Big Boss

‘MSMEs are the spine of the nation’

kk-jalan-secretary-msme-discussingKK Jalan is a 1982-batch IAS officer of Haryana cadre. An MPhil in Mathematics and Public Administration from Punjab University, Chandigarh. Hard task master, efficient and honest, Jalan was the first IAS officer to serve five districts of Haryana as Deputy Commissioner—Bhiwani, Rewari, Sonepat, Karnal and Faridabad. Now Jalan has been assigned the task to look after the Micro, Small and Medium Enterprises (MSME) Ministry, one of the focus areas of Prime Minister Narendra Modi’s plan to generate more employment. Jalan spoke to Editor Anil Tyagi at length on plans and future roadmap of MSMEs.

gfiles: How was the Prime Minister’s function at Ludhiana on October 18?
KKJ: Jalan: On October 18, Hon’ble Prime Minister visited Ludhiana to participate in a programme of the Micro, Small and Medium Enterprises Ministry. The ministry was constituted on May 9, 2007. I am happy that this is the first time that the Prime Minister has launched the schemes of MSME. The Prime Minister launched two schemes on the day—first he launched a SC/ST hub scheme and then the ZED Scheme, which means Zero Effect and Zero Defect. The SC/ST hub scheme will have the support of Rs. 490 crore and the ZED scheme will have Rs. 491 crore to implement the programme. The Prime Minister distributed 500 charkhas (spinning wheels) to women and also distributed national awards. This is the first time the function was organised outside Delhi.

gfiles: Can you tell about ZED schemes?
KKJ: The ZED scheme was initiated when the Prime Minister indicated on ZED idea on his August 15, 2014, speech from Red Fort. From there he launched the idea of Zero Effect and Defect. The Quality Council of India (QCI) started work on the idea. It evaluated the industry on 50 parameters. In the case of procurement for Defence, 25 more points were added in the parameters. It’s basically like ISO certification. Every product will be evaluated on 50 parameters and that will be ZED certification.

There are five categorise on which we will evaluate and issue certificates—bronze, silver, gold, diamond and platinum. MSME will issue these certificates after evaluating the companies on 50 parameters.

When QCI drew the 50 parameters, QCI tested them on 75 companies. Out of 75, only 10 companies got the standardised certification. It’s a standardisation for MSME. It’s like an ISO which certifies that the said company has passed the test of parameters.

gfiles: Only 10 got the standardisation?
KKJ: The other 65 companies will have to improve. When one points out the flaws, you will then improve yourself. We will again check if they pass the parameters, and if they do, we will issue certificates. Out of the 10 companies, some got bronze, some gold, but nobody got platinum. When we certified 10 companies, we launched it as a major scheme. Now we have decided to help 22,000 MSMEs to get the certificates on the basis of 50 parameters. The government will pay up to 90 per cent subsidy to facilitate MSMEs to get this certificate.

gfiles: What about ‘Khadi for Fashion and Khadi for Nation’…
KKJ: The Prime Minister is very keen on three important issues and schemes which must come on the international fora—one is Khadi, second is Ayush and the third is Yoga. MSME is focussing on ZED, National SC/ST hub and Khadi. In Ludhiana, PM very clearly stated that Khadi till 1947 was playing an important role for the nation. After 1947, Khadi shall be used for fashion. It shall dominate the fashion Industry. Whenever and wherever any one buys Khadi, he or she is generating employment. Khadi is hand spun and hand woven and has a very niche market. So, Hon’ble PM wants to make Khadi a fashion statement; not only for the sake of Khadi, but also for the sake of employment.

The Prime Minister has also talked about Khadi from various other forums, like Mann ki Baat. Because of that, Khadi sales have increased. There has been around 45 to 50 per cent increase in the sales in the last two years, which is phenomenal.

kk-jalan-secretary-msme-writinggfiles: What is your ministry’s thrust area and what are your thoughts about the journey post-liberalisation?
KKJ: There are 2-3 things to be noted as far as MSME is concerned. One, we have promoted ease of doing business. Under this, we have made the registration of MSMEs possible online. Earlier, one had to go to offices for filing Entrepreneurship Memorandum 1 and Entrepreneurship Memorandum 2. Now there is just one-page simple registration form online. One can sit in his house and can get his firm or SME registered online within 3-4 minutes, without any cost.

gfiles: But you charge Rs. 1,400?
KKJ: We don’t charge anything. But you have raised a good point. Some so-called facilitating computer organisations have come up, who say that they will help in filling up the form and will charge Rs. 1,400 for that. A lot of people pay. I want to state that there is no official charge for registration.

gfiles: I have information that many people are being duped by such website shops.
KKJ: Yes, there are some who are misguiding people…

gfiles: Why don’t you block these sites.
KKJ: I cannot block those sites. You see, if you are taking the help of a Chartered Accountant for filing an income tax return, then you are taking his help. I cannot stop it. The law doesn’t debar. If someone is illiterate, he can get help; he might go to a computer shop and get the form filled up.

gfiles: The Udhyog Aadhar Memorandum is issued by your ministry. There are many sites which are offering registration.
KKJ: The Udyog Aadhar Memorandum has no fee. You can get it free of cost in 3 minutes. It is on our ministry’s site. You can go to our website and there is no charge. What the people have done is that they have created websites, claiming they will help you in getting the registration and, in addition, provide other services.

gfiles: How come then when registration is done from outside the ministry website, it states your mail has reached the ministry and then your ministry confirms the next day. These people get Aadhar registration the next day. It means someone inside the ministry is facilitating touts.
KKJ: No. If you go to our website and register directly, we send you a mail. We send you an SMS immediately within three minutes and email that from our website itself. I understand what you are saying. There are some complaints with us. We have also filed a complaint with the CBI, mentioning some sites which are fleecing people. But, through your magazine, I would like to clear that it is free of cost, it is a 3-minute job and you should not pay even a single rupee for registration. If you have any problem with registration, you can just walk into any MSME office or MSME tool room and get it done. We have 100 offices throughout the country.

gfiles: We were talking about post-liberalisation.
KKJ: One, we made registration very easy. Second, we also launched a help site, MSME internet grievance monitoring system. Here you can lodge a complaint, give a suggestion and, if you want some help, leave your number and somebody from the Department will contact you immediately and try to help you.

gfiles: Okay, that is on registration site…
KKJ: This is on MSME internet grievance monitoring system. This is online and we try to resolve all complaints within 15 days. There is no complaint or suggestion or anything pending for more than 15 days. This also helps in improving ourselves. Say, if we get 20 complaints of one nature, it means there is some problem. People are not able to understand our system. It means we should put it in our FAQ and should improve our system procedure. We have made all the schemes online in the last one year. The major scheme of the ministry is the Prime Minister’s Employment Guarantee Programme. This year, we will be giving roughly around Rs. 1,500 crore as margin money to approximately 75,000 entrepreneurs to take loan. This will create an employment of roughly 6 lakh people this year.

The Prime Minister is very keen on three important issues and schemes which must come on the international stage one is Khadi, second is Ayush and the third is Yoga

gfiles: How many jobs we create every year?
KKJ: Through MSMEs, around 15-20 lakh jobs. There are however limitations which we cannot measure ourselves; there is no data collection of that nature.

gfiles: What one major change you observe in the MSME sector post-liberalisation?
KKJ: We are out of the license raj totally. Now there is no item which is in the reserved category for manufacturing in small scale. It is a major shift post-liberalisation.

gfiles: But you had certain reserved items also…
KKJ: We don’t have any reserved item for manufacturing, as on today. Earlier, there were 600 items and now it’s nil. Only benefit as of now is that in the case of micro enterprises, there is an excise exemption up to Rs. 1.5 crore.

gfiles: What are the parameters for MSME?
KKJ: MSMEs are of three types if you talking about manufacturing sectors. These are categorised as micro, small and medium. Micro is where the plant and machinery investment is less than Rs. 25 lakh or equal to Rs. 25 lakh. Small is where the investment is not more than Rs. 5 crore, and Medium is where investment is not more than Rs. 10 crore.

gfiles: Are these on the basis of balance sheet?
KKJ: These are on the basis of plant and machinery cost, not employees. In other countries, companies are measured on the basis of employee strength. In India, we determine MSMEs on the basis of investment in the plant machinery.

gfiles: Any specific reason?
KKJ: When they decided to categorise MSMEs, at that point they must have thought plant and machinery as a valid and appropriate reason. May be they wanted to attract investment. But, personally, I would go for employee strength. I think, we need to move towards employee strength.

gfiles: Basically, everything should be job oriented…
KKJ: Because now the major focus is on employment generation. Therefore, I would say employee strength can be a better measurement mechanism.

gfiles: If MSME is strengthened, it can be the biggest tool to minimise the influx of people from rural to urban areas. What are your thoughts on the issue?
KKJ: MSMEs can be divided into three categories. One category of MSMEs can be called ancillary industry, which has come up for assisting a large industry to produce. Second category comes up for providing services to the population, such as a flour mill or an atta chakki. Third category is for converting farm produce or raw material into value-added product such as corn flak manufacturing, etc. The village industries development, such as honey bee making or pickle making or other industries based on farm produce will help in stopping migration from villages to urban areas.

gfiles: Have you noticed any significant change in the people shifting from rural areas to the urban areas. Whether there is a MSME or no MSME, people will shift to cities. What is your observation?
KKJ: We don’t have any data or studies in this regard. Let me put it this way. Perhaps, it is for the first time that Hon’ble Prime Minister is desiring creation of village level industries.

gfiles: What about the credit facilities you are providing. You were saying the government wants to infuse money to boost this industry?
KKJ: The government is very keen to see that the credit flows to the MSME sector. The MSME sector is a priority sector and there is a target given to the banks that a certain amount of credit must go to such sectors. The government is quite keen and this is reviewed by the RBI. The credit flow is also reviewed by the Finance Minister every three months. We have launched various schemes in the ministry, whereby we try to ensure that people get the credit without problems. But, there are issues as far as credit flow goes.

gfiles: Issues like what?
KKJ: The credit cost to the MSME is higher than the credit cost to large industries.

gfiles: What about collateral issues?
KKJ: Usually there are complaints from small industries that the banks do insist on collaterals while giving loans to SMEs. Though we have gone for credit guarantee scheme loans up to Rs. 1 crore, but still there are issues.

gfiles: Credit guarantee scheme loans have long drawn procedural issues. First, you need a project report. Second, you need a guarantor. Third, CGS has separate fees other than interest. Fourth, interest rates are enormous which makes the project unviable. So, why has the government made MSMEs’ financing complicated?
KKJ: I’m not disputing that. I might not agree with the full statement of yours, but, yes, it is true that a person will have to pay a credit guarantee fee and, to that extent, the cost of the project goes higher.

gfiles: What are you going to do about this?
KKJ: It has come to our notice. Credit is now coming through Non-Banking Finance Companies (NBFCs). NBFCs have come up to help the micro and small enterprises. The government is constituting a committee to look into this issue and help make the credit flow to the SMEs smoother.

gfiles: Committees always take time. Banks are discouraging people to take loan. Even when they sanction a loan, the rate of interest is on the higher side?
KKJ: You know, the Hon’ble PM has launched the Stand Up India scheme, whereby the banks have to fund at least one SC/ST entrepreneur and one women entrepreneur. Therefore, the banks have been asked to create at least 2.5 lakh entrepreneurs. Second, Mudra loans have been given to more than 3.5 crore enterprises. The number is phenomenal and all Mudra loans are without any collateral.

gfiles: But, a personal guarantee is required…
KKJ: Personal guarantee is okay. Naturally, you will have to put yourself into consideration. But, then there is no other guarantee, no other collateral. In Mudra loan, where one is sanctioned Rs. 10 lakh, no guarantor is required.

gfiles: Without any project report, without anything?
KKJ: Naturally you will have to get some paper the bank manager will see. He will understand how you will do business. But, it is not that you are getting a project report made and spending a lakh or 50,000 on it.

The MSME sector is a priority sector and there is a target given to the banks that a certain amount of credit must go to such sectors. The government is quite keen and this is reviewed by the RBI. The credit flow is also reviewed by the Finance Minister every three months

gfiles: You are agreeing with my point that the cost of borrowing money from the bank is still not less, even the Mudra loan is…
KKJ: No, in Mudra loan there is a limit, in a sense, on the interest rate. Mudra loan is one where people have got the loan and it has really helped micro enterprises, such as barber shops, small retail and beautician shops. All such people have been helped and there is more employment in this work.

gfiles: Why are the banks not ready to lower the interest rate? Banks are earning 14-15 per cent interest rate and they are borrowing at 7-8 per cent rate. You can calculate the profit…
KKJ: I would not say they are not earning profit. One has to look at the cost of administration, cost of NPAs. This is also a cost they have to factor in. Credit is not that easy. But, in any case, from the MSME side I will continue to encourage banks to give loans and this is what my job is.

gfiles: What is the size of MSMEs in terms of entrepreneurships?
KKJ: Let me admit that we don’t have very reliable data on MSMEs. Of course, we have the 6th National Economic Census report coming recently—about 2.72 crore different kinds of enterprises are there.

gfiles: There are many issues which MSMEs’ Chambers of Commerce has highlighted, like technology, supply chain inefficiencies, fund shortage, sub-optional scale of operations, competition, manufacturing strategies and turbulent market scenario. How are you sorting out these issues?
KKJ: Basically we divide the MSME challenge into 5 parts. One is credit, which we have discussed. Second is technology, third is the marketing, fourth is, which you have not mentioned, human resource and fifth is compliances. These are the issues. The government is trying to amend labour laws, trying to make compliances as easy as possible. You might have heard of the small business law also, where they were combining all labour laws in one form. For human resource, a separate ministry has been created, Ministry of Skill and Entrepreneurship Development. It sees that there is a proper human resource available to the industry. We also have 18 technologies centres. We are doubling them to 36 by next year. This is more than Rs. 2,000-crore programme of our ministry. This will also create 5 lakh strong workforce every year for the industry.

Third is marketing. We are working on the public procurement order that every central PSU and central government ministries procure at least 20 per cent from MSMEs. It is an indirect marketing support to small and micro enterprises. Fourth, on the technology front, we are creating technology centres which are going to help MSMEs. Then we have schemes, like Capital Subsidy Scheme where for technological upgradation we give 15 per cent subsidy. We are also having a lot of schemes for processes like lean manufacturing so that people are encouraged to manufacture with minimum possible staff. This will make them become more competitive. Under the umbrella National Manufacturing Competitive Programme, we have many schemes.

gfiles: Small-scale industry is basically governed by State governments. The ministry has minimal role. You are on the policy side? What is the approach of States towards MSMEs?
KKJ: Every industry is under the State government to that extent. We are here as a friend, philosopher and guide. Industry is always a State subject. First time in the history of our ministry, we have done three regional conclaves at Chandigarh, Dimapur (North-East) and Gujarat. Now a number of the major States are coming up with separate ministries and department for MSMEs. Uttar Pradesh and Madhya Pradesh have created separate departments for MSMEs. Madhya Pradesh has become the first State to do a separate MSME convention. Andhra Pradesh has created a separate directorate of MSMEs.

gfiles: Are they under your umbrella or are they operating differently?
KKJ: In the federal set-up, it is not that any State government is under MSME Ministry. We work in close co-operation with them. What I’m trying to convey to you is that there is a greater focus on the MSMEs by the States. Madhya Pradesh is now even giving subsidy on investment in MSMEs—6 per cent for women entrepreneurs and 5 per cent for others.

gfiles: Do you think that if MSMEs are not boosted, there is a desolate future for heavy industry?
KKJ: The country needs both types of industries. The MSME has a different role to play; you cannot have defence manufacturing in a small-scale industry. Tejas can be manufactured only in a large-scale industry. MSMEs can be there in a supporting role. Therefore, you need the large industry as well as the small scale industry. But,
traditionally, the small-scale industry will give you more jobs.

gfiles: Has Niti Ayog laid down any plan for MSMEs?
KKJ: The Niti Ayog is overall looking after industrialisation and the start-up scenario. To that extent, the MSMEs also get help, but it is always in close coordination with different departments. It is not a closed cubical we are working in.

gfiles: Earlier, the Planning Commission used to make a roadmap for 5 years. That is over…
KKJ: That is over with the Planning Commission.

gfiles: Ministry-specific plans are laid down now from command offices. Are they not there like the Planning Commission?
KKJ: I would not say that the Planning Commission was functioning as a command office or any other thing. But, I say the Niti Aayog’s role is as a friend, philosopher and guide. We work in close coordination with all relevant ministries. You cannot work in isolation.

gfiles: What is the impact of Chinese goods in India. Are they more competitive than Indian goods?
KKJ: SMEs have a greater problem with Chinese goods coming to India. This issue has been identified as there is a lack of standardisation in Chinese goods. The SMEs are of the view that they must be given a level-playing field in the sense that if you allow the SMEs in China to manufacture things without any electricity cost, or with almost zero raw material cost, and then you ask the Indian SMEs to compete, it cannot be done. A fair competition is needed. I think, the relevant ministry has taken a notice of it and is also taking steps in the right direction.

gfiles: Our businesses are not getting the same duty regime as per WTO agreements…
KKJ: Some MSMEs, especially in apparels and textiles, would want Free Trade Agreements (FTAs) with the European Union as well as the US so that they can export duty free to these countries. Bangladesh and Vietnam are already doing so. That is one thing. But, naturally, there are certain sections of industry which will get disturbed with these types of FTAs. The relevant ministry views all the things. FTA is someone’s gain and somebody’s loss. You have to evaluate whose loss and whose gain. The government is very serious about various FTAs and working on a greater speed on those FTAs. But, I don’t think the MSMEs together are harmed by this. Today, everybody is looking at the Indian market and we have a substantial market share.

There is a lot of scope for medical devices industries. Today we have good hospitals but most of the medical devices are imported. We can do import substitution there. We can have Rs. 75,000 crore window in medical devices in industry itself

We are able to serve our market also to a greater extent and there is scope of substitution of imports in some areas. There is a lot of scope for medical devices industries. Today we have good hospitals but most medical devices are imported.

We can do import substitution there. We can have a Rs. 75,000-crore window in medical devices in industry itself. If we start manufacturing in India, we can get Rs. 75,000 crore revenue only from medical devices industry.

gfiles: Is the Khadi industry earning?
KKJ: Yes, Khadi and Village Industry Commission (KVIC) is doing good
job and sales are increasing in the last two years.

gfiles: It has started doing the franchise business also…
KKJ: KVIC has been allowed to do franchise business. They have recently sanctioned 16 franchises.

gfiles: KVIC is funding also?
KKJ: No funding. KVIC charges Rs. 10 lakh and allots the franchise.

gfiles: How do you see MSMEs now onwards?
KKJ: The Khadi sale should reach up to Rs. 5,000 crore. At present, Khadi sales turnover is Rs. 1,000-1,200 crore. MSME Ministry plans to make Khadi employment oriented. Khadi should be a fashion statement in the life of Indians.

gfiles: How do you see the growth of MSMEs from 2016 to 2019?
KKJ: MSMEs have to grow by 10-13 per cent. When the growth in the country is 7-8 per cent, we have to have a growth more than that. MSMEs have a great potential to grow. The Prime Minister has given the guidelines and agenda to fullfill. The ministry is working on those lines. Globally, it’s the MSME sector which is important for the nation. We are working towards making India stronger through MSMEs.

VOL. 10, ISSUE 8 | NOV, 2016

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