In budget speeches and election campaigns we are always told that MSMEs (Micro, Small and Medium Enterprises) are the backbone of the Indian economy. But during the Covid-19 pandemic and even after that, the sector did not get any strong support from both Union and State governments to forge a speedy recovery. The impact of the pandemic was particularly harsh on MSMEs and it was officially reported that lakhs of companies have turned into non-performing assets.
Micro industries with annual turnover of less than Rs 5 crore, which account for nearly 98% of all MSMEs, were the worst affected by the pandemic. Left with no choice, these units were forced to borrow from NFBCs (non-banking financial companies) at exorbitant interest rates of 18% to 24%.
The RBI guidelines under “Aatmanirbhar” directed 20% of ECLGS (Emergency Credit Line Guarantee Scheme) on utilized overdraft facility as on 29/02/2020 (date much before the COVID) be extended to industries, but it was of little use to the MSMEs as the credit was extended only to large industries including aviation companies.
The number of micro industries that utilised ECLGS was much lower than the projected figure because of the derisory lending policy of banks. While small industries were expecting meaningful assistance like reduction in income tax, tweaking of SARFAESI Act, additional export incentives, restoring the threshold of cases that can be brought to NCLT to Rs 1 lakh instead of Rs 1 crore, none of these expectations were met by the government.
Instead, companies in manufacturing and services sector with turnover of up to Rs 250 crore were brought under MSME sector due to change in definition. Also, companies involved in wholesale and retail trading activities were also allowed to obtain UDYOG Aadhaar to access benefits under priority sector lending. Loans under Credit Guarantee Fund Trust for Micro Small Enterprises (CGTMSE) were hardly given and as per post-Covid data only about Rs 50 crore loan was given to 201 units under the scheme.
The new government that took charge in May 2021 under Chief Minister M K Stalin promised support, particularly small and micro industries, by reducing land rates in SIDCO industrial areas. It also formed a revival committee under the chairmanship of Dr N Sunderadevan, former industries secretary of Tamil Nadu. The panel, which submitted its report to the CM in early 2022, flagged a potential credit gap of Rs 2 lakh crore in TN MSME sector. The findings and recommendations of the committee may require larger discussion and may take five to seven years to be implemented.
While the recent announcements of TNCGTSME to extend up to `40 lakh credit guarantee by State financial institutions and TNTReDS Trade Receivable Discounting Scheme for vendors of State-Owned Industries are largely welcome, on-boarding of large industries in TNTReADS is also important. Drafting new schemes to ensure sustainability of existing entrepreneurs and attracting new entrepreneurs is also pivotal. As per the sixth economic census, of the 6.5 crore MSMEs in India, 50 lakh are in Tamil Nadu. Of this, at least 80% are in unorganised sector.
Though major policy interventions can be made only by the Centre, the State government can meet the expectations of industries by improving infrastructures in industrial estates, building trade and promotion centres for every four or five districts, and by setting up skill development /training centres in Chennai, Coimbatore, Madurai and Tiruchy, and improving medical and hostel facilities for the large MSME workforce. Dedicated trade and convention centres for MSMEs must also be set up to help them exhibit their products frequently at nominal cost. Government must also continue to offer subsidies like capital subsidy to give relief to the sector.
The recent decision of the Tamil Nadu Industrial Investment Corporation (TIIC) to reduced interest subvention from 6% to 3% and increase in property tax and hike in power tariff do not augur well for the industry. It is also important to protect the industries from anti-social elements and demonstrate firm action against such elements. Launching State Owned Insurance to mitigate business risk and natural calamities will also help micro industries.
Also, dedicated insolvency and bankruptcy codes are imperative for proprietary and family-owned businesses. Public policy must be redesigned to ensure that 50% government procurement is done from MSMEs. History shows that issues such as social inclusiveness, women’s empowerment and poverty alleviation can be achieved only by strengthening small and micro industries.
Footnote is a weekly column that discusses issues relating to Tamil Nadu
Lifeline for MSMEs
The TN govt can improve infrastructure in IEs, build trade and promotion centres, and set up skill development centres
S Vasudevan is
Vice President of Tamil Nadu Small and Tiny Industreis Association (TANSTIA)