RBI Panel Proposes INR 10,000 Crore Government Fund to Develop MSMEs
RBI panel proposes INR 5,000 crore stressed assets fund for MSMEs
The Reserve Bank of India had constituted an "Expert Committee on Micro, Small and Medium Enterprises' under the Chairmanship of former SEBI Chairman, U K Sinha in January 2019 to suggest long-term measures for the economic and financial sustainability of the MSME sector. In its first report submitted to RBI, the committee has suggested several measures for the development of MSMEs.
MSMEs are amongst the strongest drivers of economic development, innovation and employment in India. The sector also contributes in a significant way to the growth of the Indian economy with a vast network of about 63.38 million enterprises. However, the sector has the potential to grow at a faster pace.
For Growth & Development
In order to accelerate the development process, the committee has proposed an INR 10,000-crore government fund. To encourage Venture Capitalists/Private Equity firms to invest in the MSME segment, the committee has recommended this government-sponsored Fund of Funds (FoF). According to the report, MSMEs lack expertise in product development, technology adoption and marketing strategy.
To alleviate these problems, the committee has recommended the Government to build networks of development service providers that can provide customized solutions to MSMEs in the mentioned area. "Ministry of MSME may consider setting up of a Non-Profit Special Purpose Vehicle (SPV) to support crowdsourcing of investments by various agencies particularly to pave the way for a conducive business ecosystem for MSMEs," the committee recommended.
The Committee has also made wide-ranging recommendations for expanding the role of SIDBI, the apex body responsible for the development of the MSME sector. It is recommended that SIDBI plays the role of a facilitator to create platforms wherein various Venture Capital Funds can participate and in turn create a multiplier effect for providing equity support to MSMEs.
For the Distressed Units
The Committee has recommended the creation of a Distressed Asset Fund with a corpus of INR 5000 crore. The fund would be structured to assist units in clusters where a change in the external environment, for instance, a ban on plastics or "dumping' has led to a large number of MSMEs becoming Non-Performing Assets (NPAs).
The onus of creating this fund would lie with the Government. This fund could then operate on the lines of the Textile Upgradation Fund Scheme (TUFS) which has been in existence over many years. This would be of significant size in order to make equity investments that help unlock debt or help revive sick units.
The committee said the MSME Ministry may consider setting up a non-profit SPV to support crowdsourcing of investments by various agencies, particularly to pave the way for a conducive business ecosystem for MSMEs. Such a Fund could work in tandem with RBI mandated restructuring schemes or bank led NPA revival solutions for MSMEs.