Uttar Pradesh mandates 25% procurement from MSMEs by govt depts and PSUs

To promote the micro, small and medium enterprises (MSME) sector, Uttar Pradesh has mandated 25 per cent procurement by the state government departments and public sector undertakings (PSU) from the state MSMEs.

Besides, the state government has fixed sub-quota of 3 per cent and 4 per cent for compulsory procurement from the MSME units owned by women and scheduled caste/scheduled tribe (SC/ST) entrepreneurs respectively.

Under the new UP micro and small enterprises procurement policy 2020, which was approved by the state cabinet meeting chaired by chief minister Yogi Adityanath here on Friday evening, the government has also mandated 5 per cent procurement from ‘green enterprises’, which are operated on eco-friendly standards and do not harm environment.

Through a notification issued on November 9, 2018, the central government had augmented the mandatory procurement from the MSMEs from 20 per cent to 25 per cent. Taking the cue, the Adityanath government had also decided to espouse the central guidelines to boost the state MSME sector, which contributes 60 per cent of the state’s annual industrial output and is the second largest source of employment after agriculture.

At present, UP is home to nearly 9 million MSMEs. The new procurement policy is expected to provide a major boost to the sector, which has been weathering tough competition and general economic slowdown in the recent times. The new policy has replaced the erstwhile UP MSME procurement policy 2014.

According to a former UP chief secretary, the state government procurement totals more than 20% of its annual budget. Since, the UP Annual Budget 2020-21 is to the tune of more than Rs 5 trillion, the procurement by the various departments and state corporations would be worth at least Rs 1 trillion, with the proposed quota of 25 per cent for the local MSMEs translating into direct purchase of about Rs 25,000 crore.

At numerous occasions, Adityanath has termed the MSME sector as the backbone of the state’s industrial growth, and said the government could act as a catalyst by promoting the MSME clusters.

He said the sector offered unlimited opportunities for creating maximum employment opportunities with minimum capital investment and land requirements, since a majority of these units were operated out of the premises of the entrepreneurs.

In 2018, the state had launched its flagship one district, once product (ODOP) scheme to boost the MSME sector by promoting the traditional and indigenous industries of the state.

In 2018-19, the state had attained industrial exports worth Rs 1.14 trillion compared to Rs 89,000 crore in 2017-18, thus growing by nearly 28 per cent. More than 80 per cent of these exports had emerged from the MSME sector. To further promote exports, the government now plans to establish export hubs in each of the 75 districts in UP.

UP posts 100% growth in MSME sector; project count hits 14 mn: Export panel

Uttar Pradesh is poised to hit the micro, small and medium enterprises (MSME) count of 14 million by 2021-22, up more than 50 per cent from the figure of 9 million in 2017-18.

At present, the MSME sector contributes 65 per cent of the state’s annual industrial output and is the second biggest employer after agriculture.

According to the data released by the MSME export promotion council (MSME EPC) in Lucknow on Monday, UP posted 100 per cent growth in the MSME sector between 2015-16 and 2017-18 from about 4.4 million units to 9 million.

“The state of UP has been on an average adding 1.5 million new MSME units every year since 2015-16, and providing jobs to more than 16.5 million people, including almost 2.8 million women,” MSME EPC chairman D S Rawat said here.

Further, he underlined if the growth momentum continued, the sector would touch the MSME count of 14 million in the next 2 years, providing direct employment to about 30 million people in UP.

Meanwhile, the MSME panel has proposed to partner the state government in drawing up a five-year roadmap, envisaging upping the total number of MSMEs in UP to almost 30 million by 2025 and providing direct and indirect employment for 100 million and 120 million people respectively.

Rawat further said the MSME EPC has also suggested the Yogi Adityanath government to institute a dedicated financing agency to ease the funding issues for the beleaguered sector.

“There is an urgent need to create an MSME Development Finance Corporation in UP, since the existing funding agencies such as UP Finance Corporation (UPFC) are lying defunct,” he told Business Standard.

Referring to UP’s flagship one district, one product (ODOP) scheme, which is aimed at promoting the traditional and indigenous industries, Rawat said the government should integrate the programme with the MSME policy for greater benefits of scale and leverage.

“At present, the domestic MSME sector is facing the challenges of easy credit and marketing support to compete in the market, which is also flooded with cheap imported goods,” he added.

To help the sector, the MSME EPC has further announced a 4-day summit and trade fair on ‘Agro-Rural Entrepreneurship: Unleashing Opportunities for Youth, Women and Artisans’ on February 13-16, 2020 in Lucknow, followed by ‘SC-ST Entrepreneurship and Women Empowerment’ in Eastern UP in May 2020.

MSME focus for Yes Bank; looks to reduce turnaround time to one day

Going aggressive on MSME (micro, small and medium enterprise lending), Yes Bank is looking to reduce loan turnaround time to one day in the segment.

The bank is looking to disburse about Rs 500 crore in the next one year through its newly-launched lending program - the Smart Edge for MSMEs. Under this, loans will be disbursed on the basis of two sets of statements, GST returns and bank statements. Small enterprises with loan requirement between Rs 1-3 crore will be initially covered under the programme, said Rajan Pental, Senior Group President and Group Head-Branch and Retail Banking, Yes Bank.

The bank expects MSME to account for nearly 22 per cent of the overall lending in the next one year, from about 15 per cent at present.

The turnaround time of the loan approval and disbursement would reduce to a day from about three to four days earlier, and the collateral cover requirement will also reduce to around 85 per cent from about 100-120 per cent earlier, said Pental.

The bank expects digital platforms to play a significant role in the MSME customer acquisitions going forward. From about three per cent at present, the bank expects digital platforms to account for 10 per cent of MSME loan portfolio in the next one year.

In 2018, the government had introduced a '59 minute' loan scheme, which promised loans of up to Rs 1 crore from public sector banks (PSBs) through an online lending marketplace. The scheme too uses GST return and bank statements for a quick turnaround of loans.

According to Pental, Yes Bank's scheme would apply to MSMEs with larger credit needs, between Rs one and three crore, and one of the first of its kind.

Expert panel suggests collateral-free loans of Rs 20 lakh to MSMEs

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.