In India, small has always been not only beautiful but also strong! Especially, the textile industry, the mother of all industries catering to the apparel needs of the country, has grown well beyond all expectations. MSMEs account for almost 90% of all enterprises in the country. And contributes 35% to its annual GDP. MSME sector has been a key contributor to the India’s GDP and even during the pandemic times, it showed tremendous resilience, helping the economy recover faster from the lockdown market depression. One of the key sectors that have outshone others and registered tremendous growth is the textile and apparel MSMEs.
Very recently, the Government has doubled the paid-up capital and turnover eligibility thresholds for small companies, which will help more businesses and startups get access to the lighter compliance regime for such entities under the Companies Act, 2013. According to a Ministry of Corporate Affairs (MCA) notification, any company with a paid-up capital up to ₹4 crore and turnover as much as ₹40 crore would be considered a small company.
This is the second revision in about just 18 months –the limit was raised to ₹2 crore and ₹20 crore, respectively, on April 1. Small companies are not required to include cash flow statements in their financial reports, need hold only two board meetings a year as opposed to at least four for others, and do not have to rotate auditors every five years. They can file abridged annual returns and these can be signed by the company secretary or a director of the company. Most of the statutory documents of small companies needn’t be signed by a practicing professional such as a chartered accountant.
Earlier, in June 2020, the Union Cabinet approved the revision of MSME’s definition based on turnover size and investment limit. The new definitions were as follows:
- Micro units – investment up to Rs. 1 crore and turnover below Rs. 5 crore
- Small units – investment up to Rs. 10 crore and turnover below Rs. 50 crore
- Medium units – investment up to Rs. 50 croreand turnover below Rs. 250 crore
The new MSME definitions allowed many medium, small, and micro units to continue their “MSME” status under the revised guidelines. And avail of the various benefits for pandemic-relief, exclusively available to the MSMEs, including the collateral-free SME loan facility introduced by the Centre, from any bank/NBFC.
Rewinding to 2021, the Union Budget 2021 announced India would be setting up seven Mega-Integrated Textile Region and Apparel (MITRA) parks.This move is expected to double the industry size to US$ 300 billion by attracting large investments and boosting employment. Consequently, make the country’s textile sector, a globally competitive manufacturing and export hub.Besides MITRA development, additional perks like GST reduction will help the SME-MSMEs free up capital to invest in key growth drivers like technological upgrades, new-age marketing tools, state-of-the-art infrastructure, and more.
MSMEs, which account for almost 90% of all enterprises in the country, contributes 35% to its annual GDP. The GST council has already decided that any firm with a turnover of Rs. 40 lakh & less need no longer register under the GST. This has come as a boon to the small players. The small industries have got a shot-in-the-arm recently with the latest revision to facilitate Ease of Doing Business further and reduce compliance burden on “small companies.” The Ministry of Corporate Affairs (MCA) has taken several measures in the recent past towards ease of doing business and ease of living for the corporates. These included decriminalisation of various provisions of the Companies Act, 2013 & the LLP Act, 2008, extending fast track mergers to start ups, incentivising incorporation of One Person Companies (OPCs) etc. Earlier, definition of “small companies” under the Companies Act, 2013 was revised by increasing their thresholds for paid up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”. This definition has, now, been further revised by increasing such thresholds for paid up Capital from “not exceeding Rs. 2 crore” to “not exceeding Rs. 4 crore” and turnover from “not exceeding Rs. 20 crore” to “not exceeding Rs. 40 crore.”
The Modi government’s post-Covid flagship credit scheme for MSMEs Emergency Credit Line Guarantee Scheme (ECLGS) has benefitted around 1.19 crore businesses as of June 30, 2022. Launched in May 2020, the scheme has sanctioned collateral-free loans amounting to Rs 3.48 lakh crore till June end. Sharing the data from the Department of Financial Services in the Lok Sabha recently, Minister of State for MSMEs Bhanu Pratap Singh Verma noted that out of the total ECLGS beneficiary count, 1.13 crore were MSMEs (95 per cent) while the amount sanctioned to MSMEs stood at Rs 2.32 lakh crore (66 per cent) out of the total sanctioned.
While the data on total disbursements under the Rs 5-lakh-crore ECLGS scheme was not shared by the Government, the Reserve Bank of India (RBI) in its latest Financial Stability Report (June 2022) had noted that Rs 2.54 lakh crore loans were disbursed till April 30, 2022.
“The textile & apparel industry’s contribution to the country’s GDP is around 5% and in terms of industrial output, the T&A accounts for 7% of the total value, making it one of the most promising industries in India. In fact, the T&A industry in India is one of the largest industries in the world and also the second largest employer in the country. It has generated approximately 45 million jobs directly and over 60 million jobs in allied industries. There have been multiple driving forces behind the monumental growth of the industry and realizing the full potential of each of these dynamics can help the MSMEs to unlock greater employment opportunities for the Indian workforce,” says an investment expert.
“Being the world’s 5th biggest T&A exporter, the industry enjoys a 4% share of the $840 billion global markets. The textile exports accounted for US$ 22.89 billion between April 2021 and October 2021. IBEF also suggests that the T&A exports growing at a solid CAGR of 11% are expected to cross $100 bn in the next 5 years. Increasing the exports not only creates foreign reserves but also opens doors for better employment opportunities in the country. Developing MSMEs in the sector to boost exports can create an additional 75 lakh to 1 crore jobs – which is quite a number taking into consideration that the unemployment rate in India stands at 7%,” says the investment source.
Textile Ministry along with the Finance Minister in the Union Budget announced several schemes and programmes to support and strengthen the industry. One such announcement for setting up seven mega textile parks across India is a welcoming move that will increase employment opportunities as well as boost the MSME growth. Another landmark proposal of the Government has been the announcement of production-linked incentives (PLI) worth $1.4bn that will prove instrumental in realizing the capacity potential of T&A manufacturing units. Anticipating the significant role of the industry to create employment, the government has undertaken multiple reforms and plans to introduce labour-friendly schemes. For example, under the EPF scheme, the Govt. of India will bear 12% of the garment industry employers’ contribution to the EPF for new employees earning lesser than INR 15,000/month, for the first 3 years. This reform will ensure that the workers get more in-hand wages, thus promoting employment in the formal sector,” he further added.
Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner. The Government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies.
Some of the benefits of reduction in compliance burden as a result of the revised definition for small companies are as under:No need to prepare cash flow statement as part of financial statement; Advantage of preparing and filing an Abridged Annual Return; Mandatory rotation of auditor not required; An Auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report; Holding of only two board meetings in a year; Annual Return of the company can be signed by the company secretary, or where there is no company secretary, by a director of the company; Lesser penalties for small companies.
Loans amounting to Rs 3.32 lakh crore were sanctioned under the Emergency Credit Line Guarantee Scheme (ECLGS) till April 30, 2022, of which Rs 2.54 lakh crore amount was disbursed, the Reserve Bank of India (RBI) said in its latest Financial Stability Report.
As informed by the National Credit Guarantee Trustee Company Limited, the agency which operates the Emergency Credit Line Guarantee Scheme (ECLGS), as on 11.3.2022, a total of 117.87 lakh businesses have been supported with 100% guaranteed collateral free loans under ECLGS of which about 95.21% were MSMEs. This was stated by Union Minister of State for Finance Dr Bhagwat Kisanrao Karad in a written reply to a question in Rajya Sabha recently.
The Minister stated that the ECLGS was launched in May 2020 as part of the Aatmanirbhar Bharat Abhiyaan to support eligible Micro, Small and Medium Enterprises (MSMEs) and other eligible business enterprises in meeting their operational liabilities and restarting their businesses in the context of the disruption caused by the COVID-19 pandemic. It covered all the sectors of the economy. 100% guarantee is provided to Member Lending Institutions (MLIs) in respect of the credit facility extended by them under the scheme to eligible borrowers, the Minister added.
The Minister also stated that pursuant to an announcement made by the Finance Minister in her speech on the Union Budget 2022-23 that ECLGS will be extended till March 2023, Government has extended the scheme by one year, till 31.3.2023.Giving more details, the Minister stated that the structure of scheme allows easy access to credit as the lenders offer pre- approved loans based on borrower’s existing credit outstanding and there is no fresh appraisal undertaken by lenders since additional credit is sanctioned over and above the credit facilities already assessed. Further, the interest rate is also capped with a view to lower the cost of credit and loans are sanctioned without any processing charges, pre- payment charges and guarantee fee.
On a question on RBI’s views on the MSME sector, the Minister stated that RBI has observed in its Financial Stability Report, December 2021 that MSMEs are reflecting signs of stress. In this connection, RBI has informed that the MSME portfolios of Commercial banks indicate accumulation in the non-performing asset and special mention account – 2 categories in September 2021, relative to March 2021.
Advancements in digital textile technologies: The investments in textile technologies have been increasing year on year and with the Government’s liberal assistance under programmes such as Technology Upgradation Fund Scheme (TUFS) providing investments as well as subsidies, the textile industry is poised for illustrious growth in the coming years.
Khadi and Village Industries Commission under the Ministry of MSME is also taking active measures to boost the growth of micro and small-scale textile industries in rural areas. As per the scheme, over 10,000 people were trained in 2020-2021 through various training centres of KVIC (departmental as well as non-departmental). This will create self-employment and entrepreneurial opportunities and rural development.
T&A sector is one such industry where women account for approximately 60-70% of the total workforce. More than 27 million women in India are employed in the textile and apparel sector. The growing employment opportunities would mean more jobs for women, thus increasing the participation and contribution of the women’s workforce in the Indian economy.
The textile and apparel industry is on a rise and even with the stiff international competition from Asian countries such as Bangladesh, Vietnam, etc., the future of the industry seems brighter owning to its endowed advantages of vast raw material supply (India is amongst the largest producer of cotton yarn and fabric), ample availability of human resources, and faster adoption of advanced textile technologies. Given the sector is able to sustain and increase the domestic as well as export growth, the industry will be able to become of the most lucrative sectors for creating employment and job opportunities for skilled, semi-skilled as well as a portion of unskilled workforce, directly or indirectly.
AUTHOR:
SAMUEL JOSEPH
