The gov­ern­ment needs to get down to un­der­stand­ing what is re­ally caus­ing MSME dis­tress and then look at sops that tar­get sec­toral growth and pros­per­ity

Business Today - - CONTENTS - By PROS­EN­JIT DATTA / IL­LUS­TRA­TION BY RAJ VERMA @pro­saicview


stoutly for a cou­ple of years, the gov­ern­ment has fi­nally got­ten around to ad­mit­ting, grudg­ingly, that many of the Mi­cro, Small, and Medium sized En­ter­prises (MSMEs) are strug­gling to sur­vive. The big prob­lem now is that the gov­ern­ment thinks that al­low­ing the MSMEs to re­struc­ture their loans or giv­ing them more time to pay, and also in­creas­ing loans to them will solve the prob­lem. For­mer Re­serve Bank of In­dia gov­er­nor Ur­jit Pa­tel ap­par­ently did not agree with that view. He has re­signed and been re­placed by Shak­tikanta Das who is more sym­pa­thetic to the fi­nan­cial woes of the MSMEs. He has al­lowed banks to do a one-time re­struc­tur­ing of small loans not ex­ceed­ing ` 25 crore of MSMEs. Mean­while, the gov­ern­ment has tried to spur its own banks to lend more ag­gres­sively to MSMEs and also tried to push the MU­DRA loans. The is­sue is that the gov­ern­ment needs to re­alise that the prime cause of MSME dis­tress orig­i­nates from the twin shocks of de­mon­eti­sa­tion and GST. Eas­ier loans aren't go­ing to solve those is­sues. NPAs from MU­DRA loans are al­ready ris­ing. More loans and eas­ier re­pay­ment terms will do noth­ing to solve the ba­sic prob­lem for MSMEs. That’s why ex­pect­ing the RBI to solve what is es­sen­tially the task of the gov­ern­ment is a bad idea.

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