By Nitin Mittal

Proper implementation of the stimulus measures for the sector, minus the red tape, is crucial.

The Atmanirbhar stimulus package is a welcome mix of fiscal and monetary support, ease of conducting business processes, as well as some fundamental reforms. However, the stimulus measures do not address current economic needs and will not have an immediate impact.

Introducing clarity in policy communication by making it simple for the end beneficiary, ie the MSMEs, without leaving any room for subjectivity, needs to be urgently taken up by the Central and State governments. For instance, the Finance Ministry’s notification in May, amending the General Finance Rules (GFR) 2017, disallows global tenders to encourage MSMEs to take part in tenders below ₹200 crore, but has bestowed power to the respective departments in ‘exceptional case’ scenarios to consider global tender enquiry.

While 30 per cent of the overall buying demand comes from the government and allied agencies, due to policies being left to individual inference, Indian MSMEs find it hard to supply despite the ‘preference to make in India’ (PMI) guidelines calling for a 100 per cent domestic purchase for certain specified products.

One could argue that the lack of scale that Indian MSMEs have compared to global MSMEs begs for an alternate lending lens to be applied for providing growth capital to MSMEs. This has been amply supported by the Centre through the ‘Fund of Funds’ initiative, but it also has left a major chunk of debt financing to current traditional underwriting measures of the market.

A substantial amount of liquidity has been infused into the banking system in the hope that it will in turn lend more profusely to industries, especially MSMEs. The loan guarantee scheme is another such measure expected to act as a catalyst for lending to this sector, but its success will depend on clear guidelines on implementation to banks and NBFCs, and communication on the steps to leverage this stimulus package for the MSME segment. Banks may turn into growth consultants for MSMEs in the process.

On the demand side, with the latest sustenance boost announced on the heels of the government’s second stimulus package, the Reserve Bank of India (RBI) has provided further relief to borrowers with a three-month loan moratorium extension on top of the three months announced earlier. The repo rate cut of 40 bps is likely to improve credit appetite in the retail segment and help kick-start the economy.

The relief measures this time also included exporters and importers, with the provison of a ₹15,000-crore credit line to EXIM bank, extension of export credit sanctions by three months and a six-month extension for completion of outward remittances for importers. This will go a long way to ease liquidity in the MSME sector, which contributes to 40 per cent of India’s exports.

In this scenario, what MSMEs are asking for can broadly be bucketed as below:

The immediate availability of subsidies, with simplified processes for getting them without hindrance.

Over 95 per cent of our MSMEs are not in the formal finance fold currently; an urgent review of alternate lending mechanisms and credit scoring criteria needs to be undertaken by the Centre to unlock liquidity in the system

Clearance of all due payments stuck with the government and large corporates on priority.

Full restoration of mobility with rules defined and strict adherence monitored, as it is critical to running a business.

For stressed lenders, the challenge of any government-sponsored scheme lies in its last-mile implementation. Delays or denials because of red-tape will make financial institutions wary of any government credit enhancement schemes, and render all the good work done thus far ineffective.

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