Water Green Shoots With Vital Credit–Economic Times

The economy is turning over a new leaf, or so claims FM Nirmala Sitharaman, who cites several green shoots. Higher foreign investment inflows, direct and portfolio, rising GST collections, faster accumulation of forex reserves and the buoyant stock market all indicate sanguine investor expectations but have accompanied quarter after quarter of slow growth. Only two of the shoots in question are genuinely green: rising Purchasing Managers’ Index for manufactures and for services. The way forward is to proactively policy-induce heightened credit offtake for trade and industry, including by streamlining the Trade Receivables Discounting System, or TReDS, a factoring service that has the potential to revolutionise trade credit for micro, small and medium enterprises (MSMEs).

Large corporates, government departments and public sector undertakings (PSUs) tend to delay payments to MSMEs, forcing these companies to borrow at usurious rates from informal credit markets. TReDS is supposed to boost the financing of MSME receivables by banks. In her budget speech, the FM had sought to amend Factoring Regulation Act, 2011, to enable non-banking financial companies (NBFCs) to extend invoice financing to MSMEs on TReDS; the move needs expediting.

Further, to step up working capital for MSMEs, banks would provide quasi-equity, which, in turn, would be fully guaranteed by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The latter corpus needs to be duly augmented by the Centre.

In tandem, quick restructuring of MSME debt is warranted for viable operations. Besides, the government needs to purposefully address liquidity issues in the NBFC sector.

The severe growth slowdown last year was precipitated by a massive fall in credit availability for NBFCs, which did affect the real sector in a big way.

Meanwhile, industrial output remains dicey. Swift deployment of the alternate fund announced for real estate, swift approval of infrastructure projects and steady progress on developing a market for corporate debt are other desirable developments.

This piece appeared as an editorial opinion in the print edition of The Economic Times.
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via Water Green Shoots With Vital Credit

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