Ease of doing business for MSMEs: Micro, Small and Medium Enterprises (MSMEs) are the most affected sector in India due to the Covid-19 pandemic lockdown and they are fighting on many fronts. It faces a liquidity crunch, late payments, high default risks, supply chain disruption and labor shortage, among others.
Last year, the government announced a series of initiatives for the sector. Many worked as the Rs 3 lakh crore emergency line of credit guarantee program (ECLGS program) which provided full coverage guarantee to banks and NBFCs so that they could provide emergency credit facilities to MSMEs. and businesses affected by Covid. Under ECLGS, banks sanctioned loans worth Rs 2.46 lakh crore to around 92 lakh borrowers.
However, many sectors, especially services, have been left to fend for themselves. Beauty, travel and tourism businesses, as well as the hospitality industry are still struggling to get back on their feet, and many have closed their doors.
“Considering the size and scale of the sector, these initiatives do not offer financial support to the MSME sector, only moral support,” Chandrakant Salunkhe, founder and chairman of SME, told Financial Express Online. Chamber of India. He added that according to their survey, only 45% of the workforce is back to work, the rest are still in their villages even a year after the lockdown was announced – most of them are in. sectors such as infrastructure, real estate and logistics. Many factory workers still have not returned. Several of these issues, including delays in trade receivables, will impact their turnover which in turn will significantly reduce their withdrawal limit from banks.
As MSMEs find their feet on the ground, Anil Bhardwaj, general secretary of the Federation of Indian MSMEs (FISME), said the game changer for the sector would be swift legislation and notification of the insolvency resolution framework. for the MSME sector. He explained that currently, the Insolvency and Bankruptcy Code (IBC Code) is aimed at companies while 97% of the MSME sector which includes sole proprietorships and partnership companies is outside its scope. ‘application. Therefore, if they default for whatever reason, there is absolutely no mechanism for them to file for bankruptcy or restructure their loans.
“While the RBI has restructuring programs for MSMEs, they are shackles and do not respond effectively to the needs of the sector, ”he said. It can be seen that when an MSME defaults, banks are predisposed to take over their assets for liquidation in order to allow loan recovery. “What would work is to distinguish between companies that are really sick and those that have the potential for turnaround if a moratorium is granted. This would help the country maintain its productive assets, thereby creating more jobs and income in the future, he said.
One of the industry’s longstanding demands has been to simplify the GST and reduce the tax rate, which is badly needed as the industry revives and adapts to the new normal. “To help MSMEs recover from the liquidity crisis, the government can introduce a mechanism whereby once an SME raises an invoice for its customers, especially large companies, the latter can pay the GST directly to the government. Said Salunkhe. This will ensure that the working capital of SMEs will not be blocked by the GST.
He also suggested diluting strict compliance with labor laws to one year for SMEs that employ up to 100 workers to reduce compliance costs.
The last budget focused on promoting domestic manufacturing that benefits the MSME sector, but rising input costs are putting a lot of pressure on small and medium-sized enterprises. “There is a need to tackle the rising cost of inputs in the form of steel, iron, copper and other metals, which has become a serious concern for the sector. Input costs have increased, which in turn has excluded many smaller players from the market, ”said Rajesh Khosla, president and CEO of glass bottle maker AGI Glaspac.
The government can also justify tariffs and tariffs to increase the contribution of MSMEs to exports. This can be encouraged by research and development through incentives and helping small industries with technology upgrade plans, suggested Milan Thakkar, CEO of building materials manufacturing company Walplast.
Heavy investments in infrastructure and development should also be considered. “The support that the National Infrastructure and Development Finance Bank (NBFID) will provide will determine the support that the MSME sector will also receive in terms of equipment and investments which indirectly also create new jobs,” Thakkar said.
While several programs have been announced by the government, there is a need to offer MSMEs a compendium of incentives that address their concerns holistically.