MSME sector is on a strong growth trajectory post the pandemic: SBI Research

• The number of MSMEs have gone down in 2021-22 compared to 2020-21 because a number of MSMEs have grown bigger and crossed the MSME threshold.
  
  
• MSMEs across all sectors have shown strong resilience to bounce back post the pandemic-induced slowdown.
  
  
• The Udyam portal and the Emergency Credit Line Guarantee Scheme have helped MSMEs to weather the storm.
  

The micro, small and medium enterprises (MSME) sector is charting a new story post pandemic, with credit growth to MSMEs consistently higher – both on a year-on-year basis and also in comparison with larger industries, according to SBI Research.

Incentives provided by the Emergency Credit Line Guarantee Scheme (ECLGS), coupled with lower gross non-performing asset (GNPA) ratios have helped in boosting credit to MSMEs, the SBI Research report said.

Interestingly, the number of MSMEs have gone down in 2021-22 compared to 2020-21 because a number of MSME units have grown bigger and crossed the ₹250 crore turnover threshold that defines an MSME unit under the new definition, enforced in 2020. A company bigger than ₹250 crore is considered a mid-sized corporate firm.

MSMEs have shown strong resilience to bounce back from the pandemic- induced slowdown seen in 2020. In some sectors that were not affected by the pandemic – like hospitality, construction, NBFCs, power, metals and so on, the credit outstanding as of March 2022 was almost 3x that seen in March 2018.

There were sectors that were affected but have recovered from the pandemic – like edible oil, printing, consumer durables, pharmaceuticals, jute, aviation, etc, – with credit expansion for some of these in March 2021 lower than the March 2018 levels, but these have staged a smart recovery in March 2022, the report said.

Some industries like mining, petrochemicals, cement, FMCG and others were deeply impacted by the pandemic but have almost recovered.

A couple of initiatives from the Government of India may have helped MSMEs weather the storm and chart a strong growth story, according to SBI Research.

Udyam portal: Turning informal micro enterprises formal

In July 2020, the Government of India launched Udyam Assist Platform (UAP) to bring all the Informal Micro Enterprises (IMEs) – which constitute around 99% of the MSMEs in the country – into the formal ambit without complex and complicated paperwork.

The UAP will enable IMEs who aren’t registered under GST to get a registration certificate based on information with Banks/NBFCs. The Udyam registration may also help MSMEs in availing the benefits of multiple schemes of the ministry of MSMEs such as Credit Guarantee Scheme, Public Procurement Policy, additional edge in government tenders and protection against delayed payments by corporates, etc.

The IMEs will also become eligible for priority-sector lending by banks, be able to get collateral-free loans from banks and also be able to get licences, approvals and registrations easily.

ECLGS: A saviour during pandemic

The ECLG scheme acted as an enabler and helped MSMEs navigate the pandemic better.

While at least 14.6 lakh MSMEs accounts were saved due to the ECLG scheme in absolute terms, MSME loan accounts worth ₹2.2 lakh crore improved since the inception of the ECLG scheme for the entire banking industry, as per SBI Research. This means that around 12% of the outstanding MSME credit has been saved from slipping into non-performing assets (NPAs) because of the ECLG scheme.

Of the 14.6 lakh MSMEs accounts that were saved due to the ECLG scheme, almost 93.8% were in the Micro and Small category. If such units slipped into NPA, 1.65 crore workers would have become unemployed.