7 highlights
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A more pernicious outcome is when you try and deceive the government into thinking you are a Small enterprise when in fact you are not. All you have to do is keep making the investments you need, but figure out ways to hide the investments on your accounting books
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In effect, the incentives that were designed to help MSMEs grow and become self-sufficient have now turned “perverse”. A move that was meant to promote investment and foster growth is now yielding terrible unintended consequences stifling all progress.
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But the industry body representing MSMEs wasn’t exactly pleased with this development. They lobbied and urged the government to keep the classification criteria intact.
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But then, there is a good reason why VCs don’t invest in traditional MSMEs anymore. And no, it’s not because these entities are loss-making. VCs adore loss-making enterprises — like us :) Instead, they almost always baulk at the investing opportunity because there’s no scope for exponential growth here. A problem that seems to stem from the fact that most MSMEs are debt-laden to the hilt.
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But with a pandemic at large, both scenarios look unlikely. Banks don’t want to offer another lifeline by extending new loans considering their own precarious situation. And they most certainly cannot contain the problem; since we are likely to see a spike in defaults owing to the fact that most MSMEs have shut shop completely since the lockdown.
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Now, there’s been a raging debate about whether foreign firms should be allowed to bid for government projects. One group says — yes, get them in. Because foreign manufacturers can sometimes get the job done at much cheaper rates compared to their Indian counterparts.
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But the other side immediately cries foul. After all, the only reason why these foreign firms can offer these rates is due to the scale at which they operate. And if you keep letting them in without protecting local manufacturers how could you ever expect our MSMEs to grow in size and stature and hopefully one-day match foreign products (in price)?