Sidbi Survey Shows Deepening MSME Crisis

Indicating deepening crisis in the economy, a quarterly survey of small business by the state-run Small Industries Development Bank of India has found that their sentiment has been impacted by the broader trends in the economy.

The report comes days after the disappointing GDP growth prints which showed that the economy has lost its steam clipping at a low 5 percent in the three months period to June, which is a 25-quarter low.

The quarterly survey conducted with rating agency Crisil and released Tuesday, however, finds that small businesses, which are the largest job creators, are sanguine on employment.

Crisidex, the index of micro, small and medium enterprises’ outlook, fell to 120 in the June quarter from 122 in the preceding quarter, an official statement said.

“MSMEs can't decouple from the broader economic trends,” Sidbi chairman and managing director Mohammad Mustafa said in the report.

Among manufacturers, the proportion of those reporting a good survey quarter came down to 27 percent for the reporting period from a high 45 percent in the year-ago period, while in the services sector, the same was down at 28 percent from 44 percent.

The report said manufacturing sector sentiment was impacted by consumption slowdown stemming from factors such as higher ownership cost in the auto sector, and pre-poll slowdown in domestic tendering, especially in the capital goods segment.

In the services sector, the moderation in sentiment was mainly on account of cautious outlook on global economic growth, which is expected to impact IT spends and lower growth in domestic freight demand, given sluggish consumption.

The survey said respondents are more optimistic about the September quarter, suggesting that the June quarter can be a "blip" rather than a trend.

Mustafa said select segments like commercial services and supplies, healthcare providers and services, and human resources have shown an increase in positive sentiment during the reporting period.

Larger MSMEs, employing over 25 people, are more optimistic about the next quarter, it added.

The survey said despite the concerns on outlook, there was a surprising 16 percent increase in hiring up from 11 percent in the year-ago period.