A disturbing trend is witnessed in the State’s micro, small and medium enterprises (MSMEs) with sickness in the sector seeing a manifold rise over the years. Moreover, with the closure rate on the upswing compounded by the economic slowdown, last year the State saw a fall in the annual growth rate of filing of Entrepreneur’s Memorandum-II to a mere 7.5 per cent from a high of 30 per cent in 2011-12.
According to the data available with the MSME Department, 2,815 EM-IIs were filed at DICs in 2013-14. What is worrying for the State is the sickness in micro and small units has surprisingly shown more than 100 per cent rise to 11, 750 in 2013-14 from 5,900 in 2012-13. The sickness in medium units, however, almost maintains a status quo. The notable fact of concern here is micro and small units are the backbone of the MSME sector as they together account for over 97 per cent of the State’s MSMEs.
As per the RBI, MSMEs are declared sick when they are unable repay the loans outstanding to banks for over a year. However, the State Government also has to take into account the Kohli Committee recommendations like continuous decline in gross output compared to previous two financial years and erosion of net worth to 50 per cent of the net worth in previous year to declare a MSME unit sick.
Sources indicated that the current data on sickness are based on the RBI criteria only and the number would be much higher if the Kohli Committee yardsticks are taken into account. The fourth MSME census in 2007 puts the total sick units in the State at around 7,000 based on the committee recommendations.
This growing sickness among MSMEs in the State doesn’t augur well as around eight in ten units are engaged in manufacturing sector and could impact a death blow to the fledgling manufacturing sector that have a big potential of employment generation. The manufacturing MSMEs in Odisha are largely concentrated in food and allied, engineering and metal sectors. The two big factors behind growing MSME sickness are poor linkage - forward and backward, below par credit flow.
According to a senior functionary in the SlBC, MSMEs in Odisha are doubly vulnerable to failure as the Directorate of Industries here is quite lethargic in ensuring a proper forward and backward linkage to them. He further explained that backward linkage means assuring input (raw materials) to the firm and then enabling a market (forward linkage) to sell their products. This would ensure their viability and necessitates proper bank credit to them, he added.
Utkal Chamber of Commerce (UCC) president Ramesh Mohapatra agrees with the factors outlined and further observed that the Public Procurement Policy 2012 of the Centre has been designed to address the market linkage aspect, but the results in Odisha are not enthusing. The input linkage should have to be a big focus area in the State, he said.
However, a senior RBI official in the Economic Research Division opines that if the State Industries Department abdicates its responsibility in enabling a market then banks have to pitch forward as they have the potential to provide forward linkage to their MSME borrowers to prospective buyers in States like Maharashtra and Gujarat. Ensuring so would help in making their loan portfolio a productive asset, he added.