NEW DELHI: Prime Minister Narendra Modi has announced a host of measures to boost the ailing Micro, Small and Medium Enterprises (MSME) sector. While the industry has welcomed these measures, they feel that it is too little and too late and that the sector’s revival would depend on combined efforts from both the government and the banks.
One of the second largest sectors in terms of employment — roughly 11 crore jobs — MSMEs contribute to 32 per cent of the economy. However, the past two years, in particular, have been very challenging for the sector in India.
The GST rollout has visibly hurt businesses. According to a survey conducted in July by All India Trade Union Congress, one-fifth of India’s 6.3 crore small businesses had seen a 20 per cent fall in profits since the rollout.
“More than the erosion in profits, there has been increased harassment by officials who would treat us like criminals even for small errors in IT returns filing. I am glad the PM has talked about licensing raj,” said a Surat-based textile manufacturer.
Despite the government’s strong push for loans to MSMEs, the credit crunch was a major problem since banks were reluctant to lend to certain sectors such as textiles and gems and jewellery, amid increasing cases of frauds and rising NPAs. Smaller businesses were the worst-hit. The crisis heightened post-IL&FS fiasco. Rather than showing growth, the outstanding bank credit to MSMEs came down from Rs 4.73 lakh crore in September 2016 to Rs 4.69 lakh crore by September end this year.
“One of the reasons we were pushing for the RBI’s relaxing of Prompt Corrective Action norms was the MSME sector. When 11 out of 21 scheduled commercial banks are under PCA, who will lend to them? This NBFC crisis has accentuated the problem,” a senior Finance Ministry official told The Sunday Standard.
According to Ganesh Kumar Gupta, president, Federation of Indian Export Organisations, said that the announcement must be matched with proactive lending by banks.
“Banks should move proactively to increase the flow of credit as there is about 50 per cent drop in export credit in August 2018 as compared to August 2017,” Gupta opined.