Credit Linked Capital Subsidy Scheme Foundry Informatics Centre, Delhi

Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation of the Small Scale Industries

Background

The Ministry of Small Scale Industries (SSI) is operating a scheme for technology upgradation of Small Scale Industries (SSI) called the Credit Linked Capital Subsidy Scheme (CLCSS). The Scheme aims at facilitating technology upgradation by providing upfront capital subsidy to SSI units, including tiny, khadi, village and coir industrial units, on institutional finance (credit) availed of by them for modernisation of their production equipment (plant and machinery) and techniques. The Scheme (pre-revised) provided for 12 per cent capital subsidy to SSI units, including tiny units, on institutional finance availed of by them for induction of well established and improved technology in selected sub-sectors/products approved under the Scheme. The eligible amount of subsidy calculated under the pre-revised scheme was based on the actual loan amount not exceeding Rs.40 lakh.
Due to insufficient investment and lack of awareness of both the quality standards and access to modern technologies, a large percentage of SSI units continue with outdated technology and plant & machinery. With increasing competition due to liberalisation of the economy, the survival and growth of the SSI units are critically dependent on their modernisation and technological upgradation. Upgradation of both the process of manufacture and corresponding plant and machinery is necessary for the small enterprises to reduce the cost of production and remain price competitive at a time when cheaper products are easily available in the global market.
It is in this background that the Finance Minister made an announcement in the Budget Speech of 2004-05 to raise the ceiling for loans under the Scheme from Rs. 40 lakh to Rs. 1 crore and rate of subsidy from 12 per cent to 15 per cent. Further, in the light of the experience gathered in implementing the Scheme, certain other modifications were also required to make it more useful to the SSI units, including tiny, khadi, village and coir industrial units, in taking up technology upgradation on a larger scale.
After considering these issues, the CLCSS has been amended as follows :
1. the ceiling on loans under the Scheme has been raised from Rs. 40 lakh to Rs. 1 crore;
2. the rate of subsidy has been enhanced from 12 per cent to 15 per cent;
3. the admissible capital subsidy is to be calculated with reference to the purchase price of plant andmachinery, instead of the term loan disbursed to the beneficiary unit;
4. the practice of categorisation of SSI units in different slabs on the basis of their present investment for determining the eligible subsidy has been done away with ; and
5. the operation of the Scheme has been extended upto 31 st March, 2007. The above amendments are effective from September 29, 2005.

Objective

The revised scheme aims at facilitating technology upgradation by providing 15 per cent upfront capital subsidy with effect from the 29 th September, 2005 (12 per cent prior to 29.09.2005) to SSI units, including tiny, khadi, village and coir industrial units (hereinafter referred to as SSI units), on institutional finance availed of by them for induction of well established and improved technologies in the specified sub-sectors / products approved under the scheme.

Nodal Agencies

The Small Industries Development Bank of India (SIDBI) and the National Bank for Agriculture and Rural Development (NABARD) will continue to act as the Nodal Agencies for the implementation of this scheme.

As decided in the 5 th meeting of the Governing and Technology Approval Board (GTAB) of the Credit Linked Capital Subsidy Scheme (CLCSS) held on February 17, 2006 the following nine Public Sector Banks/ Government Agencies have also been inducted as nodal banks/agencies for implementation and release of capital subsidy under the CLCSS:

S. No.	Name of Bank/Agencies
1.	State Bank of India
2.	Canara Bank
3.	Bank of Baroda
4.	Punjab National Bank
5.	Bank of India
6.	Andhra Bank
7.	State Bank of Bikaner & Jaipur
8.	Tamil Nadu Industrial Investment Corporation
9.	The National Small Industries Corporation Ltd.

The inclusion of above-mentioned nodal banks/agencies will be in addition to the existing nodal agencies, namely, the Small Industries Development Bank of India (SIDBI) and the National Bank for Agriculture and Rural Development (NABARD) under the CLCSS. These nodal banks/ agencies would consider proposals only in respect of credit approved by their respective branches, whereas, for other Primary Lending Institutions (PLI), the SIDBI and the NABARD would continue to be the nodal agencies for release of subsidy under this scheme.
The cut-off date for implementing the above decision is April 04, 2006 . No proposals after this cut off date will be sent to the SIDBI or the NABARD, as the case may be, by these banks/agencies and the new nodal banks/agencies would start processing proposals directly after this cut-off date for release of subsidy under the CLCSS.
Other modalities for implementing the above decision will remain the same as are currently in practice in the case of the SIDBI and the NABARD.

Eligible Primary Lending Institutions (PLI)

All Scheduled Commercial Banks , Scheduled Cooperative Banks [including the urban cooperative banks co-opted by the SIDBI under the Technological Upgradation Fund Scheme(TUFS) of the Ministry of Textiles], Regional Rural Banks (RRBs), State Financial Corporations (SFCs) and North Eastern Development Financial Institution (NEDFi) are eligible as PLI under this scheme after they execute a General Agreement (GA) with any of the nodal agencies, i.e., the Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD).
Details of eligible Scheduled Commercial Banks, SFC, Cooperative Banks [including urban cooperative banks co-opted by the SIDBI under the Technological Upgradation Fund Scheme(TUFS) of the Ministry of Textiles]/ and RRBs under this scheme are provided at Appendix II.

Eligible Beneficiaries

The eligible beneficiaries include sole Proprietorships, Partnerships, Co-operative societies, Private and Public limited companies in the SSI sector. Priority shall be given to Women entrepreneurs.

Types of units to be covered under the Scheme

Existing SSI units registered with the State Directorate of Industries, which upgrade their existing plant and machinery with the state- of -the -art technology, with or without expansion.
New SSI units which are registered with the State Directorate of Industries and which have set up their facilities only with the appropriate eligible and proven technology duly approved by the GTAB/TSC.

Eligibility Criteria

Capital subsidy at the revised rate of 15 per cent of the eligible investment in plant and machinery under the Scheme shall be available only for such projects, where terms loans have been sanctioned by the eligible PLI on or after September 29, 2005 . Machinery purchased under Hire Purchase Scheme of the NSIC are also eligible for subsidy under this Scheme .
Industry graduating from small scale to medium scale on account of sanction of additional loan under CLCSS shall be eligible for assistance.
Eligibility for capital subsidy under the Scheme is not linked to any refinance Scheme of the Nodal Agency (ies). Hence, it is not necessary that the PLI will have to seek refinance in respect of the term loans sanctioned by them from any of the refinancing Nodal Agencies.
Labour intensive and/or export oriented new sectors/ activities will be considered for inclusion under the scheme.

Definition of Technology Upgradation

Technology upgradation would ordinarily mean induction of state-of-the-art or near state-of-the-art technology. In the varying mosaic of technology obtaining in more than 7500 products in the Indian small scale sector, technology upgradation would mean a significant step up from the present technology level to a substantially higher one involving improved productivity, and/or improvement in the quality of products and/or improved environmental conditions including work environment for the unit. It would also include installation of improved packaging techniques as well as anti-pollution measures and energy conservation machinery. Further, the units in need of introducing facilities for in-house testing and on-line quality control would qualify for assistance, as the same is a case of technology upgradation.
Replacement of existing equipment/technology with the same equipment/technology will not qualify for subsidy under this scheme, nor would the scheme be applicable to units upgrading with second hand machinery.

Duration of the Scheme

Presently, the scheme is in operation up to March 31, 2007 or till the time sanctions of aggregate capital subsidy disbursed by the Nodal Agencies reaches Rs.600 crore, whichever is earlier.
Ceiling on eligible loan amount and capital subsidy

Ceiling on eligible loan amount and capital subsidy

The maximum limit of eligible loan under the revised scheme is Rs. 100 lakh. Accordingly, the ceiling on subsidy would be Rs.15 lakh or 15 per cent of the investment in eligible plant and machinery, whichever is lower.

In calculating the value of plant & machinery, the following shall be excluded, namely
the cost of equipments such as tools, jigs, dies, moulds and spare parts for maintenance and the cost of consumable stores;
the cost of installation of plant & machinery;
the cost of research & development equipment and pollution control equipment ( except where these have been approved for specific product/sub sector by the GTAB ;
the cost of generation sets and extra transformer installed by the undertaking as per the regulations of the State Electricity Board; (except where gas based generation sets have been approved for specific product/sub- sector by the GTAB).
the bank charges and service charges paid to the National Small Industries Corporation Ltd or the State Small Industries Corporation;
the cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant & machinery or for safety measures;
the cost of gas producer plants ( except where these have been approved for specific product/sub sector by the GTAB) ;
transportation charges (excluding of sales-tax and excise) for indigenous machinery from the place of manufacturing to the site of the factory;
charges paid for technical know-how for erection of plant & machinery;
cost of such storage tanks which store raw materials, finished products only and are not linked with the manufacturing process; and
cost of fire fighting equipment.
The amendments to the existing CLCSS are applicable with effect from 29.9.2005. The revised rates are applicable only in cases where the loans have been sanctioned/ approved on or after September 29, 2005 . Cases where the loans were sanctioned/ approved prior to September 29, 2005 will be governed by the pre-revised guidelines regarding ceiling on subsidy (Rs.4.80 lakh), method of calculation of subsidy, etc.
Units which have already availed subsidy under the pre-revised CLCSS scheme (before 29.9.2005), cannot claim additional subsidy on account of difference in the rate of subsidy which is now permissible under the revised guidelines.

Working Capital Requirements

Since success of the technology upgradation scheme, to a large extent, depends upon the availability of adequate working capital, lending institutions would like to be assured that the borrowing units have made adequate arrangements for meeting the working capital requirements. Commercial banks should also accord priority in providing adequate working capital support to the assisted units.

Other conditions for loans

Promoters' contribution, security, debt-equity ratio, up-front fee, etc. will be determined by the lending agency as per its existing norms.
Units availing subsidy under the CLCSS shall not avail any other subsidy for technology upgradation from the Central/State/UT Government. However, cases covered under National Equity Fund (NEF) Scheme, which are otherwise eligible under the CLCSS can also be covered under this scheme.
Units in the North-Eastern Region which are availing financial incentives/subsidy under any other scheme from the Government in the Region would, however, be eligible for subsidy under the CLCSS.
One of the main requirements for sanction of assistance under the technology upgradation scheme will be availability of competent management in the unit concerned to carry out the upgradation programme and to manage the operation of the unit efficiently. Towards this end, the lending agencies may stipulate conditions as may be considered necessary.

Procedural Aspects

All the eligible PLI (excluding the new nodal banks / agencies) will have to execute a General Agreement (GA) for availing capital subsidy under the scheme, irrespective of the fact whether refinance is availed by them or not.
The PLI may have the flexibility to execute the GA with either of the nodal agencies or with both the nodal agencies for providing subsidy to the eligible beneficiaries under the scheme. However, in the latter case, while claiming the subsidy from one nodal agency, the PLIs will have to give the undertaking to the nodal agency that they have not claimed subsidy under CLCSS in respect of the beneficiary unit from the other nodal agency (as the case may be).
After sanction of the assistance, the eligible PLI will get an agreement executed with the concerned SSI unit on behalf of Government of India (GoI). Format of the agreement to be executed by the eligible PLI with the SSI unit is provided in Appendix III.
The eligible PLI would obtain application for assistance under the CLCSS in the prescribed form provided in Appendix – IV.
The eligible PLI shall furnish subsidy forecast on quarterly basis, through their Head Office (HO), which will act as a nodal office, to the Regional Office (RO)/Branch Office (BO) of the SIDBI or the NABARD (as the case may be) located in the region. The subsidy forecast information for every quarter on or before 1 st March for April-June quarter, on or before 1 st June for July-September quarter, on or before 1 st September for October-December quarter and on or before 1 st December for January-March quarter, may be furnished as per prescribed format.
The eligible PLI would release the subsidy amount with each installment of loan in a manner proportionate to the amount of term loan disbursed (on pro- rata basis), subject to the ceiling of the term loan/ subsidy amount as per applicable guidelines of the CLCSS.
The eligible PLI shall furnish details of release of subsidy to the beneficiary units, together with the request for replenishing advance money placed with PLI for release of subsidy, on quarterly basis on March 1, June 1, September 1 and December 1. The requests of PLI for replenishment of advance money for subsidy, however, would be entertained by the nodal agencies only on receipt of complete details of subsidy released to the beneficiary units.
The eligible PLI shall be responsible for ensuring eligibility for sanction of subsidy to the SSI units in terms of Government of India guidelines under this scheme and also for disbursal and monitoring of the assisted units.

Other Parameters

The Governmental assistance cannot be utilised for the purposes other than for which it has been sanctioned. The eligible PLI shall have to strictly follow this norm and no deviation would be permitted.
In case, it is found that capital subsidy from the Government has been availed of on the basis of any false information, the industrial unit shall be liable to refund the Government the capital subsidy availed, along with interest to be charged from the date of disbursal to the date of refund. The rate of interest shall be the prime lending rate of the PLIs concerned at the time of invoking this penal clause.
The eligible PLI shall, therefore, incorporate suitable conditions in respect of point at (ii) above in their security documents entered into with the unit, which would give necessary authorisation to proceed legally in such eventualities.
The credit risk under the Scheme will be borne by the eligible PLI and as such, they will have to make their own commercial judgement while appraising the project. The credit decision of the eligible PLI will be final.
There shall not be any binding obligation on the part of the nodal banks/ agencies to obtain sanction from GoI for the government assistance in respect of the proposals which are covered under the CLCSS.
Both the SIDBI and the NABARD shall have the right to inspect the books of eligible PLI and the loan accounts irrespective of whether refinance is availed or not from the Nodal Agency (ies) under this Scheme and/ or call for any other information as may be required by GoI from time to time.
Both the SIDBI and the NABARD shall have the right to recall from eligible PLI the entire amount of the capital subsidy in respect of their assisted units irrespective of whether or not the eligible PLI have recovered the said subsidy from their units, if they come to the conclusion that any of the accounts do not conform to the policies, procedures and guidelines laid down under the CLCSS guidelines and as stipulated by the GoI/the Nodal Agencies from time to time.
The beneficiary unit shall remain in commercial production for a period of at least three years after installation of eligible plant and machinery on which subsidy under CLCSS has been availed.

Monitoring of the scheme

The scheme is monitored by the Governing and Technology Approval Board (GTAB of the CLCSS. The Secretary (SSI) is the Chairperson of the Board and the Additional Secretary & Development Commissioner (SSI) is its Member-Secretary. The GTAB would also periodically review the functioning of the scheme. There is a Technical Sub-Committee under the GTAB to consider inclusion of new sub-sectors/products and Well Established and Improved Technologies under the Scheme

Foundries – Steel and Cast Iron.
Sl. No.	Activity	Technology Need	Cost (Rs in lakh)	Advantages
1.	Melting Section.	Divided blast cupola.	3-5	15 per cent coke saving, Better melt quality, Higher tapping temperature, Lower emissions, Reduced air pollution.
		Gas fired cupola.	12-15	Eco friendly, Higher tapping temperature, Better melt quality.
		Gas fired Pit furnace.	0.75-1.50	Eco friendly, Higher tapping temperature, Better melt quality.
		Oil fired rotary furnace.	37 (imported), 3 (indigenous)	Pollution control, Better quality product, cost effective.
		Induction Furnace with cooling tower & water treatment plant.	10 - 25	Flexibility to produce ferrous castings of all grades, Flexibility for charge mix selection, Best melt quality, Eco friendly.
		Induction ladle refining furnace.	30-40	Value added casting, eco friendly.
		D.C. Arc Furnace.	30-40	Special grade castings, eco friendly.
		Oil fired rotary furnace.	37.40 (imported). 30 indigenous.	It is proven technology, reduced air. pollution, better quality product, cost effective .
		Metal Refining Converter.	40	Value added castings, eco friendly.
		Skip charger for cupola.	Up o 1.50	Ease of charging, reduced labour cost, better control.
		Pouring/treatment ladles as per Indian standard 4475, 4476.	Up to 1	Quality assurance, increased safety for workmen.
2.	Utility Section	Gas based Generating set.	Up to 30	Reduced air pollution, energy saving.
3.	Quality Control Lab.	Metallurgical Testing: Metallurgical Microscope with image analyzer, photographic attachment, sample preparation machines.	1.50-10	Quality assurance, Defect analysis, Diversification e.g. SG Iron Production equipment essential to meet process control requirements.
		Laboratory Testing / Quality Control equipment. Stroholien Apparatus, Muffle furnace, Hot Plate, Glass ware etc. U.T.S. Spectrometer / Mass Spectrometer. Hardness tester. e) Izod & Charpy Impact testing machine. Ultrasonic testing machine. g) Magnaflux testing machine.	1 Up to 3 15-25 Up to 1 Up to 0.75 Up to 3 Up to 1.50	Quality control, defect investigation, Quality assurance, Consistency in quality, Reduced defective casting, Cost control.
		Sand Testing equipment Moisture Teller, Universal Sand Strength testing machine, Sieve shaking device, Compactability scale, Rapid Moisture Teller, Permeability Meter, Mold Hardness Tester, Muffle furnace, Wash bottles, stirrer/Shaker, Hotplate, Vortex shaker, Centrifuge etc., Shatter index machine, Scratch Hardness Tester, Stick point, hot tensile, peel back	2 to 8	Reduced defective casting, consistency in quality, Reduction in additives cost, Better as cast surface finish.
Pollution Control.
S. No.	Activity	Technology Need	Cost (Rs. in lakh)	Advantages
1	Pollution Control	Wet Scrubber, Cyclone, Ventury Scrubber, Bag Filter.	Variable up to 15	Reduction of suspended particulate matter (SPM) emissions.
Foundry chemicals.
S. No.	Activity	Technology Need	Cost (Rs. in lakh)	Advantages
1	Resin.	Stainless steel kettle or reactor complete plant assembly.	25	By using SS reactor vessel replacing Mildseel vessel eliminates iron content from resin improving quality of resin eliminating casting defects due to iron content in the resin which results into surface defects, blow holes, pin holes. It will improve productivity, quality of product and work environment in the unit.
		Thermic Oil Heating System, 3000 Kcal/hr.	4	It saves energy considerably and is absolutely environmental friendly and there is no pollution.
2	Exothermic/insulating Sleeves.	Oven for Baking Sleeves, Molding Machines, Vacuum system.	25	It reduces requirement of molten metal for risers thus increasing yield of castings to the level of sometimes more than 20%. Highly energy saving, cost reduction system thus improving productivity.
Non-ferrous foundries.
Sl. No.	Activity	Technology Need	Cost (Rs. in lakh)	Advantages
1	Meeting & Casting section.	i) Oil fired pit furnace/LPG or CNG fired pit furnace. ii) Mobile de-gassing unit. iii) Pressure die casting machine(Hot/cold chamber). iv) Dip type temp. indicator. v) Pouring ladles as Indian Standard 4475- 4476	0.75 to 2 up to 15 15- 80 0.20 to 0.25 up to 0.50	Eco-friendly, higher tapping, temperature better melt quality, lower melting losses. Faster degassing of molten metal, process requirement. i) Faster production rate. ii) High dimensional accuracy. i) Liquid metal temperature can be measured quickly. ii) Better control on pouring temperature. Quality assurance, increased safety for workmen.
2	Quality control Lab.	i) Thermal analyzer for Aluminum. ii) Electrolytic analyzer. iii) Met Microscope with image analyzer, photograph attachment sample preparation machine iv) Ultrasonic testing machine. v) Radiography testing machine vi) Spectrometer	4 - 10 2 - 10 4 - 10 15 - 25	Quality assurance, essential to meet process control requirement. Quality control, defect investigation, Quality assurance, Consistency in quality Reduced defective casting, cost control.
3	Utility Section.	i) Gas fired Gen-set.	10 - 20	Reduced air pollution, energy saving.
4	Heat Treatment Section.	i) Forced Air Circulation electric furnace. ii) Low temperature electric furnace. iii) Quenching-water Quenching tank with heat exchanger unit. iv) Material handling equipment. v) Sand testing machine.	3 -10 0.50 - 1 1.-3 3 -5	Eco-friendly, energy saving furnaces. Process requirement to achieve quality safety to workmen Higher productivity, process requirement to achieve quality.
5	Design & development Section.	Dimensional inspection instruments. Surface plate for marking, Height gauge, Micrometer, Vernier, Profile projector with Digital Reading system, Dial & Micro snap gauges, Floating careage dia measuring machines, 3 coordinate measuring machines. Computers & CAD software's simulation software with Printers/Plotter	up to 10	Quality assurance, Defect analysis. Computerization of design& development to gain efficient & fast working.
6.	Machine/Die shop	CNC Milling machine CNC Lathe machine. Capstan lathe/Turret lathe. Radial Drill. Planner. Shaper. Jig Boring machine. Hydraulically Honing machine.	25-3 10-14 3. up to 5 up to 3 up to 3 up to 5 up to 3	Higher productivity, dimensional Accuracy, less skill requirement, consistency in quality.
7	Pattern Shop.	CNC Milling. Pantograph. Drilling machine. Disc and bo bino sand grinder.	30 50 up to 2 up to 1 up to 3	Higher productivity, consistency in quality, narrower as cast dimensions. excellent finish, better productivity.
8.	Cleaning & Fettling Section.	i) Grit blasting machine ii) Pedestal Grinder iii) Belt Grinder iv) Painting Booth v) Acid Pickling & cleaning plant	up to 5 up to 0.50 up to 0.50 up to 0.50 1 -3	Higher productivity, Process requirement to achieve quality. 1 -3