Demonetisation means muted growth for MSMEs: Crisil
06 January 2017
Micro, small and medium enterprises will see muted revenue growth in the current financial year on account of the demonetisation exercise, according to a nationwide survey conducted by ratings agency Crisil. The cash ban has effected a major change in the way in which these industries operate, with 41 per cent of their clients switching to cashless modes of payment.
Overall revenue is expected to grow 6-8 per cent in the current fiscal, lower than the 15-20 per cent expected before demonetisation, the report said.
''Typically, MSMEs perform better in the fiscal second half (October to March), which means annual growth will be muted,'' the Crisil report stated.
The survey, which covered over 1,100 MSMEs, revealed that 29 per cent of the respondents see their revenue in the second half of the current year declining, while 41 per cent expect their revenue to grow. The other 30 per cent see revenue remaining stagnant or are uncertain about the outlook.
Sectors which traditionally have a high reliance on cash transactions were the ones which were most affected, the report noted.
Unorganised players - those with less than 10 employees - are expected to struggle more than their organised counterparts, with 37 per cent of them likely to report negative revenue growth in the second half compared with a 25 per cent of organised players.
Demonetisation has also impacted the liquidity situation of MSMEs. Nine per cent of the survey respondents with a revenue lower than Rs2 crore said they will face issues in debt repayment.
This will present a huge opportunity for banks to capitalise on, according to Manish Jaiswal, Head of SME ratings at Crisil.
''Every fifth MSME surveyed planned to raise additional funding in the coming months, half of it for working capital. Interestingly, with unsecured loans from friends and associates drying up, three out of four respondents plan to approach banks for loans, while the rest will rely on internal accrual. That opens up a massive opportunity to banks currently a wash in liquidity,'' Jaiswal said.
Almost half of the MSMEs with annual turnover of less than Rs2 crore have reported a greater move towards less cash transactions, the report added.
''This may also be because non-cash payments are already prevalent among mid-sized players. For the smaller ones, the shift is expected to translate into long-term benefits through quicker transaction processing and better record keeping,'' the report said.
The transition is more visible in tier 2 cities and smaller towns, according to Ashu Suyash, managing director and chief executive officer of CRISIL.
''MSMEs located in tier 2 cities and smaller towns have witnessed a significant shift (42 per cent of respondents) to cheque or electronic payments, indicating that the transition is geography agnostic, and, therefore, has greater implications in the way transactions take place in small cities and towns,'' Suyash said.
About 47 per cent of the respondents were from tier 2 cities and smaller towns.