Economic Survey calls for better credit access, deregulating MSME sector

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Ziraat Times
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New Delhi, July 23: While the government is focusing on MSMEs to occupy the centre stage in India’s economic story, the sector continues to face extensive regulation and compliance requirements, said the Economic Survey 2023-24 tabled in Parliament on Monday ahead of the full budget.

The survey, which highlights the state of the economy during the year till March 31 and outlook for the next year, said MSMEs face significant bottlenecks with access to affordable and timely funding being one of the core concerns.

“Licensing, inspection, and compliance requirements that MSMEs have to deal with, imposed particularly by sub-national governments, hold them back from growing to their potential and being job creators of substance. Threshold-based concessions and exemptions create the unintended effect of incentivising enterprises to cap their sizes below the thresholds,” the survey said suggesting that threshold-based incentives must have sunset clauses.

Suggesting deregulation to be a vital policy contribution for MSMEs, the survey said the revival or creation of institutional mechanisms for dialogue with states on required policy changes is essential.

It also called for physical and digital connectivity (industrial and freight corridors), infrastructure upgrade and development, the introduction of bullet trains, and the manufacture of semiconductor chips for the MSME sector’s growth through the supply-chain network and the growth of ancillary industries that they catalyse.

Moreover, MSME entrepreneurs also need training in enterprise management, such as human resource management, financial management, and technology, the survey said.

MSMEs’ struggle to secure the necessary funds to start, operate, or expand their business was also highlighted by the survey citing reasons including lack of collateral or credit history, high interest rates, complex documentation requirements, long processing times, etc.

To address this credit gap in the sector, the survey said the focus also needs to be on enhancing physical and digital connectivity and putting in place an export strategy, other than deregulation, that enables MSMEs to broaden their market exposure.

Some of the other suggestions by the survey to address constraints of supply chain management, market access and formalisation for MSMEs were:

Provide support systems to develop MSME projects and their bankability and adequate financing arrangements for such projects

Targeted facilitation and incentivisation of employment-intensive MSME segments
Single-window mechanism for clearances, digitisation of processes and equipping MSMEs to handle these processes with ease

Providing grassroots-level facilitation for market access to MSME products Government-industry-academia collaboration to upskill the workforce.

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