[UPSC Mains Focus] Those in need

June 29, 2020 | Indian Express [Link]

GS 2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation


  1. Finance Minister had announced the provision of collateral-free loans worth Rs 3 lakh crore for the MSMEs as part of the financial package to help the economy.
  2. The facility, which was expected to help around 45 lakh MSMEs that have been worst hit by the economic slowdown.
  3. It was meant to assist these small businesses to meet their obligations such as payment of salaries, rent and other utilities, as their revenue dried up.
  4. In an environment where banks are unwilling to take on the credit risk, extending such a facility, where the government bears the risk, was indeed a welcome step.


  1. However, there are concerns that the conditions imposed on those who can avail of the facility.
  2. The scheme excludes first-time borrowers and those whose accounts have turned bad.
  3. This may have blunted (less effective) its effectiveness by excluding a sizeable section of the MSME universe from its ambit.
  4. This approach needs to be reexamined.


  1. Data from the finance ministry shows that since the scheme’s launch, the total amount of loans sanctioned and disbursed by 12 public sector banks and 16 private sector banks stands at Rs 75,426 crore (over 17 lakh accounts), and Rs 32,896 crore (7.11 lakh accounts) respectively.
  2. Based on this, the average loan amount sanctioned and disbursed per account works out to around Rs 4.42 lakh and Rs 4.62 lakh respectively.
  3. This suggests that only the smallest of MSMEs are availing this facility, indicating their precarious financial position.
  4. However, compared to the scale of economic distress, the relatively low level of disbursements could be the result of both demand and supply side issues.
  5. Demand for credit may be low because, for MSMEs, final consumption demand has fallen.
  6. Further, the interest rate charged, despite a cap being imposed, may be too high for them.
  7. On the other hand, supply side issues may persist.
  8. Reportedly, only companies with good credit history are able to raise funds, while those most affected by the economic slowdown are unable to avail of the facilities, and continue to struggle.


  1. The main objective of this scheme was to boost credit flow to the MSMEs, to help them during this period of economic distress.
  2. The government should consider both — relaxing some of the restrictions imposed on those who can avail of the scheme, and widening the definition to include others.
  3. For instance, extending the scheme to individual borrowers — small traders, businessmen and self-employed workers such as truck drivers who borrow in their own name, and account for a sizeable section of the labour force — is a useful suggestion as it will help the wider MSME ecosystem.


Government should consider widening scope of collateral-free loans to MSMEs.