MSMEs say demand boosters needed for measures to work

The government's additional booster dose for micro, small and medium enterprises (MSMEs), announced on Monday, may not help the sector much when enterprises are staring at low consumption demand and liquidity crunch. The prolonged lockdown has muted the borrowing capacity of MSMEs, feels a section of the industry.

The government, however, believes that the sector can be supported through major 'healing' routes like subordinate debt and equity infusion. Accordingly, the Union Cabinet on Monday approved provision of Rs 20,000 crore as subordinate debt to give equity support to stressed MSMEs and proposed equity infusion of Rs 50,000 crore for enterprises through a fund of funds.

But the measures do not bring any immediate relief to the enterprises. Equity infusion through fund of funds is an interesting concept and is targeted at expansion of capacities, explained a government source. But the current challenge before MSMEs is to function to the fullest existing capacity, the source pointed out.

Echoing the similar views, Sanjay Kumar, CEO & MD, Elior India, one of the largest corporate catering firms in India, said: "The bottleneck the industry faces today is on the consumption side. We are yet to see any measures to help stimulate demand so that in an environment where there is uncertainty on consumption. The ability to borrow for producing would be limited because the risk of default remains high."

"The stimulus for demand needs to come in so that the flow-through of credit that has been proposed for the MSMEs is actually realised. It is highly unlikely that any MSMEs will borrow if they don't have visibility of what they can sell. Besides, we need wait and watch as to when the government will streamline the input tax credit and the GST administration, as this has the potential to act as an enabler of a smoother supply chain."

Sources are also not upbeat about the subordinate debt for stressed MSMEs. "It is actually a loan given to a promoter on the condition that the same will be infused as equity into the business venture. For loan disbursement, only functioning non-performing assets (NPAs) or stressed loans will be eligible. The criteria of functional NPA, the loan amount and other conditions need to be examined in detail, they said. Moreover, this is an additional loan to the promoter in the form of personal loan guaranteed by the CGTMSE, sources said.