With the recent announcement of 12 major new initiatives for the MSMEs by Prime Minister Narendra Modi on November 2, all eyes are on this sector to take the country to new heights.
The ‘MSME Support and Outreach Programme’ will provide easy access to credit facilities and markets, improved cash flows, technology upgradation, social security to MSME employees, and an online loan portal to get up to Rs 1 crore in just 59 minutes.
The government also decided to increase the interest in pre and post-shipment credit from three percent to five percent for exporters.
How will this new policy impact the sector? What are the challenges and the road ahead for the MSMEs?
Ram Mohan Mishra, Additional Secretary, Ministry of Micro, Small and Medium Enterprises (MSMEs), Government of India, says that the main objective of the programme is to do an orbit-shifting covering and intervening in all the spheres of the business ecosystem.
“MSMEs are the building blocks of the Indian economy and to uplift them, increase their competitiveness and help them in expanding. The first step by the government is to encourage and promote them. The availability of finance is not the only prerequisite here, it will be useful only when they get an easy access to credits and loans at reasonable prices in a short period of time,” he said recently in a TV debate.
He further added that the lack of modern technology impedes the growth of the MSMEs. “The government has also announced a Rs 6000-crore package for the creation of 20 hubs and 100 tool rooms for technology upgradation. This is not just an investment but a type of decentralised technology access which will reach each and every district and help the small businesses,” he said.
The government is focusing on cluster development to provide common facilities along with easy market access for the MSMEs. In order to promote empowerment of women entrepreneurs, a reservation of three percent has been done in the procurement mandated by the MSMEs of the total 25 for them. A web portal, ‘Udyam Sakhi’ specially for the women entrepreneurs had been launched earlier and it will help them further.
Under the MSMEs support and outreach programme, more than 100 different districts of the country will be covered in the next 100 days by the government.
Ram Mohan Mishra says, “We have a large number of traditional skill and craft-based businesses all over India that have been going on from generation to generation. But these businesses have been facing problems like lack of access to credits, improper packaging and branding etc. The government wants to help them in exploring potential customers by providing them a brand name not only in the domestic market but also in the international markets as well.”
Mukesh Mohan Gupta, President, Chamber of MSMEs, welcomed the government’s move and said that the biggest step taken by the government to ease credit access to the MSMEs was to make it compulsory for all the companies who have a turnover more than Rs 500 crore to register themselves under the Trade Receivables e-Discounting System (TReDS).
This would reduce the delay in payments by large corporates and other public sector enterprises which do not pay the entrepreneurs their due within the 45-90 days and that affects the working capital of the business as a lot of money gets stuck midway.
Banks also reduce the working capital sanction because of these debtors and it affects the credit-worthiness and bargaining power of the entrepreneurs.
Mukesh Mohan considers TReDS to be a revolutionary step and feels that with this the dependence of the businessmen on the banks will reduce manifold and the payments will become a lot easier. The entrepreneurs will be able to manage their working capital without taking repeated loans every few months.
SP Sharma, Chief Economist, PHD Chamber, said, “MSMEs sector is a very significant sector for the economy as it contributes to more than one-third of the GDP of India. It also contributes 40 percent of the exports sector and 45 percent of the manufacturing and production sector.
He says that as compared to other countries which have more than 70 percent contribution in their economy from the MSMEs, we lag behind. The MSMEs sector has tremendous potential and can help in improving the growth rate of our country if the resources are utilised by it in full potential. The sector’s contribution in GDP can increase manifold with time.
SP Sharma also believes that the availability of finance has always been a major roadblock for the MSMEs, where the banks ask for collaterals from the entrepreneurs and refuse to sanction the loans without them. This becomes a big hurdle in the expansion and diversification process for them.
He said, “The complex paperwork in the loan sanction process should also get reduced and the stringent rules must be simplified for the businessmen, then only the real benefits will be able to reach them.”
Ram Mohan Mishra claims that India is moving towards a turnover-based lending now and its outcomes will reach the businesses. The bankers can now check the turnover of these businesses online, understand the trends and verify them. That database has also been linked with the Income Tax department through the PAN cards which helps the bank in verifying all the important information of the business.
He added that all these schemes will help in improving the system of credit ratings for the banks. “Through the help of digital empowerment, there is a major focus on the big data analytics where all the information will be available together at one place, just with a click,” he said.
“If we scrutinise these schemes deeply, we will understand that this has helped the business in getting rid of the Inspector Raj system. Now, for site checks, clearances, and other sudden inspections, the inspectors cannot arrive at the business's doorstep without informing them in advance. This will help the businesses in regaining confidence, will remove the fear of sudden inspections, and motivate them to perform better,” Ram Mohan Mishra said.