MSMEs Face Regulation and Funding Hurdles: Economic Survey

For Medium, Small and Micro Enterprises (MSMEs), while bridging the credit gap remains a crucial element, the focus also needs to be on deregulation, enhancing physical and digital connectivity, and putting in place an export strategy that enables MSMEs to broaden their market exposure and scale up. This was stated by Economic Survey 2023-24, tabled by Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman in Parliament today.

Noting that the MSME sector occupies the centrestage in India’s economic story, the Survey adds the sector continues to face extensive regulation and compliance requirements and faces significant bottlenecks with access to affordable and timely funding being one of the core concerns. It says Licensing, Inspection, and Compliance requirements that MSMEs have to deal with, imposed particularly by sub-national governments, hold them back from growing to their potential and being job creators of substance. The Survey says threshold-based concessions and exemptions create the unintended effect of incentivising enterprises to cap their sizes below the thresholds and therefore, calls that threshold-based incentives must have sunset clauses.

Calling for deregulation as a vital policy contribution, the Survey says revival or creation of institutional mechanisms for dialogue with states on required policy changes is essential. It adds that much of the action has to happen at the level of sub-national (state and local) governments. MSME entrepreneurs also need training in critical areas of enterprise management, such as human resource management, financial management, and technology. The productivity of owner-entrepreneurs unleashed by such training will be immense, says the survey.

The Survey mentions that  MSMEs are the backbone of the Indian economy, contributing approximately 30 per cent of the country’s GDP, 45 per cent of manufacturing output, and providing employment to 11 crore of India’s population. It says the Government of India has been proactive in boosting the growth of the MSME sector, through initiatives such as the allocation of 5 lakh crore Emergency Credit Line Guarantee Scheme for businesses, including MSMEs; equity infusion of 50,000 crore through the MSME Self-Reliant India Fund; New revised criteria for the classification of MSMEs; rollout of Raising and Accelerating MSME Performance programme with an outlay of 6,000 crores over 5 years; Launch of Udyam Assist Platform on 11.01.2023 to bring the Informal Micro Enterprises under the formal ambit for availing the benefit under Priority Sector Lending. The Survey says these initiatives have been formulated keeping in mind the key challenges the sector faces, primarily for access to timely and affordable credit.