The micro, small and medium enterprises sector will see a dip in growth in the current fiscal because of demonetisation, a survey by Crisil claimed on Friday. However, the government’s move to demonetise Rs 500 and Rs 1,000 has spurred a major change in the way the MSMEs conduct business, it said. As many as 41% of MSMEs said their clients have shifted to cheque or electronic payments since demonetisation.
The survey covered more than 1,100 MSMEs between November 24 and December 24. About 58% of those who took the survey are from the manufacturing sector, while the rest run services. More than 50% of the respondents were from the metros or Tier 1 cities, while the rest were from Tier 2 cities and smaller towns.
The substantial shift in traditional, cash-intensive sectors such as textiles, electrical equipment, steel, agricultural products, will “eventually transform business models in the MSME sector”, said Ashu Subash, managing director and chief executive officer, Crisil. The survey added that typically MSMEs perform better in the second half of the fiscal year (October-March), which means annual growth will be muted. However, more than three-fourths believe this pain will only last till June 2017.
The sales of MSMEs in smaller towns are expected to be hit harder than in metros and tier 1 cities. Demonetisation will also hurt the liquidity of MSMEs, the report said. At least 9% of those surveyed said they will face trouble repaying their debts. “Every third MSME is also facing a delay in receivables from clients, which has curbed their ability to repay creditors — and pay salaries – on time,” it said.
On November 8, Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 will no longer be legal tender. The country has been facing a severe cash crunch since then, and the government has been coming up with ways to promote digital transactions in the country. On Thursday, President Pranab Mukherjee had said that demonetisation will lead to a temporary slowdown of the economy. “While I appreciate the thrust on a transition from the entitlement approach to an entrepreneurial one for poverty alleviation, I am not too sure that the poor can wait that long,” he had said.
Limited-time offer: Big stories, small price. Keep independent media alive. Become a Scroll member today!
Our journalism is for everyone. But you can get special privileges by buying an annual Scroll Membership. Sign up today!