As the country begins to pick up the pieces after two trying years, the government has extended its symbolic credit arm to help the beleaguered SMEs/MSMEs. The availability of credit to MSMEs remained the focus of Finance Minister Nirmala Sitharaman’s announcements about the MSME sector in her budget presentation. A sector that is also one of the country’s largest job creators.
Considering that many businesses have struggled post-COVID, the introduction of bold new fiscal policies in Budget 2022, including tax breaks for SMEs and increased liquidity in the market by putting money in the hands of the people to jump-start the economy.
In a discussion on the Ease of Doing Business For MSMEs, Manguirish Pai Raiker, a senior voice in the SME space, said 99% of the 63 million SMEs belong to the micro-segment. However, registration licenses on paper and reality are quite different. In contrast, improvements in HR-related space are restricted because of labour reforms and subsequent compliance burden followed by it.
Madan Padaki, Founder and CEO at 1Bridge and Co-founder of Global Alliance for Mass Entrepreneurship (GAME), said all the signals in the budget are positive. Still, as far as demand is concerned, RAMP is a good part that will have a variety of ramifications. (RAMP is a rating programme for MSMEs). According to Padaki, Agritech, digital initiatives, access to finance, and schemes like ECLGS and CGTSME are there, but more must be done for the micro and nano sectors. Whatever is done is not enough, lower cost of finance, spread finance to lot more MSMEs spurring demand, production link incentive, ease of doing business facilitating lens rather than legislation lens.
Beyond daily challenges, even in moving towards ESG compliant entity, there are issues with policies around waste management and control of affluents. The NOCs are not streamlined and projects not immediately scrutinised because people sitting at pollution control board do not act as helpers but as deterrents, Raiker said.
According to Raiker, seven out of 10 MSMEs do not know how to source finance, so they get a better CIBIL score, and financial literacy programme promotion through banks are not happening as desired. Moreover, factoring services should be explained, and MSMEs are mostly ancillaries (chain management); here, factoring services work better. All these should have been addressed in the budget itself, Raiker said.
Further, Padki adds that 95% work with 2-3 employees even if 10% employs ten people we can help more business generation, and there’s lower participation of women and women-owned enterprises.
Padki believes schemes are fine and great on paper, and it matters how it reaches the end-user, referring to Sarvoday and Antoday by Gandhiji. The road to hell is paid with good intention, and the last man should be able to extract the juice, explained Padki.
As per both of them, information asymmetry is a huge issue, and everyone has a role to play. For example, if one has to reimagine the bank system by stating how many people a bank has helped to obtain a loan, it cannot happen in silos, and there’s a need for an integrated system.
Pai emphasises that MSMEs are not only about the manufacturing sector as the service industry is generally ignored in these issues. IT industry flourished because govt did not know anything about it. It is not the business of government. They should be a facilitator and not hassler, Pai said.