and the by-product

steam can be converted into pow er generation to the extent of 4 MW and

used by the ind ustry as captive power unit.

Display-cum- meeting centre:

Since Coir Shippers Council is setting up a display-cum-meeting

centre[with funding from ACCDS an d SIDBI], at Shertallai, we suggest


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that w henever there is a delegation or export body or bod ies come to Coir

board , they may be suggested to come to th is Centre, so that the Exporters

can disseminate their products and h ave meetings with them. We request

Coir Board to have an inter se arrangemen t so that the visits can be mad e

customary.

Private initiative R& D for industrys growth. R&D, Product

Developm ent, Innovation, etc

Since there are two scientific institutions with separate outlay

within the Coir Board budget, we are not suggesting any new outlay or

plan of action in the Coir Mission . But as stated by us earlier, for the

growth of any industry, R&D, innovation, designing of new machines

which can give higher p rod uctivity at a lower electrical consum ption , newproduct development should be made part and parcel of its Technology

sub section in the Coir Mission . We suggest, that any experiment or

innovation or product development undertaken by the Research

institutions must be available on a commercial basis for use by the

Indu stry. The policy must be Lab to Factory so that w e can harness the

findings for commercial gain . We leave it to Coir Board to adopt an

app ropriate action in th is regard .

There is a need for the constitution of high level Recons truct ionand Development Agency (RADA) at the Government level as part of the

Coir Mission to coordinate the various activities and growth of coir

indu stry to ensure an optimal use of resources. To this end, RADA must

be involved in developing the ap prop riate national policies and strategies.

The agency which should co-ordinate this work should be Coir Board ,

which should have highest representation from Coconut Development

Board, Manufacturers, Exporters, etc.

Export and Imp ort Bank of India , Export Credit G uaran tee CorpnShould also be involved in this exercise, as they have a number of

Schemes to fund Design Development, setting up of R&D labs, marketing

development, and providing 95% insuran ce cover on the value of exports.

Coir Board and the Ministry should try to forge link with Food an d

Agricultural Organization (FAO ) on a continuous basis to initiate and

evolve fun ding possibilities un der the Common Fund for Commodities.


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We can initiate a special project for which United Nations Industrial

Development Organization (UNIDO) can fund for creation and building

of testing laboratories for the Coir sector and two microbiology and two

chemical testing laboratories for strengthening the Testing facilities and

these institutions need to be internationally accredited, which would lead

to the imm ediate acceptance of the Ind ian test reports on Coir produ cts by

internationa l buyers. These facilities are to be extended to Coir fiber, Pith,

and Geotextiles. Our prop osal wou ld envisage that the Coir Board

involve with mu ltinational agencies to provide fillip and sup port to

strength en its R&D requirements and testing facilities, so that there will

be international acceptan ce of the Testing Reports given by the specialized

labs set up for the explicit pu rpose, as they are internationally accredited.

United States Assistance in Development Programme (USAID) has a

nu mber of Schemes aimed to help and provide technical assistance at the

national level. Coir Board and the Ministry need to touch base withUNIDO/USAID to get suitable projects approved so that R& D labs can

be set up with international accredition. It is also suggested that Private

entrepreneurs should be supported to set up micro R& D labs by

providing an independent outlay in the Coir Mission . Asian

Development Bank assistance can be sought for this, as the Ministry of

MSME has involved AD B for fund ing KVIC projects.

A Design clinic can also be part and parcel of the Coir Mission which

can sell designs to exporters for a p rice; once sold, the d esign sold shouldbe frozen. This can help the small players/exporters. This also can be

conceived with aid and assistance from AD B.

Managing Qu ality

. The absence of an effective quality-control system is a key obstacle

facing Indian Coir industry. This is particularly true at fiber

manufacturing end, where old and labor-intensive fiber-extraction

technologies still predominate. The Coir industry must meet several

requirements before Indian products can penetrate the internationalmarket and high value-added chains. First, Coir Board must formulate

standard s and exporters shall adop t them widely so that all exports meet

the minimum criteria. Second, these Labs must improve their capacity to

implement the lab tests required by various agreements governing

international standards, so that exporters can comply with international


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requirements. Third, producers must be able to meet the buyers quality

requirements and p rodu ce in the quan tities deman ded by other coun tries.

Stabilizing pow er supp ly through ad ditional transformers and

islandin g of export p rodu ction centres etc.

One of the m ost imperative transaction problem lies with the

power situation and grid problems which result in shut down for long

hours resulting in our switching on to the generators, and the incidentals

on cost would definitely add to the cost of the product. As it is, we are

conducting business operations w ith very low margins as the m arkets are

price sensitive as well as quality sensitive. The only way by which this

problem can be overcome is by putting up a private pow er plant having a

capacity to meet the energy needs of the exporters in the Alleppey-Shertallai belt by the Coir Mission by making a Power purchase

Agreement(PPA) with Kerala Electricity Board and charging the

exporters at a standard rate, little higher than th eir cost price and little less

than th e prevailing price charged by the KEB, so that for maintenance and

other charges, the Coir Mission will get augmented money at the same

time, it will be a great relief to the exporters to get electricity at a price

which is little less than the available commercial rate. This will be a great

service rendered by the Coir Mission to the Coir manufacturing

commu nity. For this pu rpose, a register of consum ers can be mad e towh om the sup ply w ill be affected so tha t requirements and utilization can

be clearly mon itored so as to negate tran smission loss.

Assistance for setting up comm on efflu ent treatmen t facilities at

Alleppey

This is a requirement considering the fact that any growth in the

Coir industry would consequently require a facility where the effluents

are recycled and treated. Since there was no planning at the time of

setting u p of effluen t plants of individual un its, wh ich are few an d farbetween, it would not be presently possible for the effluent produced in

one plant be lifted through lorries and taken to the place where the

Common effluent treatment plant is located. A methodology need to be

formulated, a plan need to be made, where setting up of a Common

effluent treatmen t plan t would become enviable. We therefore, request

that an ou tlay be ear-marked in the Coir Mission budget.


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Training for the p ersonn el in the m odern machines/awarding

certificates/stipends :

Training of personnel, both at the grass root level, entering level,

middle management level, and giving them both practical and ground

training is a must, if any industrial sector wants to grow. There are tailor-

made scheme for training personnel at the ground level is already in

existence in the Coir Board present Schemes. We suggest that an enlarged

training programme, covering the various segments of the industry be

conceived, and conducted as a Refresher Course, Part-time Course,

Evening Course, so that the Industry w ill be highly benefited. We also

suggest that a crash course on Foreign Trade Formalities, Foreign Trad e

Policy and procedures , Correct Export Procedure, Taxation , and

Marketing etc be organized by inviting guest lecturers or experts, so thatthe Industry can take the benefit. These courses will be useful to the

concerned personnel in the Coir Board as well. A budget may be

earmarked in the Coir Mission towards this head.

Ind ustrial Techn ology Institute:

Coir Board should move the technical institutes, or universities to

provide training an d adv ice related to technical matters and technology to

the export oriented bu siness comm unity. Though there have been R&Ddone at the CCRI and CICT, by keeping the developed technology in

closed vests, the purpose for which technology has been done is unmet.

There is need to set up a special chair for Coir Research particularly in

Technology development in developing suitable machines tailor-made for

the Coir Industry, fibre-processing technologies and enhancing product

reach. There is a need for a Cell within Coir Mission which will collect

market related information, co-ordinate various activities and serve as an

interface between the public and private sectors. They must play a

significant role in coordinating trade activities and advocating for policy

formulation.

Envisaged Results:

a . We hope to touch Rs 1500 Cr by way of exports by the end of2014

wh en the present tenure of the 5-Y ear Foreign Trade Policy will expire;


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b. We believe, that the labour workforce in the Ind ustry would cross

1 million by the terminal year of the present FTP;

c. Presently, our Exports are d irected at 105 countries; we h ope the

direction of exports w ould enlarge to at least 140 countries by 2014;

c. If ambience is created, we expect an up ward investment of at least

Rs 500 Cr for imp roving technology and au tomation, installation of

the state-of-the- art machinery, and fresh investment;

d. Presently, around 510 exporters are on the live register ofCoir Board ,

and we hope there will be enlarged by an other 200 exporters;

e. With new products forming the range of products coming und er

exports, we are hopeful that the mat sector wou ld pred ominate, whilearound 25% of the rest of Coir exports would be from the new

generation Coir p roducts.

f. We expect during this period, our exports to East Asia in view of the

ASEAN FTP wou ld go up considerably. Coir exporters are conscious

of the fact that that they need to substantiates their position in the

grouping in order to secure its economic strategic interest in the East

Asian region. The ASEAN FTA would lead to effective management

of regional integration p rocesses, dismantling non tariff barriers sothat Indian Coir ind ustry can barge into the East Asian countries. But

Coir Industry should beware that some of these countries are Coconut

producing countries, and are concent rating developing Coconut based

products. But if they step into making Coir based products, Indian Coir

Industry need to be wary of such a development which would be a threat to

the Indian Coir segment.

g. If the Government takes effective steps to sup port the Coir Industry,

we the expor ters look to contribu te to an overall effort at consolidation

in order to expand into areas of economic and strategic importance.

N.B. Coir Indu stry is the industry of tomorrow. In a new

world wh ere environmental considerations would weigh high, it is

possible to anticipate high growth trajectory for natu ral and

environmental friend ly produ cts. It is expected to dawn soon. The setting

up of a Coir Mission , will open up new vistas and window s of

opp ortunities [un der the aegis of the Coir Board and M inistry of MSME


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with the supp ort of mu ltilateral organizations, Asian Developm ent Bank,

EXIM Bank, ECGC, Scientific institu tions, Export Fed erat ion,

Manu facturers, State Governm ents, etc] How ever, it will not be an end by

itselfto improve the standing and stature of the Coir Indu stry; it will only

a beginning of the saga.

*****************************

Chapter- II

Coir Observatory

1.0 Introd uction

Besides being a major export earner, the coir ind ustry in India is one w ith

a high social sensitivity. It contribu tes significantly to employment and balanced

regional developm ent. The schemes of the Coir Board arte varied. They address

broadly issues in three areas. (1) Export promotion; (b) Employment; (c) Labour

Welfare.

The development of the industry on the cluster mode has much

significance. But the cluster app roach, to be successful, needs to take care of

several economic and social d imensions simu ltaneously. This makes coir

clusters d ifferent from other ind ustr ial clusters in the country .

Programmes in the coir sector, including that of the Coir Board and of the

State governments, are often constrained by lack of an efficient monitoring and

evaluation system. Herein lies the role of information technology. The coir sub-

sector needs a habitation- mou nt d ata base which will help to imp lement several

of the public program mes m ore efficiently. It will help the clusters to perform

more efficiently. It will also help the Coir Board in more efficient monitoring of

its programm es. The whole idea can be conceptua lized and op erationalised in

terms of a "Coir Observatory"

2.0 Con cep tu al Fram ew ork

Enterprises come into being, grow over time, become sick, die or survive.

The reasons are market-related or technology related. Such natu ral phenomena

are often not appreciated in the right sense by the popular press and the


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platform. Indu strial sickness is often depicted as a failure of pu blic policy;

similarly, growth in the number of registration of industrial units, a positive

indicator.

The reality, how ever, stand s in between. The dynamics of industrial

change (alternatively called business dem ography) is much more complex than it

is often perceived to be. Captur ing such average behaviour in realistic terms,

and to offer policy suggestions, is the key function of an Observatory.

The birth of enterprises, their growth/retardation, and survival/decline,

have secondary implications on the economy and society. The course of such

distributional effects can be influenced/channelised/regulated, by public policy.

But the Coir Board and other implementing agencies need to be informed on

such developments within scientifically determined levels of control. It demand s

the help of a control mechanism aided by IT tools. The whole idea can beconceptualized in term s of a Coir Observatory.

3.0 Ob jective of th e Project

The objective of the p roject is to design and pilot a Coir Observatory for effective

implementation of programm es by the Coir Board.

4.0 Methodology

The method ology of the project involves two parts:

(a). Developing a computerized information system on 'coir habitations/

clusters of househ olds predominantly involved in coir activities:

This is capable of being accurately updated .

Wherein these coir habitations can be tracked and monitored over a

period of time

Wherein the basic social, economic and technological da ta related to these

coir habitations can be expan ded accord ing to specific need s.

Wherein the data related to each coir habitation can be retrieved and

classified for detailed analysis.

(b) To prepare a permanent framework for conduct of research stud ies on the

coir sector, the evaluation/monitoring of various (targeted)


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schemes/programmes, and bringing out Plan documents on the sector

periodically.

Part (a) involves the following activities which can be taken up under a

pilot project.

(1) The identification of pilot district (Alleppey), and pilot Block within a

district, on the basis of secondary d ata available from various sources relating to

the coir sector in Ind ia/Kerala.

(2). Upd ating the baseline Territorial Configuration (TC) already available for

the selected pilot Block, all the Grama Panchayats therein, all the Revenue

Villages within each Grama Panchayat, and all the Habitations within each

Revenue Village. This up dating process can be executed u sing specially

designed software, which will take into account all the changes in the TCbetween the baseline year 2003 and current year 2007/2008. The baseline TC is

already available und er a Governmen t of India Project.

(3). Conducting a detailed H abitation Survey, to systematically canvass

demographic, social, economic and technological data for each household in the

habitation.

(4). Cleaning the survey data and verification of its authenticity on a sample

basis, as well as selecting and ranking coir habitations for the effective targetingof sup por t services.

(5). Generating basic tables for further analysis and effective targeted

interventions/ policies.

(6). Using the upd ated data base as a baseline for further up da ting and

expanding the database from year to year (the development of a Dynamic

Information System.

(7). Further validating the upd ated d atabase through a Sample Validation

Survey.

(8). Incorporating add itional data according to needs.

Note 1: Steps (6), (7) and (8) can be repeated annually or as frequently as

required.


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Note2: The concept of Territorial Configuration and the changes therein are

crucial. It is extremely imp ortant to take accoun t of the TC at any point of time,

as this provides a unique identification code chain for each habitation over a

period of time.

5.0 Im plem en tin g Agen cies

The implementing agencies shall be the Coir Board and Finesse

Consultancy which has been involved in conducting a number of studies in the

Coir Indu stry.

(a). Role of Con su ltan cy

In the pilot phase, Finesse Consultancy shall be responsible for design ofthe Observatory . The design of the Observatory involves the following steps.

(a).Preparation of the Demograph ic Outline( param etric research)

(b).Development of software

(c). Trial Run of the software

(d). Field Survey

(b ). Role of Coir Board

The responsibilities of the Coir Board shall be as follows.

(a). Provid ing the necessary project fund s to be agrees upon under this project

proposal.

(b). Technical assistance, in the form of access ton all relevant data available

with the Board, as also facilitate access to such data available with other stake

holders.

(c). Giving du e publicity to the project through its own channels, both in the

non p roject and post project stages.

An Enterp rises Observatory is a mon itoring system for tracking the statistics and

dynamics of an enterpr ise eco-system.

6.0 Time Schedule


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The project is expected to be comp leted w ithin a year of its launch.

Stages of the project as follows:

(a). Preparation of the Demographic Ou tline (Param etric research)- 4 months

(b).Development of software - 2 months

(c). Trial Run of the software - 2 mon ths

(d). Field Survey - 6 Months

7.0 Budget

The bud get involves two comp onents: (a) fixed; and 2) recurring. The fixed

budget involves the cost of developing the Observatory software, cost of

initial survey, and that of infrastructure.

Recurring expenses involve the data up da ting costs.

The fixed costs would come to around Rs.1.5 Cr (including preparation of

software one time expense). The Recurring expenses wou ld involve field

survey, updating of data, evaluating the data collected and making an

analysis of the data to pin point, the emerging trends, filling in bottlenecks

etc. The recurring expenses need to be worked out is estimated.

-o-o-o-o-o-o-o-

Chapter- III


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Med ium Scale Ind ustry- Schem e for

modern ization, Technology Up -gradation

1. Plan imp lementation d uration: 12th Five Year Plan (2012-17)

2. Implement ing Ministry : Ministry of Micro, Small, Medium Enterp rises, GoI3. Beneficiaries: Medium scale enterp rises that have investment in excess of Rs 5

Cr and within Rs 10 Cr in plant and m achinery and registered un der the MSME,

2006, will be eligible for the Schem e

4. Purp ose of the Scheme: Modern ization of the existing industry an d/ or up -

gradation of technology of existing indu stry

5. Corpus of the Scheme: Rs 12,598 Cr

6. Ind ividu al ou tlay: Between Rs 2 Cr & Rs 5 cr

7. Capita l subsidy (Line of Cred it): Rs 1,650 cr

8. Investm ent : Rs 1,650 Cr

9. Interest subsidy: Rs 993 Cr10. No of ben eficiaries: 2,500 units

11. Emp loyment genera tion: 12500(direct employm ent) +50,000(indirect)

The Scheme:

The technology up-gradation of the existing industry is brought under anew Scheme which is meant for modernization and up-gradation of technology

in the existing Medium scale industries which has been defined in the MSME

Act, 2006. The Scheme will not apply to new industries, as they can directly optfor state-of-the-art machinery from inception itself. For the existing machinery,

both modernization and technology up-gradation is required because the

machines that are used for manufacture may be obsolete, requiring state-of-the-

art, to improve productivity of the machines as well as optimum productivity of

the worker. Hence, under definition of the Scheme beneficiaries, it shall be noted

that the Scheme is applicable to existing ind ustries to modernize and to up-grade

their technology.

Conceptualization:

The Scheme outlay spanning across the 12th Five Year Plan period will

consume Rs 12,598 Cr which is inclusive of investment of Rs 1,650 Cr, Bank

Credit of Rs 9930 Cr, with the Capital subsidy in the form of Line of credit

extending up to Rs 1,650 Cr, interest subsidy of Rs 993 cr (10% Bank interest

opting for fraption interest rate Guarantee) and adm inistrative expenses at Rs 25

Cr @ Rs 5 cr per annu m. The total number of beneficiaries that wou ld be assisted


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will be 2,500 units, which would provide direct employment of 12,500 workers

and indirect emp loyment to as man y as 50,000 workers through offering work at

selling and delivery systems in the rou te and d istribution channels.

The total outlay of the Scheme is moderated as Rs 12,598 Cr, divided into

(Total outlay) of Rs 2 Cr, Rs 2.5 Cr, Rs 3 Cr, Rs 4 Cr or Rs 5 Cr. A total of 100beneficiaries from each of the med ium scale industry will be selected for grant of

the loan, if they fulfill the criteria laid out for the Scheme. Any medium scale

entrepreneur, who has investment in Plant and machinery worth Rs 5 Cr, and

has the unit in working condition for the last 3 years, will be eligible for the

Scheme.

Each beneficiary has to invest 20% of the capital outlay as his

deposit. The technology up gradation under the Scheme will have

two specific features- one, 20% as one time capital subsidy, and 10%

interest subsidy annually, up to a period of 5 years or closure of the

loan, whichever is earlier. The Banks, under an agreement under

frapton should charge only 10% on the outstanding loan amount.

Though fraption is interest rate gu arantee option for investors to set

up a forward rate agreement during an agreed amount of time that

triggers in response to a pre-set strike price, fraptions are used to

protect investors from dramatic declines in interest rates. In the

present context, fraption term is used to indicate a forward rate

agreement d uring the agreed amount of time (5 years from the dateof sanction of the loan), and 10% is the pre-set strike price interest

since the Scheme is in the national interest of developing the

modernization and technology up-gradation of the medium scale

indu stry which is the heart of the indu strial spectrum .

The total number of beneficiaries envisaged for benefit under

the Scheme is 500 medium scale units who would create new

investments up to Rs 2 Cr, Rs 3 Cr, Rs 2.5 Cr, Rs 4 cr and Rs 5 Cr per

annum for 5 years. The period of re-payment of the loan amou nt, thatis 60% of this outlay is 5 years. The Schem e provides a capital subsidy

of 20%, and interest subsidy of 10% (the total interest component of

the loan) covering the entire loan period. The capital subsidy is

adjusted towards the loan amou nt at the end of the loan period. The

size of th e Scheme is Rs 12,598 Cr.


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The Line of Credit is a pool of available money that one can

borrow. WHEN ON E GETS a LINE OF Credit, the party gets the

ability to draw up to the maximum amount. Line of Credit will have

a draw period as well as a re-payment period. The present Line of

Credit created under the present Scheme, is that the Capital subsidy+ loan amou nt can be draw n in one lum p sum and utilized, and just

like any other term loan, he can pay in Equated half yearly

instalments or quarterly rests, as per Banks terms and conditions.

The line of Credit proceeds will be adjusted against the loan in the

final instalment of the Bank loan, and shall not be credited to the

account of beneficiary under any circumstances to minimize its

misue. But the mon ey toward s the Capital subsidy portion shall

remain as Line of Credit, which guarantees 20% part of the loan

granted under the Scheme. The interest is released in a periodicalbasis while the Line of credit covering the entire corpus is released

only at the fag end of loan closure and will be kept in a separate

designated accoun t by the Bank.

Table 1

Tab le sh o w in g t h e d e t a i l s o f Lo an am o u n t w i th Ban k lo an , i n ves tm en t , su b s id y , i n t e re s t e t c

Sl No. Amount of

Loan

Bank

Loan

Investment

@ 20% of the

unit cost

One-time

capital

subsidy

@20% of

the unit

cost)

Interest

subsidy

@ 10% of

the unit

cost

No of

Beneficiaries

Total

1. Rs 2 Cr Rs 1.20

cr

Rs 0.40 Cr Rs 0.40

Cr

Rs 0.12

Cr

100 Rs200.00

Cr

2. Rs 2.5 Cr Rs 1.50

Cr

Rs 0.50 cr Rs0.50 Cr Rs 0.15

Cr

100 Rs 250.00

Cr

3. Rs 3.0Cr Rs 1.80

Cr

Rs 0.60 Cr Rs 0.60

Cr

Rs 0.18 cr 100 300.00 Cr

4. Rs 4.00

Cr

Rs 2.40

Cr

Rs 0.80 Cr Rs 0.80

Cr

Rs 0.24

Cr

100 Rs 400 Cr

5. Rs 5.00

Cr

Rs 3.00

Cr

Rs 1.00 Cr` Rs 1.00

Cr

Rs 0.30

Cr

1000 Rs 500 Cr

Rs 16.5

Cr

Rs 9.90

Cr

Rs 3.3 Cr Rs 3.3 Cr Rs0.33 Cr 500 Rs 1,650

Cr

Table 1(b)

Total amoun t outlay in each term loan amoun t segment


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Total Loan

amount

(1)

Investment

(2)

Bank Loan

(3)

Capital

subsidy

(4)

Interest

Subsidy

(5)

Total:

(6)

(2+3+4+5)

Rs 2.00 Cr Rs 0.40 Cr Rs 1.20 Cr Rs 0.40 Cr Rs 0.12 Cr Rs.120 Cr

Rs 2.50 Cr Rs 0.50 Cr Rs 1.50 Cr Rs 0.50 Cr Rs 0.15 Cr Rs 2.65 Cr

Rs 3.00 Cr Rs 0.60 Cr Rs 1.80 Cr Rs 0.60 Cr Rs 0.18 Cr Rs3.18 CrRs 4.00 Cr Rs 0.80 Cr Rs 2.40 Cr Rs 0.80 Cr Rs 0.24 Cr Rs4.24 Cr

Rs 5.00 Cr Rs 1.00 Cr Rs 3.00 Cr Rs 1.00 Cr Rs 0.33 Cr Rs5.33 Cr

Rs16.5 Cr Rs 3.30 Cr Rs 9.90 Cr Rs 3.30 Cr Rs1.02 Cr Rs17.52 CrRs1650 Cr Rs 330.00 Cr Rs 990.00 Cr Rs 330.00 Cr Rs 102.00 Cr Rs 1752. Cr

Tab le 1

To t a l lo a n a m o u n t , in v e s t m e n t , B a n k lo a n , s u b s i d y, e t c Ye a r wi s e(Rs in Cr )

Ye a r Ba n k Loa n In t e r e s t

2012-13 990.00 99.002013-14 1710.00 171.002014-15 2052.00 205.202015-16 2424.00 242.402016-17 2754.00 275.40

Tota l : 9 ,9 30 .0 0 9 9 3 .0 0

Every year, the amount of Bank loan will shrink to the extent of 20%, andby the end of 5 years, what is reflected as cumulative interest is the amount that isapportioned by the Government as interest subsidy that would be transferred to

the Bank by the implementing agency.

Table- II

S u m m a r y o f t h e S ch e m e i n i t s to t a lit y(Rs in Crores)

Year Bank Loan Interest Capital subsidy (Lineof Credit)

Administrative &allied charges*

2012-13 Rs 990.00 99.00 330.00 5.002013-14 Rs 1710.00 171.00 330.00 5.002014-15 Rs 2052.00 205.20 330.00 5.00

2015-16 Rs 2424.00 242.40 330.00 5.002016-17 Rs 2754.00 275.40 330.00 5.00

Tota l : Rs 9,930.00 993.00 1,650.00 25.00(*)Implementation, Publicity, Evaluation, Awareness, Printing, Consultancycharges

Table- 3 (a)

R s 2 C r Te c h n o l o g y Up -g r a d a t i o n p r o j e c t ( Me d iu m s c a le i n d u s t r y)


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35

Year Loan amt(Rs in Cr)

Investment Capitalsubsidy

Interest subsidy Loanamt+interest

2012-13

120.00 40.00 40.00 12.00 132.00

2013-14

120+96(216) - - 12+9.60(21.6) 237.60

2014-15 120+96+72(288) 12+9.60+7.20(28.80)

316.80

2015-16

120+96+72+48(336)

12+9.60+7.20+4.80(33.60) 369.60

2016-17

120+96+72+48+24(360) 12+9.6+7.2+4.8+2.4(36.00)

396.00

Total: 1320 40.00 40.00 132.00 1452.00

Table- 3(b)

R s 2 .5 Cr T UP f o r Me d i u m S ca l e I n d u s t r y


Investment Capital subsidy Interestsubsidy

Loanamt+interest

2012-13 150.oo 50.00 50.00 15.00 165.002013-14 150+120(270) - - 27.00 297-00

2014-15 150+120+90(360) 36.00 396.002015-16 150+120-

90+60(420)42.00 462.00

2016-17 150+120+90+60+30(450)

45.00 495.00

Total: 1650 50.00 50.00 165.00 1815.00

Ta b le - 3

R s 3 .0 Cr TUP fo r Me d i u m s c a le i n d u s t r y



Interestsubsidy

Loanamt+interest

2012-13 180 60.00 60.00 18.00 198.002013-14 180+180-36)=324 32.40 356.40

2014-15 180+144+108(360) 36.00 396.002015-16 180+144+108+72

=43243.20 475.20

2016-17 180+144+108+72+36

= 468

46.80 514.80

Total: 1764.00 60.00 60.00 176.40 1940.40

Table 3 (d)

R s 4 .0 Cr T UP fo r Me d i u m S ca l e In d u s t r y


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Interestsubsidy

Loanamt+interest

2012-13 240 80.00 80.00 24.00 264.002013-14 240+192(432) 43.20 475.20

2014-15 240+192+144(480) 48.00 528.00

2015-16 240+192+144+96(576) 57.60 633.602016-17 240+192+144+96+48=624.00

62.40 686.40

Total: 2352.00 80.00 80.00 235.20 2587.20

Table 3 (e )

R s 5 .0 Cr T UP fo r M e d i u m S ca l e I n d u s t r y



Interestsubsidy

Loanamt+interest

2012-13 300.00 100.00 100.00 30.00 330.002013-14 300+240(540) 54.00 594.00

2014-15 300+240+180(600) 60.00 660.002015-16 300+240+180+120(660) 66.00 726.002016-17 300+240+180+120+60

=720.0072.00 792.00

Total: 2820.00 100.00 100.00 282.00 3102.00

Tab le 4 ( a )

Al l th e Segm en ts du r ing 20 12-13

(Rs in Cro r es )Benef ic ia r ies

(1)

I n v e s t m e n t

(i i)

B a n k

Loan(iii)

Capi ta l

su b s id y(iv)

I n t e r e s t

s u b s i d y(v)

B a n k

L o a n +I n t e r e s t(vi)

100(Rs 2 Cr) 40.00 120.00 40.00 12.00 132.00100(Rs2.5Cr) 50.00 150.00 50.00 15.00 165.00100(Rs 3 cr) 60.00 180.00 60.00 18.00 198.00100(Rs 4 Cr) 80.00 240.00 80.00 24.00 264.00100(Rs 5 cr) 100.00 300.00 100.00 30.00 330.00

To ta l: 3 30 .0 0 9 9 0 .0 0 3 30 .0 0 9 9 .0 0 10 8 9 .0 0

Beneficiaries: 500; New Total investment Rs 1749 Cr

Tab l e 4 (b )



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( R s i n C r o r e s )Benef ic ia r ies

(1)

I n v e s t m e n t

(i i)

B a n k Loan(iii)

Capi ta ls u b s i d y(iv)

I n t e r e s tsu b s id y(v)

B a n k L o a n +I n t e r e s t(vi)


Total: 3 3 0 . 0 0 1710.00 3 3 0 . 0 0 171.00 1881.00Beneficiaries: 500;

Bank loan would be inclusive of fresh loans for new beneficiaries, and loan

outstanding against previous beneficiaries who would have paid 20% of the loanamount by way of recovery. Rs 200 Cr was given as loan in the first year. At theend of the first year, Bank loan component (20%) of Rs 40 lakhs would have beenreturned towards Quarterly/Half Yearly instalments. Hence Balance of Bank loanin their records will be Rs 120 Cr (2015-16) + (120-24) = 120+96 + interest of Rs21.60= Rs 237.60 Cr.

Table- 4

All th e Segm en ts du r ing 20 14-15

( R s in Cr o r e s )Benef ic ia r ies In ves tm en t Ba nk

LoanCapi ta lsu b s id y

I n t e r e s tsu b s id y

B a n k L o a n +I n t e r e s t



Tab l e 4 (d )



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( R s i n C r o r e s )Benef ic ia r ies In ves tm en t Ba nk



B a n k L o a n +I n t e r e s t

100(Rs 2 Cr) 40.00 336.00 40.00 33.60 369.60

100(Rs2.5Cr) 50.00 420.00 50.00 42.00 462.00100(Rs 3 cr) 60.00 432.00 60.00 43.20 475.20100(Rs 4 Cr) 80.00 576.00 80.00 57.60 633.60100(Rs 5 cr) 100.00 660.00 100.00 66.00 726.00


Table 4 (e)All th e Segm ent s du r ing 20 16-17

( R s i n C r o r e s )Benef ic ia r ies In ves tm en t Ba n k



B a n k L o a n +

I n t e r e s t100(Rs 2 Cr) 40.00 360.00 40.00 36.00 396.00100(Rs2.5Cr) 50.00 450.00 50.00 45.00 495.00100(Rs 3 cr) 60.00 600.00 60.00 60.00 660.00100(Rs 4 Cr) 80.00 624.00 80.00 62.40 686.40100(Rs 5 cr) 100.00 720.00 100.00 72.00 792.00

Total: 3 3 0 . 0 0 2754.00 3 3 0 . 0 0 275.40 3029.40Beneficiaries: 500; New Total investment Rs 1650 Cr

Table- 5

SUMMARY

Outlay(Rs in Cr)

Total BankLoan(Rs in Cr)

Interest onBank LoanInterestsubsidy(Rs in Cr)

No of units(numericalno)

Line of Credit(Capitalsubsidy)(Rs in Cr)

Implementation,publicity,evaluation,awareness,publicity,consultancy, or anyother activity

12,598Cr

990.00 99.00 500.00 Rs 330.00 Cr Rs 5.00 Cr

1710.00 171.00 500.00 Rs 330.00 Cr Rs 5.00 Cr2052.00 205.20 500.00 Rs 330.00 Cr Rs 5.00 Cr2424.00 242.40 500.00 Rs 330.00 Cr Rs 5.00 Cr2754.00 275.40 500.00 Rs 330.00 Cr Rs 5.00 Cr9930.00 993.00 2 5 0 0 . 0 0 Rs 1,650.00 Cr Rs. 25.00 Cr

Total Outlay: Rs 12,598 Cr


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Investment: Rs 1,650 CrBank Loan: Rs 9,930.00 CrCapital Subsidy: 1,650.00 Cr (Line of Credit adjusted towards loan after the loanis liquidated in full. No reimbursement, but adjustment against Loan only)Interest subsidy: Rs 993.00 Cr

Extra Expenses: Rs 25.00 CrPeriod of the TUF Loan: 5 years from the sanction of the LoanRepayment: Not earlier than 3 years and not later than 5 yearsCollateral security and/or third party guarantee as per Banks terms.

The machineries that are eligible for technology up- gradation for variousindustries will be shown in the Schedule and only those machines will be eligiblefor Government support.

Total Cost to the Government: Rs 1650 Cr (staggered at Rs 330 Cr per annum)and interest subsidy of various denominations equaling Rs 993 Cr. The interest

be released to the Bank quarterly.

Base l I I Ra t ing: MSME Scheme may be modified to include the beneficiariesunder the Technology Up-gradation Scheme for TUF.

The Scheme may be brought under the C r e d i t G u a r a n t e e T r u s t F u n dS c h e m e under the MSME by upgrading the total amount to Rs 5 cr withsufficient instalments, annuity. It may be noted that the MSME Ministry and theCGTFS officials interpret the rules in the same manner and in synergy. Myexperience has been, when Rs 243 Cr REMOTE Scheme was conceptualized byme, and brought under the Credit Guarantee trust Fund Scheme, the DC officegave different interpretation from the one provided by the Scheme officials basedin Bombay, so much so, the Scheme implementation was delayed by over 8months. This is not meant as Criticism, but suggested for course correction,please.

Who are the beneficiaries?: Any industry falling in line with the definitionof Medium scale industry would be eligible to take advantage of the Scheme. Asthe Scheme is representative in character, 10% outlay of North Eastern region,the mandatory reservation for SC/ST etc has not been made. This is a skeletonScheme submitted for perusal.

Under the present Scheme of things, it is suggested, that handicrafts,handloom and any other sector which requires involvement of hand madeproduces, once the technology up-gradation is applied, it would becomehandloom(power loom), handicrafts(machine made crafts) destroying the basicstructure of the Product. Furthermore, there are Schemes for the Textiles andjute sector for technology up- gradation under the Textiles Ministry, anotherScheme for Handicrafts, and Handlooms by the same Textiles Ministry. It is


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suggested that these sectors be omitted by the TUF to be implemented by MSMEfor Medium Scale Industries.

This Scheme may cover light engineering, heavy engineering, leather,chemicals, auto spare parts and components industry, plane spare parts(since the

number of private airlines have increased, it is quiet possible to invite foreigninvestors), food processing, electrical, chemical, hospitality, logistical,infrastructure, textiles, tourist etc.

No new industry need to be given admission to the Scheme, because, anew unit can straight away go for the state-of-the-art machineries as it is a newunit commencing from the scratch. Except the plane spare parts, I mentionedearlier, other new companies may be covered in the next phase of the Scheme.

Conc lus ion :

This is only a synopsis. If the Ministry is interested, a draft proposalmeeting the Govt of India norms can be prepared and eventually submitted toExpenditure Finance Committee of dept of Expenditure, Ministry of Finance.

The Scheme may be implemented by DC, MSME or SIDBI or any otheragency which the Ministry may choose. But the opportunity to increase theoutput and productivity and economies of scale of the Medium Scale industry islong overdue.

-o-o-o-o-o-o-

Copyright: @ With A V Ramanathan (avramani2002@hotmail com)

Suggested innovative Schemes for SME Industry

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