MSMEs most affected by the pandemic need continued support to tide over the current business uncertainties and low demand
(Photo: Milind Shelte)
The two-year pandemic has perhaps cured its heaviest toll on MSMEs (micro, small and medium scale enterprises), with many units reportedly shutting down, losing jobs to lakhs of people. India’s 63.5 million MSMEs provide 45 per cent of its manufacturing output, 40 per cent of exports and about 120 million jobs. Most of these units are still struggling due to high input cost and low demand. The Center had announced an Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs as part of the May 2020 relief package. It saw distribution of over Rs 3 lakh crore till December 2021. But ECLGS was only for MSMEs, who had already taken loans, leaving others stranded.
68 per cent MSMEs are in the service sector and the rest are in the manufacturing sector. When Narayan Rane inherited the portfolio in July 2021, his predecessor Nitin Gadkari had begun the process of giving the ministry a facelift. Three major decisions gave the long-awaited momentum to the sector. First, the new classification of MSMEs, which came into effect from July 1, 2020, made more enterprises eligible for funding. Thus, a business where the investment did not exceed Rs 1 crore and the turnover was within Rs 5 crore, qualified as a micro enterprise, where the investment was within Rs 10 crore and the turnover was within Rs 15 crore was considered a small enterprise. Whereas where investment was less than Rs 50 crore and turnover of Rs 250 crore were considered as medium enterprises. Second, the manufacturing and service industries came to be treated as equals. Third, the central government brought retail and wholesale traders as well as urban street vendors under the purview of MSMEs in 2021.
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The policy which also acted as a booster shot was the policy to make it mandatory for all Central Public Sector Undertakings (CPSUs) to buy 25 per cent of their requirements from MSMEs. In 2021-22, CPSUs procured goods and services worth Rs 24,363 crore from 117,583 MSEs. Procurement from SC/ST enterprises increased from 0.78 per cent in 2021-22 to 0.52 per cent in 2020-21, and driven by women to 0.80 per cent from 0.45 per cent in the same period.
With the Russo-Ukraine war and global inflation worsening their situation, the sector is expected to get a further impetus through controls on raw material prices, easing of NPA norms and direct financial support instead of loans.