Ease of doing business for MSMEs: The Goods and Services Tax (GST) paid by MSMEs, after declining in FY21, has been rising since and has now crossed the pre-pandemic level of FY20, reflecting the financial resilience of small businesses and the effectiveness of the pre-emptive government intervention targeted towards MSMEs, the Economic Survey 2022-23 said on Tuesday. According to the data shared in the survey, the GST paid by MSMEs dropped from Rs 5 lakh crore in FY20 to around Rs 4.7 lakh crore in FY21 before climbing to around Rs 5.5 lakh crore in FY22. The recovery of the MSME sector from the pandemic-induced shock is evident in the trend in GST paid by MSME units, the survey noted.
Chief Economic Advisor V Anantha Nageswaran in his address at the press conference on the Economic Survey after it was released by Finance Minister Nirmala Sitharaman in the Parliament said that recent changes in changing the investment threshold and also adding the turnover criteria in the MSME definition and more importantly the provision of the emergency credit line guarantee scheme during the pandemic has enabled the MSME sector to remain in good health.
“The evidence of it is that the GST paid by MSMEs didn’t flag or slacken in the pandemic year. If anything, they (MSMEs) registered gradual increase of FY19 (levels of GST paid) all the way FY22 as well,” Nageswaran said.
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The survey noted that a much-improved financial health of well-capitalised public sector banks has positioned them better to increase the credit supply. Consequently, the credit growth to the MSME sector has been remarkably high, over 30.6 per cent, on average during Jan-Nov 2022, supported by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the government, it said.
Credit growth to the MSME sector grew from less than 10 per cent during January 2021 to over 35 per cent during December 2021 but dropped to around 20 per cent as of November 2022, the data in the survey sourced from the Reserve Bank of India (RBI) showed.
Growth in bank credit to MSMEs
“The finances of the public sector banks have seen a significant turnaround, with profits being booked at regular intervals and their Non-Performing Assets (NPAs) being fast-tracked for quicker resolution/liquidation by the Insolvency and Bankruptcy Board of India (IBBI),” the survey said reasoning growth bank credit to MSMEs.
Also read: Budget 2023: Fixing MSMEs’ delayed payments, credit, GST related issues must, say experts
Moreover, “at the same time, the government has been providing adequate budgetary support for keeping the PSBs well-capitalized, ensuring that their Capital Risk-Weighted Adjusted Ratio (CRAR) remains comfortably above the threshold levels of adequacy. The successful macro stress tests performed on the banking sector further testify to its financial strength,” the survey noted.
Meanwhile, a CIBIL report ECLGS Insights in August 2022 had showed that the scheme has supported MSMEs in facing the covid shock, with 83 per cent of the borrowers that availed of the ECLGS being micro-enterprises. The data also showed that ECLGS borrowers had lower nonperforming asset rates than enterprises that were eligible for ECLGS but did not avail of it.
Asset quality of ECLGS-backed and non-ECLGS-backed MSMEs
In the micro segment, units that availed ECLGS had an NPA rate of 4.6 per cent vis-a-vis 6.6 per cent among those units that didn’t avail it. Similarly, among small businesses, the NPA rate for enterprises that availed the scheme was 5 per cent against 6 per cent who didn’t avail it. Among medium enterprises, the NPA rate was 4.7 per cent for enterprises availing the scheme versus 5.5 per cent who were eligible but didn’t opt for it.
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