Challenges galore for Rane to revive MSME sector

New Delhi: With the appointment of Narayan Rane as new Micro, Small and Medium Enterprises (MSMEs) minister, Prime Minister Narendra Modi has made it clear that the MSME sector, which is one of the worst affected by the two waves of Covid-19 infections, is in the dire need of an overhaul. Modi has banked upon Rane to revive the sector.

Notably, Rane, who rose from ward chief of Shiv Sena to chief minister of Maharashtra, has experience of handling portfolios such as animal husbandry, industry, ports, employment and self-employment. Rane has been appointed as MSME Minister replacing Union Minister Nitin Gadkari in the Cabinet reshuffle that took place on Wednesday.

His past experiences may be the reason behind allocating the MSME portfolio to Rane to bail out the worst-affected sector which has a potential of employment generation.

However, despite all the credentials of handing the pertinent portfolios in the past, challenges galore for Rane as he would face several challenges associated with the MSME sector. One of the biggest challenges with the MSMEs sector in the country is the huge shortage of finance and financial literacy among small business owners.

As per CRISIL's SME tracker, the credit gap between the available and required working capital has been widening since 2015. Due to Covid-19 pandemic, the credit gap has worsened due to disruptions in the cash flow cycles.

The other major challenge is bank's reluctance in lending funds to MSME units as banks are not sure of MSME unit's repayment capabilities which may lead to small units becoming non-performing assets (NPAs). Such a situation has worsened the liquidity crunch in the sector. Rane would have to create a holistic ecosystem for the overall growth of the MSME sector by pumping in liquidity in it.

It has also been observed that most of the MSMEs forced to take loans from informal 'banking system' at high interest rates due to which sustainability of their operations doesn't last for a longer period.

The non-availability of modern technology and equipment is another major issue that has put a brake on MSMEs growth. The majority of MSME units owners cannot afford to have modern equipment as the workforce is unskilled and they don't have the knowledge to operate it.