The Odisha State Financial Corporation’s (OSFC)) contribution towards industrialisation of the State is immense and cannot be denied. The OSFC incorporated under the SFC Act 1951 for providing assistance to small scale industries which as per the present norm is called MSME has contributed towards the generation of maximum employments in the State. Even the agriculture sector invariably needs the support of MSMEs to process their produce for higher value addition. Under such condition, it is imperative that we primarily focus on the rehabilitation of OSFC, which in turn, can rehabilitate hundreds of potentially viable sick units and boost employment significantly.
The present drive for startups could be important, but, most startups are automated and seldom rely on man power. Instead of fixating on such service sectors, we should channel our focus on manufacturing sectors that produce tangible products and drive the economy forward through labour intensive industries. This was the kind of responsibility that the OSFC undertook and even today, it has the infrastructure ready to take up the challenge and perform, provided there is a political will.
In the first place, the OSFC became sick not because of unscrupulous entrepreneurs or bad financing, which could be less than 5 per cent true, but because of inadequate availability of working capital from commercial banks.
Initially, the OSFC was designed to lend only term loans and the commercial banks provided working capital. The tenure for term loan was about 5 years, whereas the working capital was for one year and had to be reviewed and need based enhancement provided at the end of every year.
The banks normally took much longer periods to provide the enhancements and in most cases, they ultimately refused enhancement. The applicant industry had no option but to run under capacity underutilization and finally became unviable and sick. Hence, the units could not repay their installments in time to the OSFC and eventually, the OSFC also became sick.
In any case, we need to pay the cost for industrialization and fortunately, it is not huge. The present loss incurred by the OSFC being is largely the interest component. Normally, interest after the NPA is not charged; hence, if the interest component is removed from the balance sheet of the OSFC, it has a bright chance for revival. The net loss of Rs 476.56 crore in the financial year 2015-16 is a meager sum compared to its contribution to the State.
It is mostly administrative support that the OSFC needs today to revive itself and gain the momentum necessary to generate employment. Of course, initial investments to boost the morale of the OSFC staff and to kick start the business in the OSFC is required, but it could be as low as Rs 100 crore, which can turn around the OSFC. The Government’s keen interest to revive the MSME sector is evident from various schemes that are launched and even the posting of a full-time Managing Director in the OSFC. Out of these Rs 100 crore, the OSFC can generate, may be 50 per cent of the same through the under mentioned scheme and for the noble cause of its revival, sure enough, the Government can also contribute the balance Rs 50 crore.
Cyclone loan: (Soft loan)
This loan was extended by the SIDBI to the Super Cyclone-hit industries of Odisha in 1999 under a rehabilitation scheme, through the OSFC and the IPICOl. The OSFC was funded Rs 4,998.27 lakh and the IPICOl was funded Rs 709.01 lakh. The loan bore an interest of 12 per cent per annum, which was taxing on the affected industries. Further, the OSFC as per its norms first adjusted the overdue amounts in the accounts of such industries and only the balance amount was disbursed. Obviously, this amount was not adequate for the damage control. Nevertheless, the loan remained as a liability and increased every year through accrual. These units became sick and are still struggling financially. But the OSFC had to service this loan since it was under the guarantee of the State Government.
On 26.07.2006, the Chief Minister of Odisha wrote a letter to the then Finance Minister of India to convert the cyclone loan to a grant. Unfortunately, though the relief was small and for a justified cause, the relief has not yet been passed on either to the OSFC or to the cyclone-hit industries which are till date struggling for survival.
If the Government desires, this proposal could be revived and submitted to the Centre again in the interest of the State. Still, if the Centre is not inclined to convert the cyclone loan, which was meant to be a soft loan, into a grant, at least it can convert the loan into an interest free loan. In the worst case, even the small amount of interest can be absorbed by the State Government in case the Centre still is reluctant to consider the proposal.
This could bring in a small amount of money to the OSFC, which is extremely meaningful in the current scenario since their staffs have not been paid salaries for several months. This could also encourage all its borrowers to repay their principal amount due, in case the loan is declared interest free and to revive their industries. Provided the Centre approves for converting the same to a grant, then of course the OSFC would get a larger amount for its revival and all the defaulting industries can also be issued with no dues certificate from the OSFC so that they can borrow further funds from the commercial banks etc. for their own revival.
Association viewpoints:
1. let the Chief Minister of Odisha represent to the Centre for the conversion of the cyclone loan extended to the Super Cyclone-hit industries of Odisha into a grant.
2. If this conversion is not possible, such loan should at least be declared interest-free.
3. In case, the Centre is still not inclined, the State Government should extend this relief for the revival of the OSFC and the MSME sector of Odisha.
Odisha is traditionally known for its craftsmanship and skilled work force. There is no reason why our State should not be the no. 1 in India for MSMEs, especially when our beloved Chief Minister has been declared as the best administrator in India and Bhubaneswar has been rated as no.1 Smart City in the country.
(The writer is working chairperson, EFCAI, ex-chairman, Odisha Assembly of Small and Medium Enterprises, efcai12@gmail.com)