The micro, small and medium enterprises (MSME) sector constitutes an important segment of our economy and has shown continued dynamism in terms
of growth in number of enterprises, production, employment generation and their contribution to the country’s manufacturing output and exports. The sector provides employment to over 42 million people and contributes about 45% of the total manufactured output and nearly 40% to exports.
The sector has been consistently registering higher growth rates than the overall manufacturing sector, thus demonstrating the high degree of resilience and adaptability. In view of the sector’s significant contribution in promoting balanced and equitable growth, several initiatives have been taken in the recent past for its development. These include enactment of the MSMED Act, implementation of a comprehensive package for promotion of micro and small enterprises, a policy package for stepping up credit to small and medium enterprises, implementation of the National Manufacturing Competitiveness Programme and launch of a new Central-sector credit linked subsidy scheme.
The recent global financial crisis has, however, had an adverse impact on its growth and competitiveness. The crisis and consequential global economic downturn has exposed the MSMEs, especially those related to exports, to various problems, such as slackening of demand for products/services leading to reduction in orders and delayed payments of dues to MSEs by large units leading to liquidity problems. In addition, lay-offs in labour and export-intensive sectors, particularly textiles and garments, and gems and jewellery have been reported.
To deal with the adverse impact of global financial crisis on the Indian economy, the government has announced two stimulus packages. The thrust of these packages have been on fiscal measures designed to stimulate the Indian economy. To provide a contra-cyclical stimulus via plan expenditure, an additional plan expenditure of up to Rs 20,000 crore in the current year is envisaged. Further, steps are being taken to ensure full utilisation of funds already provided, so that pace of expenditure is maintained.
In line with the above announcements, the ministry of MSME has undertaken necessary modifications under the Credit Guarantee Scheme. The ministry has also set up a MSME Credit Monitoring Cell to oversee the resolution of credit issues of MSMEs by banks. Further, the government has issued an advisory to central public sector enterprises and has requested the state governments to issue a similar advisory to the state public sector enterprises and electricity boards to ensure prompt payment of bills of MSMEs.
The RBI and the public sector banks have also taken several measures to pump sufficient liquidity into the banking system and to assist the MSMEs in meeting their immediate needs. Some of these include refinance limit of Rs 7,000 crore to Sidbi for incremental on-lending to the MSE sector, grant of need-based ad hoc working capital demand loans up to 20% of the existing fund-based limits, reduction in interest rates for borrowing by micro enterprises by 1% and in respect of SMEs by 0.5%. Further, while sanctioning/renewing credit limits to their large corporate borrowers, banks have been advised to fix separate sub-limits specifically for meeting payment obligations in respect of purchases from MSEs. However, to substantially augment credit flow to the sector, one of the issues that need to be considered seriously is earmarking of a definite percentage of net bank credit for MSEs under the priority sector lending.
Majority of Indian MSMEs have the capacity and inherent strength to tide over the present global financial crisis.
Source : The Economic Times