Boosting MSME growth in NE 

The success stories of MSMEs in the northeast region have motivated more youths to dream big and become job-givers instead of job-seekers. The low credit-deposit (CD) ratio in the region has been a stumbling block for such youth and compels them to rely on the informal credit market. High interest rates charged by informal credit lenders erode the profitability of their enterprises and give rise to the challenge of commercial sustainability. It is baffling that the State-Level Bankers Committee has been deliberating on improving the CD ratio for decades. Yet, the CD ratio for the region continues to be much lower compared to the rest of India. As of March 31, 2023, the CD ratio is 45.68%, compared to the all-India CD ratio of 75.6%. Unless the trend is reserved, growth in MSME in the region will be slow and stagnating, despite many schemes and incentives announced by the central and state governments to promote the sector. The Parliamentary Standing Committee on Commerce recommended to the government that it initiate measures to ensure the disbursal of benefits under various schemes to encourage the MSME sector in the region to avail of formal credit. The Committee underscored the importance of a customer-friendly approach and reduced and easy paper work for the disbursement of loans. Another key recommendation by the parliamentary panel is enforcing the guidelines of the Reserve Bank of India (RBI), which stipulate that banks must not demand any collateral or security in the case of loans of Rs 10 lakh extended to the micro and small enterprise (MSE) sector. If entrepreneurs are aware of these guidelines, they can approach banks to seek such collateral-free loans, as the amount is significant for meeting funding requirements for any procurement of equipment, machinery, raw materials, or expansion of business. Imparting financial literacy about the importance of timely repayment of loans by entrepreneurs also needs to be prioritised so that the amount provided is spent judiciously and in a planned manner to get the maximum return on expenditure incurred from the loan amount. Banks playing a pro-active role in organising training for entrepreneurs in collaboration with various central ministries and state departments on how to make their enterprises commercially viable can also reduce worries about unsecured retail loans. Banks adopt a cautious approach with respect to retail loans in view of RBI findings that the percentage of unsecured retail loans is on the rise while the percentage of secured loans has declined. Nevertheless, SLBC in the northeast has a responsibility to promote the MSME sector in the region and bridge gaps in the sector with the rest of India. Initiatives going beyond routine adoption of resolutions to improve the CD ratio and addressing all associated challenges are crucial to bringing about the desired change on the ground. The government informed the parliament that the RBI data pertaining to the region shows that the credit outstanding with Scheduled Commercial Banks (SCBs) has increased by 51% from Rs. 22,039 crore as of March 31, 2018 to Rs. 33,214 crore as of March 31, 2023, showing consistent growth over the period. Besides, in the last financial year (2022–2023), the year-over-year growth in credit outstanding has been 15%, which is indicative of progress made in recent years. Public sector banks taking various measures to simplify loan procedures to make them more customer-friendly and to increase credit flow in the region is laudable, but initiatives converging on the goal of improving the CD ratio to achieve the all-India level must remain the primary focus. The Commerce Ministry says that banks are organising outreach programmes regularly to create awareness, improve credit flow to MSEs, streamline the digital lending process, minimise documents, and disburse collateral-free loans, including those that are covered under the Pradhan Mantri Mudra Yojana where no collateral or security is obtained. Official data highlights that as of September 29, 2023, more than 43.58 crore loans under PMMY amounting to Rs. 25.40 lakh crore have been sanctioned since the launch of the scheme. The fact that only 1.39 crore loans amounting to Rs 76,000 crore have been extended in the northeast tells the real story about the huge gap between MSE growth in the region and the rest of India. States in the region have a crucial role to play in improving logistics and market linkage for MSMEs to increase their profitability. Only when MSME becomes successful in expanding their business and earning more profit will their financial performance become commercially sustainable for a long period of time. Expansion of enterprises leads to the generation of more livelihood opportunities and goes a long way in addressing the problem of rising unemployment in a region like the northeast. The volatility of market demand and prices and rising input costs have made agriculture non-remunerative in the region, prompting lakhs of youth to migrate outside the northeastern region for greener pastures. Innovative ideas of entrepreneurs have turned this challenge into opportunities by shifting to agri-businesses such as food processing units and organic fertiliser manufacturing units, which has helped build a new ecosystem for MSMEs in the region.