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MSMEs need reforms to solve pressing problems

Our Bureau Kochi | Updated on January 24, 2019 Published on January 24, 2019

Micro, small and medium enterprises (MSMEs), the second largest employment providing sector, need radical reforms to solve its pressing problems and to utilize its potential.

This is the findings and recommendations of the latest 'Development Report' on MSMEs, brought out by the Kochi based Institute of Small Enterprises and Development. 'India Micro, Small, and Medium Enterprises Report 2018, the twenty- first volume in the series, was released in Bengaluru at the South India MSME Summit 2019.

The report pointed out that several studies on India's MSMEs have brought out emerging challenges of the sector, especially against the phenomenon of 'jobless growth', that the country is experiencing today. MSME associations have also come up with issues relating to finance and taxation. The Union Government came up with a new turnover-based definition of MSMEs, which the associations consider it as an inroad into their constituency by large players.

However, the RBI, on the other hand, has taken a serious note on the issues relating to finance and taxation, and has set up an expert committee to identify causes and top propose long term solutions. While the mainstream debates on MSME problems confine to the limited areas of technology, finance, start-up support etc, the impact of more crucial external influences such as policy failures (demonetization and GST implementation) remain unanswered. In such a situation, piece-meal solutions to MSME problems may not be effective, the report warns.

Quoting an RBI study, the report said that the credit growth for MSME declined significantly and turned negative during November 2016 to February 2017. However the growth in credit had recovered after February 2017 to reach an average 8.5 per cent. The share of credit extended to MSMEs in overall bank credit, declined steadily to around 14 per cent from about 17 per cent. Additionally, within credit to the industrial sector, the share of medium enterprises has dropped significantly as compared to micro and small enterprises. The credit growth to MSME exports has also been affected.

ISED advocates an 'entitlement approach' that can have the potential of compelling all related stake holders to work on a common national agenda and solutions under a scientifically structured framework. Such an approach would demand identification and analysis of major security threats to the MSMEs, and entrepreneurship at the grass root level.

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Published on January 24, 2019
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