‘MSMEs are the bridge to economic growth which holds the potential to convert demographic divide to demographic dividend’
During the outbreak of Covid -19 all the world-economies were much-negatively affected leading to problems like loss in output, revenue, and most importantly economies had to witness enormous job-losses. In an attempt to slow-down the further spread of deadly virus, India in line-with other economies imposed a nationwide lockdown on March 24, 2020. Though following a barbell strategy, India somehow managed to reduce the impact of disastrous consequences, the economy has been substantially affected. According to the recent estimates by the CMIE, the third week of April witnessed a rise in the unemployment rate to 26.2%, rendering around 14 crore people jobless in the lockdown period. To revive the economy, government needs to boost the most vulnerable segment of the economy, i.e., ‘The MSME Sector’.
MSMEs are said to be the backbone of Indian economy, as they employ nearly 110 million people contributing approximately 30% of India’s GDP and 31% of GVA to the $2.7 trillion economy. They also account for 40% of overall exports of the country (Annual reports for 2018-19 by the Ministry of MSMEs).
Major problems with MSME’S
If we talk about the composition of MSMEs, micro-enterprises accounts for about 95% of the sector. These enterprises which are mostly located in the informal economy are amongst the worst hit by the pandemic. The major problem with these enterprises is inaccessibility to formal sources of finance. They still depend on moneylenders, acquaintances, friends, family, etc for their funds. According to the UK Sinha Committee report, finance is the foremost constraint hindering the growth and development of MSME’s. Recently, a survey conducted by a social media site reveals that 47% of the Indian start-ups and SMEs have less than 1 month of cash. As they do not have availability to formal credit, they face difficulty even to meet-out their operational costs requirements.
Other significant problems such as-inadequate Information, limited Technology restricts them to make their employees work from home. So this sector is most affected as other large domestic firms and MNCs have access to high-tech IT setup.
Government’s step in revitalising MSMEs
The Economic survey 2017 points out that, the MSME sector received just 17% of the total loan outstanding. Therefore, the Prime Minister’s Task force on MSMEs recommended banks to achieve a 20% yearly growth in credit to micro & small enterprises but ground reports are very much contradictory to this. In February 2020, the credit growth stood at 2.6% which is nowhere close to 20% target. The problems with MSMEs are that they don’t have sufficient credit history nor they have adequate collateral. Parallel to these, the rise in NPAs further makes financial institutions unenthusiastic to provide credit to MSMEs as their insolvency risk is high.
Keeping these problems in mind, the government has stepped-in and has introduced some policy measures and vital funding relief to the MSMEs. Some of the noteworthy measures include deferring of GST payments till June 2020. The MSMEs are exempted from loan payments till June. In addition to this, RBI has also introduced Long Term Repo Operations (LTRO) worth ₹1 Lakh crore, enabling banks to lend at cheaper rates. The Industrial Development banks have also eased the availability of liquidity to foster the growth of MSMEs.
The Prime Minister has quoted the term ‘Atmanirbhar Bharat’ which means self – reliant India. It is an opportunity for the MSMEs and other domestic firms to increase their share of exports, as the policy does not intend isolation from the world, but taking an active participation in GVCs (global value chains). The MSMEs are expected to perform better due to competition from the MNCs. Additionally, ‘Make in India’ initiative will provide opportunity to the MSME sector to either collaborate with the MNCs or to assist their own setups.
Conclusion-
As discussed above, MSMEs being the second largest employment generator to accommodating a significant workforce in India, still suffers from multitude of problems such as credit availability for expedited growth, lack of up-skilling of labour force and inability to cope and adapt to dynamic technological evolution. If necessary steps and policies are not being implemented effectively, blessing of demographic dividend to India will soon become its curse. MSMEs have a great way ahead if everything goes on the right track. It’s high time that policymakers draw their attention towards stressed MSMEs which are sustaining significant number of lives as well as livelihoods and which themselves are in dire need of assistance from the government as well as financial-institutions.