MSMEs Optimistic on Employment but Crestfallen About the Broader Economic Outlook "MSMEs can't decouple from the broader economic trends," states SIDBI Chairman & Managing Director Mohammad Mustafa

Owing to government initiatives and promotions, Medium, Small and Micro Enterprises (MSMEs) in India have been maintaining a positive outlook towards the future prospects. However, the quarterly survey of small businesses by state-run Small Industries Development Bank of India (SIDBI) report says otherwise.

Being a crucial contributor to the country's economy, the sentiment of MSMEs has been severely impacted by the deepening crisis of the Indian economy. Shedding light on the broader trends, SIDBI Chairman and Managing Director Mohammad Mustafa said, "MSMEs can't decouple from the broader economic trends."

The index of MSMEs' outlook has fallen to 120 in the June quarter from 122 in the preceding quarter. Conducted with rating agency CRISIL, the report comes days after the disappointing GDP growth numbers that which show the economy has lost its steam, clipping at a low 5 percent in the three months period to June, a 25-quarter low.

Sectors Affected

Manufacturing sector sentiment was impacted by consumption slowdown stemming from factors such as higher ownership costs in the auto sector and pre-poll slowdown in domestic tendering, especially in the capital goods segment. The proportion of those reporting a good survey quarter came down to 27 per cent for the reporting period from a high 45 per cent in the year-ago period.

The services sector also came down at 28 per cent from 44 per cent. The moderation in sentiment was mainly on account of cautious outlooks towards global economic growth, which is expected to impact IT spends and lower growth in domestic freight demand, given sluggish consumption.

Keeping the Hope Alive

Small businesses create large amount of jobs all across the nation. Despite the depressing outlook, job creators are sanguine on employment. Larger MSMEs, employing over 25 people, are more optimistic about the next quarter. The survey also mentioned respondents having an optimistic approach about the September quarter, suggesting that the June quarter can be a 'blip' rather than a trend.

Mustafa said selected segments like commercial services and supplies, healthcare providers and services and human resources have shown an increase in positive sentiment during the reporting period. Despite the concerns on outlook, there was a surprising 16 per cent increase in hiring up from 11 per cent in the year-ago period.