Business Today

Big town blues

Small and medium enterprises in Kanpur had some humble hopes that were belied.

twitter-logoTaslima Khan | Print Edition: March 20, 2011

They are the big guns of Kanpur, the heart of Uttar Pradesh's industry. They also represent small and medium enterprises, or SMEs , entrenched in businesses that are synonymous with the city - tanneries, leather footwear and textiles.

Take Mukhtarul Ameen, Chairman and Managing Director of leather products major Superhouse, who has moved up from running a tannery to making finished footwear for global retail brands such as Mango, Zara and Icon. Or Anil Pandey, whose Amitech Industries switched to the manufacture of synthetics garments when cotton prices went out of control.

For entrepreneurs in Kanpur and millions of India's SMEs, February 28, 2011, was just another day of tackling inspectors and assessment officers, claiming refunds under valueadded tax, or VAT, fighting power shortages - as also the threat posed by mighty China.

The mood among them was one of stoic resignation, and yet knowing that things are not going to change in a big way for them. Finance Minister Pranab Mukherjee disappointed them just as they had expected him to: he mentioned micro and small enterprises only in passing, in para 40, to announce larger funding through the small industries bank. Kanpur's SMEs had been looking for changes in some policies and tax laws, and a simpler way of getting rebates and reviving old schemes that had helped them.

But Mukherjee had not a word about extending the Textile Upgradation Fund or TUF. When it was announced in 1998, the TUF breathed life into a languishing industry by extending soft loans through banks.

Anil Pandey, Amitech Industries
Anil Pandey, Amitech Industries
Manoj Agarwal of Kanpur Plastipack says: "TUF was running very successfully and investments were picking up, but it was discontinued last year. The industry was eagerly waiting for a new TUF scheme."

For the SMEs here, the biggest battle is still with the inspector raj that India had sought to banish in the 1990s. Inspectors from a host of departments - labour, provident fund, pollution control, commercial taxes and income tax, among others - still plague them. "Think of setting up a unit here and you will have 31 inspectors after you. And even after all the inspections, they won't be able to put out the final report," says a leather goods maker requesting anonymity. Kanpur's businessmen are not critical of everything the Centre does. For example, they admit that the National Skill Development Programme is helping them get skilled labour.

But when it comes to unskilled labour, another much-lauded programme of the United Progressive Alliance government is hurting. The Mahatma Gandhi National Rural Employment Guarantee Act or MGNREGA is changing the face of rural India, but villagers who used to flock to cities such as Kanpur for work are staying back home, assured of 100 days of work. The government has made things worse for SMEs by linking the MGNREGA wages to the consumer price index for farm labour.

Pandey at Amitech says: "I am not getting labour even if I offer 365 days of employment and training at my cost with a stipend."

The entrepreneurs do not mind value added tax or VAT, but they do mind the way. Taj Alam, Managing Director of Kings International, says: "We get VAT refunds on purchase of raw materials and are entitled to a VAT refund every quarter. But at any given time, the refund for the last four quarters is blocked. You cannot use the money to pay your bills or run the business."

Mukherjee also chose to ignore a demand that the turnover floor for levying excise be raised to at least Rs 5 crore from Rs 1.5 crore at present. Navin Kumar Jain has a paper packaging unit, Siddhartha Packagers, with a turnover of Rs 2 to 3 crore and has to pay excise on his products - which adds to the price. Most of his customers have limited means and do not want to pay extra. Jain cannot cut prices because input costs have doubled.

"Where is the incentive to grow to a Rs 100-crore firm?" he grumbles. There is a still bigger threat on the horizon. For Kanpur's businesses, the new financial year means just one thing: competition from cheap Chinese and Vietnamese footwear. The anti-dumping duties levied on footwear will be lifted from April. Ameen says: "The Chinese enjoy a huge cost advantage because of the low cost of investments and huge factory sizes."

Exporters like Ameen are gearing up for the battle ahead. As one exporter says, "I have learnt to get my work done and not to wait for policy announcements."

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