That’s a mammoth size and the gap will be difficult to bridge. The fact is that bankers are scared today to advance loans to the MSME sector, which is under a lot of pressure. The demand for their output is down; their costs are rising; and banks don’t want to risk creating more non-performing assets (NPAs, or delinquent loans on which borrowers have defaulted on repayments for two successive quarters).
This has become a vicious cycle. But we have to find a way to move to a more virtuous cycle – one that is sustainable. Many MSMEs have closed down or may have to do so.
We may soon end up looking like we were 20-30 years ago when there were some large companies and a few MSMEs. The same thing might repeat itself if banks and NBFCs continue remaining shy of lending to them.
I don’t see any immediate solution to this issue. To resolve this needs a massive structural change… a total change of mindset. Right now, there are too many compliances to take care of; small enterprises may not have the means to be compliant with such a big number of laws. This makes entrepreneurship difficult.