Why supporting MSMEs is important and the accountability of the package

WHY SUPPORT MSMEs

The primary focus of the economic package announced by PM Modi was to alleviate the distress in the Micro, Small and Medium Enterprises (MSMEs) sector that lies in the very core of the Indian economy and is an employer of around 11 crores (110 million) individuals, including huge migrant forces of the country.

• 6.11% of manufacturing GDP and 24.6% of service GDP is contributed by MSMEs. They nearly account for 16% of bank lending. There exist an estimated 63 million small businesses across the nation. Many of these were adversely impacted by the demonetization policy of 2016 and the rollout of The Goods and Services Tax in the very net year. The virus can cause them great trouble unless the govt. offers some support. 
• The 16 particular announcements in the first tranche cut across sectors that range from NBFCs and MSMEs to power distribution and Real Estate and the Salaried, the overarching theme was Liquidity Infusion. This world hopefully puts more disposable money or funds in the hands of both employees and entrepreneurs, providing the economy a demand-side push.
• MSMEs make up for about 45% of the country's total manufacturing output, 40% of exports and about 30% the GDP and operate across the value chain - Including textiles products, cycle parts, auto parts, toys, and tools - are stressed due to depleting low demand and internal reserves. Easy availability of some funds through the banking channels along with a moratorium on the repayment process will help them to survive amidst this global pandemic.
• The package also proposed some modest policy changes. For instance, the govt. propose to change the definition of MSMEs. this revision will allow larger firms in each category. This may encourage the firm in every category to grow larger without any fear of losing benefits provided in those categories. The government has also decided to exclude foreign companies from bidding for govt contracts of Rs 200 cr or less. This may also give MSMEs some more room.
• FM Sitharaman quoted these new measures will help over 4.5 million units to resume activities. Borrowers will not be required to provide any fresh collateral and guarantee fee against these loans. The measures are aimed to avoid large - scale business closures, which could disrupt the supply chain and impact the financial system in the coming days. She further added that more steps will be announced in the coming days.
  

ACCOUNTABILITY?

It's not possible for anyone to cross-check the mathematics behind the economic package as very few hints are available. However, former NITI Aayog vice-chairman, Mr. Arvind Pangariya is pretty convinced the magical figures will be achieved by "adding Oranges and Apples." He has mixed opinions and feeling about the efficacy of the package. here are his arguments :

• Not all of the Rs 20 lakh cr constitute extra fiscal expenditure. This includes loans, extra expenditures, loan guarantees, and other forms of commitments by the RBI and the government. Had the government really been serious about providing that heavy stimulus, it could have had to print huge sums of money-raising cash in circulation by a very big percentage -  perhaps as much as 30%.
• More than the main figure, what matters more is the quality of the package. COVID-19 hit both supply chain and demand severely, and parallel. Therefore, neutralizing one shock without the other cannot go far. Further adding, this complication is the fact that supply shock has impacted different enterprises and different sectors differently. This makes the task of policymakers a bit complicated.
• Our economy can only be revived once the large enterprises start functioning again because they are a source of much large output. What the government does for these corporates also remains for another day. "Part 1 of the package focuses largely on MSME particularly because this is where most of the employment is concentrated." He concludes. 

Author :

Jay Kumar Hotani