Based on the new definition, the MSMEs will be able to explore business avenues, owing to the addition of turnover criteria, says Nitin Gadkari
NEW DELHI : The imposition of stringent lockdown measures for over 65 days to contain the coronavirus pandemic brought economic activity to a standstill, hitting small businesses—major job creators and the backbone of the Indian economy—the worst.
Last month, the government announced a slew of measures to rescue the micro, small and medium enterprises (MSMEs), which included collateral-free, automatic loans of up to ₹3 trillion backed by government guarantee, and updated definition of MSMEs, besides expediting payment of pending dues. The measures were part of the ₹20-trillion financial package to restart and support the economy. In an email interview, Union MSME, road transport and highways minister Nitin Gadkari said while the ordinance to update the definition is expected shortly, the other moves will help them become self-reliant and go beyond the domestic market. Edited excerpts:
The PM spoke about building an Aatmanirbhar or self-reliant India. What role will MSMEs play?
MSMEs in India have been accepted as the engine of economic growth and for promoting equitable development. The sector is poised to contribute immensely to the vision of a self-reliant India. The labour intensity of the MSME sector is much higher than that of large enterprises. These small businesses are credited with generating the highest rate of employment growth, and account for a major share of industrial production and exports.
With the help of ongoing support measures, and other schemes, such as technology upgradation, financial support and established market linkages, throughout their business life cycle, MSMEs will play a vital role in the overall growth of the industrial economy of India. With its agility and dynamism, the sector has shown admirable innovation and has high potential to contribute to economic growth.
How will the new definition help MSMEs expand? Do you plan to bring an ordinance to make the changes?
The criteria for the classification of MSMEs have been revised, with a perspective of refining the business scenario for Indian companies and making them competitive in the international market. Based on the new definition, the MSMEs will be able to explore business avenues, considering the changes in investment and addition of turnover criteria. Further, MSME ministry’s schemes are also under review to further extend benefits to MSMEs and strengthen the sector. This will definitely lead to development of a supportive ecosystem for MSMEs and will help them explore various opportunities in domestic and global markets. We have received representations from the industry to further tweak and increase the proposed turnover limit of medium enterprises to ₹200 crore (from the proposed ₹100 crore announced by the ministry of finance last month). This will enable more firms to avail the benefits announced for the sector. We are examining that proposal.
The decision to bring policy-level changes requires deliberations with related stakeholders to understand the impact of proposed changes.
The definition of MSMEs has been discussed in detail with all concerned and related plan of action was designed on the basis of the same.
The process took time as efforts were made to incorporate suggestions and inputs from concerned stakeholders. The proposed ordinance is expected shortly.
How easy will it be for MSMEs to get loans from banks and non-bank lenders, considering that the government has offered 100% credit guarantee cover to these lending institutions on principal and interest payment?
While the announcement of a collateral-free loan with 100% credit guarantee by the Centre has been made, we have already rolled out the detailed guidelines in consultation with various stakeholders to make it efficient amid the covid-19 crisis.
Necessary steps have been considered while designing the operational guidelines of the scheme to ensure easy disbursement of loans to MSMEs.
We are also working towards strengthening NBFCs, state co-operative banks, district cooperative banks and other financial institutions to enable easy access to finance for MSMEs.
MSMEs were under stress even before the outbreak of the global pandemic, one key reason being falling demand. How do you plan to address this?
The impact of covid-19 is long-term in nature and for quick revival of the MSME sector, the need of the hour is special focus towards boosting exports. Necessary practices will be adopted by enterprises to reduce power and logistics costs, as well as cost of production to become competitive in the overseas market.
Further, there is a need to focus on import substitution to replace foreign imports with domestic production.
Enterprises should make use of technology, research, innovation to improve quality of products. An improvement in techniques can play a major role towards industrial development and global expansion.
In this regard, necessary steps are under process, including development of a digital platform to carry out business-to-business activities on an internal level, establishment of new centres for technology upgradation and industrial clusters development, among others.
Could you give us an estimate of the amount that the government and state-owned institutions need to pay to clear the dues of MSMEs?
Liquidity shortage is the biggest challenge being faced by Indian MSMEs today. They are engaged with the government at various levels, including the Centre and states, besides central public sector enterprises (CPSEs). The amount due may be significant. The government is making all necessary efforts to ensure that all central government, state government and CPSEs release their pending dues at the earliest.
Paying salaries has been a key concern for small businesses. Will government take any step to address it?
The government understands the challenges faced by MSMEs, in terms of paying salaries. In this regard, announcements have been made under the special Aatmanirbhar Bharat package, and liquidity relief is being given for EPF (Employees’ Provident Fund) establishments to support MSMEs in paying salaries.
In the 12% each of the employer-employee contribution that was being financed by the government under Pradhan Mantri Garib Kalyan Yojana, the Centre is now extending the support—which it gave earlier from March-May—by another three months against the salaries of June, July and August.
As many as 360,000 establishments had benefited from this move. This will amount to ₹2,500 crore liquidity support which will benefit 7.2 million employees.
Further, statutory provident fund or PF contribution for employer and employee will be reduced to 10% from 12% for the next three months (for all companies covered by Employee’s Provident Fund Organization).
However, for Centre and state enterprises, employers will continue to pay 12%, but the employees will be given the benefit of paying only 10%. This equates to ₹6,750 crore liquidity relief for next three months.