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Economic Upturn for MSMEs

Dec 2009

The second quarter of the year 2009 - 2010 may be the upturn point for the Indian Micro, Small and Medium Enterprises (MSMEs), according to the MSME outlook survey, conducted by the Confederation of Indian Industry (CII).

The survey analysis for the second quarter of 2009 – 2010 (July – September), has reveal that 45 percent respondents registered an increase in their turnover, 42 percent respondents registered an increase in their production, 38 percent registered an increase in their order booking vis-à-vis the first quarter of 2009- 2010.

Earlier during the first quarter of 2009- 2010, 37 percent of respondents registered an increase in their production and inventory, however, simultaneously while assessing the performance of turnover and profitability on MSMEs , 42 percent and 43 percent respondents registered a decline in their turnover and profitability respectively, vis-à-vis the last quarter of 2008-2009, according to the CII MSME outlook survey.

The positive shift in (turnover and order booking) the second quarter of 2009-2010 vis-à-vis the first quarter may be attributed to the “Trickle down affect” of the various measures announced as part of the stimulus packages announced by the Government of India & the Reserve Bank of India, during the December 2008 & January 2009.

It may be recalled that the First stimulus package included measures such as the Reduction in CENVAT by 4 %, Interest rate cut of 0.5% for Small and 1 % for Micro enterprises by PSU banks, Export support by interest subvention of 2 %, Reduction in lock in period under Credit Guarantee scheme from 24 to 18 months and Additional Plan Expenditure of Rs 20,000 crores. Also the Second stimulus package included initiatives such as restoration of DEPB rates prior to Nov 2008 till 31 Dec 2009, Duty Drawback benefits for certain products like bicycles, agricultural hand tools, and specified category of yarns with retrospective effect from 01/09/2008, which were expected to have a beneficial impact for the MSMEs.

At the same time, initiatives such as Special Monthly meeting of State Level Bankers Committees (SLBC) to look into the matters between MSMEs and Banks not resolved within a fortnight, Enhancement in the Guarantee cover under Credit Guarantee scheme from 50% to 85% for loan up to Rs 5 lacs and Rs 5,000 crore RBI credit to EXIM Bank for pre and post shipment credit, were also expected to have a beneficial impact and contribute towards easing the liquidity for the MSMEs.

MSME Outlook for the Future

The positive sentiment built up in the second quarter of 2009– 2010 is expected to carry forward into the third & the fourth quarter of 2009-2010, as revealed by the MSME Outlook survey.

An assessment of the expectations of the MSMEs for the third quarter (October December) of 2009-2010, further revealed that, 54 percent respondents expect an increase in turnover, 43 percent respondents expect an increase in production and 45 respondents expect an increase in their order bookings. Also 31 and 37 percent of respondents expect an increase of their export and profitability, respectively, vis-à-vis the second quarter of 2009-2010.

Finally an analysis of the expectations of MSMEs in the last quarter of 2009- 2010, revealed that 51 percent of the respondents expect an increase in their turnover, 43 percent of the respondents expect in their turnover and 40 percent of the respondents expect an increase in their order bookings.

Impediments to growth of Indian MSMEs

As part of the MSME Outlook survey, an analysis of various factors that inhibit the growth and development of MSMEs in India, revealed that the Ten (10) key issues, that entrepreneurs found as the major impediments to their growth, in order of decreasing priority are Delayed payments, High cost of credit, Lack of availability of credit, Absence of Government support for growth, Lack of availability of risk capital, Complex indirect tax structure & lack of understanding on the forthcoming GST, Norms for collateral/margin requirements, Infrastructure bottleneck, Absence of preference for being a part of the supply chain for the Government, Compliance with labour laws, Non transparent credit appraisal norms and Lack of usage of Information and Communication Technology (ICT).

Mr Salil Singhal, Chairman, CII National MSME Council observed that it appears that the worst of the crisis period is over and a turnaround seems within sight for most of the industry. He added that CII had submitted a Development Agenda for the Indian MSMEs, to Dr Manmohan Singh, Hon'ble Prime Minister of India. This was followed by the constitution of a High Level Task Force force, under the Principal Secretary, in the Prime Minister's Office (PMO), to look into the issues being faced by the MSMEs.

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