TIME TO UNLEASH THE POTENTIAL OF SMEs

Indian SME is second largest after China. It consists of almost 63.05 million micro industries, 0.33 million small scale industries and 5000 medium enterprises. MSME’s direct and indirect contribution in export is around 45%. Even though the interest rate for SME’s is almost 1-1.5% lower in comparison to ordinary business loan. Currently India has total 3.61 million units of MSME’s that generates 120 million employments. The manufacturing based SME’s contribute 6.11% in G.D.P where as service sector units have 25% contribution in G.D.P. However, it has been observed that Banks and NBFCs are acting as a risk averter to finance them. Since SMEs required recurring liquidity to run their operations as a result the numbers of vulnerable SMEs become very high.   

To overcome this issue and to support MSMEs, The finance minister of India made a significant change in MSME development Act, 2006 and the new definition of MSME drawn. The reason for change was basically redefining the MSME’s importance and status in economy during Corona crisis. The new definition of SME’s incorporated both investment and turnover and unified the criteria for manufacturing and service sector oriented SME’s. The idea was to abolish the fear prevailing in the successful SME’s as what if they outgrow in size. They also think to underperform to keep the benefit of offered under SME’s and to safeguard them by providing easy liquidity.

The new definition removed the bifurcation amongst MSMEs involved in production and services. Moreover, the amendment in policy helped to identifying and restructuring the enterprises involved in sectors like healthcare and public welfare oriented schemes. Banks and NBFC’s welcomed this decision, banks like SBI decided to invest 100-150 million dollars in B2C platform YONO to support SME ventures.

In an interview Minister of Road and Transport Nitin Gadkari has given the assurance that in the coming 2 years time SMEs will be self reliant and will contribute 60% of the export.  And under a special scheme Rs. 50,000 cr will be given to SMEs. Since in recent time relation with China has been much tensed as a result Indian Banks like SBI has postponed the idea of using Alibaba and other Chinese platforms as payment gateway. He also added that he is also seeking help from BRICS Bank, ADB and world back to ward off Chinese investment in MSMEs.

In a recent development India has signed the agreement on MSME’s Emergency Response program worth 750 million $ with World Bank to provide finance for MSMEs to overcome from the situation arose due COVID-19. As mentioned earlier this program will serve the immediate liquidity and credit needs of SMEs. The program will provide finance and credit facility to almost 15lakh viable SMEs to withstand the impact of current situation and safeguard the millions of job.  The World Bank has so far committed to provide 2.75 billion to support emergency corona virus response that also includes SME’s associated in health sector. Moreover, the first 1 billion supports has been announced in April for health sector where as another 1 billion project was approved in may to increase the cash transfer and food benefits to the poor and vulnerable for both rural and urban population.   

Government has approved a scheme to improve the liquidity condition of NBFCs and HFCs through special purpose vehicle. RBI has given the definitely the current scenario will help to improve the economic condition of the country, yet the government has to ensure that any deadlock and bottleneck should not hamper the development process. However, the government is committed to incentivize the banks and NBFCs supporting SMEs yet their mindset has to be changed and the investment has to be secured.

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