Analysts are divided on the fresh capital infusion to revamp the credit guarantee scheme for micro, small and medium enterprises (MSMEs) announced in the budget. In her budget speech, finance minister Nirmala Sitharaman said the government would add Rs 9,000 crore to the corpus of Emergency Credit Line Guarantee Scheme (ECLGS), which is expected to aid smaller companies still fighting the fallout of the pandemic-induced slowdown.
What do experts say?
HP Kumar, senior executive committee member, FICCI-CMSME (a body that aims to empower MSMEs), and director, external affairs, Power2SME Pvt Ltd, the incremental capital infusion will benefit the small-scale MSME sector by augmenting the corpus of the credit guarantee fund trust and facilitating incremental credit of Rs 2 lakh crore.
But not everyone shares this view.
Economist Jayati Ghosh told Moneycontrol that the Rs 9,000-crore infusion will be insufficient considering the requirement of the sector. "I also doubt whether they will finally end up spending it. The MSME sector is seriously suffering, this is not going to be sufficient to do anything. There's much more that needs to be done in a much bigger package," Ghosh said.
What do the numbers say about MSMEs?
According to data from India Brand Equity Foundation, a department of the Ministry of Commerce and Industry, India has 6.3 crore MSMEs employing over 11.6 crore people. The number of new MSMEs registered in the last one years has gone up by approximately 70 percent, according to data from the ministry.
However, over 6,200 enterprises shut down business during 2021-22, data from the Udyam Registration Portal, Bhanu Pratap Singh Verma, the minister of state for micro, small and medium enterprises, told the Lok Sabha on January 2.
What does the industry want?
MSME associations said real ground-level support for MSMEs requires timely payments by buyers, as delays in receivables are the major constraint to MSME growth.
"The support from this government needs to be on a wider dimension, including the availability of raw materials at competitive terms and the usage of the right technology to ensure quality," said Jyoti Gadia, convenor of the CII Delhi state panel on MSMEs.
Moreover, the scheme is applicable only for a loan of up to Rs 2 crore. Beyond that, this guarantee is not available, and experts see this as one of the major challenges.
"For a growing enterprise sales small and small enterprise the turnover limit is 50 crores for classification. If the turnover is 50 Crore their credit needs could be around 10 crores up to date it can be up to 10 Crore. But the guarantee under this scheme is available only for a loan up to Rs 2 crore," said Kumar.
Some experts said the scheme operates as a partial guarantee. "The guaranteed availability is not free; there is an annual service charge and premium that averages 1 or 2 percent," said a FICCI senior executive committee member.
Credit growth to MSMEs increased by 30 percent during the first nine months of the current financial year, according to Economic Survey 2023.
"Going ahead, the additional Rs 9000 crore capital infusion for the ECLGS would help MSMEs to get more credit facilitation from the banking sector," said Saket Dalmia, president, PHD Chamber of Commerce and Industry.
Dalmia added that the scheme helps MSMEs meet their credit requirement of up to Rs 2 crore. "However, there is a need to increase this limit and expand the reach to a larger number of beneficiaries in order to meet the credit needs of the sector," he said.
Call for skill development
Industry experts said there needs to be a greater focus on skill development in the sector. "I think the government may not have enough resources to train so many people, but they must find some way of designating some agencies that could undertake this work," said Ram Kaundinya, director-general, of the Federation of Seed Industry of India (FSII).
Kaundinya said the government can identify some agencies and fund them to encourage capacity building and skill development of MSMEs.
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