Making India - A feature on MSMEs. All eyes on Centre’s MSME policy as ‘job creation’ takes centre stage

New Delhi: Lakhs of Medium, Small and Micro Enterprises (MSMEs) are the key focus of Prime Minister Narendra Modi’s ‘Make in India’ mission, especially as far as job creation is concerned.

As the NDA government completes two years in office, the sector has seen many interventions in terms of ‘ease of doing business’, such as easier registration and incentives for start-ups through the MUDRA scheme and pushing flexible labour laws.

However, when it comes to a real push in terms of easier bank credit and technology infusion leading to greater job creation, much will depend on the MSME policy that the Ministry is expected to announce next month.

The comprehensive policy for the MSME sector, being drafted by a panel headed by former Cabinet Secretary Prabhat Kumar, is slated to submit its report “as early as possible”, but not later than June, as per an official statement issued earlier this year.

MSMEs are the backbone of India’s industrial landscape. With about 40 million units employing about 100 million people, directly and indirectly, the sector is the largest job provider in the country. It contributes about 8 per cent to the GDP, has a share of 45 per cent in the country’s manufacturing output growth, and contributes 40 per cent to the country’s exports.

Yet, there are many challenges that the sector has been facing over the years. Apart from difficulties in getting credit and plunging exports, about 5 lakh MSME units have been declared sick, as of March 2015, according to the Reserve Bank of India’s provisional data. MSME Minister Kalraj Mishra has said that the issue will be addressed in the upcoming policy.

In an effort to make the sector robust, Finance Minister Arun Jaitley, in Budget 2016-17, had announced that he would ensure more funds in the hands of the sector. To ensure this, he proposed tax exemptions for small business units with a turnover of up to ₹2 crore, to help them expand. 

The threshold limit for turnover for calculating presumptive taxes for SMEs was also raised to ₹2 crore from ₹1 crore earlier, in addition to the higher allocation of ₹1,80,000 crore under the MUDRA Yojana – especially to boost start-ups – with the aim of creating “job creators” rather than job-seekers.

In last year’s Budget too, the Finance Minister had proposed a ₹10,000-crore venture capital fund to act as a catalyst to attract private capital in the sector.

The fund disbursal is being done by state–owned Small industries Development Board of India (SIDBI). So far, as per reports, SIDBI has already sanctioned ₹800 crore of this fund under the SMILE programme to boost start-ups, with plans to increase the sanction to ₹7,000 crore by the end of this fiscal year.

However, SIDBI recently reported a 16.94 per cent fall in net profit for 2015-16 at ₹1,177 crore due to increased provisioning for bad loans.

On its part, the Centre is making efforts to give an extra push to sales of MSME products, by making it mandatory for Central public sector units to make 20 per cent of their procurements from MSMEs, including 4 per cent from units belonging to Scheduled Castes/Scheduled Tribes.

Hopefully, the new policy to be announced next month will address all the key challenges facing the sector to make it a true engine of the Prime Minister’s ‘Make in India’ campaign, such as the rising number of sick units as well bad loans. As on March 15, 2015, over 5 lakh sick MSMEs had outstanding loan worth ₹33,378.17 crore, as against over 4.6 lakh sick MSMEs with outstanding loans of ₹32,869 crore in 2014, as per RBI’s provisional data.  

With this year’s Budget earmarking a higher allocation for the Ministry by 15 per cent from ₹2,612.51 crore in 2015-16 to ₹3,000 crore, it also remains to be seen if the government’s promise of utilising ₹1,139 crore by the Prime Minister’s Employment Generation Programme during 2016-17 to assist 55,000 projects will generate the much-promised employment for over 4,25,000 persons. 

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