MSME vision falls short of reality
21 FEBRUARY 22
By B Yerram Raju
The Draft National MSME Policy,
targeting V-shaped recovery after the Covid pandemic and the $5-trillion
economy by 2025 (since extended by two years to 2027), seems to have seen the
world more than India. There is a virtue in looking at the policies of other
countries during the pandemic. However, the policy nowhere mentions the reasons
for not adopting some of the policies, particularly employment as one of the
criteria for defining the sector, when we say from rooftops that MSMEs are
employment-intensive.
The virtue of the document is the
Vision: “Stimulate efficiency and productivity of MSME sector to generate
income, employment and become part of domestic and global value chains taking
into account structural transformation, competitive edge, demographic dividend,
and regional balance.” The objectives highlight building an eco-system for the
growth of the sector, sensitising stakeholders, creating physical
infrastructure and linkages amenable to MSMEs, developing a framework for
accessible and affordable technology upgradation, and an appropriate institutional
mechanism
Historical Data!
It wants to develop a platform to create an integrated database under a uniform
format. It nowhere mentions that a census of the sector will be taken. Its data
for the present is historical – a mess-up of manufacturing and services. 63.9
million enterprises and 111 million employment are figures of 2015. Where could
one find the six crore units while one finds only 70 lakh on the Udyam portal?
According to the NSSO data (73rd round), 14 States account for 88% of the MSMEs.
While 98% are micro-enterprises, only 11-12% are in the reckoning for
manufacturing.
We must have a periodical census of
the MSMEs that spread across several sectors – agriculture, KVIC, artisans,
rural development, technology, food processing — as none is aware of the
mortality of enterprises. A study of 1,079 units of Sidbi in the wake of the
pandemic revealed that 63% of units are closed and 67% lost 50% revenues. ISID
(Bengaluru) found out only 16% of micro manufacturing units (as defined in July
2020) are functional. The mortality of units is not captured in any reliable
data frame. This will be possible only when a census is taken periodically.
It has extensively given the
facilitation to the SMEs in several countries but mentioned only 6 States’
policy innovations in Annexure-IV that represent 28% of MSMEs in India (NSSO).
It is good to see the extensive reference to the Prabhat Kumar Committee (2017)
to which no reference has been made during the last five years and very useful
inputs have found a place in the draft. Widening the Tool Room set-up is a
welcome policy intervention.
Legal Reform
As the MSME Development Act (2006) has dealt with the MSEs, an important
subject of the Act, disproportionately, a separate law should be enacted and
while so doing, redefine the sector in terms of the twin criteria of employment
and turnover as investment by them will not cross Rs 5 crore. This would
facilitate scaling up as well.
Existing EPF is hardly adequate to
take care of eventualities as we noticed in the pandemic. Like in the farm
sector, all such enterprises should be covered with specific insurance for
employees. This would also enable data on employment more dependable for
synchronisation of other benefits to the sector.
Definition
The consequence of the revised definition on the twin criteria of investment
and turnover has been dealt with but failed to emphasise its effect on the
manufacturing sector. Till date, many do not know whether it is retrospective,
if so from which date and if not, from which prospective date it is applicable.
While we welcomed the change in July 2020, six months after the first Covid
attack, micro enterprises in the pre-July 2020 period were virtually the most
hit.
Relief Measures
Banks did not extend the Atma Nirbhar Bharat Abhiyan scheme -1 covering
moratorium and 20% increase in working capital to the micro manufacturing
enterprises. Among the small, those who had collateral securities and the
medium enterprises or mid-corporate enterprises were extended the benefits,
according to a few sample surveys conducted by RBI (they did not reach out to
the micro), Sidbi, ILO, Skoch, IMT, etc.
A sample study of 1,079 units in the
country over the effect of Covid-19 that Sidbi presented should unnerve the
economy: 67% of the MSMEs are half-shut, and 63% closed. Where did the money
spent under Atma Nirbhar Bharat to the extent of more than Rs 3 lakh crore go?
Facilitation, Promotion Councils
The objective of the facilitation council – resolving delayed payments of MSEs
– has been side-tracked and the policy contours expected from the States has
been expanded to converting them into promotion/development councils in
coordination with the National MSME Promotion Council. They should have first
targeted strengthening the MSEFCs, as they are quasi-judicial, and then
considered establishment of MSME Promotion Councils with specific institutional
framework and objectives of functioning.
Funds and their utilisation
No evaluation of various funds and Fund of Funds released during 2020-22
through Sidbi and SBI has found a place, either for continuance, modification
or enhancement. Which sector has benefited the most? And what further steps are
needed to get effective returns on such investments and incentives? Answers are
needed to these questions.
Budget Utilisation
Of the Rs 7,572.20 crore earmarked for the MSME Ministry in the Budget 2020-21,
Rs 5,647.50 crore was spent across various schemes while the remaining 25% or
around Rs 1,924.7 crore was left unspent. In comparison, 99.39% of the
allocated Rs 6,552.61 crore during 2018-19 and 95.81% of the Rs 7,011.29 crore
allocated during 2019-20 were spent with only less than 1% and 4% of
underspending respectively, said the MSME Minister in the Lok Sabha.
Equity should flow to the sector from
the Fund of Funds at the lowest cost to the MSEs. Following suggestions of the
Prabhat Kumar Committee, meeting a part of listing expenses for small
enterprises scaling up to medium or for raising equity in the stock exchanges,
establishment of SME Equity Fund, modifications to the rating scheme specific
to manufacturing MSEs, and creating a separate fund for Revival and
Restructuring through a separate Industrial Health Clinic like in Telangana
need incorporation in the policy.
State-specific Brand Equity Fund from
Fund of Funds should be set up by Sidbi on the following norms:
•All SMEs can co-brand with this if they have ISO certification or any other
globally accepted certification standard.
•Share in the equity would be dispensed by the State government through a specially
constituted committee in proportion to the size of the business.
•Misuse or abuse of the Brand would entail heavy penalties including criminal
prosecution where warranted.
The Market Development Fund currently
in operation has not reached many units in the small-scale sector. This fund
should be accessed by the State government and dispensed through the same
expert committee constituted for the Brand Equity Fund. Like the Trade
Development Board of Singapore, this MDF should be made available for those SSI
units co-branding and joining for large tenders of other State governments or
any global contracts as a loan for matured tenders and as subsidy for unmatured
tenders.
The author is an economist and risk
management specialist. Views are personal.
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