CAIT demands restoration of MSME status for 8 crore traders

The Confederation of All India Traders (CAIT) has demanded the restoration of MSME status taken away in 2017 from eight crore retail and wholesale traders who are part of the service industry.

The government in June 2017 removed retail and wholesale traders from the MSME category, forcing the players to either borrow at a higher rate or from informal financial sources, CAIT Secretary General Praveen Khandelwal told PTI.

According to banking sources, about Rs 3 lakh crore loans given to them are at the risk of losing the tag of 'MSME loan' at the end of March, when banks do their annual closure.

As a result, many banks will face the problem of meeting priority sector lending (PSL) target and the shortfall may have to be parked with Small Industries Development Bank of India (SIDBI) or Micro Units Development and Refinance Agency Ltd (MUDRA).

Along with agriculture, loans given to the MSME sector also come under the PSL and as per the RBI's guidelines, commercial banks should extend 40 percent of the total lending towards the priority sector. However, for regional rural banks (RRBs) and small finance banks (SFBs), the PSL target is 75 percent.

PSL is available at a concessional rate and the objective is to promote these labour-intensive businesses in the economy.

According to estimates, the country's largest lender State Bank of India (SBI) alone will have to reclassify Rs 50,000 crore loans given to traders, and ICICI Bank will do reclassification of about Rs 25,000 crore at the end of this month.

Khandelwal said even the Udyam portal launched in July last year after the revision in the definition of Micro, Small and Medium Enterprises (MSMEs), denied MSME tag to traders.

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As a result, he said, traders are facing difficulty in getting loans from formal sources and even denied registration on Goverenment e-Market (GeM) platform as there is no MSME tag attached to the business.

"We have several representation to various authorities, including MSME Minister Nitin Gadkari for inclusion of traders under MSME category. CAIT has written a letter to Prime Minister Narendra Modi last year," he said.

However, he said the government is yet to make requisite changes and slowing down the process of greater formalisation of the economy.

In absence of supportive policies, a large chunk of business is out of the formal system, he said, adding, it is the right time for the government to take a decision in this regard.

It will not help in greater formalisation of the economy but would lead to higher mobilisation of revenue, he added.