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Micro, Small & Medium Enterprises – The Way Forward

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Micro, Small & Medium Enterprises – The Way Forward
By: Raju Choudhary
September 2, 2020
All Articles by: Raju Choudhary       View Profile
  • Contents

MSMEs, which are the backbone of the Indian economy in terms of their contribution to the country’s GDP, Exports, employment generation and inclusive growth, require to be nurtured effectively so that they maintain their health. The COVID-19 pandemic has been a setback to the MSME sector and its impact is expected to push many entities into a long battle for survival. The Government has a taken a lot of fiscal, regulatory and stimulus measures which are expected to provide some relief to the MSMEs. This article analyses the various measures taken by the Government.

INTRODUCTION

The Micro, Small and Medium enterprises (MSMEs) are considered as the engines of economic growth. They promote equitable development all over the world. In India, with a bid to promote the growth of these industries, the MSMED Act was passed in the year 2006. MSMEs foster entrepreneurship. These enterprises essentially work in the informal space and cater to the needs of large industrial houses, both in the public as well as the private sector.

The promotion of inter-firm linkages between large firms and MSME through sub-contracting and setting up ancillary units both in the public and private sectors has been an important dimension of India’s MSME policy. Any growth of ancillary units and sub-contracting would be advantageous to the MSME sector by way of assured marketing, covered technical assistance, finance, and supply of raw materials and training.

NSIC AND SIDO

Many measures have been taken in order to promote the growth of these industries. National Small Industries Corporation Ltd. (NSIC) was established 1955 by the Government of India to promote, aid and foster the growth of small-scale industries in India. It offers several technical services to SMEs through its Technical Services Centres, Extension Centres, Software Technology Parks and Technology Transfer Centres.

Small Industry Development Organisation (SIDO), established in 1954, provides a wide spectrum of technical services to the small industries sector. BOI Balance Enquiry These include common facilities for testing, tool room services, technology upgradation, modernisation, quality improvement, training for entrepreneurship development, assistance for exports, pollution and energy audits etc.

CHALLENGES FACED BY MSMES

Despite the sector’s strategic importance in overall industrialisation strategy and employment generation, as well as the opportunities that the Indian landscape presents, the MSME sector confronts several challenges. Technological obsolescence and financing problems have been associated with the sector since long. Also, constraints such as high cost of credit, low access to new technology, poor adaptability to changing trends, lack of access to international markets, lack of skilled manpower, inadequate infrastructure facilities, including power, water, roads, etc., and regulatory issues related to taxation (state and central), labour laws, environmental issues etc. are also linked with its growth process.

Conventional Borrowing:

Many MSME units still access credit through the traditional borrowing models. While such a model works well with micro enterprises requiring low investment, small and medium enterprises would need higher investments and hence these traditional/ conventional methods of borrowing may not be feasible.

Many measures have been introduced for improving access to finance, however, there should be a change in the way MSMEs function. They should adapt themselves to the digital mode. The traditional lending system by banks is based on financial statements and collateral of the borrower. With increased availability of data from several sources, including GSTN, income tax, credit bureaus, etc., it is now possible to appraise the MSME loan proposals expeditiously by doing due diligence in the online mode itself.

Non-Performing Assets (NPA’s):

From the International Monetary Fund’s policy tracker (that tracks key economic responses to the COVID-19 pandemic across 192 economies), these policy responses can be broadly categorised into: (a) loan guarantees and immediate liquidity provision; (b) loan extensions and penalty waivers on repayment delays and (c) interest rate reductions on future loans.

In line with the global response, the Government of India slashed interest rates, increased limits on NPAs to prevent triggering insolvency and offered payments from the government’s share of Employee Provident Fund (EPF) to avoid layoffs. Several leading banks have announced special purpose loans at reduced rates for up to 10-20% of the firms’ working capital limit.

Infrastructure:

Though India has a vast pool of technical talent with a well-developed intellectual infrastructure, the country lags behind in the matter of developing and adapting new technologies in the MSME sector. The MSME sector today needs an effective information system to support and deliver information to different users.

There is a need for infrastructural development - overall facilities such as railways, waterways, roadways and airways, proper channels of telecommunication, adequate supply of power and sector specific facilities such as Tool Rooms, Testing Labs, Design Centres, etc.

e-Commerce:

Of late, the availability of online trade platforms is also emerging as a key enabler for MSME exports. Traditional handicraft clusters and independent artisans and entrepreneurs can stay connected to the world and operate in the global market via e-commerce platforms. However, since most of the micro units operating in the country still use conventional techniques, they may not be able to utilize the platform.

REGULATOR’S ROLE

The Ministry of Corporate Affairs (MCA) is the regulator for all the Companies and Limited Liability Partnerships (LLPs) registered in India. Top Accounting Firms in the World As such, in order to oversee the smooth running of the Companies, the Ministry deploys various forms which need to be filed by the Companies and LLP's at regular intervals.

a. MSME Form-1: This form has been notified by the MCA in January 2019. This form is to be filed by those specified companies whose outstanding payment to MSMEs suppliers is exceeding 45 days.

This return contains the following details:

  1. amount of payment due; and
  2. reasons for the delayed payment

This form will enable the regulators to seek data about the overdues to the MSMEs, thereby protecting the interest of groups of small companies or business.

Companies Fresh Start Scheme (CFSS):

As per the provisions of the Companies Act, 2013, all companies are required to follow statutory compliances annually. These include the Annual Return, Financial Statements and all the other necessary forms, documents and reports that are specified.

Non – compliance of the same results in the imposition of penalties and fines. However, given the present scenario, the world is on a lockdown currently due to the unprecedented situation regarding public health and safety caused by the COVID-19 pandemic. And hence, MCA has launched the CFSS (Companies Fresh Start Scheme), 2020. The time for complying with the law – filing of forms and returns has been extended so as to ease the situation considering the tough position being faced. The scheme has also been extended to filing of overdue pending forms irrespective of their delay. The pending filing compliances can thus be completed without any hassles. Immunity is granted from additional fees as well as prosecution with respect to delayed filing.

THE WAY FORWARD

India’s cultural diversity provides significant number of regional village industries manufacturing typically traditional and heritage-based products ranging from traditional textile weaving to pottery and art and even medicine. Every state has its own culture and a unique village industry. These industries have a lot of potential to export their products to global markets. Given the right push in terms of exposure to global markets, financial support and infrastructural facilities, these industries can play a significant role in the export sector.

Large portion of the traditional and village industries is in the un-organised / informal sector and includes industries like handloom, handicraft, leather, cottage match, vegetable oil, gud/khandsari, sericulture and pottery. The traditional industries also include Ayurveda and yoga. Yoga had also percolated to a significant extent into the urban – semi-urban belt and is a fast-growing market. The focus is now on building immunity and what better than Yoga to boost resistance power and fight the pandemic?

Another important sector is the handloom sector which plays a very important role in the village industry economy. These handlooms are exported to many countries including the US and UK. Indian handicraft items are also increasingly being exported and are much sought after products in the international market. RSCIT Online Test These include woodware, hand printed textiles and scarves, embroidered and crocheted goods, shawls, zari and zari goods, imitation jewellery and miscellaneous handicrafts such as lace, toys, etc.

Hence, it can be seen that the export potential is huge. Local industry bodies like the Council of Leather Exports, Handloom Export Promotion Council (HEPC), and Export Promotion Council for Handicrafts (EPCH) need to work in tandem with central and state government to promote these products in markets which are not yet tapped.

ROLE OF WOMEN ENTREPRENEURS

Women entrepreneurs should be encouraged to participate in the MSME growth story. There are nearly three million MSME’s with full or partial female ownership.

There is considerable emphasis on promotion of women entrepreneurs and encouraging greater participation of women in the Indian MSME growth story. Many programs such as Entrepreneurship Development Programmes (EDPs) are organized for women. There are various programmes and schemes of MSME Ministry, NSIC, KVIC and Coir Board for conducting exclusive training programmes for women. Grants and special concessions are provided for women under the Trade Related Entrepreneurship Assistance and Development (TREAD) and Rural Employment Generation Programme (REGP).

Incubation cells can be developed to provide MSMEs with mentoring and technology support, and shared R&D facilities.

A PUSH TO EXPORTS

As seen above, export promotion from the MSE sector has immense potential. It has to be accorded a high priority. To help MSMEs in exporting their products, the following facilities/ incentives are provided:

  • i. Products of MSME exporters are displayed in international exhibitions
  • ii. To acquaint MSME exporters with latest export packaging standards, techniques, etc., training programmes are organised in collaboration with the Indian Institute of Packaging;
  • iii. Marketing Development Assistance (MDA) Scheme has been started

Amidst the crisis, the Government needs to give an extra push to MSMEs in order to ramp up export of consumer goods so as to reap the advantages of comparative advantage that can be available in the post pandemic scenario.

The Government can give a direct impetus to improve exports in the food products manufacturing segment. Given the present situation, India can scale up exports - fruits, vegetables, processed food, cereals and tea are some of the items which can be exported. India should think long term and build capabilities

REFERENCES:

  • 1. www.bis.org
  • 2. www.mca.gov.in
  • 3. champions.gov.in

 

By: Raju Choudhary - September 2, 2020

 

 

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