For the past two weeks, several reports from Chennai across national dailies and television networks have set alarm bells ringing.

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Each of those news stories claimed that Tamil Nadu saw 50,000 micro, medium and small enterprises (MSMEs) “shut shop” in FY18.

The reports quoted a policy note tabled at the state legislature on June 7, by the MSME department.

While quoting from the policy note itself, a majority of these stories failed to have a single state government official on record.

What Does The Policy Note Say?

According to the policy note, there has been an 18 percent decrease in the number of registrations in MSMEs in FY18. In FY17, Tamil Nadu accounted for 2,67,310 MSMEs, whereas in FY18 that number dipped to 2,17,981.

“This means 49,329 industrial units wound up operations in one year,” reported a prominent English newspaper. The policy note stated that while 18,97,619 employees worked in the MSME sector in FY17, only 13,78,544 were employed in the sector in FY18. “The number of workers employed in MSMEs has fallen by over 5 lakh during the same period,” said the daily.

CNBC-TV18 contacted the Tamil Nadu government to cross-check these claims.

What’s The Truth?

“The talk (reports) about 50,000 MSME units (being shut) is not correct. This has cropped up because of a misunderstanding in the figures presented,” said Dharmendra Pratap Yadav, secretary, Micro, Small and Medium Industries, Tamil Nadu government.

"Firstly, only Udyog Aadhaar Memorandum (UAM) cases have been listed in the policy note," explained Yadav. "It must also be noted that only the number of newly registered units, under the UAM, was included in the policy note. It is not the cumulative of the previous years’ numbers. So, this is incorrect.”

Simply put, while 2.67 lakh MSMEs were registered under UAM in FY17, only 2.17 lakh units registered in FY18. So, the number of new registrants may have dropped, but these are not indicative of “shutdowns”, as several media houses have been reporting, apparently misinterpreting these numbers as cumulative statistics.

CNBC-TV18 learns that the same applies to the reported claim of “five lakh job losses”. The numbers weren’t cumulative and the policy note only indicated that fewer jobs created as a consequence of fewer companies registered, as opposed to a fall in employment.

Even the 18 percent fall in registrations, the government said, can be put down to the late implementation of UAM in Tamil Nadu.

“While UAM came in September 2015, we started implementing it only in January 2016,” said Yadav. “In between, clarifications were sought from the centre and a number of companies were registered only after April 2016, which led to increase in registrations in FY17. The next year saw the normal, expected number of companies registered. So, that explains the decrease for FY18.”

At the time of publishing, http://www.udyogaadhaar.gov.in lists a total of 5,75,215 MSMEs registered in Tamil Nadu, which is a whopping 89,924 companies for just the first two months of FY19. So, any talk of shutdown or closure, is unfounded.

No Reason to Worry, Then?

Not quite. The fact is the implementation of differential goods and services tax (GST) slabs has impacted small-scale manufacturing business, said the government.

Other issues such as tighter availability of capital, have also thrown a spanner in the works of Tamil Nadu’s MSME sector.

“Bank credit has been tight and there’s always the NPA (nonperforming assets) cloud that continues to hang over the head of our suppliers,” said Sreeram Srinivasan, CEO, Syrma Technology. “Nearly a year into GST, 65% of our suppliers have managed to acclimatise, while a third continues to face problems with compliance.”

The Tamil Nadu government though, agrees, and is ready to help. CNBC-TV18 learns that the state government has conducted a study and has identified five sectors — automotive, electrical and electronic, textiles, leather and general engineering — has deemed “stressed”, post-GST.

“The results of our study should be out in 20 days and we will decide what kind of relief and subsidies to provide these sectors,” said Yadav.

Some industry players though, feel, the onus must be on MSMEs to acclimatise to the GST era as soon as possible. “Post-GST, we have become a more formal economy,” said Danfoss India President, Ravichandran Purushothaman. “If any MSME wants to participate with a large company as a supplier, it will need to comply with the new GST regime. Change is relevant and important.”

First Published:Jun 22, 2018 9:30 AM IST