Ease of Doing Business for MSMEs: “The overall thing that you have to look at is that all the lead indicators in the economy — from e-way bills to consumption of electricity, demand for fuel, the production in various core sectors, etc., are indicating that there is some amount of recovery.”
“I think the PLI scheme is not going to work too efficiently for micro enterprises.” (Image: IE)
Ease of Doing Business for MSMEs: With the post-Covid recovery underway for the majority sectors, the micro, small, and medium enterprises (MSMEs) are setting their own pace to get back to the old normal, beset by the existing challenges of raw material price rise, higher fuel prices, etc. While this might thwart their speed of recovery before any unfortunate third wave hits them again, “the measures that have been announced by the government so far have been useful to get these organisations back on track,” said Vineet Agarwal, President, Assocham and Managing Director, Transport Corporation of India in an interview with Financial Express Online. Edited excerpts below:
How has been the recovery of the MSME sector so far according to you after the first and second wave of Covid?
In both the waves, the MSME sector was quite badly hit. Most badly hit was the hospitality sector. Also subsequently, increasing raw material prices from steel to cement, copper or even fuel has created some challenges for the MSME sector. So, given all of this, the measures that have been announced by the government so far have been useful to get these organisations back on track. So, the objective of saving them is very critical. And I think a lot of that has started to happen, but we still have some time to go for a full recovery. For instance, MSMEs doing job work have a lot of orders currently. The flow of credit has also started. The government has also created mechanisms where MSMEs can start listing the products on different portals. So, these are some of the steps that have been taken that are starting to help the MSME ecosystem.
You mentioned credit but based on the data from the Reserve Bank of India, after two months of positive YoY growth in gross bank credit to MSEs, the growth again slipped into negative in September 2021. From April to June this year as well, the YoY credit growth was negative.
We cannot see the data in isolation. We have to look at the data from various parameters and perspectives. I’m not going to defend the data, but I’m going to look at it a little bit from a macro perspective. Clearly, April, May, and June months were in the heart of the second wave. So, there was a lot of uncertainty and fear to systematically anything that happened that time. September last year we had come out of the first wave after which things had taken off a lot. So, there was a tremendous amount of credit growth that happened at that time also. I think that would reflect this year as well. The overall thing that you have to look at is that all the lead indicators in the economy — from e-way bills to consumption of electricity, demand for fuel, the production in various core sectors, etc., are indicating that there is some amount of recovery. Yes, there were and there are challenges, but the base recovery has started to happen.
But commodity prices have gone through roof in the past months along with challenges related to coal shortage and rising fuel prices. All of them have a direct bearing on MSMEs that are still in the recovery phase after Covid.
Well, specifically to MSMEs, there are challenges clearly with all the input prices going up. The only way here is if they are able to pass them on to their consumers directly wherever possible. So, I think that has started to happen and MSMEs have been able to move some of those costs out with a little bit of absorption into businesses as well. The fact that we are recovering from Covid, there will be pressure on everything. It’s a combination that happens with everyone as some products don’t make much money while few make some money, and few make a lot of money. Even in a kirana store, there are products that make more margin versus certain basic products. So, the mitigation of challenges is happening at its own pace.
There were reports around labour issues as well faced by MSMEs while overall more than 5 million formal and informal workers had lost their jobs in October. Moreover, the national labour force participation rate also declined from 40.66 per cent in September to 40.41 per cent in October. How do you see the current scenario in terms of job creation in the MSME sector?
The labour market, per se, is quite fluid right now. I think it’s a wave. We saw labour going back to their hometowns or looking for jobs locally. I think we saw that with the MNREGA figures going up also. We are seeing good demand for people in the formal employment sector, specifically, in MSMEs. Many of the MSMEs are actually finding it challenging to get the right people because they need to constantly upgrade skillsets for people. So that’s also been an issue. But I think overall, it has become quite positive. And I think again, there are indicators that are showing that formal employment is starting to pick up such as Provident Fund figures.
The government had already announced the PLI scheme for 13 different sectors to boost local manufacturing. Do you think this can percolate down well to micro manufacturers as the majority of MSMEs are micro units?
I think you’re right. In that sense, I think the PLI scheme is not going to work too efficiently for micro enterprises. I think a bit of a scale is required for micro units and there could be some growth opportunities for them. I think the biggest challenge is a lack of awareness and communication about such schemes but ultimately the whole ecosystem benefits from this scheme. You have to have your tier one and tier two suppliers — a cluster of suppliers around you, so that you are able to make and service products efficiently, both from a cost and quality perspective. So, everyone tends to benefit from a very strong trickle-down effect of the PLI scheme. It’s a brilliant scheme in terms of its thought and intent.