With recession looming on Britain in the wake of the global economic downturn, NRI industrialist Lord Swraj Paul has proposed setting up of an Industrial Development Bank with majority of real manufacturers on its board to ensure regular financial flow to businesses.
About the problems faced by manufacturing industry in the UK, Lord Paul, who recently scripted history by becoming the first Asian deputy speaker of the House of Lords, expressed hope that the Banking Bill would end the uncertainty surrounding lending terms and conditions.
"However, the problem of how to ensure that we keep finance flowing to business, while allowing banks to assess risk and take commercial decisions, remains. There is no easy answer, but perhaps it is time to set up an industrial development bank with a majority of real manufacturers on its board," the Labour Peer told the House of Lords.
"There is increasing difficulty in accessing credit insurance. Many companies have recently lost their cover and are ending up with stock that they cannot sell.
"Business needs good regulations and fewer of them to cap the burdens of red tape."
"While we must avoid a return to central planning or bail-out of failing industries, the government have a role to play and it is time for them to play strongly," he said.
Lord Paul, the Chairman of the 1.5 billion pounds Caparo Group, said the problem of sub-prime lending in the United states, "compounded by the irresponsible lending by some of the world's biggest banks, has brought the world's financial system to the brink of collapse."
"In the past few months, this has spread to the wider economy and manufacturing is now facing very tough times. Most astonishing is how quickly things have changed," he said.
"According to the Engineering Employers' Federation, the manufacturers organisation, the first half of 2008 was one of the best on record for manufacturing and even the third quarter looked good, if not great. However, recent indicators have demonstrated a rapid fall in confidence."
"The most recent official statistics report that manufacturing output was 1.9 per cent lower in the three months to September compared with the same period a year ago.
Meanwhile, EEF's latest business trends survey shows that manufacturing activity has deteriorated significantly over the past three months and firms are extremely pessimistic about the outlook."
Lord Paul, who is British Ambassador for Overseas Business, said he was pained to see the struggle that the Caparo family go through everyday to ensure that the company kept its head above water and remained robust.
"There remain some reasons for hope," he noted. "First, manufacturing has been through massive change and is far more resilient these days. Secondly, the government have provided strong and determined leadership."
"There is no doubt in my mind that, after a decade as Chancellor, my right honourable friend the Prime Minister (Gordon Brown) has the experience, ability and passion to lead us through these difficult times. He has already shown his commitment and determination," Lord Paul said.
He suggested that the help available to small and medium enterprises should be made on the basis of a company as an entity.
"Any company owned by a larger group but operating as a separate entity should be entitled to the same help as an independent SME. Otherwise, we are hastening the demise of those subsidiary companies, as they will not be able to compete and the tendency of any group is to close subsidiaries that cannot remain competitive," he cautioned.