The Super Cyclone of 1999 had devastated the economy of the State and put it in back gear by many years. The micro, small and medium enterprises (MSMEs) in the cyclone-hit areas were adversely affected with loss of their sheds, machineries, raw materials and finished products. Many units became sick resulting in loss of employment and revenue for the State.
Unfortunately, the affected MSMEs were virtually deprived of any relief, except the soft loan for a total amount of Rs 5,707.28 lakh extended to them by the SIDBI through the Odisha State Financial Corporation (OSFC) (Rs 4998.27 lakh) and the IPICOl (Rs 709.01 lakh) at the rate of 12 per cent and 13 per cent, espectively, with guarantee of Government of Odisha. Due to the higher interest burden, many assisted units failed to service the loan. But since the loan was guaranteed by the Government, it was serviced by the OSFC. But many units as well as the OSFC are still struggling financially.
The cyclone-affected small industries can be revived if this loan of Rs 5,707.28 lakh is waived by converting it into grant and giving credit to OSFC/IPICOl for any amount repaid by them to SIDBI towards interest and principal. Such an action would have a positive impact on the State’s industrial scenario and enable the MSME sector to bounce back to activity. Such a recommendation was made by the Chief Minister to the Union Finance Minister in a letter on July 26, 2006; however, the latter declined it.
While this memory is still afresh, on October 12 this year, Odisha was again hit by the cyclone Phailin. The loss has been estimated for the MSMEs at Rs 950 crore as per a survey conducted by the Odisha Industries Federation. The damage estimated for the worst-hit Ganjam district alone is Rs 540 crore. The Phailin was followed by a large depression in the Bay of Bengal flooding mostly north Odisha districts, creating history of disasters. In Baleswar district alone, 11,57,475 persons were affected in 1,489 villages.
The worst-hit is always the fishing community, the marine fishermen, being victims of cyclone where as the inland fishermen being victims of floods. In Ganjam alone, 12,380 fishermen families have been affected while 11,089 boats and 4,080 fishing nets were damaged. The Fisheries Department has urged the bankers to provide a minimum Rs 20,000 per boat with a concessional rate of interest for repairs.
This hardworking community, who have been daringly serving the society, including the MSMEs and exporters for ages to come, need to be rehabilitated as a priority measure.Their dire need is a concrete house with a boatyard where they can house their boats and store their fishing implements. The Phailin’s effect mostly in the south Odisha and that of the floods mostly in the north Odisha have created widespread damages, which, if substantial timely measures are not initiated, will cripple the State’s economy further, for years to come.
The MSMEs which are supposed to be the growth engine and the link between the large-scale industries and the agriculture sector have to be nourished with care which is vital at this period of time. A small timely help would save the State from the consequences of great loss and economic disaster in future. Especially, Odisha, which is in the news now as the poorest State, needs to be focused for their economic needs by both State and Central Governments on a priority basis.
The relief being provided is fine. More important is the relief package being sanctioned. Still more important is how such package is being distributed. In 1999, the MSMEs were sanctioned soft loan bearing 12% and 13% interest which is more than twice the normal rate levied by the banks in developed countries. Obviously, the so-called soft loan was defaulted by most MSMEs, which was eventually settled through OTS by some units while others are still struggling.
There are instances where outstanding loans of thousands of crores of rupees have been waived in States like Punjab, Gujarat and Tamil Nadu. Why not in OdishaIJ
The biggest economic concern of the country today is the rising NPAs (non-performing assets). As of June, the gross NPA of nationalised banks was 3.80 per cent and the State Bank group at 5.50 per cent of total advance. The total figure is a whopping Rs 3,50,000 crore. The ratio of gross NPA to gross advance for commercial banks rose from 2.36 per cent in March 2011 to 3.92 per cent in June 2013. Despite drastic measures including coercive ones, the NPA is rising.
We need to understand the basic cause of NPA. When we call the MSMEs as the growth engine, the link between the large sector and the agriculture sector, we must understand that the success of the MSMEs shall lead to success of the country’s economy. We cannot afford to neglect the MSMEs and yet expect a healthy economy. Depriving the MSMEs of even providing basic necessities, the most important being, the need-based finance in time, we cannot classify the account of an MSME as NPA at 90 days of default. This may be possible in the USA or Europe, where an MSME is taken care of in all respects, but it is certainly premature in a developing country like India.
When they provide soft loan at 1 per cent to 3 per cent interest, we provided soft loan at 12 per cent to 13 per cent interest and, that too, to the Super Cyclone-hit industries which was also inadequate to meet their expenses to carry out the necessary repairs and reach a breakeven point of operations.
Due care must hence be taken for the cyclone/flood-affected MSMEs of Odisha now, most of which are already struggling for survival, to provide them an adequate financial package once and for all so that they revive and the percentage of NPA in the State substantially reduces contributing to the reduction in the national average.
Association view points
The present outstanding amount out of the Super Cyclone loan of Rs 57.0728 crore may be converted into a grant, being part of the State demand of Rs 5,832.50-crore Central aid. Alternately, this amount may be funded from the Chief Minister’s Relief Fund.
A. All the registered MSMEs already in operation may be extended soft loan up to Rs 1 crore each to be used as Term loan and Working Capital both to carry out repairs to their fixed assets and for procurement of raw materials. This loan should be available to all units in operation, especially to the units under stressed assets and potentially viable NPA units, which are not being funded presently by banks and other financing institutions.
B. The NPA classification norms for all MSMEs to be extended to 365 days of default instead of 90 days as prevailing today until the impact of twin calamities are normalised.
C. The RBI must allow a free hand to banks and financial institutions to take over NPA units, fund and convert to standard accounts as per their discretion, if they find the proposal viable.
D. The CIR (Credit Information Report) of CICs (Credit Information Companies) may be used as a guideline but not a deciding factor for funding an MSME for a period of about three years till the adverse effects of the calamities have been nullified.
E. The registered marine fishermen must be provided soft loan/grant to build concrete, disaster-resilient houses with boatyards as a permanent solution to counter cyclones in future. The inland fishermen of the affected areas may also be extended such facilities. This is besides the rehabilitation package, compensating the present loss.
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted at efcai12@gmail.com)