MSME Day | Rebooting India’s MSME sector and Initiating Structural Reforms

Initiating Structural Reform of MSMEs in India

Rebooting India's MSME sector and Initiating Structural Reforms

June 27 is World MSME Day. The day was established in 2017 by the United Nations for their contribution to inclusive and sustainable development by micro, small and medium enterprises, locally and globally.

This year’s global theme is “MSMEs: First Responder for Social Needs”. Epidemics and lock-down restrictions created the entire economy disoriented and made up for the already existing structural weaknesses, especially in the MSME segment. As a result, many MSMEs in all regions find themselves on the verge of surviving the current COVID-19. The MSME has been singled out as a priority in the government’s Atmanirbhar Bharat Recovery Package of Regulatory Reforms and Credit Support.

In India, 6.3 crore MSMEs employ more than 12 crore people, contribute 45 percent to exports, and add up to 30 percent manufacturing value. MSMEs are an important part of large national and global value chains and have an overall impact on their health supply chains and indeed have the ability to supply many consumer and capital goods and services.

MSMEs have been greatly affected by the COVID-19 crisis. A survey of over 46,000 MSMEs published earlier this month by the All India Manufacturers Organization found that 1 in 3 MSMEs consider their enterprise beyond recovery, while the other 32 percent recover at least six. Expect to take months. It will affect the lives and livelihoods of crores of workers and their families. The possibilities are indeed grim, yet can tell how terrible the future is. Epidemics and crises are still with us, even if we consider ourselves as ‘locked down’ or ‘unlocked’. When and how government, business, and society become successful in limiting the epidemic and its health and human impacts and in the coming months will have lasting effects for many years to come.

In the lead-up to the lockup in India, manufacturing already began to slow down, particularly in areas dependent on the import of critical parts, components or components, and on the export of intermediate or finished goods to the affected areas. In addition, the prevalence of disease and the inability to meet and travel due to decreased consumption particularly concerns customers in hospitality, travel, tourism, and allied sectors. The lockdown overthrew the overnight business landscape and disrupted the availability of suitably qualified staff as well as supply chains.

Also, Read MSME Day | With the right policies, MSMEs in India can be seen to boom in 2021

Sales reached close to zero for most businesses except in critical areas. Sales continued in the absence of income and with costs for labor, rent, loans, etc., businesses consumed their working capital very rapidly during the lock-in period. MSMEs require immediate cash to pay the required inputs in the form of material, energy, and labor needed to restart the business. However, it only makes sense for business when there is a real and immediate possibility of selling which requires market demand to re-emerge in the B2C, B2B, and B2G segments. Market recovery Economic recovery is the only engine for a cash flow starter and can lead to emergency credit ignition.

Credit support through the finance minister’s resume in the finance minister’s hospitality package, especially through collateral-free automatic loans for emergency loans (up to 20% of outstanding loans up to a maximum of Rs 5 crore) and funds equity funds has given.

As per preliminary reports, emergency credit is already being availed by MSMEs. By design, however, emergency credit support can only serve MSMEs who have a good credit history and who have established banking relationships and have orders in hand or other security to demand their products or services. Many MSMEs cannot use emergency loans because their pre-lockdown financial position was already in weak or survival mode and largely sourced from (quasi) informal and non-banking sources. MSMEs are concerned about their ability to repay in the coming years due to uncertain market prospects. And whether buyers will actually pay on time – consumers, businesses, and government are all included.

The operation of the MSME segment has long been constrained by outdated MSME definitions based on invested capital that actually decomposes MSMEs to develop or update their technology to keep pace with market demands. Rapid action under Atmanabir India to revise MSME definitions from 1 July 2020 is appreciated. The new definition leaves out the distinction between manufacturing and service MSMEs and classifies enterprises based on a combination of invested capital and annual turn-over. This will help MSMEs develop by increasing the threshold of lower capital which has changed the urge and capacity to expand. The exact fall out of change is not yet clear – some enterprises.

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