RBI panel proposes £1 bn govt fund to develop MSMEs

Wednesday 03rd July 2019 06:47 EDT

A Reserve Bank of India panel constituted to suggest measures to develop micro, small and medium enterprises (MSMEs) has proposed a £1 billion government fund. The idea is that this will support venture capital and private equity funds investing in the MSME sector. The panel has also recommended a £500 million distress asset fund to assist in clusters where several small businesses are affected because of external factors, such as a change in environmental laws.

It has recommended a comprehensive and holistic MSME code in place of the MSMED Act, 2006, replacing present territorial jurisdiction and arbitrary inspection with policy-based monitoring systems with a sunset clause. An expert committee on the MSME sector submitted its report to RBI governor Shaktikanta Das earlier this month.

Set up earlier this year under the chairmanship of former Sebi chairman UK Sinha, the panel believes introduction of GST has made it easier to identify companies based on turnover and this should be the criteria for determining MSMEs rather than employment, which is difficult to implement. Considering the role of state governments, it wants SIDBI to engage with them. The collaboration of state governments is also seen as crucial in helping MSMEs move up.

The report said that the other areas where SIDBI can contribute is developing and deploying additional instruments for debt and equity, which help crystallise new sources of funding or MSMEs and MSME lenders, such as first-loss guarantees, pass-through certificates. It also added that for this, it needs partnership arrangements and may, if required, raise funds directly from the market-based on its AAA rating.

It recommended creating an information utility to collect details of invoices, to help small businesses recover their dues from large corporates. On that information, the designated authority will write to corporates, asking them to clear bills. The panel has also come up with a central scheme to support setting up of enterprise development centres (EDCs) in the district industries centres to help small industries rise.

“These EDCs, while being principally funded by the government of India, must have the operational flexibility to partner with the private sector, particularly in the areas of skilling and technology development. Contribution of companies to the capacity building via EDCs must be eligible for corporate social responsibility (CSR) spending,” the report said.

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