- Date : 09/11/2018
- Read: 3 mins
How will the MSME sector benefit from the Modi government’s announcement of time-bound loan facility for the sector? More importantly, is it enough?
In a move that will quicken the flow of credit to the liquidity-strapped, demonetisation-affected Micro, Small, and Medium Enterprises (MSME) sector, Prime Minister Narendra Modi launched a programme on 2nd November that will ensure up to Rs 1 crore loan to these businesses in just under an hour.
This comes at a time when non-banking finance companies (NBFCs), in the wake of the IL&FS loan default, are weathering a storm of their own and have tightened lending to MSMEs.
Modi called it a ‘Diwali gift’ to a sector that has “made India an economic powerhouse” by employing close to 11 crore people and which accounts for 45% of total manufacturing and 40% of India’s exports.
The 59-minute, Rs 1 crore loan scheme is just one among the 12 new historical decisions that would enhance credit access to the MSME sector and further boost employment opportunities, said Modi while launching the scheme at New Delhi’s Vigyan Bhavan.
Decoding the scheme
Interest rate subventions: A key element of this scheme entails 2% interest subvention on incremental loans of up to Rs 1 crore for GST-registered MSMEs and an increase in interest subvention to 5% from 3% on pre- and post-shipment credit for exports.
Ease of doing business: Further bolstering the efforts to facilitate ease of doing business in India (the country recently climbed 23 places to 77 from 100 last year), Modi announced that inspection of factories will be done through a random computer allotment and the inspectors in charge will have to mandatorily upload their reports within 48 hours of completion of the inspection.
This move is likely to curb arbitrary inspections and the consequent corruption that hinders the growth of a sector considered the next big provider of employment after agriculture. “No inspector can now go anywhere; he will be asked why he went to a factory,” The Times of India reported Modi as saying.
Cutting down on red tape: The government has now mandated just one annual return on 8 labour laws and 10 central rules. Among other things, environmental compliance rules have also been relaxed, with MSMEs now needing a single air and water clearance permit and only one consent for establishing factories.
Modi said that his government has promulgated an ordinance to simplify penalties for minor offences under the Companies Act.
To boost demand for services and goods offered by the MSMEs, public sector establishments have been mandated to source at least 25% (as against 20% earlier) of their requirements from them and source at least 3% of PSU requirements from women-run MSMEs.
Is the Rs 1 crore loan limit enough?
While the time-bound credit facility will help smaller MSMEs, the bigger ones would obviously feel the need for loans greater than Rs 1 crore. Besides, easier access to land at competitive rates, reasonable power tariffs, and more direct and indirect tax breaks would go a long way in rekindling the spirits of the MSME sector.
The Modi government has also made a provision of Rs 6000 crore for creating 20 hubs and 100 tool rooms to help MSMEs upgrade their technology platforms.
Related: Small businesses: Taxation 101
To take care of the security and welfare of MSME employees, the government will soon launch a mission to ensure that the employees reap the benefits of a Jan Dhan account, provident fund account, and insurance schemes.