The Indian government has announced a relief fund economic package under the scheme Atmanirbhar Bharat Abhiyan to Revive the Economy amid the COVID-19 Pandemic.
It has been a declaration of the massive thrust of 2-3 lakh crore, a Collateral Free Assistance or credit guarantee to the micro, small and medium enterprises (MSMEs).
Merely providing a stimulus package in the current scenario may not be effective. There should be adequate reforms to be carried out to solve the pressing problems of this sector and utilize their potential.
MSMEs are small investment enterprises that contribute significantly to the Indian Economy. These businesses are engaged in the production, processing of goods and commodities to generate income.
These Enterprises are based on the investment in plant and machinery and in providing or rendering of services. This sector provides employment opportunities and contributes to the development of India’s rural and backward areas.
The government has imposed a lockdown in various states to tackle COVID-19 Pandemic. The most badly hit among the other sectors of the Indian economy is MSMEs.
However, the growth of the MSMEs sector has been marred due to the various challenges also before the current crisis.
Significance Of MSMEs Sector In Indian Economy
● The MSMEs sector holds a significant position in the economy. After the agriculture sector, MSMEs is the second largest sector that employs the major section of the population.
● At present, there are about 56 million enterprises in various Industries that help in employing nearby about 124 million people in India.
● Not to ignore, above this calculation nearly 14 % are women that are employed in the Enterprises and 60% of the close employed in rural areas.
● Overall, the MSMEs sector contributes to 8% of India’s GDP and 45% of its contribution to Merchandise Exports.
For all these reasons the MSMEs sector of the Indian economy is also known as the Growth Engine Of The Nation.
However, the outbreak of the COVID-19 Pandemic and subsequent stoppage of Economic Activities have created a panic situation around the nation. Many businesses are facing the risk of extinction from the market.
Except for the agriculture and essential items activities, all the order economic activity related to the non-essential category of the business remain to be halted due to the extended lockdown situation.
The majority of the Indian population in the MSMEs sector that relies on day-to-day business is the most affected and vulnerable because of the lockdown and decrease in demand.
According to the research that was conducted by the All Indian Manufacture Organisation (AIMO) across 5000 MSMEs reveal that 70% of the businesses were not able to pay out the salaries.
This was due to the halt of economic activity and it is estimated that a huge number of MSMEs are at a point of permanent closure.
Support From the RBI to the MSMEs
The notification issued by the Reserve Bank of India has made clear that the banks are exempted from maintaining the cash reserve ratio for the loans from January 1st to October 31, 2021.
This facility is for the first time to the MSME borrowers so that the Bank could grant loans to this sector.
Not only this, the RBI has allowed all the Non-Banking Financial Companies(NBFC) to promote incremental funding and provide a credit lifeline to financially hit the MSMEs sector.
By these measures, the NBFCs will help to battle liquidity from the largest Financial Institutions and make the funds readily available for MSMEs.
MSMEs sector produces a variety of products and commodities for the domestic as well as the international trade market.
This sector has helped a lot in the industrialization of the rural areas with a low capital cost industry as compared to the large Industries.
Thus, MSMEs have widely contributed to the socio-economic development of the Indian economy.
Reasons for Allowing the Credit Guarantees to MSMEs Sector
One of the indicators is the decline of the establishment registers was more than 30,800 with the Employees Provident Fund Organisation.
Also, it was reported that during the same period the enrolled number of workers has also decreased by more than 1.8 million.
These numbers are quite vital and to be taken seriously that shows the current situation of the workers’ employment and also the performance of MSMEs sector.
● The banks are assured by the fact that their loan will be paid by the government as the credit guarantee of the government in case the MSME fails to repay the loan amount.
● The banks with their new rules are not in a way to lend any new credit or loan to the borrowers. This is because the various efforts by the bank to pump the liquidity have not been so successful in the past.
● The MSMEs sector has come to a halt in economic activity due to the imposition of the lockdown. So the banks are not ready for any new loan as it will only add to their books as a non-performing asset.
● This also implies that the bank was not ready to lend the money to the credit-starved section of the economy even though it had sufficient stock of credit or money.
For all the above reasons the Indian Government has come with a solution as a credit guarantee to solve the present issue and help the MSMEs sector of the Indian economy.
Not only this, various measures and schemes have been laid down by the Central Government and Ministry of MSMEs to bring large numbers of micro and small unit industries under this sector.
These will surely benefit the MSMEs with their schemes and concessions.
Hence at last with the help of strong Government support and resilience shown by MSMEs, the sector has shown its maximum potential to overcome and revive the Indian economy after the COVID -19 Pandemic.
The various measures of the government have made it possible for the businesses to balance competition faced by the startups, increased the network of beneficiaries, and laid down more transparency.
The government support to the sector ensures the lift-off from the runway, searching the new waves of advancement and well-designed reforms would surely help the Enterprises to soar higher.