Economic Survey 2024: Access to credit is primary concern for MSME sector

The Economic Survey 2023-24, presented by Finance Minister Nirmala Sitharaman, emphasizes that addressing the credit gap for micro, small, and medium enterprises (MSMEs) is crucial. It also highlights the need for deregulation, improving physical and digital connectivity, and developing an export strategy to help MSMEs expand and scale up. According to the Avendus report, there lies a huge $530 billion credit gap in the MSME ecosystem.

Despite occupying center stage in India’s economic story, the MSME sector continues to face significant challenges. The Survey notes that the sector is burdened with extensive regulation and compliance requirements, with access to affordable and timely funding being one of the core concerns. Licensing, inspection, and compliance requirements imposed particularly by sub-national governments hold MSMEs back from growing to their potential and being significant job creators. The Survey points out that threshold-based concessions and exemptions create the unintended effect of incentivizing enterprises to cap their sizes below the thresholds. It calls for threshold-based incentives to have sunset clauses.

Deregulation is deemed essential, with a call for institutional mechanisms to facilitate dialogue with state governments for necessary policy changes. Training MSME entrepreneurs in areas like human resource management, financial management, and technology is also recommended to boost productivity.

The Survey mentions that the MSME sector is the backbone of India's economy, contributing 30% to GDP, 45% to manufacturing output, and employing 11 crore people. The government has implemented several initiatives to support MSMEs, including:
- Rs 5 lakh crore Emergency Credit Line Guarantee Scheme for businesses, including MSMEs
- Equity infusion of Rs 50,000 crore through the MSME Self-Reliant India Fund
- New revised criteria for the classification of MSMEs
- Raising and Accelerating MSME Performance program with an outlay of Rs 6,000 crore over 5 years
- Launch of Udyam Assist Platform to bring informal micro enterprises under the formal ambit for availing the benefit under Priority Sector Lending.

In line with India’s 'Aatmanirbhar' vision, Production Linked Incentive (PLI) Schemes for 14 key sectors were announced with a Rs 1.97 lakh crore outlay to boost manufacturing and exports. By May 2024, these schemes attracted over Rs 1.28 lakh crore in investment, generating Rs 10.8 lakh crore in production/sales and creating over 8.5 lakh jobs. Exports increased by Rs 4 lakh crore, driven by sectors like electronics manufacturing, pharmaceuticals, food processing, and telecom products.

The MSME sector plays a vital role in India’s economy, contributing 35.4% to manufacturing output. According to the Survey, Gross Value Added (GVA) per worker rose from Rs 1,38,207 to Rs 1,41,769, and Gross Value of Output (GVO) per establishment increased from Rs 3,98,304 to Rs 4,63,389, indicating higher productivity and efficiency.

The Udyam Registration portal, with 4.69 crore registrations by July 2024, has been instrumental in formalizing MSMEs. From FY20 to FY24, guarantees for MSMEs grew significantly, with ₹9,000 crore allocated in the Union Budget 2023-24 to the Credit Guarantee Fund Trust, facilitating an additional ₹2 lakh crore in credit.

The Survey says these initiatives have been formulated keeping in mind the key challenges the sector faces, primarily access to timely and affordable credit.