As per the existing definition, micro-enterprise investment in plant and machinery does not exceed Rs 25 lakhs, between 25 lakhs and Rs 5 crore, small enterprise and up to Rs 10 crore medium enterprises.
For the survey, we visited hundreds of small units promoted by technocrats, units inherited by the second generation, units promoted by entrepreneurs who shed their job to take up the business, units that started as a self-employment initiative.
The old economy business still gets only inadequate media attention and no deserving recognition, because of their media shy or not so savvier attitude. They are highly reserved and have no polished attitude.
The second generation of small enterprises is yet to think broadly to take their business to the next level. They are found to be equally overcautious of running the show and still carries the legacy of poor transparency.
Lenders are aware of the issue of poor transparency and non- reflection of the full financial strength of small enterprises. Still, they are ready to compromise with the rules in the case of net margin. But GST implementation is changing this style tremendously as cash dealings in many sectors have come down drastically. This has started reflecting in the account books of many MSMEs.
Bankers say, if a company is doing business without any trouble for many years despite having only a narrow proﬁt margin, we consider them duly for credit support. The bankers don’t ﬁnd any risk in dealing with them because of the narrow margin for the reason of their historical performance on a narrow margin.
Transparency problems with small enterprises are still intact. The government measures like implementation of GST with twin purposes of bringing the business under a single tax regime and operational transparency did not seem to have gone well with many enterprises. They are still afraid of being transparent. Lenders, who are mainly public sector banks cannot look beyond oﬃcially recorded business size of enterprises, ﬁnd some diﬃculties in considering the credit request of small enterprises over and above their eligibility. Small enterprises cannot show their business book diﬀerently from what their banks could ascertain from the GST ﬁling. It is here where many enterprises ﬁnd problems. Its impact is deep and broad. That is one of the reasons why the MSME segment still faces problems. The grave miscalculations of entrepreneurs create enough problems for them. They must let their old habits die.
Most of the small enterprises which are not so professionally run but cash-rich, are yet to change their mindset. They seem to be far away from realizing the fact that technology is tracking everything after the implementation of GST on cutting edge technology platform. Income tax is also running on an integrated technology platform. Variation in the maintenance of books from what is ﬁled with respective tax authorities could invite huge troubles. The government has already found many mismatches in GST ﬁling for claims and IT returns. Most of these are of small-sized no-so-professionally run companies. This will not only invite troubles from the respective tax department, but also from the lenders.
Commercial lenders are gradually enlightening them to be more transparent in their transaction for easy credit and easier access to institutional funding, besides higher enterprise valuation. But this is still limited to a small number of companies. Banks in their routine exercises of marketing their credit products look for only ﬁt cases. With many banks still under prompt corrective action (PCA), banks are not taking much pain to market their credit products aggressively with a target.
We found highly technology sensitive products are made by some MSMEs, which are promoted and still managed by those who never studied in any industrial training institute or engineering school. They ﬁnd an identity crisis, poor direct access with large ﬁrms and export markets. They depend on dealers for selling their products thereby losing their margin and direct contact with the foreign market. This makes the manufacturer unable to gather direct feedback from the client for the necessary innovation and product up-gradation. We also found there are instances of large companies refusing to deal with them because of the promoters’ lack of academic credibility. Surprisingly the products manufactured by them are sourced through dealers. There is a need for change in the mindset of large companies.
Awareness campaign about various schemes is more of a routine exercise than with an intention of reaching the target class, mainly because of the business class approach. Institutions still rely on urban class media for marketing their schemes and awareness schemes. A huge middle segment is left out of being enlightened by institutions about any government scheme or its services. Many small enterprises are not yet fully aware of many government schemes to which they are eligible.
Subsidies, especially State subsidies are not coming easily. Many entrepreneurs say, the subsidy is like chasing a wild goose. When an entrepreneur based in Hyderabad, who was to get lakhs of rupees couldn’t pay two loan installments in the immediate aftermath of the demonetization, she was served recovery notice. The subsidy due was many times more than the due EMIs. The entrepreneur suﬀered many headaches thereafter. This showed if subsidies are released on time, many entrepreneurs would be conﬁdent of the government gesture. The red-tapism still haunts the MSME sector. Some institutions’ talk to the media and approach to small business is found to be diametrically opposite.
MSMEs are found to be victims of landowners’ litigation. Some well to do SMEs which operate from leased properties are harassed by lenders in their chase for recovery of money from the landowners, who mortgaged the properties without the knowledge of the tenant. Lenders must ﬁnd a quick solution to easily dispose of such cases so that the SMEs, which are not at any kind of fault are set free from the troubles instead of locking the factory as a whole indeﬁnitely. An example is found in Hyderabad.
Delayed payments are found to be one of the major problems faced by MSMEs. Institutional decisions are slow even after intense follow-ups. Even government departments do not make the payment on time unless the concerned oﬃcers are not treated “properly”. Though according to MSME Act the invoice must be realized within 60 days from the date of invoice, most of the MSMEs virtually ﬁght for the payments. After the GST late payment added one more trouble of making the payment from their pockets. This means MSMEs are put to make the tax payment before their dues are cleared.
The existing system is enough to ﬁnd whether payments to MSMEs are paid on time. The delay can be ascertained from matching the invoice date and payment realization date. Making a late payment to MSMEs who are liable to pay GST, should be looked at seriously.
The government has made 25 percent of the public institutions’ procurement mandatorily from MSMEs. Many small enterprises, though capable of meeting the supply-demand, are unable to ﬁnd earnest money deposits. This is found to be a big stumbling block. Small institutions require complete relaxation from this clause and the tendering process to be made simpler with riders that an average MSME is capable of meeting. There is a big gap between what is there in the rule book and what is reality.