Strong MSME Sector Crucial For Economic Development, Says RBI Deputy Governor
Gaps in MSME financing can be solved through alternative credit scoring mechanisms and cash flow-based lending, said T Rabi Sankar
A strong micro, small, and medium enterprise sector along with proper digital public infrastructure are important for economic activity, according to government officials.
The MSME sector is important from the point of view of growth and economic development, T. Rabi Sankar, deputy governor of the Reserve Bank of India, said while speaking at the Global SME Finance Forum 2023 in Mumbai.
MSMEs in the country contributed 29.2% of the total gross value added, Sankar said, citing a World Bank report. "MSMEs can become vehicles of growth."
In India, there is immense potential in digital public infrastructure, and today, if the Unified Payments Interface has made it big, it is all due to this infrastructure, according to him.
In terms of challenges, he said that the gaps in MSME financing can be solved through alternative credit scoring mechanisms, cash flow-based lending, and so on. "...Expanding the universe of the digital ecosystem creates opportunities to meet this credit gap and the challenges that MSMEs face," Sankar said.
The RBI and the Reserve Bank Innovation Hub have rolled out many initiatives, such as the public tech platform for frictionless credit, among others, to aid this, he said.
Open Credit Enablement Network
While referring to the New Delhi Declaration at the G20 Summit in India, Ajay Seth, secretary at the Department of Economic Affairs, Ministry of Finance, said there were references to MSMEs, and even leaders recognise the sector as an important one for growth.
"It's not just a question of more investment any more," he said.
MSMEs face several challenges, including quality and cost competition, among others, Seth said. In India, MSMEs are largely proprietorships, where Aadhaar comes in handy.
Among the many initiatives, the Open Credit Enablement Network is becoming important for MSMEs, he said. "Around 20 million MSMEs have onboarded OCEN."
The linkage of these players with the Open Network for Digital Commerce is also being discussed, Seth said. Since there is more emphasis on how G20 policy recommendations can be translated into on-the-ground work, there is more focus on what the private sector can do, he said.
Regulations On Fintechs
Regarding fintech regulations, the central bank is trying to focus on self-regulation and building a self-regulatory architecture, Sankar said on the sidelines of the event.
"Internally, we are looking at other things that are possible for the development of the fintech sector," he said.
As for corporate tax numbers, it is expected that they will be in line with budget estimates, Seth said.
