India’s 6.3 crore MSMEs are going to pot. They are being pistol-whipped starting with demonetisation, GST rollout, NBFCs-led liquidity crisis, economic slowdown and now the Great Lockdown. If it’s not one thing, there’s always another. The graded lifting of the lockdown does offer some white hope to resume normalcy and the surplus banking system liquidity is an added bonus. But citing poor creditworthiness, fear of bad loans and subsequent scrutiny, banks are reluctant to lend as if MSMEs can’t be trusted with even small piles of cash. Such a credit brownout will certainly run several companies aground, leading to massive job losses.

It’s not that the government has been completely tone-deaf. In what could be a decisive and prompt action, it asked RBI to extend the one-time restructuring of MSME loans by banks, NBFCs (non-banking financial companies) and MFIs (microfinance institutions) until December 3. It also opened, via SIDBI (Small Industries Development Bank of India), an emergency loan at as little as 5% interest for MSMEs involved in Covid-related works. This should be extended to all MSMEs now.

Banks like the Central Bank of India are offering MSMEs emergency credit lines of up to 10% working capital, but much larger loans are needed. Doing its bit, the Reserve Bank of India announced a Rs 50,000 crore targeted long-term repo auction with half of it going to NBFCs and MFIs, who lend to MSMEs. But the problem isn’t lack of credit, but of risk, which is why MSMEs want partial credit guarantees, interest subvention and moratorium extension for one year as against three months.

The sector accounts for about 40% of exports, 29% of the GDP and employs over 11 million people. Sensing the need, Union Minister Nitin Gadkari hinted that a Rs 1 lakh crore relief package was coming. As everyone agrees, relief is much cheaper than rescue and doesn’t necessarily need a blank cheque. The choice, for the government with bleeding coffers, is between an expensive relief package sooner and a really ruinous rescue exercise later.