The organisation would collect the money or subscription and will assume all the legal responsibilities of the SMEs
The industry ministry is planning to evolve a framework for a privately-run body on the lines of the Employees' Provident Fund Organisation (EPFO) for managing retirement funds and insurance in the small scale sector.
"We are coming out with a concept paper. We are giving a framework of that organisation, which can come up as a commercially viable entity in the private sector and which will takeover the obligations of SMEs," DIPP Secretary RP Singh said, adding that the paper will be out in a day or two.
The new entity, he said, would be an alternative mechanism to EPFO and the Employee's State Insurance Corporation (ESIC).
To be set up as a private sector company or trust, Singh said, the new entity could levy charges for providing various services for the small scale sector.
The move would reduce compliance burden on the small and medium enterprises (SME), which contribute about 45% to the country's manufacturing segment.
Singh said the organisation would collect the money or subscription and will assume all the legal responsibilities of the SMEs.
Under the current rules, a company has to follow several laws including EPF Act, ESI Act, Payment of Gratuity Act, Personal Injuries Act and Workman's Compensation Act. It becomes difficult for small units to comply with all the statutory obligations.
"We are saying that this commercial entity will collect subscription from small scale companies to provide the same facilities at the same level like the ESIC. They will take care of the pensions funds through a trust mechanism," Singh said.
SMEs could be given the choice to avail the services of the new entity, he said, adding that this concept is a part of the proposed national manufacturing policy.
The policy draft of the department said: "It is proposed that the setting up of one or more service organisations will be considered and making the necessary payouts in return for a charge linked to the wage bill of the company."
It added, "Such an organisation can be licensed by the Labour Department and the industry will have the option to resort to this mechanism or comply with the extant regulations for payment of labour dues."
On amendments required for the organisation, Singh said: "Legally the amendments required will be very minimal."
PFC has set a target for borrowing Rs30,000 crore during the current financial year
Power Finance Corporation (PFC) may raise Rs5,000 crore this fiscal through a tax-free bond issue, an instrument that would help the company raise cheaper loans.
PFC which is engaged in financing power generation and transmission projects would be able to borrow at a lower cost.
The Ministry of Finance’s approval for the issuance of these bonds can be expected in a day or two. “We are awaiting the Ministry of Finance’s nod to allow PFC to raise Rs5,000 crore through tax-free bonds in the current fiscal,” a senior Power Ministry official said, adding that the approval can be expected in a day or two.
PFC has set a target for borrowing Rs30,000 crore during the current financial year (2011-12). “The cost of financing has gone up... These (tax-free) bonds would bring down the borrowing cost for PFC and it is a good way to tap new sources of finance,” KPMG executive director Arvind Mahajan told PTI.
The Power Ministry is of the view that it may bring down the borrowing cost for the company by about 1.5%. For example, if the company was borrowing at an interest rate of 8.5%, it would be able to get that loan at 7% interest.
However, analysts think the impact may be more substantial, i.e. it can be more than 1.5%.
Last year, PFC was given the status of an infrastructure finance company—a move that enabled the entity to mop up funds by issuing tax-free infrastructure bonds.
PFC came out with a follow—on public offer last month and raked in over Rs3,400 crore. The government holds about an 84% stake in PFC.
PFC will utilise the proceeds of the FPO for meeting its lending and disbursement targets this fiscal (2011-12).
Meanwhile, National Highways Authority of India (NHAI) also plans to raise Rs10,000 crore through tax-free bonds to fund its road projects, this fiscal.
Finance Minister Pranab Mukherjee in his Budget 2011-12 had said that the government would allow NHAI to raise funds to the tune of Rs10,000 crore through tax-free bonds in 2011-12. It would raise the fund in two tranches of around Rs5,000 crore each.
On Tuesday, PFC ended 2.33% down at Rs180.10 on the Bombay Stock Exchange, while the benchmark Sensex gained 0.43% to 18,492.45.