Credit and finance for MSMEs: With the union budget 2023-24 around the corner, experts from India’s MSME ecosystem have called for a slew of measures to ease financial complexities surrounding small businesses ranging from delayed payments to credit availability, taxation, cost of doing business, invoicing, and more. While a number of steps have been undertaken by the central government post Covid to help MSMEs revive their growth, experts have cited some additional steps for the government to fill the gaps.
Beginning with delayed payments, around Rs 10.7 lakh crore or an estimated 5.9 per cent of India’s gross value added (GVA) is locked up annually in dues pending to MSMEs, according to a 2022 report published by the non-profit entity for promoting entrepreneurship Global Alliance for Mass Entrepreneurship (GAME). 80 per cent of this estimated amount is owed to micro and small enterprises (MSEs), totalling Rs 8.55 lakh crores. To provide relief to MSMEs from the issue of delayed payments in the budget, GAME’s Co-founder Madan Padaki suggested, “delayed payments to be added as an indicator within the EoDB 2.0 (Ease of Doing Business 2.0) under development by the Department of Promotion of Industry and Internal Trade.”
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EoDB 2.0 is the next phase of the government’s ease of doing business initiative announced by finance minister Nirmala Sitharaman in her last year’s budget speech to further develop a business-friendly environment. The new initiative is yet to be launched.
Padaki also suggested enabling Online Dispute Resolution (ODR) to address payment-related disputes as the government’s Samadhaan portal has been “partially addressing” the issue by allowing suppliers to escalate their issues. Further, the “government should empower MSMEs to act independently against negligent buyers by bringing out a formula for delayed payments to directly impact the borrowing costs of large buyers, as well as introduce a mandate that will ensure Miniratna, Maharatna, and Navratna companies transact on the invoice discounting platform TReDS.”
Currently, participation on TReDS is restricted to companies with up to Rs 250 crore annual turnover. However, to reach more MSMEs and buyers, it is important to give larger enterprises access to TReDS. “This policy suggestion has been on hold for a while. Alternatively, participation on TReDs should not be restricted to companies with up to Rs 250 crores in annual revenue; rather, a broad approach should be taken and companies with up to Rs 2,000 crores in annual revenue should be allowed on TReDS,” said Arvind TCA, Co-Founder of supply chain finance structuring firm Artfine.
The number of invoices uploaded and financed through TReDS had more than doubled in FY22 while the success rate improved to 94.7 per cent from 91.3 per cent a year earlier, said a Report on Trend and Progress of Banking in India for FY22 by RBI in December. Invoices uploaded on TReDS increased to 17.33 lakh in FY22 involving Rs 44,111.80 crore from 8.61 lakh invoices involving Rs 19,669.84 crore uploaded in FY21.
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Another key ask by Arvind was making the government’s Open Credit Enablement Network (OCEN) accessible to MSMEs. Launched in 2020, OCEN allows consent-based access to information from various data sources and connects borrowers with lenders for access to affordable credit. However, Arvind said the government has overlooked a crucial aspect of the OCEN process that prevents MSMEs from using it for loan purposes.
“While account details are available to individuals, they are not available for MSMEs. The government should, therefore, encourage the flow of information if it wants to have an impact. Some signature developments in the budget announcement are needed to expedite the process and enable retail banking for SME companies,” he added.
Further, to boost working capital finance, particularly for MSMEs selling via the e-commerce model, Vidit Aatrey, Founder & CEO of e-commerce company Meesho suggested lowering the Goods and Services Tax (GST) on input services like logistics and facilitating refunds of the accumulated input tax credit. Over April-November 2022, around 2.9 lakh sellers on Meesho dealing in products, which attract less than 18 per cent GST saw input tax credit accumulation of Rs 265 crore.
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