Hot concerns for small units: energy prices, not access to funding

It is this prime operating cost, which is choking the country's 44 million non-farm small and micro units, that hasn't found mention in any of the poll manifestos this election

What is the common concern between the glass makers of Firozabad, just next to Agra in Uttar Pradesh, and the rosogolla makers of Salipur, near Cuttack in Odisha? 

It is the price of fuel -- gas for the glass city, wood and copra for the sweet units -- which drives up their cost of production, forcing them to cut costs elsewhere. In the run-up to the general elections, all the political parties have promises galore for the micro and small-scale units. Those promises assure funds or ease of registration, but none promise to look into this prime operating cost of the 44 million non-agricultural small and micro units of the country. 

As the election dates approached in Firozabad, there was a hartal (strike) by a segment of the workers in the bangle units. They are demanding higher wages. It is a cause for concern says Mohan Lal Agarwal, president of UP Glass Manufacturers Syndicate, though he says production is unaffected at his unit. “Supply lines of bottles, flasks and others require specialised workers and their wages have been revised by the state in April. So we have no problems.”

In this town, which supplies glassware for most of Northern India, those who have declared the hartal are known as judai karigars, who basically “stitch” molten bangles together. They have taken advantage of the ongoing marriage seasons among Hindus in April and May and that of Ramzan for Muslims, due soon thereafter, to bring up short the retail business of bangles. Those units dot the lanes of Firozabad like Gali Imambara and Shastri Market.

Compare this with the pressure on former Governor of RBI, Urjit Patel, during his last month in office in November 2018. The re-constituted central board of directors of RBI almost forced him and other deputy governors to discuss the state of micro and small-scale units at length, at what turned out to be Patel’s last such meeting. While the concern was valid, the new directors assumed it was the lack of loans from banks which was hurting the sector. The argument was that RBI did not push the banks adequately to finance these units. It was also assumed that this had resulted in the worsening employment situation in the economy.

In Salipur, home to a thriving trade in sweets, chiefly rosogollas, Sai Sibani Kar, the third generation of the largest sweet maker in the area has concerns other than funding. Fuel costs account for over 40 per cent of her unit price. There are no plans for assured supply of gas for the town, sitting paradoxically just next to upcoming Dhamra port, projected to be one of India’s largest gas import terminals. Wood prices have risen steeply, meanwhile. The steel vats ladled with sugar syrup need massive heat just as the glass factories up north also do. Fortunately the latter has gas but the prices have risen sharply the past few years. Worse, small-scale units aren't likely to be heard when those prices are revised at six month intervals. 

Kar’s company Rasagola has an annual turnover of Rs eight crore and employs about 100 people. “We have an outlet in Bhubaneswar airport and want to spread deeper, but as of now, fuel and sugar prices are our principal worries,” she says. The political grandstanding at RBI and the promises in the respective manifestos miss the wood for the trees, literally. 

Tamal Sarkar, executive director of the Foundation for MSME Clusters, possibly India’s leading agency to promote the sector, agrees. “Few of India’s non-agricultural small and micro-scale units are starving for funds. It is the lack of technical support and inability to control costs which holds them back,” he says. It would take detailed inter-ministerial work to fix those. Which is why there are few takers for them among the political parties.  

The Congress manifesto for instance, promises a regulatory forbearance for these units, but which is already applicable in practice. “They will be exempt from all applicable laws and regulations (except the Minimum Wages Act and tax laws) for a period of three years from April 1, 2019 or, in the case of new businesses, the date of commencement of business. This means freedom from ‘Inspector Raj’ until they stabilise.” 

An inspection of state-level laws shows micro units needn't register as of now unless they wish to qualify for grants. So the three-year window does not give them any additional benefit. Also, as data shows, close to 42 million of the 44 million units like the bangle makers of Firozabad employ less than five workers each. So the promise to categorise them as micro brings little practical benefit. But a promise to introduce minimum wages for the sector as in the case of the Congress manifesto, could spell deeper trouble in Firozabad. The UP government’s labour department has set minimum wages at over Rs 8,000 for unskilled workers in glass units. It is a bit higher in Odisha. Wages at this level can flatten the business of many of the smaller units in both states, immediately. 

The BJP manifesto makes no reference minimum wages for this sector but it too errs, promising to pour more funds. “The Credit Guarantee Scheme of the Government of India is an important component wherein loans to MSME are guaranteed. Under this alone, the credit of around Rs 19,000 crore was achieved in 2017-18. We would aim to take this figure to Rs 1,00,000 crore (Rs one trillion) by 2024”. SBI Ecowrap data up to January 2019 shows from April to December 2018, credit growth to this sector grew at close to one per cent, when aggregate credit to industry expanded at just two per cent. So funds, clearly is not the key concern. 

The parties are clearly looking elsewhere. As Sarkar says, “The key issue which often gets overlooked is that of formalisation and doing business in a professional way for the sector.”