Dear Pranab da,
(not the disrespectful Tamil da, but the reverential Bengali da)
You will get this missive just as you are readying to present the budget and so may not have the time to read it. Not that it matters, for even if I had sent it earlier, you wouldn’t have had the mind. For I am not one of those elite Bombay Business Club wallah nor a member of any big industry association or a pushy moneybag or part of any other powerful lobby all of whom have the ear of the FM anytime they want. Rather I belong to, and speak for, a huge but unrecognised, unrepresented and unorganised tribe called Small and Medium Entrepreneurs/Enterprises, SMEs, little drops that together make up the bulk of Bharath’s business ocean.
I feel a pang of guilt for my lesser brethren, the small farmers, who have no voice at all, before I spill my own cup of woes. Still here goes. By official definition, my ilk includes primarily small manufacturers/ancillary units etc who have made investments in some kind of machinery and infrastructure. But by the common denominators of struggle and suffering, our community can be expanded to include any small entrepreneur with stars in his eyes but just pennies in his pocket and so is wholly dependent on outside sources like banks or private financiers for funds. In sheer numbers, after agriculture we are the biggest employers (42 million). 45% of the country’s manufactured output and 40% of exports come from us. Add non-manufacturing small businesses and the numbers zoom. In comparison, Govt, PSUs and big corporates are a paltry percentage, grossly disproportionate to the hype they generate and the resultant attention they draw from you.
A word about our tribe’s nature. From SSIs to traders to truckers to contractors to shop owners to many things under the sun, we are omnipresent. We are either first time entrepreneurs or inheritors of family businesses (family-business debts, often) or are self-employed because no one would employ us. First timers have swelled post liberalisation, thanks particularly to an open business environment and global connectivity that seemingly encouraged initiative. The rise in our ranks had much to do also with vaulting ambitions inspired by rags to riches tales. Not a bad, trend for that is what enterprise is all about and in a new world driven more by ideas and prospects than by substance and track-record, success can land on the lap of any adventurer, as many silicon sultans have proved. Two decades hence, however, many of us rue the trap we had inadvertently and in all zeal, stepped into. It turned out that for every rags to riches story there were a hundred rags-to-rag-minus tales, a fact we missed in the frenzy for fast fortune and fame! Also Bharath is Bharath, post or pre-lib, with maybe golden official shackles replacing corroded iron ones, but shackles all the same!
So, having owned up our original sin of daring to dream, I now get to some specifics. The killer of the tiller, debt, is our nemesis too. In the absence of a venture capital culture, as in the west, Bharath’s dreamers will perforce have to borrow. While the business borrowal is from banks, the capital too is actually from personal borrowings via personal loans, credit card limits and a slew of sundry other ‘nooses’. Really, the paltry seed capital we may have brought in from savings evaporates during the launch ceremony itself and the entire business is often 100% leveraged. And still there often remains a fund gap.
But the bigger problem is the time gap in getting loans from commercial banks. It would suffice to say that small borrowers who actually sustain the revenues of most banks are treated like beggars seeking alms. While Rs 100 crore applications cut through hierarchies like knife through butter in god speed, our petty proposals imitate tortoises. We are neither told in time if our loan will pass nor is there a time-frame for sanction. But our business can’t wait for blinkered bankers to see light and we take off through ‘other sources’, screwing up our books for eternity in the process. And when the sanction does eventually arrive, it is often short of our need and also comes with such straitjacket conditions for disbursal that no straight person can ever meet. Yet, done and desperate, we sign on the endless dotted lines, unmindful of the devils in fineprint, promising to fulfil norms we were not privy to and covenants we have no choice to reject. Of course, we are not asked if we agree to the interest rate, for it is now obvious that we will agree to anything. Needless to add, from our toenail to the dandruff on the head, everything gets automatically hypothecated.
Eighteen months of recession has put paid to many dreams. World over, rescue packages have helped only the big guns who actually caused the financial ruin and India is no exception. The SME sector here is in a death-race with lakhs of small units closing shop jeopardising the lives of millions. Those who have managed to survive suffer the ignominy of being chased by the NPA shadow. Just three months’ overdues make us a non-performing asset even if we have been in business for three generations, so say the RBI norms. Now, who told them we are not performing? Non-paying, may be, but certainly ‘performing’ for the small businessman is more committed to his business than the big ones who may have many options. Will we stop performing and upset our own bread and butter besides that of our extended family, namely, employees? Yet the NPA flag is hoisted with a speed and panache not seen when processing the loan and the defaulter tag is stuck on our forehead, rendering us untouchables for other prospective lenders. For, nothing spreads like bad news. Just when we need help, a help that will incidentally help the nation’s economic growth no end, we are shamed, stigmatised, criminalised and hanged! This when the loan is many times secured and has been serviced well in the past.
Much can be done by you, sir, in these recession times. After all, with an SME the real security is the entrepreneur behind the venture, not the property he has pledged. If his spirit is killed, the ‘human capital’ thus lost cannot be recovered even if the bank recovers its dues or the economy recovers from the morass. RBI norms are not divine ordainments to deliver such a damnation. Bankers can’t be blamed beyond a point because who would risk their careers in these scandal-riven times! The ball is in your court, sir. Why not re-phase loans, refinance to the extent repaid and extend the moratoriums for, say, one fourth of the loan tenure? Why not relax the various ratio norms that no one understands so that banks can be a bit more liberal with credit? Many NBFCs borrow from nationalised banks at PLR (10 to 12%) and lend it back to us at anywhere between 27 and 36%! Can’t the banks easily deliver us from these usurious sharks that use public money to swallow us? Again, is one week not enough for a diligent bank officer to tell us if our proposal is bankable so that we can at least bunk dreaming? At a macro level, why not the banks give money as equity linked loans with the option of buy-back for the entrepreneur? Even now, most of the big industrial houses are practically owned by FIs with the promoters managing control with paltry stakes. And why not an online share exchange just for the SME sector? There are a slew of other ideas, say in taxation, that a smart man like you can think up.
Yes, sir, we agree many of our ventures have become misadventures, causing losses to banks and even the public exchequer in the form of unpaid taxes. But here is a pervert perspective. What is that compared to the big holes blown by political loot or by defaulting big corporates? A single scam last year ripped off around Rs 60,000 crs! Now how many ‘cheating’ small businessmen would it take to match that figure? Or for that matter how many farmers could have had their loans written off with that treasure trove? If cheating be the norm of the day, why not at the minimum make it egalitarian?
Now, I am not making a case for summary amnesty but just to show how loaded the system is against an obscure smalltimer.
You must have had enough tête-à-têtes with the likes of Tatas. Talk to one of us too sometime, Pranab da. You will then know how beautiful small really is. And how bountiful it could be for your budget and Bharath itself!
Awaiting your appointment,
Yours truly,
An NPA – Nation’s Prime Asset 24 Feb ‘10
e-mail the writer at [email protected]