Surana & Surana International Attorneys, conducted a case study on the ease of doing business (for MSMEs) in the defence sector in India, and we narrowed down on some of the financial constraints faced by MSMEs in the defence sector, which are the following:
- No Cost No Commitment (NCNC): During the field trials, if a prototype does not qualify as per the requirements of the Ministry, there is no reimbursement for the effort of the MSME in developing the prototype/ sample. Furthermore, damages incurred during field trials (including transit) are not considered, even if the damage was as a result of the negligence of the officers. This leaves the MSMEs with huge financial losses and no mode of recovery.
- Liquidated damages: A 0.5% rate of liquidated damages is levied for every week of delay by the Ministry, which cannot be borne by the MSMEs.
- Prototype development is a huge burden for MSMEs due to lack of timely funds.
- Payment structure and Payment schedule: No advance payment is made and 100% payment is made only after supply and training which takes time, no fixed time period for receiving the payment.
- Financial support: Bank don't consider government letters for the purpose of loan; no financial aid for prototype development, certification, and testing; no soft loans available; MSMEs cannot afford EMD and the support provided by umbrella bodies like NSIC are not adequate as their cash flow gets affected when they bid for multiple projects at the same time; MSMEs require support for bank & performance guarantees.
Considering the above, the Small Industries Development Bank of India (SIDBI) can to an extent play a significant role in alleviating certain financial constraints faced by MSMEs in a difficult sector such as the defence sector. To understand the same, the YellowBox team presents this interview with Ms. Chitra K. Alai, General Manager, SIDBI.