Exports have registered a decline for November 2015 for the 12th consecutive time and the fall this time has been the steepest at 24. 43% and spread across sectors save 7 as against 9 sectors in October 2015 leading to concern on whether this is a temporary cyclical phase or due to deeper structural changes.
Historically export growth has been twice of global output but although post the Lehman crash in 2008, exports bounced back well. But since 2013 exports have not kept pace and the abysmal trade figures have led to much debate and trepidation on not only the final export figure ending the fiscal 2015-2016 but the larger context of exports sustaining and continuing to be as it were a moderate component of “trade led growth” and the possible repercussions to the MSMEs.
MSMEs collectively contribute 37.54% [7.04% and 30.50% from manufacturing and services respectively] to the manufacturing output of the country which itself has just shown an uptick in the IIP data released recently. In October 2015 IIP clocked a 9.8% growth as compared to the level in the month of October 2014 with cumulative growth for the period April-October 2015-16 over the corresponding period of the previous year being 4.8%.
This will have significant impact on the capacity of the MSMEs to put the demographic dividend into productive use.
An obvious fallout of the decline of 15 to 20% in order books prior to the festive season was stalling of any expansion plans which may have been on the cards; limiting and reducing existing capacities and even shutting down units with the possible implications being job losses whose magnitude may be difficult to fathom at this point.
Macro-factors impinging on exports from MSME’s re-working credit costs to establish parity between investments and returns : A fall in the credit off-take of the MSME sector now come in the negative zone to at minus 2.6% as compared to 1.3% a year ago. The successive decline in credit off-take requires re-working credit costs by reducing base rates, cutting down the spread or margins over the base rate, and repackaging credit products to offer better value both to exporters and industry.
Incentivizing lending institutions : Lending institutions need to be incentivized by making lending to MSME more manageable through providing capital adequacy norms support through recognition of MSME credit ratings program me for each sector; rationalize interest rate and margin requirements for MSME who adopt credit rating program me; Increase the current limits under the Credit Guarantee and Increase of Fund Trust for Micro and Small Enterprises (CGTMSE) scheme to INR 4 crore;
Raising the excise exemption bar and a ‘deferment scheme’ : At present excise exemption is withdrawn when the annual turnover exceeds Rs.1.5 crore and a Chartered Accountant is required to be engaged when the annual turnover exceeds Rs.1 crore. This is a narrow a financial leeway and raising the excise exemption bar, would incentivize entrepreneurs. The Inter-Ministerial Committee suggested a ‘deferment scheme’, whereby it suggested that the Ministry of Finance may consider allowing a rapidly growing unit to retain a portion of tax payable such as excise, income tax, etc. for 3 to 5 years, if the unit is growing year on year above national average.
Performance and outcome-based linked financial support for the Utilization of Rs.10,000 Cr MSME Development corpus : A framework can be devised for a seed fund which can contribute to 25% of the venture and special purpose private equity funds ranging from Rs 100 – 500 Cr and focusing specific areas – adopting innovation and technology, Digital India, global competitiveness and so on. Relevant authorities and stakeholders can work together to channelize the funds. Several countries like Canada for example have devised a Performance and outcome-based linked financial support. And last but not the least is the need to revise the plant and machinery investments in MSME’s as against existing caps of Rs 10 crore and Rs 5 crore for manufacturing and services respectively.
Image Courtesy : Sagar Sandesh
