MSE interest subsidy can triple indirect taxes: CRISIL

New Delhi, Jan 24 (IANS) An interest rate subsidy of Rs 1 crore to micro and small enterprises (MSEs) can generate nearly thrice as much in indirect taxes, create 38 jobs, and also increase revenue and profitability of MSEs in the near-term, an analysis by CRISIL SME Ratings said here on Tuesday.

Putting it in another way, the analysis said: “To create 1 lakh jobs and generate indirect taxes of Rs 8,400 crore, the corpus of interest rate subsidy required would be Rs 3,000 crore. That will also go a long way in mitigating job losses and business stress seen in the sector of late.”

“We see two ways in which the government can completely change the game for the MSE sector: one, by offering direct interest rate subsidy between 1 per cent to 4 per cent depending on government’s Performance and Credit Rating Scheme (PCRS), and two, by subsidising annual rating reviews for 3 to 5 years. These steps may seem like giveaways, but are actually very revenue positive for the government,” said Manish Jaiswal, Business Head, CRISIL SME Ratings.

The analysis said PCRS is a very successful scheme with more than 1.25 lakh MSEs getting themselves rated since 2005. It has also helped lenders identify the better-rated MSEs, which improved their asset portfolios.

“But an enduring drawback of PCRS is that it doesn’t offer subsidy support for re-rating and annual reviews of ratings. Reason why more than 90 per cent of the MSEs do not seek a re-rating,” he added.

“Continuous rating over three to five years is necessary to develop a strong credit culture among MSEs. Subsidy support under PCRS for annual rating reviews will improve financial discipline, afford greater access to formal finance, and strengthen MSEs structurally. It will also engender scalability and ultimately help achieve the objective of PCRS,” said R. Vasudevan, Senior Director, SME Ratings.