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Editorials/Opinions Analysis For UPSC 17 January 2024

  1. MSMEs Need Cost Institutional Credit
  2. The Pragmatic Approach to Counter International Terrorism          


Context:

The Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in realizing the potential of India as envisioned in the ‘Make in India’ initiative. This sector not only aligns with the goal of self-reliance (‘Atma Nirbharta’) but also contributes significantly to overall production, employment, and untapped export opportunities. Despite being a cornerstone of the Indian economy, the vulnerable MSME sector faces financial challenges, attributed to constant working capital needs and limited access to mainstream finance.

Relevance:

GS-3

  • Growth and Development
  • Mobilization of Resources
  • Industrial Policy

Mains Question:

Despite being the bulwark of the Indian economy, the MSME sector is troubled by its financial constraints, owing to constant working capital expenditure and inaccessibility to mainstream finance. Analyse. (15 Marks, 250 Words).

Micro, Small, and Medium Enterprises (MSMEs):

  • The concept of MSME was initially introduced by the Indian government through the Micro, Small & Medium Enterprises Development (MSMED) Act of 2006.
  • MSMEs are categorized based on their turnover and investment.
  • The new classifications under the Aatma Nirbhar Bharat Abhiyan Scheme in 2020 are outlined in the table below:
  • According to the Micro, Small and Medium Enterprises Development Act of 2006, the National Board for Micro, Small, and Medium Enterprises (NBMSME) was established by the Government of India.
  • This board is tasked with examining factors influencing the promotion and development of MSMEs. Additionally, it reviews existing policies and provides recommendations to the government for the growth of the MSME sector.

The Ministry of MSME offers the following services:

  • Facilities for testing and training for entrepreneurship development
  • Preparation of project and product profiles
  • Technical and managerial consultancy
  • Assistance for exports
  • Pollution and energy audits.

‘Strengthening Credit Flows to the MSME Sector’ Report:

  • The report titled ‘Strengthening Credit Flows to the MSME Sector’ by the Parliamentary Standing Committee on Finance highlights that less than 40% of MSMEs utilize credit from formal financial systems, relying instead on expensive and unreliable credit sources.
  • The credit gap in the MSME sector is estimated to be between Rs 20-25 lakh crore, with an addressable credit demand of about Rs 37 lakh crore and existing mainstream supply limited to Rs 15 lakh crore.
  • The MSME sector consistently contributes around 30% to India’s GDP, 45% to manufacturing output, and 48% to exports, employing 11 crore people through 6.34 crore MSMEs.
  • Almost 99% of these enterprises fall under the micro category, with less than 1% classified as small and medium.
  • Despite recent amendments, institutional credit fails to meet the investment needs of micro-enterprises, defined as entities with investments up to Rs 1 crore and turnover up to Rs 5 crore. Urgent government action is necessary to fortify and support the MSME sector.

Other Challenges in the Working of MSMEs:

  • Accessing capital remains a major challenge for micro and small enterprises aiming for growth. Recognizing this, the RBI designates MSMEs as a priority sector, directing banks to allocate 40% of Adjusted Net Bank Credit (ANBC) to priority sectors, including MSMEs. However, a study reveals that most banks fall short of the 40% allocation for MSME credit.
  • Continuous regulatory obligations hinder firm growth. While dedicated exchanges for MSMEs have been introduced, only 342 out of 6.34 crore MSMEs are listed on the BSE SME exchange, as firms often avoid capital markets due to regulatory burdens.
  • The MSME sector relies on informal financiers for 84% of its working capital, often at higher interest rates. The informalization of MSMEs, with only 1.1 crore registered under GST, results in unmet credit needs due to limited data availability.

Way Forward:

  • The government must take steps to ensure the survival and growth of vital MSMEs, safeguarding livelihoods and generating employment.
  • The Parliamentary Standing Committee on Finance proposes measures for formalization and growth, including linking PAN-Udyog Aadhaar-GST identification numbers, working capital based on GST invoices, and a shift to cash-flow-based lending.
  • Trust issues from banks persist, with only 10% of loans being collateral-free. A digital ecosystem, account aggregator framework, and cash-flow-based lending can address these challenges.
  • The committee recommends the introduction of a Merchant Credit Card (MCC) scheme for traders and a Vyapar Credit Card (VCC) for micro-units, akin to the Kisan Credit Card scheme.

Conclusion:

An ecosystem for MSMEs to thrive with lower regulatory compliance costs, reduced funding costs, and scalability is crucial. The government should announce schemes and initiatives in the upcoming budget to enhance institutional credit accessibility for the MSME sector and address existing impediments in financial accessibility.



Context:

Recent incidents in the Red Sea, including the targeting of an Israeli ship by Iran-backed Houthi groups, followed by retaliatory actions from Israel and airstrikes by the UK and US on Houthi locations in Yemen, have escalated tensions in the region. The support extended by Hamas and Hezbollah to the Houthi group raises concerns about a potential significant terrorist threat.

Relevance:

GS- 2

  • India and its Neighbourhood
  • Effect of Policies and Politics of Countries on India’s Interests

GS- 3

Challenges to Internal Security Through Communication Networks

Mains Question:

In the context of recent incidents in the Red Sea, discuss the expansion of international terrorism into sea routes, waterways, international trade, logistics, and economies of targeted nations and suggest a way forward strategy to effectively deal with it. (15 Marks, 250 Words).

Recent Incidents:

  • Abdul-Malik al-Houthi’s endeavors to secure support have resulted in a notable rise in the frequency of attacks.
  • The twin explosions in Karman, Southern Iran, on January 3, 2024, causing over 85 casualties and 290 injuries, have further intensified the precarious situation.
  • Violence is spreading to Lebanon and Syria, exemplified by incidents such as the use of Sana, the capital of Yemen, for planting explosive devices at airports in Dubai and Midlands a few years ago.

Analysis of the Events:

  • These recent occurrences yield two crucial insights. Firstly, there is a potential surge in transnational terrorist incidents with extensive repercussions. Secondly, international terrorism is extending its influence into sea routes, waterways, international trade, logistics, and the economies of targeted nations.
  • The global landscape underscores the capacity of modern terrorists to strike precisely at chosen times and locations, indicating the growing impact of terrorism on the global political scenario.
  • Despite heightened government efforts, terrorism, both domestically and internationally, persists.

Dealing with Transnational Terrorism:

  • Addressing the West Asia issue necessitates collaborative efforts among nations, with the establishment of a robust international mechanism for handling transnational terrorism.
  • Media plays a pivotal role, as irresponsible and exaggerated coverage can fuel terrorism and diminish moral opposition to counter-terrorism measures.
  • Effective preparedness programs at the governmental level are imperative. Understanding the motivations of individuals involved in terrorism, coupled with a thoughtful approach to managing incidents and their consequences, is crucial.
  • Strong intelligence, police work, and cooperation with individuals and groups can significantly enhance security.
  • A high-level intelligence network is essential to anticipate and counter threats, particularly given the growing connection between drug smugglers and terrorists.
  • The notion of one man’s terrorist being another man’s freedom fighter should be discarded. Local cooperation with law enforcement, even at personal costs, is indispensable.
  • Swift and decisive actions by nations are necessary for psychological control over terrorists.

Conclusion:

In an evolving environment, security apparatuses and police must diversify activities, integrating technical and professional expertise. The focus should be on anticipating security needs through specialized courses. Addressing the roots of terrorism and fostering general awareness, along with garnering public support against terrorist acts, are crucial steps. However, the government’s endeavor to delegate judgment to the police and armed forces must strike a balance to avoid diluting benefits and impeding peace and negotiation.


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