Modi woos MSMES with easier credit, relaxed rules
Small enterprises can avail of loan of up to ₹1 cr in just 59 mins
NEW DELHI: Prime Minister Narendra Modi on Friday announced a series of measures designed to help small businesses by giving them access to quick finance and sparing them the rigours of compliance to some labour laws.
The moves comes amid serious public differences between the Reserve Bank of India and the finance ministry on easing lending restrictions to improve liquidity in the system.
The ‘micro, small and medium enterprises (MSME) support and outreach’ programme, launched by Modi, seeks to grant quick access to credit at attractive terms. Loan requests for up to ₹1 crore will be approved online in principle in less than an hour—59 minutes to be precise.
Businesses that are registered for goods and services tax (GST) will get a 2% subsidy on interest, while exporters will get a 5% subsidy—up from 3% now—on the interest they pay on pre- and post-shipment credit. The prime minister also announced a ₹6,000 crore scheme for technology upgradation at small firms.
To make sure the benefits reach the right audience, union ministers will visit 100 aspirational districts and help small businesses.
The latest drive to improve small business’ access to credit is significant as these entities, who make up a major support base for the ruling Bharatiya Janata Party, have had to grapple with a cash crunch after the November 2016 demonetization and business disruptions caused by the GST at the time of its roll out in July last year.
Modi said that banks will process loans under the new scheme by analysing the information provided by the applicant in their GST and income tax returns, in addition to the cash flow-related information already available with the bank. “Even while you file your GST return, the tax portal will ask if you need a loan,” said Modi.
Industry representatives said MSMES are not the focus area for banks and that these entities face problems in securing loans, with banks rarely meeting the targets given to them for MSME lending. “Banks have to change their mindset if such outreach programmes are to meet their objectives. Else, these measures will remain as election gimmick,” said Chandrakant Salunkhe, founder and president of the SME Chamber of India.
Modi also announced measures to ensure that small businesses get credit based on trade receivables.
He urged all state-owned enterprises to join an electronic platform called the Trade Receivables Discounting System (TREDS), where small suppliers can access credit based on trade receivables.
“The biggest benefit is that MSMES’ funds will not get stuck and cash flow will not be affected. I will urge big businesses to settle the bills of small businesses and not to delay. If there is still delay, small businesses can file complaints to the ministry, which will be resolved quickly, said Modi.
He said the government has decided to increase the minimum procurement that staterun companies have to make from small businesses to 25% up from 20% now. Out of the 25% mandatory SME procurement, 3% will be reserved for SMES run by women. This, Modi said, will boost entrepreneurship among women.
All central public sector units will have to be part of the e-government marketplace, where government purchases are transparently accessible to all suppliers, including MSMES, the Prime Minister said.
Finance minister Arun Jaitley, who was present at the launch, said the government has been working on ensuring strong economic growth, which will also help small firms boost their output and enhance their clients’ purchasing power.
The prime minister said the frequency of biannual returns to be filed under certain labour laws has now been reduced to once a year to improve ease of doing business for small firms. Inspection of factories will be decided in a computerized manner and officials will have to file their reports in 48 hours.
“This will spare small firms from inspector raj,” Modi said.
Giriraj Singh, minister of state for MSMES said 65 million MSMES in the country provide 120 million jobs.