The Federation of Indian Micro and Small & Medium Enterprises (FISME) has called on the government to introduce a sector-agnostic production linked incentive (PLI) scheme tailored specifically for MSMEs. This recommendation, part of a detailed 10-point submission to Finance Minister Nirmala Sitharaman, comes ahead of the first full budget of the Modi 3.0 government on July 23. FISME’s proposal highlights the importance of prioritizing sectors capable of generating maximum employment per unit of investment, positioning MSMEs to gain significantly.
Revising the PLI Framework for Employment Generation
FISME has raised concerns about the existing PLI scheme, describing its approach as ad-hoc and potentially influenced by lobbying, which may overlook critical sectors. The organization emphasized the need for a revised PLI framework that focuses on sectors with high employment generation potential. According to government data, as of January 17, 2024, 746 applications across 14 sectors have been approved under the PLI scheme, with an expected investment exceeding Rs 3 lakh crore. Out of these, 176 MSMEs have benefited in sectors including bulk drugs, medical devices, pharmaceuticals, telecom, white goods, food processing, textiles, and drones.
The Udyam registration portal shows that MSMEs have reported over 20 crore jobs in the country as of July 8, 2024. This includes 2.32 crore jobs by GST-exempted informal micro enterprises, reflecting a 66 percent increase from 12.1 crore jobs in July last year. FISME’s proposal seeks to capitalize on this strong performance by ensuring that the revised PLI framework includes key metrics such as job creation.
Addressing the SMA Framework and Banking Challenges
FISME has also called for a review of the Special Mention Account (SMA) framework, advocating for a “liberal restructuring option” for MSMEs impacted by long Covid and geopolitical turmoil. Currently, banks categorize stressed accounts based on overdue payments: SMA-0 for overdue less than 30 days, SMA-1 for 31-60 days, and SMA-2 for 61-180 days. Once an account is marked as SMA, it severely hampers normal banking operations, causing unnecessary alarms and forced closures of MSMEs.
In addition to revising the SMA framework, FISME recommended eliminating the Bank Loan Rating (BLR) system, which rates MSMEs using the same criteria as listed companies. This system complicates capital-raising efforts for MSMEs. FISME argued that the BLR system should be replaced with a more tailored approach that recognizes the unique challenges and opportunities faced by MSMEs.
Proposing a Disaster Support Mechanism
FISME has proposed the creation of a Disaster Support Mechanism to provide swift support to MSMEs during crises. This mechanism would ensure that MSMEs receive timely assistance in the event of natural disasters, economic disruptions, or other emergencies. The goal is to enhance the resilience of MSMEs and enable them to recover quickly from unexpected challenges.
Streamlining Support for Export-Oriented MSMEs
FISME’s recommendations also include streamlining packing credit for export-oriented MSMEs. This would involve simplifying the processes and requirements for obtaining packing credit, thereby facilitating smoother and more efficient access to financing for MSMEs engaged in export activities. By reducing bureaucratic hurdles and ensuring timely disbursement of funds, the government can help MSMEs compete more effectively in international markets.
Implementing Insurance Surety and Payment Act
To further support MSMEs, FISME has suggested implementing insurance surety in place of bank guarantees. This would reduce the financial burden on MSMEs and provide a more flexible and accessible form of security. Additionally, FISME has called for the introduction of a ‘payment act’ to address delayed payments to MSMEs. Delayed payments have long been a significant challenge for MSMEs, affecting their cash flow and overall financial health. A payment act would establish clear guidelines and penalties for delayed payments, ensuring that MSMEs receive timely compensation for their goods and services.
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Conclusion: A Comprehensive Approach for MSME Growth
FISME’s comprehensive recommendations underscore the need for a holistic approach to supporting MSMEs in India. By introducing a sector-agnostic PLI scheme focused on employment generation, revising the SMA framework, eliminating the BLR system, and implementing a Disaster Support Mechanism, the government can create a more conducive environment for MSME growth. Streamlining support for export-oriented MSMEs, implementing insurance surety, and addressing delayed payments through a payment act will further enhance the resilience and competitiveness of MSMEs.
The proposed measures aim to ensure that MSMEs continue to play a vital role in India’s economic development, contributing to job creation, innovation, and overall economic growth. With the upcoming budget, there is an opportunity to address the challenges faced by MSMEs and provide them with the necessary support to thrive in a dynamic and competitive landscape. By taking a proactive and inclusive approach, the government can help MSMEs unlock their full potential and drive sustainable growth for the nation.