• HDFC
• 20 Apr 2018
• Knowledge Centre

HDFC, Tester

Budget 2018 has proved to be generous to the Micro, Small and Medium Enterprises (MSME) sector, enabling it to boost employment and increase growth. The budgetary allocation has gone up from Rs 6481.96crore in 2017-18 to Rs 6552.61crore in 2018-19.

 

A report by CIBIL and SIDBI revealed a clear picture of the MSME space in India as it stands today. Though the presence of NPAs is evident, the number was stable at 11.2% at the end of Q3 FY18, for loans between Rs 10 million and Rs 250 million.

 

Strength in adversity

 

NPAs have followed a stable trajectory in the micro and SME segments, i.e. the category of loans between Rs 10million and Rs 250million. NPAs fell from 9.2 % in Q3FY17 to 8.8 % in Q3FY18, the time when the demonetization effect caused many to flounder. During the same time span, non-performing loans (NPAs) among large corporates continued to grow.

 

There has been a change in the norms for categorizing MSMEsby the Union Cabinet. They are now classified on the basis of their annual turnover. As per these norms, enterprises with an annual turnover of less than or equal to Rs 5crore come under the 'micro' category. Enterprises whose turnover falls in the range between Rs 5crore to Rs 75crore will be classified as small enterprises, whereas those with a turnover between Rs 75crore and Rs 250crore will be classified as medium enterprises. The Government states that this move will boost the ease of conducting business and also the implementation of payments in the new tax regime pertaining to GST.

 

Some facts

 

However, the reality is that NPAs still exist in this category. One breather is that a large section of the problems faced by MSMEs does not need financial support for the resolution. If attention is paid to aspects like strategies for marketing and evolution of products, changes in practices employed, state governments’ support for the waiver of dues or postponement of payment of tax arrears, along with other similar facets, the path ahead could become much clearer.

 

Inherent belief

 

The situation remains unclear. Nevertheless, some banks are of the opinion that this sector has potential. Yes Bank just announced the launch of ‘YES GST’, an overdraft facility for MSMEs. Though this is the first initiative of its kind, this enables an MSME to avail an overdraft (OD) of upto Rs 1 crore. This OD is offered to MSMEs based on certain statistics such as their annual turnover, backed by GST returns, among others.

 

A report by Grant Thornton states that the sheer magnitude of the Micro, Small and Medium Enterprises (MSMEs) sector comes to the fore with the mammoth amount of goods and services they produce – amounting to Rs 20 lakh crore. They contribute as much as 40% to the Gross Domestic Product (GDP) of India. Together, they have what it entails for incessant growth, providing a livelihood to millions of people and creating value for the entire global community.

 

If the MSME sector is to come to the fore in terms of contributing to the growth of the Indian economy, it is absolutely essential that it is empowered to do so.