The Govt. should bring all MSMEs under a single umbrella to enable uniform growth

Interview by B. Swaminathan

MSMEs in Tamil Nadu (and probably the entire country) have been facing many challenges due to introduction of GST, natural disasters like cyclones, and even mega drives by the govt. like demonetization in 2015. As a result, many of the smaller units were not able to cope up and had no other option but to shut shop. In fact, a policy note tabled in the assembly recently by the MSME department reads that about 50,000 MSME units had to shut down due to all this. So, even as Tamil Nadu gears up for the next global investors’ summit, the govt. needs to pay more attention to MSMEs to enable their growth and avoid further closures.  We interacted with C.K.Mohan, Hon. Gen. Secretary of TANSTIA (Tamil Nadu Small and Tiny Industries Association) to understand some of these challenges in more detail and what could be done to resolve them. Here are excerpts…

What are some of the key challenges that MSMEs of Tamil Nadu are facing?

The first challenge is that many small units are closing down due to back-to-back events of 2015 like floods, demonetization and GST. They were just not prepared to manage such drastic situations either financially or from a productivity point of view. On top of that, insurance claims for the damage caused by disasters like ‘Vardha’ cyclone came after 8 months, which was too long a period for the units to recover.

How can the govt. identify the actual number of MSMEs facing these challenges?

According to us, the number of units that shut down might be higher. A mechanism should be brought in immediately to find out such companies. The best way to find them is through their registered electricity connections instead of depending on figures from the ESI, PF and banks. It would be easier to find out the exact number of units that shut down by churning out data through disconnected EB connections.

Are the steps being taken by the government sufficient to deal with these challenges?

Even the government disaster relief funds never had anything for the industry. Unlike farmers, we do not have a mechanism where the government can help us immediately for disasters. The disaster relief funds can be allocated only for activities like re-building the roads. Besides this, the money lenders, including the government banks were chasing us for payments. A small business owner, who had pledged all his personal earnings will have no other option but to shut-down. SMEs and MSMEs are not there on the radar of venture-capitalists, most of who invest on tech-driven companies and not on traditional business owners.

What has been the impact of GST on the MSMEs in Tamil Nadu?

Our key challenge in GST is the tax laid for job works especially in manufacturing companies. For example, GST is different for the same job work for manufacturing sector as compared to the textile industry. All MSMEs should be brought under a single umbrella to enable uniform growth. For example, GST for job-workers should not be 18%. Plus, the fine on GST should be removed at least for companies with a turnover of less than INR 2 Crores. If the government is thinking of some measures, then they can implement minimum interest but remove the fines.

What are the key steps that the government should take to avoid further closures?

  • A disruptive policy for MSMEs is immediately needed. The rules and policies for doing business are almost same for a small company and large enterprises. MSMEs should be given special priority in all aspects. On the other hand, within MSMEs, there are difference in terms of taxation.
  • Land should be made available at an affordable cost for small businesses. There should be special policies and areas to be dedicated only for them. Under purchase-preferences, government should strictly consider MSMEs in its procurement policies.
  • Exit policies and labor policies should be made easier. There are many companies who register only for the sake of registration. The government should keep monitoring the performance of the registered companies.