By Dr. Gyan Pathak
Micro, Small and Medium enterprises in India struggled for revival in 2022, gained a little momentum, but could not realise its full potential, due to a range of hurdles they faced, including in accessing public finance, rising prices and high inflation increasing input costs, hike in interest rates making the investment costly, declining margins of profit, and continued crisis of demand.
With expected downturn in the global economy and a decline in India’s growth rate in 2023, Indian MSMEs are most likely to face greater challenges in their path of revival. Hence, putting them into the growth path next year would require greater support from the government, in terms of finance and other policies. Merely telling the country by the Union Ministry of MSME that government plans to double the contribution of the sector in Indian Economy.
MSMEs gained a little momentum in 2022 in their revival path primarily due to easing of COVID-19 restrictions that had devastated this sector with millions of job losses in 2020 and 2021. However, the sector is yet to recover from the shock. Capacity utilisation in many industries across the sector are yet to be reached, though several are nearing 70 per cent by the end of 2022. Their sales have been reported to nearing 90 per cent of the pre-pandemic levels. It is clear that the sector is yet to revive fully, though its revenues have been estimated to bounce back, and according to some by 25 per cent, which indicate only the price rise, not the real bouncing back.
The sector has been suffering greatly since the demonetisation move announced by the Modi government in November 2016. At that time the sector was largely depending on cash flow, and therefore, the new move of demonetisation had impacted the entire sector. Millions of enterprises where simply closed, millions other reduced their capacity utilisation to only about 25 per cent. Millions of jobs were lost. Since then, MSME sector in the country have been struggling to survive. Implementation of GST in mid-2017 without preparation made their struggle even more difficult. COVID-19 outbreak in 2020 has broken their backbone. In this background, 2022 can be seen as the beginning of their revival, future of which is uncertain in 2023 due to both international and domestic uncertainties with downside risks. The problem of cash as suffered in 2016, has led to adoption of digital payment. Now in 2022, MSME landscape has changed significantly with 72 per cent payments done through the digital mode.
Access to public finance continued to be an issue for MSME’s revival. The sector has been put under the priority sector lending, and according to RBI data, it has been raised to 17.99 lakh crore from Rs 14.95 lack crore in October 2021. However, it has come with higher interest rates that has made their investment costly, and many of them are not able to shift the input cost to consumers because to insufficient demand.
Even though MSME credit demand was reported to reach 60 per cent higher by August 2022 compared to the pre-pandemic level. The aggregate bank credit to the sector grew 27 per cent by the second quarter of this fiscal as against 14 per cent last year.
MSME exports this year has been reported a growth of 37 per cent. However, with the prospect of global economic downturn, the momentum of this growth seems to be difficult to sustain due to decline in demand in foreign country that may impact its export. MSMEs contribute nearly 50 per cent in country’s exports, and therefore, the sector needs much more than what has been done.
The year 2022 had begun with expectation of revival of this sector, but at the close of the year, we see that it may take more time, and returning to growth path in 2023 has become uncertain for the 63 million MSMEs in the country accounting to 30 per cent contribution in GDP.
A number of policy initiatives were taken this year to enhance support to the MSMEs. However, support could not be rendered for majority of the enterprises. The example for Udyam Registration portal would suffice for example. The portal was launched in June 2020, but only 10 million enterprises could have been registered by August and 12.8 million by December.
The struggle to bridge credit gap continued in 2022. Under Credit Guarantee Scheme (CGTMSE) only 7.07 lakh guarantees could be provided involving Rs60,376 crore. MSMEs require greater financial stimulus with concessional working capital loans to ensure adequate liquidity.
Under the cluster development programme, 24 projects with total project cost of Rs513.4 crore were approved but only 5 have been completed. Under scheme of fund for regeneration of traditional industries 65 clusters were approved, however, out of total 226, only 104 became functional.
Entrepreneurship skilling remained at very low level. Only 1,222 programmes were conducted which benefited only 91,938 persons, while 2,68,070 persons imparted skill training under various programmes. Raising and Accelerating MSME Performance (RAMP) scheme came into existence in March with World Bank assistance. Government has launched many other schemes this year and implementing many more, but the MSMEs are still struggling to revive, which shows that the present schemes are insufficient or faulty or both. Every policy seems to be on adhoc basis.
Obviously, one of the reasons of MSME sector’s predicaments is not to have comprehensive MSME policy in the country. Union government came out with a draft in February, but it is yet to come in force, and we can only hope that such a policy would come into existence in 2023. The sector not only need more finance but also back-end services to improve performance. (IPA Service)