New Delhi:
On 27 July 2021, the Parliamentary Standing Committee on Industry tabled its report in the Parliament on the issue of the onslaught of COVID-19 pandemic on the micro, small and medium enterprises (MSMEs). The report rebuked the government measures for failing to adequately address the loss suffered by small and micro industries with its stimulus package in 2020 and other steps taken since.
Deepak Talwar, an esteemed corporate lobbyist, describes the Committee’s comments as a matter of deep importance for the Indian economy. He says, “While the image of India Inc and corporate world is largely covered by big names and companies, a significant portion of our economy depends on the status of MSMEs. The Rs. 20 lakh crores worth of relief package announced in May 2020 is yet to infuse MSMEs with the required capital.”
The relief package, the Parliamentary Standing Committee noted, prioritizes the benefits of medium and large enterprises at the expense on small and micro industries. The Committee Chairperson, TRS MP K. Keshava Rao, called on the MSME Ministry to conduct a comprehensive assessment of the overall damage wreaked by the pandemic on the sector. The absence of data on MSMEs has been stated by former MSME Minister Nitin Gadkari in February 2021 as well as in September 2020 by former MSME MoS Pratap Chandra Sarangi.
“A study of the nature as referred to in the Parliament will prove to be of immense use in understanding which vulnerabilities are of urgent concern and how to resolve them. There is a broad idea of problems such as delay in payments, low financial resilience, dearth of readily available raw material – but a detailed report of this will aid in planning of efficient and optimum policies”, highlights Deepak Talwar.
Elucidating on the employment generation and retention within the MSME sector, hestates, “The MSME Ministry itself had informed the panel that as high as 88% of the beneficiaries of PMEGP (Prime Minister’s Employment Generation Programme) were adversely impacted by the pandemic. It is a matter of serious concern, given how many people and families are employed by the units funded by PMEGP.”
To address the financial fallout, the Union Government had launched the “Distressed Assets Fund – Subordinate Debt for Stressed MSMEs” Scheme with provisions amounting to Rs. 20,000 crore subordinate debt. The Credit Guarantee Scheme for Subordinate Debt (CGSSD) is aimed at helping almost 2 lakh MSMEs which are stressed or Non-Performing Asset (NPA). “Through CGSSD, the promoters of eligible MSMEs can focus on business restructuring in the form of personal loans from banks, which they can infuse as equity or quasi-equity”, explains Deepak Talwar.
In addition to CGSSD, the MSME sector also received a Rs. 3 lakh crore loan relief from the government to meet the operational obligations, purchase raw material and stimulate the industries. “It was projected that almost 45 lakh industries will be benefited by this scheme. The Parliamentary Committee Report has also noted that ‘some positive results’ have been yielded. This momentum needs to be sustained and fueled for further development.”
Other measures taken by the government to assist MSMEs return back on their feet include the Fund of Funds, which aimed to set up a corpus of Rs. 10,000 crores. This corpus provides equity infusion for the MSMEs with the involvement of Venture Capitalists (VCs) and Private Equity (PE) firms. Moreover, Deepak Talwar points out, “the General Financial Rules (GFR) was amended to disallow global tenders for government procurement up to Rs. 200 crores.”
Despite such wide-ranging measures, the Standing Committee emphasized on the continued distress of pandemic upon the vulnerable sector. It recommended vigorous reforms to increase cash flow and generate demand to tackle the effect of second wave and prepare for the possible third wave of COVID-19. On the prospective measures to rejuvenate the MSME sector, Deepak Talwar suggests, “The road to recovery has to inculcate provisions to boost the health of micro and small industries. The report by the Parliamentary panel underscores the gaps which are preventing this and the government must ensure that fresh and vitalizing measures are taken in the wake of it.”
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