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In an interview with BE's Kishore Kumar Biswas, Anil Bharadwaj, Secretary General, Federation of Indian Micro and Small and Medium Enterprises (FISME), New Delhi, spoke about the prospects of the sector. He is also of the opinion that a new form of IBC is important for the sake of the MSME sector.

Q) The MSME sector was severely hit in the pandemic period. How far has the sector revived its production level, sales, and employment generation?

A) The MSME sector as a whole is on the course of recovery though it has been uneven. A few sectors that thrive on public procurement have shown early rebound as compared to those sectors where restrictions still remain in force such as tours and travels, hotels and restaurants etc. The automotive sector has also seen a good recovery as December sales of the passenger vehicle segment recorded growth of over 24%.

Q) The Government of India declared a rescue package for the MSME sector a few months ago. What is your assessment about the package as of now?

A) The package was well received by the sector. The most important scheme has been the Emergency Credit Line Guarantee Scheme (ECLGS), which set out to guarantee loans worth `3 lakh crore. By the first week of December 20, more than 40 lakh MSME borrowers had availed this scheme with accumulated loan guarantees of `2 lakh crore. Besides, the government’s push for public procurement also yielded good dividends. From January 1 to Oct 30, 2020, central purchases from MSMEs jumped by 25%.

Q) In the lockdown phase, labourers had to go home from their work places. Different reports point out that the labour supply in urban workplaces is still a concern. What is your view on this?

A) Most of the labour force that worked in the MSMEs is back. The mass exodus of labour seen during the height of the Covid-19 lockdowns was not from the MSMEs in the first place. They were largely daily wage workers working in the construction, retail, and transport sectors. People employed in the MSMEs didn’t face much trouble.

Q) At this critical time what kind of government policy is required in the interest of the MSME sector?

A) There are few specific areas where government intervention is needed. Firstly, to help lending and restructuring in difficult times, Indian banks may be exempted from Basel norms for three years - including doing away with BLR ratings. Secondly, keeping in view that 97% of MSMEs are partnership/ proprietorship firms and even when they are registered as companies, because of involvement of their personal guarantees, the present IBC rules do not provide them any relief.

Post-Covid, thousands of MSMEs shall need the modern IBC framework to restructure or exit businesses honourably. Therefore, a committee for framing rules for partnership/ proprietorship needs to be constituted by the Ministry of Corporate Affairs/IBBA immediately. Thirdly, the MSME dues, which were earlier guaranteed under the MSED Act, have completely lost ground under IBC. Thousands of MSMEs would perish if a solution is not found in a timely fashion. Therefore, the payments due to MSMEs from corporate debtors before and during the CIRP process should be included within the ambit of insolvency resolution process costs. Fourthly, while the central government has notified its Public Procurement Policy for MSEs mandating all its entities to procure 25% of total procurement from them, the state governments may also be asked to have similar policies. Last but not the least, for helping MSMEs improve their cash flows, all government purchasers (central/ state) must register on TReDS platforms and upload invoices of the suppliers to bring transparency/ discipline. Big buyers such as Railways or discoms in the states are not on TReDS. Further, TReDS can play a far greater role in providing finance to MSMEs if some changes like registration of all bills/invoices of the designated corporate entity in a depository is made compulsory (with cross reference to GSTN) and are deemed registered after 15/30 days. Conditions may also be created so that bills on buyers not highly rated may be bought by financiers on TReDS. Further, compliance of the order for corporates with turnover above 500 crore for compulsory TReDS registration needs to be ensured.

Q) Many experts and observers think that the recent changed definition of MSMEs would help the larger units of production in a bigger way. The micro and small sectors may not be benefited to the desired extent. What is your take on this?

A) It is a completely unfounded fear. The specific benefits that are granted by the government to the MSMEs are earmarked for micro and small units only such as mandatory public procurement of 25% by central agencies and medium enterprises are not excluded. 

Q) Please give an overall picture about the prospect of the MSME sector in the coming quarters.

A) The prospects for the industrial sector in general and MSMEs in particular are very bright for the coming years. There has been an enhanced recognition of the importance of domestic manufacturing and the era of rampant imports is over. Indian economy is set to rebound in 2021-22 and will lift all boats - big or small.