Even while PM Narendra Modi has retained power for the next five years, India’s micro, small and medium enterprises (MSME), which 24.63 per cent to the GDP from service activities and 33.4 per cent to the manufacturing output, is hopeful of reforms across key challenge areas. Among the key expectations is around the expert committee that was set-up in January this year to submit a report by the end of June to “understand the structural bottlenecks and factors affecting the performance of the MSMEs,” the Reserve Bank of India had said in a statement.
Led by former SEBI Chairman U.K. Sinha, the report would be looking at “current institutional framework to support MSMEs, “impact of economic reforms”, factors affecting “timely availability of finance”, adoption of “global best practices in India”, impact of “MSME-focused policies on the sector”, etc., the central bank had said.
“Due to demonetisation, GST, insolvency process of the corporate sector, and problems in the banking and NBFC sector has led MSMEs into deep distress. Because this committee is studying the problems and has met the stakeholders, the government should immediately implement the recommendation of this group when out in the report,” Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) told Financial Express Online.
The delayed realisation of bills has been among the eternal challenges facing MSMEs from large corporate and government organisations. The government had in October 2017 launched a dedicated portal for MSMEs called MSME Samadhaan to register their cases pertaining to delayed payments. So far, 17,417 applications have been filed by micro and small units out of which 1,302 applications have been mutually settled with buyers while 2,965 applications have been rejected by the MSE Facilitation Council.
“MSMEs are facing huge problems in realising payments from the public sector undertaking with delays. Whenever we try to take advantage of the delayed payment realisation process or facilitation council, it remains ineffective because once you get the order from the facilitation council you have to get it executed by the state government,” added Bhardwaj.
Another area of expectation is increasing the duration for non-performing assets beyond 90 days. “The new government along with the Reserve Bank of India (RBI) should focus on changing the NPA definition to increase it from 90 days,” Chandrakant Salunkhe, Founder and President, SME Chamber of India told Financial Express Online.
The RBI is looking at various options to rejig the NPA framework. Among the options include adding 30-60 days more to 90 days time before beginning with resolution process for stressed accounts, PTI had reported in April this year citing sources. The leeway would be looked at for businesses concerned to repay the loans, sources said.
Some of the other areas where Salunkhe seeks improvement includes lack of capital, high land and electricity cost, labour that is “not easily available, particularly in rural areas, lower interest rate on bank loan, and need for a leasing system to make industrial labs affordable for MSMEs.”
“We need to have financial sector reforms. 75 per cent banking sector is still in government hands. Most of the money they get through short term deposits ultimately used by different needs of the government rather than going for the creation of more value in the private sector. There is no need for the size and economy of a country like India to have 75 per cent of its banking sector’s leading norms and practices to be dictated by the government,” said Bhardwaj.
Moreover, the ranking of countries with respect to Ease of Doing Business (EoDB) gives a rough estimate by taking into account only a few cities, such as Delhi and Mumbai in India, to gauge a country’s business-friendly regulations. The need is to undertake the ranking across other cities as well. “For MSMEs, the biggest problem is the labour issue, the high cost of social security and a high benchmark for the minimum wages. Moreover, for the ecosystem to thrive it is important to acknowledge failure,” added Bhardwaj. Banking and financial sector providing finance to small companies should come out of the mindset that once a company is established it will not always be profitable.