In a significant move to improve credit access for small and medium businesses, industry body Assocham along with public policy organisation EGROW Foundation on 28 November released an exhaustive study on the challenges faced by MSMEs in the country and suggested solutions to address them.
By combining quantitative data of over 150 companies from the survey with qualitative feedback from around 120 industry stakeholders, the study titled: MSMEs Facing Challenges in Doing Business offered a comprehensive understanding of the multifaceted issues MSMEs faced.
A series of in-depth interviews with members of various state units of ASSOCHAM provided valuable insights into the region-specific challenges faced by MSMEs, particularly concerning their unique products, market dynamics and business environments.
As per the study, MSMEs across India face key challenges related to access to finance, compliance with taxation and labour laws, obtaining business registrations, and securing clearances from various departments.
Emphasising the necessity for creative financial solutions, the study called on banks to enhance transparency in their loan approval procedures and to abolish charges for unused credit. Recommendations also include the introduction of bonds and mutual funds tailored for micro, small, and medium enterprises (MSMEs) to boost financial liquidity, the promotion of mobile banking services to cater to informal micro-enterprises, and the expansion of Small Finance Banks (SFBs) to more effectively serve rural and semi-urban regions.
Also Read: MSME Advantages and Disadvantages
GST
The study further recommends that the corporate income tax rate for MSMEs should be reduced from 25% to 15%, an ASSOCHAM-EGROW study has said, further suggesting a simplified Goods and Services Tax (GST) system to ease procedures for compliance.
Delayed Payments
The report indicated that the recently implemented 45-day payment rule has not been effectively enforced this year, particularly among public sector undertakings and large corporations, as many of these larger entities continue to postpone payments.
To address the issue of late payments, the report recommended enhancing enforcement and monitoring mechanisms to ensure compliance with Section 43B of the Income Tax Act.
“This can be accomplished by creating automated systems that monitor payment schedules and detect delays, especially within public sector undertakings. In addition to improving oversight, it is essential to impose stricter penalties for non-compliance. Companies that do not adhere to the 45-day deadline should incur fines or interest charges on overdue payments, in addition to the current loss of tax deductions,” the report stated.
For companies reluctant to place orders with registered MSMEs due to the limited credit window leading to many MSMEs to deregister, the report suggested that the government should implement flexible payment terms that permit extended credit periods for these enterprises.
Also Read: Businesses Can Avoid Delayed Payments Monitoring System
Central grievance portal
A central grievance portal, designed in accordance with the Ombudsman framework established by the Reserve Bank of India, has been proposed to provide MSMEs with a structured mechanism for addressing departmental and governmental issues.
In a statement, ASSOCHAM President Sanjay Nayyar said, “The report lays out a strategic plan and roadmap for the MSMEs on India’s path to become a developed country by 2047. The recommendations will serve as a valuable resource in making informed and strategic policy decisions. Our strong base of formal and informal entrepreneurs would need strategic support from the government – Centre and states, banks and conglomerates to be a critical partner in realising the national aspirations. With the right ecosystem and collaboration, MSMEs can become the foundation of a resilient and globally competitive Indian economy”.
Also Read: MSME New Classification in Detail.
