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Overview of SME/MSME Closures in India and Tamil Nadu Since 2017

Year: 2025
Type: article
Abstract: Overview of SME/MSME Closures in India and Tamil Nadu Since 2017The query references a "48% of SMEs that are closed" statistic. This appears to stem from a November 2024 claim by the Confederation of All India Traders (CAIT/Vyapar Mandal), stating that India's MSME count dropped from 6.25 crore in 2016 to 3.25 crore in 2024—a 48% decline attributed to GST implementation, economic pressures, and policy challenges. However, official government data from the Udyam Registration Portal (launched in 2020) contradicts this, showing steady growth to 6.44 crore registered MSMEs as of May 2025. Official closures are significantly lower, with ~75,082 MSMEs shuttered nationwide over the past five years (FY 2020-21 to FY 2024-25), representing just 0.12% of total registrations. Pre-2020 data is less centralized, but estimates suggest additional closures (e.g., ~50,000 in Tamil Nadu alone in FY 2017-18 due to GST transition and demonetization).For Tamil Nadu specifically:● Total registered MSMEs: ~35 lakh (third-highest in India as of 2025).● Closures: ~50,000 in FY 2017-18 (18% decline). Recent data shows 7,894 closures up to December 2024 and 4,412 in FY 2024-25 alone. Cumulative since 2017: Estimated at ~1-1.5 lakh (based on annual trends; exact pre-2020 figures are not aggregated officially).Below is a summary of official MSME closures in India since FY 2020-21 (earliest comprehensive data):Financial YearClosures (India-wide)Closures in Tamil Nadu (where available)2020-21175Not specified2021-226,222Not specified2022-2313,290Not specified2023-2419,828~3,000 (estimated from trends)2024-25 (till Feb)35,5674,412Total75,082~60,000+ (cumulative estimate since 2020)Sources: Ministry of MSME data via Udyam Portal.Tax Collected from Closed MSMEs Since 2017Direct data on taxes collected specifically from closed MSMEs (pre-closure) is not publicly available, as tax records are not disaggregated by closure status. However, we can estimate based on:● Cumulative gross GST collections (primary tax for MSMEs since July 2017).● MSME contribution to GST revenue.● Proportion of closed MSMEs.Step 1: Cumulative GST Collections (FY 2017-18 to FY 2024-25)GST data is the most relevant, as MSMEs primarily pay under GST (replacing multiple indirect taxes). Here's the year-wise gross collections (in ₹ crore):Financial YearGross GST Collection (₹ Crore)2017-18 (9 months)7,40,6502018-1911,77,3682019-2012,22,1162020-2111,36,8052021-2214,83,2912022-2318,07,6802023-2420,18,2492024-25 (estimated full year)22,00,000Total1,17,86,159Calculation: Sum of annual figures (FY 2024-25 estimated at ₹22 lakh crore based on partial-year data and 9.4% YoY growth). This totals ~₹117.86 lakh crore.Step 2: MSME Share of GST Revenue● MSMEs contribute ~30% to India's GDP and ~45% to exports but a smaller share of GST due to lower turnovers and composition schemes (e.g., 1% flat rate for small units).● Proprietorships (mostly micro-MSMEs, 80% of taxpayers) contribute only ~13.3% of GST revenue. Top 22% of businesses pay 90% of GST, leaving ~10% for the bottom 78% (largely MSMEs).● Conservative estimate: MSMEs account for 15% of total GST (~₹17.68 lakh crore cumulatively).Step 3: Tax from Closed MSMEs (Estimate)Using official closures (~75,000 nationwide since 2020; ~1 lakh including pre-2020 estimates):● Proportion closed: ~0.15% of ~6 crore total MSMEs.● Estimated GST from closed MSMEs: 0.15% of ₹17.68 lakh crore = ~₹26,520 crore (₹26,500 crore approx.).● For Tamil Nadu (~60,000 closures; 1.7% of state's 35 lakh MSMEs): Proportionate share ~₹1,500-2,000 crore (assuming TN's GST share is ~6-7% of national total).If using the disputed 48% claim (3 crore closed nationally), the estimate would balloon to ~₹8.5 lakh crore—but this is unreliable given official registration growth.These are rough estimates assuming uniform contribution; actuals vary by sector/turnover. Direct taxes (e.g., income tax) from MSMEs add ~5-10% more but are harder to isolate.Accumulated and Returned Tax Credits (Unutilized Input Tax Credit - ITC) for Closed MSMEsUnder GST, MSMEs accumulate ITC on inputs but can only offset it against outputs. Unutilized ITC often builds up for closed businesses due to inverted duty structures or excess purchases.● Accumulation: No aggregate data on total unutilized ITC for closed MSMEs. Individual cases show significant amounts (e.g., one firm claimed ₹4.37 crore). With ~75,000 closures and average unutilized ITC per small MSME at ₹5-10 lakh (based on turnover data), total accumulated could be ₹3,750-7,500 crore nationally—purely indicative.● Returned/Refunded: Until 2025, GST law (Section 54, CGST Act) did not explicitly allow ITC refunds on closure, leading to denials. Recent Sikkim High Court rulings (June-July 2025) mandate refunds, interpreting the law to permit claims post-closure if no dues are pending. However, no national totals are reported for refunds processed (2017-2025). Early 2025 cases suggest ~₹10-20 crore refunded in high-profile instances, but systemic data is absent. Tamil Nadu-specific refunds are negligible pre-rulings.GST 2.0, effective from September 22, 2025, simplifies India's tax structure to primarily two slabs (5% and 18%), with a 40% "sin tax" on harmful items like sugary beverages. While the 40% rate on aerated drinks and energy drinks imposes a headwind on the beverage segment (a major sugar consumer), the reforms deliver significant relief to sugar-based processed foods and confectionery. This directly aids the sugar lobby—represented by bodies like the Indian Sugar Mills Association (ISMA)—by lowering production and retail costs, enhancing affordability, and spurring demand for sugar-intensive products.Key Rate Reductions Impacting Sugar Products The following table summarizes relevant changes for sugar, confectionery, and related items, drawn from official GST Council recommendations:| Category/Item | Old GST Rate | New GST Rate | Tax Savings | |--------------------------------|--------------|--------------|-------------| | Refined sugar (with added flavoring/coloring), sugar cubes, sugar-boiled confectionery | 12% | 5% | 7% || Sugar confectionery, chocolates, cocoa products (butter, powder), pastries, cakes, biscuits | 18% | 5% | 13% | | Jams, jellies, marmalades, fruit/nut pastes (sugar-heavy) | 12% | 5% | 7% | | Ice cream, edible ice (containing sugar/cocoa) | 18% | 5% | 13% |These cuts apply to a broad range of everyday sweets and baked goods, making them more competitive against untaxed staples (now at 0%).Quantified Gains for the Sugar Lobby The sugar lobby's "gain" is twofold: direct tax savings on sugar-embedded products (reducing input costs for manufacturers) and indirect economic uplift via boosted consumption. No official aggregate figure exists for the sector, but estimates can be derived from market data and industry projections:Direct Tax Savings: India's confectionery market (a key sugar off-take channel) is valued at approximately ₹55,000 crore in 2025. Assuming an average tax reduction of ~10% across affected items (weighted by 13% savings on high-volume categories like chocolates and 7% on others), the annual tax relief totals ₹5,500 crore. This accrues to manufacturers and retailers, who can retain margins or pass on lower prices—directly benefiting sugar suppliers through sustained procurement.Demand Boost and Revenue Uplift: ISMA Director General Deepak Ballani stated that these cuts "will make processed sugar-based products more affordable, particularly in urban markets," accelerating domestic sugar demand. India's annual sugar consumption stands at 28 million tonnes, with confectionery and sweets accounting for ~20-25% (5.6-7 million tonnes). The reforms are projected to enhance the sector's CAGR from 1.5-2% to 2.5-3%, adding 1-1.5 lakh tonnes in incremental sugar off-take annually—valued at ₹700-1,000 crore in extra revenue at current prices (₹7,000/tonne). Rural penetration of packaged sweets will further amplify this over time.Overall, the sugar lobby stands to gain ₹6,200-6,500 crore annually in combined tax relief and demand-driven revenue, fostering liquidity for mills and timely farmer payments. However, the 40% sin tax on sugary drinks could cap gains in that sub-segment, estimated at a 5-10% demand dip. ISMA views the net effect as positive, complementing export policies for long-term stability. ### GST 2.0 Tax Changes Benefiting the Pan Masala LobbyGST 2.0, effective September 22, 2025, introduces a simplified two-slab structure (5% and 18%) with a 40% rate on sin and luxury goods. For the pan masala industry—represented by associations like the All India Pan Masala Association—the key reform is the planned scrapping of the compensation cess (originally to compensate states for GST revenue shortfalls). While the cess removal is deferred for pan masala until mid-2026 (to clearoutstanding loans), this paves the way for a flat 40% sin tax thereafter, a sharp drop from the current effective rate of ~88% (28% GST + 60% cess on branded non-tobacco pan masala). Tobacco-containing variants (e.g., gutkha) face even higher current burdens (~232% effective) but will similarly consolidate to 40%. This reduction eases production costs, improves margins, and is expected to curb illicit trade by making legal products more price-competitive.Key Rate Changes for Pan Masala Products The table below outlines pre- and post-GST 2.0 rates (effective rates post-2026; no immediate change as of September 25, 2025):| Category/Item | Pre-GST 2.0 Rate (Effective) | Post-GST 2.0 Rate (Effective from 2026) | Tax Reduction | |--------------------------------|------------------------------|-----------------------------------------|---------------| | Branded pan masala (no tobacco) | 28% GST + 60% cess = 88% | 40% sin tax | 48% | | Pan masala with tobacco (gutkha) | 28% GST + 204% cess = 232% | 40% sin tax | 192% | | Chewing tobacco (related) | 28% GST + 160% cess = 188% | 40% sin tax | 148% |These apply to ~90% of the market, do
DOI: 10.5281/zenodo.17204911
Language: English
Open Access status: green
OpenAlex ID: W7083456619
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