Why in the News?

The NITI Aayog, government's policy think tank, has recommended the introduction of a dedicated financing scheme to allow medium enterprises to avail loans at concessional rates.

What’s in Today’s Article?

• MSME Ecosystem (Introduction, Significance of Medium Enterprises, Credit Challenges, etc.)
• NITI Aayog’s Report (Recommendations, Structural Issues, Suggested Reforms, Policy Outlook)

Introduction

• Medium enterprises (MEs) represent a crucial but often overlooked segment of India’s economic fabric.
• Despite contributing significantly to exports and employment, they face persistent challenges in accessing affordable credit.
• In response, NITI Aayog has released a comprehensive report recommending policy interventions to ease financial constraints and strengthen the sector’s growth trajectory.

Significance of Medium Enterprises in the MSME Ecosystem

• India’s MSME sector, comprising Micro, Small, and Medium Enterprises, contributes about 29% to the country’s GDP and employs over 60% of its workforce.
• While micro enterprises make up 97% and small enterprises 2.7% of registered MSMEs, medium enterprises form only 0.3%.
• However, this small segment is responsible for nearly 40% of MSME exports, underlining its strategic importance in driving India’s industrial competitiveness and export performance.

Credit Challenges Faced by Medium Enterprises

• According to the NITI Aayog report titled “Designing Policy for Medium Enterprises”, the sector faces a credit gap of $10 billion (as of 2024), primarily due to structural and institutional barriers.
• Medium enterprises typically receive fewer priority sector loans than micro units and face borrowing costs that are approximately 4% higher than large corporations.
• Moreover, only 8 of the 18 MSME government schemes cater to medium enterprises, and just 17.81% of total funds are allocated to them.
• This has exacerbated funding constraints, leaving MEs without sufficient working capital support.

NITI Aayog’s Recommendations

• Dedicated Working Capital Financing Scheme
  • NITI Aayog has suggested a sector-wise financing scheme based on enterprise turnover, with loans capped at ₹25 crore, and a maximum of ₹5 crore per individual request.
  • The scheme would be managed by the Ministry of MSME and aim to provide timely and flexible funding for manufacturing and services units.
• Medium Enterprise Credit Card
  • To address urgent liquidity needs such as payroll, inventory purchases, and equipment repair, a medium enterprise credit card facility with a ₹5 crore limit has been proposed.
  • The interest rates would align with market norms but include a grace period for repayment.
• Faster Fund Disbursal Through Retail Banks
  • The report advocates the involvement of retail banks for quicker fund distribution, under the supervision of the MSME ministry.
  • This would cut bureaucratic delays and ensure timely credit access.

Broader Structural Issues Identified

• Apart from financial constraints, medium enterprises struggle with several non-financial challenges:
  • Low adoption of advanced technologies
  • Inadequate R&D support
  • Lack of sector-specific testing infrastructure
  • Mismatch between training programmes and actual enterprise needs
• These factors hinder scalability and innovation potential within the segment.

Suggested Digital and Skilling Reforms

• To improve access to government resources, NITI Aayog recommends developing a dedicated sub-portal under the existing Udyam platform. This portal would include:
  • Scheme discovery tools
  • Compliance support
  • AI-driven navigation assistance for enterprises
• Additionally, it calls for the integration of medium enterprise-specific modules into skilling and entrepreneurship training, aligned with regional and sectoral demands.

Policy Outlook: Building a Supportive Ecosystem

• The report underscores that unlocking the potential of medium enterprises demands an inclusive and coordinated policy framework.
• Strategic interventions in financing, skilling, digital access, and infrastructure are essential to harness the segment’s full capabilities.
• By enabling greater ease of doing business and removing systemic credit bottlenecks, India can position its medium enterprises as powerful drivers of export growth, employment, and self-reliance in the global economy.