By Mr. Pankaj Sharma, CEO, Religare Finvest
MSME Outlook: The MSME sector has been in the spotlight since the pandemic brought the sector to its knees a few years ago. Pandemic-induced restrictions crippled their business, making it difficult for them to survive.
Nirmala Sitharaman, Minister of Finance, made an impassioned plea for industry to support the SME sector at the recently held Hero Mindmine Summit.
Speaking on behalf of her government, she said: “Despite all the tears we have shed for MSMEs, can we limit the time frame in which MSMEs receive their due?
This indicates the pain that MSMEs continue to suffer due to excessive delays in receiving their dues and therefore the urgency to get the MSME sector back on track.
Once the Covid restrictions eased, with limited cash at their disposal, they struggled to get their business going again. The good news is that Covid seems to be in control now and after hitting rock bottom, the only way for the MSME sector is up.
Carrying them up the hill
Over the past two years, the central government has made efforts to revive the MSME sector. Recently, he created a portal – MSME Samadhan, to settle federal dues due to MSMEs.
Earlier in the year, the Minister of Finance made a series of announcements during the presentation of the Union budget 2022, in order to facilitate access to credit for MSMEs. It included the extension of the Emergency Line of Credit Guarantee (ECLGS) scheme, which would have provided additional credit to over 130 million MSMEs, until March 2023.
Special arrangements have been made for extremely distressed areas, in particular. contact-intensive sectors such as tourism and hospitality.
In addition, the government would revamp the Credit Guarantee Trust Scheme for Micro and Small Enterprises (CGTMSE) with a new injection of funds to facilitate additional credit of Rs 2 trillion.
In addition, the government has taken steps to increase the availability of credit for the sector. Through programs such as the Micro Units Development Refinance Agency Bank (MUDRA) and the Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS), the central government is assisting MSMEs with much needed funds.
Measures to increase the availability of finance are complemented by an expected resurgence in demand.
Some good news
Electronics and chemicals are ready for a dynamic FY23. Cell phones, appliances, and more live up to the expectations of a robust holiday season. It will have a positive impact on the MSME space, which plays an important role in the assembly of consumer devices and industrial electronics.
Similarly, the specialty chemicals industry, which has many SMEs operating at the mid-stage of production, is expected to grow by around 14-17%. The announced LIP program for specific sectors will further improve the activities and incomes of MSMEs in these sectors.
However, rising input costs threaten to squeeze margins, leading to lower realizations and unsatisfactory real growth numbers. Moreover, supply chains are still not operating at optimal levels and uncertainties persist.
Loan recovery continues to be a concern. The stressed asset ratio for the MSME segment, which measures gross non-performing assets to restructured assets, is expected to rise from 11.7% last year to 15.8% this fiscal year. Banks may continue to face challenges in recovering outstanding loans to MSMEs.
In addition, each sector faces its own challenges. Real estate, for example, has slowed in recent years after a period of strong growth. Similarly, exports are also down due to shrinking demand from European countries. Geopolitical issues in West Asia further disturb the playing field for MSMEs.
It’s time to step on the accelerator
In addition to the external ecosystem, the MSME universe needs to embrace a growth mindset internally. Most MSMEs are content to stay small and stay in their comfort zone to escape regulatory scrutiny and higher taxation. With better access to credit and an upsurge in demand, MSMEs now need to break out of their lethargy and focus on growth rather than just staying afloat. MSMEs are traditionally labor intensive, especially in the manufacturing sector.
Going forward, entities will need to focus on automation and digitization. The sector should be more outward facing than inward. Rather than wanting to stay small and disorganized, businesses need to push to make it an organized industry and grow without constraints imposed by various regulatory/statutory size waivers.
The opportunities are immense. Traditionally robust MSME markets such as South Korea, Taiwan, Singapore, etc., are saturated. MSME entities there may feel the need to explore other markets for growth.
With a rapidly growing middle class and increasing internet penetration, India promises a mature market. These companies may be keen on local partnerships. Although they can contribute technology and knowledge, they will look to their Indian partners for ground support.
While challenges persist, opportunities also abound. A good festive season this year after two consecutive years of muted festive spirits as well as alleviating supply chain issues would further complement central government efforts and enable MSMEs to emerge from a pandemic-induced downturn .
(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)