MSME Sector Sales Move Up In October, Signal Robust Growth In Coming Months

The Jocata-Sumpoorn index, a key indicator of sales activity for credit-seeking micro, small, and medium enterprises (MSMEs), surged to 0.62 in October, signaling a shift from the mild expansion zone, observed over the past five months, to moderate. The rising index suggests a potential breakthrough towards robust growth in the coming months.

Traditionally grappling with access to capital, MSMEs in India have witnessed a positive trend. Reserve Bank of India (RBI) data reveals that MSMEs have secured over 14.5 per cent of aggregate credit since January 2022, an increase from the 10-12 per cent range seen earlier. Also, post-pandemic, the growth rate of bank credit to MSMEs remains steady in the double digits at 22.7 per cent in October compared to the previous year.

Sumita Kale, CEO and Senior Fellow at the Indicus Foundation, expressed optimism, emphasizing that these developments bode well for the MSME sector's overall performance. Notably, the sector, contributing around 40 per cent to India's exports, aligns with the positive trajectory seen in non-petroleum, non-gems, and jewellery exports, which rose by 11.74 per cent from USD 21.99 Billion in October 2022 to USD 24.57 Billion in October 2023.

A Resilient Economy

Macro-economic indicators further support the positive narrative. National income data for June-September 2023 reveals a resilient economy, with gross value added (GVA) in current prices growing at 9.0 per cent year-on-year. Strong fixed investment and government consumption play pivotal roles in driving this growth, with manufacturing GVA taking the lead at 13.9 per cent.

"One cautionary note is coming through the slow growth in private consumption in the national income estimates, which aligns with the mild expansion of sales activity of the MSME sector as shown through the Sumpoorn index in the June-September quarter," Kale mentioned.

In the June-September quarter, the Index of Industrial Production (IIP) reports varied growth, with lower figures in consumer durables and non-durables but robust double-digit growth in primary goods, capital goods, and infrastructure goods. With uneven monsoons and large-scale crop damage, rural consumption has been hit, and demand for jobs under MGNREGA in September and October has been 10 to 18 per cent higher than in the corresponding months last year and 26 to 31 per cent higher than in the pre-Covid period.

RBI Norms May Impact Firms

Looking ahead, Sumita Kale highlighted an impending challenge for MSMEs. The recent measures by the RBI to tighten risk weight norms for unsecured retail loans could impact firms. While potentially resulting in healthier balance sheets and increased credit allocation to the MSME sector, the repercussions on overall capital available with Non-Banking Financial Companies (NBFCs) and consumer durables demand remain uncertain.

Conclusion

In conclusion, the surge in the Jocata-Sumpoorn index signals a promising shift towards moderate expansion for India's MSMEs, fueled by improved access to credit and positive export trends. While the national economy displays resilience with robust growth indicators, caution is advised due to challenges in private consumption and rural sectors. The impact of RBI's recent measures on unsecured retail loans remains uncertain, posing potential implications for MSMEs, NBFCs, and consumer durables demand.