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By: Editorial September 9, 2022 4:08:26 am
MSMEs were provided credit facilities up to a maximum of 20 per cent of their outstanding debt. Subsequently, the government enhanced the scheme, expanding its scope in order to ensure greater fund flows into the economy.During the early days of the pandemic, the Union government had announced an emergency credit line guarantee scheme designed to help micro, small and medium enterprises in distress. This facility was meant to ease the cash flow woes of these units, helping them pay off their obligations and salaries to employees. MSMEs were provided credit facilities up to a maximum of 20 per cent of their outstanding debt. Subsequently, the government enhanced the scheme, expanding its scope in order to ensure greater fund flows into the economy. As per data, around Rs 2.8 lakh crore of loans have been disbursed under this scheme across one crore accounts. However, as reported in this paper, 16.4 per cent of these accounts have turned non-performing as borrowers have not been able to service their loans due to financial stress. These numbers suggest that even though the overall economy has surpassed its pre-Covid level, large parts of it continue to be mired in distress.
According to data furnished by the National Credit Guarantee Trustee Company, 16.22 lakh loans have turned bad. In value terms, this works out to Rs 11,893 crore. This implies that among the firms that availed the ECLGS facility, it is the relatively smaller firms that are under stress and have not been able to meet their obligations. Also, most of the loans that have turned bad were under the first tranche of the scheme. This is worrying as it points towards the possibility of more pain surfacing in the months ahead.
While these numbers do provide some sense of the scale of financial stress among the MSMEs, it is important to draw a distinction — these are “formal” MSMEs with access to formal sources of finances. For the informal MSMEs, much larger in number, the financial stress is likely to have been greater as most of the measures announced by the government to help the MSMEs deal with the fallout of the pandemic, flowed through the formal monetary channels. Informal MSMEs with no access to formal sources of credit and such facilities are likely to have fared worse. Only those with sufficient reserves are likely to have been able to survive this turbulent period. Given that MSMEs, both formal and informal, employ a sizeable section of the labour force, their continuing financial stress points to the simmering distress in the labour market.
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First published on: 09-09-2022 at 04:08:26 am