MSMEs urged to boost finances by embracing digital payments
Micro, small and medium-sized enterprises (MSMEs) can strengthen their financial health by embracing formal registration, maintaining accurate financial records, and adopting digital payment systems to create a transparent financial footprint, the deputy governor at the Reserve Bank of India (RBI) has said.
Speaking at the CEO Forum of the Federation of Telangana Chambers of Commerce and Industry held in Hyderabad, Swaminathan Janakiraman said: “MSMEs should strive for greater credit discipline, which starts with careful selection of the appropriate credit product suited to their requirements and cash flows.
“MSMEs should familiarise themselves with different credit products such as term loans, working capital loans, overdrafts, and invoice discounting to match them with their borrowing needs. It is vital to tailor borrowing to business cycles and avoid over-leveraging.”
He said MSMEs should prioritise credit discipline by selecting appropriate credit products, maintaining a strong credit score, and avoiding over-leveraging. Investing in capacity building through skill development, fintech adoption and mentorship from industry bodies can enhance operational efficiency. Additionally, leveraging platforms like Trade Receivables Discounting System (TReDS) can unlock liquidity, streamline cash flows and build trust with financial institutions, he added.
The deputy governor highlighted that, despite their importance, MSMEs often struggle to secure timely and adequate credit. Challenges such as information asymmetry, limited formalisation and inadequate collateral leave many enterprises unable to meet their financial needs.
Janakiraman said: “Many MSMEs lack comprehensive financial records or credit scores, and in some cases, they may not have sufficient collateral to support the scale of financing they require. These issues result in a substantial gap between the credit needs of these units and the available supply – creating what is known as the credit gap.”
India moves to digitise tax identification system
The Cabinet Committee on Economic Affairs (CCEA), led by Prime Minister Narendra Modi, has approved the PAN 2.0 project, an initiative aimed at modernising the country’s Income Tax Department’s operations.
PAN 2.0 is an upgrade to the current taxpayer registration system, integrating core and non-core functions related to the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) services.
It will enable the use of PAN as a universal identifier across specified digital systems within government agencies.
PAN (Permanent Account Number) is a 10-digit alphanumeric identifier issued by the Income Tax Department, essential for tracking tax-related transactions such as filing returns and making payments. It is valid for life.
TAN (Tax Deduction and Collection Account Number) is also a 10-digit alphanumeric number used for deducting or collecting tax at source. It must be quoted in TDS/TCS returns.
The government aims to make PAN a common identifier across digital systems, addressing long-standing industry demands for a unified business identification number.
According to Union Minister Ashwini Vaishnaw, PAN 2.0 will deliver faster and more accurate services, ensure data consistency across platforms, and streamline operations. The initiative also promotes environmental sustainability by adopting paperless processes. Enhanced security and optimised systems will create a more agile and robust framework.
Key features of PAN 2.0 include:
- QR code integration: Enhanced QR codes on all new and existing PAN cards for better system integration.
- Data vault system: A secure repository for PAN data to strengthen cybersecurity.
- Unified portal: A single platform will replace outdated software, streamlining grievance redressal and application processes.
- Paperless applications: PAN applications can now be submitted entirely online.
- Integrated ecosystem: PAN/TAN activities will be consolidated for improved service delivery and data consistency.
Individuals, who account for 98% of the 780 million PAN holders, will retain their current PAN numbers. They can upgrade their PAN cards for free to include the new QR code through a paperless process. Details on how to apply will be shared by the Income Tax Department.
The government has not yet announced an exact timeline for implementation. However, existing users will have ample time to upgrade to the new system, and the process will be free.
