COVID-19 raised its ugly head again leaving the micro, small and medium enterprises (MSMEs) worse off than before the first attack. When Jayant Sinha, Union minister for external affairs mentioned in March 2021 that not enough has been done for the MSME sector, it requires a deeper study. The only good thing that happened to the sector is the change in the definition of the twin criteria of investments and turnover.
There is a font-page ad of Amazon in The Hindu dated 14th April that boasts that 2.5 million MSMEs out of the targeted 10 million are digitised! Nobody has a clue about the share of the manufacturing sector in such digitisation. The government of India (GoI) has one dependable clue to show up that figure–namely, the goods and services tax (GST). But this figure also does not indicate the manufacturing MSME's contribution! Some 300,000 jobs are services sector and not in manufacturing where there is job loss.
Manufacturing sector’s growth of 25% of the gross domestic product (GDP) holds the key for the $5 trillion economy of 2025 and for realising the dream of self-reliant India (Atma Nirbhar Bharat).
Being in the private sector that is presumably close to the heart of Central government, the MSMEs are also crucial for manufacturing growth and their contribution is just a wild guess. At the end of April 2021, except sugar, shampoo, agro-chemicals, fertilisers, drugs and pharma, all others in the manufacturing sector reveal a steep decline according to the latest report from Care Ratings.
In most discussions on MSME development, the need for a strong database is highlighted. The key question, however, is the purpose for which ‘data’ is being collected and presented. In India, the two key sources of MSME data are MSME Census that has been abandoned after 2004; and the reports of the national sample survey.
Right from 2017, we come across data on MSMEs to be stable: 6.3 million units (manufacturing and services) of which manufacturing units are reported at around 1.5 million and contributing to 40% exports! What happened to the new units registered on Udyog Aadhaar on the MSME portal and various state portals?
Nowhere do we come across data on mortality of MSME units either in national statistics or state statistics! The Union government decided to abandon the census of MSMEs.
Some data on organised small and medium enterprises could be accessed from the annual survey of industries. But many states contest the data citing the difference in the units registered with them annually under such segments.
A Tell-tale Story
Let us now see the utilisation of a few important schemes out of over 116 schemes of the Union ministry and over 30 funds of the Small Industries Development Bank of India (SIDBI) and quite a few schemes implemented by SIDBI exclusively.
Data sets throwing light on this issue are limited from both annual survey of Industries (ASI) and MSME ministry, but some interesting insights could be sourced from annual reports of the ministry of MSME, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the National Small Industries Corporation (NISC), SIDBI, Coir Board, and the Khadi and Village Industries Commission (KVIC). Textiles that include a large number of handlooms, power looms, ginning mills, apparels, and ready-made garments, which constitute a significant part of the MSME sector.
The aggregates of these data cannot be extrapolated to the universe to draw any meaningful conclusions for policy intervention.
* Tamil Nadu and Kerala top the states with 4,463 and 9,206 units, respectively.
Data relating to credit is available from Reserve Bank of India (RBI), SIDBI, CGTMSE, TransUnion-CIBIL reports.
While the data on non-performing assets (NPAs) is available, data on revival and restructuring is unavailable either at macro level or at the state level in such reports.
RBI data on NPAs among the public sector banks as on 31 December 2019 reveals that NPAs among the large, medium, small, and micro units and those with loans below Rs10 lakh per capita are 19.1%; 18.7%; 11.3%; 11.1% and 7.9% respectively.
The cascading effect of the large and medium on the small and micro sectors is no less than 30%.
Banks lend less for small enterprises in manufacturing and also recover less.
They lend less and recover more for micro manufacturing enterprises, either through sale of collaterals or enforcement of guarantees (not necessarily the CGTMSE).
The NPAs among private sector banks and the non-banking finance companies (NBFCs) are correspondingly 3-5% and 7.6%, respectively. Banks lend more to medium enterprises and recover less.
For decades, the Union ministry of MSMEs (erstwhile SSI, Artisans and Khadi and Village Industries) and RBI have been issuing booklets and circulars directing banks to revive and restructure the sick and incipient sick units.
We do not find data on such revival or restructuring either in the annual reports of the ministry of MSMEs or in the trend and progress of banking in India reported annually by RBI. The state-level bankers' committee (SLBC) statistics of different states also do not reflect such data at least annually.
Revival of the MSE manufacturing and that of the medium and large manufacturing units are two different cups of tea. However, GoI and RBI should simulate the Telangana model for such efforts in all the MSME-intensive states.
Although SIDBI released a pre-pack in consultation with their asset reconstruction company (ARC) and in accordance with RBI guidelines, it lacks a track record of revival and restructuring, with the result that banks do not so much rely on SIDBI for this purpose. The credibility gap exists between them.
The Insolvency and Bankruptcy Code (IBC) pre-pack touted for the MSMEs does not have the reach to the intended sector.
While GoI has been supporting SIDBI with funds every year, fund-wise utilisation has not been evaluated and several funds are utilised marginally indicating the type of support this institution as nodal agency has been extending.
Vertical growth of the institutions or scaling up require a different incentives framework from the present one.
Banks, financial institutions (FIs) and non-banking finance companies (NBFCs) lending to the sector could have helped digitisation in a smart way – by making it one of the terms and conditions of grant of the loans the MSMEs sought.
The sector has a surfeit of policy interventions but lacks manufacturing thrust. Anxiety to show the performance of the sector is more visible than the actual performance.
The district industries Centres (DICs) are the mainstay for MSME policy’ implementation and they do not get any support from the Union government. Twelve Union ministries have one or the other scheme for the sector and, yet, the sector’s manufacturing abilities suffer for want of timely and adequate availability of resources.
(The writer is an economist and author of ‘The Story of Indian MSMEs.)