RBI’s panel on MSME recommends Rs 15,000 crore fund to support industry

27 Jun 2019 Evaluate

With an aim to boost micro, small and medium enterprises (MSME) sector, the UK Sinha Committee, set up by the Reserve Bank of India (RBI) has recommended financial support of Rs 15,000 crore to the sector. MSME sector contributes significantly to employment generation and has as a hefty share of over 40% in exports, while the contribution of the sector in the economy is currently constrained due to several challenges affecting growth in the sector. The committee recommended setting up of a government-sponsored 'fund of funds' (FoF) of Rs 10,000 crore to support the venture capital and private equity firms investing in the MSME sector that will support crowd funding from venture capital and private equity firms, which focus on investing in the MSME segment on modified terms sheets developed by SIDBI.

The 9-member panel also recommended that a Rs 5,000 crore distressed asset fund be structured to assist units in clusters where a change in external environment, such as a ban on plastics or dumping, has led to a large number of MSMEs becoming non-performing assets (NPAs). This fund could operate on the lines of the Textile Upgradation Fund Scheme (TUFS), which has been in existence for many years. This would be of significant size which makes equity investments that help unlock debt or help revive sick units. It also recommended introduction of voluntary certification of MSMEs that comply with prescribed internal governance standards.

The committee suggested use of priority sector shortfall (PSS) funds to create a low-cost lending window for state governments for infrastructure projects in clusters, civil works for rehabilitation of existing industrial estates and setting up of new industrial estates. This would require RBI approval and could be structured on the lines of the Rural Infrastructure Development Fund (RIDF). Also, SIDBI should help the state governments design or operate schemes for equity support, interest subvention, resolution of stressed MSMEs, learning events for MSME entrepreneurs including field visits to well-performing clusters and support to the sector to get onto the digital platforms, such as 'PSBLoansIn59Minutes', stock exchange listing and e-commerce platforms, among others.

However, the panel said the MSME sector faces several challenges. Formulation of targeted policies in infrastructure development, formalisation, technology adoption, backward and forward linkage, credit gap reduction and timely payments to MSMEs and their effective implementation has been a challenge for all the stakeholders. Recognising the sector's universal role as an engine of economic growth and for promoting equitable development, the committee said India is currently one of the fastest-growing economies of the world and the sector is likely to continue to play a significant role in the growth of the economy.

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