Measures announced by the government to give relief to micro, small and medium enterprises (MSME) to thwart the impact of the Covid-19 pandemic on their businesses are inadequate, a parliamentary panel has concluded.
A standing committee report (Impact of Covid-19 Pandemic on MSME Sector and Mitigation Strategy Adopted to Counter It) was submitted by the panel in Rajya Sabha on Tuesday. It further recommends the government immediately introduce a larger economic package, which is aimed at bolstering demand, investment, export and employment generation to help the economy, including MSMEs, recover from the aftermath of the devastating pandemic.
“The Committee observes that the stimulus package announced by the Government, for the economic revival from the Pandemic hit economy, is inadequate. The measures adopted were more of loan offering and long-term measures, instead of improving the cash flow to generate demand as immediate relief,” the report states.
The Committee in the 49-page report has touched upon wide-ranging issues related to the MSME sector in the country. It has made recommendations on liquidity support, and the overall economic package that spurs demand as well as raw material shortages faced by the small business enterprises in the country.
Indian economy is driven by the MSME sector that contributes more than 30 per cent of the GDP. There are no official estimates, however, industry associations claim that the small businesses were the hardest hit during the pandemic and lockdown.
“MSMEs run their businesses on a very thin margin and limited resources. The Pandemic has severely disrupted their cash inflows and their payments got delayed. Due to a sharp fall in business, most of the MSMEs faced an acute cash crunch and needed immediate liquidity to cope with the unprecedented circumstance. It is estimated that almost 25 per cent of MSME loans could slip into default,” the report presented by the committee noted.
No study to assess the damage
Shockingly, during the hearing by the panel, the ministry of MSME had informed that ‘no intensive study was conducted by it to ascertain the actual losses suffered by the sector. Noting this, the parliamentary panel has recommended a detailed study to assess the actual losses suffered by the MSME sector.
No takers for Udyam
As part of various stimulus measures announced in the Aatmnirbhar Package in May 2020 to mitigate the effects of the Covid-19 situation, the government changed the definition of MSMEs. With this, the government notified a separate registration window called Udyam Registration. However, the panel finds that Udyam Portal has been counterproductive and ‘it appears the units are better off without registration with the Udyam’.
As per the annual report of the Ministry of MSME, there is 6.34 crore registered MSME enterprises in the country. Of which, 6.30 core are micro, 3.31 lacs are small and only five thousand are medium enterprises. However, on Udyam only 14.10 lac enterprises have registered.
“It appears that MSMEs feel better off without registration as the compliance costs would be much greater than the benefits that would accrue post-registration. Also, without registration, they find it convenient to escape the income tax net and compliance structure. Accordingly, the Committee recommends that the Government may provide incentives to attract more MSMEs to register themselves on the Udyam Portal,” the report said.
Payments not received on time
On its part, the Government of India has issued direction to all Central Public Sector Enterprises (CPSE) to release the payment, due to the MSME within 45 days. However, despite good progress, the directions are not met. As per data submitted to the panel – as of November 2020, the total amount outstanding was Rs 33,323.92 crore, of which Rs 6960.71 crore is not paid.
“The direction of payments within 45 days has yielded some positive results. However, it is observed that many PSUs/CPSEs have still not released payments. Though there is a provision for a one per cent penalty on delayed payments, in practice, the penalty clause is seldom invoked, which encourages the defaulting entities to flout the prescribed timeline. The Committee recommends that strict provisions against delayed payments need to be put in place to ensure timely release of payments by CPSE,” the committee recommends.