Q. “The government plays most vital role for Micro, Small and Medium Enterprises (MSMEs) development by way of policy formulation and implementation.” In light of the above statement, elaborate on the package ‘Atmanirbhar Bharat’ announced by government for MSMEs development.
The
Atmanirbhar Bharat Abhiyan, which translates to "Self-Reliant India
Campaign," was a package announced by the Government of India in May 2020,
primarily aimed at reviving the Indian economy in the wake of the COVID-19
pandemic. This package was not only designed to address immediate economic
recovery but also to strengthen India's long-term economic independence. The
Government's focus on Micro, Small, and Medium Enterprises (MSMEs) was central
to the initiative, as these enterprises form the backbone of India's economy,
providing employment, fostering innovation, and contributing significantly to
the country's GDP. In this context, the government's role in MSME development
through policy formulation and implementation has been pivotal.
The
MSME sector has been recognized for its critical role in driving inclusive
growth and fostering entrepreneurship. However, the pandemic highlighted the
vulnerabilities of this sector, including limited access to finance, dependence
on traditional supply chains, and limited technological adoption. The
Atmanirbhar Bharat package, therefore, introduced several measures specifically
targeting the MSME sector to enhance its competitiveness, access to capital,
and ability to adapt to changing market conditions. These measures were
designed to help MSMEs survive the immediate economic crisis caused by the
pandemic, recover in the short term, and emerge stronger in the long term.
1. Key
Features of the Atmanirbhar Bharat Package for MSMEs
The
Atmanirbhar Bharat Abhiyan for MSMEs can be broken down into several key
features that directly address the challenges faced by these enterprises. These
include:
1.1. Rs 3
Lakh Crore Emergency Credit Line Guarantee Scheme (ECLGS)
One
of the central components of the Atmanirbhar Bharat package was the Rs 3 lakh
crore Emergency Credit Line Guarantee Scheme (ECLGS). This scheme was designed
to provide much-needed liquidity to MSMEs struggling with cash flow problems
due to the lockdowns and disruptions in economic activities. Under this scheme,
the government provided collateral-free loans to MSMEs, which could be repaid
over four years, with a one-year moratorium on principal repayment.
The
ECLGS ensured that MSMEs could access immediate funds without the need for
additional collateral, which was a common barrier to accessing traditional
financing. This was particularly beneficial for smaller MSMEs, who often face
difficulties in securing loans from commercial banks due to their limited
credit history or lack of assets.
1.2. Definition
of MSMEs Revamped
The
government also revamped the definition of MSMEs to provide a more inclusive
framework. Previously, MSMEs were classified based on their investment in plant
and machinery. However, the new definition brought a more comprehensive
approach by factoring in both investment in plant and machinery and annual
turnover. This change was aimed at benefiting a larger number of enterprises by
allowing more businesses to qualify for MSME benefits.
Under
the new criteria, businesses with a turnover of up to Rs 250 crore and
investments in plant and machinery up to Rs 50 crore were now categorized as
MSMEs, allowing them access to various government benefits and schemes. This
move was expected to improve the competitiveness of Indian businesses by
broadening the pool of MSMEs eligible for government support.
1.3. Rs
50,000 Crore Fund of Funds for MSMEs
To
support the growth and expansion of MSMEs, the government introduced a Rs
50,000 crore Fund of Funds. The fund aimed to provide equity financing to MSMEs
with high growth potential, thereby enhancing their capacity to scale up. The
initiative was structured to provide funds to MSMEs through a set of
government-backed venture capital funds, which would invest in these
enterprises, particularly those that were innovative and had the potential to
compete at a global level.
The
Fund of Funds provided financial support to MSMEs by offering them access to
equity capital, which they could use to expand operations, invest in
technology, and improve productivity. The focus was particularly on encouraging
innovation, digital transformation, and the integration of MSMEs into global
value chains.
1.4. Simplification
of the Registration Process
The
Atmanirbhar Bharat package also aimed at simplifying the processes and
procedures for MSMEs. A key component of this was the introduction of a new,
simplified registration process through the Udyam Registration portal. This
online platform allowed MSMEs to register themselves quickly and efficiently,
eliminating the need for cumbersome paperwork.
The
introduction of the Udyam Registration system enabled MSMEs to access a range
of government benefits, including subsidies, tax exemptions, and priority
access to government procurement, without facing bureaucratic hurdles. This
move was aimed at boosting transparency, reducing red tape, and ensuring that
MSMEs could operate in a more business-friendly environment.
1.5. Subsidized
Interest Rates on Loans
Another
important initiative under the Atmanirbhar Bharat package was the provision of
subsidized interest rates on loans for MSMEs. The government set up a scheme to
provide loans at reduced interest rates to MSMEs, which were often charged
higher rates due to their risk profile. By subsidizing interest rates, the
government aimed to reduce the financial burden on MSMEs, making it easier for
them to access credit for working capital, purchasing raw materials, and
expanding their businesses.
This
initiative was expected to increase the overall liquidity in the MSME sector
and promote long-term growth by ensuring that these enterprises could afford to
take on the necessary financing to expand and modernize their operations.
1.6. Promotion
of Local Procurement and Support for ‘Vocal for Local’
In
line with the Atmanirbhar Bharat vision, the government encouraged the
promotion of local products and services through the 'Vocal for Local'
initiative. The government called for greater focus on sourcing products from
Indian MSMEs, which would not only boost domestic manufacturing but also create
a market for MSME products.
The
emphasis on local procurement was intended to support MSMEs in their efforts to
compete with global players, promote indigenous products, and increase the
resilience of supply chains. Additionally, it was seen as a way of fostering
national pride and encouraging consumers to choose Indian-made products, thus
providing MSMEs with a larger domestic market.
1.7. Technology
Upgradation and Innovation Support
Recognizing
the increasing importance of digitalization and technology adoption for MSMEs
to remain competitive, the Atmanirbhar Bharat package also included provisions
for supporting the technological upgradation of MSMEs. The government made
efforts to promote digital literacy and the use of advanced technologies, such
as Artificial Intelligence (AI), the Internet of Things (IoT), and automation,
in MSME operations.
By
offering financial incentives, subsidies, and technical assistance, the
government aimed to help MSMEs transition to the digital age, thereby improving
their productivity, efficiency, and market reach. This initiative was expected
to enable MSMEs to enhance their global competitiveness and respond more
effectively to rapidly changing market dynamics.
1.8. Public
Procurement Policies
The
government introduced several measures to encourage the participation of MSMEs
in public procurement. One significant policy was the reservation of a certain
percentage of government procurement for MSMEs, particularly those that were
owned by women, scheduled castes (SCs), and scheduled tribes (STs).
Additionally,
the government provided MSMEs with easier access to government contracts by
removing barriers related to documentation and technical specifications. This
policy aimed to ensure that MSMEs could tap into the lucrative public procurement
market, thereby improving their financial stability and growth prospects.
2. Impact of
Atmanirbhar Bharat on MSME Development
The
Atmanirbhar Bharat package was intended to serve as a comprehensive strategy
for MSME development. While the full impact of these measures is still
unfolding, there are several key areas where these initiatives are expected to
make a significant difference:
2.1. Improved
Access to Credit
The
Emergency Credit Line Guarantee Scheme (ECLGS) and subsidized interest rates on
loans significantly improved access to credit for MSMEs, addressing one of the
sector’s most pressing challenges. The ease with which MSMEs could access
capital allowed them to tide over the initial financial shock caused by the
pandemic and continue their operations.
2.2. Growth
and Competitiveness of MSMEs
The
introduction of the Fund of Funds, technology upgradation initiatives, and
focus on innovation through government-backed venture funds has enhanced the
growth potential of MSMEs. These steps have enabled MSMEs to scale up,
integrate into global value chains, and innovate, ensuring their long-term
competitiveness in the marketplace.
2.3. Stronger
MSME Ecosystem
The
simplification of the registration process and the creation of an enabling
environment for MSMEs have strengthened the overall MSME ecosystem. The ease of
doing business for MSMEs has been significantly enhanced, with reduced
bureaucratic hurdles and greater transparency. The digitalization of MSMEs,
supported by the government's initiatives, has allowed them to access wider
markets, both domestically and globally.
2.4. Increased
Domestic Manufacturing and Job Creation
By
encouraging local procurement and promoting indigenous products, the
Atmanirbhar Bharat package has contributed to a growth in domestic
manufacturing. This has not only benefitted MSMEs by expanding their market but
has also led to greater job creation, particularly in rural and semi-urban
areas, where a large proportion of MSMEs are located.
3. Challenges
and Criticisms
While
the Atmanirbhar Bharat package for MSMEs has been widely welcomed, it has also
faced criticisms. Some MSMEs, particularly those in the informal sector, found
it challenging to access the benefits of the package due to a lack of digital
infrastructure and awareness. Additionally, many small businesses have
struggled with high operational costs and limited access to credit despite the
government’s efforts.
Moreover,
while the liquidity support and loan guarantees provided short-term relief,
some experts argue that more emphasis could have been placed on structural
reforms and long-term policy changes to address the systemic challenges faced
by MSMEs.
4. Conclusion
In
conclusion, the Atmanirbhar Bharat Abhiyan was a comprehensive package aimed at
providing immediate relief to MSMEs during the COVID-19 crisis and ensuring
their long-term growth and competitiveness. Through various initiatives such as
the Emergency Credit Line Guarantee Scheme, the Fund of Funds, and technology
upgradation support, the government played a critical role in strengthening the
MSME sector. While challenges remain, particularly for smaller, informal MSMEs,
the policy measures introduced under Atmanirbhar Bharat have laid a strong
foundation for a more self-reliant, resilient, and competitive MSME ecosystem
in India.
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