Govt concerned at 221% rise in sick MSMEs

Outstanding loans of sick units have risen by nearly 145% - from Rs 5,233 cr to Rs 12,800 cr - between 2010 and 2013

An inter-ministerialcommittee on accelerating manufacturing in the micro, small and medium enterprise (MSME) sector has made over 60 recommendations covering issues of regulation, finance, infrastructure, technology and markets that affect the different stages of the life cycle of MSMEs.

The recommendations come in the backdrop of a 221 per cent increase in the number of sick micro and small enterprises (MSEs) between 2010 and 2013 — from 77,723 to 249,903 (provisional) — after declining between 2005 and 2008. Their outstanding loans have risen by nearly 145 per cent over this period, from Rs 5,233 crore to Rs 12,800 crore.

The committee was set up by the cabinet secretary in the context of the long gestation period in the National Manufacturing Policy introduced by the Centre in 2011, and owing to growing concern about the performance of MSMEs in the short and medium terms.

The report recommends ways of boosting manufacturing in the MSME sector. The report said it was clear that MSMEs individually and collectively lack the advocacy ability enjoyed by larger enterprises on economic and functional issues, and, therefore, are frequently at the receiving end of unexpected actions of other stakeholders, including the state machinery.

 

“A complex and unfriendly business ecosystem pushes small entrepreneurs towards the informal and unregistered segment, which is growing faster than the organised segment by more than five times, and already accounts for over 95 percent of all MSMEs,” according the report.

 

This trend must be reversed as it is not sustainable, it adds, noting that policy makers and administrators in multiple departments of local, state and Central governments must understand the need to create an ecosystem that assists entrepreneurs through the life cycle of creation, growth and closure of enterprises and encourages them to operate in the organised economy. Among the key recommendations of the report are two that say state governments should streamline and simplify internal processes, and allot more than 30,000 plots that are lying vacant in established industrial estates across the country to start-ups that come up with good business plans.

The committee has also recommended the setting up of a Credit Guarantee Fund with a corpus of Rs 1,000 crore, purely for enterprises started by graduate engineers and graduate management trainees, adding that the scope of the fund can subsequently be expanded to include other first-generation entrepreneurs.

The report says the India Inclusive Innovation Fund must be operationalised as early as possible and the Reserve Bank of India should consider directing commercial banks to reduce lending rates to MSEs from 17-18 per cent to 13 per cent (i.e., not more than two percentage points above the base lending rate), since the credit risk is almost eliminated when the guarantee cover under CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) is taken. It repeats a recommendation of the National Manufacturing Competitive-  ness Council, that a liquidity fund be set up for market makers in SME platforms, to provide them with a cushion to reduce their holding risks. The ministries concerned must consider setting up innovation hubs to use R&D for the manufacture of high-end technology products. These innovation hubs may comprise the 2000 clusters that are in the organised sector; the laboratories of the Council for Scientific and Industrial Research and the Indian Institute of Science; and technical universities in the proximity.