A day after the stimulus package was announced, Prime Minister Manmohan Singh today directed the Committee of Secretaries (CoS) to consider helping the micro, small and medium enterprises (MSMEs), which employ over 42 million people and are vulnerable to the global slowdown.
After a meeting with the MSME associations, the PM asked the CoS chaired by Cabinet Secretary K M Chandrasekhar to submit its recommendations to the PMO within a fortnight.
The PM assured the associations that the government would go into the merit of each of their demands and do whatever possible within the existing framework.
The MSME representatives suggested a slew of measures to the PM, including a special purpose vehicle (SPV) for cheaper financing to help the sector survive the economic downturn.
A 2 percentage point cut in lending rate, 15 per cent priority sector lending for MSMEs, 15 per cent enhancement in working capital limit and short-term working capital loans were some of the key demand raised by the Confederation of Indian Industry’s (CII’s) MSME Council today in the meeting with Singh.
“The CII has suggested creation of a special purpose vehicle with a corpus of Rs 2,000 crore to provide credit to MSMEs at the prime lending rate (PLR) and below,” said Datla. A present, banks lend to MSMEs at PLR plus 100-200 basis points.
Availability of credit has become a big issue for the small enterprises with banks’ reluctance to lend due to fears of default. The CII said at least 15 per cent of priority sector lending should be allocated to MSMEs, which would make available additional Rs 50,000 crore to the sector.
The built up of higher raw material inventory due to decline in demand means funds are locked up. So the association is requesting banks to give additional 15 per cent working capital to run business.
“Another thing is whether banks can give working capital short-term loan for 12-18 months. Currently, MSMEs are not eligible for any additional loans,” Datla said.
Most of the industries are facing losses because of fall in demand. In such cases, credit rating goes down and banks cut down working capital limit. “In this context, what we are asking is amortisation of losses for one to three years so that credit rating will not come down drastically,” he said.