Karnataka Small Scale Industries Association (KASSIA) started in the year 1949 has announced its platinum jubilee celebrations. After 75 years of passing through several hurdles and road humps coupled with many achievements to its credit in furtherance of the cause of small industries in the State of Karnataka. Today the Association with its membership exceeding 12600 with about 130 Affiliated Associations in its fold is an integral part of the development institutions in Karnataka along with Government bodies.
In a recent press conference, the association has listed out the top challenges faced by MSMEs across the state.
According to them, MSMEs play a crucial role in the Indian economy, contributing significantly and are the second largest employers in India after agriculture. They contribute around 30% of India’s GDP, 45% to manufacturing output and 48% of total exports in the country.
Despite this, MSMEs continue to face many challenges which they have highlighted :
Development of Private Industrial Layout
It is ironic that in a progressive State like Karnataka, over 90% of enterprises, particularly in the SME segment, operate from Private Industrial areas. These industrial estates lack adequate infrastructure and facilities for efficient operations making it costly and uneconomical for the units to work from there. KASSIA would like to pursue the development of industrial layouts in the private sector for the benefit of SMEs. KASSIA would like to work with the Government in this direction to secure land under Sec.109 for such industrial estate development. These estates can be developed either in the private domain or in PPP mode.
Also, most of the existing Industrial Areas/Estates need immediate attention for the up-gradation of facilities like roads, power distribution networks, water and sewage, common effluent treatment plants, etc.
Formation of New Industrial Estates for SMEs
Industrial land has become too expensive for SMEs. The KSSIDC has not been able to provide land for MSMEs at affordable prices since the land was acquired by KIADB and transferred to KSSIDC at their allotment price.
W,e therefore, requests the Government to suitably amend the Land Reforms Act to enable KSSIDC to acquire land directly or else KIADB shall allot the undeveloped land without adding any developmental charges to KSSIDC.
Property Tax in Panchayat Limits
In the Industrial areas set up by KSSIDC/KIADB, entrepreneurs are paying service charges to these agencies for maintenance and also are required to pay property tax to the Municipal/Local authorities, though the local bodies do not maintain the upkeep of these areas. This amounts to double taxation.
This issue needs to be solved before formal handover to local bodies by the respective agencies so that the local bodies do not levy any property tax burdening the SMEs.
The Property Tax is fixed on the guidance value basis in Panchayat limits. This system is very unscientific since the property owner has nothing to do with the guidance value. Hence this should be replaced with area basic tax like in BBMP.
The government should also create a separate tax category for Micro and Small Industries and BBMP, Municipalities, Pattana Panchayats and Panchayats shall have uniform method of taxing the property. The current practice of taxing industry above commercial enterprises is burdening SMEs. We also request that especially Micro & Small Industries be levied lower tax on par with residential property.
Problems faced in procuring e-Khata
Recently, the State Government has made e-Khata mandatory for property registration. To get e-Khata, compliance with the Digital Integration Khata rules has been made mandatory. Numerous problems are being faced in procuring e-Katha and the issue of e-Khata to private properties, especially industries. There are no e-Khata and B-Khata for revenue properties across the State, including Bangalore. Especially in rural areas, 95 % of the properties have not been issued e-Khata as
per the rules and cannot be given either. As such rules are implemented without prior preparation, the Micro and Small Industries in the State are in serious trouble.
Due to errors in the technology, it is taking a long time to correct the errors in the e-Khata. Sometimes even years have passed. Moreover, since the previously prepared e-Khata system is not updated from time to time and some details in the system, for example, in Panchayat E-Katha software change of village name (update/change), NIC are only authorized to effect changes and has to pass
through various offices like Panchayat, Town Panchayat, Zilla Parishad, RDPR Commissioner causing unnecessary delay in getting the revised/corrected e-Khata. Also, without e-Khata, entrepreneurs are unable to register their assets for mortgage loans and other financial facilities and since entrepreneurs are unable to submit registered lease deeds, purchase deeds and e-Khata. Banks and other financial institutions are refusing to provide loan facilities on such assets, as a result, thousands of micro and small industries are in distress.
Further, there are several instances of delay in converting manual Khata accounts to e-Khata in Panchayat offices. Due to this, many entrepreneurs have been unable to conduct any financial transactions related to their assets for many years and are facing financial difficulties. It is not right to hold entrepreneurs responsible for the delay caused by government regulations and the failure of the Panchayat administration. The e-Khata issue needs to be resolved quickly to protect the interests of micro and small industries.
About Municipality and Corporations including BBMP, the issue of E-Khatha has just started and it will take more than a year to issue Khatha to a reasonable number of properties.
KASSIA urge the Government to rectify the faulty technology and decentralize the authority to update the e-Khata technology from time to time and to bring the issue of e-Khata under the SAKALA scheme to resolve the problem of micro and small industries, which are contributing significantly to the state exchequer, and to conduct the registration process based on the available accounts/documents as per the system followed earlier without restricting the registration process till the majority properties are issued with e-Khata.
Separate Labour Policy for SMEs
We welcome the initiative of the Labour Ministry in framing the labour policy of the State. At present the Govt. of Karnataka have a single policy and minimum wages for all Industries and establishments. Medium, Large and IT Sector employ only skilled and meritorious labourers with requisite education qualifications. SME is the only sector employing school dropouts and to train them. Financially SMEs are not on a strong foot, hence they are not in a position to pay the same wage paid in Large Industries or Software Enterprises.
Also in the recent past, it is observed that the Labour Department is frequently changing the labour laws by imposing new guidelines for MSMEs which is causing a lot of hurdles and industries cannot concentrate on their business and only spend time to comply with the norms stipulated by the department.
In view of this, we request the Government for a separate exclusive labour Policy with lesser compliance for SMEs and separate minimum wages policy for SMEs.
Stamp Duty on Loans
The Stamp duty for hypothecation and Mortgages of assets towards collateral for Bank Loans has been revised to 0.5% and also the upper limit has been removed.
The steep hike in stamp duty will result in erosion of capital for small units. Further, the stamp duties prevailing in other states are very low compared to Karnataka.
Therefore, we request the Govt. to reduce the rate of stamp duty for the MSME segment from the existing 0.5% to 0.1% with a maximum limit of Rs.25,000/- for both equitable mortgage and hypothecation. Stamp duty on lease agreements may also please be reduced, as the majority of industries are in rented premises.
Below are the Proposed amendments to the Karnataka Factories Rules, 1969 -Reg.
We write to express our concerns regarding the proposed amendments to the Karnataka Factories Rules, 1969, particularly the substantial enhancement of fees chargeable for various services. The proposed hike, reportedly as high as 900%, is excessive, unreasonable, and lacks a transparent, scientific basis.
This steep increase in fees will have adverse effects on the industries by imposing undue financial pressure on industries, which could demotivate industrial activity and stifle economic growth.
Deviation from Regulatory Purpose: License fees are primarily intended to cover administrative costs and ensure regulatory compliance. They are not meant to serve as a tool for revenue generation. The Supreme Court has repeatedly emphasized that regulatory fees must not result in profit-making by the state. When used as a revenue source, license fees risk becoming an indirect tax on industries.
In this connection, below are our suggestions towards the Government
- To consider cost-based license fees while making any revision;
- To adopt transparency in re-considering fee structure;
- The government should implement an equitable strategy to encourage industrial development in Karnataka;
- We urge the Government to kindly reconsider the proposed increase in fees and engage in meaningful consultation with stakeholders.
Addressing KSPCB Issues:
We request a reduction in KSPCB Consent fees and to simplify the online procedures in obtaining consent by industries. KSPCB is a monitoring body and not a business concern to make profits. Hence there is no need to increase fees periodically. Since the consent fee is too high for an SME we request the Government to consider reducing consent fees for all category industries. Further procedures to obtain consent including renewal procedures may be simplified to be industry-friendly.
MSME Policy of Karnataka:
Finally, the Government of Karnataka is in the process of framing an exclusive MSME Policy for Karnataka. We urge the Govt. to make a new MSME Policy as pro Industries to enable the growth of Micro and Small Industries in Karnataka to counter the competition from neighboring states and also to compete globally.
Addressing BESCOM Problems:
SME Industries are suffering from frequent and unscheduled power cuts in Industrial Areas around Bengaluru. The issue has already been taken up with the Managing Director, BESCOM. We urge the Government to ensure uninterrupted power supply to industries.
