MSMEs face debt repayment issues due to demonetisation, Crisil survey shows
Mumbai: One in every three micro, small and medium enterprises (MSMEs) has been facing delays in receivables from clients because of demonetisation, causing difficulties in repaying creditors and employees, according to a survey of 1,100 such companies by Crisil Ltd.
Companies in sectors such as steel, textiles, logistics and construction are having a tough time coping with the cash crunch after Prime Minister Narendra Modi announced the withdrawal of Rs1,000 and Rs500 denomination notes on 8 November, the survey said.
However, those engaged in human resource-based services such as recruitment agencies, security services and information technology firms had it relatively easy, the survey said.
Around 58% of the respondents to the survey are from the manufacturing sector and the rest from services. Nearly half the firms surveyed had revenues under Rs2 crore. About 53% of them are from metros or Tier 1 cities and the rest from Tier 2 cities and smaller towns.
“Demonetization, said those surveyed, will lead to lower growth, mostly on account of its impact on day-to-day operations. Typically, MSMEs perform better in the fiscal second half (October to March), which means annual growth will be muted,” Crisil said in a statement.
At least 9% of those surveyed, accounting for 6% of outstanding debt of the sample, said they will face issues in debt repayment. Most of these are micro enterprises with revenues below Rs2 crore.
Unorganized MSMEs, or those with fewer than 10 employees, are expected to struggle more than their organized counterparts, with 37% of them likely to report negative revenue growth in the second half compared with a quarter of organized players, the survey found.
Because of their greater reliance on cash, sales of MSMEs in smaller towns are expected to be impacted more than in metro and Tier 1 cities, Crisil said. While a third of those in Tier 2 cities and smaller towns expect a decline in revenue in the second half, only a quarter in metros and Tier 1 cities have the same fears.
In terms of regions, south and west India are expected to fare better than the cash-heavy regions of north and east.
“A third of MSMEs in east and north are expected to report negative year-on-year growth in the second half of this financial year compared with 25% in the west and the south,” Crisil said.
Overall, revenue growth estimates for 2016-17, which was expected at 15-20% before demonetisation, is now seen at 6-8%, the survey noted.
On Monday, The Indian Express reported that in the first 34 days of demonetisation, MSMEs saw 35% jobs being cut and a 50% dip in revenues, quoting a study by the All India Manufacturers’ Organisation (AIMO). The study also projected a drop in employment of 60% and loss in revenue of 55% before March 2017.
According to the Crisil survey, about 41% of those surveyed had moved to cheques and electronic payments, as compared to 29% before demonetisation. Moreover, three out of every four companies surveyed said that they would be looking to raise funds to tide over the cash crunch in the industry. With most sources of funding suffering from a cash crunch, Crisil believed that this is a good opportunity for banks and other lenders to bring these companies into the formal financing universe.