The MSME sector has been steadily growing in the last decade. The
amount of market participants have increased and the current rate
of competition amongst businesses is very high. This is primarily due
to the various schemes that have been introduced by the Ministry of
MSME, Government of India. The sudden disruption of businesses and
their operations due to the Covid-19 shock wave was very prominent
in the functioning of the MSMEs. Many of them were able to adapt and
change their modes of production and distribution but others that
couldn’t manage, had to simply wrap up their business units and move
on. Several industries such as infrastructure, commodities, export and
FMCG products have gained momentum in the recent few months just
after the supply chain issues that were primarily caused due to the
unexpected war between Russia and Ukraine that shook the whole world.
The MSME growth so far has been very nominal in contrast to
the previous years. The condition of the global economy is not in a very
good shape right now. There is a huge debt bubble for every nation that
is tipping every minute. The consumer spending index is at an all time
low almost all across the globe with few exceptions here and there.
Inflation has also been steadily rising in different parts of the world.
Recent examples of Sri Lanka, Argentina and Turkey are a very clear
example of the financial plight that people are undergoing right now.
In a country like India, the story is far from pleasing yet the MSME
businesses have become adept in catching the tides of the times and
have figured out potentially innovative ways to become more resilient
and responsive. The credit goes to all the masterminds that are innovating
behind the scenes to help strike a balance between the supply and demand
structure in India.
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According to reports, the micro, small, and medium enterprise industry
is expected to experience a growth in revenue of almost 15-17%. The
annual NPAs of the MSME sector increased to some extent, where the
growth was noted to be around 8.6% in FY19 and 12.5% in FY20. This
year it is most likely to hover around that level and increase steadily
based on the output generated by the MSME sector. As the economic
activities pick up, the MSME sector is expected to rebound in the
FY2022. The reason for growth of MSMEs can be attributed to the
increase in the demand of the products and services in the Indian
economy. The current data on the basis of research shows that the rate
of inflation is relatively high for certain commodities, which is
eventually going to come down.
The impact of the 3rd Covid-19 wave was relatively negligible for the
Indian economy. Many studies are being done right now in order to
understand the rate of MSME contribution to economy and the
subsequent growth of MSME. The current MSME growth rate in India
could be assumed to be around 10% which will eventually scale up to
around 15% if the proper MSME growth strategy is implemented.
The MSME lending space is also experiencing an increase in the growth
rate as many businesses are being back to normal. This is a huge factor
to drive the success of the MSMEs. The book growth of this sector is
expected to be almost 8-10% higher than the growth of non-banking
financial companies. The NBFCs are expected to experience an increase
of nearly 5-7%.
The effect of the pandemic led to the increase in the availability of
credit and as a result the digital route was established for availing
frequent credit among the MSMEs. Almost 500 MSME businesses
operating in India were cited in a report which stated that the loan
book of digital lending platforms experienced an unexceptional
swelling. It was around only 11 percent before the wake of the
pandemic. In contrast, after two years of the pandemic in FY22,
the rate amounted to 55% for the companies operating in the
micro-segment.
The role of the internet is very pivotal for the growth of MSME and the
overall MSME growth strategy hugely benefited due to it. As the
internet technology penetration propagated in the far rural areas of
the country, it was possible to capitalize on the business and network
effects of the local economy and give it a boost. As the MSMEs have
formally taken the digital route for their mode of business it has
severely helped them to secure credit via the same path. Moreover,
the role of the digital lenders are becoming increasingly important as
they are filling up the asymmetric information gaps leading the way
ahead for the MSMEs to embrace the digital channels for their businesses.
It is clear as crystal by now as the MSME are the growth engine of
Indian economy, they do have a huge social role to play in the
development and growth of the unorganized rural business sector.
This is largely due to the all inclusive nature of the MSMEs wherein
newer entrants have a very low barrier to get started with their businesses
and thus drastically improve the MSME growth and further adoption in
India.
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The MSME industry in India is at a very crucial juncture at the
intersection of finance and technology. The competition in this sector is
extremely tight. It is only a matter of time that will reveal to us how this
nascent industry scales up to almost a country of a billion people and
beyond. The government has been doing its best to ensure that the
MSME sector receives the best in class policies and aids for further
development and MSME contribution to economy. The Ministry of
MSME is running numerous schemes to provide financial assistance
which is usually targeted towards the development of infrastructure,
skill development of their employees, quality and technological up-
gradation, and several other similar services across parts of the country.