After denying it stoutly for a couple of years, the government has finally gotten around to admitting, grudgingly, that many of the Micro, Small, and Medium sized Enterprises (MSMEs) are struggling to survive. The big problem now is that the government thinks that allowing the MSMEs to restructure their loans or giving them more time to pay, and also increasing loans to them will solve the problem.
Former Reserve Bank of India governor Urjit Patel apparently did not agree with that view. He has resigned and been replaced by Shaktikanta Das who is more sympathetic to the financial woes of the MSMEs. He has allowed banks to do a one-time restructuring of small loans not exceeding Rs 25 crore of MSMEs. Meanwhile, the government has tried to spur its own banks to lend more aggressively to MSMEs and also tried to push the MUDRA loans.
The issue is that the government needs to realise that the prime cause of MSME distress originates from the twin shocks of demonetisation and GST. Easier loans arent going to solve those issues.
NPAs from MUDRA loans are already rising. More loans and easier repayment terms will do nothing to solve the basic problem for MSMEs. That's why expecting the RBI to solve what is essentially the task of the government is a bad idea.