Regulation of Bank Finance^435
to be slow in releasing payments for supplies. The industrial units whose funds are
locked up for long periods due to delayed payment by government agencies would
perforce delay, in turn, their payments to their own suppliers, starting off a chain of
events resulting in an extra burden of financing being placed on the small scale industries
who generally are unable to obtain their supplies other than against cash payment. This
problem has been recognised for quite some time now and not much progress has been
made in evolving a suitable solution. Even the Tandon Committee came up against this
problem while it was laying down norms for working capital financing. It noted that
ìlike the public sector, government purchase agencies are the biggest buyers in the
country. Today payments by Government and public sector will only increase the level
of receivables of industry and consequently the working capital requirements from
banks for productive purpose. It would be useful if the Reserve Bank could initiate
discussions on this matter. We also feel that Government should, pending streamlining
its procedures, agree to pay interest on established delayed payments.î Even after a
period of almost ten years since the Tandon committee made these remarks, no
improvement in the position was noticeable. The Tandon Committee itself did not provide
any cushion for such delayed payments from government agencies in evolving working
capital norms, even though their recommendations were meant to cover all borrowers
with credit limits of Rs. 10 lakhs or more, thereby including a large number of small
scale industrial units.
It is a matter of concern that the combined effect of stricter enforcement of credit
norms in the case of the larger borrowers, and delayed payments by public sector and
government agencies and other large units would be such as to place a heavy financial
burden on the suppliers in the small scale sector, who are as a consequence driven to
take recourse to credit from outside the organised sector at relatively higher cost as
compared to bank finance. Remedial measures by way of earmarking credit limits for
making payments to ancillaries and small scale industries have been thought of but are
still an insignificant element in the present system of credit allocation and perhaps not
easy to implement.
Like the small scale industries sector, another sector which finds itself at a considerable
disadvantage in the present system of credit allocation, is the trade and distribution
sector. As regards its role as a supplier of raw materials to the industrial sector it shares
to some extent the problems faced by the small scale industries in regard to working
capital finance, though not all units in the trade sector are small or financially vulnerable,
or weak in terms of bargaining power. The trade sector, in addition, has also to face a
different kind of problem in regard to working capital finance.