27 DEC,2020 | MEDC
The credit supply shortage to MSMEs has been a cause of policy concern for a long time in India. The formal credit available to this sector is about Rs. 16 trillion as against a total demand of Rs. 36 trillion. The main reason for this large gap is the lack of formalization of this sector. Out of 6.3 crore MSMEs in the country, only about 1.1 crore are registered with the GST regime. The number of income tax filers are even less. Most MSMEs in India typically rely on NBFCs and MFIs for their financing requirements, given the lack of access to the formal banking sector. MSMEs were always hard-pressed for credit, but Covid has further compounded their issues. The fact remains that formalization of the economy is the key to enhancing the ease of doing business. The coming decade will see the Indian economy metamorphosing into a more mature and dynamic entity, and if MSMEs are to play a key role in this monumental transformation, they will need to be inducted into the formal framework at the earliest.
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