The number of MSMEs (micro, small and medium enterprises) shutting down their operations in the post-Covid period continues to rise amid the opening up of newer growth opportunities via several programmes of the Central government.

As per the Udyam Registration portal, the total number of MSMEs that closed their operations between July 1, 2020, and December 12, 2023, stood at 32,477.

FY23 witnessed the highest number of shutdowns in the MSME segment as 13,290 Udyam-registered MSMEs wind-downed operations compared with 6,222 units that closed shops in FY22 and 175 units in FY21.

However, the current fiscal has also seen a big increase in the closure of operations by MSMEs. As of December 12, 2023, 12,790 units downed their shutters, indicating the continuing stress in the segment in the post-Covid era.

The country had over 6.25 crore MSMEs in 2016, but the number has dwindled to 3.25 crore as per Udyam portal.

“More than 60 per cent of the conventional micro-enterprises, which were engaged in business activities for more than 10 years have perished. It is very evident from the data provided by the MSME Ministry that the number has come down to 3.25 crore units despite revised reclassification,” points out K E Raghunathan, National Chairman – Association of Indian Entrepreneurs.

Several changes

India has been going through a complete transformation in the last eight years in terms of doing business. The government brought in several changes - cashless (digital) transactions, documented services, unified taxation, e-commerce marketing, global standards, stringent labour laws, and social security mandates among others.

“All these have shaken up the conventional entrepreneurs who were not used to such regulations. Also, most of the micro units could not cope with the sudden shift to cashless transactions spurred by demonetisation. Nearly 30 per cent of the units exited because of this. Then, the GST, with over 700 amendments, has suddenly made them focus more on documentation rather than real business. There is hardly any MSME entrepreneur without getting any notice from authorities, he adds.

While the operating environment is completely different now for the MSMEs, new growth avenues have also opened up for MSMEs.

Raghunathan says the emerging sectors such as electric vehicles, drones, defence and aerospace, robotics, sophisticated electronic gadgets, and mobile phones have not provided any opportunities for conventional entrepreneurs. The central government’s PLI schemes also provided very limited opportunities for local MSMEs to transform and get adapted.

However, a report by UBS Securities India states that more than 100 MSMEs are among the PLI beneficiaries in sectors such as bulk drugs, medical devices, telecoms, white goods, and food processing.

Industry representatives suggest a few measures to support and facilitate growth for MSMEs in the new operating environment. Entrepreneurs, who are keen to exit from their hitherto conventional businesses that have no scope now, should be given an opportunity for an honourable exit with a one-time settlement.

For entrepreneurs who are keen to move to newer technologies and businesses, the government should help them by providing assistance via technology upgradation/transformation fund and enable them tie up with larger corporates with mandatory conditions of using local suppliers to an extent of 50 per cent.

The government should also help them embrace e-commerce platforms as MSMEs have been severely impacted by the entry of global e-commerce players into the country.

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