MSMEs do need government schemes to help them overcome their problems, but not too many, says Anil Bhardwaj, Secretary General, Federation of Indian Micro, Small & Medium Enterprises (FISME). In an interview with BusinessLine, he spoke extensively about what ails the sector and how things could be set right. Excerpts:
How did the problem of credit availability become so acute for the MSME sector?
The slowdown in the economy — due to demonetisation and the sudden additional requirement of funds because of GST — created financial stress in MSMEs. More than project finance, MSMEs craved more working capital but banks were found to be unsympathetic. This was partly because of their own NPAs and enhanced capital provisioning, and partly because of a rigid RBI stance on SMA (Special Mention Account) classification of accounts. By and large, the last 18 months have been extremely stressful for MSMEs.
Has the sector recovered from the effects of demonetisation and adjusted to the GST regime?
The MSME sector is limping back (after demonetisation). The introduction of GST, though lauded by the sector by and large, has put it under the grind of adjusting to a new regime. For units which were registered with State and Central VAT in the pre-GST era, the transition was relatively easier. While MSMEs did face many process-related technical glitches in the GSTN (GST Network), these were addressed progressively. Tax slab anomalies and difficulties in filing and returns were also smoothed in consultation with businesses.
Small exporters, however, faced enormous hardships in complying with GST, and some of their IGST refund-related issues remain. Also affected are units doing job work. Their services are taxed at 28 per cent, which has made their business unviable. Hopefully, 2019, after elections, may provide even conditions for growth.
Have the government schemes for MSMEs delivered results? What more needs to be done?
The answer is ‘yes’ and ‘no’. Some schemes are specific and hugely successful in creating an impact. Examples are the Public Procurement for Micro & Small Enterprises (MSEs) scheme, which makes it mandatory for Central agencies to procure at least 25 per cent from MSEs; the Credit Guarantee Fund for MSEs, which allows access to credit without collateral; and the Credit Linked Capital Subsidy Scheme.
Where is the glitch then?
The continental size of the country and the huge number of MSMEs require schemes to be few in number but adequately funded. There are too many Central and State schemes that are funded poorly.
Secondly, associations need to be involved more in delivery. From marketing support to organising workshops, most of the public funds go to public bodies with little connect to MSMEs. The propensity of governments to rely on existing public institutions for delivery of scheme-funded services is not very effective.