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What do the government’s new economic reform hold for MSMEs?

By Finserv MARKETS - Dec 19,2019
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India’s GDP growth rate has been slowing down for five consecutive quarters now. This is only the second time since December 1999 that the pace of GDP growth has fallen for five straight quarters. Between March 2018 and June 2019, the economy has lost 3.1 percentage points in terms of GDP growth. According to the Central Statistics Office (CSO), GDP figures for the quarter ending June 2019, at 5%, the growth has been the lowest since March 2013.

Only a few months after her maiden budget speech, Finance Minister Nirmala Sitharaman, recently chaired a meeting with heads of public sector banks to review the liquidity in the market and the transmission of lower benchmark interest rates to borrowers.

After reviewing the economic lull in the country, the government has now announced a major incentive for the Micro, Small & Medium Enterprises (MSMEs).


The government announced that it won’t declare any stressed loan account of MSMEs as a non-performing asset (NPA) till March 2020 and will work on recasting their debt. She also mentioned in her speech that several MSMEs want one-time settlement of their outstanding dues, which should be settled expeditiously by the banks.

The Reserve Bank has in the past already issued a similar circular that provides for stressed loan accounts of MSMEs to not be declared non-performing assets. However, according to the government, the circular wasn’t being followed by the banks but now should be ensured.

The idea behind this major boost to the MSMEs is to ensure maximum credit disbursal during this festive season. Moreover, to spur economic activity, the government has announced that open house public meetings involving banks, NBFCs and retail buyers will be held in two tranches. The first will be held between October 3 and 7 in 200 districts, while the remaining 200 will be covered October 11 onwards.

In a statement issued earlier, the finance ministry said at the end of August 2019, the overall credit growth in the banking sector stood at 10.1 percent on year-on-year basis. This is in parallel with record recoveries and cleaning of bank balance-sheets showing better quality of asset book.

Bank loan disbursements to the MSME sector stood at Rs 11.83 lakh crore in 2018-19, as against Rs 8.53 lakh crore done in 2017-18. Banks have also continued to support housing sector by disbursing Rs 2.19 lakh crore for home loans in 2018-19 as against Rs 1.81 lakh crore in the preceding year.

As per the official estimates, there are about 63.05 million micro industries, 0.33 million small, and about 5,000 medium enterprises in the country. India’s MSME base is the largest in the world after China. The sector provides a wide range of services and is engaged in the manufacturing of over 6,000 products spanning across all segments, right from those with cutting-edge technology to traditional goods.

Today, around 12 crore citizens have found employment opportunity across MSMEs (second only to agriculture). Moreover, this sector also employs the highest number of women workers. Many of the micro and small-scale units come under the informal sector due to their size and low capital base.

However, given the government of India’s latest ‘Make in India’ push, along with a significant jump in FDI flows, the Indian MSMEs sector is poised for rapid growth and integration with major global value chains. Moreover, the increasing accessibility of financial services through NBFCs has further fuelled the growth trajectory of MSMEs. For instance, today, you could avail a plethora of loans, like business loans, to lay down the foundation of your enterprise or to scale it within a matter of minutes. Bajaj Finserv Business Loans, available on Finserv MARKETS, offer convenient financing options at the tip of your fingertips along with minimal documentation. On Finserv MARKETS, you can get quick business finance up to Rs. 30 lakh to small businesses at low interest rates. Whether your business has needs for short-term loans, intermediate-term loans or long-term loans, these loans are the perfect financing solution for your small-scale business.

Read more on MSME Databank

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