Parliamentary Panel for MSME Finances (UPSC Current Affairs)

Relevance: GS2 - Government Policies and Interventions, GS3 - Mobilisation of Resources, Industrial Growth

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Why in the news?

• The Parliamentary Standing Committee on Finance recently proposed a number of steps to improve credit flow to Micro, Small and Medium Enterprises (MSMEs) such as credit cards similar to Kisan credit cards to ensure small firms have regular access to credit.
• MSME’s Despite being Considered as a Backbone of the Indian Economy (accounts for about 30-40% of GDP and 48% of total exports) face major problems related to finances.

Why is it critical to enhancing credit flow to the MSME sector?

The small size of the majority of firms

• More than 80% of these MSMEs fall into the micro and small business categories, and they rely on unofficial credit sources.
• The government's emergency line of credit for stressed assets, equity participation, and fund-of-funds operations have little value or impact to the sector.

Lack of Integrated Data

• The banks have been hesitant to lend to the MSME sector because of the lack of reliable data about enterprises operating in this sector.
• The last data was collected by the National Sample Survey Office (NSSO) by the Ministry of Statistics and Programme Implementation.
• However, it is not consistent with the changed Definitions of the MSME Sector as per year 2020.

Lack of Formalization

• According to government data, less than 40% of the 6.34 crore MSMEs borrow from the formal financial system, highlighting the need to formalize the lending ecosystem for MSMEs.
• The loan gap in the MSME sector is projected to be between Rs. 20 and Rs. 25 lakh crore.

Delayed Payments

• Payment delays have resulted in a recurrent working capital shortage.
• For micro, small, and medium businesses, the average number of days it takes to collect cash for a credit sale is 176, 112, and 81 days, respectively.

What are the suggestions of the Parliamentary Panel for MSME Finances?

Vyapar Credit Card

• The panel also suggested that SIDBI create a 'Vyapar' credit card scheme for MSMEs, similar to the Kisan Credit Card (KCC) scheme of the National Bank for Agriculture and Rural Development (NABARD).
• It will bring crores of MSMEs, including street vendors and kirana stores, into the formal financial system.
• The credit card can be used to obtain low-interest short-term working capital loans, and it can also be used to obtain collateral-free loans, such as the Rs 1 lakh collateral-free facility accessible to KCC cardholders.

Udyam Portal

• Developing the Udyam portal into a one-stop central data repository for the MSME sector by connecting it to other databases such as CIBIL data, utility bill data, and so on.
• The Government e-Marketplace (GeM), Income Tax, GST, and Trade Receivables Discounting System (TReDS) sites are all currently linked to the portal.
• To improve skilling and recruitment for MSMEs, Budget 2022 announced combining the Udyam portal with e-Shram, National Career Service (NCS), and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM).

'Unified Payments Interface (UPI) for MSME Lending

Creating a 'Unified Payments Interface (UPI) for MSME Lending' allowing all MSMEs in the formal sector to access small-ticket working capital loans in a mobile-based, contactless, paperless, and low-cost manner.

MSMEs Census

A survey/census of MSMEs in line with the changed definition, be conducted at the earliest so as to estimate the actual number of MSMEs in the country along with realistic assessments of their credit requirements.

Significance of MSME Sector for Indian Economy

• Micro, Small, and Medium Enterprises make a significant contribution to the country's socio-economic development.
• MSME is known as the "Backbone of the Indian Economy" since it produces about 30% to 40% of GDP, 48% of total exports, creates jobs in rural and urban regions, and supports large firms as a supplier and vendor.
• MSMEs provide roughly 6.11 percent of manufacturing GDP and 24.63 percent of GDP from service activities, as well as 33.4 percent of India's manufacturing output, with around 63.4 million units spread across the country.
• MSMEs help in the development of an inclusive and sustainable society in numerous ways, including the production of low-cost non-farm livelihoods, balanced regional development, gender and social balance, environmentally sustainable development, and so on.
• Khadi and Village industries, for example, have minimal per capita investment requirements and employ a huge number of women in rural areas.
• As India's economy grows to $5 trillion, the MSME ministry has set a goal of increasing its contribution to GDP to 50% by 2025.

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