Budget 2024: $5 Trillion Economy Requires Empowering Indian MSMEs & SMEs

The Micro, Small, and Medium Enterprises (MSMEs) and Small and Medium Enterprises (SMEs) continue to play a pivotal role in bolstering the backbone of the Indian economy. The jobs they generate not only drive economic growth but also contribute significantly to national prosperity. A testament to their impact is the creation of 120 million jobs across diverse industries in India, spanning IT services, technology, marketing, creative services, education, and beyond. The widespread reach of this sector is evident in the increasing registrations for the Udhyam program initiated by the government.

It is noteworthy that the influence of the MSME and SME sector is not confined to metro cities; it extends beyond Tier 2 and 3 cities and even rural India. As India aspires to achieve a targeted growth of a $5 trillion financial economy, a robust and flourishing MSME sector is imperative. The government has recognized this and implemented various schemes and initiatives to promote the growth of these enterprises, including measures to enhance accessibility to finances.

Government’s Push to Drive MSME Growth

The government remains steadfast in its commitment to bolstering the growth of MSMEs. Initiatives such as the Udyam portal, introduced in July 2020, have streamlined and simplified the registration process, with over 2.01 crore enterprises benefiting from this seamless, paperless platform. Another instrumental program, the Mudra Yojana, initiated in 2015, has been pivotal in providing non-collateral loans up to INR 10 lakh. This effort has empowered small entrepreneurs, resulting in a noteworthy disbursement of INR 4,56,537.98 crore across 6,23,10,598 loans.

Additionally, the Zero Defect, Zero Effect (Zed) scheme, launched in 2016, has certified 7,327 MSMEs, endorsing sustainable manufacturing practices. These initiatives underscore the government's unwavering dedication to strengthening the MSME sector and fostering economic growth and prosperity on a national scale.

In a recent development, the introduction of the Samadhan portal adds another layer of support to the government's efforts. Geared towards providing protection and resolving issues, the Samadhan portal serves as a strategic tool for addressing challenges that may arise in the implementation of various MSME initiatives. This proactive approach reflects the government's commitment to ensuring the success and resilience of the MSME sector, creating a more secure and conducive environment for entrepreneurial endeavours.

Tackling Payment Challenges in the MSME Sector

However, amidst the progress, a significant concern looms in the form of payments—both domestic and cross-border. Recent estimates suggest that approximately INR 10 lakh crore is entangled in delayed payments, with an even larger sum locked in bad debts. While the government mandates a 45-day payment cycle for MSMEs, the absence of stringent regulations results in non-compliance, posing a challenge in ensuring the implementation of the mandated payment cycle and the timely settlement of outstanding amounts.

Establishing mechanisms such as negative ratings for clients or smaller courts to proactively address payment disputes can alleviate this issue. This would empower MSMEs with improved access to working capital, enabling them to focus on business growth rather than grappling with overdue payments. Negative ratings have the potential to make other associates aware of the financial payment history of clients, adding a layer of transparency and accountability to the business relationships within the MSME sector.

Another critical aspect hindering the potential of MSMEs in the global market is the cumbersome process of collecting foreign payments. Hidden charges, banking limitations, and lengthy processing times act as formidable obstacles. To foster increased export of goods and services, there is a need to streamline the collection of foreign payments, attracting more foreign funds into the Indian economy. Addressing issues like exchange and transfer charges, limited currency options, and the slow pace of international payments will be instrumental in removing these barriers.

Transformative Forces for Inclusive Prosperity of MSMEs

Technology stands out as a potential game-changer for MSMEs, provided the government proactively establishes a robust framework and forward-thinking policies. Initiatives like negative ratings for payment defaulters and smaller dispute resolution bodies can significantly ease financial challenges. Leveraging technology to address issues in foreign payments further expedites processes.

In addition to the pivotal role of the robust MSME sector in India's economic growth, it's crucial to highlight the significant contribution of women entrepreneurs. Supporting women-led enterprises fosters diversity and aligns with efforts to promote gender inclusivity and economic empowerment. Recognizing and nurturing the potential of women entrepreneurs in MSMEs strengthens the overall fabric of India's economic landscape.

Realizing a $5 trillion economy requires nurturing MSMEs, with a special emphasis on empowering women entrepreneurs. While applauding government initiatives, there's a need for deeper efforts to ensure equitable opportunities and support for women-led enterprises. Simultaneously, leveraging technology becomes pivotal in resolving payment challenges and fostering an environment where every MSME, especially those led by women, contributes significantly to India's economic ascent.

Authored by Chaitali Pishay Roy, Founder – CPR Global