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The Struggling MSME Sector

The micro, small and medium enterprises (MSME) sector is the most vibrant and critical segment of the Indian economy and is a large contributor to its GDP, exports and employment generation. This sector however suffered the most due to demonetisation and the onset of the GST. Many MSME cluster towns like Tirupur, Surat, Ludhiana etc. suffered heavily, apparent from the lakhs of units that closed down, unable to withstand these initiatives. The government yet, for quite sometime failed to admit the woes of this sector (because that meant accepting the failure of demonetisation), despite such widespread closure of units and the dip in the GDP growth. The unresolved NPA/banking crisis thereafter further worsened the state of affairs of this sector, due to their receivables stuck with large NPA accounts and the unwillingness of banks to lend to them, apparent from the very stiff terms of lending, imposed by banks. Many a crisis ridden small entrepreneur is said to have sought to take up a job, which too was not easy to come by.

In a confession of sorts, the Banking Secretary Shri Rajiv Kumar, told a parliamentary panel earlier this month that the MSME sector is in a bad shape. The fact that it took so many months for the government to admit/accept this reality, which has been clearly evident at the ground, shows the government’s apathy to it. This sector, which primarily consists of the small traders and businessmen, has been a strong traditional BJP vote bank and has been hurt by the government’s indifference to their woes. The BS rightly states that with the 2019 polls in mind, the government is said to be preparing a comprehensive package to boost credit for the MSM enterprises. Multiple government departments are involved in diagnosing what ails this sector and a comprehensive relief package is on the cards.

The MSME sector has suffered the most in the present bank crisis that India faces. While on one hand bank credit has become very difficult to come by, on the other hand, this sector has no other funding options. Many of them are also on the urge of bankruptcy because of their money being stuck with big companies that have defaulted on bank loans as well as payments to the MSME sector. The GDP maybe on an upward swing, but that growth will bypass this sector completely, if these enterprises do not get bank funds, adequately and on time. Loans to this sector have actually dipped during the present period. These units are also unable to bear the heavy rates of interest at which banks lend and are in urgent need of interest subsidy.

It is not just the non availability of bank credit that has badly hit the MSME sector. The complicated GST law and complex forms, as also the high cost of compliance under various laws have adversely impacted these enterprises. Merely opening the bank credit tap will not resolve the huge crisis that this sector faces. Much more needs to be done on many other fronts for this sector which is India’s major employment generator.

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