Hurt in Covid-19, MSMEs recover slowly as initiatives for them continue

Share of credit outstanding to MSMEs by scheduled commercial banks as a percentage of outstanding non-food credit is tepid

Micro, small and medium enterprises (MSME) are a vital contributor to India's growth, but their share in the economic pie has stagnated over the years despite initiatives for credit access, formalisation and employment.

 

The MSME Ministry has a target of increasing the sector's contribution to the Gross Domestic Product (GDP) to 50 per cent by 2025. It is likely to miss the deadline, as the economic impact of Covid-19 weighs on industries. MSMEs' share in the GDP was 32.2 per cent in FY15 and declined to 30.5 per cent in FY20 (pre-pandemic level). It fell further to 27.3 per cent in FY21 during the pandemic and in FY23 reached 30.1 per cent, a shade below the pre-pandemic level.

 

The change in MSMEs' share in GDP looks tepid compared to how economic sectors are doing before and after the pandemic. Agriculture and allied sectors are faring worse than MSMEs.

 

On the other hand, the corporate profit-to-GDP ratio of all listed enterprises in the country reached 5.2 per cent in FY24 (the highest since 2011) from 1.7 per cent in FY20.

 

From FY21 to FY24, Nifty 500 companies' profit after taxes (PAT) expanded at a compounded annual growth rate of 34.5 per cent while GDP increased at a CAGR of 10.1 per cent.

 

The GDP share of agriculture and allied sectors increased during the pandemic, nearing 19 per cent in FY21 and then slowing to 16 per cent in FY24. It is still below the pre-pandemic level of 16.8 per cent in FY20.  

 

The share of credit outstanding to MSMEs by scheduled commercial banks as a percentage of outstanding non-food credit is crawling: It was 16.94 per cent in FY16 and 16.57 per cent in FY24. Absolute numbers are rising though: Such credit increased from Rs. 12.1 trillion in FY16 to Rs. 27.2 trillion in FY24.  

 

The government launched the Udyam portal in July 2020 to register MSMEs and make them a part of the formal economy. Since FY21, the number of new MSMEs registered on the portal has increased significantly. In FY24, as many as 3.93 million new MSMEs were registered on Udyam and 18.5 million on Udyam Assist Portal for informal micro enterprises. Registrations on the two portals show MSMEs employed 74.4 million people in FY24.