More policy support is needed to help MSMEs navigate the economic distress

Written by Bornali Bhandari, Samarth Gupta, Ajaya Okay Sahu and Okay S Urs

The twin affect of demonetisation and the inefficient implementation of the Items and Providers Tax (GST) had adversely affected corporations, particularly the Micro, Small and Medium Enterprises (MSMEs) in India. The pandemic has added to their woes. The NCAER Enterprise Confidence Index (BCI), a measure of enterprise sentiments, which had fallen from 133.3 in the second quarter of 2016-17 (pre-demonetisation) to 111.2 in the third quarter of 2019-20 (pre-pandemic), fell to its lowest in the first quarter of 2020-21, recovering thereafter in the second and third quarters. However even after recovering, enterprise sentiments in the third quarter are decrease than what they used to be a yr in the past.

We apply the newest definition of MSMEs — corporations with an annual turnover lower than or equal to Rs 100 crore — to the NCAER Enterprise Expectations Survey (BES) information to perceive the variations in enterprise sentiments between the MSMEs and enormous corporations (these with an annual turnover higher than Rs 100 crore).

The Enterprise confidence index (N-BCI) of MSMEs was decrease than that of enormous corporations even prior to the pandemic (Determine 1). It began declining from the third quarter of 2019-20, falling to its lowest in the first quarter of 2020-21, recovering thereafter. The speed of restoration of the BCI is greater for big corporations as in contrast to the MSMEs — a spot which widened additional in the third quarter of the ongoing monetary yr.

Supply: NCAER Enterprise Expectation Surveys.

The N-BCI is made up of 4 parts which can be proven in Desk 1. Three key factors emerge. First, the share share of optimistic responses is greater for big corporations as in contrast to MSMEs all through the interval — from the second quarter of 2019-20 to the third quarter of 2020-21. There is one exception. Ninety-three per cent of MSMEs had responded that their capability utilisation was optimum in the third quarter of 2019-20 versus 88.6 per cent of enormous corporations. Second, the share of optimistic responses observe the general development — begin falling from the fourth quarter of the final yr, reaching a trough in the first quarter of the present yr, and rising thereafter. Third, barring the “current capability utilisation is shut to or above optimum degree” part, in all the remaining parts, we discover that the share of optimistic responses in the MSME class is lower than 30 per cent whereas it is greater than 40 per cent for big corporations.

Desk 1: Share of Constructive Responses from Corporations (%), 2019-20:Q2 to 2020-21:Q3 (Supply: NCAER Enterprise Expectation Surveys)

Whereas the excellent news is that enterprise sentiments are recovering throughout agency sizes, there appears to be the emergence of a bimodal distribution of enterprise sentiments in MSMEs versus massive corporations. Additional, massive corporations are recovering at a sooner fee than MSMEs. This is clearly a worrisome signal and will have an antagonistic affect on the restoration of the industrial sector.

The Union Funds 2021 reveals that the precise expenditure of the Ministry of MSMEs has come down from Rs 6,697.6 crore in 2019-20 to Rs 5,644.2 crore in 2020-21 (Revised Estimates) — a drop of 15 per cent. For 2021-22, the Union funds has allotted a sum of Rs 15,699.7 crore (Funds Estimates) — an increase of 177 per cent. Out of that Rs 10,000 crore or 64 per cent of the whole, is solely for the “Assure Emergency Credit score Line (GECL) facility to eligible MSME debtors” scheme.

The newest survey information reveals {that a} third of MSMEs took credit score over the final three months. Nevertheless, about 75 per cent of them weren’t conscious of the Emergency Credit score Line Assure Scheme in December 2020. Throughout the survey and after it, some corporations requested reached out to us inquiring about the particulars of the scheme and the way to utilise it. Forty-one per cent of the MSMEs confronted challenges in accessing credit score and out of that 40 per cent attributed it to prolonged paperwork. Even inside MSMEs, it is the smallest corporations with an annual turnover of lower than Rs 1 crore that face the most challenges.

There is a necessity to increase consciousness about the Emergency Credit score Scheme and enhance its outreach to the smallest of MSMEs. Ease of doing enterprise at the final mile wants to be strengthened by making paperwork shorter and less complicated. For the subsequent yr or two, a authorities helpline at the block/district degree is needed to present support to the MSMEs.

Entry to credit score is obligatory, however not a enough situation for the restoration of the MSME sector. A holistic policy based mostly on the challenges recognized in the UK Sinha report is needed to help the MSMEs overcome the once-in-a-century pandemic. This may have a optimistic affect on labour markets as effectively.

Bhandari is Senior Fellow, Gupta and Urs are affiliate fellows and Sahu is senior analysis analyst, NCAER. Views are private

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