Know the Woes of MSME Industry

India is the home of renowned companies like Reliance Industries Ltd, Infosys and Flipkart. Although, small firms and individual entrepreneurs act as its pillars over the years. The MSME industry primarily governs these small-scale businesses. 

Due to the epidemic, the entire MSME industry is suffering at present. There are various external and internal reasons that have affected growth of this sector. These factors have together sickened the sector and reversed its growth rate exponentially. Here is the list of external as well as internal reasons: 

External Reasons 

• Not launching government subsidy 
• Unscheduled power cuts 
•  Variations in the Indian government and Reserve Bank of India's policy more specifically following the epidemic 
• Dearth of labour 

Internal Factors 

• Not preparing the project report adequately and verifying the assumptions from time-to-time
• Not preparing financial report adequately such as debtor and creditor information, and stock statement
• Not aware about various schemes released by the government 
• Not employing digital technology or under usage of the available digital technology 
• Not using simple management tool such as ageing statement, and kaizan etc
• Workers rapport and unprofessional selection of important individuals

Reserve Bank of India (RBI), central government and various state governments were aware of MSME’s condition since 1975. Periodically, the cited three bodies will join hands together to reduce sufferings of MSMEs in the country. 

Recently, the three bodies have come together to uphold units that come under SMA0, SMA1, SMA2, and NPA through various instruments like transforming working capital into a working capital loan, funded interest term loan, and moratorium on both the working capital, term loan, and machinery term loan according to the unit’s viability. 

Although, in reality, banks working at their branch level defer decision making for months, thereby, transforming viable units into non-viable. Also, transferring such units to their stress management division that cremate most of the MSME units.

Important Information for MSME Units

SBI, which is a leader for financing MSMEs, has given various powers to many controlling offices. Although, business owners are not aware of these changes and get into situations where banks take advantage of this.

In the last budget speech, the Finance Minister, Nirmala Sitharaman proclaimed a scheme made for subordinate debt. Following this, the MSME ministry had rolled out general guidelines for subordinate debt on 22 June.

The emerging problems in the MSME sector can be resolved tactically. In the book “The unexplored goldmine-opportunity in the revival of sick MSME”, the author had suggested equity type of investment along with hand holding. He has also mentioned that there are three exit routes, which are as follows: 

1. Promoter buyback equity according to the predetermined valuation
2. Replacing with the investor 
3. Listing the revived units in the SME stock exchange

With this, annual return will be of 30 per cent to 40 per cent considering on different cases.

Apart from this, there are some other suggestions that can help improve the condition of the MSME industry. The suggestions are here as follows:

1. According to Desai, private limited and limited companies are currently permitted to carry forward the losses which allows Merger and Acquisition as an added advantage. In India, 93 per cent of MSME are properties and partnership companies. The Indian government should permit all MSME units having valid UDYOGADHAR number to carry forward the losses, thus, making productive capacity of weak or sick units for early merger and acquisition. 
2. As per our tradition, MSME entrepreneurs pivot on friends and family to raise money that is required for the unit. This fund can be given 30 per cent tax relief to the investors in the unit, who are registered under UDYOGADHAR number. Thus, making the unit more attractive to kith and kin. 
3. Some sort of mutual fund or similar AIF structure should be made for the MSME sector, where investors get 30 per cent tax relief. This will help the units in early stage of weakness and growth stage as well.