Modi offers big relief for small businesses
Loans up to ₹1 crore to be approved in 59 mins, labour law restrictions eased
New Delhi: Prime Minister Narendra Modi on Friday announced a series of measures designed to help small businesses by giving them access to quick finance and sparing them the rigours of complying with some labour laws.
The move comes amid serious differences coming out in the open between the Reserve Bank of India and the finance ministry on easing lending restrictions to improve liquidity in the system.
The ‘micro, small and medium enterprises (MSME) support and outreach’ programme launched by Modi seeks to grant quick access to credit at attractive terms. Loan requests for up to ₹1 crore will be approved online in principle in less than an hour—59 minutes to be precise.
Businesses that are registered for the goods and services tax (GST) will get a 2% subsidy on interest on loans, while exporters will get a 5% subsidy—up from 3% now—on the interest they pay on pre- and post-shipment credit. The Prime Minister also announced a ₹6,000 crore scheme for technology upgradation at small firms.
Union ministers will visit 100 aspirational districts and help small businesses, to make sure that the benefits reach the right people.
The latest drive to improve the access of small business to credit is significant as these entities, which are a major support base for the ruling Bharatiya Janata Party, have had to grapple with a cash crunch after the November 2016 demonetization and business disruptions caused by the GST at the time of its roll out in July last year.
Modi said banks will process loans under the new scheme by analysing the information provided by the applicant in their GST and income tax returns in addition to the cash flow-related information available with banks. “Even while you file your GST return, the tax portal will ask if you need a loan,” he said.
MSMEs are not a focus area for banks and face problems in securing loans, with banks rarely meeting targets for MSME lending, industry representatives said. “Banks have to change their mindset if such outreach programmes are to meet their objectives. Else, these measures will remain a election gimmick,” said Chandrakant Salunkhe, founder and president of the SME Chamber of India.
Modi also announced measures to ensure that small businesses get credit based on trade receivables. He urged all state-owned enterprises to join an electronic platform called the Trade Receivables Discounting System (TReDS), where small suppliers can access credit based on trade receivables.
“The biggest benefit is that MSMEs’ funds will not get stuck and cash flow will not be affected. I will urge big businesses to settle the bills of small businesses and not to delay. If there is still delay, small businesses can file complaints to the ministry, which will be resolved quickly, he said.
Modi said the government has decided to increase the minimum procurement that state-run companies have to make from small businesses from 20% now to 25%. Of this, 3% will be reserved for SMEs run by women. This will boost entrepreneurship among women, he said.
All central public sector units will have to be part of the e-government marketplace, where government purchases are transparently accessible to all suppliers, including MSMEs, Modi said.
Finance minister Arun Jaitley, who was present at the launch, said the government has been working on ensuring strong economic growth, which will also help small firms boost their output and enhance their clients’ purchasing power.
The Prime Minister said the frequency of biannual returns to be filed under certain labour laws has been reduced to once a year to improve ease of doing business for small firms. Inspection of factories will be decided in a computerized manner and officials will have to file their reports within 48 hours. “This will spare small firms from inspector raj,” Modi said.
Giriraj Singh, minister of state for MSMEs, said 65 million MSMEs in the country provide 120 million jobs.
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