Despite occupying a special realm in the biennial Vibrant Gujarat summits and being showered with financial sops through a new industrial policy, MSME units in Gujarat continue to report “sick” in large numbers. In 2016 alone, over 42,500 MSMEs units have reported “sick” in the state, which is the third highest when compared to other states in the country.

There are a total of 42,579 “sick” MSME units in Gujarat, as on March 2016. This figure is second only to Uttar Pradesh (95,989 units) and Maharashtra (52,576 units), according to the Reserve Bank of India (RBI) figures shared in the Lok Sabha during the recently concluded winter session of the Parliament. According to RBI guidelines, an MSME unit is reported sick if any of the borrowal account of the enterprise remain NPA (Non-Performing Asset) for three months or more, or there is an erosion in the net worth due to accumulated losses to the extent of 50 percent of its net worth.

“There are various reasons for the failing health of MSMEs. While some of them are unable to withstand the competition in the market, the current distress in the economy is also hurting them. Despite that many new entrepreneurs have come forward to open new units in Gujarat,” said D Thara, vice-chairperson and Managing Director of state-run Gujarat Industrial Development Corporation (GIDC), that is providing a host of assistance to MSMEs in the state, including providing infrastructure and building vertical estates.

The GIDC will also be spearheading a special convention for MSMEs in the upcoming Vibrant Gujarat summit scheduled to be held in January 2017. Titled, “MSME Convention: Stand-up Gujarat”, this convention is being hosted for the third consecutive time and will try to engage MSMEs that have contributed to the majority of MoUs (Memorandum of Understanding) signed during these biannual summits. For instance, in VGGS 2015, of the total 21,300 MoUs signed, 17,000 came from the MSME sector.

However, despite the special attention paid to the MSME sector, the smaller entrepreneurs have continued to struggle in Gujarat. According to RBI figures, the number of MSME units reporting sick in the state was just 20,452 units in 2013. This rose to 48,000 units in 2014, before peaking at 49,003 units in 2015. The same year Gujarat government announced the New Gujarat Industrial Policy 2015, providing a host of incentives to MSMEs, including financial assistance on the term loans provided by the banks to MSMEs. This has been of little help for sector.

Of these units reporting “sick” every year in Gujarat, very few qualify for the “revival and rehabilitation” process. For instance, among the 42,527 sick MSME units (as on March 2016), only 6,422 MSME units, with an outstanding amount of Rs 627 crore were identified as “potentially viable enterprises” for revival and rehabilitation. Of these potentially viable units, only 2,448 units were being “nursed”. Such poor record of rehabilitation have contributed to NPAs shooting northwards for bankers.

Rising NPAs

If the position of NPAs of all banks in Gujarat (as on June 2016) is taken into account, then MSME sector in Gujarat reported Rs 6,472 crore of NPAs. This, according to the State Level Bankers’ Committee Report, is more than double the Rs 3,013 crore NPAs that existed during June 2015. Bankers whom The Indian Express spoke to point out, that the apart from the rising NPAs, the MSME sector in Gujarat is also seeing a “credit contraction” in segments like infrastructure, gems and jewellery, and cement.

Demonetisation effect

The situation is expected to get worse with the demonetisation process kicking in November 2016, say players from the MSME sector. “The financial requirements of the MSME is different. How can any industry survive with a daily cash withdrawal limit as prescribed by the Reserve Bank of India. Even the banks here do not have adequate cash to dispense. So far it was OK, but going forward if no relaxations for the industry is made, then problems will rise,” says Rohit Patel, Ex-President of Gujarat Chamber of Commerce and Industry (GCCI), an industry body largely consisting of MSME players.

Demonetisation is already hurting the MSME players in Gujarat with 25 percent of the 600-odd units closing down due to cash-crunch in Morbi which is the biggest ceramic cluster in the country. KG Kundariya, President, Morbi Ceramics Associations, says, “Every unit in Morbi on an average needs cash of Rs 40 lakh to Rs one crore every month to run operations. After demonetisation, about 25 percent of the units have closed down. We are hoping that the situation does not deteriorate any further.”

Source: The Indian Express