Tue Jun 8, 2021

According to the annual report by the Government (2018-19), there are around 6,08,41,245 MSMEs in India. MSMEs contribute nearly 8% of the country’s GDP, around 45% of the manufacturing output, and approximately 40% of the country’s exports. They undoubtedly represent the Backbone of Indian economy.
Micro enterprises are those sole proprietorship or Partnership ventures employing less then ten employees and are engaged in localized production catering to local needs. Although the term microfinance should refer to the financing of micro units, it has come to assume a special meaning after the pioneering work of Muhammed Unus of Bangladesh, who evolved an innovative method of financing groups of illiterate and poor women for sustaining their livelihoods. In India this model was replicated at the initiative of NABARD in the early 1990s when the concept of Self Help Groups (SHGs) was introduced on a pilot basis in three States viz. Andhrapradesh, Karnataka and Tamilnadu. Since then the mechanism of Bank lending through the SHGs has caught on like wild fire and has become a resounding success throughout the country. These SHGs are small groups of 10 to15 women hailing from a contiguous area having similar socio-economic background, who operate on the principles of self-help, solidarity for mutual benefit. By 2020 there are about one crore SHGs covering members of 12 crore families in India. About 63 lakh SHGs have been credit linked with Banks boasting of a loan repayment record exceeding 90%.
The Small Scale enterprises are those employing not more than 50 persons. As per the instructions of the RBI, SSI have been categorized as priority sector along with Agriculture and Exports. Banks are expected to lend atleast 40% of their  total loans and advances to the priority sector.
Medium- sized industries are those employing less than 1000 employees  earning annual revenue of more than $50 million ,but less than $1billion.
Thanks to the Internet explosion and the phenomenal increase in the use of Smart phones in India, the MSMEs are in a position to reach their customers directly, bypassing the middlemen. Digital portals such as the E- Market are further boosting their business.
Despite the strident growth witnessed by the MSMEs, several constraints have also been plaguing the sector. A majority of these units are constrained by low economies of scale and are unable to upscale their operations due to lack of adequate funding support from the Banking system.This is essentially on account of their inability to provide any collateral security in respect of their funding requirements. Banks continue to insist on collateral security, notwithstanding the instructions of the RBI to the contrary. The high degree of delinquencies in repayment  of  Bank loans  by many of the MSMEs was one of the main reasons for the  apathy of banks in increasing their  exposure to this sector. Moreover when certain units manage to produce any innovative or unique products, the same get very rapidly replicated in no time by the larger manufacturing industries, that too at lower cost, due to the favourable economies of scale enjoyed by them. Hence the unit/s which produced  the product originally, quickly go out of business. Another major shortcoming pertaining to this sector is their inability to withstand adverse developments, such as the Corona Pandemic of recent times. In other words a single jolt tends to blow away the units.
With a view to providing a phillip to the MSME sector, the Government had in 2018 brought in several amendments to the MSME Act of 2006 extending numerous concessions and fiscal incentives. However these were kept in abeyance due to stiff opposition  to the insistence  on compulsory registration of the  units. Some of the incentives and concessions  were ‐
  • Easy sanction of small business loans at lower rates of interest,
  • Exemptions in Excise duty,
  • Exemptions under Direct tax laws,
  • Priority in allotment of sites in specialized industrial estates,
  • Various Tax Subsidies,
  • Power Tariff subsidies,
  • Capital investment subsidies.
Undoubtedly the MSME sector has suffered a severe setback in the aftermath of the Pandemic. The Emergency Credit Line Guarantee Scheme (ECLGS) has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector. The Scheme aims at mitigating the economic distress being faced by MSMEs by providing them additional funding of up to Rs. 3 lakh crore in the form of a fully guaranteed emergency credit line. The main objective of the Scheme is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and Non-Banking Financial Companies (NBFCs) to increase access to, and enable availability of additional funding facility to MSME borrowers, in view of the economic distress caused by the COVID-19 crisis, by providing them 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers. The expeditious revival of the sector is imperative for ensuring rural prosperity as also to arrest the reverse migration of labour witnessed in recent times. 
Considering the benefits of this is yet to reach MSMEs adequately, there is more to be done right now. Most important among them is to reschedule the loan installments fallen due during the period affected by the Pandemic without the levy of any penal interest by Banks. Yet another is to help MSMEs rethink their growth strategy, to be able to transform themselves and be future ready !

S T Raghuraman, CGM ( Retd ), NABARD
S T Raghuraman, CGM ( Retd ), NABARD.

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