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Opinion

What the Draft MSME Policy Means for the MSME Sector

28/02/2022 4 Min Read

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The government has recently released the draft medium, small and micro enterprises (MSME) policy to provide dedicated credit, procurement of products and financial assistance, competitiveness, infrastructure, and technology up-gradation to Indian MSMEs.

After working on this policy since 2015, the officials have now thrown the floor open for feedback and suggestions to help firm up an adaptive and inclusive national policy for MSMEs. While there have already been many delays, in this case, there are some positive cues of growth for MSMEs.

Here are the 5Cs that the draft policy focuses on to help and uplift this sector.

1) Credit

The government’s expectation of introducing uniformity in and simplifying various loan application formats and assessment processes is one of the significant recommendations. Besides this, developing customized products to assess the financing requirements and using surrogates like personal guarantees, bank statements, GST data, standardized scorecards, etc., for evaluating MSME borrowers’ creditworthiness is also on the wish list.

Moreover, it expects to encourage MSMEs to obtain Zero Defect Zero Effect Certification from QCI. Then, the banks could pass on some benefits due to lower risks for such units through interest or processing fee concessions. To reduce the turnaround time, there should be a shift from the balance sheet or turnover-based working capital financing to cash flow-based or supply chain or cluster-based funding to reduce the turnaround time.

It aims to enhance the loan limit to INR five crores and build the banks’ ability to capture cash flows of MSME borrowers regularly, for which tie-ups with industry majors, aggregators, and online platforms will have to be done by the banks.

The development of a dedicated stock exchange for the MSME sector so they can access capital markets easily, quickly, and at lower costs will chart the path to success for a long time to come.

2) Compliance

The government proposes to link all the MSME offices on one network, which includes state and local level agencies to deal with the statutory and legal requirements like UAM registration, PAN application, various clearances or NOCs, memorandum, etc. This could be a game-changer for MSMEs who find it difficult to proceed with regular business activity amidst such challenges.

The proposal to introduce a cloud-based comprehensive database accessible to all in the public domain aimed at dealing with credit, payments, marketing, procurement, insurance, technologies, training will be vital in making MSMEs compliant.

A third significant initiative to create online access for grievance redressal by integrating it with state-level agencies is a step in the right direction.

3) Competency building

The government’s recommendation to strengthen the system of P2P learning to promote collaboration, convergence, and competition will help MSMEs build better.

The government proposes that the MSME facilitation councils regularly update the database for MSME-related information and help with value chains by creating or linking the enterprises and integrating the state portals with national-level portals.

4) Communities (creating an ecosystem of MSME communities)

At the national level, the government proposes to develop a framework for a marketing platform distribution network covering states, interstate, and international business promotion for a systematic value chain to create the right ecosystem for MSME communities.

At the state level, the government recommends developing interstate platforms for exhibitions, seminars, workshops, training, research, etc., to identify common issues, strategies, share experiences and showcase best practices. This initiative will also help organize stakeholders’ meetings to develop convergence, synergy, mutual learning, and cooperation for higher efficiency and productivity, building a robust community.

5) Connections (building networks using technology)

The recommendation to focus on implementing new-age technology via better awareness, adoption of best practices, development of indigenous technology, and technological collaboration with global partners will help bridge the digital gap.

Another critical step to establishing deeper connections worldwide is promoting India’s integration into the global supply chain to outsource businesses and increase domestic production. The aim is also to create an environment for MSME joint ventures to enable Indian MSMEs to partner with their global companies and evolve to international levels with regard to innovation, adapting to new technologies, and attention to quality.

Conclusion

The government’s vision to stimulate the MSME sector’s efficiency and productivity to generate income, employment, and become part of domestic/global value chains, is possible if this policy is implemented without significant leaks.

Its objective to facilitate building a vibrant ecosystem for the rapid growth of the MSME sector is in the best interest of India as the country’s MSMEs look forward to a conducive business environment under the ‘ease of doing business’ initiative.

The article was first published on vc-world.in

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Pushkar Mukewar

CEO/Co-Founder at Drip Capital

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