Micro, Small & Medium Enterprises (MSMEs) in Gujarat are in dire straits and the credit crunch is not the only reason.
MSMSE unit owners claim the initial stages of production are difficult, thanks to the red tape and a slow market. Fingers are also pointed at demonetisation, hasty implementation of GST and volatility in stock market and crude oil prices.
In this backdrop, the Federation of Industries Association (FIA) in Gujarat has threatened to boycott the all-important biennial ‘Vibrant Gujarat Summit’ next year, if issues are not addressed.
Where Is the Ease of Doing Business?
In 2018, the country jumped 23 spots from rank 100 to rank 77 in the ‘Global Ease of Doing Business Index’.
Yet Gujarat, considered an important industrial hub, housing sectors including automobiles, textiles, chemicals, pharma and diamonds among others, slipped four places from the top rank in ‘Ease of Doing Business in India’.
The Quint spoke with the President of Gujarat Chamber of Commerce and Industry, Jaimin Vasa, who said:
“We are no longer number 1 in ease of doing business. A few years back Telangana and Andhra Pradesh were ranked below 10. Today Telangana is number 1 and Andhra Pradesh is at number 3 thanks to proactive measures taken by the two state governments to help industries grow. But here in Gujarat we have slipped from first position to fifth position.”Jaimin Vasa, President of Gujarat Chamber of Commerce and Industry (GCCI)
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Red Tape Grinds MSMEs’ Output
One of the major reasons behind the tumble in the Ease of Doing Business Index is heavy bureaucratic red tape. The Quint met with Ajit Shah, President of Sanand Industries Association, an umbrella organisation that looks after the wellbeing of MSMEs located at Sanand GIDC (Gujarat Industrial Development Corporation) in the outskirts of Ahmedabad.
According to Shah, in Sanand GIDC around 200 MSMEs have started operations and the biggest problem these industries face in the initial stage is survival as different permissions needed to start the operations takes 3-4 years.
“Let’s take an example of the 2R permission, which is required to source bank finance and is issued by the GIDC. There is no system or policy in place to assure MSME unit owners that 2R permission will be issued in say 2-3 days’ time. I know cases where it took months for the GIDC to issue this permission. How long must the unit owner wait?”Ajit Shah, President of Sanand Industries Association
Shah claims that every time they approached the government to expedite the process, they got a standard reply – all procedures are now online.
“But our requests don’t get processed online either. There is no time limit set for online procedures, that we should get the 2R Permission in a day or get the plan passed in 5 days. It’s not happening.”
Delay in GST Refunds Eats Away Working Capital
According to the GCCI, the hasty implementation of GST has knocked the wind out of the MSMEs thanks to delays in input credit refunds.
“We do believe that GST is important for the nation and we had welcomed its implementation. But it should have been implemented in stages. An MSME unit has to pay GST upfront when it buys raw material and sells its finished product. At the same time they must file an application for refund and input tax credit.”Jaimin Vasa, President of Gujarat Chamber of Commerce and Industry (GCCI)
“MSMEs have fund limitations. If our capital is stuck in GST payments it makes work difficult. If there is a mistake in filling the (GST) form, the money gets stuck. The govt should make provision for manual intervention so that refunds come in on time, so that our working capital remains undisturbed.”Ajit Shah, President of Sanand Industries Association
Boycott Vibrant Gujarat?
In the last week of November, the Federation of Industries Association in a press conference asked for immediate action from the government to save the “dire” situation.
The Quint spoke with the Secretary of FIA, GK Patel, who said that if the industry body and the government do not reach a consensus soon, MSMEs will simply boycott the 2019 Vibrant Gujarat Summit.
“We have already sent written representations to the government and the GIDC and we are waiting to sit across the table with them. If the meeting doesn’t transpire and we don’t get a solution for our problems, then on 16 December we will call for a conclave of MSME units. Based on the consensus generated we will take a decision soon.”GK Patel, Secretary of Federation of Industries Association (Gujarat)
However, GCCI president Jaimin Vasa is confident that push won’t come to shove, and the Gujarat government will pay heed to the problems faced by MSME units.
“We are in constant dialogue with the government, boycotting Vibrant Gujarat or not supporting the government is not our job. Our job is to have a dialogue. Instead of confrontation, have a discussion. I am sure the government is open to all suggestions.”
Gujarat Govt Intervenes
On Friday, 7 December, members of the Federation of Industries Association had a two-hour-long meeting with Chief Minister Vijay Rupani.
“We had a long discussion with the CM and we have managed to work out a solution for 80 percent of our problems. An official declaration from the government will be issued on the 12 December,” Shah said.
“As of now we don’t see any reason to boycott Vibrant Gujarat Summit next year. The conclave as of now will be postponed and the CM has agreed to attend the same and address all MSME unit owners and their problems.”Ajit Shah, President of Sanand Industries Association
According to a press note released by the FIA on Tuesday, the state government has agreed to expedite procedural turnaround time for various departmental permissions and also agreed to provide up to 80 percent financial support in building critical infrastructure for each MSME unit.
However, nowhere did the press note present a solution for the many issues pertaining to GST. With these sops coming just months before the all important general elections, it needs to be seen whether the industries can bounce back.
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