Economic activities in the cash-driven informal sector may have been adversely affected by demonetisation, but the government does not foresee any major shrinkage in the overall production for FY17.

“There might be some short-term contraction in production but as per the information given by MSME associations, no perceptible difference in production in overall terms during 2016-17 is being witnessed,” says Kalraj Mishra, Minister for Micro, Small and Medium Enterprises (MSME).

As per estimates, MSMEs contributes 8 per cent to the GDP, 40 per cent to exports and 45 per cent to the manufacturing output.

Mishra said some firms might default on repayment of bank loans, but such cases will be few and far between and is unlikely to have any significant impact on overall bad loan level. “I don’t see that there is going to be an increase in bad loans. However, there can be some defaults here and there,” Mishra told in an interview.

Mishra’s assessment runs counter to what some economists have said on the potential impact of demonetisation on economic activities. The Minister said the Finance Ministry had been asked to consider allowing a longer period for declaration of non-performing asset (NPA) for the sector.

Talking about industry reactions to demoentisation, the MSME Minister said, “We have had meetings with various MSME associations and they have welcomed the demonetisation. They have given a few suggestions, which are being considered by the finance ministry.”

He stated that loan availability to small businesses would increase post-demonetisation as banks are flush with funds.

When asked what the government is doing to mitigate the adverse impact of demonetisation on the industry, Mishra said, “We are constantly in touch with various MSME associations and other stakeholders and we are taking corrective measures wherever required.”

The MSME Ministry has asked the finance ministry to raise the weekly ceiling of cash withdrawal for small enterprises to Rs 2 lakh from the current Rs 50,000. However, the latter has not yet taken a view on that.

Mishra agreed that cash crunch triggered by the demonetisation offers an opportunity for the MSME sector to become part of the formal economy. “This is a good opportunity to expand the spread of formal sector. Through digitalisation and adoption of digital payment, MSMEs will gradually move into the fold of formal economy,” the Minister added.

Source: Daily Hunt