Open Letter in response to the article published on Business Line (19.11.2018)- Unorthodox approach to resolving NPAs
An unorthodox approach to resolving NPAs
I have read with a lot of interest the article in the business line of 19.11.2018
You have covered a gamut of large borrowers and as per RBI & IBC, this may be the need of the hour and every senior person, in all stakeholders are working for 500cr and above assets. For the last 36 months, I am working for the revival of sick MSME and now for the last 12 months, I am investing in these sick MSME in the form of equity.
My study shows that on average of 5lacs investment, it will be possible to revive one MSME with 20 workers (in operation). As you have mentioned, it will be difficult challenge to create such fund for large corporations but for small MSME unit, we can depend on CSR funds, impact investors, philanthropic foundations, equity kind of crowdfunding.
I am suggesting following Tax incentives:
1. As of now 90 to 95% MSME are proprietary or partnership, they are not permitted to carry forward losses, if govt permit these losses to be carried forward, merger and acquisition will become easy.
2. As most of MSME depend to raise money from friends & relatives govt can formulate some tax incentives so that pressure on the banking sector will reduce say 30% investment allowance.
3. The government can permit special mutual fund for investment in MSME with some tax incentives so that Growth Capital to growing MSME can be provided.
With the change in asset class allocation by the younger generation, there may not be a problem of fundraising.
To give you an idea, NPA in MSME is in range of 96000cr against total funding or 11lac crore but at some ratio, 1cr jobs are at stake and at our estimate total funding required can be of 15000cr but by reviving these units, govt. may collect the tax of 5000to 8000cr/month with 2months / 3months gap and it will put few lacs crore of underutilized asset into use.
These are my views.
Thanks.
N.P. Desai
Chief Consultant
Growth Idea Lab
