Revamping MSMEs

In News

• The Union budget 2023 presents an opportunity for our visionary government to amp up its efforts towards making our MSMEs competitive and self-reliant.

MSME Sector In India 

• About:
  • Micro, Small and Medium Enterprises (MSME), are small-sized business enterprises defined in terms of their investment.
• Significance of the sector:
  • Contribution to GDP:
    • In India, the sector has gained significant importance due to its contribution to the Gross Domestic Product (GDP) of the country and exports.
  • Contribution in Development: 
    • The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socioeconomic development of the country. 
    • The sector has also contributed immensely with respect to entrepreneurship development, especially in semi-urban and rural areas of India.
  • Resilience in disruptions:
    • Despite concerns of a looming global recession, supply disruptions and the Russia-Ukraine war, India has stood out as a bright spot, growing faster than most major emerging markets.
    • The 6.3 crore micro, small and medium enterprises which account for 30 per cent of GDP and employ nearly 11 crore people have demonstrated this spirit of resilience. 
    • With sales in several industries across the MSME sector reaching 90 percent of pre-pandemic levels, India’s small businesses are scripting a turnaround.

Challenges Faced by MSME Sector in India

• Mounting NPAs of MSMEs:
  • According to the RBI, bad loans of MSMEs now account for 9.6 per cent of gross advances of Rs 17.33 lakh crore as against 8.2 per cent in 2020.
  • The MSME sector was among the most pandemic-afflicted sectors. 
    • Thousands of MSMEs either shut down or became sick after the government announced a nationwide strict lockdown.
• Non-availability/Delays of Funds:
  • Mounting losses and debts, non-availability of proper financial help and delays from the government, reluctance from the banks for the funding, etc.
  • MSMEs in India typically rely on NBFCs for their financing needs, which in itself has been enduring a liquidity crunch since September 2018.
• Lack of Formalization:
  • Almost 86% of the manufacturing MSMEs operating in the country are unregistered. Out of the 6.3 crore MSMEs, only about 1.1 crores are registered with the Goods and Services Tax (GST) regime and the number of income tax filers are even less.

Government initiatives for MSMEs in India:

• Pradhan Mantri MUDRA Yojana (PMMY):
  • Under PMMY loans are provided up to Rs. 10 Lakh through Member Lending Institutions (MLIs) viz; Banks, Non-Banking Financial Companies (NBFCs), Micro Financial Institutions (MFIs), other financial intermediaries, in three categories namely, ‘Shishu’, ‘Kishore’ and ‘Tarun’ which signifies the stage of growth or development and funding needs of the borrowers.
    • Shishu: covering loans up to  Rs. 50,000/-
    • Kishore: covering loans above  Rs. 50,000/- and up to Rs. 5 lakh
    • Tarun: covering loans above  Rs. 5 lakh and up to Rs. 10 lakh
  • Objectives: 
    • To signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation/growth.
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): 
  • This scheme provides collateral-free credit to micro and small enterprises through a credit guarantee mechanism.
• Stand Up India: 
  • The scheme provides financial assistance to scheduled caste (SC), scheduled tribe (ST) and women entrepreneurs for setting up new enterprises.
• Harmonizing value chain: 
  • Government to focus on integrating India’s value chains with the rest of the world and creating logistics that are easier and faster is crucial to make it easier for international companies to include India in their value chains.
• Quality assurance: 
  • Government to focus on creating Quality as the most important factor in the success story of India through steps including- setting global benchmarks, harmonizing Indian standards with global standards, and consumers becoming more demanding of quality.
• Comprehensive Economic Partnership Agreement (CEPA): 
  • It will help MSMEs of both India and the UAE to leverage the benefits of the District as an export hub initiative of the government.
  • Under this initiative, every district for its unique products and identify the speciality of districts by knowing which district exports which products. 
  • This initiative is expected to help in promoting local products and in turn, boost the local economy.

Suggestions 

• Three key parameters that are vital for the success of MSMEs include: 
  • Financial stability, 
  • Availability of skilled labour in MSME clusters, and 
  • Market competitiveness of their products to achieve import substitution as well as exports.
• Market-oriented strategy:
  • With a self-reliant India vision, it is highly important to improve the competitiveness of MSMEs through an inclusive market-oriented strategy.
  • To remain relevant in the market, MSMEs need to be adaptable with changing markets and variable demand scenarios.
    • Ensuring the capacity and availability of raw materials to MSMEs is also crucial.
• Quality enhancement & automation:
  • There is a need to improve the capability of Indian MSMEs to supply quality products.
  • MSMEs could be introduced to low-cost automation techniques, which work in tandem with the human workforce.
• Branding:
  • Branding and advocacy will also be needed to leverage the positive connotations associated with certain Indian products and assess negative connotations that can be removed.
• Lowering GST rates:
  • From meeting fixed expenses such as electricity, rent and employee wages to investing in future growth, adequate working capital is a must for small businesses. 
  • By lowering GST rates on input services availed by online sellers, the government will not only shore up their finances but also give a leg-up to their digitisation journey. 
    • There is also a need to expedite GST relaxation for small online businesses. 

Way ahead

• The MSME (micro, small and medium enterprise) sector in India can play a significant role in achieving the vision of a self-reliant India. Suggest ways to revamp the sector.