What is your take on the stimulus? Would you say the government stimulus is adequate?
As a business segment that is one of the worst hit, the various measures for MSMEs stand to benefit not just countless businesses that have been affected by the pandemic, but also the Indian economy as a whole. The Indian government’s proactive stimulus has been a driving factor to ensure a smooth transition into the post-COVID world, especially with the rolling out of collateral free ECLGS loans, to institute a healthy path to recovery.
However, though the stimulus was a sizeable quantum and directed especially towards small and micro enterprises, it was in the form of additional loans and not direct subsidies or cash support. So, entities with better security cover could easily get the additional funding. However, where the a major part of the security package is mostly depreciable in nature (viz., plant & machinery, building, etc.), one may see some challenges in realisation going forward. Some alternatives for the stimulus could have been in the form of direct cash support, rationalization of taxes, levies, license fees, etc. Another factor one can weigh in on, is that a large part of MSMEs contribute to exports of the country and hence, more sops on that front would also help spearhead quicker revival. The PLI scheme has been of great help to boost production and has also attracted significant investments especially in export oriented units.
What according to you are the requisites on the road to recovery and sustainment as India unlocks?
For the gradual recovery of the Indian economy, and particularly the MSME segment and tourism sector, higher capital spending by the government towards infrastructure creation, de-bottlenecking the supply chain and logistics, rationalization of certain tax structures, etc. would add impetus to the overall economy. Also, support from regulators with respect to asset quality classification and regulatory forbearance will provide integral systemic support to small and medium sized players. Furthermore, spending on strengthening digital infrastructure and a higher allocation to health & wellbeing, which constitutes new age offerings such as wellness tourism and medical tourism, etc., will help the country secure a new wave of international interest post the radical slowdown. Incentivizing domestic travels shall help in quick revival to sectors like aviation, hospitality and other ancillary businesses. What is also essential for manufacturing linked MSMEs is the stabilization of the labour market (especially with regard to the unorganized sector), as well as controlling inflation to reduce input costs.
Juxtaposing government stimulus offered by other countries where some have received soft loans, limited conditionality financial aid, write offs in some cases, etc in India we have stricter conditions, do you think there exists hesitation on the part of the Indian government? If yes, why?
Post the pandemic, governments all across the world announced about $14 trillion of stimulus packages in CY 2020, which accounts for about 13.5% of the world GDP. Emphasis was placed on protecting citizens in small businesses from losing employment and to safeguard national interests and jobs. The United States, for example rolled out schemes to ensure the same, such as the ‘Employee Retention Credit’, directed for small businesses till December 2021, which allows businesses to offset their current payroll tax liabilities by up to $7,000 per employee per quarter. This credit of up to $28,000 per employee for 2021 has been made accessible for all suffering businesses by the government. However, the situation in India is different as we need to be vigilant about our current account deficit and inflation. Our external debt to GDP (although low), increased marginally to 21.1% as of march 2021 end from 20.6% in march 2020. Further, inflation in developed economies going up due to the accommodative stance of the Central Banks across globe. This might lead to reversal of monetary policy stance of those Central Banks leading to rise in interest rates and consequent flight of capital from developing economies to safer havens. Hence, the Indian government’s measures have been carefully mapped out to safeguard the interests of our broader economy, contain runaway inflation and avoid sudden shocks.
What can be done better/to help small and emerging businesses in India unlock to quicker fiscal recovery?
India has approximately 6.3 Crore MSMEs, out of which only 30 lakhs were registered on the Udyam Portal as of May 16, 2021. Thus, a large portion of the companies on this segment are out of purview of formal systems. We need to first encourage those outside the system to get included in it. Keeping the same in mind, streamlining on-ground credit flow in this segment is the need of the hour. Some additional practices that will go in a long way in instituting fiscal recovery for the small and emerging businesses including hospitality sector are rationalizing license fee, GST waiver/reduction for a year, Income Tax breaks or benefits (on previous year profit) etc., as well as the roll of out schemes that encouraging consumer spending. Furthermore, data availability to lenders for entities in MSME segment should be emphasized to help them take credit calls in such entities which in turn shall help them get access to cheaper credit.
Most small businesses remain outside the formal economy, which impacts their ability to get credit. Can corporates help in the inclusion of the underbelly of unorganized businesses into the mainstream of the economy?
A large portion of small and micro businesses remains outside the formal economy, leading to unavailability of cheap credit for them. Majority of MSME companies are feeders to large corporates which have a good credit standing. To provide some relief to otherwise stretched working capital cycle of these smaller businesses, the RBI in 2015-16 had allowed 3 entities, namely M1Xchange, Receivables Exchange of India Ltd (RXIL) a joint venture of NSE & SIDBI and A.TReDS Ltd., a joint venture between Axis Bank and mjunction. to roll out MSME bill discounting exchanges. These exchanges were helpful in some reduction of cost for MSME borrowers and also provided a pathway for availability of credit from the formal system.
Additionally, bigger corporates can surely play a pivotal role in the inclusion of the unorganized small businesses in the mainstream economy. For example, e-commerce giants like Amazon, Flipkart, etc. have already started with facilities like funding of their sellers, etc. to benefit unorganized businesses and similar initiatives, if taken by other large manufacturing companies will go a long way in boosting the sector. Another measure, to propagate inclusion is to bring the MSME companies under GST/tax net so that the multiple existing benefits for the domain can reach them.