Udyog Aadhar Registration was the first the Indian government took to promote MSME. With the current proposed budget, it is taking some more with drastic effect. If the country plans to fulfil its $5 Trillion economy target, then any step is essential because MSMEs play a pivotal role in achieving it. MSME generate employment, give skills to people and bring in money through exports, which makes them a significant contributor to the economy.
But reaping the contributions and benefits of MSME is only possible when the sector is formalised, and credit flow is easier. This article takes a look at how the present government is ensuring that both these factors are accomplished and MSME continue to grow.
What is MSME?
Before diving into the growth factors, let’s get the definition of MSME out of the way. An abbreviation of Micro, Small & Medium Enterprises, these are businesses classified as such depending upon their turnover in a given year. For India, they are the engine of economic growth because:
- They employ over 50 million people.
- They scale manufacturing capabilities.
- They curtail regional disparities.
- They balance the distribution of wealth.
- Reviews of latest technology
GDP-wise, the MSME contribute around 8%.
What are the issues MSMEs face?
The biggest problem MSME faced earlier was registering as an enterprise. The original process was complicated and took time. Udyog Aadhar Registration curtailed the issue. Currently, the obstacles to MSME growth are:
- Absence of proper infrastructure
- Improper market linkages
- Lack of institutional credit flow
What changes the proposed budget brings for MSME?
Arun Kumar Panda, the Secretary of the Ministry of Micro, Small & Medium Enterprises explained in June on World MSME day that the present Government has resolved to bring more MSMEs into the formal fold to drive growth.
· Offering MSME timely and adequate access to credit.
One of the steps taken is to address the credit issue because it has been a major problem for small and medium-sized businesses for a considerable time. As per the Secretary, the RBI committee has put forward several proposals to resolve two concerns – availability of credit on time and a higher rate of credit.
Two schemes that work on these issues are:
- Prime Minister’s Employment Generation Programme (PMEGP)
Both of these schemes support individuals who are setting up micro-businesses. The budget for this year increased the funds allocated to PMEGP to provide more players credit. In 2017-18, the funds were doubled. In the 2018-19 fiscal year, the government plans to triple the funds allocated in the previous year.
Another scheme that indirectly promotes MSME is the Credit Guarantee Fund Trust for Micro and Small Enterprises. The corpus of the CGTMSE has been amplified from Rs 2500 to Rs 10000 crore. This jump will ease the burden on financial institutes that lend money to MSME. One more change in the scheme is the eligibility of NBFCs. They can take advantage of the scheme now. Moreover, their credit guarantee percentage was altered from 50% to 75%.
These are not the only steps taken to offer adequate credit to MSME; the Ministry is working with ECGC to generate and implement more methods of making credit available to more MSME owners.
· Delivering solutions for working capital woes
The second hindrance to the growth of MSME is access to working capital. To change that and improve credit flow, the Ministry has created the TReDS Exchange platform. Any company, which includes PSUs, that has a turnover of over Rs 500 crore is requested to join the platform. As of June 2019, 604 business joined the platform with 75 of those being PSUs. The platform has already financed almost 2,52,000 invoices that totalled around Rs. 6670 crores.
More and more PSUs and MSMEs are coming on-board the TReDS, which implies that credit flow will only increase in the coming months and year.
The schemes, programs and platforms created and promoted by the government in 2019 demonstrate that it is only a matter of time that medium and small-sized enterprises come at par with globally required standards. And once they reach the stage, attaining the $5 Trillion mark will be that much easier for the country. After all, MSMEs make a vital pillar of the Indian economy.