Ease of Doing Business for MSMEs: Micro, tiny and medium enterprises (MSME) is the biggest impacted sector in India due to the Covid-19 pandemic lockdown and it has been fighting on a lot of fronts. It is dealing with a liquidity crisis, delayed payments, higher default dangers, provide chain disruption, and shortage of labour amongst other individuals.
Last year, the government announced a series of initiatives for the sector. Many worked such as the Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS scheme) that provided a assure for complete coverage to banks and NBFCs so they can provide emergency credit facilities to Covid-hit MSMEs and companies. Under ECLGS, banks have sanctioned loans worth Rs 2.46 lakh crore to about 92 lakh borrowers.
However a lot of sectors, particularly services, have been left to fend for themselves. Companies in beauty, travel and tourism, and the hospitality sector are nonetheless struggling to get back on their feet and a lot of have shut down.
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“Given the size and scale of the sector, these initiatives don’t offer financial support to the MSME sector, but are only for moral support,” Chandrakant Salunkhe, Founder and President, SME Chamber of India told TheSpuzz Online. He added that according to their survey, only 45 % of the labour is back at their jobs, the rest are nonetheless in their villages even one year right after the lockdown was announced – most of these are in sectors such as infrastructure, genuine estate, and logistics. Many factory workers have nonetheless not come back. Several of these troubles, like delays in trade receivables, will effect their turnover which in turn will drastically cut down their withdrawing limit from banks.
As MSMEs come across their feet on the ground, Anil Bhardwaj, Secretary-General, Federation of Indian MSMEs (FISME) stated that the gamechanger for the sector would be the fast legislation and notification of the insolvency resolution framework for the MSME sector. He explained that presently the Insolvency and Bankruptcy Code (IBC Code) is targeted at corporates whereas 97 % of the MSME sector that comprises proprietorship and partnership firms are outdoors its ambit. Hence, if they default for any cause, there is certainly no mechanism for them to file for insolvency or restructure their loans.
“While the RBI has restructuring schemes for MSMEs, they are straight-jacketed and not efficient in catering to the needs of the sector,” he stated. It is noticed that when an MSMEs defaults, banks are predisposed to take more than their assets for liquidation to allow loan recovery. “What would work is if a distinction is made in terms of enterprises that are really sick and those that have the potential for a turnaround if a moratorium is granted. This would help the country in retaining its productive assets thus creating more jobs and revenue in the future, he said.
One of the long-standing demands of the sector is the simplification of GST and reduction of the tax rate, something that is direly required as the sector revives and adapts to the new normal. “To help MSMEs recover from the liquidity crisis, the government can introduce a mechanism wherein once an SME raises an invoice for their clients, especially large corporates, the latter can pay the GST directly to the government,” stated Salunkhe. This will assure SME’s working capital does not get held up in GST.
He also recommended diluting strict adherence to labour laws up to a year for SMEs that employ up to one hundred workers to enable bring down the compliance price.
The final Budget focused on advertising domestic manufacturing that added benefits the MSME sector, but the input price improve is placing a lot of stress on the tiny and mid-size companies. “There is a need to address the rising cost of inputs in the form of steel, iron, copper, and other metals which has become a matter of grave concern for the sector. Input costs have gone up which in turn had thrown many small players out of the market,” stated Rajesh Khosla President and CEO of glass bottle manufacturer AGI Glaspac.
The government can also vindicate duty and tariff prices to improve MSME’s contribution to exports. This can be encouraged by investigation and improvement by means of incentives and assisting tiny industries with tech upgradations plans, recommended Milan Thakkar, CEO of building material manufacturing firm Walplast.
Heavy investment towards infrastructure and improvement should really also be looked at. “The support that the National Bank for Financing Infrastructure and Development (NBFID) shall provide will determine how much support the MSME sector will also receive in terms of amenities and investments which indirectly also create new jobs,” stated Thakkar.
While various schemes have been announced by the government, there is a require to give MSMEs a compendium of incentives that look at their issues holistically.