The stimulus package announced by the government for the revival of the pandemic-hit economy has been found to be “inadequate”, according to a Parliamentary panel report. The report of the department-related Parliamentary Standing Committee on Industry on the impact of COVID-19 pandemic on micro, small and medium enterprises (MSME) sector has noted that in the process of economic recovery post-first wave of the pandemic, the second wave has even more vigorously ripped the economy particularly the MSME sector.
“The committee observes that the stimulus package announced by the government for the economic revival from the pandemic hit economy has been found to be 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,” it said. It has recommended that the government should immediately come out with a larger economic package aimed at bolstering demand, investment, exports and employment generation to help the economy, including MSMEs to recover from the pandemic fall-out.
In their submission to the committee, various MSME associations have stated that due to a sharp fall in business, most of the MSMEs faced an acute cash crunch and needed immediate liquidity to cope with the unprecedented circumstance. “It is estimated that almost 25 per cent of MSME loans could slip into default as several MSMEs are finding it tough to draw working capital from banks,” the associations told the committee, as per the report, which was released on Tuesday.
Expressing concern over the grim situation of small enterprises due to the COVID-19 pandemic, the committee has recommended that to ensure the survival of 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 that a detailed study needs to be conducted to make an assessment of the actual losses suffered by the MSME sector so as to chalk out an effective plan for revival of the sector.
Observing that a large number of jobs were lost due to the pandemic, the committee said that a new National Employment Policy may be considered along with exploring the feasibility of establishing a National Electronic Employment Exchange and building a skill-based database to provide employment to skilled manpower in their area of expertise. Further, it suggested that strict provisions against delayed payments need to be put in place to ensure timely release of payments by CPSEs which will immensely help the MSMEs to meet their working capital/credit requirements.
“… necessary guidelines should be issued for mandatory reporting of the delayed/pending payments (beyond 45 days) to MSMEs, by CPSEs/PSUs in their Annual Reports, in a separate section, as it would impress upon the CPSEs/PSUs to make payments to MSMEs in a time-bound manner,” it added. On the Emergency Credit Linked Guarantee Scheme, it stated that the scheme has recorded a high success rate, yet, around 50 per cent of the total guarantee amount only has been issued to MSMEs.
The banks should be more liberal at this juncture in extending credit facilities to MSMEs and ensure that loans are disbursed without delay after sanction, it suggested, adding the 90 days limit fixed by RBI for classifying overdues of MSMEs should be increased to 180 days. On ecommerce, it said that the MSME ministry may study the working of big ecommerce players to adopt efficient and successful practices for strengthening the entry and survival of the sector in ecommerce.
“Availability of soft loans to MSMEs at minimal interest rate of 3-4 per cent with extended repayment tenure, easy land acquisition, less parameters of compliances etc could help in developing import substitution in the country,” it said.
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