Modi govt’s flawed policies and failure to bail out MSME sector leading to a socio-economic crisis

Demonetisation, GST regime, pandemic and no real support from govt have led to an existential crisis for Micro, Small and Medium Enterprises sector, which employs 90 per cent of workforce in India

Representative Photo
Representative Photo
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Dr Gyan Pathak

The Union Government has just extended the validity of a key scheme bolstering equity support to Micro, Small and Medium Enterprises (MSMEs) for one year by facilitating Rs 20,000 crore as subordinated debt which will now remain in force until March 31, 2023. The government has made statements as if it has done the sector a favour, while the fact is that the Government of India does not even maintain the latest data about the MSMEs or job losses in them. Therefore, all its planning is being done in the dark and does not meet the requirement on the ground.

One such glaring example is usage of six year old data of the National Sample Survey 73rd round conducted for the FY16 that reported existence of 6.33 crore unincorporated non-agriculture MSMEs in the country. The latest Ease of Doing Business for MSMEs annual report for the year 2021-22 has used that old data which is far removed from the ground reality.

The Modi government is perhaps afraid of using the latest data because the demonetization of 2016 had effected closure of millions of MSMEs, and millions others have been struggling to survive since then, and the situation was further worsened after implementation of GST without preparation in 2017, and lock down without preparation in 2020.

The real current data on the status of MSMEs and job loss would have exposed the Modi government.

The subordinated debt scheme that has just been extended was aimed at benefitting only 2,00,000 stressed MSMEs and the amount earmarked was only a paltry Rs 20,000 crore. The extension was made because of slow pace of its implementation, as in the case of Emergency Credit Line Guarantee Scheme (ECLGS) of Rs 3 lakh crores collateral-free automatic loans for business including MSMEs for the year ending March 2021, which was extended up to March 2022 and expanded to Rs 4.5 lakh crore, now expanded to Rs 5 lakh crore for the year 2022-23.

However, targets have never been achieved. Under ECLGS, progress was dismal, and only Rs 2.82 lakh crore were sanctioned till November 12, 2021, of which only Rs 2.28 lakh crore was disbursed.

MSMEs have always been finding it hard to get credit from banks, especially after the general lockdown of the country from March 24, 2020 after the outbreak of COVID-19, which hit them the hardest. Closures of units made them defaulters on loan repayment, and Modi government had announced the subordinated debt scheme as part of Atmanirbhar Bharat Package.

Modi government has always been claiming that a number of initiatives under Atmanirbhar Bharat have been taken for supporting MSMEs and job creation. But all its plans are defective on account of the unavailability of current data, as is self-evident from the annual report for the year 2021-22 on Ease of Doing Business for MSMEs which has also shared data relating to expenditure on major schemes for the nine-month period ended December 2021.

Modi government had more than doubled the budgetary allocation for the current financial year 2021-22 to Rs 15,700 crore from Rs 7,572 crore in 2020-21, but actual expenditures remained meagre in several key schemes.

For example, the Entrepreneurship and Skill Development Programmes aiming to promote new enterprises, building capacity of existing MSMEs and inculcating entrepreneurial culture spent only Rs 1.83 crore out of Rs 10 crore allotted.

Rs 19.43 crore were allocated for MSME competitive scheme for technological upgradation and competitiveness, but only Rs 1.61 crore were spent.


Similarly, the ASPIRE scheme, which worked on setting up business incubators and looked at the commercialization of business ideas, incurred an expenditure of only Rs 4.31 crore as against an allocation of Rs 15 crore.

MSME-Innovative (Incubation), MSME-Innovation (Design), and MSME-Innovative (IPR) schemes that catered to awareness and development of incubation, product design, and intellectual property rights ecosystem for MSMEs saw an expenditure of Rs 1.52 crore, Rs 2.36 crore, and Rs 0.14 crore out of the allocated Rs 23.16 crore, Rs 15.21 crore, and Rs 25.57 crore respectively.

The MSME Sustainable certification scheme to promote Zero Defect Zero Effect practices among MSMEs witnessed zero expenditure out of Rs 16 crore allocated.

Though several other schemes for MSMEs reported relatively higher expenditure, it was still not satisfactory. For instance, Prime Minister Employment Generation Programme (PMEGP) could spend only 71 per cent, SME division only 52 per cent, Agro and Rural Industry division only 58 per cent, while overall expenditure of the MSME Ministry was only 68 per cent till December 2021.

The record shows how little the Modi government is supporting MSME sector in the country which employs over 90 per cent of the workforce in non-agriculture activities. It is no wonder why MSMEs in the country are struggling to survive.

Even gross non-performing assets of MSMEs or loans defaulted, rose by Rs 20,000 crore to Rs 1,65,732 crore as of September 2021, from Rs 1,45,637 in September 2020.

According to the RBI, bad loans of MSMEs now account for 9.6 per cent of gross advances of Rs 17.33 lakh crore as against 8.2 per cent in September 2020, and Rs 1,47,260 crore (8.8 per cent of advances) in September 2019.

No doubt, MSMEs in India need accelerated real support on the ground, not only high-sounding names and numerous schemes in speeches and papers. It is key to the employment generation in large number to overcome joblessness in the country.

(IPA Service)

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