MSMEs yet to recover from demonetisation shock

Vijay C Roy

Tribune News Service

Chandigarh, November 8

The industry, particularly the micro, small and medium enterprises (MSMEs), in the region is still reeling under liquidity crunch and lack of business orders to the tune of about 30% even after two years of demonetisation.

“The economy seems to be back on the track two years after the demonetisation. However, the MSMEs are yet to recover from the shock. They are still facing liquidity crunch, which has not only affected the sales but also production,” PHDCCI chairman-Punjab Committee RS Sachdeva said.

Hit by the note ban, the woes of MSMEs were compounded by the introduction of goods and services tax (GST), as a result they are experiencing 30% decline in production because of the liquidity and demand crunch, industry experts said.

The impact of the drastic economic measures resulted in job losses and closure of several units, they added. The demonetization, announced on November 8, 2016, rendered 86% of India’s old currencies of Rs 500 and Rs 1,000 invalid.

“Even after two years, the tremors of demonetisation are still felt and it is apparent across the region. The industrial production, especially by the MSME sector, is down by 20-30%,” Federation of Punjab Small Industries Associations president Badish Jindal said.

He said panicked by the sudden announcement of demonetisation, many businessmen exchanged high denomination notes for gold and invested in property that sucked their liquidity.  

The government has made a slew of measures to ease cash flow and business procedures for the MSME sector. It is, however, too early to predict impact of these measures, the industry experts said.

Hit by demonetisation and GST, many of the MSME accounts also turned non-performing assets (NPAs), they said.

Punjab and Haryana have more than 3 lakh MSMEs, predominantly in the manufacturing sector. Out of total MSME loans in Punjab, around 14% are NPAs, amounting to Rs 6,791 crore as of March 31, 2018. In Haryana, NPAs under the category of MSME loan, was about Rs 5,480 crore in the corresponding period, which is 9% of the total MSME loans. “While the MSMEs are struggling to get loans from banks, many banks are offering safe passage to large companies by writing off their heavy NPA amounts,” Jindal said.

“It is difficult to sustain in the current scenario due to rising input costs and low returns. If things continue in the same manner, it will render many of the youth jobless,” Punjab Pradesh Beopar Mandal president Piara Lal Seth said.