MSME Thrust: Government To Refocus On Small Enterprises To Boost Job Creation & Growth

Amid rising concerns over unemployment, supporting the MSME sector will be critical as it employs more than 9 crore people.

Besides, the issue of climate change which has started impacting both the economy and people's lives, is also likely to be deliberated upon. The impact of climate change and related financing norms have also impacted the small enterprise sector. 

The Prime Minister is likely to discuss the progress of the Budget proposals aimed at bolstering the MSME sector. Many of these steps were taken after thousands of MSMEs in the country were forced to wind up in the last couple of years for various reasons.

Finance Minister Nirmala Sitharaman had announced a host of measures including extension of collateral-free term loans for purchase of machinery and equipment and in-house credit assessment for MSMEs by public sector banks.

The government had also announced the setting up of a new credit assessment model based on the scoring of digital footprints, the increase of MUDRA loans from Rs 10 lakh to Rs 20 lakh for entrepreneurs who availed and successfully repaid previous debts under the ‘Tarun’ category.

However, officials feel, the implementation of each of these proposals would need to be monitored and improved upon given the past track record of agencies charged with working with MSMEs.

Credit Is A Major Problem For MSMEs

Analysts within the government point out that though banks meet the 15 per cent lending target for MSMEs, credit is rarely distributed evenly. Multiple sources said that banks often tend to meet the target by lending only to those “few” with “good credit history”.

“The unhelpful approach of banks might lead to more closures of MSMEs that face financial stress post covid,” Anil Bhardwaj, secretary general, the Federation of Indian Micro and Small and Medium Enterprises (FISME) told The Secretariat.

While the government has put in place several schemes to support the sector, the MSMEs are still battling a credit crunch.

“Banks have their own issues as they need to keep an eye on their loans and it is also a fact that due to multiple reasons, many MSMEs fail to repay on time but that is not necessarily wilful default and must be treated differently,” said Saibal Ghosh, former CEO of Suez India Ltd.

“While small loans like Mudra have expanded due to political pressure, typical small and medium sized enterprises continue to face difficulties in accessing finance," Bhardwaj said.

According to the Reserve Bank of India's (RBI) data in June, scheduled commercial banks’ lending towards micro and small enterprises stood at Rs 20,20,474 crore against Rs 17,69,204 crore in the corresponding month in the previous year, representing an increase of 14.2 per cent.

Compared to March when the credit outstanding to micro and small enterprises stood at Rs 19,74,191 crore, the increase has been just 2.3 per cent.  

According to the Udyam portal, as of March, Maharashtra has the largest share of MSMEs in the country with over 17 per cent. Tamil Nadu stands second with more than 10 per cent share. The northeastern states have the least share.

Meanwhile, Modi started the practice of holding an annual meeting with chief secretaries in June 2022.

“The upcoming conference will be interesting as this would be the PM’s first as the head of a coalition government,” an insider said.

In the third National Conference of Chief Secretaries held in December last year with the overarching theme of "Ease of Living", issues related to drinking water, electricity, health and its accessibility, affordability and quality, schooling, along with land and property were discussed at length.

According to the PMO, the aim of the conference is to promote the principles of cooperative federalism. The focus on MSMEs is justified because the sector is in a crisis as it has to do with its importance to the overall political economy of the nation.