Micro, Small and Medium Enterprises- What this sector seeks
22 May, 2014
Employing more than 60 million people, and accounting for 45 percent of the manufacturing sector output and 40 percent of nation's total export, the MSME sector can be regarded as one of the most vital pillars of the Indian economy.
To understand the terminology, it is significant to note that the micro segment embraces units with investments in plant and machinery not exceeding INR 2.5 million, while the small and medium sectors embrace units with similar investments more than INR 2.5 million but not exceeding INR 50 million and more than INR 50 million but not exceeding INR 100 million respectively.
have been made by the authorities to help the MSME sector overcome
uncountable hurdles, vulnerability to macroeconomic policies and
cyclical fluctuations is a prominent tailback. Let us take a bird's
view at some key bottlenecks for the sector followed by some workable
suggestions. Vital to note, the credit by scheduled commercial banks
to the small and medium enterprises accounts for mere 13 percent of
the total bank credit. In the same context, the banks have been
directed to attain 20 percent year-on-year growth with respect to
lending to MSME enterprises.
Thus, the concern
of availing easy credit still prevails curbing the much-needed
expansion. The banks favor lending to larger enterprises alleging
that small and medium sector units are vulnerable to default; however
the NPAs exist round the industry despite of the size of the firm.
For sure, the credit delivery system of the banks for medium level
players in the market has to be realigned, along with enhancement in
laid down procedures. The awareness of the MSME sector units in the
same context is the need of the hour. The Code of Bank's Commitment
to Micro and Small Enterprises, 2008 can be of great help if used
Small scale units
must know that they have the right to approach the Banking Ombudsman
in case they do not receive acceptable redress of grievances from the
respective bank within the stipulated time frame of one month. Plus,
such units can approach Consumer District Forum (amount up to INR 2
million), State Consumer Commission (amount above INR 2 million but
not more than INR 10 million), and National Consumer Commission
(amount above INR 10 million). Despite of the codes set out by the
Banking Codes and Standards Board of India, the unawareness of the
units is accountable for the depression of MSME sector.
concern for the sector is the collection of account receivables. Let
us know where the problem commences. The central and state
governments hold payments due to public sector units, which in turn
delay payments to large industries, and subsequently the dues of
small units held by large industries are postponed. It is
considerable to note in this context that the report of the Vaghul
Working Group recommended the system of commercial bills with minimum
proportion of dues under bills system, along with predetermined date
of payment and zero level tolerance for defaults.
It is to be
remembered that when 10 percent GDP growth rate was predicted, the
MSME units built up capacities and uplifted the output levels. The
actual GDP of less than even 5 percent resulted in bulky inventories
and cumbersome workforce. Along with assuring enhanced ways for
procuring funds and devising techniques for quick realization of
account receivables, the authorities will have to free the sector
from unwanted interference. Also, the move of small and medium units
towards non-bank sources of funds shall be reviewed in light of the
fact that this easy appearing route adds to the burden of interest.
The provisions of
the Micro, Small and Medium Enterprises Development Act, 2006, which
call for streamlined payments to MSME units was expected to add to
the dexterity; however nothing much has been achieved. It is sure
that the macroeconomic scenario in the upcoming years would
experience quick changes owing to the globalization and cross-border
deals. The MSME sector will have to devise ways to stand tough during
such changes and a lot is expected from the authorities and the new
government too. The role of the sector in terms of generation of
abundant work prospects for local residents and check on labor
migration from rural to urban parts shall be duly appreciated.
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About The Author
A Chartered Accountant by profession and Director on the board of Punjab National Bank (PNB), General Insurance Corporation of India (GIC) and Rural Electrification Corporation Limited (REC). Dr. Sunil Gupta is working flawlessly for the economic and social prosperity of India. His Linkedin and twitter handles are @cadrsunilgupta
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