MSME sector faces toughest challenge duo to Covid crisis

Large number of MSMEs will have to shut operations permanently if Central Government doesn't come to their rescue and announce additional stimulus package exclusively for MSMEs. Other measures are also needed for reviving the sector as packages announced by RBI and the Centre are inadequate

The Central government announced Rs 20-lakh-crore Atmanirbhar Bharat Abhiyan for reviving the country's economy badly hit by Covid-19 pandemic. Under the first tranche of the Covid-19 stimulus, Finance Minister Nirmala Sitharaman on May 13 announced stimulus measures for the revival of the Micro, Small and Medium Enterprises (MSMEs). The measures include Rs 3 lakh crore collateral-free loans, Rs 20,000 crore subordinate debt for supporting MSMEs that have been declared as NPAs, Rs 50,000 crore equity infusion through a Fund of Funds into MSMEs which have potential for growth, clearing of MSMEs dues and banning of global tenders for government procurement up to Rs 200 crore, among others. However, this package is inadequate as a large number of MSMEs in the country are on the brink of bankruptcy due to Covid-induced lockdown.

MSMEs have been playing key role in the country's GDP. As per available data, India is home to more than 6.3 crore MSME units, which employ nearly 12 crore people. The key sector accounts for 45 per cent of manufacturing output and nearly 28 per cent of the country's GDP. Another key factor here is that MSMEs generate more jobs than large companies. An MSME unit creates 24 jobs for every Rs one crore of investment it puts in.

But sadly, the country's key sector is now in doldrums as the national lockdown commenced on March 25 and extended beyond May for containing Covid-19, has taken a huge toll on it. As consequence, MSMEs are now under immense financial stress as they have to pay salaries and incur other maintenance costs even though revenues have dried up.

It is pertinent to mention here that MSMEs continue to incur losses even though lockdown norms have been eased. Lack of working capital, shortage of manpower and input materials are crippling the sector now. Large number of MSMEs will have to shut operations permanently if Central Government doesn't come to their rescue and announce a Rs 10 lakh crore stimulus package exclusively for MSMEs. The Centre should also announce other measures to revive the ailing sector as the packages announced by RBI and the Centre are inadequate.

Further, the Centre should initiate following additional measures to put MSMEs on growth track.

N NPA norms should be extended to one year from 180 days now

N All banks should sanction MSME loans at 3 per cent interest rate. Special sops should be announced for agri-based industries

N All pending payments from public and private sector companies to MSMEs should immediately be cleared and paid directly to MSMEs

N The limit of working capital should be doubled without any interest burden. One-year moratorium should be imposed on existing loans and interest rate on them should be reduced to 3%

N The central government should arrange a meeting between Finance Ministry, RBI and MSME industry bodies to chalk out a roadmap for the implementation of enhanced revival package for MSMEs.

N The central government should direct Chief Ministers to hold a special SLBC meeting for addressing the issues of industrial sector.

N Fixed charges on power connections to MSMEs should be abolished and the central government should bear the losses. As part of 'One Nation One Power Tariff' initiative, pre-paid and post-paid power connections should be allowed. With that, seasonal industries can opt for pre-paid connections.

N Uniform industrial policy across the country is need of the hour.

N The practice of reimbursement for incentives should be done away with.

N The central government should offer infrastructure grants for developing exclusive industrial parks in each district for agri-based industries, food processing sector, services sector and manufacturing sector.

(The writer is national president of Federation of Small and Medium Enterprises of India & vice chairman, Southern MSME JAC)