Among MSMEs, services sector outpaces manufacturing

CRISIL's analysis of the performance of 4,000 micro, small, and medium enterprises (MSMEs) between FY 2013 and FY 2015 shows the growth of the services sector handily outpacing the manufacturing sector. While the services sector grew at a compound annual growth rate (CAGR) of 20 per cent, driven by growth in third-party services, manufacturing sector growth was slower at 13 per cent because of sluggishness in the economy.

The services sector has benefited from the growing realisation in India Inc that third-party services and asset-light business models are much more cost-effective. Also, rising incomes have meant improving demand for health care, entertainment, and education, which, in turn, helped the services sector thrive.

Interestingly, growth in the top three industries in both services and manufacturing was similar, such as health care (28 per cent), media (24 per cent) and information technology (20 per cent) in services; and agriculture (24 per cent), textiles (18 per cent) and pharmaceuticals (16 per cent) in manufacturing. Deceleration in auto components (six per cent) and steel industries (five per cent), in particular, weighed down the manufacturing sector.

While the thrust in manufacturing continues through government initiatives like 'Make in India' and 'Start-up India'; CRISIL expects that the rise in digital media, the rapid expansion of banking, financial and insurance services, and the emergence of other verticals, will continue to propel growth in the services sector.

Note: This fortnightly tracker presents to our readers insights on MSMEs, a key element of the Indian economy. CRISIL has rated over 75,000 MSMEs in India. The analysis is based on the latest audited financial statements (i.e. 2013-14) of CRISIL-rated MSMEs. Most enterprises finalise their audited financials for the previous financial year by the end of the third/fourth quarter of the current one.