Aligning Govt. Policy to MSME Needs for $5T Economy: Key Steps & Challenges
Micro, Small and Medium Enterprises (MSMEs) play a significant role in the growth and development of a country’s economy.
Government policies that support their growth and development, such as tax incentives, access to finance, and a favorable business environment, can help MSMEs contribute to the goal of reaching a USD 5 trillion economy.
Aligning government policies to the needs of MSMEs can help increase their competitiveness and sustainability, ultimately driving economic growth and development.
All India Association of Industries (AIAI) has emphasized that Government policies should be made in tune with the need of the MSME sector.
Vijay Kalantri, President – All India Association of Industries (AIAI) said that MSMEs are the backbone of Indian economy as they contribute 30% to the GDP and 49% of Indian export and if the Government aims to attain USD 5 trillion economy by 2027, MSMEs should be the focal of our policy measures.
AIAI further feels that MSME sector has been facing challenges due to series of disruptions right from the Demonetisation, GST and Pandemic and now the emerging challenge is due to input cost which is reducing the margins of MSME.
Dr. Kalantri feels we are at a loss looking at the sickness in MSME sector due to increase in steel prices, cement and chemical input cost and freight cost which is making us economically unviable.
Further, there are more than six crore MSMEs, of them more than 2 crore units don’t have access to bank credit, Banks charge as high as 9.3% interest on MSME loans, while large industries pay less at 7.7% and around 69% of payments by PSUs are delayed by 60 days beyond the due date, said Dr. Kalantri.
Dr. Kalantri further added that the Union Government did step in during the Covid lockdown to help the suffering MSMEs by announcing a stimulus package and introducing schemes like the Emergency Credit Line Guarantee Scheme (ECLGS).
It is, however, said that the financial aid of the governments — both the Centre and states — did not reach the majority of the MSMEs due to ineligibility and some impacted by NPAs. Further, the governments’ financial packages came with riders making only 7% to 8% of MSMEs eligible.
“Others did not have any avenue or choice. They were left high and dry as they were not considered. The problem is the government treated all sectors on an equal footing.
They should have gone for a case-to-case, sector-to-sector, or impact-to-impact solution. Those who wanted credit never got, and those who did not need but were eligible did not avail nor needed more credit,” said Dr. Kalantri.
“There is “Total Disconnect” between reality and policy measures. The government should stop “frowning at domain experts” and involve MSMEs while formulating policies, if we need to concentrate on our exports. “It was like performing a surgery without administering anaesthesia,” said Dr. Kalantri
AIAI suggests that SIDBI may be converted into full-fledged commercial bank. MSME vendors should be given priority payment under IBC cases. Government may introduce mandatory public disclosure of outstanding MSME vendor dues by large corporate buyers and implement all the recommendations of past MSME Expert Committees.
“We also feel that the Government may provide inland freight subsidy for MSME exporters in hinterland. Chemical, leather and pharma units are dependent on China and other countries for input components.
Government may provide soft loans and land for developing input component manufacturing. Cost of electricity is too high in India; Government may provide power subsidy to exporters in leather, textile, chemicals and other units and Government may also open raw material depot for MSMEs.
We are confident that these measures will address the challenges faced by Indian MSMEs, make them globally competitive and increase their contribution to economic growth,” he added.
To align government policy with the needs of micro, small and medium enterprises (MSMEs) is important for a successful USD 5 trillion economy. MSMEs are the backbone of any economy and contribute significantly to the growth and development of the country.
A supportive and conducive policy environment can help MSMEs to thrive, innovate and create jobs, which in turn can boost economic growth. This requires a comprehensive understanding of MSMEs’ needs and challenges, and the development of tailored policies and programs to address these issues.