Kerala is a great place for furthering revolutionising MSMEs: Rajan

Medium and Small Enterprises (MSME) are critical to economic development and a 'level playing field' should be ensured for them, RBI Governor Raghuram Rajan said on Monday.

"We need to create many more jobs and that is one of the most important things in the country in the coming years. MSMEs are very important source of job creation," he said at a India MSME Summit here. Job creation really takes off not when they are small, but when they grow, he said, adding that it is important to create conditions for the growth of MSMEs, not just for startups, but also to grow in effective ways.

Kerala is well placed for a revolution in MSME sector, he said, adding that the state should leverage its high level of education and capabilities. Quoting a Chinese professor, he said differences in the vigour of MSMEs in China and India have to do with the level of educational differences between the two countries.

"Kerala, anywhere in India is well positioned with the educational level to go forward. Kerala is a great place for furthering revolutionising MSMEs," he said. More entities will create more competition. Giving the example of banana chips, he said a new way of making them would be tremendously useful for the country, both in terms of spreading it and improving productivity.

He was referring to Manoj Joshi, Joint secretary, MSME, who pointed out the reluctance of some in the chip industry to go in for modernisation. While banana chips makers in Kochi use machines, some in the state capital prefer to stick on to the old practise. Stressing upon the need for competition from MSMEs, he said that it was the way to progress.

The sector should be encouraged as it not only benefits the economy, but also helped in socially empowering women and those in the weaker sections. "So from the perspective of the economy, from the perspective of spreading opportunities across the country and perspective of spreading social equality, MSME is a critical sector in the economy," he said.

Government and regulators should give the sector a 'level playing field', he said. A regulatory structure that creates a lot of bureaucratic obstacles that distorts the level playing field will have the opposite effect, he said, citing the example of Italy, where too many regulations have held back the growth of MSMEs.

"We need to figure out a regulatory environment both at the RBI, centre and state government level that facilitates right regulations. I do not mean no regulation. De-regulation is necessary', he said. In the banking sector, 23 new banks had been cleared to enter the field and two had already started, he said, adding 'some small financial banks have precisely targeted to loan MSMEs'. There is need for entities to help MSMEs and some of it can be done by banks.

'There is lot of handholding banks cannot do. We have to think if NGOs can do it'. Rajan said that Reserve Bank plans to make significant changes in its rules to extend loans to startups, with focus on providing a better growth environment for MSMEs. "We in RBI are looking at our rules governing the finance of startups and we are making some significant changes to facilitate the kind of start up you see in the country".

Stating that India lacked good bankruptcy laws, Rajan said the new bankruptcy code government was bringing in Parliament, would go a long way in addressing MSMEs problems and the distress faced by the sector. He also wanted formulation of a portable safety network for workers in the MSME's. 'A safety net is not for enterprises, but for the workers of MSMEs', he said.

It was important that workers in the sector have a safety net that envisages protection of their pension and insurance benefits even if they move from one enterprise to another, he said. On the lines of Vidya Lakshmi for education loans, the RBI Governor proposed a portal for MSMEs for getting loans from banks.

"We are discussing on it', he said. Stating that land acquisition was a problem in the country, he wanted to speed up digitalisation of land ownerships. "Making land acquisitions easier is very important. State governments are moving forward on steps in this regard for entities to acquire land," he said.