Odisha’s MSME sector: The opportunities and challenges in a post-COVID world

As we observe the third anniversary of the World MSME day, we celebrate the sector that, as per the Odisha Economic Survey 2019-20, comprises over 3.9 lakh units in the state, set up with an investment of Rs 19,142 crore and employing 15 lakh people.

On an average, a typical unit employs four persons and entails an investment of Rs 5 lakh. Over the past five years, Odisha has added around 50,000 units every year which is a reflection of the successful policies at both central and state level. For instance, the Pradhan Mantri Employment Generation Programme has supported creation of 11,374 units and employment for 82,000 people.

In the 2018-19 fiscal, banks extended credit of around Rs 33,000 crore to the sector. With 61% MSME units classified under repairs and services category, the lion’s share of the credit went to the services sector.

Sector wise analysis of credit flow reveals that micro units availed almost half of the loans. After the launch of Pradhan Mantri Mudra Yojana in 2015, 3910051 accounts have been opened under Shishu scheme with total disbursals of Rs 10304.72 crores.

Around 77% of the credit is being provided by public sector banks while private sector banks are a distant second. The overall credit to deposit ratio in Odisha is around 66% which is lower than the national average.

Provisions for MSMEs under the Atmanirbhar Bharat Package

With the impact of the COVID-19 pandemic, many MSMEs in the state faced the risk of closure. On May 12 this year, our honourable Prime Minister announced the landmark ‘Atmanirbhar Bharat Abhiyan package’, which includes several measures to inject liquidity, spur market demand, infuse equity, and make structural changes to the sector.

Four days later, the Odisha government announced its decision to organize awareness camps in industrial estates about the economic package for the sector. Under the Atmanirbhar Bharat Package, the government made the following provisions for the MSME sector:

  • The package earmarked Rs. 5.94 lakh crore liquidity support for various sectors with special focus on MSMEs
  • In terms of liquidity, Rs 3 lakh crore loan extension has been granted to existing borrowers. With Rs 4000 crore being invested in the credit guarantee trust for micro and small enterprises, new borrowers can avail collateral free credit.
  • MSMEs will now have access to a larger market as tenders below Rs 200 crore will no longer go for global bidding.
  • The creation of a government e-marketplace portal will enable more MSMEs to provide services to government and public sector undertakings.
  • A subordinate debt fund of Rs 20,000 crore has been created to enable promoters of stressed MSMEs to avail loan and infuse new capital into their enterprise. Another Rs 10,000 crore Fund of Funds has been earmarked to encourage creation of more MSMEs.
  • There have been several structural changes to the definition of MSME so that more enterprises can avail benefits under MSME category. Non-banking financing companies can now offer invoice financing through TREDS platform thus helping MSMEs cut down on the invoice realization period.
Opportunities for the sector

The sector, being the second largest employer in the state with huge potential to grow several times more, has numerous opportunities ranging from:

Demographic dividend: The population of Odisha in 2020 is about 4.7 crore out of which 3.1 crore are in the working age-group of 15-59 years. More than half of the working population is youth in the age group 14-34 years. This is a demographic dividend for the state.

Atmanirbhar Package and inflow of labour pool: The Rs 200,000 crore Atmanirbhar Package, of which 3 lakh crore collateral free automatic loans is allocated for businesses including MSMEs is itself a major opportunity. The return of native workers from all parts of the world is a huge boost for the labour pool. The government has already started mapping their skill set to provide them employment opportunities.

Interest of investors and entrepreneurs: Odisha, being a mineral rich state, has the potential to attract many investors and entrepreneurs who will be interested to set up businesses here. Last November, Minister of State for Industries and Micro Small and Medium Enterprises (MSME) Dibya Sankar Mishra said Odisha is an ideal destination for investment and invited investors to set up MSMEs units in the state.

Partnership with banks: Strategic partnership with banks and lenders is a great way to provide smart banking solutions to MSMEs. This February, the MSME Department of Odisha signed a Memorandum of Understanding (MoU) with the HDFC Bank Limited.

Friendlier MSME policy: The government of Odisha made the Odisha MSME Development Policy more investment friendly by extending incentives to obtain ‘zero defect, zero effect’ certification in terms of bronze, silver, gold and platinum categories.

Challenges for the sector

Along with numerous opportunities, there are some challenges with the sector. They are:

Skilling the youths: Majority of the youths is engaged in informal and unorganized employment and one-third of the youth need skilling intervention in order to contribute productively.

Land, labour, and financial crisis: Speaking at ICC-organized MSME Summit 2019, Prasanna Kumar Jena, additional secretary of MSME Department and MD of Odisha Small Industries Corporation Limited (OSIC) said the sector in the state is facing land, labour, and financial crisis.

Fewer provisions in the past budget session: In the 2019-20 budget session, the sector alleged neglect and insignificant provisions and incentives compared to other sectors.

Recognised as the ‘Top Performer in States Start-up Ranking of 2018’, Odisha has the potential to emerge as the gateway of India to Southeast Asia. The government’s push for infrastructure will create several opportunities in port, railway, road and power sector. Paradip is emerging as a high growth petrochemicals hotspot in south Asia. The revival of the mining sector as well as the steel complex in Kalinganagar will also provide new avenues for MSMEs. Agri based industries will get a boost with new policies such as contract farming and hassle free inter-state trade of agricultural produce.

We need a robust linkage of MSME with schemes such as cluster development programme and Scheme of Fund for Regeneration of Traditional Industries, which will address issues of capital investment, technology, quality, and market access.

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