Micro, Small and Medium Enterprises (MSMEs), which contribute 27 per cent of India’s GDP, account for 38.4 per cent of the total manufacturing output and contribute 45 per cent of the country's total exports, have been given due respect in the Budget for 2024-25.
Large-scale job creation through traditional big companies is no longer feasible as they have reached a certain scale and increasingly using technology.
The Economic Survey for 2023-24 has presented the job requirement scenario for the youth going forward. It said that the Indian economy needs to generate an average of nearly 7.85 million jobs annually until 2030 in the non-farm sector to cater to the rising workforce. To meet the demand of 7.85 million jobs in the non-farm sector per year, there’s a scope to supplement the existing schemes of Production Linked Incentive Scheme, MITRA textile scheme, MUDRA, etc., the survey noted.
Therefore, the priority accorded to MSMEs in the budget 2024-25 is well placed. To transition from a lower-middle income to an upper-income country, the Budget announced a package covering financing, regulatory and technology support for MSMEs and incentives for states to carry out next-generation reforms in all factors of production and technology.
Responding to the pleas of MSMEs, the government announced a new credit guarantee scheme for small firms in manufacturing to provide guarantees running up to Rs 100 crore. This would facilitate term loans for MSMEs to buy machinery and equipment without any guarantee or collateral, boosting affordable credit.
Access to affordable, adequate and timely credit is key for the growth of the MSME sector. Public sector banks will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. They will also take a lead in developing or developing a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy. This would help MSMEs who were not part of the formal sector of the economy and did not have proper accounts.
For facilitating continuation of bank credit to MSMEs during their stress period, the government announced that while being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs’ credit availability will be supported through a
guarantee from a government promoted fund.
Representatives of MSME associations had requested the ministry to take corrective measures as banks were putting a ‘black mark’ against accounts if the loan repayments were even delayed by a few days, leading to the closure of many units.
Responding to the MSMEs' demand for a separate bank or direct lending by refinancer Small Industries Development Bank of India (SIDBI), the government announced that SIDBI will open new branches to expand its reach to serve all major MSME clusters within three years and provide direct credit to them.
This is a significant step as the outstanding credit to the MSMEs by scheduled commercial banks expanded by 20.9 per cent annually to Rs 26 trillion at the end of December 2023.
Yet, the demand is not fully met.
According to an EY report, MSME credit penetration is just 14 per cent in India compared with 50 per cent in the US and 37 per cent in China. There is a credit gap of Rs 25 trillion for the Indian MSME sector, reflecting the large untapped credit market.
One of the reasons why India emerged as the fastest-growing major economy after Covid-19 was that it conceived a scheme to keep the MSMEs floating even during the hardest times. A Rs 5 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS), for businesses, including MSMEs was announced during the COVID-19 pandemic to fulfil the credit gap in MSMEs. The scheme was operational till March 31, 2023.
It has been reported that almost 14.60 lakh MSME accounts were saved due to the ECLGS scheme, of which about 98.3 per cent of the accounts were in the Micro and Small categories.
While the budget announcements are noble and largely meet the demands of one of the finest pillars of our economy, the government and its agencies need to put their act together to implement the proposals at the earliest. For example, the Indian Banks Association (IBA), the apex body of banks, needs to prepare a common template quickly for the banks for lending to MSMEs based on their digital footprint and not insist on balance sheets or income tax proofs.
Similarly, steps should be taken to fast-track establishment of e-commerce export hubs through public-private partnerships to facilitate international market access for MSMEs and traditional artisans. These hubs will offer a streamlined ecosystem encompassing trade and export-related services under a unified regulatory and logistical framework. This initiative can significantly boost the export potential of small businesses and artisans, opening up new revenue streams.
All these steps including faster rollout of easier access to loans, help for stressed MSMEs and higher Mudra loan limit for prudential MSMEs have the potential to help India’s economic growth with jobs rather than without jobs.
