Notwithstanding the headwinds from the pandemic, India’s opportunity to rev up its economic engine looks both realistic and imminent. The MSME sector, being a true growth propellor, needs priority in leading the charge, especially for its power to accelerate job creation across demographics.
The challenge though, is to have a two-pronged approach, responding to the current exigencies of the sector while continuing to evolve a conducive ecosystem for its sustainable growth. It would be great to see the upcoming budget address this.
Ease credit access
A persistent, everyday hurdle for MSMEs, especially for the ones in the Micro and Small regions of the spectrum, is access to finance. Only a fraction of them can avail credit from banks, leaving a vast majority to be serviced by NBFCs and a larger chunk by locally operating usurers.
The sector will benefit immensely if access to formal and reliable credit is expanded, that, too, in a manner catering to the needs of demographically underserved entrepreneurs like women and youth through collateral-free land gender-sensitive loan products.
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So as to provide relief to MSMEs from the impact of the pandemic, Rs 4.5 trillion has been made available to the sector between May 2020 and June 2021 through the landmark Emergency Credit Line Guarantee Scheme (ECLGS) of the union government. However, preliminary data indicates that NBFCs accounted for only a small fraction of the disbursal, indicating that large sections of micro and small enterprises could not take advantage of the additional credit availability, presumably due to the cap on the lending rate at 14 percent, which constrained NBFCs.
If steps are taken to reduce the cost of funds for NBFCs and reasonable flexibility in interest rates is allowed, ECLGS could serve millions more micro and small enterprises and ease them out of the current financial crunch.
Address delayed payments
The problem of Delayed Receivables, which dent our economy by an estimated Rs 15 lakh crore, continues to devastate MSMEs. While there have been commendable efforts such as the Samadhan portal to mitigate the problem, the enormity of it calls for immediate additional measures both by way of tighter compliance requirements against payment delays as well as incentivising third-party solution providers.
If the credit and liquidity crunch is addressed through a number of such measures, gearing up the ecosystem for long-term and sustainable growth assumes concurrent importance. Rationalising regulatory norms will be a big enabler in this direction.
Promote digitisation
Considering that digitised enterprises show double the growth potential of their traditional counterparts, enabling ease of digitisation of MSMEs would be a big catalyst for all-round growth. Standardising the turnover threshold for GST registration (which is currently at Rs 40 lakh for offline enterprises while applicable to all online enterprises regardless of their revenue) will remove a big stumbling block that currently impedes digitisation.
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Remember, digitisation also aids the transition of enterprises from informal to formal, which will open up a host of possibilities for them to thrive, including access to formal credit and greater market linkages, while the economy stands to gain through increased tax revenue.
At a time when we encounter massive job losses with little prospect of any large-scale uptick in corporate or government jobs, a resurgent economy can’t do without unprecedented levels of employment generation. Known for their ability to generate jobs at lower capital costs, MSMEs will be relied upon more than ever in the past.
