Business Today

Micro View, Macro Run

The MSME sector has gone from strength to strength in recent times, raising hopes of an economic recovery.
By Mahesh Nayak   Delhi     Print Edition: August 14, 2016
Micro View, Macro Run

The initial trend suggests that a revival of India Inc.'s financial health is on the cards with large corporates making efforts to reduce debt. However, it is equally important for the micro, small and medium enterprises (MSME) sector, which accounts for 28 per cent of employment in India, to fare well for a turnaround. According to India Ratings data, out of the 1,153 MSMEs in the country, 97 companies have been upgraded by credit rating agencies, compared to 34 downgrades as on July 19, 2016. While 178 companies have maintained their credit ratings, 844 new MSMEs have been rated for the first time.

Says Prakash Choraria, Associate Director, Emerging Corporate, India Ratings and Research: "The financial health of MSMEs has been improving, and it augurs well for the Indian economy. The increase in the number of ratings in the MSME sector is an indication of awareness towards the need for an independent appraisal and, moreover, it is also helping the entities in the sector to establish their credibility with financial institutions and banks." MSMEs have been the backbone of the Indian workforce, employing 80 million people - only second to the agriculture sector. It also comprises over 90 per cent of business enterprises in India. Therefore, say experts, it is important to assess their overall health to gauge the undercurrent in the Indian economy.

The companies that seem to have gained the most are IT and IT services, media, household durables and hospitality, while the underperformers were gems and jewellery, textiles, construction material, power, and oil & gas. "Companies in the tertiary sector grew at a faster rate than the ones in manufacturing during the past two years," says R. Vasudevan, Senior Director, SME Ratings, Crisil, adding: "The growth by MSMEs in the tertiary recorded a compound annual growth rate of 20 per cent, primarily due to the growing realisation in India Inc. that third-party services and asset-light business models are way more cost-effective. However, the MSMEs in manufacturing sector grew just about 13 per cent CAGR due to sluggishness in the economy."

Vasudevan is of the view that rising income levels also meant improving demand for healthcare, entertainment and education, and this has helped the tertiary sector thrive. He also feels that government initiatives, such as Make in India and Start-up India, will help MSMEs in the manufacturing sector, too. The rise in digital media, rapid expansion of banking, financial and insurance services, and the emergence of other verticals will continue to propel growth in the tertiary sector.

While improved credit ratings of MSMEs showcase a strong undercurrent, for the economy to make a comeback it will need the manufacturing sector to fire. But that seems to be some distance away.

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