Incentive “inadequate”, 25% of MSME loans may be in default: panel

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Parliamentary Impact Group COVID-19 on MSMEs noted in its report that the stimulus package announced by the central government was “inadequate,” as the measures were more about loan and long-term supply rather than improving cash flow to create demand as immediate relief.

Expressing concern about the dire plight of small businesses, the committee recommended that the government unveil “a larger economic package aimed at stimulating demand, investment, exports and job creation to help the economy, including MSMEs.”

Noting that Covid has had a major impact on MSMEs, the Department’s Standing Parliamentary Committee on Industry has demanded concessional loans to MSMEs at a minimum interest rate of 3-4 percent, liquidity support for small businesses, and the creation of a national e-employment system. Sharing together with the new employment policy.

In their submissions to the Committee, various industry associations have argued that MSMEs face an acute monetary crisis as pandemic affected their income by 20-50 percent. “It is estimated that almost 25% of MSME loans could default, as some MSMEs find it difficult to raise working capital from banks,” House members told the Committee, according to a report released on Tuesday.

A committee chaired by MP Raja Sabha K. Keshava Rao proposed that the Reserve Bank of India weaken the NPA regulations for MSMEs and bring them in line with the payment cycle. “… The 90-day limit set by RBI for classifying MSME arrears should be increased to 180 days so that MSMEs are not forced to use their working capital to service their loan payments and repay their premiums through normal business transactions. This proposed change to the RBI guidelines would save large numbers of MSMEs from illness or closure, resulting in a loss of economic activity and employment, ”the report said. The MSME sector accounts for about 30 percent of the country’s production and about 45 percent of exports.

Explained

Amid the monetary crisis

Various industry associations note that MSMEs are facing an acute monetary crisis as the pandemic has affected their income by 20-50 percent.

Stressing that the central government did not conduct any research to determine the magnitude of losses incurred by MSMEs due to isolation, it called for a detailed study of this issue. “Based on the written responses provided by the Ministry, the committee notes that the MSME Ministry has not carried out intensive research to establish the actual losses incurred by the MSME sector as a whole due to the nationwide lockdown imposed by the government. Moreover, the second wave of the pandemic has exposed MSME vulnerabilities like never before and highlighted the challenges they face, such as delayed payments, high levels of informality, low financial sustainability, shortages of raw materials, etc., ”the message says.

In addition to subsidized concessional loans for MSMEs, the commission recommended the inclusion of traders and retailers in the Emergency Credit Line Guarantee Scheme (ECLGS) and the restructuring of the existing subordinated debt scheme, which never worked. Traders, retailers as well as wholesalers have now been reinstated into the MSME category, with the result that nearly Rs 2.5 crore traders are eligible to participate in the ECLGS.

The group suggested ways to stimulate domestic production and stimulate import substitution. “The availability of concessional loans for MSMEs at a minimum interest rate of 3-4 percent with an extended maturity, easy land acquisition, lower compliance parameters, etc. Can help in the development of import substitution in the country. In addition, special economic zones (SEZ) oriented at import substitution can be created throughout the country, ”it was reported.

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