👍👍👍👍👍Sunrise on MSME – The Hindu BusinessLine

https://www.thehindubusinessline.com/opinion/editorial/sunrise-on-msme/article67020042.ece

Clipped from: https://www.thehindubusinessline.com/opinion/editorial/sunrise-on-msme/article67020042.ece

Cautiously optimistic industry expects policy tweaks

On the occasion of MSME day worldwide on June 27, there has been some discussion around whether small industries in India have turned the corner after the Covid onslaught — made worse by the Ukraine war induced disruption, and now rising interest rates. In an event organised by this newspaper in Bengaluru to mark the occasion, entrepreneurs were cautiously optimistic — they did accept that the worst was behind them; that there was dynamism in the air but they expected policies to go that extra mile to make availability of credit and liquidity easier, and improve access to technology.

Meanwhile, the Financial Stability Report (FSR), released on Wednesday, bears out what was anecdotally known — that in the MSME universe (which encompasses firms ranging from scratch to a turnover of ₹250 crore), it is the smallest (below ₹5 crore turnover) which bore the brunt of the recent disruptions. While the emergency loan credit guarantee scheme, introduced in March 2020 to tide over Covid, did provide a liquidity lifeline to all MSMEs, as pointed out in the Economic Survey 2022-23, micro enterprises were hit. As the FSR points out, 20 per cent of ECLGS loans extended to micro enterprises turned “delinquent” or NPA and this was 10 per cent of the loan amount extended to this segment. These numbers are far higher than for the small (under ₹50 crore turnover) and medium segment (under ₹250 crore turnover). In the former, 11.7 per cent of the accounts and 5.3 per cent of the loan volumes turned into NPA, whereas in the case of the latter it was 3.8 per cent and 3.5 per cent, respectively. Large units could keep their workers on the rolls, had the cash reserves to cope with payment disruptions and also absorb the subsequent shocks that followed in terms of rising container freight rates, disruption in consignments and higher prices overall. However, the GNPA ratio for MSMEs as a whole has fallen from 9.3 per cent in March 2022 to 6.8 per cent in March 2023.

The two decades old Credit Guarantee Fund Trust scheme for MSMEs, which allows banks to lend without collateral and get a backstop for it, should sustain its recent improvements. CGTSME loans have picked up from ₹36,000 crore in FY21 to ₹1.04-lakh crore in FY23. Claim settlements have improved. Indeed, with credit bureaus identifying defaulters, default has become difficult. Therefore, banks can take a less rigid view on collateral, going beyond land alone. However, the larger issue here is fixing the collapse of inter-firm or trade credit, which drives MSME finance. This has led to a liquidity crunch, impacting repayments to banks. This requires policy attention.

MSMEs need tech support as well. Institutions and incubation centres set up have traditionally been dominated by bureaucrats which renders them ineffective. The promise of digital technologies in reducing operating costs and raising productivity should be realised. MSMEs stand on the cusp of promise, having weathered the storms of the recent past.

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