17/10/2020 - Government Policies | Mainstorming

IAS Parliament 4 years

KEY POINTS

· The enterprise or the “Udyam” as it is termed under the new Udyam registration process will register itself online based on self-declaration.

· The endeavour to digitally register MSMEs is not new. In 2015, the government notified the Udyog Aadhaar Memorandum (UAM), an online filing system for MSMEs. The registration process was free, paperless and awarded instant registration.

· It was based on the self-declaration and self-certification of basic information regarding the enterprise’s existence and functioning. Reliable and updated information regarding small businesses in India is absent.

· Comparing the requirements of the UAM and Udyam registration, it is clear that the importance of generating a verified database of MSME units has been acknowledged.

· In its updated Priority Sector Lending (PSL) guidelines, the RBI has established that for the purposes of PSL, MSMEs will be identified as per the gazette notification laying down the new process of classification and registration.

· The slightest chance of the Udyam registration turning into an entry barrier must be rectified before April 2021. To this end, the government and RBI should consider whether the registration requirement can be exempted for units with investment and turnover that falls in the lower end of the criteria that presently defines micro-enterprises, for the purpose of accessing formal credit.

· In 2018, the International Finance Corporation estimated that the overall supply of finance from formal sources met only one-third of the credit demand of the MSME sector. These businesses prefer relying on informal sources for financing due to their inability to meet documentation protocols, inadequate collateral, disorganised book-keeping, among others.

· Enabling strategies such as PSL could provide a fillip to priority sectors including MSMEs which require increased formal financing. It is imperative that such institutional lending initiatives continue to remain accessible for all businesses, formal and informal, and deliver on the promise of financing for inclusive development.