Prime minister Narendra Modi seems to have leveraged technology in a big way to derive huge benefits for the economy on the whole and industry in particular. The common portal launched to access loans up to Rs one crore by micro, small and medium enterprises (MSMEs) registered with goods and services tax (GST) network in 59 minutes is a demonstration of what technology can achieve for India. This will not only hasten loan clearances to MSMEs that are currently starved of debt funds but will also enable banks to keep track of their lending operations without scope for duplication, over-leveraging or taking exposure to rogue clients.
Easing credit flow was a sticking point between RBI and the government that continue to be at loggerheads. While the government wants credit taps to be opened for MSMEs that have huge potential for creating work opportunities, RBI has been reticent on the issue – especially with restrictions on weak banks whose balance sheets are being cleaned up. The 12-point package announced by the prime minister has several takeaways for different sections of the industry and the government. To boost credit offtake via healthy MSMEs, Modi offered two per cent interest subvention for incremental loans up to Rs one crore. While funds would be cost effective for companies that genuinely want to expand, economic expansion seems to be the larger objective.
The increase in interest subvention to five per cent on pre and post-shipment credit will support exports from MSME sector big time, bridge the widening trade deficit and concomitantly current account deficit (CAD) that has already touched 2.3 per cent. The biggest issue dragging down MSMEs is the inconsistency in cash flows. Prime minister Modi appears to have attempted to ensure timely payments from larger companies and big contractors. Compulsory registration on government run e-trade discounting system will also help develop a market for trading in bills. It will also help government keep tabs on companies with turnover of Rs 500 crore and above.
While PSUs have to source 25 per cent of their purchases from MSMEs, the move to set aside a modest 3 per cent for women vendors is a good beginning to encourage them to start businesses. Many men may like to make women members of their families majority stakeholders in their businesses to access three per cent quota of orders from PSUs. By asking state-run companies and vendors to join the government run e-market place, the Modi regime would have laid the path for match-making in procurement and vending business. Common products required by state-run companies could be ordered from a panel of vendors jointly to cut costs and also ensure better margins for the latter. However, state-run companies need not shy away from looking for options outside the e-market place. Hitherto, such a procurement platform was operative for government departments, ministries and autonomous organisations.
Technology upgrade package of Rs 6,000 crore offered to improve manufacturing by MSMEs is significant. It is not just the funds. The government’s move to set up scores of tool rooms and technology hubs to help the MSMEs needs to be leveraged by industries and businesses. These technology hubs and tool rooms may have to be dovetailed into incubation centres set up in IITs, regional engineering colleges and institutes of higher learning. Putting an end to Inspector Raj, filing of one return on compliances by MSMEs and early environmental clearances may virtually put the MSMEs on a high protein diet to fuel their growth. Like doing away with attestations by gazetted officers for individuals, self declaration by MSMEs will instil a lot of confidence, reduce paper work and loss of precious man hours that can be devoted to promoting businesses.