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

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  • The number of MSMEs decreased in 2021-22 compared to 2020-21 as a number of MSMEs increased and the SMEs threshold value.
  • MSMEs across all sectors have shown strong resilience to recover from the slowdown caused by the pandemic.
  • The Udyam portal and the Emergency Credit Line Guarantee Scheme have helped MSMEs weather the storm.

According to SBI Research, the post-pandemic micro, small and medium-sized enterprise (MSME) sector is charting a new narrative, with consistently higher credit growth for MSMEs – both year-over-year and relative to larger industries.

Incentives from the Emergency Credit Line Guarantee Scheme (ECLGS), coupled with lower gross non-performing asset (GNPA) ratios, have helped boost lending to MSMEs, according to the SBI Research report.

Interestingly, the number of MSMEs has declined in 2021-22 compared to 2020-21 as a number of MSME units have increased in size and passed the ₹250 crore revenue threshold that defines an MSME unit under the new definition, which will be introduced in 2020 becomes effective. company larger than ₹ 250 crore is considered as a medium sized company.

MSMEs have shown strong resilience to recover from the pandemic-induced slowdown in 2020. In some sectors not affected by the pandemic, such as hospitality, construction, NBFCs, energy, metals, etc., outstanding credit was as of March 2022 was almost 3x as high as in March 2018.

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

Some industries, such as mining, petrochemicals, cement, FMCG and others, were severely affected by the pandemic but have almost recovered.

According to SBI Research, a number of initiatives by the Government of India may have helped MSMEs weather the storm and chart a strong growth story.

Udyam Portal: Making 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 make up about 99% of MSMEs in the country – into the formal sphere without complicated and complicated paperwork.

The UAP allows IMEs not registered under GST to get a certificate of registration based on information held with banks/NBFCs. The Udyam registration can also help MSMEs to take advantage of multiple schemes of the Ministry of SMEs such as credit guarantee scheme, public procurement policy, additional benefit in public procurement and protection against corporate late payments, etc.

The IMEs will also be eligible for priority sector lending from banks, be able to obtain unsecured loans from banks and also easily obtain licenses, approvals and registrations.

ECLGS: a savior during a pandemic

The ECLG scheme acted as a facilitator and helped MSMEs better navigate the pandemic.

While in absolute terms at least 14.6 lakh MSME accounts were rescued thanks to the ECLG scheme, MSME loan accounts worth ₹2.2 lakh crore improved since the inception of the ECLG scheme across the banking sector, according to SBI Research . This means that about 12% of outstanding MSME credit has been saved from slipping into non-performing assets (NPAs) thanks to the ECLG scheme.

Of the 14.6 lakh MSME accounts rescued thanks to the ECLG scheme, nearly 93.8% were in the Micro and Small category. Had such units ended up in NPA, 1.65 crore workers would have become unemployed.

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