COVID-19 has affected the entire economy. Hence the revival needs government intervention. After all the taxes collected from people are to provide services to the people. Reviving the economy will bring more taxes.
In Indian economy the Village and Cottage Industries, Micro, Small, Medium Enterprises and small traders play an important role. As per report of International Finance Corporations, (Nov 18), MSMEs employ 124 million. The employment/self-employment by village industries (KVIC alone) is 14.7 million. (reply in parliament) As per Confederation of All India Traders there are 60 million traders. They should be employing at least 300 million workers. Hence support to these sectors is very crucial for the revival of the economy.
First let us know the definition of these enterprises. A village industry is one where the investment per artisan is upto to Rs.1 lakh. A Micro enterprise is one with investment upto 1 crore (it is really not micro). Under SME, Small Industry is one with investment in plant and machinery from Rs.1 Cr to 25 Cr, Medium Industry is with investment in plant and machinery from Rs.25 Cr to Rs.100 Cr. Large Industry has investment in plant and machinery above Rs.100 Crores.
As per government statistics India has 20.13 lakh enterprises registered.
As on February 2020, MSMEs have an outstanding credit of Rs.27.9 million which includes the large.
A report by International Finance Corporation dated Nov 18, India had 55.8 million enterprises out of which 47.6 million were not registered. Their credit requirement was projected as Rs.68.3 trillion as debt and Rs.18.4 trillion as equity. So, there is a huge credit gap. Hence the government and RBI have to step in.
The government of India’s website for MSMEs show only 2012-13 report on potentials in every district for MSMEs. KVIC website also has not been updated.
So the government has to step in to provide lot of inputs to Village Industries & MSMEs. What can be done?
- Provide interest subsidy of 5%. If it is provided to all borrowers in the country, including agri loans, large loans and personal loans it will be just Rs.449004 crores (Outstanding Bank Credit as on Feb 2020 is Rs.8980095 Cr). If you leave out large industries, it will be Rs.333305 Cr. They have been already given huge concessions recently. If you leave out personal loans also then it will be Rs.206703 Cr. (personal loans are for salaried) Actually government should provide for all for one year.
- Waive interest on all loans for 3 months. That will be Rs.224502 Cr. This will be a big relief. If it is provided only to the priority sector, it will be Rs.67260 Cr (Outstanding PS credit on Feb 2020 is Rs.2690428 Cr).
- Provide 75% salary for the lock down period to the Industries which were shut down.
- The MSME industry claims that Rs.5 lakh Cr is due from the government to them. Release it to them. If all this is done you don’t have to give tax holiday.
- Provide 10% bill discounting facility.
- Ask public sector enterprises to support ancillary industries and procure products with prompt payment. (Last year 105 CPSEs have procured Rs 15936 Cr in 9 months).
- Ensure implementation of T K A Nair committee recommendation to increase MSME loans by 20% every year of which 10% should go to micro enterprises.
- Provide standby credit for term loans, additional working capital and timely credit through banks.
- Discourage loans through NBFCs as they charge upto 24% interest.
- Encourage angel investments and venture capital by public sector banks and financial institutions like SIDBI, IFC and State Finance Corporations.
The government and RBI should together do the following:
- Increase the number of MSME branches of banks from 2998 (2017) to 10000.
- Devise a new scheme for village industries for giving loans upto Rs.5 lakhs each through the banks with credit guarantee.
- Strengthen the Credit Guarantee Fund Trust for Micro and Small Enterprises. (CGTMSE) which provides cover upto Rs.2 crores and waives collateral upto Rs.25 lakhs. Now the claim settlement is 85/75/50%. The guarantees for non-collateralized portion only. This should be strengthened in consultation with bankers (IBA).
- Double the number of rural branches so that they can cater to agriculture, village industries and rural business.
- Devise a new scheme to provide traders loan without collateral with credit guarantee upto Rs.10 lakhs.
- Revamp KVIC and increase sales outlets.
- Introduce a scheme like IRDP for very small traders like street vendors, vegetable vendors, fish vendors, tailors, home based industries and businesses.
- Strengthen cooperative societies and banks.
- Re-introduce branch level budgeting for all bank branches with grass root level real assessment.
- Revamp the District Credit Committees and block level credit committees and give them freedom with a target.
This will turnaround the economy.
Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.