30 June 2023 : PIB
PRESS INFORMATION BUREAU
30-June-2023
Daily Current Affairs For UPSC ,The PIB ( Press Information Bureau )
1. Shri Piyush Goyal asked bankers to ensure enhanced and affordable credit to MSMEs.
Topic: GS3 – MSME Sector
Context:
- Shri Piyush Goyal, in a meeting with top officials of 21 banks, emphasized the need for enhanced and affordable credit to MSMEs to achieve the target of 1 trillion dollar merchandise exports.
- Shri Piyush Goyal suggested extending the scheme proposed for nine banks to all banks to increase the export credit offtake for MSME exporters.
Contribution of MSME to Indian economy:
- In terms of GDP, MSMEs contribute about 30%. This means that for every $100 in India’s GDP, $30 is contributed by MSMEs.
- In terms of employment, MSMEs employ about 50% of the country’s workforce. This means that for every 100 people employed in India, 50 are employed by MSMEs.
- In terms of exports, MSMEs contribute about 40%. This means that for every $100 in India’s exports, $40 is contributed by MSMEs.
Need for enhanced and affordable credit to MSMEs:
- Promoting growth and competitiveness: MSMEs play a crucial role in driving economic growth, employment generation, and fostering innovation. Access to affordable credit enables them to expand their operations, invest in technology and infrastructure, and enhance their competitiveness in the market.
- Boosting exports: MSMEs often face challenges in accessing credit for export-oriented activities. By providing enhanced and affordable credit, MSMEs can finance their export initiatives, explore new markets, and contribute to increasing the country’s merchandise exports.
- Addressing working capital needs: MSMEs frequently struggle with managing their working capital requirements, including purchasing raw materials, maintaining inventory, and meeting operational expenses. Access to affordable credit allows them to bridge the gap and ensure smooth business operations.
- Encouraging entrepreneurship: MSMEs are often led by entrepreneurs with innovative ideas and limited financial resources. Affordable credit options provide them with the necessary financial support to transform their ideas into viable businesses, driving entrepreneurship and economic development.
- Inclusive economic development: MSMEs are a significant source of employment, particularly in rural and semi-urban areas. Access to enhanced and affordable credit enables these enterprises to expand, create more job opportunities, and contribute to inclusive economic development by reducing regional disparities.
Challenges to credit accessibility for MSME:
- Lack of collateral: Many MSMEs, especially startups and small businesses, struggle to provide sufficient collateral or assets that meet traditional lending requirements. Without tangible collateral, they face difficulties in accessing formal credit channels.
- Limited credit history: MSMEs often have a limited or no credit history, making it challenging for lenders to assess their creditworthiness. This lack of credit history reduces their credibility and increases the perceived risk for lenders.
- Informal nature of operations: A significant portion of MSMEs operate in the informal sector, lacking proper documentation, financial statements, or audited accounts. This lack of formal records makes it difficult for lenders to evaluate their financial health and repayment capacity.
- High interest rates: MSMEs often face higher interest rates due to perceived risks associated with lending to smaller businesses. These high rates of interest make credit less affordable and discourage MSMEs from accessing formal financing options.
- Limited financial literacy: Many MSMEs have limited financial literacy and understanding of complex loan procedures and documentation requirements. This lack of knowledge and skills makes it challenging for them to navigate the credit application process effectively.
- Lengthy and cumbersome loan approval processes: Traditional loan approval processes in banks can be time-consuming and bureaucratic, involving extensive paperwork, multiple approvals, and documentation requirements. This can discourage MSMEs, who often require quick access to credit for their business operations.
- Sector-specific challenges: Certain sectors, such as agriculture and rural enterprises, face unique challenges in accessing credit due to factors like seasonality, uncertain cash flows, and lack of infrastructure. These challenges further limit credit accessibility for MSMEs operating in these sectors.
Way Forward:
- Strengthen credit guarantee mechanisms: Enhance and expand credit guarantee schemes that provide assurances to lenders against defaults by MSMEs. This will help mitigate the perceived risks and encourage financial institutions to lend to MSMEs.
- Simplify loan application processes: Streamline and simplify loan application procedures, reducing the paperwork and bureaucratic requirements. Implementing digital platforms and technology solutions can make the process more efficient, transparent, and accessible for MSMEs.
- Promote credit assessment innovation: Encourage the development and adoption of alternative credit assessment models that consider factors beyond traditional collateral and credit history. Embrace new technologies, such as data analytics, machine learning, and alternative data sources, to assess the creditworthiness of MSMEs accurately.
- Collaborate with industry associations: Work closely with industry associations and MSME support organizations to facilitate credit access for their members. Create partnerships that offer specialized credit products, mentorship, and guidance tailored to the needs of specific sectors and industries.
- Encourage non-bank financial institutions: Promote the involvement of non-bank financial institutions, such as fintech companies and microfinance institutions, in providing credit to MSMEs. These institutions often have innovative approaches, flexible repayment options, and a deeper understanding of the specific needs of MSMEs.
- Government support and incentives: Governments can play a vital role in improving credit accessibility by providing supportive policies, regulatory frameworks, and incentives for financial institutions to lend to MSMEs. This can include interest rate subsidies, loan guarantees, tax incentives, and streamlined loan recovery mechanisms.
Recent initiatives by Indian government to address the issue:
- Infusing capital into the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): In the 2023-24 budget, the government announced an infusion of Rs. 9,000 crore into the CGTMSE. This will enable the CGTMSE to provide guarantees of up to Rs. 2 lakh crore, which will help banks to lend more money to MSMEs.
- Launching the Self Reliant India Fund (SRIF):The SRIF is a new fund that will provide equity infusion to MSMEs. The fund has a corpus of Rs. 50,000 crore and will be managed by the Small Industries Development Bank of India (SIDBI).
- Revising the criteria for classification of MSMEs: The government has revised the criteria for classification of MSMEs. This will make it easier for MSMEs to access government schemes and benefits.
- Providing loans through the Udyam Registration portal:The Udyam Registration portal is a single-window platform for MSMEs to register their businesses and apply for loans.
- Waiving off processing fees for loans to MSMEs:The government has waived off processing fees for loans to MSMEs up to Rs. 10 lakh. This will make it cheaper for MSMEs to access loans.
- Emergency Credit Line Guarantee Scheme (ECLGS): Launched in 2020, the ECLGS aimed to provide collateral-free credit to MSMEs during the COVID-19 pandemic. Under this scheme, eligible MSME borrowers were provided with additional working capital loans, backed by a government guarantee.
- Restructuring of MSME loans: The Reserve Bank of India (RBI) introduced a loan restructuring scheme for stressed MSME borrowers in 2020.
Source: https://pib.gov.in/PressReleseDetail.aspx?PRID=1936251
Model question: The Micro, Small and Medium Enterprises (MSME) sector is a key driver of economic growth in India. However, the sector faces a significant credit gap. Discuss the challenges associated with lending to MSMEs and suggest innovative measures that can be implemented to cater to their unique needs. (20 Marks).
2. 2nd meeting of India-Tanzania Joint Defence Cooperation Committee held in Arusha.
Topic: GS2 – International relations.
Context:
• The second edition of the Joint Defence Cooperation Committee (JDCC) meeting between India and Tanzania took place in Arusha on June 28 and 29, 2023.
Importance of India – East African nations relations:
• Historical and Cultural Ties: India has longstanding historical and cultural connections with East Africa. People of Indian origin have settled in countries like Kenya, Tanzania, Uganda, and others for generations, creating a bond between the two regions.
• Trade and Economic Relations: These nations offer potential markets for Indian goods and services, while India imports various commodities like minerals, agricultural products, and textiles from East Africa.
• Energy Security: East Africa is rich in natural resources, particularly oil and gas reserves. India, as an energy-consuming nation, has an interest in exploring and collaborating with East African countries to ensure a stable and diverse energy supply.
• Investment Opportunities: East African nations offer investment opportunities across sectors such as manufacturing, infrastructure, telecommunications, and renewable energy. India’s expertise in these areas can contribute to the development of East African economies, while Indian investors can benefit from the region’s emerging markets.
• Development Cooperation: India has been providing assistance in areas like capacity building, infrastructure development, education, and healthcare. These efforts foster goodwill, strengthen diplomatic ties, and contribute to the socio-economic progress of East African nations.
• Security and Maritime Cooperation: East Africa, being strategically located along major international shipping routes, holds significance for India’s maritime security. Collaborative efforts in maritime security and counter-terrorism between India and East African nations help ensure the safety and stability of the Indian Ocean region.
Source: https://pib.gov.in/PressReleseDetail.aspx?PRID=1936244
Model question: Explain the importance of India’s relations with East African nations and analyze the key areas of cooperation between the two. Discuss the challenges and opportunities in enhancing these relations for mutual benefits. (10 Marks).
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