Over 10,000 MSMEs shut down in 2022-23, highest in past four years

FM Sitharaman revamped the credit guarantee scheme for MSMEs to enable an additional collateral-free guaranteed credit of Rs 2 trillion

A total of 10,655 micro, small and medium enterprises (MSMEs) shut down in 2022-23; the highest   in the last four years.

There were 6,222 such closures in financial year 2021-22 (FY22); according to data released in Parliament as part of a Rajya Sabha question on Monday. The data for the current year (FY23) is as of February 1, 2023.

The data also revealed that the ratio of closures to new businesses being started has been worsening over the past three years. There were over 11,000 new firms started for every one of the 175 that shut down in 2020-21. This was down to 349 new firms for every shutdown in 2021-22. The current year has seen 167 firms open for every closure. This is a worse ratio than 2019-20, a year where the pandemic impact was largely limited to the last three months of the year. There were 3,000 new businesses opening for every one that closed at the time.  

Some of this may be related to the timing that closure was intimated to the authorities. There were fewer closures reported in 2020-21 amid the lockdown and the pandemic, than in 2022-23 after much of the pandemic’s economic devastation had already been done.

A Business Standard analysis shows that Maharashtra, Tamil Nadu, Uttar Pradesh, Rajasthan and Gujarat account for over half of all the MSMEs incorporated in the five years between FY19 and FY23. Among these top five states, Maharashtra accounts for a fifth of all the new incorporations.

The top states also account for much of the employment generated through MSMEs. The top three states account for nearly a third of MSME employment.

Finance Minister Nirmala Sitharaman revamped the credit guarantee scheme for MSMEs to enable an additional collateral-free guaranteed credit of Rs 2 trillion. Loans outstanding for MSMEs in FY23 (data till November 2022) was over Rs 8 trillion. The MSME segment now accounts for about a fourth of all industry loans (which includes micro, small, medium and large enterprises).