What Do MSMEs Expect from General Elections 2019? MSMEs have divided, so are their opinions on the government

Considered as the backbone of the Indian economy, the Micro, Small, and Medium Enterprises (MSMEs) have been through a series of ups and downs in the last five years. On one hand, the "Make in India' push opened the sector for global integration, the implementation of Goods and Services Tax (GST) temporarily slowed the growth, significantly.

There are about 63.05 million micro industries, 0.33 million small and about 5,000 medium enterprises operating in the country. From the ease of doing business to job creation and credit availability, MSMEs from distinctive industries have had varied experiences, that have contributed to their mindset on the upcoming general elections.

Only a day away from the first phase of vote battle India is set to witness, let's explores what MSMEs expect from the government that takes the crown:

Impact of Action

MSMEs were worst hit by Demonetization & GST. The impact is expected to play out negatively for the Modi government. Established players in the space have mixed reactions on the aspect. Garapati Radhakrishna, the CMD of RKEC feels that MSME's were temporarily affected by demonetization due to slow down in the private sector but the companies dependent on the government Sector were not affected at all.

"Payment of GST on rising of bill is the greatest disadvantage to any entrepreneur and payment of GST on Mobilization Advance without client paying to us is another factor which is affecting the cash flows in the present situation wherein banks have become too stringent on sanction of loans to successful businessmen and also banks are looking at successful businessman and defaulter in similar fashion," he pointed.

Agreeing to Radhakrishna, Sunu Mathews, the MD of LEAP India also feels that the implementation of GST and Demonetization were good moves in the long run for India to become a data-rich country with the strong and organized sector in each industry. "It took a while for MSMEs to adhere to GST regime but now there is tremendous support from all MSMEs in complying with regulations of GST," he said.

"Some of the sectors which were not enjoying input credit have been benefited in new GST regime," Mathews clarified, further adding that the recent modifications and exemptions given by GST council have further improved the compliance and collections for the Government. "GST has really necessitated consolidation and has increased efficiency in the transportation of goods in the country."

Ease of Doing Business

Ever since forming the government, Narendra Modi has been pushing for the digitalization, an initiative which has changed the way business is done. Explaining how, Ankit Gupta, Vice President, COO, ExportersIndia.com said, "Right from the search for the perfect match to your requirements, the queries, the transactions and the entire business is now being conducted with absolute ease through online platforms."

With MSMEs and SMEs becoming more digitally adaptive, digital lending platforms have the potential to fuel the growth of India's SME sector. "The credit availability had been a problem as RBI's decision to permit a one-time restructuring of MSME loans that have defaulted but are not non-performing as on 1 January, has received a positive response from the small business owners," Gupta added.

Ease of doing business and credit availability has been at the top of MSMEs' problem list since ages. Thanks to some positive reforms by the government, India has improved many notches in ease of doing business globally. "Introduction of fast loans, subsidies and developing clusters to promote MSMEs will go long way in helping them grow and provide good employment opportunities for the youth of the country," Mathews stated.

To make the lending structure feasible, the Government needs to come out clearly with enabling policies for the Banks to lend money for MSME's instead of lending against collateral securities on par. Suggesting a few reforms to facilitate faster and quality lending and for avoiding high-cost borrowings, Radhakrishna said:

· A sealing limit of 30 per cent be fixed for collateral security for profit-making MSME's for the previous 3 years.

· A sealing limit of 30 per cent is fixed for collateral security for MSME's who have paid Income Tax of a minimum 10 per cent of its PBT for the previous 3 years.

· MSME's having "zero' default with the banks for the last 10 years be insisted with a maximum of 20 per cent collateral security.

· For the risk mitigation of banks for the above, an additional surcharge of 1 per cent be levied along with interest.

· The MSME's availing the above be levied with an additional IT rate of 1% as an additional contribution to government exchequer for taking care of banks risk profile.

· The surcharge and additional IT shall be transferred to a consolidated specified fund by the government of India.

· Individual banks may be allowed to charge an additional service charge of 0.5 per cent for lending against MSME's.

Election Verdict

While the nation is expecting a good stable Government at Centre to spur overall economic growth of the country, Gupta believes that whichever party is able to establish majority shall address the matters of tax sops, loan availability and increased investment in the digital lending sector:

With a drastic decline in public sector banks' (PSB) share in lending to the MSME sector, small businesses often failed to get loans on time. However, the rise of fintech players in the last few years offered a much-needed respite to such enterprises. In addition to this, Modi's announcements of launching an online portal that can sanction loans up to INR 1 crore within just 59 minutes, also came as a piece of good news to SMEs.

RBI's decision to permit a one-time restructuring of MSME loans that have defaulted, but are not non-performing as on 1 January, has received a positive response from the small business owners. Now, it's quite likely that the government has a few more tricks up its sleeve, which will enable the small businesses to get easy access to loans.

With MSMEs and SMEs becoming more digitally adaptive, digital lending platforms have the potential to fuel the growth of India's SME sector. According to a joint study released by Omidyar Network and BCG, digital lending to MSMEs is projected to see a 10-15 fold increase by 2023, allowing for easier access to credit. Hence, it's safe to say that the government could consider allocating more money in the digital lending sector post elections.