The survey conducted between November 24 and December 24 covered more than 1100 MSMEs. “To be sure, the cash ban has impacted business operations, but more importantly, demonetisation has spurred a major change in the way MSMEs conduct business,” Crisil said.
“MSMEs located in tier-2 cities and smaller towns have witnessed a significant shift (42% of respondents) to cheque or electronic payments, indicating that the transition is geography agnostic, and, therefore, has greater implications in the way transactions take place in small cities and towns,” said Ashu Suyash, MD and CEO, Crisil.
“Most of them see only a short-term impact of demonetisation, and more than three-fourths believe it will be business as usual by June 2017,” the agency said. Nearly half of the MSMEs with annual turnover less than Rs. 2 crore reported a greater shift towards less cash, compared with a third of those with revenues over Rs. 25 crore.
“This may also be because non-cash payments are already prevalent among mid-sized players. For the smaller ones, the shift is expected to translate into long-term benefits through quicker transaction processing and better record keeping,” Crisil stated.
Demonetisation however has had an impact on liquidity of MSMEs. 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 Rs. 2 crore.
Every fifth MSME surveyed planned to raise additional funding in the coming months, half of it for working capital. Interestingly, with unsecured loans from friends and associates drying up, three out of four respondents plan to approach banks for loans, while the rest will rely on internal accruals. That opens up a massive opportunity to banks currently awash in liquidity.
Every third MSME is also facing delay in receivables from clients, which has curbed their ability to repay creditors and pay salaries on time. The steel sector was the most impacted on this score, with nearly two-thirds of respondents admitting to problems, followed by textiles, logistics and construction sectors.
Due to the greater reliance on cash, sales of MSMEs in smaller towns are expected to be impacted more than that of those in metro and tier-1 cities. While a third of those in tier-2 cities and smaller towns expect a decline in revenue in the second half of the financial year, only a quarter in metros and tier-1 cities feel similarly. The overall revenue growth estimates for 2016-17, which was expected at 15%-20% before demonetisation, is now seen at 6%-8%, Crisil said.
Source: Times of India