Lok Sabha polls on mind, Modi govt readies comprehensive package for MSMEs

Steps could change sentiments of small traders, say officials

As the country heads towards assembly elections later this year and with the Lok Sabha elections scheduled in 2019, the Narendra Modi government is preparing a comprehensive package to boost credit for micro, small and medium enterprises. 

Multiple government departments, including finance and commerce ministries, and Ministry of Micro, Small and Medium Enterprises, are involved in high-level discussions on steps that the Centre hopes will lead to a change in the sentiment of small traders and businessmen, hit by demonetisation and the goods and services tax (GST). 

“The large private sector players can raise money from the market abroad or anywhere, the real problem lies with the MSMEs. We recognise that this is an area we need to work on. While MUDRA scheme and others provide some part of the money, we are concerned and are looking very strongly at the business of how you provide credit for expansion of the MSME sector,” a senior government official told Business Standard.

The move comes at a time when the GST Council is also grappling with the issue of complicated procedure for MSMEs under the indirect tax regime. It has set up a panel under the Minister of State for Finance Shiv Pratap Shukla.

Among various measures, a threshold for MSMEs will be raised from Rs 15 million to Rs 50 million for availing of easy procedures, such as quarterly filing of returns.

Sources said that the government will follow a multi-pronged approach and some of these steps have already been taken, including the strategy to deal with non-performing assets, banks setting up a dedicated vertical to deal with smaller stressed assets of less than Rs 500 million and inter-creditor agreements to deal with loans between Rs500 million and Rs5 billion. Finance Minister Arun Jaitley has also announced a number of tax concessions for the MSME sector in his previous budgets. 

MSME sector representatives said there is still a lot to be done and that they have a list of demands that they have presented to the government. 
 

“One of the biggest problems is that lending to the MSME sector attracts one of the highest interest rates. Housing loans and car loans are cheaper. Big industry gets cheaper loans because it has the bargaining power. The MSME sector lending is one of the highest in terms of interest rates," said Om Prakash Mittal of Laghu Udyog Bharti. 

He said interest rates for the MSME sector needs to be reduced. “The government needs to look at how to deal with this problem, whether it takes some of the interest repayment burden, or whether the rates need to be reduced,” said Mittal. 

Loans to MSME sector more or remained flat in the first quarter of 2018-19 year-on-year, except for priority sector lending and micro advances.

According to the current non-performing asset (NPA) framework, the NPA resolution plan has to be implemented within 180 days, otherwise the stressed asset would end up with the National Company Law Tribunal. Mittal said that is not enough for smaller industries and they have asked for up to a year to implement an NPA resolution plan.

When Parliament passed amendments to the Insolvency and Bankruptcy Code in the monsoon session, it also provided a special dispensation for promoters of MSMEs to bid for their own companies, thus exempting them from restrictions imposed by Section 29A of the Insolvency and Bankruptcy Code. 

Banking Secretary Rajiv Kumar told a parliamentary panel earlier this month that the MSME sector is in bad shape. Kumar told the panel that the possibility of exemption from the RBI’s NPA guidelines for the MSME sector could not be ruled out.

According to a Confederation of Indian Industry report, MSMEs contribute around 6.11 per cent of the manufacturing GDP and 24.63 per cent of GDP from service activities. They provide employment to around 120 million people and contribute about 45 per cent of the overall exports from India.