Interview | Six-month period to restore full-scale MSME operations seems ambitious: PHD Chamber President

It is clear that the sentiment has completely shifted towards setting up business enterprises in countries other than China, said PHD Chamber President Dr DK Aggarwal.

Ease of Doing Business for MSMEs: India’s vast MSME sector, which spans across every sector and industry with 6.33 crore units out of which over 99 per cent — 6.30 crore units are micro-businesses, is likely to take anywhere from six months to over a year depending on the sector to recover back to the pre-Covid scenario. Industry experts with whom Financial Express Online earlier spoke with have been claiming recovery between 25 per cent to 60 per cent. While units in healthcare, grocery, and education sectors have managed to see gradual recovery, others in the hotel, travel, textiles, electrical equipment, toys segments are still struggling. “This is only happening gradually with the lifting of the lockdown in phases,” Dr D K Aggarwal, President, PHD Chamber of Commerce & Industry told Financial Express Online in an interview. He elaborated further on the emergency credit scheme for MSMEs, the new definition, and the government’s ambitious five-year target for the sector. Edited excerpts below:

To what extent has the government’s Atmanirbhar package for MSMEs been effective in helping the sector recover back to pre-Covid level?

As per the latest figures available, banks have already sanctioned loans of Rs 1.30 lakh crore and disbursed Rs 82,065 crore as on July 23 out of the emergency credit line which has greatly helped MSMEs to restart operations by giving them additional working capital support. This additional funding has certainly helped MSMEs to pay their pending bills, procure raw material, and pay wages of workers. However, as regards the question of the package helping to restore to pre-Covid level of operations, it would take many other things to normalize like picking up of the demand and supply orders, availability of workforce many of whom had left for their hometowns and restoration of the supply chain to the previous levels. This is only happening gradually with the lifting of the lockdown in phases.

But do you think there have been challenges around its implementation?

While the overall pace of implementation of the ECLG scheme is good but there are certain policy issues raised by MSMEs which are not covered as eligible borrowers under the scheme like MSMEs with outstanding credit in excess of Rs 25 crore as on 29th February 2020 and turnover exceeding Rs 100 crore. This criterion was fixed at the time of announcement when the turnover limit of MSMEs was proposed to be revised up to Rs 100 crore. Later on, the turnover limit for MSMEs has been revised to Rs 250 crore and therefore the eligibility for the ECLG scheme should accordingly be revised to Rs 250 crore. Other issues raised were MSMEs which had the sanctioned limits with banks but their utilization was much less or they had not utilized the full sanctioned limit on 29th February 2020. There is no provision for providing credit support to the MSMEs which did not have any credit outstanding on 29th February 2020 or were not at all availing any credit limit from the banking system. Similarly, new MSME units have not been provided any credit support as part of the stimulus package. PHD Chamber has requested the government to consider including the above categories of MSMEs also to make them eligible for the credit facility under the ECLG scheme.

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How has been the banks’ response to this scheme?

By and large, the banks have responded quite favorably to the implementation of the scheme of emergency credit line which has shown good progress of sanctions aggregating Rs 1.30 lac crore, that is, almost 43 per cent of the total credit line in a period of two months. There is not much for banks to worry about such accounts turning into NPAs because firstly only ‘Standard Accounts’ have been made eligible for such additional credit line and secondly the entire additional funding is fully guaranteed by the Government of India. Six months’ time to restore full-scale operations for MSMEs seems ambitious as the virus spread is still not over and the lockdowns are still in force, though partial.

MSME Minister Nitin Gadkari targetted 50 per cent share in GDP and 60 per cent in exports by MSMEs in 5 years apart from adding 4 crore more jobs in the sector. What’s required to achieve the target?

The targets are achievable as MSMEs are a big economic force in the country. Some of the following policy decisions and measures by the government would make this possible to achieve: first, preparing a land bank and allocating land for the building of industrial infrastructure including Flatted Factories complexes in Tier-II and III cities and towns to facilitate the establishment of a large number of new MSME units. This will help not only the creation of more employment opportunities but also engage the local population and utilize the local raw materials.

Second, launching a comprehensive Entrepreneurship Development Program for unemployed persons including youth and students to attract them towards entrepreneurship and providing them with ‘Plug and Play’ infrastructure or Shed along with handholding and funding support to start their own business enterprise. Gladly the government has included the Vocational Training in the New Education Policy which would help students to get inclined towards entrepreneurship.

Third, Identifying the list of all products which are presently being imported from other countries like China and preparing a scheme for their manufacturing in India by offering incentives to those who would take up the manufacturing of these products. Assuring credit support, providing capital subsidy, and giving tax rebate are some of the incentives which can be offered to them.

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Fourth, rationalizing the tax structures including GST and Corporate/ income tax to make them attractive and stable for the business enterprises including MSMEs. Simplicity, affordability, and stability should be the prime objectives of the tax regime.

Fifth, simplification of labor laws,  removing Inspector Raj, and restoring trust in the business community would bring the real ease of doing business. Alternate Dispute Redressal Mechanism should be strengthened to bring down the contract enforcement period, an important yardstick to measure the ease of doing business.

The government has been calling Covid a great opportunity for MSMEs to benefit from the world’s anti-china sentiment. Are we seeing any action in terms of investments and contracts from foreign or local enterprises coming to MSMEs?

It is clear that the sentiment has completely shifted towards setting up business enterprises in countries other than China. India is a very favorable destination due to the availability of all ‘Factors of Production’ required for manufacturing and competitive cost of labour. Besides India being a big market has its own natural attraction for companies to establish their base. Hopefully, the government seems to be working in this direction and we shall see a lot of activity in the time to come.

Do you think the government’s move to revise the definition will discourage units to limit their growth beyond a medium-size business to ensure receiving benefits as an MSME?

The prime objectives of bringing change in the definition of MSMEs are firstly to facilitate and provide opportunities for them to grow to the higher levels like micro to grow to small and small to grow to medium. Second, to make them globally competitive by enhancing the investment limits so that MSMEs can upgrade their technologies to scale up their operations and improve quality. The number of MSMEs is huge — 63 million whereas the number of large enterprises is in a few thousand. So revising the definition of MSMEs upward will not change the total number of enterprises in the country rather, many of the enterprises which were neither qualifying to be large nor covered under the erstwhile definition of MSMEs will now qualify to be MSMEs and eligible for government support to grow further.