MSMEs, Have We Got Your Back?

Context: Before we aim high for self-reliance, the economy’s backbone (MSME) needs urgent correction for back pains: Identify, diagnose, and treat.

Micro Small and Medium Enterprises (MSMEs)

• Spine of the economy: They contribute 45% of industrial value, nearly half of exports and employ 40% informal workers.
• Problems in MSMEs:

• Poor Understanding of MSMEs: Makes it difficult to effectively deliver financial or other relief.

• Last MSME census was held in 2006-07.
• No record of informal workers (around 96%).
• Information spread across datasets such as the Udyog Aadhaar Memorandum, the MSME Databank and the Goods and Services Tax Network.

• Less exposure to formal banking channels: has neutralized the effect of recently announced collateral-free loans.
• Weak links:  Textiles, chemical and basic metals show up as the most vulnerable and require prioritized funding measures (Assessed by Council on Energy, Environment and Water (CEEW))
• Delayed payments and arbitration: 

• In 2017, the SAMADHAAN Delayed Payment Monitoring System was launched; more than 40,000 applications have been filed.
• Cases referred to National Company Law Tribunal is rising by 10% annually but is not being complemented with increased capacity.

Solutions:

• Identify the problems: MSME needs a dedicated information system: MISHRII- MSME Information System for Holistic and Real-time Identification, Incentives and Support.

• It would collect data on their size, distribution, and economic contribution.
• Should be linked to tax database and the banking network.
• Would seed details such as occupation, employment days and monthly income.
• Would help in identification of beneficiaries of minimum wages and other social security schemes.
• Increase coherence across recent initiatives like CHAMPIONS portal (for access to finance, raw material and regulatory permissions) and SWADES portal (for mapping skill of retuning migrants)

• Diagnose the problem: A vulnerability assessment framework is required. Assessment of the most vulnerable sectors under MSME periodically would help in strengthening weak links.
• Treatment through timely payment and arbitration:

• Priority should be given to clear dues owed to long term suppliers and firms with a good track record.
• Temporary benches in NCLT is needed to handle peaks in bankruptcy cases, which would help reduce non-performing assets and increase liquidity for performing firms.