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The second wave of the pandemic came along with the second wave of distress for the Micro, Small and Medium Enterprises (MSME) sector. Relatively poor economic activities, lockdowns, and tax burden have forced some MSMEs to shut down. Yet, some enterprises are trying to manage with the changed economic environment.

India has more than 6.3 crore MSMEs and the number of registered MSMEs grew by 18.5% in 2020 as compared to the previous year. At the recent session of the TiE Global Summit, Nitin Gadkari, Minister, Ministry of MSME, said, “A total 30% of the GDP in Indian economy is contributed by the MSME. Out of our total exports, 48% is also from MSME. At the same time, up till now MSME created 11 crore jobs. That is one of the reasons why MSME is the backbone of the country. Now we have decided to make this 30% contribution to GDP to 40% and 48% of the exports contribution to 60%. We want to create five crore jobs.” Rural MSMEs like handlooms, handicrafts, and Khadi Gram Udyog segments are also generating around `80 thousand crore revenues. The central government plans to raise to `5 lakh crore in the next few fiscals.

Steps taken to curtail the burden of the pandemic

The central government has more than doubled the budgetary allocations to `15,700 crore in FY22 from `7,572 crore in FY21. The government’s `3 lakh crore Emergency Credit Line Guarantee scheme (ECLGS) was one of the key gears of the `20 lakh crore economic stimulus package. This scheme has been extended. In March 2021, it has been officially announced that the scheme will be valid till June 30, 2021. However, there is industry demand to extend it till March 31, 2022 with an additional amount of `3 lakh crore. This scheme offers additional working capital finance as easy term loan to small firms. It is evident that the government is keen to focus on this kind of schemes. In this year’s Budget, the government announced funds of `10,000 crore for the ‘Guarantee Emergency Credit Line’ (GECL) facility to eligible MSME borrowers that accounted for around 64% of the total allocation for the sector.

The government has prohibited global tenders in procurements up to `200 crore to create attractive opportunities for domestic players. The government will also infuse `50,000 crore for MSMEs that export and stated that those can be listed on the stock exchanges. Distressed asset fund of `4,000 crore has been allowed for 200,000 distressed MSMEs that will benefit with loans of up to `75 lakhs. 

The cabinet has additionally approved loans of up to `10,000 for street vendors - that is expected to benefit around five million vendors. Budget 2021 has assured to extend capital gains exemption by one more year till March 31, 2022. The government is strengthening the National Company Law Tribunal (NCLT) framework and continuing with the e-court system for quicker settlement of bad debts. Also, bringing MSMEs under the umbrella of Digital India has empowered MSMEs by making their financial and other activities more transparent and efficient.

Last year, the central government’s two major MSME policies were successful. The ‘Annual Report 2020-21’ by the Union government’s Ministry of MSME states that under the Prime Minister’s Employment Generation Programme (PMEGP) `1650.00 crore fund was allocated during FY 2020-21 and expenditure of `1018.50 crore was incurred upto December 31, 2020. Under the Credit Linked Capital Subsidy Scheme (CLCSS), `a 503.28 crore fund was allocated for 2020-21 and expenditure of `438.59 crore was incurred till December 2020. Additionally, the government’s Credit Guarantee Trust Fund for MSEs (CGTMSE) for the provision of collateral free credit for MSMEs was also a success that supported the sector before the second wave.

Commenting about how the government should move further to mitigate the sector’s distress of the second wave, G. Vishwanathan, Director, Accounting and Business Support, ASA and Associates LLP said in the Economic Times, “The government should obtain a list of MSME units that have undisputed debts exceeding `50 lakh from the private sector which are overdue for more than 90 days and give them access to the TREDS platform for discounting the debts without recourse to them. Pre-qualification norms for domestic procurement of order values of up to `10 crore should be made on the basis of the ability to perform and also on the price rather than impose stringent conditions for qualification. Bank Guarantee or EMD and Security Deposit requirements should be completely waived for such procurement.”

Recent support from the banking sector

The State Bank of India has opened an emergency credit facility for MSME borrowers affected by the pandemic. Under this scheme, the lenders can provide up to `200 crore or 10% of the existing fund based working capital. These loans will be given at a flat 7.25% interest. Recently, the RBI has provided a special liquidity facility of `16,000 crore to SIDBI to support MSMEs affected by the pandemic. This comes over and above the `15,000 crore liquidity support announced in April this year.

Development through collaboration

In March 2021, MSME support and development organisation - the National Small Industries Corporation (NSIC) announced they will support the MSMEs working with Agricultural and Processed Food Products Export Development Authority (APEDA) by an MoU. This will also aid in promoting sustainable manufacturing technology for the MSME clusters.

However, the government must look forward to aid the sector more. Unfortunately, this year’s budget knocked down fund allocations from both ‘Technology Up-gradation and Quality Certification Scheme’ (51.70% decline) and ‘Credit Linked Capital Subsidy and Technology Up-gradation Scheme’ (51.78% decline). Similar steps have been experienced in the Khadi Vikash Yojana with 32.43% and Gramodyog Vikash Yojana with 51.41% decline. Before another wave hits the country, the central government must come up with adequate planning for the sector.