Enhancing Competitiveness of Manufacturing MSMEs -I
Muted manufacturing growth, with purchasing managers' index (PMI) just around 51, a fall from about 54 a couple of years back, increasing protectionism of the US and UK, with the BREXIT winning a thumping majority for Boris Johnson and global trade winds heading to recession – all have taken a toll on India’s growth story. 
Industry would face more challenging times due not merely to adverse headwinds on external trade but also the turbulence in the domestic economy. Enhancing competitiveness for manufacturing firms in the small sector has several challenges and these can turn into opportunities for growth.
Inefficiency, increasing fraud rates and faulty bank balance sheets of all public sector banks and some private banks in India have compounded the woes of the domestic debt markets. The impact is the most on the vulnerable – the micro, small and medium enterprises (MSMEs), particularly in the manufacturing segment. The thriving or successful SMEs in this environment are in defense, aerospace, gems & jewelry, pharmaceuticals sectors and a few agro-industries linked to market giants like the ITC.
The number of MSMEs that shut their shops due to the banks’ unwillingness to revive despite the Reserve bank of India (RBI) and the Union government (GoI) instructions remains inestimable as no ‘exit’ statistics have been captured. The corporate sector exits alone show up in the data because the ministry of corporate affairs statutorily demands that it, and the Insolvency and Bankruptcy Code (IBC) has become a barometer for industry and financial institutions’ health. 
Banks never gave data on the number of units financed or closed but only the number of accounts. Each unit can have a number of accounts: term loans for specified purposes; working capital – cash credit, overdraft, etc., and unfunded limits like letters of credit, guarantees etc.
Since 98% of the MSMEs are either partnerships or proprietary and are linked to onetime registration on Udyog Aadhar, there is no way the closed shutters get into the data. Even the industry and trade associations do not get a wind of the closures as several so-called members are irregular in the payment of membership subscription annually. 
This scenario leaves the policy maker to the mercy of public noise and a wild hunch. Every State is concerned about improving the ecosystem for the MSME sector and more in conjunction with the Union government. However, improving the MSME competitiveness remains the biggest challenge and it requires a more holistic approach than what we have now. 
Information asymmetry and adverse selection continue to be the biggest blocks for institutional interventions, both financial and non-financial. Several MSMEs complain of a serious setback due to demonetization and GST. 
They are complaining because they were enjoying several advantages in the pre-GST period: cash sales were not routed through bank accounts and yet several MSEs thrived until their debtors ditched them. Inventories over-invoiced could get into the recorded working capital cycle with banks, as the banks have been going by what is shown to them instead of what they should see and count for want of field visits. There have been many qualified ‘account experts’ to show convenient excel spread sheets for securing working capital limits from banks. The small volumes these enterprises produce and the small size of the firms have also distanced them from the reach to the markets.
The GoI on its part, unleashed MUDRA, SME99Minute Loans and whipped up the Shamiana Camps that could give the lever to the FM to announce that the banks sanctioned eight lakh loans amounting to Rs70,000 crore in just two months, which they could not do for years! Future non-performing assets (NPAs) would show the unknowns among such crowd. The deputy governor of RBI recently sounded the alarm on the growing MUDRA account NPAs. What can the MSMEs do in a situation like this? We will look at it in part two of the article.
*Author of ‘The Story of Indian MSMEs: Despair to Dawn of Hope’ (2019) is an economist and Adviser, Government of Telangana, Telangana Industrial Health Clinic Ltd., Hyderabad (www.yerramraju1.com) 
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