Nearly 6 crore micro small and medium enterprises (MSMEs) need an array of immediate reliefs ranging from short-term liquidity to simple compliance for India’s economy to come out stronger, said a taskforce formed by Global Alliance for Mass Entrepreneurship (GAME).
The taskforce, chaired by K P Krishnan, former secretary, Ministry of Skill Development and Entrepreneurship and co-chaired by Ravi Venkatesan, founder GAME and former chairman of Microsoft India and Bank of Baroda, said more than one-third of these small-scale businesses could see extinction if they do not have access to loans or active support from government and industry bodies.
According to recommendations published by GAME on Saturday, the MSME sector, which contributes nearly 25% of the services GDP and 33% of the manufacturing output, needs to be communicated well about the schemes and the stakeholders should mandate 30% of the stimulus package to be released to enterprises falling into the micro and small categories and relax norms so that borrowers can repay loans in a longer timeframe and allow exemption from bank guarantees.
GAME said these businesses were struggling even before Covid-19 and would need financial and compliance related reforms by the government to tide over the ongoing crisis.
“A majority of MSMEs in India were already struggling to cope with demonetization, GST and a slowing economy when Covid-19 hit the country. Even pre-Covid, the sector was cost uncompetitive and many small firms are perennially stuck in a vicious cycle of informality, low productivity and remaining stunted,” GAME, the alliance for MSMEs, said in its recommendations.
“Short-term liquidity relief; medium term dramatic simplification, digitisation and decriminalisation of compliances; setting up an implementation body with active state representations are the three crucial steps we have recommended apart from other measures for the MSMEs to revive,” Venkatesan told ET.
Krishnan said these small businesses need better communication on financial stimulus and better distribution of the dedicated funds.
“The economic war is long-term and we need to take immediate, short-term and long-term decisions. We are open to practical suggestions and we take the responsibility of implementation,” said Nitin Gadkari, Union Minister of MSMEs, adding that the sector plays a key role in supporting the economy and creating jobs.
The alliance reiterated that ease of doing business through simplified compliance is key for these businesses to revive and survive. “In spite of the fact the country has made good progress in ease of doing business according to the world bank ranking, on the ground the compliance burden is very onerous,” said Venkatesan.
Among other suggestions, the taskforce has recommended if there could be 1 lakh crore worth of new loans to the first time MSME borrowers. “This could include Rs 1 crore loans, each with a ticket size of Rs 1 lakh with a credit backstop by the government,” said GAME.
Some of the key execution plans suggested for this dedicated loan corpus include administering the fund by SIDBI, a development financial institution; following a simple and rule-based claim process; providing loans at lower interest rates among other things.