India

Falling hopes of small enterprises

A survey said that about sixty nine percent of small new businesses (startups) and MSMEs in the country will reduce, close or sell their businesses by the end of the year.

Saroj Kumar

A survey said that about sixty nine percent of small new businesses (startups) and MSMEs in the country will reduce, close or sell their businesses by the end of the year. The more worrying thing is that only twenty-two percent of MSMEs are left with the resources to operate for more than three months.

Small and medium industries are the backbone of the economy of any country. In India, Micro, Small and Medium Enterprises (MSMEs) contribute thirty percent to the country’s Gross Domestic Product (GDP) and forty eight percent of the exports. About 15 crore people get employment from the MSME sector, which will be more than 40 percent of the total labor force. These bright figures may be true about the MSME sector. But the darkness behind this truth is so dense that all the figures seem blurry in it. The truth is that this sector of the economy is currently facing serious problems. When the country is celebrating the nectar festival of independence, then there is mourning in the MSME sector. About sixty nine percent of MSMEs are on the verge of closure. Government, entrepreneurs and workers, everyone’s hopes seem to be shattered.

Till a few months back, there have been speculations that MSMEs will be in trouble. But now after some figures of the estimates have come, the picture of this area is starting to become clear. In the first quarter of the current financial year, there has been a sharp jump in the cases of loan installment defaults from MSMEs. That is, the enterprises in this sector could not return the amount that they had to return to the banks during the first quarter. This has come to the fore from the first quarter books of public sector banks. However, one of the reasons for this was the disbursement of more loans. But the bigger reason is the poor condition of business and market. That is, the work in which the loan money was spent, either it did not return on time, or the money was wasted in the process of spending and returning. Both these conditions cannot be said to be good for an enterprise. The condition of MSMEs was already not good, and then the epidemic only slit it.

Due to policy limitations, the MSME sector is not able to get the facilities which are available to large enterprises. Lack of capital is the biggest problem of this sector. Getting an easy loan has always been difficult. During the pandemic, the government made some provision of easy loans to provide relief to the sector. Due to the Emergency Credit Line Guarantee Scheme (ECLGS), a total of Rs 9.5 lakh crore loans were given to MSMEs in the financial year 2020-21, which is much higher than Rs 6.8 lakh crore in 2019-20. But it seems that a new challenge of getting rid of this debt has come up in front of this sector.

Enterprises in this sector are unable to pay their dues. The new dues of State Bank of India (SBI) increased four times to Rs 15,666 crore in the first quarter of FY 2021-22 from Rs 3,637 crore in the year-ago quarter, i.e. around five times. And more than forty percent of this arrears or Rs 6416 crore is from the MSME sector alone. Similarly, sixty nine per cent of Indian Bank’s new dues or Rs 4204 crore and Canara Bank’s new dues of Rs 4253 crore or Rs 4253 crore is eighty-eight per cent from the MSME sector. It is clear from these figures that thousands of crores of rupees of banks are stuck in the debt of MSME sector. If these industries are not able to repay the loan installments, then its direct impact will be seen on the health of the banks which are already burdened with NPAs.

It is also not that the government or public sector banks are not aware of the condition of the MSME sector. However, the Reserve Bank of India in its July Financial Stability Report had said that the size of NPAs of banks may increase, especially in the case of MSME and retail sector. Whereas RBI has already introduced many restructuring schemes to solve the crisis of MSME item of banks and non-banking financial companies. Since 2019, RBI has introduced three such schemes, under which it has been allowed to restructure the distressed loans of the MSME sector up to Rs. Based on this, banks restructured loans totaling Rs 56,866 crore under the restructuring plans for January 2019, February 2020 and August 2020. But this relief was like cumin in the mouth of a camel, due to which the region could not come out of the financial crisis.

The worsening condition of MSMEs can also be gauged from the increasing number of workers in the agriculture sector. There is continuous migration of workers from factories to agriculture sector. CMIE data says that in the financial year 2017-18, the share of workers employed in agriculture was 35.3 percent, which increased to 36.1 percent in 2019-20, thirty-eight percent in 2019-20 and 39.4 percent in 2020-21. The manufacturing sector has been badly affected due to lack of demand, due to which the share of workers in this sector has come down from 9.4 per cent to 7.3 per cent in 2020-21. Sixty percent of the workers in the manufacturing sector are employed in the unorganized sector of MSMEs and from here workers are migrating to the agriculture sector.

The government had announced in July 2019 that the contribution of MSME sector to GDP would be increased to 50 per cent and 50 million new jobs would be created in the next five years. Probably in the same sequence, in July this year, retail business was also announced to be included in MSME. But before this, in May 2021, a survey report by LocalCircles said that about sixty nine percent of small startups and MSMEs in the country will reduce, close or sell their businesses by the end of the year. The more worrying thing is that only twenty-two percent of MSMEs are left with the resources to operate for more than three months. Whereas about forty one percent have either run out of capital or have less than a month left.

Eighty-eight per cent of the enterprises in the survey, to save their business, had demanded the government to increase the prices of those items, which are used to manufacture steel and copper and the same are supplied to PSUs under contract. About ninety-nine per cent of the enterprises had said that the government should extend the time of three to six months to complete all agreements with PSUs, so that they do not suffer any liquidity related loss. The government is excited by the boom in the stock market and the GDP figures for the first quarter (20.1%) and on the basis of that it is assuming that everything is on the right track. But the truth is that MSMEs are out of the stock market and the unorganized sector of MSMEs is also not included in the GDP figures. On the other hand, the unemployment figures for the first quarter (9.68 percent) show the mirror. The purpose of statistics should be to know the truth and act accordingly. But when statistics become a means of saving face, what is left on the ground is nothing but hopelessness. The same hopelessness is prevailing in the MSME sector.

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