The MSME day was observed yesterday, the second time during the current pandemic, which has forced many small companies to fight for their survival. Closed to 60 percent of India’s MSMEs and small businesses may scale down, sell or shut shop within 6 months as they struggle to cope with the second COVID wave, according to a recent Local Circles' survey.

The study also shows that only one-fifth of MSMEs have the capacity to survive for over 3 months. Nearly 40 percent are either without cash or have capital which may not last beyond a month. A major obstacle for the growth of MSMEs is their inability to access timely and adequate finance due to their perceived lack of creditworthiness. But, for a sector described as the backbone of Indian manufacturing, which contributes nearly 30 percent of the country's GDP, 45 percent to the country's manufacturing output, 48 percent of exports and employs 110 million, their share in the total outstanding credit is just abysmal at less than 5 percent of the total loans outstanding.

Both the government and the RBI have announced a series of measures to help MSMEs through the pandemic from a credit guarantee scheme, to various fund infusions, from the restructuring of loans to incentives for banks to lend to MSMEs. But have they worked?

If one were to look at the credit data, loans outstanding to MSMEs grew by over 12 percent over the previous year supported to a great extent by the credit guarantee scheme but in the first month of FY22, credit to MSME has again dropped by 1 percent, so 2.6 lakh crore of loans have been disbursed under the credit guarantee scheme so far and the overall amount under the scheme has also been increased from 3 lakh cr to 4.5 lakh crore now.

But there have been teething issues with this scheme - for instance - many MSMEs didn't' have existing debt or loans from formal banking channels to even qualify for the scheme and many who could avail also stayed away from fears of over-leveraging in a difficult economic environment.

These are not the only challenges.

The survey also said that many MSMEs said they have been struggling with rising raw material prices since mid-2020. Many of those working with the government and PSUs are finding it increasingly hard to service contracts as prices have gone up far beyond projections. The measures have been well-intended but with the growth of the economy so closely intertwined with the growth of this segment, there is a compelling need to look at deeper structural reforms and ensure better access to formal finance for India’s MSMEs.

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(Edited by : Bivekananda)

First Published:Jun 28, 2021 9:24 PM IST