Reform Credit for MSMEs

India’s growth story may remain incomplete if it fails to unblock credit inflow to lakhs of micro, small and medium enterprises (MSMEs), which can easily be termed the backbone of the country’s economy. This sector accounts for 30 per cent of the country’s GDP and provides employment to 110 million people. Quite sadly, this important sector is now plagued with various problems that threaten its very existence. To keep the country’s economic progress on track, the need of the hour is to reform the sector with a view to making it investor-friendly. Among the issues that should be tackled immediately, credit inflow tops the list, as without proper financial backing the sector is neither able to achieve the requisite rate of production nor able to infuse new life by investing in research and development.

It is difficult to understand why the MSME sector in the country has to face financial hurdles despite making such a significant contribution to its economic journey. It may sound strange, but the fact remains that even today nationalised banks have not shown keenness to extend loan facilities to MSMEs. Various requirements like collateral guarantees and two sets of KYC documents, among others, regularly obstruct banks from becoming MSME-friendly. On many occasions, demands were raised to remove these obstacles so that MSMEs never face a paucity of funds, but very little has been done so far, even though big business houses have received many sops favouring their ventures during the same time. It is time for us to realise that while big industries are essential for a nation’s progress, the MSME sector should not be neglected, as no industry can survive without its presence.

This is why affordable credit is a must for the MSME sector to ensure inclusive growth, as India’s real strength lies in its diversity, and neglecting any sector or region will only fuel imbalances that may be termed discriminatory. It is time to ease banking regulations for the MSME sector so that it can easily avail loans. Otherwise, by taking loans from non-banking financial companies (NBFCs), the sector invites its doom due to higher interest rates than those of traditional banks. If nationalised banks are not in a position to lend to this sector, the government must bring an appropriate law to bar NBFCs from raising interest rates beyond a certain limit. In this context, while the government should be praised for bringing in new labour laws to protect the working class, it should also play a proactive role in arranging funds for the MSME sector. Otherwise, labour reforms will virtually come to nothing. We often hear about the importance of double-digit GDP growth in strengthening the economy to shift from being a developing nation to a developed one, for which India has set a 2047 deadline. In its quest to fulfil this dream, India must make an all-out effort to create a robust MSME sector by removing all hindrances from its path.