MSME sector poised for mega transformation in 2020

India's MSME sector is poised for a mega transformation in 2020, with the launch of an Alibaba-like e-marketplace, trendy yet affordable khadi products to appeal to the masses and digital data-based credit ratings to help entrepreneurs avail loans.

However, the MSME sector, often considered the bulwark of the economy as it contributes 29 per cent to the GDP and 48 per cent to exports, is in an urgent need of major reforms and policy interventions towards ensuring timely availability of low-cost credit, improving ease of doing business and technology upgradation, to take on the formidable challenge of creating millions of jobs and achieving large-scale import substitution.

The Centre envisions a contribution of Rs 2 lakh crore from micro, small and medium enterprises (MSMEs) as India eyes becoming a USD 5 trillion economy by 2024. The Union MSME ministry helmed by Nitin Gadkari has also set a target of generating five crore additional jobs from the sector by then, two ambitious goals which would require a robust policy framework.

Gadkari recently told PTI that the government will soon finalise extensive changes to the definition of an MSME, which experts believe is set to be a major reform for the sector and will improve the ease of doing business through changing the criteria for classifying MSMEs from 'investment in plant and machinery' to 'annual turnover' basis.

However, the timely availability of low-cost credit remains a challenge.

According to Meghna Suryakumar, Founder & CEO, Crediwatch, India has more than 50 million small and medium enterprises which face the problem of liquidity crunch. Out of these, only 15 per cent get access to formal credit due to the trust deficit that exists and they lack collateral.

“They find it to be a risky investment. And for the ones who get access to formal credit, they have to wait for 4 to 6 weeks to get their loan processed at a staggering rate of 16 to 24 per cent. This scenario creates a debt financing gap of USD 1 trillion (Rs 1 lakh crore) in the market and hence these small and medium enterprises are under-banked and underserved,” Suryakumar said.

The government has also approached multilateral banks like ADB, World Bank and KfW to provide low-cost funds for the sector. It has also declared plans to launch 'digital data-based credit ratings' of MSMEs to help entrepreneurs secure bank loans on the basis of these credit ratings.

Besides, the Centre has plans to soon launch a 'Bharat Craft' e-commerce portal dedicated to the MSME sector to replicate the success story of Alibaba in China and Amazon in the US, and aims to achieve a turnover of at least Rs 10 lakh crore from it in the next two years.

The Khadi and Village Industries segment is set to be another major contributor to the growth of the MSME sector. KVIC Chairman Vinai Kumar Saxena is confident it will cross a turnover of Rs 1 lakh crore in 2020 and create significant job opportunities.

According to him, the “torch bearers” of Khadi and Village Industries shall be 4 lakh beneficiaries who will get employment by 2020 under various schemes of KVIC - 20,000 in Honey Mission, 1,20,000 in Kumhar Sashaktikaran Programme, 75,000 in Empowerment of Leather Artisans Programme and 1,97,000 beneficiaries of the Prime Minister Employment Generation Programme.

He also shared that a portal will be launched in January for the online sale of all khadi products, to deliver them on the doorsteps of consumers and eliminate middle-men by engaging artisans directly.

The Khadi and Village Industries Commission (KVIC), under the MSME ministry, also proposes to establish centres across the country to facilitate khadi institutions to develop designs according to market demand, and unleash the indigenous fabric’s true potential.

The government is also working on policies to increase MSME exports and bring down imports by encouraging local production. Besides, to upscale technology, a Rs 200 crore scheme has been sanctioned for setting up 12 technology centres, which is expected to be completed in the next two years.

The MSME ministry is working on the recommendations of the Sinha Committee to help reform the sector, which aims to contribute 50 per cent to the GDP, from 29 per cent at present.

It has also sought a fund of Rs 10,000 crore to buy equity of up to 10 per cent in small businesses looking to list on the stock exchanges.