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Govt Should Provide Tax Incentives To Rural MSMEs To Promote Exports: Shachindra Nath

Enhanced efforts towards formalising the rural MSME sector have become crucial to enable the sector’s quick recovery and eventual growth, said Nath

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Technology integration can open up rural micro, small and medium enterprises (MSMEs) to the scope of collaboration with new-age digital lenders, in turn making it easier to access credit at lower rates and at a faster pace, said Shachindra Nath, Vice Chairman and Managing Director, U GRO Capital in an interview with BW Businessworld. Edited excerpts:

Can we say Indian MSMEs are recovering from the Covid-19 pandemic?

Indian entrepreneurial spirit of the highest degree was demonstrated by small businesses in India. The most affected sector showed resilience and bounced back with vengeance. This is reflected in a 15 per cent to 17 per cent increase in revenue prediction for the MSME sector in FY22. And recovery is happening across sectors with construction, commodities, exports, and consumption, leading this trend. 

The growth is also estimated to be at 11 per cent to 13 per cent in the current financial year. This has been made possible by exceptional support from the government in terms of credit and benefits, combined with large-scale digitization and easing of Covid restrictions, one can be sure that recovery will be fairly quick for the MSME sector.   

What is the path that MSMEs should take to aid recovery?  

MSMEs to survive and grow have to be part of a digital data-driven economy – ‘Digital India´ is the power to thwart competition from large players and also bring the MSMEs into mainline economic activities. Adoption of GST, digital banking and payments would help facilities MSMEs to avail timely credit which would help them grow. Transparency is the key to success for MSMEs in India.  

Do you think the government is doing enough to help small businesses? 

Among every other sector, MSMEs are most favoured by the government today. Several schemes such as two versions of the Emergency Credit Line Guarantee Scheme (ECLGS) and the Aatmanirbhar Bharat Abhiyaan have been launched by the government to support the promotion and development, as well as enhancement of competitiveness in the sector.

Coming up with a more nuanced way of defining MSMEs and taking into consideration the account turnover as well as currency depreciation has helped further liberate MSMEs, in turn enabling them to pursue growth without compromising on the level of benefits available. 

Also, the government has proactively worked towards ensuring MSMEs have convenient access to finance and credit. Announcing and enabling policies and schemes that facilitate access to credit, such as the credit guarantee fund scheme and credit-linked capital subsidy scheme along with production-linked incentives (PLI), have also helped MSMEs do business and expand. 

Also, with digital lenders entering the scenario with profound approaches and technology, and complemented by regulator’s encouragement, MSMEs now have access to cheaper credit that is often tailored to their needs and has helped make them a part of the banked population. However, to keep this growth pace going, digitisation needs to be a top priority and the government must encourage all the concerned stakeholders.  

What are your thoughts on MSMEs in rural India? What do they require?  

For the MSMEs in rural India, the government can begin with some tax incentives to promote exports, as well as mobilize capital and credit to help their growth. DFIs like SIDBI and certain equities and/or grants can be a good starting point, in terms of providing rural MSMEs with much-needed capital for their growth and to kick start their Capex cycle. 

There is also a growing need to increase credit penetration. Empowering NBFCs and Fintechs and promoting the utility of models such as co-lending can go a long way in ensuring rural MSMEs do not fail due to a lack of funds. 

Technology integration can open up rural MSMEs to the scope of collaboration with new-age digital lenders, in turn making it easier to access credit at lower rates and at a faster pace. Enhanced efforts towards formalizing the rural MSME sector have become crucial to enable the sector’s quick recovery and eventual growth. 

Union MSME Minister Narayan Rane has called for coordinated efforts by all stakeholders to resolve the issue of delayed payments. How can we resolve this issue? 

The issue of delayed payments causes MSMEs a loss of nearly 10.7 lakh crore, which is 5.9 per cent of India’s Gross Value Added (GVA). So, the issue is undoubtedly sizeable. There are many things that can be done to resolve this. 

First off, we must build the public conversation around this matter by publishing data related to the issue in the annual economic survey, as well as leveraging platforms like Mann ki Baat to discuss the issue and raise awareness around it. 

Adding a delayed payment indicator to the ease of doing business framework 2.0 is also one way to ensure the matter is brought to everyone’s attention. As a way of reducing the burden on the state, online dispute resolution forums can be set up to look into matters related to delayed payments. 

Banks and data providers can also work together to make borrowing difficult for buyers and create a formula for delayed payments that can help recognise tardy buyers with a bad payment record. Making it mandatory for miniratnas, maharatnas, and navratnas to make payments via TReDS, an invoice discounting mechanism, can also help keep track of any such defaulters.  

How can MSMEs contribute to the USD 5 trillion economy? 

Considering the MSME sector’s significant contribution of 30 per cent to the nominal GDP currently, it is crucial to realize the role of the sector in achieving the USD 5 trillion economy mark. To reach this target, it is essential to achieve a growth of 10 per cent for the MSME sector. 

And, given that MSMEs make up a major part of the Indian economy, promoting and supporting them can also help drive employment, in turn increasing the purchasing power of consumers. Hence, it makes perfect sense for governments and financial institutions to support the sector and aid its growth. 

Technology is going to be key to unlocking the rapid growth of the MSME sector, as well as innovative and more effective credit products, which are of immense importance. 

The emergence of nuanced financial products by highly capable financial institutions and new-age fintechs has greatly spurred the sector with easy credit access and one can expect this support to only become more prominent. 

Further, government support in the form of credit and financial assistance, skill development and training, infrastructure support and technology upgradation, would facilitate sustainable MSME sector growth. It is highly essential for varied stakeholders to play their part in supporting the MSME sector’s rapid and sustainable growth towards helping the economy realise USD 5 trillion mark.