By Bizodisha Bureau, Bhubaneswar, May 22, 2016 : Reserve Bank Governor Raghuram Rajan on Saturday underscored the need to shift focus on the development of small and medium enterprises that require ‘hand-holding’ by the state governments and other agencies.

“Indian economy is in the midst of recovery. However, some areas are still under stress and need to be focused in order to get them better,” Rajan said while addressing ministers, bankers, bureaucrats and other stakeholders at the 4th Odisha Knowledge Hub here.

The RBI governor made it clear that though the Indian economy is in the midst of recovery, some areas are still under stress.

“Some sectors are doing quite well while some are experiencing stress and they still need some pick up — most obviously the agriculture sector which faced two successive droughts,”, Rajan said, making his address on ‘India: Prospects and Challenges’ at the ‘Odisha Knowledge Hub’ lecture series here.

The RBI boss batted for lighter regulation for small scale industries and easier business environment for startups in order to foster job creation.

“Having lighter regulation is very important for small industries. While in UK, there are lighter regulations, Italy has very hard regulations. As a result, the small firms grow much faster and bigger in UK compared to Italy,” said Rajan.

Rajan said public sector banks have increased their credit to small and medium enterprises after RBI identified medium enterprises as priority sector and that he was optimistic about growth of startups if provided required facilities to grow.

“Provision of easy entry and easy exit, smooth availability of finance, access to input and output market, protection from creditable taxes and healthy competition in the sector are the areas need to be focused by the planners and the governments,” Rajan said and called upon entrepreneurs to take risk under safety net.

Advocating easier entry and exit rules, especially for smaller companies, he said the ‘inspector raj’ has to be further relaxed.

The central bank has brought the medium enterprises in the ambit of priority sector lending, Rajan said, adding that micro-lending by both private and public sector banks has increased in the past few years.

Small and medium enterprise require focused attention, the governor said and mooted setting up new institutions to finance SMEs to ensure easy access to funds.
After RBI in its last revision identified medium enterprises in the priority area, bank lending to them had increased from Rs 4 lakh crore in 2012 to Rs 7 lakh crore in 2015, he said, adding public sector banks had increased their lending ratio to SME sector during last some years.

Rajan emphasised on new technology and new institutions to lend credit to the sector which could grow and become big enterprises after some time.

“These entrepreneurs mostly depend on small banks andcredit to them is given basing on different factors,” he said adding as certain companies vanish after taking loans, the system of unique identification of promoters should be there.

He said the big problem for SMEs are facing is that they are not being paid in time. “We should think of evolving a system for exchange against non-payment which will help the entrepreneurs to raise their working capital instead of waiting for days to get their money back.”

Stating that the government needed to create a proper environment for the start ups, he said “though India has done away with the licence raj, inspector raj continues to some extent”.

Factory and boiler inspectors and other field level regulators should have adequate knowledge on the initiatives being taken by the government and RBI for the betterment of small and medium enterprises, he said.

Light regulation, he said, is very important in small and medium enterprise sector and a heavy regulation many times do not give easy entry and easy exit which is why people keep away from it.

Field level regulators must have information regarding the initiatives, he added.

Though the big projects are capable to develop infrastructure for their units, the small and medium ones should be provided with access to infrastructure. Competition in the sector need to be encouraged as it enhances efficiency as well as growth, he added.