The Micro, Small, and Medium Enterprise (MSME) sector has emerged as a significant sector of the Indian economy. The sector is crucial to India’s economic health, contributing about 45% to manufacturing output, more than 40% of exports, over 28% of the GDP while creating employment for more than 111 million people. In terms of volume, the MSME sector is next only to the Indian agricultural sector. The MSME sector in India is exceedingly heterogeneous in terms of the size of the enterprises and variety of products and services and levels of technology employed.
RBI in a report stated, “The sector has the potential to grow at a faster pace. To provide impetus to the manufacturing sector, the recent National Manufacturing Policy envisaged raising the share of the manufacturing sector in GDP from 16% at present to 25% by the end of 2022.” The sector provides employment opportunities at comparatively lower capital cost and encompasses ancillary units for large enterprises to support the system in growth. Data proves that the MSME sector has traditionally shown significant growth as compared to this industrial sector. However, the pandemic has played a spoilsport.
Impacts on the import-export business of MSMEs
Since March 2020, stringent lockdown rules affected all business activity; demand dropped, labour became scarce with migrant workers heading home, and the global supply chain crashed. The MSME sector suffered in multiple ways, mostly the import-export business. According to Sharad Kumar Saraf, Chief, Federation of Indian Export Organisations, export order cancellations hit 70%-80% in April. Exports by the MSMEs dropped by a record 60% and imports fell by 59% in April. The situation only improved in December with exports down by a marginal 0.80% year-on-year and imports up by 7.6% year-on-year. Coming to the overall financial year's (FY) data, the Directorate General of Commercial Intelligence and Statistics data mentions that the share of export of specified MSME related products to all India exports during 2019-20 was 49.8% and in 2020-21 it was reduced to 49.5%.
MSME's contribution to the Gross Value Added (GVA) dropped marginally
The Ministry of Micro, Small, and Medium Enterprises published the detailed contribution of MSMEs to GDP, on August 9, 2021. The ministry informs, “As per the information received from Central Statistics Office, Ministry of Statistics and PI, Share of MSME Gross Value Added (GVA) in all India GDP at current prices (2011-12) for the year 2018-19 and 2019-20 were 30.5% and 30.0% respectively.” The share of the MSME manufacturing in all India manufacturing gross value output during both of the years - 2018-19 and 2019-20 - remained the same at 36.9%.
Halt in business
IT solutions firm Endurance International Group conducted a survey of 500 MSMEs in June that informs, “One-third of respondents had halted their business activities temporarily and expected to stay shut for at least six months.” Many firms shut down their operations permanently. Additionally, revenue dropped by 20%-50% for many MSMEs, and the trend is continuing this year too.
Employment generation was hurt massively
The small businesses are the torchbearers of the Indian economy, even in terms of employment generation. But as the RBI informs, under the Prime Minister’s Employment Generation Programme (PMEGP), the estimated employment generated (number of persons) in micro-enterprises during the year 2020-21 (till July 1, 2021) were 5.95 lakh, which dropped largely to 1.19 lakh in 2021-22.
Attempts were taken by the government to improve the situation
CII stated in a report, “The Indian MSME sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities. The sector has consistently maintained a growth rate of over 10%. About 20% of the MSMEs are based out of rural areas, which indicates the deployment of a significant rural workforce in the MSME sector.” The pandemic was certainly a challenge for the sector. Multiple attempts have been taken by the Union government to boost the sector, like collateral-free loans and financial aid. The six-month (March-August 2020) moratorium on term loans was announced by the RBI earlier to help the MSMEs, and almost 30% of MSMEs had availed moratorium benefits.
However, the sector needs far more attention from the government to recover. As the lockdown norms have been relaxed, economic activities are growing now. To maintain the pre-Covid pace, the MSME sector will require more liquidity to run operations. Export opportunities are being improved by the government and fresh schemes are being introduced to encourage exports, which is giving hope to the sector.