Demonetisation and GST Are Done And Dusted; MSMEs Continue to Struggle

Radheshyam’s lament is understandable—in the first 10 days of this year’s 15-day Surajkund fair, the craftsman has not offloaded even 10 per cent of his works. He doesn’t blame royalty alone for this. In chaste Hindi, he grumbles: “Pehle factory aayi, phir notebandi, uske baad GST aur ab mehangai (first came the factories, then demonetisation and GST, and now we have inflation and price rise).”

The Real MSME World

Inadvertently, this year’s Surajkund Crafts Mela has triggered this peek into the real world of India’s MSMEs (Micro, Small & Medium Enterprises). Just outside the Capital’s borders, the Mela annually sees the glitterati munching on ethnic foods and sipping cappuccino, meeting small craftsmen and spending a pleasant, lazy late-winter day. No so this year, because other than displaying rural-made products, the craftsmen also shared just how hard-up they were to make ends meet, years after the harsh realities of demonetisation and GST thundered in like a tsunami and flooded their lives.

The truth is that MSMEs are facing bleak times and not many know of or think about the people being impacted. There is a twist in the tale, though. Typically, for suburban visitors to this make-bucolic marketplace, the sojourn is more a family picnic and less a buying escapade or spree. Today’s lean middle-class pockets have made things worse, with actual product purchases being few and far between. For craftsmen who come here from all corners of the country, that is a depressing and grim business reality, with sales being low and margins lower still.

Let’s quickly visit the travails of another trio of craftspersons at Surajkund. Umadevi, a regular from Bihar and known across ‘mela-circles’ for her bold, block-printed bedsheets and bed covers, is seeing sales lower by 75 per cent this year. Udyog Kumar from Madhya Pradesh is finding few takers for his stock of rustic toys and living room display items, with sales at just 50 per cent of last year. Jahnavi Sarma from Assam, facing a similar predicament, bluntly announces that she will “not be back”.

The Numbers Are talking

That brings us to MSME performance figures and analyst reports, which validate Jahnavi’s sobering statement. Despite relief provided by the Government, the segment is battling low sales and sliding profits, forcing restructuring or closure of businesses. Compared to a revamp average of 2 per cent in India’s overall businesses umbrella, MSMEs are seeing an operational overhaul in 6 per cent of units, industry body ASSOCHAM said. It is a win-some, lose-some situation—exports are growing due to a slowdown in other manufacturing regions, but sluggish domestic offtake has sent sales sliding.

The situation is so slippery that some banks are offloading loans at 60 per cent of the face value. Last week, Indian Overseas Bank invited bids for Rs 208-crore loans, asking for 20 per cent in cash and the rest in security receipts. “It is due to this trend (demand oscillation) that while overall bank NPAs in India are set to decline by 1 per cent, bad loans in the MSME space are projected to jump to double-digits,” ASSOCHAM and Crisil said a few quarters back. Their prediction is coming true, with NPAs set to rise to near 11 per cent by March 2024, against 9.3 per cent in March 2022.

Government Stepping In

Recognising this drift, Finance Minister Nirmala Sitharaman emphasised the Government’s focus on MSMEs under the ‘Viksit Bharat’ banner during her recent Budget speech, unveiling plans to boost trade, self-sufficiency strategies and training. She also outlined plans for “timely funding, Emergency Credit Line Guarantee Scheme (ECLGS) and on-time payments” to bolster the MSME segment.

However, analysts such as Sunil Desai, Managing Director of Richfield Engineering India, say there are “far more pressing issues that the Government is not prioritising”. For instance, MSMEs are penalised for late payments as soon as they miss a loan installment, while the need of the hour is not to shut down loss-making units, but to have the rest of the industry help them grow.

Primus Partners reiterated the criticality of MSMEs in the economy and policies to make them competitive, “without which the country will not be able to compete globally and create the jobs it needs”.

A Desire For Growth

As of December 2023, Maharashtra led the MSME space with 37.12 lakh new registrations, followed by Tamil Nadu (21.74 lakh), Uttar Pradesh (20.28 lakh), Gujarat (15.53 lakh) and Rajasthan (15.57 lakh). The number of MSMEs in the country is expected to grow from 6.3 crore (of which only 2.5 crore have availed credit from formal sources) to around 7.5 crore in the coming times, growing at a projected CAGR of 2.5 per cent. The numbers above underline the fact that the need and desire for growth exists, as does the entrepreneurial zest to kickstart business in the first place.

What is needed to catalyse new MSME units is conducive policies, affordable and easier access to funds and cross-linkages within the economy. That could do the trick, or we shall continue to chant our version of an old Spanish aphorism: “A lo lecho, pecho” (what cannot be cured must be endured).

The slowdown in MSME fortunes has seen a part of the smaller India doing just that—enduring the pain. However, in a nation as vast as ours, even “a part of the smaller India” translates into millions of households; today, most of them are reminiscing the past and bemoaning the present as they see home and hearth crumbling, along with their dreams of good days.

(The author is a New Delhi-based journalist and communications specialist. Views expressed are personal)