Only entrepreneurs and enterprises can lift the economy from the gloom that persists today

The MSME sector cannot survive with cosmetic and minor support. A Ficci survey revealed that approximately 60% of the MSMEs are already deeply affected. India is a country of entrepreneurs, some run MSMEs and most run self-employed enterprises. Major policy support is required on many dimensions. Before we list the key reliefs required, here’s the current realities and why government’s support to the sector is needed on a war footing:

Don’t discriminate within MSME

There is a policy tendency to focus on micro because they are large and at the front-end of the lockdown impact. They are very vulnerable whenever there is disruption. But the small and medium are also severely impacted because they are closely connected with these micro-enterprises. Let me give our example. We are an SSI in human capital space but we support over 500 small and micro enterprises. If we are impacted severely, these micro enterprises also shut down. There is a close interdependency between the three sectors. There should be no attempt to sub-divide the MSME sector reliefs.

Recently, the Finance Minister made an announcement on payment of PF for MSMEs. But this comes with a restriction — only enterprises with less than 100 employees with 90% of these employees earning less than 15,000 per month. We don’t know on what basis the three numbers – 100 employees, 90% employees and Rs 15,000 salary – came up. The idea is to deny benefits to SMEs who do not fulfil any of the three conditions. Such sub-division sabotages the MSME concept without realising that the small and medium actually support smaller and micro industries. Such announcements are of not much value.

---

Respect Them

Only entrepreneurs and enterprises can lift the economy from the gloom that persists today. These facts clearly establish this:

• Fact 1: Employment of people is the only way for 450 million job-seekers in India to run their families with self-respect. Dole is closer to begging and anyway, a lot of it is denied due to corruption. Wage or self-earned income is the only dignified way of earning a living for our millions. This is possible only with the existence of MSMEs. We saw the impact during demonetisation when many MSMEs suffered and the people earning a living through them also suffered.
• Fact 2: Government social programmes cannot be carried out without enterprises. Currently, around 15% of the GDP is the government budget, which covers the salary of government employees and social programme budgets. Where does this money come from? Taxes – direct, indirect, municipal, property, etc. 90% of the budget comes from taxes. Who pays the taxes? Enterprises, people employed and supported by them. You kill the enterprises, you kill the entire tax system. This is evident in the GST and income tax collections, which are totally impaired due to the lockdown, except for essential goods and services.
• Fact 3: Reviving the economy from the doldrums requires someone to take the risk to restart in a very unpredictable and unfavourable global and local environment. Who is that someone? The entrepreneur and the enterprises. Why do they do that? Because that is the only thing they know. They do a great national service.
• Fact 4: Despite their key contribution, entrepreneurs are the most vilified community. It is true that some members of the community are villains but to paint the whole community as villains is wrong. Behind every big crime of an entrepreneur, there is a politician or a bureaucrat. So if we vilify all the entrepreneurs, we should vilify all the bureaucrats and politicians as well.

Then we become a country of frauds and villains. A better approach is to increase penalties astronomically for fraud, increase the conviction rate and vilify the beneficiaries of the fraud. We must stop treating every entrepreneur as a potential cheat and treat them with respect. Without reviving the MSMEs – micro, small and medium – we cannot revive the economy and uplift our poor.

---

Reviving MSMEs

This will happen only if the following four building blocks are supported on a war footing without caveats and without further sub-dividing the MSMEs:

Demand Pillar

• Lift all restrictions on movement of goods. Goods don’t transmit. People do.
• Reduce the GST on consumer goods because only consumption drives the economy.

Manufacturing and Operations Pillar

• Allow MSMEs to restart manufacturing and service sectors with a caveat. They take safety precautions, including mask, gloves and decontamination procedures.
• Pay each MSME a decontamination payout linked to number of employees and publish their claims to determine the fraud claims.
• Allow employees to travel to work with social distancing and masks in place.
• Allow migrant labour from Covid-cleared districts to move to specific work destinations under escort. Only male labourers should be allowed and the family must stay back for six months at least.
• Create temporary labour camps in government lands with safety procedures.

Finance Pillar

• Increase MSME working capital limit by 25% through a working capital term loan repayable in 3 years.
• Reduce the interest to 4% per annum for the next one year through a subvention scheme with interest moratorium for one year.
• Postpone all term loan repayments by one year. The extra interest due to moratorium of interest and the extension of principal to be recovered by additional 3 instalments at the end.
• Allow MSMEs to file their GST returns GSTR 3B without payment of GST to acknowledge their liability.
• Reduce GST delayed payment interest rate to 6%. This is the rate government pays for delayed I-T refunds.
• All government departments must acknowledge their dues by accepting bills of exchange. There must be 30-day SLA (Service Level Agreement) for acknowledgement of dues and there must be penalties for delays.
• If there are deficiencies of documentation for due claims, government must acknowledge bulk of the dues with a small retention money for completing the deficiencies.
• Government must pay interest for delayed payment as per the MSME Development Act without victimising the claimants.

Statutory Pillar

• All statutory compliances be extended by 12 months across the board, except for pollution, health and safety, without penalties.
• No criminal or civil proceedings should be initiated in the next 6 months except for serious fraud and serious intentional default.
• Reduce TDS rates across the board for this financial year because all MSMEs are likely to incur losses.