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MSMEs Participating In The Post COVID Recovery

MSMEs faced the challenge of keeping their financial wheels turning during the lockdown period due to less or almost no business activities, weak demand and low consumer confidence.

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MSME sector has been of high value to the Indian economy, given its significant contribution in the economic and social development of the country by fostering entrepreneurship and generating large employment opportunities. MSMEs are complementary to large industries as ancillary units and this sector contributes significantly in the inclusive industrial development of the country.

The COVID-19 pandemic had a widespread impact on MSMEs. MSMEs experienced uneven flow of business activities and sustainability. Most MSMEs faced the challenge of keeping their financial wheels turning during the lockdown period due to less or almost no business activities, weak demand and low consumer confidence.

Since the inception of lock-down period, most of the migrant workers had moved to their native places. Further, due to absence of public transport services like buses and railways, migrant laborers were not able to reach to their work places and therefore, full resumption of exempted activities has become difficult. Apart from these issues, country’s supply chain had been massively disrupted due to the ongoing COVID lockdown.

Gradually, the proactive and combative measures undertaken by the Government in the last 8-9 monthsthat included economic relief package of around Rs30 lakh crores including measures announced by RBI to curtail the spread of pandemic COVID-19 arehighly appreciable. In May 2020, Union Ministry of MSME also launched Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength (CHAMPIONS) portal, ICT enabled, with the aim of assisting Indian MSMEs march into big league as National and Global CHAMPIONS. The economic booster package giving equal importance to Land, Labour, Liquidity and Laws, MSMEs and taking equal care of all strata of society is highly appreciated and was the need of the hour to uplift the sentiments of farmers, workers, labourers, industrialists, among others.

In consonance with the clarion call of Hon’ble Prime Minster of India Shri Narendra Modi for Self-reliant India, the Hon’ble Finance Minister announced various appreciable measures for relief and credit support related to businesses, especially MSMEs, such as Rs 3 lakh crore Emergency Working Capital Facility for Businesses, including MSMEs; new definition of MSME with revised investment limit; e-market linkage for MSMEs, among others.

Recently, the government introduced a push to ensure more credit to small businesses, in accordance to which, the Reserve Bank of India (RBI) has exempted banks from keeping the cash reserve ratio (CRR) requirement against loans disbursed to first-time borrowers of micro, small and medium enterprises (MSMEs).MSMEs that had not availed of any credit facility as of 1st January can be considered for this exemption. This includes exposures of up to Rs25 lakh per borrower for credit extended up to the fortnight ending 1st October 2021.This will go a long way to incentivise new credit flow to the MSME borrowers and fulfil their financial needs.

The amendment in the new definition of MSMEs with Rs 250 crore annual turnover and Rs 50 crore investments in plant and machinery for medium enterprises will bolster the manufacturing sector, increase its contribution in GDP and create millions of new employment opportunities for the growing young workforce in India. Revised and broadened definition will enhance the production possibility frontiers of the MSMEs, increase their competitiveness and create a level playing field for them to tap new opportunities in the domestic and international markets.

However, the new definition of MSMEs prescribes that investment limit and turnover criteria have to be met for an enterprise to be termed as MSME. In this regard, a clarification is essential, as to whether both the criteria of Investment and Turnover or either one of them is required to be met for an enterprise to be classified as MSME.

It may be mentioned that the objectives of Expansion, Growth and Technology Upgradation of MSMEs for which the definition is being revised, would not be achievable if both criteria are applied together. Either one of the criteria should be set or preferably the turnover criteria should be set for an enterprise to be classified as MSME.

Going ahead, the cost competitiveness of MSMEs exporters should be enhanced and a level playing field should be created. Reduced costs of doing business and level playing field in the country will not only increase the competitiveness of our exporters but also reduce imports of the items where India has domestic capabilities.

Export income is requested to be made tax free for MSMEs for 3 years. This will help in partly compensating the additional cost of logistics and other bottlenecks which Indian exporters face.MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. This characteristic of MSMES of low capital cost of creating jobs relative to big industries should be capitalised and encouraged further.

It may be mentioned that often the origin/source of raw material and the native places of manpower in MSMEs are far away, which hamper the ease of raw material accessibility and raise the cost of their procurement. Also, this causes the concentration of economic power/activities in mega cities. At this backdrop, the Government should come out with new laws or rationalise or simplify the existing laws to distribute this concentration of economic power and bring the set-up of MSMEs closer to the origin of raw-material and manpower, however, with some limiting factor so that this provision cannot be used abusively.

Further, the focus should be on ensuring provision of hassle free disbursement of loans vis-à-vis enhanced liquidity for MSMEs, especially in rural sectors. The banking sector must fully percolate the significant cut in repo rate announced by the RBI during the last few months.

Lesser compliances for MSMEs will create visible ease of doing business at the ground level and a lower tax regime will increase the personal disposable income of the people and create an overall virtuous circle of growth and development in the economy.

Extreme support to MSMEs and Startups is seriously required to save them from the impact of pandemic COVID -19. It is suggested that the value chains of MSMEs should be enhanced further, thus, making them more structurally competent to add to their efficiency and hence the country’s overall export growth momentum.

Keeping in view the disruptions in global supply chains due to the spread of pandemic COVID-19, India should build domestic capacities to mitigate the impact on import demand and to fulfill domestic demand with indigenous production. Domestic capacity building at this juncture will not only mitigate the impact of COVID-19 but will also provide an opportunity to increase our presence in global exports particularlytowards our top export destinations. This will help the country to become the manufacturing hub of global supply chain and global export powerhouse in the coming times.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Sanjay Aggarwal

President, PHD Chamber of Commerce and Industry

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