Auto component SMEs should scale up operations to strengthen productivity, says Vinnie Mehta of ACMA

The automobile space as a whole is growing at a rapid pace but the margins of the auto component SMEs are consistently becoming thin, said Vinnie Mehta, executive director of Automotive Component Manufacturers Association (ACMA) in an exclusive interview. Despite the various challenges witnessed by the auto component SMEs, this sector will reach $110 million by 2020.

 

What is the role that ACMA plays for the SMEs engaged in the auto component sector?

Vinnie Mehta: The Automotive Component Manufacturers Association of India (ACMA) is over 50 year old industry body. We represent over 650 members and close to 70% of the membership come from the small and medium enterprises (SMEs). In fact, whatever ACMA does, it is primarily in the interest of SMEs. We play a prominent role in shaping the industry conducive policies and also carry out various business development initiatives such as buyer-seller meets for the original equipment manufacturers (OEMs) and Tier-1 suppliers. ACMA continues to play a very important role in the promotion of the industry and business development. We successfully run the ACMA Centre of Technology (ACT), which spearheads the drive for quality, productivity and technology. We have highly qualified councillors on our rolls for the said purpose. We are actively involved in trade promotion, technology upgradation, quality enhancement and collection and dissemination of information which has made ACMA a vital catalyst for this industry's development. The other activities include participation in international trade fairs, sending trade delegations overseas and bringing out publications on various subjects of topical interest to the automotive industry. We also undertake cluster programmes with definite roadmaps, which could be company specific i.e., it depends upon the state of evolution of the company. The periodicity of the new cluster development programmes depend upon 6 months-2 years based upon local maps. We also organise events and trade shows and bring out studies periodically to track the health of the sector. ACMA is represented on a number of panels, committees and councils of the Government of India through which it helps in the formulation of policies pertaining to the Indian automotive industry.

What are the current projects being undertaken by ACMA?

Vinnie Mehta: Right now, two in-depth studies are being carried out with the aim to look for opportunities beyond traditional manufacturing. The first study focusses on ‘how auto component sector can become a hub for R&D and product development’ and the second study is on 'analysing Indian auto Component industry's competitiveness and identifying emergent opportunities'.

Please elaborate on the performance of the SMEs in the auto component sector?

Vinnie Mehta: During the financial year 2009-10, the size of the auto component sector was at $40 billion, while the exports were at $5.25 billion. This industry continues to grow at 14%. Although, the auto vertical as a whole is growing but the margins in the auto component space are increasingly becoming thin. The situation is more stressed out for the SMEs. There are quite a few challenges which are impacting the SMEs – access to easy capital, cost of capital, availability of skilled manpower, inadequate infrastructure etc. What needs to be understood is that the SMEs should scale up operations, which will in turn help strengthen the productivity levels.

It is believed that the auto component makers are hit with various roadblocks (rupee depreciation, high interest rates and petrol prices) amid the global slowdown? What’s your take on it?

Vinnie Mehta: It is time we internalise the fact that although overall demand curve for the sector will rise, there will be few ups and downs from time-to-time. ACMA envisions that the auto component sector will touch $110 billion by 2020 out of which $80 billion will come from the domestic market and another $30 billion from exports.

The auto component makers have been demanding uniform standard for auto components for both original equipment makers (OEMs) and after sales to combat counterfeits in market. Do you think it will help the sector?

Vinnie Mehta: The counterfeiting market in India is growing rapidly and it is a major concern for the organised sector as this problem is spreading its wings. This market is growing at 15-20% per annum and causing lot of worry for the organised players. The counterfeiting problem has gained pace in India an also causing considerable loss to the government. The size of the counterfeit market stood at Rs 33,000 crore during the financial year 2011-12. ACMA in this regard has created a White Paper and submitted it to Ministry of Road Transport and Highways, Bureau of Indian Standards. One way of tackling the counterfeit market for aftermarket products is by mandating standards, especially for safety critical ones, as currently there exists no such standards.

Can you throw some light on the main challenges witnessed by the SMEs in the auto component sector?

Vinnie Mehta: Few of the key challenges which are impacting the growth of the auto component SMEs are access to capital coupled with its cost. In markets such as the US, Japan, Europe etc the lending rates vary between 0-3% as compared to 17-18% for Indian SMEs. SMEs are under the strong grip of many problems such as absorption of technology, manpower availability along with infrastructure challenges. Most of the SMEs in India are a one-man-army and therefore, depth of management is also an issue.

How far do you think that the government policies and initiatives are working in favour of the SMEs and the sector as a whole?

Vinnie Mehta: The government especially the Ministry of Micro, Small and Medium Enterprises (MSME) has been very supportive of ACMA initiatives. ACMA has proposed the setting up of Technology Upgradation Development Fund under the aegis of the MSME which has found acceptance for the 12th Five Year Plan. We hope this will soon be realised.

Do you think that Foreign Trade Policy will help the industry overcome the challenges?

Vinnie Mehta: We are happy that recent supplement to the FTP has been favorable to the automotive sector. In the product focus scheme, 5 new auto component products have been added, while in market linked products focussed scheme out of 46 new products that have been added, 23 are auto components. This move will definitely help promote exports from the auto component sector.

Packaging sector SMEs need to concentrate on knowledge upgradation, says NC Saha of Indian Institute of Packaging

Indian small and medium enterprises (SMEs) engaged in packaging industry should concentrate on their upgradation of knowledge in order to stay at par with growing demand for different types of packaging in the consumer goods sector and also to bring in new innovations in the industry, advises NC Saha, director of the Indian Institute of Packaging (IIP), in an exclusive interview.

What is the current status of India packaging industry ?

NC Saha: As per the available statistics the total size of the Indian Packaging Industry is about US$ 23 billion. This particular industry is growing at the rate of 15% per annum. However,  there is a variation of the growth trend for various types of packaging material. For example, Flexible packaging industries is growing @ 20-25% annually whereas the paper and paperboard is growing @ 36%. Metal and glass industries are growing @ 8% and 6% respectively.

What are career opportunities available in Packaging industry for SMEs?

NC Saha: As per the available statistics there are about 22000 packaging industries including of Packaging conversion industries dealing with paper, paper board, plastic films and laminates, manufacturer of metal container, glass container, composite containers, corrugated fibre board boxes, packaging machinery suppliers, manufacturer of ancillary packaging material like priniting inks, lacquer and vernishes, pressure sensitive self adhesive tape, plastic straps, angle board, pallet, slip sheet etc. Out of which about 85% of the industries are covered under SME sector. The Indian Institute of Packaging is conducting two years full time Post Graduate Diploma Programme in packaging technology where the average intake of the students is about 150 per year. Till date all the students have been well accepted by the Indian packaging industry and 100% of the students have been placed. In general the salary package of the students is in the range of Rs. 3.0 lacs to Rs. 10.0 lacs. This clearly indicates that most of the students are absorbed in the SME sector. In the 21st century, it is observed that there has been certain mega socio economic changes like increase of middle class population, increase of working women, liberalization in trade policies, globalization, increase of literacy, increase of purchasing power parity and booming of retail market. All this factors have definitely created a great demand for the consumption of packaging material and thus the growth trend of this particular sector is also in the increasing order. At the same time, there is a great demand for the packaging professionals. Due to this fact, the packaging is being considered as one of the carrier option by the youngsters.

The government should amend food safety laws in order to meet the rapidly-changing needs of the packaging industry. What is your take on this?

NC Saha: Globally 56% of packaging materials are consumed for the food products and beverages, However, in India the consumption of packaging materials for the processed food and beverages is about 85% (including mineral water). Due to this fact, it is felt that the packaging aspect will be definitely covered in the food safety laws as food package comfortability has become one of the important aspects for the modern consumers. 

Why do you think packaging is gaining demand? Are increasing organised retail and demand for branded products fuelling this or there is another dimension to this demand for flexible packaging solutions?

NC Saha: As I have already mentioned, the demand of packaging is increasing regularly. At the same time, the youngsters of India are demanding branded goods which have also got a great impact on the demand of packaging materials. The demand of flexible packaging materials is increasing led by certain advantages like easy availability, transparency, recyclability, cost effectiveness, printability and consumer acceptance.

IIP is researching on the packaging of mid-day meals meant for distribution to school children. Please throw some light on this innovative model.

NC Saha: The Indian Institute of Packaging has taken an initiative to make a study to review the existing system of distribution of mid day meal scheme being implemented by the Govt. of India for school children. The study will be covered across the country. Main objective of this study would be to explore the possibility for the development of suitable package in order to distribute the mid day meal in hygienic condition to the school children. This particular study is being undertaken by the Institute as a social responsibility and also to upgrade the standards of packaging at National level.

What are the key priorities of IIP?

NC Saha: To promote the export market by way of innovative package design  and development and also to upgrade the standards of packaging at National level. In addition, IIPs Mission to promote the packaging education and also to upgrade the quality of packaging material through certification in order to fulfill the mission, i.e., better standard of life through better packaging.

'Packaging' is becoming a significant marketing tool. Kirana store owners and small traders are increasingly adopting novel packaging styles so that their products should not look inferior in comparison to the branded ones. Please share your views on this practice.

NC Saha: Due to the entry of the branded goods from the multinational companies, the small Kirana store owners need to upgrade the package design and the quality in order to tackle stiff competition in the retail market. This would be necessary in order to have their sustainability in the local market.

IIP was also looking at jute and bamboo as an alternative for wood in packaging. How will the step be beneficiary the sector?

NC Saha: Yes, IIP is exploring the possibility for the development of alternatively packaging material by using different natural fabrics like Jute, Coir etc and also to explore the possibility for their commercialization.

Please share your roadmap for the current fiscal (2012-13).

NC Saha: The Institute is taking the initiative for the commencement of 4 years Degree programme i.e, B.Tech packaging technology (after 10+2) and it is expected that this would make a revolution in the packaging education in terms of career opportunities and also for the upgradation of packaging technology. The institute is planning to commence this course from the academic year of 2014-15.






What is the outlook for the sector, especially SMEs, in the next 6 months?

NC Saha: SME Sector needs to concentrate for their upgradation of knowledge in the field of packaging. The Institute have been involved with various associations for conducting training programme, workshops through dissemination of knowledge for the overall upgradaion of SME sector.

Are companies veering away from practice of festive season bonuses?

Diwali, the festival of lights, not only cheers up individuals personally but this traditional fanfare also lightens up employees’ faces as their payroll swells with festive bonus. A fatter paycheck adds value to the traditional flavour of sweets, parties, gifts and excitement of crackers.

The culture to give bonuses to the employees during Diwali is gradually fading away and companies, which are reeling under the pressures of bleak economic outlook, resurging inflation, are moving away from a fixed bonus paid during the festive season.

According to HR pundits, on the wake of high inflation and shrinking profit margins both private and public sector companies are shying away from handing out bonuses this year.

Earlier, the culture of Diwali bonus was in rife in the traditional companies like manufacturing and consumer goods particularly in the blue-collar workers. Already, the corporates have done away this perk from white-collar employees, but the ongoing crisis indicates that blue-collared workers may also have to bid adieu to this perk.

What law says

Bonus is basically a reward that is paid to an employee for his/her good work towards the organisation. Offering bonus is not an optional choice, rather it is an obligation in India as there is a principle law relating to this procedure of payment of bonus to the employees and that principle law is named as Payment of Bonus Act, 1965.

As per the law, Bonus is required to be paid every year, which is related to the salaries. Every employee not drawing salary/wages beyond Rs 10,000 per month who has worked for not less than 30 days in an accounting year, shall be eligible for bonus for minimum of 8.33 per cent of the salary/wages even if there is loss in the establishment whereas a maximum of 20 per cent of the employee's salary/wages is payable as bonus in an accounting year.

However, in case of employees whose salary/wages ranges between Rs 3500 to Rs 10,000 per month, for the purpose of payment of bonus their salaries/wages would be deemed to be Rs 3500.

Although, the bonus concept still exists for the unionised workforce as this headcount is governed by separate code of conduct and they still get the Diwali bonus every year as per the guidelines. The executive cadre do not come under the unionised workforce. Earlier, there was a practice of giving bonus to those at managerial-level, but now many companies have done away with the bonus culture.

Bonus practice getting replaced by performance incentives

Over the years, some transformation has been noticed in the way employees rewarded. The practice of rendering bonus packages has been replaced by performance-linked incentives. Rather, in case of multinational companies (MNCs), Diwali bonus practice is hardly seen. Such companies offer performance-based incentives to their employees during the year instead of Diwali.

Festive bonus offering varies from sector to sector

The festive bonus practice varies from sector to sector as the manufacturing sector still strongly believes in the bonus culture, while the IT sector is not seen much inclined to this practice. However, such companies provide 'performance-based incentives' during the year so as to motivate the employees.

Diwali bonus v/s Office parties and gifts

A trend to organise office parties during Diwali is in now-a-days, rather than announcing bonus. But the practice of annual bonus not only adds volumes to the employees festive spirit but also increases their cash flow.

Some corporates also offer some functional gifts to their employees like home appliances, electronic items, kitchenware and other useful items.

Some other Diwali gifts include table clock, office use products, photo frames, lifestyle products, household items, radio, stationery, calculators & world timers, torches & LED lights, lunch boxes, wall clocks, card holders, table calendars, branded wrist watches and more.

According to a recent survey conducted by the industry body ASSOCHAM, Indian corporates will cut their budget for Diwali gifts by about 50 per cent this year due to high inflation and shrinking profit margins.

“This year, business houses are bracing for a muted Diwali affair evidently as majority of respondents have tightened their purse strings and have slashed their budgets for Diwali gifts significantly,” the survey said which interviewed 150 companies, Of this, nearly 30 of them have decided to entirely do away with gifting concept this year.

The majority of the participants was of opinion to spend less on gifts for their corporate connections this year on the back of drastic decline in balance-sheets.

Prevailing economic slowdown both in India and abroad together with decelerating industrial growth, spiralling inflation, are some of the major reasons highlighted by corporates for drooping operating profits, thereby restricting them in offering Diwali bonus during this festive season.

On the contrary, in an exclusive communication, employers said they have already doled out festive bonuses to our employees as it is a big booster for the employees. Offering bonus to the employees is a best way to recognise and acknowledge the efforts of an individual and also to retain employees.

A survey conducted by MyHiringClub dot com, says that 65 per cent of private sector employers and 95 per cent PSUs are planning to give bonus to their employees this festive season.

Firms like Nokia and TVS group firm Wheels India have paid 20 per cent bonus to their factory workers. Wheels India's bonus policy has remained constant for abut half a century. Foxconn, a supplier of mobile phone parts, has paid 20 per cent bonus.

Conclusion

Handling bonuses well is vital for businesses in order to improve the chances of success in a tough economic environment. It gives a holiday cheer to the employees, who form the backbone of a company. They not only contribute to labor, but also intellectual capital to an organization. The companies should pay special attention towards them in order to emerge as an effective organisation.

SMEs have to become more innovative to remain globally competitive, says A Ramesh Kumar, chairman, SME Chamber of India (Northern Region)

It is time for the Indian small and medium enterprises (SMEs) to opt for innovation to enhance competitiveness globally as they are facing various problems such as inadequate infrastructure, insufficient risk capital and high interest rates, said A Ramesh Kumar, chairman, SME Chamber of India (Northern Region) in an exclusive interview with SME News.

Among various challenges witnessed by SMEs, getting timely funding is a big problem. The small units mostly depend on banks for funds as private equity funding has not gained momentum in India.



What is the role that your Federation aims to play for the growth of the Indian SME sector?

A Ramesh Kumar: The SME chamber of India is a progressive platform for promoting and supporting the SME sector in India. The objective is to create an ecosystem for making the Indian SMEs innovative and globally competitive. The chamber organises several seminars, conferences, workshops, training projects, which creates growth opportunities for industry in various areas such as networking and knowledge migration. The chamber also plays active role in policy formulation in SME sector.



What are the current projects being undertaken by your Federation?
A Ramesh Kumar: SME chamber has lined up several initiatives. Some of the important forthcoming events are - SME National Banking Conclave, SME IT summit, SME Finance and investment summit, Young Entrepreneurs Award, Women Entrepreneurship Summit etc. The SME Chamber of India in association with the university of Wales and Asia Pragati Capfin Pvt Ltd launched a Wales-India SME Innovation Project, under which an open innovation centre and knowledge portal will be created in Mumbai for SMEs in India. Some prominent international activities are Ukraine Summit, World SME Ukraine summit, MBI Business summit, India-Europe business’s summit. The chamber also proposes to send business delegations to South Korea, UK and Wales etc. This will help in developing business relationship between SMEs of India and other foreign countries.



Can you throw some light on the current conditions of the SME sector in the state?

A Ramesh Kumar: While SMEs across the country are gearing up to face local and global competition, they are handicapped in various areas such as inadequate infrastructure, inadequate risk capital and high interest rates.



Are the exports placed aptly for the SMEs in India?

A Ramesh Kumar: SMEs are performing well in exports, contributing 40% of country’s out bound trade. Going forward to maintain this level, the SMEs have to become more innovative to remain globally competitive. Also, infrastructure inadequacy needs to be addressed.



Do you think the domestic market is boosting the growth of SME sector?

A Ramesh Kumar:High inflation has definitely affected domestic rates of SMEs. High interest rate has also affected their margins. Although, it is a difficult scenario to cope with, but over the medium term large domestic market will continue to support the demand for SME products.



What are the main challenges faced by the Indian SMEs?

A Ramesh Kumar: Getting timely funding remains the biggest challenge. Indian SMEs mostly depend on banks for funds while risk capital (equity) funding is yet to pick up in India. Some recent initiatives of government for increasing venture capital funding will be useful in future years. Besides funding, other challenges are collections of receivables, technological up gradation, trained man power, skill development and marketing etc.



Do you feel that government policies (both Centre and state) are working in favour of the MSMEs?

A Ramesh Kumar: I think there is a reasonably good appreciation at the central government level regarding problems faced by the SMEs. Some initiatives like Factoring Bill, SIDBI bill, India Opportunities Venture Capital funds etc are noteworthy. There are also ongoing dialogues between government and industry representatives. However, there is much to be done at implementation level. Some state governments have been able to put in place policies to encourage SMEs. However this cannot be said about all the states. While all parties conceptually support SMEs, the implementation of measures, reduction of red tape and provision of infrastructure is the differentiator.



Skill development has been observed as a key issue at the moment for SMEs. How do you view it and what are the solutions?

A Ramesh Kumar: As India aims to become a knowledge economy, there will be big need for skill development. Centre has started some initiatives for skill Development Corporation. Here the Industry chambers can also make excellent contribution. In fact, India needs to develop a knowledge network involving industries, government, industry chambers and academicians, which will ensure supply of skilled persons to SMEs.


Can you throw some light on the ICT (information and communication technology) used by SMEs?

A Ramesh Kumar: Many SMEs are using ICT. The SME chamber conducts many programmes to build awareness regarding ICT. We are planning to conduct a workshop in cloud competing for SMEs in September.



How do you think the FTP policy will help the Indian SME sector?

A Ramesh Kumar: FTP policy, which was formulated in 2009, needs to be relooked when new policy comes up in 2014. Wild fluctuation in rates is a big challenge for SMEs.



Kindly share the roadmap of your Federation for this fiscal.

A Ramesh Kumar: We have a very active schedule. We have many initiatives which will continue to be implemented. We have started a new research initiative in Innovation in association with UK Govt, Welsh universities. We hope this will help in making our SMEs more innovative and competitive.



S&P lowered the outlook for India to negative and also Fitch downgraded India's credit rating from stable to negative. Do you think it will affect Indian SMEs?

A Ramesh Kumar: While outlooks have been adversely affected India still remains investment grade, although the negative outlook will increase cost of external funds. This has no effect on SMSs in a big way. These ratings should be taken as working notes and necessary policies to be formulated to address concerns. Equity investment needs to be accelerated. Many projects which have been started need timely implementation. It will create new jobs and create a positive atmosphere which will attract new investment. All these will lead to outlook upgradation.

Apparel sector SMEs facing liquidity pressure in India

Amid the global economic meltdown, the apparel sector exporters are witnessing many problems like inventory build-up and liquidity pressure, said Lalit Gulati, president of Apparel Exporters & Manufacturers' Association (AEMA) in an exclusive interview.

He also said that the the SMEs engaged in the apparel sector should explore new markets to enhance the growth prospects.

 

 

What is the role that AEMA aims to play in India's SME sector?

Lalit Gulati: AEMA is committed to the welfare, expansion and promotion of the garment trade for the SME sector. The main aim of AEMA is studying the various laws which affect the working of export industry where SMEs constitutes 60% of the entire apparel exports advocating changes to various central and state governments. The major membership forum of our association consists of SMEs as its members.

 

 

What are the current projects being undertaken by AEMA?

Lalit Gulati: Our association has taken up the issue with Apparel Export Promotion Council (AEPC) in adding one more agency for issuance of Country of Origin certificate for Japan under Comprehensive Economic Partnership Agreement (CEPA) to reduce and ease the rush and delay for issuing the certificate. AEMA is in its endeavor to help exporters with problems like clearing and suggesting to the customs for speedy clearance of pending drawback, advocating changes for smooth and timely clearance of customs cargo.

AEMA is helping AEPC for the effective implementation of it’s baby project DISHA under the sponsorship of Textile Ministry. The project will help the garment manufacturers comply with the global social standards and ease the auditing process.

AEMA is also in the process of bringing a new Textile park under RIICO at Tapukara, Rajasthan. The primary objective of the Textile Park is to provide the industry with world-class infrastructure facilities for setting up their textile units. The scheme would facilitate textile units to meet international environmental and social standards.

AEMA is promoting various garment fairs under the sponsorship of AEPC and FICCI which mainly gives the SMEs sector ample opportunity to explore new markets and promote their business which have been very successful and ample exposure for the SME’s sector.

 

 

How do you think that the Indian SMEs engaged in apparel sector are performing in the present global meltdown?

Lalit Gulati: The pressure is rising consistently as the sector is mainly dependent on exports to the US and European countries. The exporters are witnessing many problems such as inventory build-up and liquidity pressure.

In the present global meltdown, one needs to analyse the changing trends in apparel business across the world and also have to explore new markets. If we compare the growth of apparel industry in past ten years, the Indian apparel industry has experienced rapid changes, primary due to new sourcing avenues and wide markets (both domestic and international). It has successfully put up good performance under market pressure with shrinking demands and tighten prices. The SME sector needs to explore new and virgin markets for growth which is being aggressively hit due to injury.

 

 

What are the key challenges faced by the Indian SMEs in apparel sector?

Lalit Gulati: The availability of fabrics, high cost of logistics, shortage of power supply and cost of power, stringent labour laws and unstable world apparel demand are the major causes which are affecting the SMEs sector.

 

 

Do you think that the apparel SMEs are aptly placed for exports?

Lalit Gulati: Apparel sector is well suited for the SMEs but it has to become more innovative to remain globally competitive. 

  

Do you feel that government policies (both Centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues?

Lalit Gulati: Government policies are directed to assist the working of SMEs. However, more changes needs to be done. A major reason for it could be that the SME sector is mostly unorganised. The government needs to work out a conducive policy commensurate with the needs of the Industry.

 

 

Do you feel that ICT (information and communication technology) usage by apparel SMEs is going up?

Lalit Gulati: Information technology is one of the strongest drivers for competitiveness, innovation and change in our modern economy. ICT is changing our lives – the way we socialise, work, shop, search for information, and communicate. ICT enables all forms of innovation, from social to organizational and technological innovation. ICT boosts businesses’ efficiency and competitiveness in the global market. The apparel SMEs have adopted ICT innovation which is an absolute necessity in today’s export field.

 

 

Do you think that Centre has undertaken ample initiatives to strengthen the apparel sector?

Lalit Gulati: The government of India has been making good efforts to promote and support the industry in the post MFA (Multi Fiber Agreement) era. Various stimulus schemes have been announced in the previous years. Some of them are as general reduction of 4% in CENVAT rates, abolishment of the CENVAT on cotton and few other taxes being either reduced or deleted to promote the textiles exports.

The government introduced two packages of duty concessions, tax and interest rebates in past years to provide stimulus to the economy in general to combat the recession.

 

 

RBI's move to leave rates unchanged for the second consecutive policy review has been criticised by India Inc. How do you think it will impact the growth of SMEs?

Lalit Gulati: Higher interest rates are going to hurt the bottom line of SMEs. A separate rate for exporting community would help the sector compete at the global market.

 

 

Kindly share the roadmap of AEMA for the ongoing financial year 2012-13.

Lalit Gulati: AEMA is determined to take up the issues like availability of fabrics, shortage of fabric mills & process houses, modification of infrastructure, higher cost of logistics, Labour related issues etc. with the highest authorities so that we can create a level field for the growth of exports from India vis-a-vis China, Bangladesh, Vietnam etc. and the growth of our industry from 12% to 14% of apparel exports in the coming 4 – 5 years to reach the target of $18 billion.

Continuation of 2% interest subvention scheme on rupee export credit to benefit leather SMEs, says CLE

 In an exclusive interview, D Saalai Maraan, executive director of Council of Leather Exports (CLE), elaborated on the present status of leather industry, available government policies in the sector, challenges and opportunities for SME sector.  CLE is an apex trade promotion organization functioning under the aegis of Ministry of Commerce & Industry, Government of India.

What is the role that your organisation aims to play for the upliftment of the SME sector?

D Saalai Maraan: Council for Leather Exports has around 2800 manufacturer-exporters of leather and leather products as its members.  More than 80% of the members constitute the SME sector. Thus, CLE’s export promotional activities are being extensively catered to the SME sector.  In fact, CLE is implementing the Duty Free Import Scheme of the Government of India wherein manufacturer-exporters of leather products & footwear and manufacturer as well as merchant exporters of leather garments tied-up with a manufacturer are allowed to import essential inputs used in product manufacture to the extent of 3% of FOB value of their export realization in the previous year. CLE was also engaged as the Facilitating Agency for the Integrated Development of Leather Sector (IDLS) Scheme implemented in the XI plan by the Ministry of Commerce and Industry, Govt. of India which facilitated technological upgradation of the leather industry. IDLS Scheme is expected to be continued in XII plan also. CLE has also been implementing various infrastructure projects across the country with the Government support which includes establishment of testing centres, trade centres etc.   CLE has also been assisting the SME exporters to gain exposure in the global market by enabling their participation in events like international fairs, India Leather Shows/Buyer Seller Meets etc., carried out under marketing programmes namely Marketing Development Assistance (MDA) and Market Access Initiative Scheme (MAIS) of the Government of India. Thus, CLE has been playing an active role in the overall development of SME units, whether it is in the area of production, marketing, technological upgradation or infrastructure.



India's leather export revenues were up by 26.7% during Apr 2011-Feb 2012. Do you think the growth will be substantial for this fiscal (2012-13) as well?

D Saalai Maraan: According to the latest data, the export of Leather and Leather products for the financial year April-March 2011-12 touched US$ 4868.71 million as against the performance of US$ 3968.54 million in the corresponding period of last year, recording a positive growth of 22.68%. Thus, exports during 2011-12 have crossed the target of US $ 4725 million.  Though the leather industry has the potential to enhance its growth in the long run, with the prevailing Eurozone crisis and other challenges like price hike of raw materials etc., there are concerns about maintaining the same growth levels during 2012-13 also.



Could you highlight what benefits SMEs can avail with the 2% Interest Subvention Scheme announced in the Foreign Trade Policy 2009-14?

D Saalai Maraan: The 2% interest subvention scheme provides reduced interest rates for the leather sector on pre-shipment and post-shipment rupee export credit.  Though the 2% interest subvention scheme was initially extended to the entire leather sector, from the year 2010-11, this is extended only for the SMEs in the leather sector.  The Annual Supplement 2012-13 to the Foreign Trade Policy 2009-14 announced on June 05, 2012 extended the continuation of the 2% interest subvention scheme on rupee export credit for the year 2012-13 for the SMEs.   The Reserve Bank of India has also issued a Circular No.RBI/2011-12/608 dated June 19, 2012 informing about extension of interest subvention of 2% on rupee export credit with effect from April 1, 2012 to March 31, 2013 which includes the SME. The aforesaid RBI circular mentions that banks may reduce the interest rate chargeable to the exporters as per Base Rate system by the amount of subvention available subject to a floor rate of 7% and also states that Banks may ensure to pass on the benefit of 2% interest subvention completely to the eligible exporters.



Recently, a study by CRISIL said that SMEs exporters earn higher operating profit margins (OPM) than domestic peers. What is your take on this?

D Saalai Maraan: It is a well known fact that though there are greater risks involved in export trade and there is intense competition too, the returns are quite higher than in the domestic market. However, as far as leather sector is concerned, the returns for high branded items is higher even in the domestic market.



How can the Eurozone crisis take its toll on the revenues of Indian leather industry during current fiscal (2012-13)?

D Saalai Maraan: As mentioned above, there are concerns about maintaining the export growth levels during 2012-13 on account of the Euro Zone crisis, as Europe is the major market for the Indian leather industry accounting for 66% of the exports. However, we hope that with the assistance of Government, there will be resurgence in exports in the second half of the year.



In your opinion, what kind of initiative the government should take to promote India's exports aggressively?

D Saalai Maraan: As far as leather sector is concerned, the Government of India is already implementing major schemes for promotion of exports. Further, Leather Sector has been recognised as a Focus Sector in the Foreign Trade Policy 2009-14 too. However, we have sought additional support measures from the Government so as to help the product and market diversification efforts of the exporters and to enhance our market share in USA which is currently about 1.31% only.



In the 12th Five Year Plan (2012-2017), the government has approved Rs 600-crore mega leather cluster development scheme. Do you think the concept of mega leather clusters will address the constraint of large infrastructure with integrated production chains in the country?

D Saalai Maraan: The Government of India has already notified the Mega Leather Cluster Scheme as part of the Indian Leather Development Programme (ILDP) for implementation during the 12th Five Year Plan Period.  As per the scheme, it is proposed to develop Greenfield Mega Leather Clusters in the States having large concentration of leather units and also in states having potential for growth of the leather sector. These Mega Leather Clusters, which will have world class infrastructure and support services, will play a crucial role in enhancing capacity of the Indian leather industry in the next 5 years.



Trade fairs are considered as an excellent platform for fruitful and business-oriented interactions with domestic and global buyers. How, according to you, SME/MSMEs can enhance their businesses with the active trade fair participation?

D Saalai Maraan: CLE is undertaking aggressive marketing campaign by organizing India Pavilions in major leather & leather product fairs/exhibitions held across the world and also by conducting India Leather Shows/ Buyer Seller Meets in major importing countries as well as potential markets. Exporters who participate in CLE organized events under Marketing Development Assistance (MDA) can get reimbursement of part of their expenditure. The reimbursement is available to Individual Exporter/ Companies with FOB value of export from Rs.3 lakhs and upto Rs.15 crore per annum who are participating in CLE led  trade delegations / BSMs / Fairs / Exhibitions abroad to explore new markets for export of their specific product(s) and commodities from India.   Besides, several cluster based exhibitions are now held in India were SMEs of raw materials and inputs can participate and find buyers. CLE has entered into an agreement with Riva Del Garda Fiere Congressi, the organizer of the most popular Expo Riva Schuch Fair in Italy and  organised the first edition of Expo Riva Schuh India exhibition  successfully during July 2011. Thereafter, the second edition of the fair was also organised in July 2012 and this fair has become a regular event for value added leather products and footwear. This is yet another example of Indo - Italian collaboration. The India Trade Promotion Organisation (ITPO) is also organising international fairs in the country namely India International Leather Fair (held in Chennai from Jan. 31 - Feb. 3 every year) , IILF Delhi (held during July 2012) and International Leather Goods Fair (held in Kolkata during Feb. every year) wherein SME companies can participate.



What are the key priorities of your Council?

D Saalai Maraan: The Council's objective is to ensure substantial development of the leather industry in all core areas namely capacity modernization, upgradation and enhancement, human resources development, market expansion and diversification, product diversification, infrastructure development and environment management, in order to double the exports in the next 5 years.



Please share your roadmap for the current fiscal (2012-13).

D Saalai Maraan: As far as our traditional market of Europe is concerned, the leather industry needs to undertake aggressive marketing campaign and also maintain a very high level of price competitiveness so as to tackle the adverse impact  of recession as well as the intense competition. As far as USA is concerned, even while enhancing our exports of leather goods and leather footwear, we must concentrate on enhancing our export of non-leather/synthetic footwear to this market, as there is a very huge market for this item in the US market. During 2011-12, exports to countries like Russia and Japan have shown considerable growth. Hence, the exporters must focus more on these markets and further enhance their share in these potential markets. On CLE's part, we have planned a number of marketing activities in Europe which includes participation in fairs like Expo Riva Schuh (Garda, Italy), Mipel (Milan, Italy) and organisation of India Leather Shows in Spain, Germany, France etc., Besides, we will be organising fair participation/Buyer Seller Meets in countries like Canada, Turkey, South Africa , China, UAE, Australia, New Zealand etc., CLE has also organised  Reverse Buyer Seller Meet in Delhi  during July 2012 by inviting overseas buyers and similar such reverse BSMs are planned in Chennai and Kolkata also.

Insurance covers: why Indian SMEs need it

The Indian entrepreneurship spirit is often celebrated at the global level as it houses a large number of small and medium enterprises (SMEs), projected at 35-million enterprises, making up 80% of the overall count of industrial enterprises.



 

With the emergence of global economic meltdown, insurance covers for small and medium enterprises (SMEs) have hogged limelight. It assumes significance since in the present crisis SMEs are usually more susceptible to financial loss as compared to the large MNCs.

 

 

In today's time, insurance is a complete necessity. With rising inflation level, the risk of wiping off complete savings or getting into debt has risen manifold. It is believed that 'insurance covers' for SMEs came to limelight as economic slowdown hit their margins and led to closure of many units. Client defaults along with the absence of credit have also taken a toll on their health. It is projected that 70% of the corporate insurance policies are sold to the SMEs and the premiums from this sector just accounts for about 35-40% of the revenues.

 

 

Moreover, the general (non-life) insurance premiums—like fire, property, cash —are expected to witness 20% growth and reach Rs 1 trillion by 2015. As the small businesses constitute as an important part of the India Inc, SME sector is considered as the priority area for insurers.

 

 

Why insurance is important for businesses
 

Insurance is considered as a useful tool for addressing risks that arise from damage to business property, liability along with the decline of health and loss of employees' lives. An insurance policy is a contract in which one party decides to compensate another party for any losses or even damages caused by risks mentioned in the contract in exchange for payment of a huge sum or periodic amounts of money to the first party.

 

 

Although, insurance cannot ensure protection to properties or lives physically, but it has potential to protect the business insured against any adverse financial consequences of losing properties and lives. For instance, a factory that is insured although cannot prevent a fire from breaking out at the premise, but the insurance money collected can be utilised for rebuilding the factory if it is accidentally gets burned down.

 

 

An insurance policy also allows efficient use of financial resources. Without any insurance policy, the potential losses due to capital destruction should be fulfilled by a business' own internal funds.

 

 

Terms related to insurance that SMEs must know
 

Undertaking insurance coverage means that a 'promise' is made to offer protection against any financial difficulties such as illness, accident, natural disaster or whatever unforeseen event that is expected to cause financial losses.
 

As an SME business operator, one needs to stay familiar with few insurance terms before signing up with any insurance firms. Some of those terms are -
 

Insurance policy- a documentation which plays the role of a contract between a corporation and an insurance company.
 

Policyholder - the corporation that possess insurance policy.
 

Insurer - the insurance company to an insurance arrangement and also takes up indemnify for losses.
 

Premium - a specified sum of money which is paid by policyholder to the insurer since the price of insurance protection against the risks for the time period as mentioned in the insurance policy.

 

 

Types of insurance coverage for SMEs
 

It is a difficult task to take decision on the insurance package most suitable to any small business. The most important thing that strikes to any business owner is protection of physical assets. The small business owners have wide range of choices. This selection is made depending on the nature of the business -

 

All Risks Insurance – It usually covers loss of or any damage to the property insured caused due to any accident.

 

 

Burglary Insurance – It covers loss of or damage to property insured due to theft.

 

 

Business Interruption Insurance – It covers loss of profit due to the physical loss or damage to the property insured, thus impacting a firm from carrying out planned level of business.

 

 

Electronic Shield Insurance – It indemnifies the insured for any unforeseen or sudden physical loss of or damage to electronic equipment like computers, thus needing repair or replacement.

 

 

Employers’ Liability Insurance - It insures employer against liability at law for employee claims resulting due to bodily injury or disease sustained in the course of employment.

 

 

Equipment Insurance - It covers loss of or damage to equipment, accessories and spare parts caused by accidental collision or overturning, fire, external explosion.

 

 

Fidelity Guarantee Insurance – It covers all direct pecuniary loss faced by the insured due to acts of dishonesty and fraud committed by any particular employee.

 

 

Fire Insurance – It usually covers loss or damage to property caused by fire or lightning and other dangers like explosions, storms, riots.

 

 

Marine Cargo Policy - Marine cargo policy refers to insurance for merchandise that is usually transported by sea, air, rail and road. Since majority of the small scale units are making their presence felt in the export sector, the issue of insuring goods in transit assumes importance to these business operations.

 

 

It is believed that the loss or damage to large goods shipments can lead to humongous financial difficulties for the small businesses. If SMEs are able to understand the different aspects of the available coverages, it is beneficial for them to better plan their insurance requirements.

 

 

Often, open cover is also considered as an option as it offers protection for moving cargo within the specified geographical areas.

 

 

Relevance of health insurance plans for SMEs
 

Health insurance schemes for small ventures are of great importance for creating a healthy workforce and also safeguarding long term medical expenditures. With the aim to maintain the long-term medical expenses under check, health insurance plans under small business insurance policies come with various benefits such as -
 

· Brings improvement in the workers productivity.
 

· Administration of healthcare expenses.
 

· Bringing down illnesses and injuries level. It leads to decline in absenteeism by the workers.

 

 

Players offering insurance policies to small businesses in India
 

Insurance policies for small business in India are not as popular as compared to the US. There are a few players in this segment -

 

 

· US Small Business Administration (SBA)

 

The US Small Business Administration (SBA) offers customers small business administration categories primarily for individuals who are the prospective businessmen. It offers loans for small business by playing the role of an insurer for small businesses borrowing from the conventional granter.

 

 

· Wells Fargo

 

The US-based company has sub-division in India and is considered as a key small business lender. The financial company offers banking, assurance and investment acknowledgement facilities to the small ventures. 

 

 

 

·Tata AIG General Insurance Company
 

Among the Indian firms, Tata AIG General Insurance Company Limited offers small business disclosures and also alternate insurance such as Multiline Package Policy. It is a pre-endorsed packaged scheme which incorporates assets, offense, casualty, employee income, unanticipated events and medical, marine and monetary products.

 

 

· SBI General Insurance
 

SBI General Insurance Company Limited is a joint venture (JV) between SBI and Insurance Australia Group (IAG). By the end of January 2012, SBI General Insurance has sold more than 40,000 policies to SME customers across 100 cities. 

 

 

 

· Bajaj Allianz General Insurance
 

It has unveiled a comprehensive insurance for SMEs known as 'Commercial Package Policy'. It offers series of covers such as fire and allied perils, burglary and robbery, money in transit, damage to plate glass, machinery breakdown, neon sign, electronic equipments, fidelity guarantee, public liability, portable equipment, baggage and business interruption cover. Moreover, the plan covers employees under group personal accident and workmen’s compensation cover.

 

 

Ensuring business is sufficiently insured
 

After getting basic insurance coverage in place, it is important to carry out a check on what is covered for and what is not. After a particular time, there is a need to review business insurance policies to see if there are any gaps or overlaps in coverage areas. If any overlap is witnessed, policy packages can undergo some changes since it is where the yearly premium is derived. Revisions are highly necessary after the flourishing of business.
 

On the types of insurance, consulting insurance agent or broker is a good option as they offer complete explanations of premium terms and coverage in writing. Before buying any insurance, it is important to ensure that selection is done after analysing the different types of insurance.

 

 

Conclusion
 

In India, insurance is not desired much by the smaller companies. Since SMEs don't have time or manpower to cope with high premium costs and paperwork, the management should stress on critical growth areas in place of just maintaining close track of when the policy is due to be renewed. Having realised this, insurers have modified their offerings to suit SMEs. Companies are hoping to offer 'bundled policies', wherein several different kinds of insurance apart from the usual covers such as fire, marine and burglary come in one single package.