New MSME Policy Draft is Focusing on 5 Critical Aspects to Uplift

MSMEs are at the centre stage of policymaking. Since the Pandemic era started, the top leadership of Modi Government is aggressively working on creating a support mechanism for reviving the MSME sector. Be it the Aatmanirbhart Bharat plan or Fund of Funds several schemes are created to boost this sector and that's what it is needed.

National Policy for MSMEs is getting prepared and the draft of the policy is issued and now the ministry is inviting suggestions from MSME sector. SMEStreet Foundation is planning to send the recommendations before the deadline of Feb 28th 2022.

SMEStreet Foundation is working on creating set of recommendations and suggestions for the National MSME Policy by Feb 27th.

Please write to Faiz@SMEStreet.in with recommendations on the National MSME Policy.

For your reference here are the key highlights of the Draft of National MSME Policy.

India doesn’t have an MSME policy till date, however, efforts have been underway since around 2015 when the One Member Committee under the chairmanship of former Cabinet Secretary Dr Prabhat Kumar was constituted by the Ministry of MSME to help in formulating the policy. The committee had submitted its recommendations in January 2017.

A draft consultation paper for the MSME policy was released before 2017 as well. With the new draft floated last week by the Office of the Development Commissioner (DC-MSME) seeking feedback and suggestions by February 28, 2021, the government has highlighted eight “specific action areas” to “build a vibrant ecosystem for the rapid growth of the MSME sector.” These areas included:

Intergovernmental Role and Responsibility across national and state governments and district level authorities. Among the measures suggested for the central government, the draft sought developing Standard Operating Procedures (SOP) for registration of MSMEs and to review the framework for regulating and funding arrangements covering the Reserve Bank of India, SIDBI, other public and private lenders in line with incentives to promote competitive enterprises. For state governments, the draft opined developing State Policy on MSME in line with the national policy and measures for encouraging enterprises to register as MSMEs.

Legislation/Regulatory Framework for MSMEs in India: To accelerate the resolution of cases filed against delayed payments, the draft policy suggested the creation of more facilitation councils, preferably one at every district instead of only one council existing at state levels currently. Moreover, Under the Insolvency and Bankruptcy Code, 2016, MSME dues should be given priority over all other unsecured payments after settling dues of employees when a company goes into liquidation or approaches National Company Law Tribunal (NCLT).

The draft also suggested reimagining MSMED Act as a comprehensive and holistic “MSME Code” to bring clarity regarding the regulatory norms pertaining to the entry, continuance, or exit of MSMEs, documentation and declaration procedures under several regulatory statutes.

“District level FCs would be certainly helpful because otherwise, people have to travel to state councils to make their representations. Emphasis should also be on making councils effective in giving quick implementable decisions. Not many state FCs are active in taking decisions in reasonable time although there has been improvement in the last two years. Decision taken by FCs must be within a given timeframe and implementable without MSMEs having to further pursue their cases through the courts to get their payments,” Ashok Saigal, MD, Frontier Technologies and Co-Chairman, CII National MSME Council told Financial Express Online.

Comments from the office of DC-MSME were not immediately available for this story.

Access to Finance/ Financial assistance for MSMEs: To improve MSMEs’ access to finance, the draft suggested uniformity in various loan application formats; developing customised products for the financing needs based on expected cash flows; using substitute information like a bank statement, GST data, standardized scorecards to evaluate the creditworthiness of MSMEs; switching from the balance sheet or turnover based working capital financing to cash flow based, or supply chain/ cluster-based financing; and disposing loan applications with in-principal approvals within 7-10 days.

“It is important to bring MSMEs to the fore. The policy has listed down setting up a marketing development fund as well. This is a vital step towards boosting MSMEs’ visibility. An increase in advertisements and marketing banners, more outlets set up across cities, etc., will lead to more awareness regarding MSMEs. Also, an important step would be connecting them with the right businesses,” Meghna Suryakumar, Founder & CEO at credit risk assessment company Crediwatch told Financial Express Online.

Technology Upgradation: The draft recommended setting up a “focused institution” to encourage technology development and research & development activities in the MSME sector. It also suggested creating Centres of Excellence with specialized staff to periodically study issues faced by MSMEs and build capacity through SOPs, guidelines, manuals, and checklists. The draft policy added that MSME Toom Rooms should be set up at district levels across the country.

Knowledge Management: To make MSME-related data more cohesive and enable data analytics for government, banks and other MSME stakeholders to make more informed decisions, the draft suggested creating two sets of comprehensive databases in the central government with different verticals. First, All MSME-linked offices are to be on one network, which includes state-level and local agencies as well. “This may deal with the statuary and legal requirements like UAM registration, PAN application, various clearances NOCs, etc. Second, a cloud-based database with respect to credit, payments, marketing, procurement, insurance, technologies, training, etc., which is accessible to all. “Presently India Enterprise Portal aims to cover some of this, but it is a work in progress.”

Ease of Doing Business: For issues concerning cross-border trade for MSMEs, the draft suggested linking clusters and other significant MSME centres with the transport infrastructure across the country with further linkage to export terminals. Also, a designated official at the major ports should look into the export/import problems of MSMEs. In terms of enforcing contracts, affordable legal help should be provided at the district level for MSMEs for non-judicial works such as drafting of the contracts, advice for techno-legal formalities, etc. Moreover, the draft opined a state-level helpline or national level chat service for advising on contractual issues.

Skill Development: The draft policy suggested establishing a Cell in the District Industries Centre to gather information from various training entities about the training programmes to be conducted by them in the following six months and communicate with enterprises about the kind of skill training required for their employees. “This Cell would also undertake awareness activities, especially in view of the fact that a large number of micro enterprises are in the informal sector,” the draft said.

“There has always been a challenge in matching the supply and demand of skills due to lack of proper linkage between the enterprises and training centres. The suggested nodal centres in the draft policy are expected to support MSMEs with the right skilled manpower. However, if the government can set up these cells at every cluster, it would be more beneficial as there is always a high density of MSMEs in clusters,” Murali Kasinath, Chief Operating Officer, Skills India Foundation told Financial Express Online.

Exit Code: In order to provide MSME entrepreneurs with a smooth exit from their businesses, the draft suggested aligning small and medium enterprises with a Fast Track Corporate Insolvency Resolution Process under the provision of Insolvency and Bankruptcy Code, 2016. For the micro enterprises, it recommended the arbitration route at the district level to be speedier and more convenient, with a provision to escalate the case under certain conditions.