Big Announcements for MSME- U.K.Sinha Committee Report

While making on announcements for measures to boost Indian Economy yesterday, Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman said we are going to implement recommendations on Micro, Small & medium Enterprises by U.K.Sinha Committee in their report dated 25th June 2019 submitted to RBI.

Attached is my presentation on highlights of above said recommendations and if implemented strictly, nothing can stop India’s MSME sector flourishing like anything.

Have a look please.

1. RECOMMENDATIONS FOR MSME
SECTOR
BY U.K.SINHA COMMITTEE ON MICRO, SMALL AND MEDIUM
ENTERPRISES (MSME) SUBMITTED TO RESERVE BANK OF INDIA
REPORT DATED 25
TH
JUNE 2019

2. TheMSMEDAct,2006bereimagined&simplifiedasMSMECodewithtransparent
inspectionsystemorinspectionsystembewithdrawn.
Turnoverbaseddefinitionandmechanismtoadjustthedefinitioncriteriafromtime
totimeinthecontextofchangingeconomicscenario,theParliamentmayconsider
delegatingthepowerofclassifyingMSMEstotheExecutive.
PSBLoansIn59Minutes(OnlineloanfromPSBs)
CaterstoexistingentrepreneuronaccountofitsrelianceonGST,incometax
data,etc.Facilityfornewentrepreneurspresentlyunderdevelopmentneedsto
beexpeditiouslydeployed.
Limitoftheloansshouldbeenhancedfrom₹1Croreto₹5crore.
Banksneedtoensurethatallapplicationsaccordedinprincipalapprovalare
disposedofwithinaperiodof7-10days.
Algorithmsleadingtoinitialin-principlesanctionbutfinalrejectionsbythebanks’
needtobereviewedinatimeboundmanner
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SIDBI,asanodalagency,tocreateplatformwhereinvariousVentureCapitalFundscan
participateandinturncreatemultipliereffectforprovidingEquitySupporttoMSMEs.
IssuesofDelayedPayments
1.MSMEstomandatorilyuploadalltheirinvoicesaboveanamountonInformation
Utilities(IU)setupunderInsolvencyandBankruptcyCode(IBC).Tobeginwith,this
couldbeforinvoicesabove₹1crore.
2.TotakecareofthesituationwheretheMSMEisunableorunwillingtocomplain,
designatedauthorityundertheDCMSMEwillbeabletorequest/obtain
informationonunpaidbills,ofsay,allcorporatesincludingPSUsabove₹1000crore
turnovertobeginwith,onthefirstworkingdayofeachmonth.FortheIUtorespond
tothisrequest,theAuthoritysetupundertheDCMSMEwillhavetobenotified
underIBBIIURegulationNo.23.Withaccesstothisinformation,theDesignated
Authoritywillwriteto/emaileachofthecorporatesconcerned,bringingtotheir
notice,MSMEsupplierbillswhichhaveremainedunpaidbeyondtheduedate.

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3.Itislikelythatonreceiptofthiscommunication,thecorporatewilltakestepstoclear
dues.Ifitdoesnotdosobeforethefirstworkingdayofthenextmonth,whenthe
nextstatementwillbegenerated,thentheAuthoritymaysendacommunicationto
boththebuyerandthesellerthatpaymenthasnothappenedasevidencedbythe
IUinspiteofacommunicationbeensenttothecorporatebuyer.Thiscommunication
couldthenbedisclosedontheAuthority’swebsiteforinformationoflenders,rating
agencyandotherMSMEsasameansofnamingandshaming.TheMSMEwillnow
alsohaveastrongerbasistoinitiateaction,shoulditchoosetofinallydoso.
ThescopeofFacilitationCouncilislimitedtoredresscasesofMSEs.Presently,Medium
Enterprisessupplyingtolargecorporatesaredeprivedofredressalforum.Hence,the
ambitoffacilitationcouncilmaybeextendedtoMediumenterprisesalso.

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Government e-Marketplace
1.MoreMSEsneedtobeencouragedtoregisterontheportal.
2.GovernmentmaymakeitmandatoryforPSUs/GovernmentDepartmentstomeet
theirMSMEprocurementtargetsthroughGeM(GovernmentE-Market)portalonly.
3.GovernmentmayconsidermakingGeMasafull-fledgedmarketplacealsoand
permitMSMEsellerson-boardedontheportaltoprocureraw-materialaswell
4.GeMisnowcollaboratingwithTReDSplatformsforenablingdiscountingofbillsfor
ordersacceptedthroughGeM.PSEsarerequiredtosettleinvoicesforgoods
suppliedwithin10daysofissueofcertificateofacceptance.GeMandTReDS
platformshaveworkedoutanarrangementwherebysuchinvoices,whichalready
haveacertificateofacceptance,willbeputupfordiscountingonthatTReDS
platformwherethePSEandMSMEsupplierarebothregistered.Thisenablesthe
billtobediscounted.ThePSEgetstimetomakethepaymentandthesuppliergets
themoney.FinalITintegrationforseamlesstransitioniscurrentlyunderwaybetween
GeMandthethreeTReDSplatforms.TheintegrationofGeMandTReDSneedsto
becompletedwithinatimeboundmanner

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Setting up of a Non-profit SPV to support crowd sourcing of investments by various
agencies particularly CSR and non-profits to pave the way for conducive business
ecosystem for MSMEs. The SPV will also coordinate with NSDC, NSIC and other
financial/promotional institutions apart from facilitating impact/angel funds and
management support to Government in terms of mobilizing investments form multi-
lateral institutions.
A new Central Scheme to be initiated for supporting setting up of Enterprise
Development Centres (EDCs) in DICs. These EDCs while being principally funded by
GoI must have the operational flexibility to partner with the private sector,
particularly in the areas of skilling and technology development. Contribution of
companies to capacity building via EDCs must be eligible for Corporate Social
Responsibility (CSR) spending.
Ministry of MSME be the Nodal Ministry for all interventions pertaining to the MSME
Sector, rather than multiple schemes being run by different Ministries for promotion
of MSMEs in their respective domain.

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Financial incentives and excellent infrastructure facilities must be deployed to retain
successful Indian start-ups and to lure the best talent from across the world to start
businesses in India.
Exit Policy for MSMEs
TheIBCprovidesforadifferentiatedregimeforinsolvency/bankruptcyoffirms,
proprietaryfirmsandindividuals.Delegatedlegislation/rulesinthisregardare
currentlyunderdiscussion.Thefinalizationoftheserulescanboostlenderconfidence
becauselenderswillhavemorecertaintyandpredictabilityregardingtherecovery
ofdefaultedloans.ThiscanincreasetheamountofcreditavailabletoMSMEin
Indianeconomyandinturnreducethecreditgap.Havinganefficient,expeditious
insolvencysysteminplacethathelpsMSMEorswiftlyreallocatestheirproductive
assetstomoreefficientactivitiesisparamount.

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Trade Receivables Discounting System (TReDS)
1.Create a second TReDS window for reverse factoring so that supplier financing can
be provided easily.
2.The scope of Centralised KYC network may be expanded for capturing enterprise
level document also. This would reduce the delay in on-boarding of MSMEs and
Corporates.
3.Registration of invoice and satisfaction of charge upon it with CERSAI generally
takes around 30 days which creates possibility of dual financing. Hence, it is
recommended that the time period of 30 days should be reduced
4.CreationofpooledAPIofallTReDSplatformswouldenablethefinanciersto
understandthepastrepaymenthistoryofbuyersthusenablingthemtotakemore
informeddecision.Further,itwillalsoruleoutpossibilityofdualfinancing.NPCI
whichactsassettlemententityforTReDSmayconsidercreatingsuchAPI.[Action:
NPCI]v.MSMEsalsosupplytoCorporateshavinglowerrating.SuchMSMEsfindit
difficulttodiscountinvoicesontheplatform.Wideningthescopeoffinanciersby
permittingNBFCsotherthanNBFCfactorswouldpossiblyleadtodiscountingof
suchinvoices.AminimumratingmayberequiredfortheseNBFCs.

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Increase the limit for non-collateralised loans to ₹20 lakh, this would address a
significant proportion of MSEs needs.
Revision in loan limit sanctioned under MUDRA to ₹20 lakh from ₹10 lakh
AdjustedPrioritySectorLanding(APSL)mechanismbetriedoutstartingwithMSMEs
inPhase1andevaluatingtheresultsofthesame.Asadefault,allbanksmust
continuetoachieve40%ofNetBankCredits(NBC)asPSLlendinginthecaseof
UniversalBanksand75%inthecaseofSmallFinanceBanks.
TheworkinggroupofSIDBIandIBAmayalsoconsiderwaystoreduceTurnAround
Time(TAT)especiallyinthepreLOS(LoanOriginationSystem)orcentralisedsanction
stage.
Banksshoulddevelopcustomisedproductstoassessthefinancingrequirements
basedonexpectedcashflowsmovingawayfromtraditionalformsofassessment.

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AnMSMEaccountcouldbeconsideredforupgradeto“standard”aftersixmonths
ofsatisfactoryoperation,insteadofoneyearatpresent.Inadditiontostable
performanceforsixmonths,theMSMEmustalsohavedemonstrableadditional
equityinthebusinessand/ornewsourcesofcash-flow.
GrouppoliciesfordeathandaccidentcoverforMSMEentrepreneursneedtobe
developedwithinsurancecoversignificantlyhigherthanthecovercurrentlyoffered
byPMSBYandPMJJBYschemes.

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FinancialArchitectureforMSMELending
A.DataforNon-Corporateentity
1.ThecreationofauniqueidentifiersuchasUniqueEnterpriseID(UEI),onlinesof
CorporatedatacollectedbyMinistryofCorporateAffairs,whereinalldetails
pertainingtoanyMSMEfirmcanbeintegrated.TheCommitteerecommends
thatthePANbeusedastheUEI,andthatCBDTmayimplementthefollowing
recommendations.
2.TheUEIshouldbeusedforcreationofcomprehensivereportspulledfrom
differentdatasourcesthatcover
a.Financialinformation(Ownershipstructure,CompleteFinancials,Auditor
Comments)
b.b.Non-FinancialInformation(Registrationdetails;Managementdetails;related
entityoftheproprietor,partners;statusofstatutorycomplianceviz.,TDS,GST,
Export-Importregulation,etc.)

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RatingofMSME
CreditScoreofBuyersforMSMEs
onlinerepositorieslikeMinistryofCorporateAffairswebsiteforcorporates/LLPs,
GST,ShopandEstablishmentbeencouragedtoopenAPIsforverificationof
documentsissuedbythem.
ConnectGSTNtoAccountAggregators(AA)andUpgradeE-WayBillsystemto
includeProof-of-Delivery(POD).MakingGSTinvoicesavailabletolenderisessential
forcash-flowlendingtotakeoff.Forthis,GSTNsystemneedstobeconnectedtothe
AAsystem.DematerializingofPODisessentialforinventoryfinancingforMSMEsto
grow.Thedesignisalreadyinplace.Onlyanimplementationprojectneedstobe
created.

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Inherpressmeetyesterday,FinanceMinisterSmt.
NirmalaSitaramanannouncedthatinorderto
supportMSMEs,wearegoingtoimplement
recommendationsofU.K.SinhaCommittee.Ifthese
recommendationsareimplemented,itisgoingtobe
agamechangerforIndianEconomyandanother
bigsteptowardsvisionof$5Trillioneconomy.

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