The Rs 10,000 crore government fund will support venture capital and private equity funds investing in the sector.
The Reserve Bank of India (RBI) has proposed a Rs 10,000 crore government fund for development of micro, small and medium enterprises (MSMEs). The proposal was made by a panel led by former SEBI chairman UK Sinha and constituted by the RBI to suggest measures to develop MSMEs in India, say media reports. The idea is that this proposal will support venture capital and private equity funds to invest in the MSME sector. The panel has also recommended a Rs 5,000 crore distress asset fund to assist small businesses affected by external factors. Last year, the RBI announced the formation of an expert committee on MSMEs to propose long-term solutions for the economic and financial sustainability of these businesses.
On June 19, the RBI said the expert committee on the MSME sector, set up in January under the chairmanship of UK Sinha had submitted its report to Governor Shaktikanta Das. It also stated earlier that the committee would study the impact of recent economic reforms on the sector and identify structural problems affecting its growth. The committee has recommended a comprehensive and holistic MSME code, amending the MSMED Act, 2006, and replacing present territorial jurisdiction and arbitrary inspection with policy-based monitoring systems with a sunset clause. It also said the introduction of GST had made it easier to identify companies based on turnover and that this should be the criteria for determining MSMEs rather than employment, which is difficult to implement. Given the role of state governments, the panel wants Small Industries Development Bank of India (SIDBI) to engage with them.
To help small scale businesses scale up, the panel suggested a central scheme to support setting up of Enterprise Development Centres (EDCs) in the district centres. According to the report, “The EDCs, while being principally funded by the Government of India, must have the operational flexibility to partner with the private sector, particularly in the areas of skilling and technology development. Contribution of companies to capacity building via EDCs must be eligible for corporate social responsibility (CSR) spending.” To encourage institutional lending to small businesses, the panel wants finalisation of bankruptcy laws for individuals. It said, “The finalisation of these rules can boost lender confidence because lenders will have more certainty and predictability regarding the recovery of defaulted loans. This can increase the amount of credit available to MSMEs in the Indian economy and, in turn, reduce the credit gap.”
The RBI has also recommended creating an information utility to collect details of invoices, which will help small businesses recover their dues from large corporates. This will aid the designated authority to write to corporates, asking them to clear bills. The RBI recently cut the repo rate (short-term lending rate at which it gives loan to banks) for the third time in a row, to 5.75 percent in its second bi-monthly policy decision, adopting an accommodative stance. The repo rate cut by the Reserve Bank of India (RBI) will help boost India’s economy by making loans affordable to MSMEs, exporters, and home buyers, said PiyushGoyal, Commerce and Industry Minister.