The writer, Mangurish Pai Raiker, deconstructs the new draft policy for MSMEs and the objective behind it
MSME is described as the driver of the growth engine of the country. MSME promotes inclusive growth by providing employment opportunities in rural as well as urban areas with minimum investment. These enterprises are the backbone of any developing economy and are supported by the Government through various subsidies, schemes and incentives. The MSME Act helps to promote and protect the MSMEs in the country. The new definition of micro, small and medium enterprises has encompassed almost every industry both in manufacturing and service sector.
Units with investment limit up to one crore and turnover of up to five crores are classified as micro enterprises. Units with investment up to ten crores and turnover of up to fifty crores come under small enterprises and with investment limit of fifty crores and turnover of not more than two hundred and fifty crores are termed as medium enterprises. Both manufacturing and service units come under this classification. Recently, trading – both retail and wholesale has been added in the definition. India today has about 63 million MSMEs registered and almost 98% of which are micro enterprises. MSME contributes about 30% to the GDP and are accountable for almost one third of India’s manufacturing output, employing more than 11 crore people.
It is a proven fact that development of this sector enables the nation’s growth and helps in creating employment opportunities for the skilled and unskilled youth from the surrounding areas. Government therefore, always thinks of new initiatives to promote new enterprises with innovative products assisting in overall economic development of that area. These initiatives are brought through policy guidelines indicating the future outlook of the vision of the Government.
What should be the effective and futuristic MSME policy of India? First and foremost, it should also be aligned with MSME policies of the State Governments of India and take into account the progressive policies in the Western as well as the Eastern Hemispheres. Our MSME Policy must encourage establishment and growth of our units. It should give impetus to the new generation to venture into entrepreneurship with innovative ideas.
Like other sectors, MSME also has been adversely affected in terms of productivity during covid-19. Accordingly, the efficiency and productivity of MSME assumes further significance to achieve overall objectives of economic development and a smooth early recovery of the Indian economy. Many initiatives were taken by the Government to help and assist this sector during the pandemic. This included revised definition, access to easy finance particularly during the pandemic, competitive SME policy themes, digitalisation support for SMEs, Skill development of SMEs to improve and retain competencies, and protecting start-up and scale-ups.
The new draft policy document on MSME is in continuation with measures stated earlier to promote competitiveness, technology upgradation, infrastructure, cluster development, dedicated credit, procurement of products and financial assistance to MSME. The purpose is to bring together a comprehensive frame-work of strategies and actions for suitable adaptation and inclusion in the state-level policies.
“The draft policy is a MSME wish list. The concept of production first-permission later, as is followed in Gujarat, has appealed to me as a perfect EODB measure for new units. Good initiatives for marketing and finance have been worked upon; but the final process needs to be simple. Happy that the states too will be coming up with state policy in alignment with the central one. Extremely excited and looking forward to not only the policy but the implementation in the right spirit” Rajkumar Kamat, Founder and Managing Director, EP Kamat Group
The objective of this new draft policy is to facilitate and build a vibrant eco-system for the rapid growth of the MSME sector, identify and sensitise stakeholders to promote MSMEs to the best of their potential, create physical infrastructure and linkages (backward and forward), amenable to MSMEs, ensure access to credit, risk capital, raw material and marketing facilities for MSMEs, develop a framework for accessible and affordable technology upgradation and capacity building for MSMEs as well as harnessing the potential of technological advancement to deliver services to stakeholders especially MSMEs, promote a conducive business environment covering ‘Ease of Doing Business’ (EoDB) and suitable exit code by developing appropriate dispute resolution mechanism.
In order to achieve the vision of stimulating efficiency and productivity of MSME sector to generate income, employment and becoming part of domestic and global value chains, together with meeting with the objectives, it is suggested to concentrate on the specific action areas which need deliberations for a national policy to guide, motivate, and handhold states. Whereas intergovernmental actions define potential actions, the sectoral issues provide scope of work in respective areas to be taken up by various stakeholders.
These are inter-governmental roles and responsibility, legislation and regulatory framework for MSMEs in India, access to finance/financial assistance for MSMEs, technology upgradation/ adaptation, skill development and knowledge management, ease of doing business, development of MSME Code and exit code.
The specificity of the draft policy on MSME to “build a vibrant eco-system” for the rapid growth of the MSME sector is indeed precise and encouraging and will definitely go a long way to accelerate the economic expansion.
The most critical work that needs to be done is changing the work culture and approach of the government system from being controllers to being cheerleaders of business. There should be transition from letter to spirit of the draft on the ground” Pravin Kakode, Managing Director, Upgrade Enterprises Pvt Ltd
There is a lack of convergence and synergy among various stakeholders to enhance MSME productivity to the best of their ability. Proper mobilisation, awareness and objective oriented actions need to be identified. Legislative and regulatory framework for MSMEs in India is quite complex and varies from state to state. It is largely mixed with industry as a whole and only a couple of states have an exclusive framework of codes, regulations and other rules. Further, access to soft loans, risk mitigation funds, easy access to raw material and marketing facilities, and existing methods of dispute resolution are not industry friendly. The purpose of the draft policy is to bring together a comprehensive frame-work of strategies and actions for suitable adaptation and inclusion in the state level policies. The credit quality of micro, small and medium enterprises availing loans from private sector banks and NBFCs is significantly doing better, as per the draft policy; but RBI in its report has suggested that need based quality credit should be made available without delay.
Following are some of the key highlights from the draft policy: A special cell should be created in DIC/DLMFC to coordinate with DAY NULM (National Urban Livelihood Mission) and National Rural Livelihood Mission (NRLM) with local governments in urban and rural areas. Micro enterprises should be given special attention and due representation in DLMFC/ LLMFC. Each state should have its own regulatory system exclusively for MSMEs. Composition of the facilitation council must be reviewed to widen its outreach and access to all stakeholders.
Most of the states have one facilitation council (FC) at the state level, which is not adequate to deal with the number of cases being filed with delay and pendency are common features. To deal with the situation there is a need for establishing more FCs and if possible and feasible, an FC should be set up in each district. The ambit of the Facilitation Council needs to be extended to medium enterprises also. Promote awareness on ‘Samadhaan’ among MSE borrowers.
Under the Insolvency and Bankruptcy Code, 2016 MSME dues should be given priority over all other unsecured payments after settling dues of employees, when a company goes into liquidation or approaches NCLT. Decide disputed cases within 90 days to improve liquidity of MSMEs and minimise the incidence of NPA. Many states have different laws / ordinances to regulate and promote MSMEs. There is no uniformity in these State Laws. The Central Government may prepare a model law and circulate among states. The adoption of the model law by the state will bring uniformity among all states.
The policy makers are of the opinion that the document needs wider dissemination, debate and feedback from stakeholders to firm up a national policy for follow up at inter-governmental level. Various committees were involved and have forwarded a range of issues for suitable resolution, although recent actions have tried to address many of them through notifications from time to time and follow up actions, as mentioned in the tentative document. However, it is recognised in the draft policy that there is a need to systematically look into these issues to form a dynamic policy by Government of India to take actions and promote follow up at state level to address specific barriers in the growth of MSMEs.
The draft policy also recommends development of State Policy on MSME in line with the National Policy on MSME. There is a need to have threadbare discussion across the country by involving the stakeholders, especially the SME organisations and an effective, progressive, hassle free, easy to implement with proper centre state coordination policy be put in place for the welfare of MSMEs