Bengaluru, Aug 5 (KNN) Micro, Small and Medium Enterprises (MSMEs) witnessed 11 per cent drop in business due to COVID second wave in 2021, said a report by fintech start-up Khatabook.

India's fintech start-up, Khatabook, has released the '2021 Mid-year COVID Impact' analysis on the MSME segment in the country on Wednesday.

''11 per cent drop in business activity among its MSME customers during the second wave of the pandemic in comparison to 46 per cent last year,'' the report added.

According to the report, the improvement in percentage decline of business activity was due to the 'phased and localized' restrictions across the country post second wave in contrast to the nationwide lockdown last year.

The report also revealed that MSMEs preferring digital platforms have increased during the year.

''The usage of in-app features per user has increased by 72 per cent over the last year, indicating that MSMEs have started utilizing the full functionality of digital solutions. The steady increase in in-app feature utilization shows that small businesses are not just adopting digital but also becoming more proficient with the usage of digital,'' it said.

"The MSME ecosystem is more resilient in 2021. Phased lockdowns and MSME preparedness for external circumstances with digital adoption seem to have contributed to business strength. However, with lockdowns and restrictions being a constant reality in the pandemic world, cash flow management will be a defining factor for MSME business success moving forward." said Ravish Naresh, Co-founder and chief executive officer, Khatabook.

"Also, the MSME segment is showcasing a definite learning curve with their usage behaviour of digital platforms, indicating increased proficiency with digital solutions," he added.

According to the report, textile/apparel and footwear, automobiles, and traders continue to be the most sensitive categories to COVID lockdowns this year as well. While there is a growth in business recovery from 2020 to 2021 for these categories, they remain the MSME categories that will need close attention.

Health, Grocery, Transportation, and Agriculture are the categories that continued growing in 2021 despite external circumstances.

“Lockdowns and restrictions have a direct impact on MSME business activities. The lockdowns in 2021 are in line with the increasing COVID cases. Hence, there is a direct link between the number of cases increasing and the decline in business activity in 2021,” report added.

Throughout the pandemic, the MSMEs across all the tiers have experienced more or less the same impact. However, tier-1 and 2 cities were relatively less impacted during the second wave as compared to metros, tier 3 and tier 4 cities, the report said.

The report also highlighted that between January 2020 to June 2021, Delhi and UP, Haryana and Delhi and Andhra Pradesh and Telangana exchanged the highest interstate trade with each other. Individually, Delhi, UP and Maharashtra had the highest levels of ongoing interstate business activities.

MSME ecosystems in Jharkhand, Telangana, and Bihar were the least impacted states in the first half of this year while Uttarakhand, Kerala, and Madhya Pradesh were the most impacted. Madhya Pradesh, incidentally, was also one of the most impacted states last year, the report said.