Sunday, June 14, 2020

MAKING THE NEXT NORMAL WORK FOR TELANGANA MSMEs


Making the Next Normal Work for MSMEs:

NSS 73rd Round estimated 63.4mn non-agricultural enterprises in July-June 2016 with 84.2% as own-account enterprises, that is, entirely run by the promoters or their family members. They employ 111.3mn workers and remain as the second largest employer next to agriculture. 40% of the employment is with 11.4% of such enterprises. This formidable driver of the economy started shaking in the pre-covid slow down. Covid-19 compounded the problems. Several of them, known to be in the unorganized sector, often do not have regulatory compliances as their focus and this has mostly led to lack of trust between them and their lenders.

Several Surveys, CII, FICCI, Skoch Foundation, RGICS reveal that near about 70% had adverse effects on their businesses. Only 4-5 percent mentioned that their businesses improved. The sector has the resilience and entertains optimism in going forward.

Telangana, the fastest growing State in India with good and consistent EODB rankings has many things to ponder post pandemic as the markets and the world are not going to be as before. Preparing for the future has to be on strong foundation.

Economic growth engines of State of Telangana - the real estate, infra and construction, Pharmaceuticals, IT and ITeS are likely to be on tardy growth for the next six months. Tourism, entertainment, event management that have seen phenomenal growth during the last four years will have to wait for almost a year to come back to their glory. All these have strong supply chain linkage with the MSMEs at the front-end.

Telangana State, with around 33000 MSMEs (with 7842 sick or incipient sick), the steady growth can be expected from only 10% of them in pharmaceuticals, biotechnology, electronics and defence-oriented industries. Aeronautics will be on slow gear for a year.

Contribution of Mining, a fast growing sector, emerging from Nizamabad, Warangal and Khammam, Nalgonda districts is unlikely to recover because of the low footfall of Chinese buyers of granite in February due to Covid-19.. Marketing pitch through select Indian embassies showcasing Telangana strengths in raw granite and the incentives they offer for setting up processing investments and pollution clearances faster than any other country, should be a strategy worthy of pursuit.

As one of the leading growing States in the country, we have the unique advantage of Make-in-Telangana brand for all the food and aqua manufacturing industries. Packing, packaging, logistics should back-end the efforts of agro-industrialisation of the State. If we can keep safety standards in place we can really replace Philippines, Vietnam, Australia, Taiwan and Indonesia in agro-based industries. We should develop them in small village clusters and not aim big clusters. It is good to have large number of well-integrated small clusters around villages and have well-developed logistics at each Mandal level.

HR mapping is extremely important. Every industry would like to optimise on time and resources. Work from home may become the new normal. After all, industry having tasted human meat in tough times, would like to continue. New wage norms will also come in to being. Focus will be more on leadership challenges and quick deliverables. Job losses will stare at the State.

All the skill development centers should be developed in consonance with the requirements of the agro-industrial and agri-business clusters. Post-school education should be integrated with the requirements of the industry. Telangana will thus be the largest employer as well.

New enterprises should be built on knowledge and skills. Forward integration in Markets and Backward integration in raw material supply with strong value chains built, the State will bejewel the country. Focus more on employing 75 to 85 % of both rural and urban working force.

Effective mobilization on global funds may be cost effective beyond FRBM norms for agricultural and allied sectors and for SME's to be globally competitive. It is time that the State should have its own Small Finance Bank not that it will have freedom to do as it likes beyond the RBI norms but will have the scope to leverage its priorities and timely deliveries on its own call.

When it wants more FDIs and FPIs to come in, it should be strong in MSMEs. The present near 25-26 percent of sick MSMEs will not certainly be able to attract the global investments. Hence Telangana Industrial Health Clinic Ltd needs to be strengthened with better inter-linkages with the existing lenders and NBFCs and greater resources – both by way of grants and loans.

MSME growth is debt driven thus far and not equity driven. Atma Nirbhar Bharat Abhiyan targeted release of 20% of additional collateral free credit and the State’s share is estimated at Rs.12,000 cr. Of this, as per the data of Ministry of Finance, GoI as of 9th June 2020, of the Rs.1129.69cr sanctions to 19,965 accounts, Rs.633cr has been disbursed to 11,133 accounts. Banks will go for safe target and provide credit to not all those who need and who had adverse Covid impact, but to those who will reverse their NPA path. The subordinate debt to the stressed enterprises with Rs.20000cr fund backed by CGTMSE to the extent of around 23% default rate, is yet to benefit stressed enterprises due to delayed release of operational guidelines.

We need a strong and unwavering banking sector. State can think of having its own Small Finance Bank with public equity participation. Coupled with Telangana State Cooperative Bank, Srinidhi Bank and TIHCL the State’s credit infrastructure has potential to address the future needs of the state economy.
Tough times requires more tough solutions and we should be part of solution and not of the problem as Sadguru mentioned. The State has no room for complacence.
*Published this invited paper in the CII-Telangana News Letter MARCH-MAY 2020 ISSUE.


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