Need to instil culture of innovation, competitiveness in MSMEs, says CEA Nageswaran

V Anantha Nageswaran

We need to continuously engage with MSMEs, to instil in them a culture of innovation, competitiveness, and breaking through into markets via quality, Chief Economic Adviser (CEA) V Anantha Nageswaran said on Tuesday.

"These are the attributes that we need to make sure that MSME entrepreneurs pick up on and cultivate, to strengthen themselves in these dimensions," Nageswaran said at the launch of the report on 'MSME’s Access to Finance and Timely Payments', by Global Alliance for Mass Entrepreneurship (GAME).

Nageswaran noted that timely access to finance and capital is crucial for MSMEs to grow, modernise and integrate into the supply chains. He highlighted that the amount of delayed payments to MSMEs has been coming down, and stressed on the need for a culture where MSME suppliers are treated on a par with larger players.

According to the GAME report, delayed payments to MSMEs have come down from Rs 10.7 trillion in FY22 to Rs 8.1 trillion in FY24.

On MSME’s facing challenges in access to credit, after being classified as special mention accounts, the CEA said that when an account becomes SMA, "the idea is that you nurse it back to health". "But if they are denied credit, then you actually accelerate the very thing that you wanted to avoid. That is something we need to think about," said the CEA.

A SMA is a classification for a borrower's loan account (if non-payment of principal or interest crosses 30 days) that shows, early signs of financial stress or potential repayment difficulty. If the payment (of principal or interest) remains overdue for more than 90 days, the loan account is typically classified as a Non-Performing Asset (NPA).

The report says that "once an account is flagged as an SMA, the account becomes a pariah, and the bank brings even the normal banking operations to a grinding halt".

It recommends that accounts should not be classified as SMAs or NPAs until a thorough evaluation of any rehabilitation proposal in conducted, and says 30-day timeframe should be reconsidered as it may not "realistically" reflect the financial stability of a unit.