The expert committee on Micro, Small and Medium Enterprise (MSME) sector has recommended doubling collateral-free loans to the segment, including for Pradhan Mantri Mudra Yojayana (PMMY) and Self-Help Group based entities, to Rs 20 lakh.
The committee, headed by former Securities Exchange Board of India (SEBI) chairman UK Sinha, also advocated creating a distressed fund of Rs 5,000 crore to protect the sector from distress caused by external circumstances. It also said instead of making MSMEs register with various authorities, permanent account number (PAN) should be made sufficient for most of the activities. The private sector should be incentivised by tax breaks or bonds to help develop MSMEs build their skill sets, as the private sector's contribution to this segment is miniscule, but the research and development facilities they possess can be of enormous value. The government must develop the skill sets of the segment further, particularly in product development, technology adoption, and marketing strategy.
While the MSMED Act has served well, it is time that the focus should be on market facilitation and promoting ease of doing business for the sector.
“Accordingly, the legislation may be reimagined as a comprehensive and holistic MSME Code having a provision for sunset on a plethora of complex laws scattered all over the legislative framework. Under this new law, the territorial jurisdiction and arbitrary inspection system may be substituted with a policy based and transparent inspection system,” the report suggested.
The law should be able to address the major challenges, related to physical infrastructure bottlenecks, absence of formalisation, technology adoption, capacity building, backward and forward linkages, lack of access to credit, risk capital, the perennial problem of delayed payments, etc.
“These problems are hindering the development of a conducive business environment for the expansion of the sector.”
According to the committee, a thriving entrepreneurial eco-system is a policy imperative for realizing the potential of the sector and ensuring sustainable growth of the sector.
Among scores of other recommendations, the committee suggested that to eliminate the delayed payments problems faced by MSMEs, which they also cannot take up legally because of low bargaining power, the MSMED Act should be amended requiring all MSMEs to mandatorily upload all their invoices above an amount, to an Information Utility. There should be a monitoring authority too.
“While this mechanism will entail automatic display of the names of the defaulting buyers, it will also act as moral suasion on the buyers to release payment to MSE suppliers,” the report said.
In this regard, allowing more non-banking financial companies (NBFC) in the factoring business, apart from only five now, would lead to faster clearance of bills.
This is a good move, said Raman Aggarwal, chairman of Finance Industry Development Council (FIDC), as that would allow the NBFCs to really come into assisting the MSME sector in a big way. Currently, not many NBFCs can take part in the trade discounting platform, even as the platform is completely secure and transparent.
Most of the states have only one MSE Facilitation Council (MSEFC), which is not adequate to cater to delayed payment cases arising in the entire state. Hence, the commitee suggested setting up of more such councils, particularly in larger states.
For India, a turnover based definition is best suited, considering the entities are now available on GST platform and therefore has some degree of formalisation.
The committee recommended beefing up the government's procurement portal for MSMEs to be a “full-fledged market place enabling MSE sellers to procure raw-material as well.”
The committee was against multiple registrations with various entities, which is cumbersome and leads duplication of efforts.
“It is, therefore, recommended that the government should make PAN as a Unique Enterprise Identifier (UEI) and the same should be used for various purposes like procurement, availing government-sponsored benefits, etc.”
SIDBI, which is the nodal agency for developing MSMEs, should take a more proactive role in developing the segment, and can become a market maker for their debt instruments, later on, the committee recommended.
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