Volatility in the government’s budget subsidy to incentivise credit ratings for micro and small enterprises over the past few years is harming these companies as rating agencies are in a fix on whether to invest more for this sector’s ratings.

The government gives up to a Rs 40,000 subsidy for MSMEs as a once-in-a-lifetime incentive to get themselves rated. This subsidy is given through the National Small Industries Corporation (NSIC), which is a PSU under the MSME Ministry.

In the Budget 2017-18, the subsidy under this scheme was cut drastically to just Rs 10 crore from the Rs 200 crore budget in fiscal 2016-17. Although just Rs 55.72 crore was finally availed in the fiscal ended March 2017, the sharp reduction has raised doubts on the sustainability of these ratings.

“This volatility in the budget allocation makes it difficult for us to plan for the year. Added to this is a new rule which says that SMEs will be rated only if they are referred by a bank for a rating. This in turn makes the whole process a much longer one than it currently is,” said Mrinal Singh, SVP at SMERA Ratings.

The government subsidy, which was first started in 2005, has been volatile. For example, the budget only granted a Rs 65 crore subsidy in 2014-15 but eventually approved Rs 85 crore at the end of the year. Similarly, Rs 26 crore was budgeted in fiscal 2016 and Rs 37 crore was the final grant. The Rs 200 crore number had raised hopes of a government push towards this sector but those hopes have now been dashed.

“In 2016, close to 20,000 MSME companies were rated. The 2017-18 Budget estimates are shockingly low which have created doubts. Unofficially bureaucrats say that the final grants will be higher but it means that we cannot approach some companies which cannot afford ratings because we are not sure if we will get reimbursed by the Ministry,” said a senior official of a domestic rating agency.

For MSMEs, it means getting rated becomes more difficult.

“Already we are adjusting to the new GST regime and this uncertainty will reduce our bargaining power for better ratings from banks. The government should look at MSMEs as employment generators which is an important role in today’s times,” said Chandrakant Salunkhe, President, SME Chamber of India, which represents 45,000 MSMEs.

Source: Economic Times