The slow growth in private consumption signals a mild expansion of sales activity of Indian micro, small and medium enterprises (MSMEs), according to the Jocata Sumpoorn index.
Jocata Sumpoorn moved up to 0.62 in October, showing sales activity for credit-seeking MSMEs in the zone of moderate expansion. As sales performance had been in the zone of mild expansion for five consecutive months, this rise could mark a breakout towards higher growth in the months ahead.
While access to capital has traditionally been a challenge for MSMEs, the Reserve Bank of India (RBI) data shows that MSMEs have been receiving a greater share of aggregate credit, at over 14.5 per cent since January 2022, compared to 10-12 per cent earlier.
The growth rate of bank credit to MSMEs has also stabilised at steady double-digits post-pandemic, reported at 22.7 per cent in October over the previous year. “This augurs well for the sector, resulting in improved performance of MSME activity,” said Sumita Kale, Chief Executive Officer (CEO) and Senior Fellow, Indicus Foundation.
Kale added that there have been some more bright spots in macroeconomic data, especially on the exports front. Non-petroleum, non-gems, and jewellery exports rose by 11.74 per cent from USD 21.99 Billion in October 2022 to USD 24.57 Billion in October 2023.
Given that the MSME sector accounts for around 40 per cent of India’s exports, the Jocata-Sumpoorn move upwards in October is in line with the improvement in export performance data.
The latest national income data release for June-September 2023 shows the economy on a good footing, though there are still strong headwinds to weather. The gross value added (GVA) in current prices grew at 9.0 per cent year-on-year, and strong fixed investment and government consumption were key to the higher growth estimates this year. In terms of constant prices, GVA grew at 7.4 per cent yoy, compared to 5.4 per cent yoy in June-September 2022.
Manufacturing GVA took the lead amongst all sectors, with growth at 13.9 per cent. While part of the surge in manufacturing GVA can be explained by the low base (-3.8 per cent YoY growth in June to September 2022), lower commodity prices have also played a role in better performance.
However, moving ahead, in recent months, the S&P Global PMI Manufacturing index has indicated a moderation, as the index stood at 56 in November and 55.5 in October, compared to its level of 58.6 in August.
“One cautionary note is coming through the slow growth in private consumption in the national income estimates, which aligns with the mild expansion of sales activity of the MSME sector as shown through the Sumpoorn index in the June-September quarter,” Kale mentioned.
The IIP reports lower growth in consumer durables and non-durables in the June-September quarter, while primary goods, capital goods and infrastructure goods have seen double-digit growth. With uneven monsoons and large-scale crop damage, rural consumption has been hit, and demand for jobs under MGNREGA in September and October has been 10 to 18 per cent higher than in the corresponding months last year and 26 to 31 per cent higher than in the pre-Covid period.
So even as this year’s festive season has recorded high sales in many categories of vehicles, tractor sales are still lower than last year, indicating some stress in rural India, she added.
Kale asserted, “One more challenge ahead for MSMEs is that firms may have to contend with the fallout from RBI’s recent measures to tighten risk weight norms for unsecured retail loans.”
While the move will make for healthier balance sheets and possibly higher allocation of credit towards the MSME sector, the impact on overall capital available with NBFCs as well as demand for consumer durables remains to be seen.
