Do it yourself

Micro, small and medium size enterprises (MSME) have been widely recognized as the core of India’s development plan. MSME are not only critical from their economic importance, but are also drivers of social development. MSMEs generate large employment; help in managing regional imbalances; help in bridging income and wealth inequalities; and most importantly, enable the large enterprises to attain competitive scale and efficiency. MSMEs contribute 30.1% to India’s Gross Value Added and 45.79% to exports ( ₹ 12.39 lakh crore in 2024-25). Unfortunately, in the past 10 years, especially in the wake of demonetization, GST implementation and Covid-19 pandemic, India’s MSME sector has faced serious challenges to growth. The NITI Aayog in a recent report, “Enhancing Competitiveness of MSMEs in India, ” prepared in collaboration with the Institute for Competitiveness, has provided a strategic roadmap to strengthen India’s MSME sector. The report identifies key challenges and proposes r...

Last month, the National Sample Survey Office (NSSO) released the results of its annual survey of unincorporated sector enterprises (ASUSE). The survey was conducted during October 2022 to September 2023. ASUSE is conducted to measure various economic and operational characteristics of unincorporated non-agriculture establishments in manufacturing, trade and other service sectors (excluding construction). The key highlights of the survey are as follows: Demographics ·          There are 65 million establishments belonging to unincorporated ‘manufacturing’, ‘trade’ and ‘other services sector’ in India. Out of these estimated 65mn establishments, about 55% (35.6mn) are in rural areas and about 45% (29.4mn) in urban areas. 85% (5.53cr) of these units are Own Account Establishments (OAE means no hired worker) and the remaining 15% are Hired Worker Establishments (HWE). ·          Uttar Pradesh (13.82%...

The latest credit and deposit statistics highlight some noteworthy trends in the Indian economy. During the first fortnight of June 2023, the credit offtake continued to grow at a healthy pace of 15.4% (yoy); though it slowed down on sequential basis. The deposit growth accelerated to 12.1% (yoy) narrowing the gap between credit-deposit growth to 337bps, the lowest in over a year. The gap recorded a high of 875bps in November 2022. Rise in deposit rates and withdrawal of Rs2000 denomination currency notes primarily led to the rise in deposits. Credit deposit ratio at pre pandemic levels The Credit to Deposit ratio has been generally improving since the later part of FY22 due to faster growth in credit compared to deposits. On a sequential basis in June 2023, it improved by 60 bps from the immediate fortnight (reported June 2, 2023, due to lower deposit growth than credit growth. The CD ratio is now closer to the pre-pandemic level of 75.8% in Feb 2020 and 75.7% in March 2020. Liq...

  It’s almost a week since the union budget for FY24 was presented in the parliament. The budget documents have been analysed by a variety of experts. Most of these experts have focused their opinion on the budget as per their professional affiliations and/or ideological orientation. If I may sum up the consensus opinions, it would be as follows: ·          Development economists have criticized the budget for inadequate allocation to the social sector, especially education, health, rural welfare, MNREGA etc. ·          Market economists and strategists have commended the budget for higher allocation towards capital expenditure and commitment to fiscal discipline despite political expediency. ·          Accounting and tax professionals have spoken about the changes proposed in the tax laws to ease compliance and plug tax evasion loopholes. ·   ...

  The recent data on sectoral credit distribution and growth released by RBI discloses some noteworthy trends. These trends are interesting and worrisome at the same time. In particular, the investors may take cognizance of the following trends. 1.     Overall bank credit growth for the month of August 2020 was 6% (yoy). This is the slowest growth in bank credit recorded since October 2017. It is pertinent to note because this slowest rate of growth has happened despite a slew of special credit schemes, lending concessions, and rate cuts announced by the government and RBI since May 2020. 2.     In past 10 years, the services sector has been the top performer for the Indian economy. The share of service sector in GDP is over 55%. Unfortunately, this sector has been hit the hardest by the COVID-19 induced lockdown. The credit growth to this sector has seen the sharpest drop in August. The credit growth to the sector slowed to 8.6% (yoy). NBFCs and c...

As per some media report, the government of India is considering a proposal to revive the struggling MSME sector. It is reported that the government is considering building a contingency fund of Rs400bn that will be used to provide guarantee to Rs3trn of fresh loans to MSME sector. Earlier, the RBI had proposed a moratorium of 3 months on the repayment of principal and interest on the terms loans. Presently, banks have an outstanding credit of Rs15trn to MSME sector. Now it is indicated that each MSME will be extended additional credit equivalent to 20% of the outstanding credit for 6 months period to kick start their locked down businesses. This additional credit facility shall be fully guaranteed by the central government. "If" "implemented" "simply", without too many conditions and restrictions, it would be a meaningful measure to mitigate the collateral damage caused by coronavirus COVID-19. I would like to share the following though...

My numerous interactions with the small traders and manufacturers in past couple of years have highlighted "working capital stress" as one of the key challenge being faced by this key segment of the Indian economy. Traditionally, this segment had managed their working capital through informal sources. Private pools (popularly known as kitty or committee in local parlance) functioned as economical, stable and sustainable mechanism to fund working capital and small capex needs. Besides, it also helped in providing a large pool of "free" working capital to large corporate buyers. The process of demonetization in 2016 disrupted this traditional financing mechanism, without offering any alternative solution. This disruption not only impacted the MSME segment, but did also hurt the larger businesses which replied on these MSME as a major source of working capital financing and inventory parking. In recent past, many government officials and minister...