Ensure credit flow to MSMEs
Demand pick-up in certain sectors this festive season brings little cheer to the overall economy. The worst affected in the chain are MSMEs, smaller construction, engineering and component firms. Interactions with smaller construction firms indicate many of them would soon find it tough to even pay salaries regularly if things don’t get better in terms of credit flow or the payment backlog getting cleared.
The finance minister, in one of her economy boosters, announced public sector firms would clear the dues on time. But that has a longer timeframe to trickle down to the MSMEs. And what about stalled projects, ask contractors. Compounding issues for these firms are the upfront GST and income tax they pay—loan melas aren’t going to help unless there is a concerted effort to reach credit to these firms against receivables.
Why can’t banks make specific credit arrangements against the GST paid in advance? Banks getting risk averse is also choking loans to smaller businesses. Almost every bank including public sector banks say they are cutting down on loans to below ‘Double B’ or ‘BB’ rating to limit potential delinquencies. Rating agencies aren’t also too kind when it comes to smaller companies. Unless problems faced by this segment are decisively addressed, employment and demand issues could get worse.
Apart from credit issues, it is important that stalled projects that can drive employment and core sector growth are identified and restarted. Take for instance the city of Mumbai alone—major projects like the coastal road and high-speed rail corridor are stuck in various stages for multiple reasons. A mega refinery on the West coast has remained a non-starter. At a time when private sector investment has taken a back seat and dependence on the public sector has grown manifold, it is important for governments, both Central and state, to look at projects and prioritise them to drive the economy and start a cycle of investment revival.