Technology integration can open rural micro, small, and medium-sized enterprises (MSMEs) to the reach of working with new-era digital lenders, making it easier to access credit at lower rates and at a faster pace, said Shachindra Nath, Vice President. and Managing Director, U GRO Capital in an interview with BW Businessworld. Edited excerpts:
Can we say that Indian MSMEs are recovering from the Covid-19 pandemic?
Indian entrepreneurship of the highest degree has been demonstrated by small businesses in India. The hardest hit sector has shown resilience and rebounded with a vengeance. This translates to a 15-17% increase in revenue forecasts for the MSME sector in FY22. And the recovery is happening across all sectors with construction, commodities, exports and consumption , leading this trend.
Growth is also estimated at 11% to 13% for the current fiscal year. This has been made possible by outstanding government support in terms of credit and benefits, combined with large-scale digitalization and an easing of Covid restrictions, one can be sure that the recovery will be quite fast for the MSME sector. .
What is the path MSMEs should take to help the recovery?
To survive and grow, MSMEs need to be part of a digital data-driven economy – “Digital India” is the power to thwart competition from big players and also integrate MSMEs into mainstream economic activities. Adoption of GST, digital banking and payments would help MSME facilities get credit in a timely manner, which would help them grow. Transparency is key to the success of MSMEs in India.
Do you think the government is doing enough to help small businesses?
Among all other sectors, MSMEs are now the most favored by the government. Several programs such as two versions of Emergency Line of Credit Guarantee Scheme (ECLGS) and the Aatmanirbhar Bharat Abhiyaan have been launched by the government to support the promotion and development as well as improving the competitiveness of the sector .
Finding a more nuanced way of defining MSMEs and considering account turnover as well as currency depreciation has helped free MSMEs further, allowing them to continue growing without compromising the level of benefits available .
In addition, the government has worked proactively to ensure MSMEs have convenient access to finance and credit. Announcing and implementing policies and programs that facilitate access to credit, such as the credit guarantee fund program and the credit-linked capital grant program, as well as production-linked incentives (PLI), have also helped MSMEs to do business and grow.
Additionally, with digital lenders entering the scenario with deep approaches and technology, and complemented by encouragement from the regulator, MSMEs now have access to cheaper credit that is often tailored to their needs and has helped bring them on board. to the banked population. However, to maintain this rate of growth, digitalization must be a top priority and the government must encourage all relevant stakeholders.
What do you think of MSMEs in rural India? What do they need?
For MSMEs in rural India, the government can start with tax incentives to promote exports, as well as mobilize capital and credit to support their growth. DFIs like SIDBI and certain actions and/or grants can be a good starting point, in terms of providing rural MSMEs with much needed capital for their growth and to launch their Capex cycle.
There is also a growing need to increase credit penetration. Empowering NBFCs and Fintechs and promoting the usefulness of models such as co-lending can go a long way to ensuring that rural MSMEs do not fail due to a lack of funds.
Technology integration can open up the field for rural MSMEs to work with new-era digital lenders, making it easier to access credit at lower rates and at a faster pace. Increased efforts to formalize the rural MSME sector have become crucial to enable the rapid recovery of the sector and its eventual growth.
Union MSME Minister Narayan Rane has called for coordinated efforts by all stakeholders to address the problem of late payments. How can we solve this problem?
The problem of late payments causes MSMEs to lose nearly 10.7 lakh crore or 5.9% of India’s Gross Value Added (GVA). The problem is therefore undoubtedly significant. There are many things that can be done to fix this problem.
First, we need to fuel the public conversation around this issue by publishing data related to the issue in the annual economic survey, as well as leveraging platforms like Mann ki Baat to discuss the issue and raise awareness about this subject.
Adding a late payment indicator to the Ease of Doing Business 2.0 framework is also a way to ensure the issue is brought to everyone’s attention. To reduce the burden on the state, online dispute resolution forums can be set up to review issues related to late payments.
Banks and data providers can also work together to make borrowing difficult for buyers and create a formula for late payments that can help recognize late buyers with a bad payment record. Making it mandatory for miniratnas, maharatnas and navratnas to make payments through TReDS, a bill discounting mechanism, can also help keep track of those defaulters.
How can MSMEs contribute to the $5 trillion economy?
Given the significant contribution of the MSME sector of 30% to nominal GDP currently, it is crucial to realize the role of the sector in achieving the economy’s $5 trillion mark. To achieve this goal, it is essential to achieve 10% growth for the MSME sector.
And, since MSMEs form a significant part of the Indian economy, their promotion and support can also help boost employment, thereby increasing consumers’ purchasing power. Therefore, it makes perfect sense for governments and financial institutions to support the sector and contribute to its growth.
Technology is going to be the key to unlocking the rapid growth of the MSME sector, as well as innovative and more efficient credit products, which are of immense importance.
The emergence of nuanced financial products by highly capable financial institutions and new era fintechs has boosted the sector tremendously with easy access to credit and this support can only be expected to become more prominent.
In addition, government support in the form of credit and financial aid, skills development and training, infrastructure support and technological upgrading would facilitate the sustainable growth of the MSME sector. It is essential that various stakeholders play their part in supporting the rapid and sustainable growth of the MSME sector to help the economy reach the $5 trillion mark.