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5) Critically analyze the steps taken by the government to improve the credit situation of MSMEs?(250 words)

Topic – Indian economy : Issues

5) Critically analyze the steps taken by the government to improve the credit situation of MSMEs?(250 words)

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Why this question

This article highlights the steps taken by the government to boost credit availability of MSMEs and analysis of these steps. In the background of IL&FS crisis, RBI vs Govt narrative etc , the issue of credit availability for MSMEs has become a vital one and needs detailed preparation.

Key demand of the question

The question expects us to list out the steps taken by the government to boost credit availability of MSMEs and analyze the desirability of such steps in the context of overall problems of MSME and other debates surrounding MSMEs.

Directive word

Critically analyze – When asked to analyze, you  have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary. When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.

Structure of the answer

Introduction – Discuss the contribution of MSME sector to the economy.

Body

  • Discuss the steps taken by the government to boost credit availability of MSMEs.
  • Discuss the reasons why such steps were taken by the government – share of non-banking financial companies (NBFCs) in loans given to MSMEs has gone up in recent year, issue with NBFC sector, impact of demonetization on MSMEs etc
  • Discuss why such steps taken by the government would not act as panacea for the MSME sector – more than 90% of MSMEs operate in the informal sector. These firms largely depend on informal sources of credit at higher interest rates. It is difficult for these firms to get loans from banks because they do not maintain proper documents and records, not in a position to adopt technology to improve productivity. Further, most firms in the informal sector are unlikely to attract skilled labour.
  • Discuss the steps that are needed to improve the situation for MSMEs

Conclusion – Give a fair and balanced view and discuss way forward.