Govt’s renewed MSME push attempts to make up for demonetisation woes

Small businesses seem to have hit pay dirt. From easy loans, tax incentives, lower interest outgo to export push, the Modi government seems to be going overboard to support micro, small, and medium enterprises (MMEs). Over the past three months, the 19.9 million MSMEs have become a pampered lot after having faced some trying moments during the demonetisation of high value currency on November 8, 2016. Late realisation notwithstanding, the government seems to have thrown its weight behind millions of such businesses. Perhaps, this is one way of expressing its gratitude towards the MSMEs that stood by its side in its campaign against corruption and black money, sucking out cash and shifting to electronic transactions big time. Also, the government seem to be veering around the view that its the small businesses that can generate low-cost jobs in large scale across rural, semi-urban areas and urban markets.

Otherwise, how does one explain the government’s decision to forego GST revenues worth Rs 5,000 crore after it doubled the exemption limit to Rs 40 lakh turnover per annum? By bringing in entities with a turnover up to Rs 1.5 crore under the GST’s composite scheme, the government has limited tax outgo to a nominal one percent for larger number of SMEs. At a time when there was serious revenue shortfall from GST, providing such relief is a big gamble that finance minister Arun Jaitley has taken ahead of his last budget to be presented on February 1. Only the other day, the RBI had chipped in with one-time restructuring of MSMEs loans up to Rs 25 crore. This has lent a relief to small businesses that have borrowed from banks and NBFCs up to Rs 25 crore. These loans would turn ‘standard’ from their present classification of ‘bad or sticky’ giving these companies time to generate revenues and make repayments. Restructuring MSMEs loans was one of the contentious issues in the rift between Jaitley and the then RBI governor Urjit Patel. Only after Shakti Kanta Das succeeded as RBI governor that MSMEs got this relief. This will not only provide relief to small businesses but also provide big push to GDP growth.

Loans restructuring was preceded by a massive MSMEs package announced by PM Modi in November 2018. Modi had facilitated loans up to Rs 1 crore within an hour. This announcement again did not go well with the RBI given that about a dozen state-run banks were reconciling their balance sheets and provided for bad loans already on their books. Even banks going through prompt corrective action (PCA) were asked to stagger out re-doing their finances. Two per cent interest subvention for MSMEs and pushing up interest subsidy on exports by small businesses to 5 per cent were part of the package. While the government has over-stretched itself to support small businesses, it is now for the MSMEs to brace up and perform.