RBI panel recommends handholding of MSMEs
26 June 2019
An expert committee set up by the Reserve Bank of India (RBI) to look into specific needs of micro, small and medium enterprises (MSME) in the country, has recommended focused attention to the financial and operational needs through handholding by both banks and the government.
Since MSEs face problems of delayed payments and hesitate to enforce the legal provisions available to them under the MSMED Act due to their low bargaining power, the committee has suggested changes in the MSMED Act to ensure timely payments to MSEs. The Committee recommended that the amended Act should ensure that all MSMEs should mandatorily upload their invoices above an amount to be specified by government, from time to time, to an Information Utility.
The committee in its reports pointed out that since a majority of the states have only one MSE Facilitation Council (MSEFC) which is not adequate to cater to delayed payment cases arising in the entire state, there is a need to increase the number of Facilitation Councils particularly in larger states.
The committee recommended that the government should make it mandatory for PSUs/ government department to procure from MSEs up to the mandated target of 25 per cent through the GeM portal only. Further, the portal can be developed as a full-fledged market place enabling MSE sellers to procure raw-material as well.
The committee also recommended amendment of General Financial Rules (GFR) and Departmental Procurement Codes/ Manuals to prohibit placing of purchase orders in excess of the annual budget approved by the legislature/ government.
At present, MSMEs register with multiple entities such as Udyog Aadhaar portal, GSTN, NSIC, etc, which is cumbersome. It has, therefore, been recommended that the government should make PAN as a Unique Enterprise Identifier (UEI) and the same should be used for various purposes like procurement, availing government sponsored benefits, etc.
The committee recommended suitable financial and non-financial incentives to retain successful Indian start-ups in order to deter them from migrating to countries with enabling environment such as tax concessions, well developed infrastructure, ease of doing business, exit policy, etc.
It has also proposed the establishment of Enterprise Development Centres (EDCs) within District Industries Centres (DICs) and further enabling these to run professionally and facilitate development of entrepreneurs into full-fledged, self-sustaining enterprises.
The committee has recommended that MSME clusters should collaborate with companies having innovation infrastructure, R&D institutions and universities that specialise in a specific industry or knowledge area.
Also, it is recommended that ways and means to enhance private sector contribution must be found, viz, through debt instruments like bonds, CDs, etc, with tax incentives through SIDBI, so that larger number of clusters can be supported.
To bridge the problem of lack of expertise in product development, technology adoption and marketing, the committee said the government should build networks of development service providers that can provide customised solutions to MSMEs. Further, the committee recommended strengthening of MSME Export Promotion Council.