Clipped from: https://economictimes.indiatimes.com
The Cabinet decisions to operationalise the package of measures for the micro, small and medium enterprises (MSMEs) announced as part of the Atmanirbhar Bharat scheme, along with measures to help farmers, are welcome, with caveats.
The decision to tweak the definition of an MSME by raising the turnover limit to qualify as an MSME to Rs. 250 crore, that, too, excluding exports, runs the risk of leaving smaller firms being edged out from the benefits of the schemes. In the case of agriculture, the relief on offer is fine, but there is little attempt to leverage income support via the PM-KISAN scheme to drive structural change.
India’s farm sector suffers from chronic mismatch of crops and agroclimatic zones, thanks to distorted incentives ranging from subsidised and free inputs to significant support prices that make it difficult for farmers to switch crops. The Food Corporation of India carries stocks of grain far in excess of what is needed for food distribution, thanks to procurement at liberal support prices.
Increasing support prices further, as the government has done, will only worsen this problem, not offering an escape route. It makes more sense to divert the money spent on procurement to income support, so that the farmer can make rational choices on what to grow, instead of that choice being dictated by high support prices. Such a change would also spare India the blushes at World Trade Organisation farm subsidy talks, as income support, unlike produce subsidy, is allowed.
To guard against larger companies cornering most MSME benefits, it might be useful to set separate quotas for the micro and small segments. While all tiny units cannot and will not survive, those that go under must do so for the right reasons, not lack of access to formal finance.