House panel suggests bigger economic package for MSME sector

New Delhi : Noting that the second wave even more vigorously ripped the economy, particularly the MSME sector, a Parliamentary panel has suggested the government to immediately come up with a larger economic package aimed at bolstering demand, investment, exports and employment generation.
In its report titled “Impact of Covid-19 pandemic on MSME sector and Mitigation Strategy Adopted to Counter it” tabled in Rajya Sabha on Tuesday, the Department-related Parliamentary Standing Committee on Industry said that the government’s stimulus package has been inadequate as the measures adopted were more of loan offering and long-term measures instead of improving the cash flow to generate demand as immediate relief.
“Unlike large and medium enterprises, small enterprises depend on regular cash flows to stay afloat. The Committee, therefore, recommends that to ensure the survival of the small enterprises, it is imperative for the government to provide them with much-needed liquidity support to keep their businesses running and generate job opportunities for the workforce,” it said.
The Committee suggested carrying out a detailed study to make an assessment of the actual losses suffered by the MSME sector so as to chalk out an effective revival plan.
On the change of definition of MSMEs, the House panel said that after reclassification of criteria of MSMEs and subsequent introduction of Udyam Registration Portal, less number of MSMEs have got registered on the new Udyam Portal since 1st July, 2020.
“It appears that MSMEs feel better off without registration as the compliance costs would be much greater than the benefits that would accrue post registration. Besides, without registration, they find it more convenient to escape the income tax net and compliance structure,” noted the panel.
It has advised the government to provide incentives to attract more and more MSMEs to register themselves on the Udyam Portal.
With MSMEs suffering the perennial problem of delayed payment by PSUs despite government order to clear dues within the stipulated time period, the Committee called for strict provisions to ensure timely release of payments.
Among other measures to help the MSME sector, the panel said that 90 days limit fixed by RBI for classifying overdues of MSMEs should be increased to 180 days so that MSMEs are not constrained to divert their working capital towards servicing of their loan-installments and clearing their dues at the cost of normal business operations.
“This proposed change in the RBI guidelines will save a large number of MSMEs from turning sick or getting closed resulting in loss of economic activity and employment. It will also prevent avoidable classification of bad debts and unwarranted litigation by banks, thereby saving the banks too, from losses,” said the Committee chaired by K. Keshava Rao.

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