Contrary to claims by the Prime Minister Mr.Narendra Modi and the Finance Minister Mr.Arun Jaitley that the demonetization and the GST have given boost to the economic growth. Now its ill effects and more visible in industrial area.
The Reserve Bank of India report said the Micro, Small, Medium Enterprises (MSME) are worst hit by the GST and demonetization. It had significant impact on overall credit of MSME sector and very adversely affected it. It are two major shocks in small enterprises. The introduction of GST led to increase in compliance costs and other operational cost for small units as most of its are brought under the tax net.
Generally the Micro, Small and Medium Industrial units face operational problems due to its small size and nature of business and it are more susceptible on various shocks of the economy.
The MSME sector largely operate in the informal (unregistered) sector and comprise large number of micro units and daily wage earners. The share of MSME sector in overall GDP is around 30 per cent and this sector accounts for about 45 per cent of manufacturing output and around 40 per cent of the total exports of the country. When our export are falling rapidly the vital role of MSME sector is praiseworthy.
In the country of large scale unemployment the MSME sector is playing crucial role in employment generation and contribute significantly to overall economic activity. Despite such contribution in the economy this MSME sector is facing several bottlenecks, which prevent it from achieving its full potential.
The major obsticle for the growth of MSME in its inability to access timely and adequate finance as most of it are unregistered where credit appraisal is a major challenge.
The RBI report of mentioned that about overwhelming 97 per cent of MSME units operate in the informal (unregistered) sector and its share in gross output is about 34 per cent. The share of this informal sector manufacturing in total GDP is estimated at around 5 per cent.
The large number of these small units depend on private channel of financing because of easy accessibility and availability of credit without any documentation hassles and mortgages, even though the rate of interest on such loan always very high.
The Prime Minister Mr.Modi has said that the “Mudra” yojna has provided loan to small units and young entrepreneurs of crores of rupees. But the RBI report has clearly pointed out that 97 per cent of such units are not getting it for not being registered units. That means under the “Mudra” yojna only 3 per cent of small units got it and 97 per cent depending on money lenders.
Such Micro, Small units are not getting the “Mudra” and bank loans because of lack of comprehensive formal documentation relating to accounts, income and business transaction. As a result the growth of bank credit to the MSME sector decelerated to 1.6 per cent.