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.
