Resource flow to Micro, Small and Medium Enterprises (MSMEs) needs to improve considerably along with a strong R&D push for the sector, the Economic Survey said on Wednesday.
Sourcing of finance at competitive cost is a major constraint for both the organised and the unorganised MSME units and financing, other than through internal accruals, is costly and prohibitive, it said.
“The resource flow, however, needs to improve. Research and technology upgradation activities also need to be scaled up,” it said.
The Prime Minister’s Task Force on MSMEs had recommended 20 per cent year-on-year growth in credit to micro and small enterprises to ensure enhanced credit flow.
Besides, it had suggested allocation of 60 per cent of the micro and small enterprises advances to the micro enterprises to be achieved in a phased manner.
There is also a need to set up new incubators on the Public-Private-Partnership (PPP) mode as only a small number of such players operate in the country, less than other countries.
“To attract more investment and talent, incubators need to be allowed to distribute profits back to investors. With some of these changes industrial growth could become steadier,” it said. Further, the survey said, the sector faces a multiple approval and operational restrictions.
The process of setting up and exiting business, particularly for MSMEs, is time consuming and complicated requiring expensive third party assistance, it added.
“Since states have the major role in administering MSME sector, the prevailing ecosystem therefore varies from state-to-state. Exit rules as per the Companies Act, 1956 are complex and costly and do not permit reaping the benefits from reallocation of resources,” it said.
It said the Twelfth Five-Year Plan covers various aspects of the MSME sector such as finance and credit, technology, infrastructure, marketing and procurement and skill development and training.
The sector employs over 60 million people in about 2.61 crore units. It contributes about 40 per cent to the country’s total exports and about 45 per cent to the manufacturing activities.