Government to jointly develop Food Parks with Foreign Countries, SMEs to Benefit

Food Processing Industries minister Subodh Kant Sahai has said that government has signed a MoU (Memorandum of Understanding) with Italy and France to set up joint food parks. Mr Kant also stressed that this joint food park model will immensely help the food processing industry and will also be prove to be future model for food processing industry in India.

In an interview Mr Kant said that government was in opinion that country needed to develop its food processing industry with help of those who had most of the experience. Thus, government went in favour of aligning with countries like France and Italy which have vast experience in food processing industry.

He said that the foreign expertise will bring in both large investments and new technology to the food processing industry in India and will help the nation in developing mega food processing parks with the help of foreign capital and technology. The Food Processing Ministry has demanded ECB (external commercial borrowing) facility being extended for bringing equipment to the mega food processing parks by the companies involved in its development.

Highlighting the lack of capital financing in the food processing industry and reluctance by the financial institutions and the banks to fund SMEs in the food processing industry, he also stressed for the need of venture capital fund to inject growth into this sector, while mentioning the Rs 10 bn funding provided by the apex body NABARD.

SIDBI to receive $600 mn loan from World Bank and Japanese Agency

The Financial institution Small Industries Development Bank of India (SIDBI) is receiving loan worth $600 mn from two international development agencies to provide credit to Micro and Small & Medium Enterprises. These loans are expected to be received by the Indian financial institution during the period 2010-11.

World Bank, one of the providers of this loan, amounting to $300 mn, would be utlised by SIDBI solely for the purpose for providing credit to MSME and SME sector. The SME sector will account for the larger pie of $200mn while remaining will go to the MSME sector.

The other $300mn, which will be provided by Japan International Cooperation Agency (JICA), would be utlised by SIDBI for financing energy efficient projects of Micro and Small & Medium Enterprises. Such disbursement will be given to MSMEs which have incorporated energy efficient technology and require capital to further finance their projects. These loans will be soft loans and would be made available to the companies at concessional rate.

Both of these financing arrangements by SIDBI is going to benefit MSME and SME sectors, which are always in dearth of funding and have been suffering a lot for past two years due to financial meltdown. The measure to provide soft loan on long term basis will boost these companies not only financially but also technologically as they will be able to adopt new and efficient technologies for their production and services.

Factoring Services Mooted for SMEs

The Ministry of MSME has mooted the idea of allowing financial Factoring services for Micro and Small Medium Enterprises. It is in discussion with Finance Ministry on proposal for factoring services.

Factoring services are still niche domain in credit financing in India and is largely domain of a few international banks, though financial institutions like SIDBI along with nationalized banks have undertaken study of providing factoring services to various small and medium enterprises.

Factoring services involves raising capital through leveraging its accounts receivable (credit sales) to gain access to cash. The financial institution providing factoring services uses its own mechanism to provide upto 80% of accounts receivable to the client. But, such kind of services is yet to take-off for SMEs.

The ministry is examining the legal and regulatory aspects on the proposal, which would require legislative amendments in terms of taxation and financing.

The credit-deprived Small and Medium Enterprises (SMEs) are likely to benefit from the concept 'factoring services' as it would be an alternative window for SME financing in India. Dinesh Rai, Secretary, Ministry of MSME recently motioned that the Ministry of Financial Services are not too much in favor of legislative support. But, he feels that if there is no legislative support, it will be difficult for SME players to attain success in a big way.

India’s Growth Fails to Enthuse Deal Activity

M&A activity has failed to ignite this year in India and has performed miserably compared to last year. Despite all the hoopla about India being second fasted growing economy in the world, the M&A activity this year hasn’t even been 50% compared to last year. Considering the fact that 2008 was written off financially, performance should have been better this year, a decline is certainly surprising. Last year, for first three quarters $30bn was spend on M&A activity in India and in comparison this year during first three quarters the figures were meager $13bn. The average deal value also fell by half to $33mn from $67mn last year.

Foreign acquires only accounted for just $3.9bn of all such deals this year, which is only 30% of the total deal value. Again this is lower than last year’s share of foreign acquirers in total deal value, which stood at $15.7bn, five times the present value. Last year, Asian countries had dominated the list of biggest acquirers, four out of ten. This year the figure fell to three out of ten.

Mauritius did the biggest turnaround from being at bottom of top ten foreign acquirers to number one this year with $1.2bn acquisition followed by France, which accounted for a quarter of all outside deals. The United States came third with $379mn worth of acquisitions of Indian companies. Japan which was the biggest foreign acquirer last year slid five places to sixth position this year.

This year, Infrastructure sector was the common target sector for both Indian and foreign acquirers, telecommunication and Electric, Gas & Water sector were in top five target sector for both domestic and foreign acquirers. Pharma sector, which was the biggest target sector for both foreign and domestic acquirers, retained its position but only for foreign acquirers, who invested $1bn this year. Indian acquirers made most of the acquisitions in Oil & Gas sector.

Retail food chain was the pick of foreign acquirers it hardly featured on the acquisition radar of domestic acquirers, but foreign acquirers made investment of $100mn. Similarly, domestic acquirers made acquisition worth $677mn in Business Services sector which was almost disregarded by foreign acquirers.

Clueless Congress Wins Election

Congress Party, which few days back was sulking for allies in post-poll environment and predicting its own lack of numbers to form next government, surprised everyone with election results. Congress party won 201 seats much above its own expectations.

At the end of fifth phase of polling Congress General Secretary Rahul Gandhi had made admission of his party’s impending failure and his desperation to form government with support from his opposition parties, he even went on to name his Andhra Pradesh opponent Mr Naidu as his next possible ally just before Andhra Pradesh went to elections and Rahul Gandhi hadn’t expected that his party will gain even 29 seats ( that it held in 2004) against 33 that Congress Party won in this election.

Confusion was not only about one state, Congress Party was unsure of its own gambit in Uttar Pradesh, it hadn’t imagined its wildest dreams that the party would end up winning 22 seats, Congress had even second thought about its own ally but was quite sure of stupendous performance by party’s opponents be it Mayawati in UP or Jayalalitha in Tamil Nadu.

Congress is now as much surprised at its win in several states like Tamil Nadu, Andhra Pradesh and W Bengal and as it is at the success of Rahul Gandhi’s strategy of going alone in UP. Congress in not basking the glory it hadn’t dreamed for long time.