Indian Economy
ReStart Programme for MSMEs
- 23 May 2020
- 5 min read
Why in News
Recently the Chief Minister of Andhra Pradesh has launched a new programme ‘ReStart’ to support the Micro, Small and Medium Enterprise (MSME) sector in the State.
Key Points
- The Package: The government will spend ₹1,100 crore on revival of the sector which is expected to benefit 98,000 units that provide employment to more than 10 lakh people.
- Special Fund: A special fund of ₹200 crore to provide input capital loan to the firms at low interest rates.
- Waiving Off Power Charges: The minimum power demand charges of the MSMEs for the months of April, May and June, amounting to ₹188 crore to be waived off.
- Mandatory Purchasing by Government: The government will purchase around 360 products from the MSMEs, and payments towards it would be cleared in 45 days.
- Of the total purchases, almost 25% would be done from the micro and small enterprises, 4% from the SC/ST community enterprises, and 3% from women entrepreneurs.
- Capacity Development: Skills required by the industries (MSMEs) to be imparted through Skill Development Colleges.
Importance of MSMEs for Indian Economy
- Employment: It is the second largest employment generating sector after agriculture. It provides employment to around 120 million persons in India.
- Contribution to GDP: With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities.
- The MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India becomes a $5 trillion economy.
- Exports: It contributes around 45% of the overall exports from India.
- Inclusive growth: MSMEs promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society.
- For example: Khadi and Village industries require low per capita investment and employ a large number of women in rural areas.
- Financial inclusion: Small industries and retail businesses in tier-II and tier-III cities create opportunities for people to use banking services and products.
- Promote innovation: It provides opportunity for budding entrepreneurs to build creative products boosting business competition and fuels growth.
Problems Faced by MSMEs in India
- Too Small to get Registered: Being out of the formal network, these MSMEs do not have to maintain accounts, pay taxes or adhere to regulatory norms etc., which brings down their costs. But in a time of crisis, it also constrains a government’s ability to help them.
- Lack of Financing: According to a 2018 report by the International Finance Corporation (part of the World Bank), the formal banking system supplies less than one-third (or about Rs 11 lakh crore) of the MSME credit need that it can potentially fund.
- Delays in Payments to MSMEs: MSMEs face delays in payment from their buyers which also includes the government. It also faces delays in GST refunds.
Revised definition for MSME
- Under the new MSME Classification MSMEs will now be defined in a composite manner, taking both investments as well as turnover into account.
- Micro: Any firm with investment up to Rs 1 crore and turnover under Rs 5 crore.
- Small: Any firm with investment up to Rs 10 crore and turnover upto Rs 50 crore.
- Medium: Any firm with investment up to Rs 20 crore and turnover under Rs 100 crore.
Way Forward
- Along with the Atma Nirbhar Bharat Abhiyan package of the Central Government, the ReStart Programme will further provide much needed relief to the people engaged in this sector. Other States may also follow in the true spirit of cooperative and competitive federalism in order to support the backbone of Indian Economy.
- Further, the government can provide tax relief, give swifter refunds, and provide liquidity to rural India to boost demand for MSME products.
