Tag Archives: MSMEs

Defence Procurement Procedure’s new avatar inspiring; some players seek more tweaking

The much-awaited changes to India’s Defence Procurement Procedure (DPP) were announced last month. This was in line with the promise made by Defence Minister Manohar Parrikar, after he took over the reins of Ministry of Defence in November 2014. The new look DPP, set to take shape in the next two months, gives major impetus to the Narendra Modi government’s flagship Make in India mission. It has some inspiring elements to boost Indian private companies to undertake research and development in the aerospace and defence (A&D) sector.

OneIndia elicited the views of some of the private A&D players to capture the mood of the industry, which has always felt that enough is not being done to win their hearts. Here are the excerpts from a series of interviews we did recently. Offset mechanism not working in interest of country G Raj Narayan, Managing Director of Radel Advanced Technology (P) Ltd, has been a visible voice in the last couple of years in various A&D forums. He says it was clear from the beginning that the offsets mechanism wasn’t working to the interests of India. “The insistence of the foreign OEMs to dilute the same on the pretext of ‘not finding capable Indian partners’ was only an indirect method of preventing any exposure to Indian companies on related technologies.

The only way to improve our state of self-sufficiency is to develop R&D in-house and design from whatever technologies we are presently exposed to (LCA, Jaguar & Mirage), and then move upwards to higher levels indigenously,” says Raj. According to him, the raising of the offset applicability to acquisitions of Rs 2000 crore and above is irrelevant. “The higher preference to ‘indigenously designed, developed and manufactured’ items certainly makes more meaning than the vague ‘Make’ and ‘Make & Buy’ categories. This is a confirmation of the preference for Indian products which needs to be applauded. Further, the focus on enabling and empowering R&D as well as supporting MSMEs through funding is a huge step forward. Though this could still throw up problems in distinguishing between ‘mature and capable’ MSMEs and ‘raw’ MSMEs, proper processes could certainly be set up to ensure that the right company get the right amount of funding appropriate with its track record and status,” Raj added.

Radel’s ongoing projects for various military programmes include, auto-selector bomb release system, speed switch, anti-collision lights, cockpit control unit and ground test rigs of various aircraft and helicopters. Introduction of IDDM a good move Puneet Kaura, MD and CEO, Samtel Avionics, says that the introduction of a new category — Indigenous Design Development Manufacturing (IDDM) – is a welcome move. “We welcome the move to introduce the IDDM category in the DPP as it will back companies like us who have proven competencies in indigenous design, development and manufacturing. Furthermore, the announcement of funding by the government for R&D purposes will help build a technology base in the country,” says Puneet, among the early players in the A&D sector. He said the growth of the Indian defence industry has been marred by delays.

“The new DPP addresses this through a definitive step to cut down the delays in procurement by reducing the time lag between AoN (acceptance of necessity) and the tender or request for proposal (RFP),” says Puneet. Samtel through its joint venture with HAL, has been developing MFDs for Su-30 MKI within its facility in Greater Noida. The Samtel-HAL JV has already delivered 125 sets of MFDs for Su-30 MKIs. Will boost investments and better quality of products According to Rajeev Kaul, MD & Group CFO, Aequs, told OneIndia that that take on LI policy in the new-look DPP is a positive step. “L1 policy is a bold move and it credits the capability of the bidder. This would encourage quality consciousness and boost investments in better quality products,” says Rajeev.

Aequs has been supplying main landing gear shackle for the B787 programme. Aequs manufacturing facilities are located in Belagavi, Bengaluru, and Houston. Offset limit should be brought back to Rs 300 crore Col H.S. Shankar (Retd), CMD, Alpha Design Technologies Pvt Ltd, feels that increasing the offset applicability limit is a retrograde step and will deny Indian industry, particularly MSMEs, large chunk of their work content. “It is our view that offsets (with Rs 300 00 crore and above limit) was working satisfactorily (except for few glitches at MoD) and benefiting Indian Industries enormously. This will be a big blow to Indian industries. The limit should be reviewed and brought back to Rs 300 crore.

He said the MSMEs/FICCI had listed many suggestions to the the DPP Review Committee, but they were not accepted. “We wanted the ‘Make’ category to be split into two categories: ‘Make’ large industries with higher limits and ‘Make’ MSMEs with a limit of funding up to Rs 500 crore per project,” says Col Shankar. Commenting on the ‘strategic partners,’ the veteran A&D expert felt that it was a retrograde move of brining in ‘public sector mentality’ into private sector by reserving few big players in private sector. “This is a back door entry for big private sectors – something which Kelkar Committee had recommended as ‘Udyog Ratnas’ in 2016 and rejected and not implemented by successive governments,” says Col Shankar.

MSME categorisation limits for A&D products must go up Naresh Palta, CEO (Aerospace), Maini Group, said the government funding of 90 per cent for indigenous R&D will spur domestic products and technologies. He also felt that ‘accepting offers in single tender cases’ would remove major hurdles for industries developing niche products. However, Palta felt that the DPP’s new avatar is silent on measures for SME segment. “We want the new policy to increase MSME categorisation limits up to Rs 150 crore for A&D projects specifically. Further taxation relief to Indian products vis-à-vis imports, for level playing. We are still unable to compete our products in the domestic requirements with imported ones due to higher duties and taxation incident,” says Palta.

The original article appeared on OneIndia.

MSME's in India

Is ease of doing business only for foreign investors?

There is an urgent need to cut unnecessary costs that hinder Indian businesses. PM Narendra Modi has been travelling far and wide to invite foreign companies to invest and ‘Make in India’ with an assurance that doing business in India is going to be made far easier than it has been so far. From a foreign investor’s point of view, it is not the number of places that India goes up the bottom of the ladder that matters, but the actual position towards the top of that ladder that the Indian government intends to reach. But the more important question in every Indian businessman’s mind is whether this so-called ‘ease’ is only meant for foreign investors with Indian businesses continuing to suffer all the woes.

‘Make in India’, ‘Defence Indigenisation’, ‘Self-reliance’ and ‘Digital India’ are great slogans for creating the hype, and also causes the hungry Indian businesses to salivate. If our PM is serious about enabling and empowering Indian businesses to play in the competitive global market place, everything boils down to competitive costs, whether for local consumption or exports. Let us look at what these costs include. The adage ‘Time is money’ is certainly not understood either in our bureaucracy or government decision-making, and least of all, our honourable judiciary. ‘Delivery time is the essence of the contract’, says a purchase order of a DPSU that takes eight months to process tender bids for a relatively low value item.

‘Ease’ of Funding: ‘Funds, funds, funds’ is the cry of the most MSMEs across the country. Various glorified schemes exist on paper, but rarely made available even to the most successful of entrepreneurs with orders worth crores on hand. An MSME entrepreneur is expected to kneel and beg, and work through the maze of red-tape, only to get a few crumbs thrown to him while companies providing ‘good times in the sky’ get crores even if they are bound to result in NPAs. Private funds are available for budding startups — preferably in the online space— but for the manufacturing industry this comes at a significant cost.

‘Ease’ of Regulations: Tax authorities are accorded enormous powers that are often abused. The sales tax department goes around attaching banks accounts of assesses on flimsy grounds so that it can show inflated revenue collections even if these are bound to be refunded a few years later after judicial intervention. The businesses meanwhile, suffer a huge cost that is never reimbursed, not even the interest on the amount unfairly seized by the government.

Many MSMEs have faced this situation, and have had to take one of these three hard decisions, all of which involve significant financial costs: (a) bribe their way out of it (most MSMEs opt for this solution), (b) go through the lengthy judicial process (very few MSMEs have the courage and patience to go through this) or – for several entrepreneurs, the worst but only option—(c) take the financial hit and shut down. Why should assessment officers be empowered to execute summary assessments overruling evidence in spite of an assessee filing all the required documents? If there is no cost attached to such malpractices of the bureaucracy it makes merry at the cost of the entrepreneur.

Income tax and Central Excise departments are no different. Refunds are rarely made within three or four years leading to loss of interest which is a cost to the entrepreneur. The Legal Metrology Department too has joined the party, confiscating electronic white goods ridiculously classifying them as ‘packaged, commodities’ that require registration with the department.

‘Ease’ of Labour: What about costs imposed by outdated labour laws? Anything and everything can be contested in a labour court, even if an employer has abided by the laws. This leads to litigation costs as well as unproductive wages being incurred in one form or the other, besides fees to consultants and advocates. If labour reforms are only going to target garage operations with less than 40 workmen, does it mean that larger MSMEs will continue to face the woes of running a manufacturing establishment?

‘Ease’ of Infrastructure: Certainly not the least important, infrastructure costs add significant amounts. Shortage of electricity has been a perennial problem in Karnataka for decades, and businesses are forced to operate on DGs which imposes multiple costs if an employee needs to spend three hours travelling to work in a messy city such as Bengaluru, that is a cost due to unproductive time. By the time the much hyped ‘Namma Metro’ achieves full connectivity, it would itself be as congested as the Mumbai trains, which would be self-defeating.

Cost of urban land, provided to foreign investors at a fraction of what is charged to Indian MSMEs, makes the whole business proposition unviable. If any subsidised rates are offered, it comes with ‘hidden’ costs. The lion of ‘Make in India’ will continue to sleep, or subsist with low value addition ‘manufacturing’ using CKD kits of MNCs as long as we fail to look for holistic and long-term solutions involving both the State and Central Governments.

The original article appeared on Deccan Herald.

Quality awareness in Indian products

Recently, a German manufacturer refused to manufacture in India because he wasn’t convinced of Indian ability to meet his quality standards. He compared a simple switch board that was fixed crooked at an Indian public office to a German one that was perfectly in place. A UK based designer working with Indian textiles recently refused to source his products locally from Indian weavers due to lack of quality. This is in spite of the fact that bulk manufacture of Indian embroidery and textiles has a potential to woo international market. A customer at a jewellery store was disappointed with a custom-made silver plaque that was badly crafted despite initially promising good quality, and rejected the piece.

In India, you and I observe this lack of quality awareness in everyday life – be it with household equipment or a garment. In the examples quoted above, all it needed was quality awareness on the part of the electrician who fitted the switch board on the wall – he needed to not only know what was straight and what was not, but also feel the pride and confidence in his own work to ensure that he fixed it straight. The artisan creating the decorative plaque needed to feel pride in his work to ensure that he crafted a perfect piece – and the salesperson needed to know that if the piece was not good enough, he should not have even offered it to the customer as the reputation of his business was at stake.

So, what is good quality? Quality is not just a certificate (such as ISI or BIS) that can be given to products. It is an attitude that reflects the DNA of an organisation or an individual. Sadly, today the spheres of knowledge and performance do not work in synchrony. This emphasises the increasing need for quality awareness in the entire population, whether a factory worker, artisan, salesman or manager.

Holding financial constraints responsible for lack of quality is certainly not justifiable. A sense of pride in work and ownership associated with one’s work can overcome most constraints.

Craftsmen and technicians in India suffer from a lack of exposure to quality in production. The present day social environment has poor esteem for a blue-collar job in all work places across the country, and has very little respect for the dignity of labour. This acts as a demotivating factor for workmen and is hurting India in many ways. This is where China and other countries have an edge over India. Today, China maintains a work culture that is unbiased and treats as equally valuable, the contribution of every type of workforce.

Change must begin with the individual and spread across organisations. Even an average technician must be aware of good quality. He must hold a sense of pride in his work. Quality begins with design and continues through workmanship in the production process right to maintenance and customer service. China, which has a GDP five times that of India and a manufacturing sector ten times bigger, had a reputation some years ago in the international market, of producing poor quality goods. China has overcome that stigma by going on a war-footing and drastically improving quality. Here in India, if a locally produced item is shoddy and lacks basic attention to detail, we can neither aspire to ‘Make in India’ nor transform India into a global manufacturing hub.

The ‘Make in India’ initiative needs to leapfrog over the initial pitfalls of poor quality that China faced, and establish a global reputation of ‘High Quality’ for goods produced in India. This can be only achieved by a concerted parallel effort on several fronts, quality awareness being one of the foremost.

Challenges for MSMEs in HR strategy in the wake of ‘Make in India’

‘Make in India’ primarily focuses on manufacturing products in India. It is logical that this should include ‘Design in India’, ‘Innovate in India’, and ‘Support in India’. This therefore requires a holistic approach to not just managing HR, but creating HR right from schools, colleges and training institutions. Though this is a highly demanding task, there is no way we can avoid this. It is the only way that Make in India can succeed. Further, all these activities result in multiple areas of challenges as well as opportunities. The Governments (Central & State) too have their part to play in improving Industrial Relations and Labour laws, since manufacturing will certainly have to percolate to the smallest of MSMEs.

While MSMEs employ 40% of India’s workforce, contributing 45% to India’s manufacturing output, the main problem that they face is the lack of talent – most employees are non-employable for industry needs.

I foresee that soon, there is likely to be such a huge shortage of trained manpower across all levels of the manufacturing sector (operators, supervisors, managers, designers, etc.) that HRM itself can be a challenge for each organisation, especially the smaller ones. HRM will have also to build stronger bridges with educational/training institutions.

At a primary level, flaws in education system cost MSMEs a lot of their resources. Engineers, diploma holders, technicians, operators and clerks need to be given skills that train their mind to analyse and apply, before they can be productive. With this also comes the need to remain relevant at any point in the industry – therefore, the need to upgrade skills periodically. This applies equally to non-productive jobs like accounts and administration where online filing of monthly VAT returns as well as transportation documents are now mandatory in most states.

At a basic level, educational institutions are to be blamed for their flaws in skilling manpower. This, unfortunately, starts right from school. There must be a re-evaluation in the system with focus on understanding and application of skills rather than marks based on rote learning. The management in colleges remains unaware of industry needs and fails to incorporate skills that are required for industry. Thus fresh recruits from colleges lack skills to apply the knowledge gained – some even lack good foundation.

Graduating students are attracted to large MNCs which filter out the few who are capable of being employed. The Micro and Small Enterprises (MSE) are thus left with students who are not qualified for industry needs. If MSMEs employ their scant and precious resources of time and money into training their recruits, then employee retention becomes a problem. Skilling them would make them capable of meeting needs of larger organisations and MNCs. For fear of attrition, MSEs are reluctant to impart the necessary training, besides the time and cost constraints. Such a situation is clearly unhealthy.

The government has recognised the need for skilled manpower. ‘Skill India’ program was launched keeping in mind that only 2.3% of Indian workforce has undergone skill training. While these programs are viewed as being complementary to ‘Make in India’ initiative, they yet again focus merely on low-level skilling of fitters, plumbers, carpenters, technicians, etc. Skilling of graduates – especially engineers, has not been addressed. Further, the essential skills of critical and analytical thinking are not imparted, leading to a talent vacuum in the mid- and higher management levels of any organisation. This is felt most acutely in an MSME.

The growth of MSMEs is already challenged by lack of financial resources, poor infrastructure, and periodic and unfair harassment by various statutory bodies. However, the core problem to be addressed remains that of unskilled manpower.

We need to have a broader vision of Create, Innovate, Design and Make in India. To enable this vision become a reality, Industry, Academia, and Management experts need to work together to create a vibrant pool of real talent – talent that has strong basic knowledge of a domain, along with the skills for critical and analytical thinking. It is the development of these skills that will ultimately lead to the success of ‘Make in India’.