Virendra Pandit
New Delhi: The International Bank for Reconstruction and Development (IBRD), also known as the World Bank,’s Board of Executive Directors has approved a $500 million loan program to support the Government of India’s nationwide initiative to revitalize the MSME sector, which has been heavily impacted by the Covid-19 crisis.
The program targets improvements in the performance of 555,000 MSMEs and is expected to mobilize financing of $15.5 billion, as part of the government’s $3.4 billion “MSME Competitiveness – A Post-COVID Resilience and Recovery Programme (MCRRP).”
The $500 million Raising and Accelerating Micro, Small, and Medium Enterprises (MSME) Performance (RAMP) Programme is the World Bank’s second intervention in this sector, the first being the $750 million MSME Emergency Response Program, approved in July 2020 to address the immediate liquidity and credit needs of millions of viable MSMEs severely impacted by the ongoing Covid-19 pandemic.
To date, 5 million firms have accessed finance from the government program. With the program approved on Monday, the World Bank’s financing towards improving the productivity and financial viability of the MSME sector amounts to $1.25 billion over the past year, media reported.
Having supported the immediate liquidity and credit needs of viable MSMEs in the first phase, the RAMP Program will support the Government of India’s efforts to increase MSME productivity and financing in the economic recovery phase, crowd-in private sector financing in the medium term, and tackle long-standing financial sector issues that are holding back the growth of the MSME sector.
The MSME sector is the backbone of the country’s economy, contributing 30 percent of India’s GDP and 40 percent of exports. Out of some 58 million MSMEs in India, more than 40 percent lack access to formal sources of finance.
“The MSME sector, a critical backbone of India’s economy, has been hard hit by the Covid-19 pandemic,” said Junaid Ahmad, World Bank Country Director in India. “The RAMP program will intensify efforts to support firms to return to pre-crisis production and employment levels while laying the foundations for longer-term productivity-driven growth and generation of much-needed jobs in the MSME sector.”
In addition to national-level activities, the program will initiate targeted activities in five “first mover” states, namely Gujarat, Maharashtra, Punjab, Rajasthan, and Tamil Nadu with the potential of additional states joining the Program going forward.
The $500 million loans from the WB (International Bank for Reconstruction and Development (IBRD)), has a maturity of 18.5 years including a 5.5-year grace period.
India’s MSME sector is dominated by small firms that do not grow with age. Over 90% of firms have less than 5 workers. Global experience suggests that in the absence of distortions, firms grow with age. However, in India, the average number of employees in a 40-year-old Indian plant is almost the same as its five-year-old counterpart.
These skewed patterns of growth impose huge productivity costs.