Dedicated govt fund for MSMEs will spur sector's growth: PHDCCI chief

While a lot of announcements have been made by the government in the last few months, public sector undertakings continue to pay late, says PHDCCI chief D K Aggarwal

\Lack of access to finance and the subsequent liquidity crunch that micro, small and medium enterprises (MSMEs) face continue to remain a big hurdle to growth, says D K Aggarwal, president of the PHD Chamber of Commerce. He also tells Subhayan Chakraborty that the ease of doing business scenario remains dismal at the ground level and outside the metro cities. Edited excerpts:

What are the areas where major regulatory reforms are needed?

Given the health of the sector and the current liquidity crunch, the government needs to set up a dedicated fund for the sector along the lines of the fund for stalled housing projects. A Rs 20,000-Rs 25,000 crore fund is needed which will only cater to MSMEs along with no collateral being asked. MSMEs continue to be backbone of the economy and to revive growth their access to finance needs to be widened. Also, more needs to be done for MSMEs. There are existing penal provisions that mandate swift payments by the government to MSMEs. But despite this, outstanding payments have continued to pile up for small businesses. While a lot of announcements have been made by the government in the last few months, public sector undertakings continue to pay late. The government’s procurement portal has helped the process but someone needs to be monitoring the stuck payments. These suggestions would be sent to the finance ministry soon for consideration before the budget making exercise starts.

Do you think ease of doing business has changed at the ground level?

Although our national performance in the World Bank rankings have improved, this needs to percolate down to the district level immediately. We can’t afford any more delay. It is good that now states have become very conscious while the NITI Aayog is rating them on more than 350 parameters. But ease of running a business as well as the cost of running a business should be looked at as well.

Do you feel the cost of business is still high?

Again, circling back to MSMEs, while the corporate tax has already been reduced by the government, most MSMEs don’t fit into the corporate category. The vast majority of MSMEs are either sole proprietorship businesses or partnerships, so taxes should come down on these types of businesses. For such individuals, the tax slabs need to be tweaked with income upto Rs 5 lakh being fully exempt. The tax rate should be 5 per cent for income between Rs 5 lakh to Rs 10 lakh, and 10 per cent for income between Rs 10 lakh to Rs 20 lakh. Also, the cost of interest remains high for businesses. Since inflation is under control, there is still room for reducing interest rates by another 100-200 basis points.

When do you think that the economic slowdown would start to moderate?

There is certainly a global factor as the performance of the world economy continued to be below par. This has put pressure on exports.

Also, impact of the domestic election cycle on the economy needs to be considered. Public spending slows down before elections and there is a time lag in the implementation post election.

I believe the impact of all the key measures — the capital infusion into banks, lowering of corporate tax, quick GST refunds, and contingency fund for the housing sector — will have some time lag. We need another 3-4 months for the actual tangible results to show. So, I still consider the current spell of slow growth to be short term. By the beginning of the new calendar year, we would see an uptick in the economy.

What is the PHD Chambers’ view on the RCEP deal?

If our concerns are not addressed, we should not sign it. That’s a clear signal from the government and we should stick to it.

On the other hand, the relation between Asean and India is a long-term one and not dependent only on the RCEP. Business between the two (India and Asean) continues to grow.

Incidentally, a large Asean business delegation is visiting New Delhi next week as part of a business summit we are organising.