Drop in demand, supply disruptions hit MSMEs – business news

Most of India’s economic enterprises might have resumed functioning after the country began to lift the nation-wise lockdown from June but are still far from achieving pre-pandemic levels of activity.

Only one in four of India’s Micro, Small and Medium Enterprises (MSMEs), which produce almost 30% of the country’s GDP and employ almost one fourth of the work force, were using even half of their installed capacity on August 1.

While things are improving compared to how they were in June, immediately after the national lock down was lifted; the nature of economic challenge is undergoing a transformation from liquidity related problems to falling demand and disruptions in supply chains and logistics.

The government’s key post-pandemic scheme for the MSMEs, the Emergency Credit Line Guarantee Scheme (ECLGS), has been used by just around 6% of MSMEs up to August 6.

These facts were presented by the MSME ministry to the home ministry on August 19. HT has seen a copy of the presentation.

Also read | Covid-19 toll on MSMEs: 3 in 4 at below half capacity

An online survey of around 6000 MSMEs — according to a National Statistical Office (NSO) report there were more than 63 million MSMEs in India in 2015-16 — conducted by the National Small Industries Corporation (NSIC) in June, July and August shows that the unlock process is almost complete.

Only 9% MSMEs had not opened up for business as on August 1. However, capacity utilisation levels — current production as share of potential production – continues to be very low. Only 26% of the respondents reported 50% or higher capacity utilisation levels on August 1.

To be sure, this number was just 18% on June 1. The latest Industrial Outlook Survey conducted by the Reserve Bank of India shows that net assessment on current capacity utilisation levels fell to its lowest value since April-June 2000 in the April-June quarter this year.

The survey also shows that liquidity related problems, although they continue to affect a majority of firms, are being replaced by other issues — lack of demand, supply chain disruptions and logistical challenges.

The share of firms which reported liquidity among the five most critical problems was 70% in June; it has come down to 55% in August. Share of firms reporting raw materials, labour, fresh orders and logistics etc as their critical problems has increased. (See Chart 1)


The government’s key post-pandemic scheme for the MSMEs, the Emergency Credit Line Guarantee Scheme (ECLGS) was primarily aimed at addressing the liquidity crunch facing MSMEs. According to the presentation, loans worth ~1.4 lakh crore for 3.9 million accounts had been sanctioned under the ECLGS up to August 6. Of these, ~95,760.7 has already been disbursed to 2.2 million account holders. The average sanctioned loan per account comes out to ~3.5 lakh.

Also read: World Bank, government of India sign $750 mn agreement to support MSMEs amid Covid-19 crisis

To be sure, actual disbursements under the scheme could vary drastically, as companies with turnover up to ~250 crore have been included under the MSME category from July onwards.

The government had issued an advisory to all its departments to expedite pending dues of MSMEs. The data given in the presentation shows that the share of pending dues at the end of the month in total dues by close of the month has not changed much between April and June. It continues to hover above 20%.

The government and RBI have announced a host of other measures; including one-time restructuring of stressed loans of MSMEs up to this fiscal year, ~20,000 crore subordinate debt for MSMEs, ~50,000 crore fund for equity infusion into MSMEs and banning global tenders up to ~200 crore to benefit MSMEs, the presentation said.

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