India: MSME panel recommends extension of ‘stimulus package’ for one year

By Nagesh Narayana

Microfinance Focus, Feb 4, 2010: The Task Force on Indian Micro, Small and Medium Enterprises (MSMEs) headed by TKA Nair has recommended the Indian government to encourage Microfinance Institutions (MFIs) to form self-help groups and extend the ‘stimulus package’ for a further period of one year.

The task force was constituted following a representation by 19 MSME Associations to the Prime Minister in August 2009 to highlight their concerns and issues regarding MSMEs. The Task Force under the chairmanship of the Principal Secretary to Prime Minister has recommended several measures to shore up the MSMEs in the country.

The MSME sector acts as an incubator of entrepreneurship, often driven by individual creativity and innovation. With a contribution of 8% of the country’s GDP, 45 per cent of the manufactured output and 40 per cent of its exports, the sector provides jobs to about 60 million persons through 26 million enterprises, the report said. The labour to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries, the report highlighted.

Further, the report found more than 94 per cent of MSMEs unregistered, with a large number established in the informal or unorganized sector and recommended revamping the sector significantly.

Some of the immediate measures it proposed include earmarking additional public spending to the tune of Rs 5,000-5,500 crore over the next three to five years and strict adherence to the stipulated lending targets by the commercial banks for micro enterprises.

The panel has mooted the creation of a separate fund with the Small Industries Development Bank of India (SIDBI) using the shortfalls against MSE credit targets for commercial banks.

As a regulatory mechanism, it has recommended the establishment of a Small and Medium Enterprise (SME) Exchange and simplify labour laws in the sector in the next three years keeping in view the high transaction costs for complying with these laws.

The recommendations include the setting up of an independent body at the national level by the Government for promotion and development of the sector.

To expedite the implementation of the recommendations, the task force has suggested the establishment of a Prime Minister’s Council on Micro and Small Enterprises in the Prime Minister’s Office to oversee on a half-yearly basis.

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