The minister announced that the government will revamp the Khadi and Village Industries Commission (KVIC) within three months and make it more export-oriented.
Gadkari also told the House that all banks, including scheduled, private and cooperative, as well as non-banking financial companies (NBFCs) are now allowed to lend money to the MSME sector. He said loans sanctioned and disbursed under various schemes will be monitored through a central portal in his ministry.
"The government undertakings procure products but do not pay for 3-4 months. MSMEs are on the verge of collapse. Passing a legislation is easy... There are 20,000-22,000 cases. As per my estimates, big industrialists, state and central government undertakings owe Rs 5.5 trillion to Rs 6 trillion to small industries," Gadkari said.
"This is a serious situation. We are in discussion with the finance ministry and we will find out some solution to it... We have to give their payments within three months," he added.
On concerns raised by various members about impact of the coronavirus outbreak on the MSME sector, Gadkari said the sector is facing a big challenge and he is aware of the problem.
"I have sent recommendations to the finance minister," he said adding that it would not be fair on his part to reveal the details as a meeting is scheduled for Friday.
Finance Minister Nirmala Sitharaman has called a meeting on Friday to discuss the proposals, the minister said.
"There has been impact of the coronavirus on the MSME sector... It is a natural calamity," Gadkari said.
On Thursday, fourth death due to coronavirus infection was reported in the country and more than 170 people have tested positive so far.
Highlighting achievements of the MSME ministry, Gadkari said six lakh industrial units have been restructured under the RBI-appointed U K Sinha Committee on MSMEs.
A proposal to create a "Fund of Funds" of Rs 10,000 crore has been approved by the finance ministry and the Cabinet nod will be sought on it, he added.
In addition, the finance ministry has approved a proposal for a "Distressed Asset Fund" of Rs 10,000 crore and the ministry will send it for the Cabinet nod, he added.
On the KVIC, the minister said he will revamp it in three months and the commission will be strengthened professionally.
The ministry will appoint a financial consultant to study and suggest methods to strengthen KVIC.
"A three-member committee under the chairmanship of secretary will be set up and we will revamp KVIC in three months and make it export-oriented," the minister said.
Acknowledging challenges faced by the sector, Gadkari said the government believed in turning "challenges into opportunities".
Earlier, funding under MSME was limited to only scheduled banks but now all banks, NBFCs and cooperative banks can lend to them.
About credit flow in the MSME sector, he said that by February 2020, Rs 50,532 crore has been disbursed in 50,532 loans sanctioned.
Due to a number of steps to promote khadi, sale of its products has increased to about Rs 4,500 crore this fiscal as against Rs 3,215 crore in the previous financial year, he said.
To promote MSMEs, the ministry has created a "Bank of Ideas" and a ranking system for states will be approved.
Highlighting the sector's achievement, the minister said there are 6.3 crore units that produce about 8,000 products and employ over 12 crore people.
The MSME sector accounts for 33 per cent of the manufacturing output and 45 per cent of the total exports of the country, he said.
On some members' concern over decline in budget for the sector, he said the ministry's budget allocation has grown to Rs 7,572.20 crore in 2020-21 from Rs 3,007.42 crore in 2015-16.
Under the Prime Minister Employment Generation Programme, in the current year, 58,000 units have been approved so far with a subsidy of Rs 1,712 crore.
The minister added that after review of non-sanction of loans with bank officials, "almost 22,000 proposals are to be disbursed in March 2020".
He added that banks had rejected 11 per cent proposals, saying it fell out of service area and another 11 per cent as targets were reached.
Emphasising the need for setting up clusters, the minister said the government is providing Rs 5 crore grant for setting up such clusters involving 500 persons which can boost the local economy.
Earlier, Congress member Jairam Ramesh suggested that those not making payments above Rs 1 crore to MSMEs should be "named and shamed" by putting a defaulters list on the website.
Lauding Gadkari for "non-toxic brand of politics" and "dynamism", the senior Congress leader praised the minister and expressed faith in his ability to revamp the sector.
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