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AP moots changes in definition of 'sick unit'

Itishree Samal  |  Hyderabad 

The Andhra Pradesh government is proposing a change in the Micro, Small & Medium Enterprises Development Act (MSMED Act), 2006 with regard to the definition of sick industries.

Under the MSMED Act, 2006, sickness is typically identified as a delay in repayment of a loan over one year (the Reserve Bank of India’s definition), a decline in net worth by 50 per cent and a decline in output in the last three years.

Also, according to the Act, if a unit delays the loan repayment to the bank for three months, the loan is declared an NPA (non performing asset).

“The definition currently is very complex and complicated. We are trying to make it very simple to suit both industries and lending banks,” state additional director of industries said.

The state plans to put forward proposals, including an extension in the payment period from three months to one year. “We have to meet and discuss with the state-level bankers’ committee to arrive at a conclusion,” he added.

The MSME sector is going through a rough phase, with many industries finding it difficult even to sustain themselves, for a variety of reasons. Many have closed down in recent years while some are on the verge of closure. The reasons include untimely credit, lack of infrastructure and lack of proper incentives.

R Karikal Valavan, commissioner of industries, while elaborating the problems, said delays in payments were killing industries. People were losing hope and industries that were on the verge of becoming sick were not approaching the government.

“To streamline these problems, we are proposing this amendment,” he said.

More than 95 per cent of the total number of industrial enterprises in the state are MSMEs (174,000 units) and only 4,800 units are large enterprises. The fourth census of MSMEs conducted by the state government revealed that 10 per cent had shut shop.

This scenario is not only true of AP, but across the country, and MSMEs were coming into the sick industry bracket after just a few years of operation, he said.

The Planning Commission has asked the AP government to submit a draft approach paper. “We have to state the proposal in writing. It is at its initial stage, as the process needs a nod from the Reserve Bank of India (RBI), the finance ministry and the MSME ministry,” he said.

Once the definition of sick industries is changed, around 40 per cent of the overall MSMEs across the country are expected to benefit through various government schemes and funding. “We hope to come up with the proposal by the second week of January. Once the proposal is ready, it will be circulated to other states,” he added.

The Union government is also in the process of finalising a scheme for the rehabilitation of sick MSMEs by setting up a rehabilitation fund.

First Published: Tue, December 06 2011. 00:36 IST