Why Its Not a End Game for MSMEs

The MSMEs still do not have access to formal credit. Other challenges like improvement in productivity and better access to the market
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

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  • Jun 11,2021
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  • 8 Mins Read

The Micro, Small and Medium Enterprises upholds the Indian economy. The sector seems to be strong but partially a blend of unorganised and organised businesses. The second wave of COVID has severely hit the MSME sector anew. According to The Economic Times’ report, the MSME sector contributes 28.8 per cent to India's GDP, continuing to bear the brunt of the COVID-19 pandemic and its subsequent wave of lockdown.

The MSMEs still do not have access to formal credit. Other challenges like improvement in productivity and better access to the market. According to a report by ACCA, the Indian MSME sector faces a credit deficit of $240 billion. Due to poor demand, market uncertainties, and the high-risk profile of the sector, banks are cautious about lending to them. 

The report states that all MSMEs are in a dire need of financial support similar to bigger companies. The MSMEs mainly depend on proceeds from customers, particularly big corporate buyers owing to their miniscule balance sheets. Deferred payments by large companies will restrain cash flows of small companies, in turn, leading to liquidity crunch as well as financial struggles for MSMEs. 

It was unveiled that MSMES today do not maintain formal business documents, tax returns and account statements that banks demand to check credit risks. New startups face even more difficulty to get capital as they do not have any credit history as well as documents that are required in the credit process. 

The cited media report stated that It is a fact that multiple reforms have come to the sector such as earlier MSMEs with turnover of INR 1 crore and above had to face tax audits. However as per the Budget 2020-21, now the turnover threshold for audit for MSMEs has been raised to Rs 5 crore, provided the businesses do less than 5 per cent of their business transactions in cash. 

The survey report pointed out that a majority of small businesses in India had digitized their daily operations during this pandemic. Digitisation had reduced their operational cost, enhanced their competitiveness and had helped them in understanding their customer behaviour better.  The Dun and Bradstreet’s survey also found that the majority of small businesses in India are also willing to leverage next-generation technologies such as Artificial  Intelligence (AI), Machine Learning (ML), Industrial IoT to their business operations. 

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