Employing more than 60 million people, and accounting for 45 percent of the manufacturing sector output and 40 percent of nation’s total export, the MSME sector can be regarded as one of the most vital pillars of the Indian economy. To understand the terminology, it is significant to note that the micro segment embraces units with investments in plant and machinery not exceeding INR 2.5 million, while the small and medium sectors embrace units with similar investments more than INR 2.5 million but not exceeding INR 50 million and more than INR 50 million but not exceeding INR 100 million respectively.
Though endeavors have been made by the authorities to help the MSME sector overcome uncountable hurdles, vulnerability to macroeconomic policies and cyclical fluctuations is a prominent tailback. Let us take a bird’s view at some key bottlenecks for the sector followed by some workable suggestions. Vital to note, the credit by scheduled commercial banks to the small and medium enterprises accounts for mere 13 percent of the total bank credit. In the same context, the banks have been directed to attain 20 percent year-on-year growth with respect to lending to MSME enterprises.
Thus, the concern of availing easy credit still prevails curbing the much-needed expansion. The banks favor lending to larger enterprises alleging that small and medium sector units are vulnerable to default; however the NPAs exist round the industry despite of the size of the firm. For sure, the credit delivery system of the banks for medium level players in the market has to be realigned, along with enhancement in laid down procedures. The awareness of the MSME sector units in the same context is the need of the hour. The Code of Bank’s Commitment to Micro and Small Enterprises, 2008 can be of great help if used properly.
Small scale units must know that they have the right to approach the Banking Ombudsman in case they do not receive acceptable redress of grievances from the respective bank within the stipulated time frame of one month. Plus, such units can approach Consumer District Forum (amount up to INR 2 million), State Consumer Commission (amount above INR 2 million but not more than INR 10 million), and National Consumer Commission (amount above INR 10 million). Despite of the codes set out by the Banking Codes and Standards Board of India, the unawareness of the units is accountable for the depression of MSME sector.
Another vital concern for the sector is the collection of account receivables. Let us know where the problem commences. The central and state governments hold payments due to public sector units, which in turn delay payments to large industries, and subsequently the dues of small units held by large industries are postponed. It is considerable to note in this context that the report of the Vaghul Working Group recommended the system of commercial bills with minimum proportion of dues under bills system, along with predetermined date of payment and zero level tolerance for defaults.
It is to be remembered that when 10 percent GDP growth rate was predicted, the MSME units built up capacities and uplifted the output levels. The actual GDP of less than even 5 percent resulted in bulky inventories and cumbersome workforce. Along with assuring enhanced ways for procuring funds and devising techniques for quick realization of account receivables, the authorities will have to free the sector from unwanted interference. Also, the move of small and medium units towards non-bank sources of funds shall be reviewed in light of the fact that this easy appearing route adds to the burden of interest.
The provisions of the Micro, Small and Medium Enterprises Development Act, 2006, which call for streamlined payments to MSME units was expected to add to the dexterity; however nothing much has been achieved. It is sure that the macroeconomic scenario in the upcoming years would experience quick changes owing to the globalization and cross-border deals. The MSME sector will have to devise ways to stand tough during such changes and a lot is expected from the authorities and the new government too. The role of the sector in terms of generation of abundant work prospects for local residents and check on labor migration from rural to urban parts shall be duly appreciated.