As an immediate response to the pandemic, the government put in place a bouquet of safety nets to cushion the impact on vulnerable sections of society and the business sector, including micro, small and medium enterprises (MSMEs). Support measures for MSMEs, such as the Emergency Credit Line Guarantee Scheme (ECLGS) and revision in the definition of MSMEs under the ambit of Atmanirbhar Bharat, helped the vulnerable ones sail through the crisis shock. The ECLGS, in particular, has in the last two years been of benefit to 11.3 million MSMEs, which have availed collateral-free loans amounting to ₹2.32 trillion.
A recent CIBIL report (ECLGS Insights, August 2022) showed that the scheme has successfully supported MSMEs in facing the covid shock, with 83% of the borrowers that availed of the ECLGS being micro-enterprises. Among these micro units, more than half had an overall exposure of less than ₹10 lakh. Furthermore, CIBIL data also shows that ECLGS borrowers had lower non-performing asset rates than enterprises that were eligible for ECLGS but did not avail of it.
Apart from the government, the private sector has also supported MSMEs by providing access to digital platforms for marketing, easy payments, etc. In line with the surge in digital payments observed in the country, the total number of merchants listed for receiving payments through Paytm increased from 11.2 million at end-March 2019 to 26.8 million by end-March 2022. E-commerce websites have also encouraged the onboarding of MSMEs, especially after the pandemic. The number of small and medium enterprises onboarded on Flipkart increased from 3.05 million in 2018-19 and 7.35 million in 2019-20 to 10.5 million in 2021-22. Amazon has also digitized 4 million MSMEs. Moreover, with the Open Network for Digital Commerce creating opportunities for MSMEs to access technology and diversify their target markets, this trend will likely strengthen further.
These efforts to strengthen MSMEs have led to their greater formalization and aided the recovery of their businesses. More than 10 million MSME units have registered on the Udyam portal since July 2020, of which more than 95% are micro units. Registration on the portal enables us to track the growth in these MSMEs. About 93,000 micro-enterprises registered on the Udyam portal have grown to become small enterprises, and about 10,000 small enterprises have become medium enterprises over the last two years.
Their recovery is also evident from the trend in GST paid by MSME units. Goods and services tax paid by enterprises with a turnover less than ₹250 crore rose from ₹3.8 trillion in the pre-pandemic year of 2019-20 to ₹4.1 trillion in 2021-22, and it further reached ₹1.1 trillion in the first quarter of 2022-23 (implying an annual estimate of ₹4.5 trillion for 2022-23). This momentum in GST collections is seen across all sub-categories in the MSME sector. In particular, the GST paid by smaller businesses with a turnover of less than ₹5 crore grew from ₹1.27 trillion in 2019-20 to ₹1.31 trillion in 2021-22. They paid ₹36,320 crore in the first quarter of 2022-23, implying an annualized estimate of ₹1.45 trillion. Following a similar trend, the GST paid by enterprises with a turnover between ₹5 crore and ₹50 crore climbed from ₹1.37 trillion in 2019-20 to ₹1.54 trillion in 2021-22; it further reached ₹41,153 crore in the first quarter of 2022-23, implying an annualized estimate of ₹1.65 trillion. Had there been post-pandemic stress among MSMEs associated with a possible ‘K-shaped recovery’, the GST total paid by these businesses would have come down sharply, rather than rise slowly.
All this data is not meant to suggest that MSMEs are thriving. Far from it. We acknowledge the challenges they still face, such as access to formal credit. Public and private sector enterprises continue to delay payments to them. Worse, some slap penalties on them instead of paying by alleging a breach of contract. Second, regulatory and compliance burdens claim a disproportionately large share of micro and small enterprises’ managerial and financial bandwidth. Third, the introduction of the sales turnover criteria to classify MSMEs is diluted by an insistence that they graduate to the next level if they exceed either of two criteria—sales turnover and investment—rather than both.
The limited point we wish to make here is that MSMEs have displayed resilience through the pandemic and fared better than initially feared. They are getting formalized, which opens up business and financing opportunities for them that were hitherto unavailable. Their resilience will turn into a lasting recovery if larger public and private enterprises play their part in treating them fairly and paying them on time.
These are the authors’ personal views.
V. Anantha Nageswaran & Gurvinder Kaur are, respectively, the chief economic advisor to the Government of India and an Indian Economic Service officer.
