By Sandip Chhettri
Credit and Finance for MSMEs: The Central Government keen on promoting the start-up ecosystem in the country. In turn, this will give a fillip to the country’s MSME segment. The Union Budget 2023-24 is just the right time for the Centre to initiate appropriate policy measures to encourage MSMEs and other budding enterprises.
Though MSMEs play a pivotal role in India’s socioeconomic development, the segment faces many barriers, including funding constraints and more. Keeping this in mind, the Union Government could extend credit schemes expiring this year. Consider ECLGS (the Emergency Credit Line Guarantee Scheme), which is due to expire in March 2023. While the scheme has had multiple extensions after its launch in May 2020, another one is imperative because of the ongoing challenges MSMEs face due to the Russia-Ukraine war, which shows no signs of ending.
The RBI also needs to action its intent to completely digitalise KCC (Kisan Credit Cards) and SME loans. Earlier, the RBI Governor had noted that farmers, small enterprises and ancillary industry owners need to visit bank branches multiple times, along with relevant documents such as proof of land ownership and more. Digitalisation can speed up the loan process, ensuring easy access to formal channels of credit, thereby eliminating or limiting numerous bottlenecks and helping MSMEs become globally competitive. Digitalisation will accelerate both the growth and formalisation of the MSME segment.
Another important measure requiring implementation is permitting surety bonds by insurers in place of bank guarantees (BGs) for public procurement. Bank guarantees erode MSMEs’ working capital along with the requirement for margin money and collateral to secure BGs during public procurement. Announcing this in the 2023 Budget would be a big boost for MSMEs.
The other major pending issue is the Draft National MSME Policy, which was announced last year. The launch of this policy could act as a game-changer for the industry by ensuring the upgradation of technology, promoting competitiveness, cluster and infrastructure development, dedicated credit support and the procurement of MSME products.
The Budget should also promote female entrepreneurs, who contribute collectively to hardly three per cent of India’s industrial output while employing 10 per cent of its overall workforce in diverse activities. With barely 33 per cent of India’s early-stage entrepreneurs being women, the nation has the world’s third-largest gender gap.
The biggest barriers are complex rules plus the collateral and multiple documents that women require to avail of loans. As most women lack assets or collateral in their names, they are ineligible for credit. Given the hurdles, estimates indicate almost 70 per cent of the funding needs of women-owned enterprises are unmet. Consequently, women comprise barely 20 per cent of the country’s 63 million MSMEs.
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Therefore, the Budget could introduce policy reforms that remove the prevalent gender bias in India’s credit ecosystem. Additionally, awareness must be raised among female entrepreneurs about several schemes that provide women credit because uptake of the loan programmes remains subpar due to low awareness.
Moreover, incentives for MSMEs under the PLI (production-linked incentive) schemes should be enhanced. Presently, the PLI schemes are largely targeted at the major manufacturing industries, with MSMEs benefitting from the spill-over effect. Instead, incentives allocated directly to different MSME verticals will be more beneficial.
Apart from the Draft National MSME Policy, allied credit, employment generation and infrastructure development projects must all be implemented vigorously to benefit MSMEs and other industries at large. Proper implementation of all support programmes in letter and spirit is crucial since many worthwhile schemes fail to take off robustly due to inadequate institutional support.
Sandip Chhettri is the CEO of TradeIndia.com
