‘MSMEs need govt support, reforms in banking processes’

The Federation of Indian Micro and Small & Medium Enterprises (FISME) is one of the prominent industry lobbies promoting the interests of the MSMEs in the country. In an interview with DH’s Gyanendra Keshri, FISME Secretary General Anil Bhardwaj talks about the challenges the MSMEs are facing.

Excerpts: 

How do you see the performance of the MSME sector in the past 10 years?

During the last 10 years, the MSMEs in India have braced three existential challenges: demonetisation, GST implementation, and the pandemic. Each challenge has impacted a few segments adversely, but they bounced back. Demonetisation hit people dealing in cash but also led to digital inclusion at an unprecedented scale. The GST made manufacturing enterprises more competitive by eliminating the cascading effects of India’s archaic taxation system. The COVID-19 pandemic made the MSMEs sector learn online management of operations and e-commerce. Overall, the stress tests have left the MSME sector more resilient than ever. But this doesn’t mean all have benefitted. Many have faced extreme difficulties because of a non-responsive banking system.

How critical will be the role of the MSMEs in achieving the vision of ‘Viksit Bharat’?

Keeping in view that the government and corporate sector combined account for barely 10% of employment and the rest of India is at farms or with self-employed people or MSMEs, India cannot even dream of becoming a developed country unless the MSME sector records rapid growth. The development of the MSME sector as a competitive segment of the economy with the capacity to withstand global competition and provide sustainable employment is the foundation for a developed country.

What are the key challenges facing the MSME sector?

Indian MSMEs in the manufacturing sector continue to suffer from historical baggage of problems: financial starvation, technological obsolescence, and sub-optimal size. 99% of MSMEs are micro-enterprises employing less than two people. Excessive regulations, almost a dysfunctional dispute settlement mechanism, and oligopolist input producers controlling markets exacerbate manufacturing challenges in India.

How optimistic are you about these issues getting addressed in the next five years?

As an MSME body, we are sanguine of positive changes. We hope there will be a greater realisation that the only way to sustainable growth is to help people create businesses and not by distributing doles. The latter practice is easy but unsustainable. The former requires bold reforms to do business easily at the district, state and national levels. What is to be done is not a secret. There is enough intelligence in the system. It is a question of managing the political economy and having conviction in private sector development. An MSME-centric policy can unleash the entrepreneurial forces to propel sustainable growth and prosperity.

What are the key expectations for the MSMEs from the upcoming union budget?

We are asking for reforms in the banking processes and seeking new support initiatives. To improve banking processes, we have highlighted the absurdity of the SMA (Special Mention Account) mechanism, which marks an account irregular, leading to the freezing of its banking operations. The threshold for such triggers is too short (30 and 60 days) and straight-jacketed. The lack of a grievance redressal mechanism in the banks also makes the small business borrowers vulnerable to repeated exploitation in the form of charges such as on pre-payment or non-compliance.