The pandemic induced stress has no doubt reduced. However, the challenges remain as the Parliament Standing Committee Report on strengthening credit flows to the MSME sector has noted the credit gap in the MSME sector is estimated to be around Rs.20-25 lakh crore.
The importance of micro, small and medium enterprises (MSME) has been spoken of often. But its critical contribution to the economy is nevertheless underestimated. There is no other explanation for the much-vaulted Emergency Credit Line Guarantee Scheme (ECLGS), which expired on 31 March, 2023, not being given an extension. The Scheme appears to have been given a quiet burial and it was certainly unfortunate.
It may be recalled that the emergency credit scheme had been formulated in May 2020 as a response to the situation caused by COVID-19 which had impacted the MSME sector adversely. The Scheme was conceptualised to provide relief to the sector by incentivising Member Lending Institutions (MLIs) to provide additional credit of up to Rs 3 lakh crore to the sector at low cost. It was hoped that this would enable MSMEs to meet their operational liabilities and restart their businesses.
The salient features of the Scheme were:
The Scheme was applicable to all loans sanctioned under GECL during the period from the date of announcement of the Scheme to 31.10.2020, or till an amount of Rs. 3 lakh crore is sanctioned under the GECL, whichever was earlier. This was later enhanced to Rs 4.5 lakh crore and the Scheme extended up to March 2023 with an expanded guarantee cover of Rs.5 lakh crore. The additional guarantee of Rs 50,000 crore being earmarked exclusively for the hospitality and related enterprises.
The launch was followed soon after with changes in the definitions of what constitutes MSME .The old definitions had only an investment in plant & machinery or equipment criteria. The new definitions removed the distinction between manufacturing and services and more critically also introduced the criteria of turnover.
The ECLGS was from all accounts a success. The Ministry of MSME assigned a study to Small Industries Development Bank of India (SIDBI) to assess the impact of change in MSME classification and the Scheme itself. The study reveals that around 65 percent of the MSMEs surveyed, had availed the benefits of the small enterprises-focused emergency credit guarantee scheme.
State Bank of India (SBI) which came out with a research report highlighted that almost 13.5 lakh MSME accounts were saved due to ECLGS scheme (including restructured), of which about 93.7 percent of the accounts were in Micro and Small category.
The Government had in a reply to the Parliament on 12 February 2023 extolled the success of the Scheme. The Minister stated that as per the information received from National Credit Guarantee Trustee Company Limited (NCGTC), the agency operating the scheme, as on 31.1.2023, guarantees amounting to Rs 3.61 lakh crore have been issued under ECLGS, benefiting 1.19 crore borrowers. It was mentioned that around 12 percent of the outstanding MSME credit has been saved from slipping into non-performing asset (NPA) classification due to emergency credit line scheme.
Despite this, it would appear that the Scheme has ended. This is strange because the FM had as late as in her Budget Speech 2023-24 spoken about revamping the credit guarantee scheme for MSMEs. The revamped scheme was to take effect from 1 st April 2023 through an infusion of Rs.9000 crore in the corpus.
As per the NSS 73 rd Round Survey ( 2015-16) on MSME there are about 6.34 crore (64 million) MSME’s in India. ( incidentally China has 140 million MSME’s).MSME’s in India contribute around 30 percent to the country’s s GDP. 45 % to its manufacturing output and 48 percent to exports. It provides employment to an estimated 11 crore people.
The pandemic induced stress has no doubt reduced. However the challenges remain as the Parliament Standing Committee Report on strengthening credit flows to the MSME sector has noted the credit gap in the MSME sector is estimated to be around Rs 20-25 lakh crore.
Thus the Scheme is still necessary and relevant. It needs to be extended / revived -or a new scheme on similar lines launched .It would most certainly help the critical MSME sector who need all the hand holding possible. And it could also help the Government, heading as we are towards general elections in 2024.
—The author is chairman (retired) of the Central Board of Indirect Taxes & Customs. Views expressed herein are personal.
Read his previous articles here
(Edited by : C H Unnikrishnan)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!