From liquidity issues to the impact of COVID, how the MSME sector is striving to emerge stronger
The Micro, Small and Medium Enterprises (MSME) sector has become a very vibrant and dynamic sector of the Indian economy over the past few decades. The sector contributes significantly to the economic and social development of the country by encouraging entrepreneurship and generating numerous employment opportunities at relatively lower investment costs, second only to agriculture.
MSMEs are complementary to large industries as ancillary units and this sector contributes significantly to the inclusive industrial development of the country.
The sector plays an important role in the growth and development of the Indian economy contributing about 30% of the GDP, about 33% of the entire gross value of India’s manufacturing output and about 49% of the exports.
There are 634 lakh unincorporated non-agricultural MSMEs in the country engaged in different economic activities, of which 31% are in manufacturing industry, 36% in trade and 33% in other activities.
According to the 73rd edition of the National Sample Survey (NSS), the MSME sector generates about 11.1 crore (111 million) employment opportunities.
Realize your highest potential
MSMEs have great potential to generate new business opportunities with futuristic interventions and move towards Industry 4.0.
With a focus on innovation, new product development and partnership with reliable suppliers and other key stakeholders, MSMEs can grow and prosper through strong integration into the global supply chain.
Realizing that MSMEs have a very special and vital role in the Indian economy, the government over the years has given a major boost to the growth of MSMEs as the next level of economic growth is expected to come from this crucial sector of the economy. .
Although the focus has been on the growth of MSMEs, the sector still faces some issues and challenges such as availability of affordable credit and liquidity, complex compliances, cost of doing business, insufficient infrastructure, lack of awareness of government programs, and strict labor laws, among others, which hampers the growth potential of MSMEs.
Moreover, the past two years have been difficult for the Indian economy due to the disheartening impact of the economic crisis caused by COVID-19. The pandemic has caused severe disruptions to industrial production and growth by severely undermining supply chains. Due to the COVID-19 scenario, issues such as delay in availability of finance and credit, timely payment and adjudication of pending dues, cumbersome procedural requirements and inflexible regulatory compliance have become more sensitive. for MSMEs.
Although the government has undertaken various meaningful and effective reform measures for the MSME sector over the past two years to mitigate the disheartening impact of COVID-19, MSMEs are still in the recovery phase and eagerly awaiting a takeover. continued charge by the government.
At this stage, the focus should be on providing hassle-free disbursement of loans vis-à-vis increased liquidity for MSMEs, especially in rural sectors. The government should ensure that dues settlement is settled within a limited time frame and consider outsourcing this activity appropriately in accordance with the law to reduce the backlog of cases.
The smooth functioning of Public Sector Units (PSUs) without disruption due to payment issues is of paramount importance in these dynamic times. The government should provide adequate funds to PSUs so that they can urgently release payments from MSMEs and other suppliers to provide them with liquidity and make it easier for them to run their businesses.
Banks should be allowed to lend up to 50% more than the current limit according to the performance of the MSME units without additional guarantee. It is suggested that banks should also be integrated to provide uniform service to customers.
Currently, different banks have different standards for granting loans, including security deposits. There must be synchronization between the RBI and all the banks.
MSMEs suffer a lot as the clearance of checks takes at least three to seven days. With already strained working capital, this adds fuel to the fire. Therefore, check clearance time should be reduced.
Improve their efficiency
It is suggested that the value chains of MSMEs be further strengthened, thus making them structurally more competent to enhance their efficiency, and therefore the overall export growth dynamics of the country.
The cost competitiveness of exporting MSMEs should be improved and a level playing field should be created. Reduced costs of doing business and a level playing field in the country will not only increase the competitiveness of our exporters but will also reduce imports of items for which India has domestic capabilities.
The government should actively focus on reducing the cost of doing business, including capital costs, electricity costs, logistics costs, land costs and land availability, and conformity. A cost-effective logistics network would boost the MSME sector in the country by making MSMEs internationally competitive.
Furthermore, a cost-effective logistics network would boost the sector by making MSMEs internationally competitive. The integrated development of the logistics sector in the country would illuminate, clarify, strengthen and prioritize the key objectives, priority areas and governance framework of logistics in India. It is suggested that the logistics cost in the country be reduced from the current level of 14% of GDP.
On the tax side, we appreciate the reduction in corporation tax from a maximum rate of over 30% to an effective rate of around 25%. However, to benefit the entire MSME sector, we suggest a tax reduction on MSMEs working as sole proprietorships/partnerships. Therefore, taxes should be reduced for these types of businesses in the future. For these companies, it is suggested that the maximum tax bracket be reduced to 25%.
To give a big boost to exports, export earnings should be tax-exempt for MSMEs for three years and large business income from additional exports (YoY) should be tax-exempt. This will help offset some of the additional cost of logistics and other bottlenecks faced by Indian exporters.
Scarcity of raw materials, high prices of inputs, among others, are impacting production possibilities and expected sales volumes and posing a challenge for small businesses to operate. At this point, addressing high commodity prices and raw material shortages is necessary to support consumption and private investment in the country.
To realize their full potential, MSMEs should take full advantage of the various financing facilities and marketing opportunities available in the country and benefit from the various programs announced by the Government of India under the Aatmanirbhar Bharat Abhiyaan.
At this stage, marketing platform support to MSMEs is needed to help them move forward easily after the daunting impact of the pandemic. In addition, the frequency of awareness campaigns for the MSME sector should be increased so that each industry can make the most of government programs.
Given that great support and facilitation is provided, the MSME sector has all the potential to contribute significantly to the journey of the Indian economy towards becoming Aatmanirbhar Bharat with a $5 trillion economy in the coming times. .