Many of the govt. schemes for MSMEs are irrelevant: Anil Bhardwaj

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Saurabh Gupta | 23 Mar, 2010
Many of the government schemes meant for development of micro, small and medium enterprises (MSMEs) are irrelevant because the outreach of the schemes so far has not been more than 1 percent, says Anil Bhardwaj, Secretary General, FISME in an exclusive interview to SME Times.

Excerpts of the interview...

How you see the growth of MSME sector in the coming years?
Anil Bhardwaj: The MSME sector growth will remain robust because in the last five years the drivers have been infrastructure, housing and consumer durables. And in last one year, there has been a tremendous rebound in all these three sectors.

Housing is more or less back again - growing at double digit; so is auto and so is in infrastructure. So, I am pretty confident that the growth will be robust for MSMEs. Apart from that, there are a couple of important decisions that are again going to be implemented in the next 12 months or so, which in my opinion, will open up a larger area of opportunities for MSMEs.. ..and would give quite a fillip to MSMEs.

What kind of decisions are you waiting for?
Anil Bhardwaj: The one is public procurement. For several years it has been in discussion. We have crossed most of the hurdles now and very soon it would be a reality. And if defense, railways and other major ministries implement 20 percent of the quota for MSMEs, it will open billions of dollar worth of new market. And it would help MSMEs scale up. So you would see a jump in the number of micro to small, small to medium, and medium to large industries. And that, I think, would be one of the major sources for development.

It seems that you are very optimistic about the implementation of MSME task force?
Anil Bhardwaj: I am not fully sure that wheather all the recommendations would be implemented because it talks of hundreds of things. But so far as public procurement is concerned, it has been very specific demand and there had been lot of efforts already made by previous governments also. But fortunately as the committee ( Prime Minister's Task Force) has taken a decision at highest level in this regard, I am pretty hopeful that now it would be implemented.

How you see the issue of non availability of credit at reasonable interest rate at micro and small level?
Anil Bhardwaj: I am not really sure actually and I do not think so. FISME's opinion has been that so far we have been trying to tackle the issue of access to finance by incremental on incremental basis. We cannot solve this problem by incremental basis alone. What we need is a complete paradigm change; we need financial sector reforms and without that you cannot take finance to those (MSMEs). After all, if you look at the financial inclusion and you compare with all the developing countries, it is among the lowest. And it is not surprising... there are reasons why it is so. So, unless those fundamental changes are affected, I really do not think that there would be dramatic change. There may be increase of 10 percent in credit but requirement is of 1000 percent increase.

Do you agree that the government requires to make strict guidelines for banks to lend more to MSMEs?
Anil Bhardwaj: I do not think so that you can solve this problem by guidelines alone; the issues are much larger. And as I said without financial sector reforms, I don't know how you can do it. And what is important reforms are needed in how the government borrows money, what is the bond rate? If I open up a bank today, I would probably do exactly the same things as the public sector and the private sector banks are doing. Banks lend only 40 percent to MSMEs and give to the cream of the sector. Why 40 percent? if 90 percent people are unemployed or self-employed .. so all the money should actually be going to them, but it is not going. In the MSME sector, if you leave the agriculture how much is the percentage, it is hardily 8 to 10 percent. So that is not going to solve the problem at all. People would be funding only the larger among the small enterprises - not the ones who need the money.

How you see the idea of having a separate stock exchange for SMEs? Do you think it will be fruitful for SMEs?
Anil Bhardwaj: It would be fruitful, but let’s not forget it addresses a niche problem. And the niche problem is that today the venture capitalists or angle investors have not been able to finance SMEs because of not having any exit route. So, what a successful institution ( separate exchange ) can provide is, It can provide you an exit route - an institutional exit route. So, it would be very helpful for that segment of SMEs. But that constitutes a very small segment. It is an important segment but it is a very small segment.

You were constantly advocating the issue of entrepreneurial suicide or the issue of bankruptcy and insolvency. How the government is taking that issue?
Anil Bhardwaj: What we had been saying is that today in India there is no life after failure for entrepreneurs. So, entrepreneurs or farmers, once they have taken loan, they have no other option but to commit suicide if they find it impossible to repay it. Globally such issues are taken care of with the help of insolvency and bankruptcy regimes. We do not have insolvency and bankruptcy functional system in India. So we had been gunning for long to provide legislation and institutional mechanism for modern insolvency and bankruptcy procedures. We had taken this issue with the government and now they have agreed to formulate a committee to look into this matter and suggest a course of action, which would include a draft legislation, which the government can take up in the due course of time.

How you see the present government schemes for MSMEs. Are they relevant enough for MSMEs?
Anil Bhardwaj: Some of them are, but many of them are irrelevant... and in any case because the outreach of schemes so far has been not more than 1 percent. So the bulk of the micro enterprises would not have heard about the ministries, would not have heard about schemes, would not have heard about associations also. So, it is basically more for organized segment that is being served by the schemes so far.... and there is a need to do a complete rethink on the promotional setup of the MSME support mechanism in India particularly at the center and as well as at the state level.

What would you like to convey to the government in order to support MSMEs immediately?
Anil Bhardwaj: I think there are two important areas that they should really work on; one, off course, is this minimum 20 percent procurement guideline coupled with timely payment by large enterprises, and secondly, that they should reduce the regulatory burden.