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.
