Example: Diwali comes early for SMEs and MSMEs as Modi unveils 12-benefits package

Prime Minister Narendra Modi on November 2 unveiled a 12-point package for micro, small and medium enterprises (MSMEs) that makes it easier for them to get credit and increase their cash flows, in a liberal business environment.

“In this age of globalisation, these reform measures will go a long way in strengthening the MSME sector. I will myself do a focused monitoring of the government’s reach-out to small businesses across 100 districts in the next 100 days,” Modi said while inaugurating the package in New Delhi.

This comes after Modi’s demonetisation drive completes two years, amid criticism that it affected small and medium businesses the most. The 12 benefits include relaxation in labour laws and environmental rules, improvement to company laws. It also arrives at a time when SMEs and MSMEs are threatened by liquidity owing to issues related to non-banking finance companies (NBFCs) and weak banks.

1. PM Modi announced the countrywide launch of a web portal to apply for and approve loans in just 59 minutes, with a sealing cap of Rs 1 crore. The pilot portal had been launched in September and has already received 72,680 loan proposals worth Rs 236 billion, according to reports.
2. Modi also announced a 2% interest subvention for all GST-registered MSMEs, applicable on fresh or incremental loans up to Rs 1 crore. Exporters will get 3 to 5% rebate on loans taken in pre- and post-shipment period.
3. All companies with a turnover of more than Rs 500 crore will have to compulsorily register on the Trade Receivables e-Discounting System (TReDS), which facilitates the financing of trade receivables of MSMEs through multiple financiers. “Often, delay in getting payment for supplying goods to big firms impact their cash flows and business comes under pressure. This platform will help entrepreneurs, who can upload confirmed receipts or bills which are pending payment, to access credit from banks,” Modi said, urging MSMEs to register their complaints on the Samadhan portal.
4. All public sector undertakings should also compulsorily register on the government e-Marketplace (GeM), which will give market access to smaller companies and eliminate the middleman from the equation. Out of the existing 150,000 suppliers on the portal, 40,000 are MSMEs.
5. In order to increase market access, the government has directed central public sector enterprises (CPSEs) to procure 25% of their purchases from MSMEs, 5% more than the earlier stipulation.
6. Of this 25%, 3% purchase has been reserved for MSMEs run by female entrepreneurs.
7. Twenty new hubs and 100 tool rooms will be set up to the tune of Rs 6,000 crore to help MSMEs upgrade technologically.
8. Industrial clusters of small pharmaceutical companies will be set up (enterprises will be physically present in a small 5 km radius. The centre will bear 70% of the expenses in setting the clusters up.
9. Returns with regards to eight labour laws and 10 central government rules would only need to be filed once a year. MSMEs will now have to file their returns under eight labour laws and 10 Union regulations only once a year, instead of the present requirement of two.
10. The environment clearance and consent to establish a firm, under air pollution and water pollution laws, have been clubbed to a single consent form, that many will argue as a huge blow to environmental activist groups fighting against the corporate encroachment on ecologically sensitive lands. Modi further announced that the routine inspection of firms for environmental norms will be substantially reduced. A computer-generated inspection for labour laws will replace environment inspection.
11. To further end the autonomy of inspectors to do as they please, inspectors will be allocated the establishment digitally and they have to file reports within 48 hours with appropriate reasons from now onward.
12. MSMEs will no longer face criminal action for minor errors, through an ordinance that aims to reduce the number of cases registered by 60%. For ‘ease of doing business’, the ordinance will allow entrepreneurs to continue with their operations without having to approach the courts for minor violations under the Companies Act. “For minor mistakes, under the Companies Act, entrepreneurs face criminal case and sometimes they even have to go to jail. For resolving minor mistakes, go to the courts. Now this to be resolved through some penalties,” Modi said.

“Increasing the interest equalisation from 3% to 5% is a timely move and will help exporters to get credit at competitive rates close to international benchmarks,” said Federation of Indian Export Organisations President Ganesh Kumar Gupta in an interview with Business Standard. The 2% interest subvention will encourage more firms to register with the GST, Confederation of All India Traders Secretary Praveen Khandelwal added.

It is clear that the centre is keen on living up to its position on the “ease of doing business” index, even if that means going against the central bank’s position on relaxing key corporate lending laws. Relaxing company laws, environment and labour laws and legal mechanisms to punish operational errors may eventually backfire for the Modi government (and for the economy at large), but for now, MSMEs are likely to remain pleased with the newly-gained benefits, at least in the run-up to the coming polls.

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Prarthana Mitra is a staff writer at Qrius