The sudden announcement of sops by the government to boost the medium, small and micro enterprises (MSMEs) by providing them market access and providing them a platform for complaints of delayed payments, can hardly be seen as a Diwali gift. It is, in reality, the government making amends, rather late in the day, for its disastrous demonetisation of the high currency notes of Rs 1,000 and Rs 500 and the hurried implementation of the goods and services tax. These two moves in 2016 and 2017 resulted in throwing 35 lakh people out of jobs and thousands of units shutting down. The MSMEs were the worst affected by these moves. The government, through S. Gurumurthy, its representative on the RBI board, tried to get the Reserve Bank of India to release more funds to the banks to on-lend to this struggling sector, but the RBI did not oblige. MSMEs get just 6 per cent of their loan requirements from banks, since they are not in a position to offer collateral to the banks. Hence Mr Modi’s decision to take the responsibility of bolstering the MSMEs. He certainly won’t regret it. They are the backbone of India’s exports as also the main job creators after the agriculture sector. Mr Modi had promised to create one crore jobs a year which did not materialise. So by giving a push to MSMEs, Mr Modi expects to boost employment. Most of the MSMEs operate in the informal sector and rural areas. Their contribution towards GDP is considerable at around 30 per cent whilst it is 45 per cent towards manufacturing output and 40 per cent of total exports.
Mr Modi, however, must be commended for his empathy with the MSMEs and understanding their requirements and the handholding that they need. Getting loans of Rs 1 crore within 59 minutes sounds dramatic, but it would be extremely helpful to the budding and small entrepreneurs. More often than not small units get sick as loans are not provided on a timely basis and in the quantity required. The government in a significant move has provided for a platform whereby big corporates, who often play truant when it comes to making payments, will have to pay the MSME suppliers on time for their services. The bureaucracy too will be chastened as entrepreneurs will not longer have to run from pillar to post to get environment and other related clearance. The compliance requirement for all these have been relaxed and made simpler, which means less corruption. What would be music to the ears of young entrepreneurs is the end of the “inspector raj.” Factory inspectors will be chosen through a computerised random allotment, so their “raj” has come to an end.
All these developments will add to the ease of doing business.