“I wonder why the MSME Outreach Program, which provides a 2% interest subsidy for additional loans to MSMEs, also ended and was never extended afterwards. I think that and the interest subsidy for additional loans are incentives for the industry to invest more, develop more capacity, purchase new technologies, etc.,” said Rajiv Chawla, Founder and Chairman, IamSMEofIndia, at the Rising Bharat Summit from ET Online.
The government announced the 2% interest subsidy scheme in November 2018 and it existed until March 31, 2021. It was launched to provide interest relief to MSMEs on their outstanding fresh or additional term loans or on their working capital to the extent of Rs 1 crore.
“Maybe the government is running out of budget, maybe they think the programs have outlived the public service for some reason. I think the MSME sector is really lacking in those good plans,” Chawla said. , adding that MSMEs need more support now than before.
In addition to reconsidering such schemes, the government should also look beyond production-linked incentive (PLI) type schemes, said Anil Bhardwaj, secretary general of the Federation of Micro, Small and Medium Enterprises of India (FISME). “For the MSME sector to grow, PLI-style schemes would not be much help as they require very large expenditure to operate,” he said.
How do previously launched MSME programs work?
In the 2022 budget, the government announced measures such as the Emergency Credit Line Guarantee Scheme (ECLGS) for Covid-affected MSMEs. Another facility was launched on August 21, 2020 to restructure loans without downgrading the current asset classification, to help MSMEs cope with post-pandemic recovery. However, the program was discontinued on September 30, 2021. Commenting on the performance of previously launched MSME programs and whether they had the expected results, Madan Padaki, Co-Founder and CEO, Global Alliance for Mass Entrepreneurship (GAME), said said, “I think some of the programs, especially the post-Covid ECLGS program, have kind of made sure that credit is available for pandemic-affected MSMEs in times of emergency. I think we’ve seen a lot of levies from this program and we’ve really seen MSMEs benefit from these programs. So I think some of those things worked to some extent. But what I take away from all these programs is that even at the Center and State level, there is no lack of programs on paper. What really matters is how it reaches the ground – what awareness is created and how it is implemented on the ground,” he added.
Challenges for MSMEs
Commenting on the challenges faced by small businesses, FISME’s Bharadwaj said that while a few segments of the MSME sector have recovered, others are still struggling. “Some exporters or suppliers, especially those serving Europe, have been affected. Consumer spending, as you know, is affected due to high inflation there, and industrial sectors have been affected due of the energy shortage amid the ongoing war between Russia and Ukraine.
Many product categories that were historically reserved for small industries, and now referred to as MSMEs, suffer from technology gaps. “So a massive technology upgrade is needed,” he added.