The MSMEs are the struggling lot. Dynamic and ambitious youngsters from mostly middleclass families venture into the world of entrepreneurship with dreams of creativity and achievements in their eyes.
Meeting day-to-day challenges, over 95 per cent of them soon end their lives running from pillar to post for survival. Those about 5 per cent who succeed remain vibrant till they are able to find need-based working capital. The remaining ill-fated land up in the courts fighting legal battles, watching their wonderful enterprises built up with blood and sweat over the years gradually decay and perish. The loss of public assets locked up in these units, called NPA units, is a clear loss to the exchequer. Why is it soIJ Is it because most MSME entrepreneurs are frauds, incapable or because of under-financing or because of lacunae in the banking policy todayIJ The rich are getting richer and the poor poorer. If the Narendra Modi Government is serious about implementing the “Make In India” policy, it urgently needs to strike at the right cause and bring in corrective measures with immediate effect.
The State Financial Corporations (SFCs), incorporated under the SFC Act 1951 for providing assistance to small borrows, are mostly defunct today mainly because most of their assisted units are either sick, closed or struggling for survival. When the going was good, the units serviced their instalments in time, but under the present circumstances being incapacitated, neither the units are able to pay nor are the SFCs able to recover their dues. There are at present 18 SFC with almost every State has a corporation of its own. During 2000- 2001, the SFCs sanctioned loans aggregating to Rs 2,800 crore and disbursed Rs 2,000 crore. Their assistance in the form of loans has declined subsequently due to the existence of a large amount of Non-Performing Assets (NPAs). Over 70 per cent of the total assistance sanctioned and disbursed by all SFCs is provided to small-scale industries. Attempts are now being made to strengthen the role of SFCs as regional development banks.
The SFCs, responsible for ground industrialisation of the country, have played their roles fairly well. Similarly, their borrowers, mostly MSMEs, have toiled hard in keeping their assisted units afloat. It is an admitted fact that most MSMEs have gone down due to issues relating to under-financing or delayed financing of working capital by banks. Needless to say whether it is due to lacunae in the banking policy or for personal reasons, we need to urgently resurrect the assets locked up in the sick MSMEs and in the SFCs.
“The Govt. has proposed amendment to the MSME Act with twin objectives of time-bound exit and revival of loss-making units. Viable MSMEs that seek early assistance to tide over difficult financial situations must be provided with a framework for relief and concession for its revival,” said the Union MSME Ministry. Realising the potential locked up in these units, the public money and the assets, it is a right move for the Government to focus on the revival of MSMEs as priority sector investment.
According to the revised definition of MSME, sickness by the Reserve Bank of India, the number of sick micro, small and medium enterprises in the country has risen to a remarkable level. As on March 2013, there are about 2,48,890 sick MSMEs, Union Minister of State for MSMEs KH Muniyappa told the lok Sabha recently. The RBI had published a set of revised guidelines for rehabilitation of sick micro and small enterprises (MSEs) on November 1, 2012 which calls for an early identification of sickness, a viability study to formulate the basis of rehabilitation package to potentially viable sick MSEs; and a non-discretionary one-time settlement (OTS) scheme for the MSE sector.
Of the 8,836 sick MSEs identified as potentially viable, over 4,460 are under ‘nursing’ as on March 31, 2013, revealed the provisional data provided by the RBI. Once an MSME turns NPA, it is virtually death for the unit since neither fund-based restructuring nor rehabilitation of the unit is generally taken up by banks. While the SFCs when performing, restructured and rehabilitated several MSMEs as per records. The SFCs with all their branches are underutilised today. With revival of the SFCs, the MSMEs, and hence the economy of the country, shall revive contributing to the state revenue and generation of employment. At most SlBC meetings, the Government stresses on banks to finance more MSMEs. Union Minister Kalraj Mishra said banks are reluctant in sanctioning loans to MSMEs. It is evident from such notes that MSMEs are underfinanced
While Reserve Bank Governor Raghuram Rajan said the Central banks are ready to give greater flexibility to restructure loans if it helps projects get on track towards recovery, such restructuring is meant mostly for the large-scale sector. A bank could fix longer amortisation period of about 25 years for loans to projects in the infrastructure and poor industry sector with periodic refinancing (say every 5 years). Consequently, over 286 live cases totalling a whooping Rs 2,62,360 crore were being restructured as on September 2014, as per the CDR (Corporate Debt Restructuring) cell. Of this, while 247 cases involving Rs 2,20,521 crore have been restructured, about Rs 41,839 crore worth debt is under implementation. The top five sectors seeking CDR are infrastructure, power, iron and steel, textiles and construction. The total cases approved under CDR 505 are worth Rs 3,67,607crore as in December 2014.
Where is the policy for restructuring ‘rehabilitation’ of MSMEsIJ Even the existing policy for restructuring an MSME is not implemented. A borrower has no recourse. The NPAs of MSME may be insignificant in money terms as compared to the large-scale sector, but the role of MSME is far superior. It generates 92 per cent of industrial employment; about 40 per cent exports and is the link between agriculture and the large-scale sector. Without MSME support, the large-scale sector cannot survive while the agriculture sector will not be able to value-add their products.
While the MSME sector is in need of a meagre sum of only about Rs 10.000 crore to rehab all ailing MSMEs, it is a pity that neither the Ministry of Finance nor the State Governments are keen to implement any substantial measures in this regard. Recently, the Odisha Government has floated a Rs 150-crore.Venture Capital to fund MSMEs. It’s a welcome move, but besides assisting the startup projects such a fund may also be deployed for rehabilitation of potentially-viable NPA MSMEs.
This will not only revive the MSME sector but will also revive the SFCs. The percentage of NPA will be reduced which is a big concern for the country. The GDP growth which was down to 5.3 per cent in the September quarter will rise with growth in the manufacturing sector. The inflation can be curtailed with substantial improvement in the overall economic scenario of the country with special reference to manufacturing, successfully implementing the MAKE IN INDIA programme of the Prime Minister. India is a rich country and its poverty is manmade. With a right banking policy and its implementation, we can mitigate the gap between rich and poor converting India into a prosperous country.
(The writer is working chairperson, Entrepreneurs & Finance Customers Association of India-EFCAI. Email: efcai12@gmail.com)