Small enterprises are still craving for credit from banks and financial institutions
That most enterprises in India are small (rather, one should say very small) is a fact that cannot be denied.
Despite a host of directives put out by government authorities from time to time, these small enterprises – often described in derogatory terms as mom-and-pop businesses – are starved of credit from banks and financial institutions.
 |
| Paranjoy Guha Thakurta |
Denied access to finance, such enterprises are unable to expand their operations and create new job opportunities. It has been recently suggested that a separate fund be created by the Union government to address the credit requirements of small enterprises in the unorganized sector.
In 2007, there were an estimated 58 million small enterprises in the country, with a total workforce of 104 million. In other words, at least one out of every ten Indians is employed by a small enterprise. Most of these enterprises (94 per cent, to be precise) are in the non-farm sector and each enterprise has an investment of not more than Rs 500,000.
What is especially revealing is that these 58 million enterprises received only 2 per cent of the total quantum of credit disbursed by scheduled commercial banks. If one looks at the lowest segment of the unorganized sector, namely the cottage industries run by artisans, the proportion is even lower at a meager 0.6 per cent of the gross bank credit of banks.
If the investment limit in plant and machinery is increased from Rs 500,000 lakh to Rs 2.5 million – the official definition of a ‘micro’ enterprise – such enterprises put together received 4 per cent of gross bank credit and a similar percentage of micro enterprises had access to any kind of institutional credit.
The statistics cited are contained in two reports prepared by the National Commission for Enterprises in the Unorganized Sector that were submitted to Prime Minister Manmohan Singh on November 5. What is significant is that the Commission found that almost the entire credit that has gone to small and micro enterprises has been on account of government promoted programmes.
It is fashionable in certain circles to deride schemes like the Prime Minister’s Rozgar Yojana for Educated Unemployed Youth, the Swarnajayanti Gram Swarozgar Yojana and the National Rural Employment Guarantee Programme and describe these as progammes that throw away taxpayers’ money with little or no tangible benefits accruing to the poor and the underprivileged.
Yet, the Commission found that had it not been for such ‘populist’ programmes, even the little credit that went to small enterprises would not have been disbursed. And without credit, these enterprises can hardly be expected to support initiatives for marketing and technology development.
The reason why the Commission has suggested that a new and separate National Fund for the Unorganized Sector (NAFUS) be instituted is on account of the poor track record of the two existing development banks in the country at present, that is, the National Bank for Agriculture and Rural Development (NABARD) under the Reserve Bank of India (RBI) and the Small Industries’ Bank of India (SIDBI).
It has been contended that both NABARD and SIDBI have “not been able to provide either adequate credit or promotional services to non-farm micro enterprises,” particularly those with investments of less than Rs 500,000 each. Although scheduled commercial banks and regional rural banks are meant to advance credit to unorganized enterprises on a ‘priority’ basis, the reality is just the opposite.
Disbursing credit to enterprises in the unorganized sector is accorded the lowest priority by most banks and RRBs, which brazenly flout RBI guidelines that state that loans up to Rs 500,000 can be sanctioned and disbursed without collateral. In actual practice, however, barely 26 per cent of loans to this sector have been advanced without collateral.
Currently, micro enterprises pay an interest rate that is 2 per cent below the prime lending rate on small loans (below Rs 200,000) and 16 per cent on loans above this amount. On the other hand, large enterprises in the organized sector pay annual interest rates varying between 6 per cent and 7 per cent on much larger loans. Clearly, the prevailing system discriminates against small enterprises and contributes to rendering them uncompetitive.
Why is it in the interest of the country as a whole to ensure that small and micro enterprises not just survive but prosper as well, thereby creating jobs? The answer is obvious. Unorganized sector enterprises, covering both the farm sector (other than in cultivation and plantations) as well as non-farm activities, account for as much as 30 per cent of India’s gross domestic product (GDP), and that is why we can ignore the plight of this sector only at the expense of the nation’s economic development.
The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media – print, radio, television, internet and documentary cinema.
Subscribe to this comment's feed
| < Prev | Next > |
|---|
