Nitin Gadkari, Union Minister for Road Transport & Highways and the Minister of Micro, Small and Medium Enterprises, said many MSMEs are doing exceedingly well, and to encourage them further, it is necessary to have a system to vouch for their credibility.
Last year, Nirmala Sitharaman, Union Finance Minister had launched 'MSME Prerana,' an online business mentoring programme for MSMEs by state-run Indian Bank. The programme is aimed at empowering entrepreneurs through skill development and capacity building workshops.
In addition to skill development and organising capacity-building workshops, the essential ingredient for any industry segment, more so to the MSMEs, is financial support.
According to sources in the Confederation of Indian Industry (CII), there are more than 63 million MSME units in India, and these remain the backbone of the country's economic structure. MSMEs contribute around 6.11% of the manufacturing GDP, 24.63% of the GDP from service activities, and 33.4% of India's manufacturing output.
A large chunk of MSMEs involved in manufacturing activities contributes to the auto component sector, eventually supporting the vehicle manufacturers.
Moreover, MSMEs employ around 120 million people. In addition to these contributions, this sector also contributes about 48% of the total exports, Gadkari said, and added that these are enough reasons for the sector to have a rating system to get funding from financial institutions.
He asked the banks, “What type of procedures we can have to start, by which we can make the rating of MSMEs?” He suggested it could broadly depend upon the enterprise's annual turnover, GST and Income Tax records, exports, and credentials in terms of profitability and balance sheet. This system can support the rating of MSMEs, he said.
MSMEs need urgent support
The need for such rating gains significance as the schemes announced by the government are not helping the majority of the MSMEs.
One classic example is the Emergency Credit Line Guarantee Scheme (ECLGS). The finance ministry launched the scheme in May 2020 to help the pandemic-hit economy. This scheme aimed to provide INR 300,000 crore of unsecured loans to MSMEs and business enterprises to mitigate the distress caused by the coronavirus-induced lockdown. Though it became popular, more than 90% of the funds were utilised by the MSMEs, whose dealing with the banks was cordial.
The scheme, unfortunately, was not supporting the needy, who genuinely faced issues due to the disruption caused by the pandemic as the bankers were apprehensive of extending a helping hand. Therefore, the rating scheme mooted by the finance minister will help set a benchmark for MSMEs in dealing with their working capital and other capital expenditure requirements.
The ball is now in the court of the financial institutions to devise a methodology and hasten the rollout process.