Schemes after Schemes but Where Are the Booming MSMEs?
The Indian economy is on a roll. Growing consistently post-pandemic, it drew the attention of the United Nations, World Bank, International Monetary Fund (IMF), global rating agencies, NITI Aayog and Reserve Bank of India (RBI) alike and they estimate that India would reach 6.5% growth by March 2024. Indian finance minister Nirmala Sitharaman, exuding confidence over the winning streak in the coming general elections, proposed to reduce the fiscal deficit from 5.8 in the current fiscal year to 5.1 in 2024-25. She has also announced that supporting micro, small, and medium enterprises (MSMEs) to grow globally is an 'important policy priority' for the government. 
 
“Economic growth cannot sustain, and structural transformation cannot be completed if one of the sectors becomes a weak link in the chain and that necessarily demands corrective interventions. For example, transformation in the agricultural sector requires institutional reforms, rural infrastructure, supportive policies such that markets and governments complement each other. There is hardly any need to re-emphasise the role of manufacturing in creating employment directly and indirectly, particularly in developing countries that are endowed with a huge labour force. No country has sustained high income growth without industrialising itself and manufacturing and services sector should not be seen in dichotomies, rather increasing inter-dependence and synergies seem to be evolving between these sectors.” (The Policy Brief has been prepared by Dr Santosh Kumar Das, ISID, based on the discussions at the ISID-UNU-WIDER Policy Roundtable on Industrialisation, Inequalities, and Inclusive Development: Lessons from Global Experiences, held on 24 February 2023.)
 
Although the ministry of micro, small, and medium enterprises (MSMEs), along with nearly 32 other Union ministries, announced over 240 schemes and programmes, it is the small, and medium enterprises (SMEs) that took the cake and the micro enterprises and the smaller among the small had a Nelson’s Eye. Further, there has been no frequent evaluation of the myriad of those schemes, save those that get reviewed routinely at the state-level bankers’ committees. 
 
Make in India, Startup India, Stand-up India, and Digital India started off with a big bang. Almost a decade has passed. Yet, I am searching for the manufacturing enterprises in the micro and small categories that are recognised engines of growth and employment generation, with a law MSME Development Act 2006 in support of them! Annual reports of the prime minister’s MUDRA (micro urban development refinance agency) from 2015-2023 gave me little clue. Data seems to cheat me.
 
MUDRA, the Stamp of the PM 
 
The cumulative outreach of the number of micro and small enterprises financed in Shishu (Rs50,000 and below), Kishore (Rs50,001-Rs5 lakh), and Tarun (Rs5 lakh to Rs10 lakh) was 416mn (million) with a credit support of Rs22.89 lakh crore. This would mean an average of Rs5.5 lakh per beneficiary under the scheme. Of these, 68.62% were women borrowers and 50.80% were reported as scheduled caste and scheduled tribe borrowers. Nearly 50% of the total credit could be seen during the past four years, 2020-23, Rs11 lakh crore.
 
10 states achieved 52.69%: Uttar Pradesh, Bihar, Tamil Nadu, Karnataka, West Bengal, Maharashtra, Madhya Pradesh, Rajasthan, and Odisha. Northeast (seven states), Jammu & Kashmir, Goa, seem to be eclipsed. Ten districts in the country shared barely 7.5%. Region-wise disbursements during the past two years revealed that the western region and southern region shared credit disbursement of 40.79% and 37.69%, respectively. 
 
Among the three categories of Shishu, Kishore, and Tarun, while Shishu had 69.13% share, Kishore had 45% share in credit disbursement; 28.75% of Kishore category could get 45% of the credit, while 69.3% of Shishu borrowers received a credit share of 31%. Some 21.1% of Tarun borrowers shared 24% of the total disbursements. This is despite the blanket guarantee for all the schemes and when banks had refinance facility from MUDRA. This raises the question: Are the banks proactive in those states and cared more for the small category of borrowers as they are less risky or they required little due diligence and, hence, a mere sponsorship of the borrower was enough to lend? In none of the annual reports of PMMY (Pradhan Mantri MUDRA Yojana) do we find the data relating to manufacturing and services separately and yet the organisation claims state of the art technology! Information is hidden. However, the claim is that so many enterprises have created employment opportunities!
 
SIDBI, Full of Sound
 
I tried to search for some answers in the Small Industries Development Bank of India (SIDBI) annual report 2023 data. Apart from getting no clue, my curiosity increased. The www.udyogmitra.in portal has onboarded 17,000 plus, handholding agencies and more than 500 credit counsellors and 145 primary lending agencies. What did they do? Out of 32,000 handholding requests, 23,000 (72%) were responded were responded to primarily for setting up the enterprise and not for running them efficiently. Stand up India Clinics, Champion Agencies, National Credit Guarantee Trust Company integration under the name and style, Ease of Access to Credit Kit, with no scheme-wise achievement data and Micro Enterprise Promotion Programme in 126 districts in 26 states setting up just 42,500 rural enterprises during the past three years are all make-believe efforts. 
 
With so much of facilitation going around, why do banks still find a substantial share of non-performing MSMEs? This requires a detailed inquiry and evaluation of all the above schemes. One has to look at these figures from the point of view of macro level data of nearly eight crore micro, small and medium enterprises of which 98% is still seen as belonging to the micro category.
  
SIDBI also reported the implementation of the following subsidy schemes: 1. Capital Linked Subsidy Scheme, 2. Technology Upgradation Fund Schemes for Textiles and Food Processing (TUFS and FPTUFS), 3. Integrated Development of Leather Sector Scheme, 4. Technology and Quality Upgradation Scheme. Cumulatively Rs2,637 crore was disbursed to 29,489 micro and small manufacturing enterprises. On average, per enterprise, Rs89.4 lakh is the subsidy outgo. This clearly indicates that notwithstanding the slight fallacy of averages, the recipients of subsidy are certainly the small and medium enterprises and miniscule percentage of micro enterprises as 98% of the total MSMEs are micro enterprises. Even data on exports from the MSMEs does not give the bifurcation as several export firms are aggregators of goods and services and not just manufacturers, per se. This is, however, the only reliable data on manufacturing one can get from the data map. 
 
RBI, the Regulator Said It All
 
The master directions of the RBI (www.rbi.org.in) specify impressive targets: 
 
(i) 20% year-on-year growth in credit to micro and small enterprises,
 
(ii) 10% annual growth in the number of accounts of micro enterprises (why the number of enterprises is not mentioned instead of the number of accounts is still a mystery),
 
(iii) 60% of the total lending  to MSEs as of the corresponding quarter of the previous year to micro enterprises,
 
(iv) Extend standby credit of 10% in case of term loans,
 
(v) Additional working capital to meet emerging needs of the MSEs,
 
(vi) Mid-term review of working capital needs where banks are convinced that changes in demand patterns of MSE borrowers require increasing their existing credit limits every year based on the actual sales of the previous year.
 
In yet another direction and a very important one to follow by the lending institutions in this regard, RBI directs that they follow timelines for credit decisions and the four ‘C’s: customer focus, cost control, cross-sell, and contain risk. If they follow all these directions, there should be very little scope for non-performing assets (NPAs). Unfortunately, the directions have more breaches than bridges. Growth of credit should be measured in terms of disbursements and not outstanding amounts that include charges for inspections, interest, and commission for other services. This direction is yet to be issued by RBI.
 
RBI data, both in their annual reports and the monthly bulletins, reveal only the number of accounts of MSEs in manufacturing and services sectors separately and not enterprise-wise data. As a regulator, RBI cannot micromanage the banks and financial institutions. But it can certainly direct them to furnish enterprise numbers along with account numbers, as all these institutions claim that they are digitally savvy and follow artificial intelligence. 
 
“Traditionally, East Asian-style industrial policies target larger productive manufacturers most likely to become exporters. Future “industrial policies" will have to focus instead mostly on smaller services firms, most of which are unlikely to be exporters. This new generation of industrial policies targeting lower-productivity segments can both enhance the livelihoods of the urban poor and boost productivity in the labour-absorbing sectors of the economy.”
 
We are a nation at the cusp of change and target to be a developed nation by 2047. We need reliable data on manufacturing to plan effectively for growth, employment, and exports. The time for wait is long over and we need to speed up our data processing to a level of reliability and transparency. 
 
(The writer is an economist, risk management specialist and international SME expert. The views are personal.)
Comments
amodi
2 months ago
In my opinion the worst thing in our country and the mindset of the bureaucrats and the leaders is that they devise schemes of first extracting from the people and when they begin to starve and reach the death-bed start giving them intermittant doles which is further just like slow poison.
The government has only but one function i.e. to save the people and help them prosper through progress, not alms, and the judiciary has only one function i.e. to save the people from the government, which I think are grossly missing.
What leadership is that which goes around clamouring all twentyfour hours of providing ' itne crore ki saugat di" as if the same is being provided out of their own personal earnings. I am of the firm opinion that if the government stops its extortionist policies, no one in the country would beg for anything from them.
A small example, first collect exorbitant income tax in the name of TDS/TCS and then refund the same after inordinate delays and harassment by which time the business goes deep down in a financial constraint.
Can cite innumerable such instances but for, and, to whom.
vikzs
2 months ago
A friend of mine went to China to set up a small electronics manufacturing unit there since all components required were available in China. When he evinced interest in the venture he was directed to approach the regional industrial authority with his proposal within a few weeks. He was shortly thereafter invited to come down to discuss details. Upon arrival in the provincial area he was met by a team of the local industrial development authority who in the span of two days route mapped a finance plan, land allocation for plant, permissions etc etc. He was introduced to local banks, taken on site visits to find a suitable location, introduced to approved construction firms, pointed towards suppliers for plant and machinery and in the span 2 weeks his entire project was at tipping point. All that remained was for him to oliw in his contribution to the funding of the project. What surprised him most was the enthusiasm and proactiveness of all concerned.
Maybe our lot need to visit China and figure how how it’s supposed to be really done instead of spooling out scheme after scheme that remain visible only on paper and thereafter retire into eternal somnambulance….
girpanset
2 months ago
As far as I have seen and perceived what ever the data of micro & small enterprises will never get backing of the banks or state or Central institutions who are supposed to take care of them,being a small time entrepreneur from past 20 years without any financial blemish never got a backing from the nationalized bank ,still I survive and continue with my own steam ,what ever the support they have given is only with a collateral.I am just putting this is just to clear the air that no government wants small business to grow mine is not only the case I have seen several people better than me windup as they had no financial support or ilking to it.Rest what ever yhe data is seen its only fabricated eyewash.Hope I don't hurt anyone by telling the truth.
joydeepmba
Replied to girpanset comment 2 months ago
It's absolutely correct, First if all its very much required let the banker or financial institutions show the proactiveness in there deeds.

It seems MSME are always deprived and when approach for facilities not getting it easily, I beleive let the govt should make more and mone MSMe Falicitation centre, friendly atmosphere between FI and MSME, than only result may obtain.
pallavoorsubramanian
2 months ago
Most of the schemes are only sound and fury. When it comes to ground level, the story is same. Every agency seems totally lost in promoting the scheme and cater only to medium enterprises. I deal with SIDBI regularly. Out of ten proposals, hardly one or two gets through . Reason given, They are not innovative and is risky to lend!
yerramr
2 months ago
Union Government and its institutions perhaps think that the states should develop their MSME Policies and take care of the micro and small enterprise segment in manufacturing growth!!
gopalakrishnan.tv
2 months ago
Data integrity has not improved is a fact and governance and accountability have not improved is also a fact . However, poverty which we witnessed in the early decades has not been visible these days is also true though inequality has been widening without being bothered by any one . There are some positive changes taking place but unfortunately the changes do not get captured to make visible impact in the employment data , income distribution figures and wealth creators and money makers . Digitalisation has increased circulation of money along with physical money circulation . The need to enhance governance and data collection cannot be ignored and at the same time the role of SME sector as a support system to both the massive mfg and service segments needs to be intensified with vigour to sustain the envisaged fast growth of the economy . Time for the All regulators to be extra vigilant in data collection and effective and meaningful governance of the entire financial system and the mfg and services sector . Knee jerk reaction .
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