THE SECRET SAUCE

Sanjay Chakrawarty, Editor

Micro Small and Medium Enterprises (MSMEs) are often referred to as the growth engines of the Indian economy. Rightfully so! Currently, over 64 million MSMEs in India are contributing a third of the country’s GDP, half of India’s exports, and creating employment for nearly 20% of the workforce.

India announced that its GDP had reached USD 3.75 trillion in June 2023 and overtook the UK to become the fifth-largest economy. If India is to achieve the USD 7 trillion economy target by 2030, our country will require a revolution across all industries, and MSMEs will be major contributors to it.

In the latest budget, the government allocated ~USD 27 billion (INR 22,138 crore) to the MSME ministry, a 7x growth from the allocation of ~USD 4 billion (INR 2,977 crore) during the 2013-14 budget. Furthermore, several initiatives have been taken by the Government of India to boost the MSME sector, including the Emergency Credit Line Guarantee Scheme (ECLGS – the credit support scheme), Udyam registration portal (scheme to access subsidies and rebates), Mudra Loans for women entrepreneurs, etc. Apart from the above initiatives, the focus on digital literacy and the advent of the Unified Payments Interface (UPI) have fuelled MSME growth over the last few years tremendously.

However, there are certain challenges that MSMEs face while conducting regular business –

1) Compliance Costs: While the policies and schemes introduced by the government provide several benefits to MSMEs, compliance procedures to avail of those increase their costs. For instance, though the Udyam Scheme enables access to subsidies and collateral-free loans, owing to the compliance costs, only 20 million MSMEs have registered for it. This is despite government efforts to reduce the cost burdens.

2) Lack of Affordable Loans: While loans can enable a higher growth trajectory for MSMEs, as per a BizFund report in 2022, only 16% of MSMEs in India get formal credit. This can be attributed to the high credit score requirement, which most enterprises do not have. The government is aiming to revamp the credit guarantee scheme to MSMEs by pumping in ~USD 1.1 billion (INR 90 billion). This will help reduce the amount of NPA and encourage lending.

3) Monetary Transaction Charges: Despite the Reserve Bank of India’s advice to banks regarding the elimination of NEFT and RTGS transaction charges, several banks still levy these, thereby increasing the cost of doing business.

Despite the myriad challenges, MSMEs continue to be a huge driving force in India’s economic and social development. However, in order to harness the employment-generating prowess of the MSMEs and to achieve the vision of an Atmanirbhar Bharat, it is imperative to address the challenges faced by MSMEs and tap the true potential of the sector.