Why in news?
Union government has announced a package of 12 initiatives for Micro, Small and Medium (MSME) sector.
What were the issues faced by MSME?
- Over the past two financial years, the MSME sector has suffered considerably by back-to-back policy shocks demonetization (in FY17).
- The introduction of the goods and services tax (in FY18) both of which led to a sharp reduction in incomes in this sector.
- The ongoing crisis in the country’s non-banking financial companies sector, triggered by the weakness in IL&FS, has further restricted the flow of credit to the MSMEs.
- In this context government has introduced new reforms to assist this crucial sector of the economy to achieve its potential.
What is government’s plan on MSMEs?
- Union government measures are aimed at not only boosting credit availability to the beleaguered sector but also making it easier for them to conduct business.
- For providing quick and fast relief from the liquidity crunch, the PM announced the countrywide launch of a web portal to sanction loans of up to Rs 10 million in just 59 minutes.
- In the first phase, the government will target 78 MSME clusters and officials from five public sector banks will be stationed in these locations to ease the process of the loans.
- Further, a 2 per cent interest subvention will be provided on incremental and new loans to those MSMEs that have already registered for the GST.
- The package also provides an increase in interest rebate for exporters who receive loans in pre- and post-shipment periods.
- Besides easier credit, the package focused on improving business viability by asking all public-sector undertakings (PSUs) to henceforth buy 25 per cent of their inputs from MSMEs, as against 20 per cent earlier.
- Similarly, all public-sector companies and corporates with a turnover exceeding Rs 5 billion have to mandatorily register on the Trade Receivables Electronic Discounting System portal a move that will enable entrepreneurs to access credit from banks, based on their upcoming receivables.
- Government also announced a simplification of procedures with respect to seeking environmental clearances, inspections and filing returns.
- An Ordinance to amend the Companies Act has been approved as well to reduce harassment and obviate unnecessary litigation.
What lies ahead?
- Without a doubt, these measures would go a long way in helping the MSME sector, however there are valid reasons to be cautious.
- These measures have the backing of the PMO that a focused monitoring of the government’s reach-out to small businesses across 100 districts in the next 100 days.
- Due to this officials may feel compelled to show short-term results while ignoring potentially adverse long-term consequences.
- For instance, in the zeal to offer more and quick loans to MSMEs, efforts must be made to ensure that credit discipline does not become a casualty.
Source: Business Standard
