The goods and services tax (GST) has revolutionised the tax economics of the country by transforming the way policymakers understand the workings of small and medium businesses. Leveraging on this, Hyderabad-based Jocata, a financial technology firm, has created an economic index for MSMEs — called Sumpoorn — in partnership with SIDBI. Shailesh Deshpande, Director of Growth, Jocata, talks to ET Digital about the initiative and how it represents the state of MSMEs. Edited excerpts:
ET: What is Sumpoorn and what are the crucial parameters it covers? How does it capture the economic activity of MSMEs?
Shailesh Deshpande (SD): Sumpoorn is an index like Sensex of Nifty but is based on the economic activity in the MSME world. It has been enabled by the GST.
Obviously, there were growing pains initially when people had to get registered, start complying with it and do monthly filings for GST. But it has enabled a centralised, consent-based digitally accessible repository of SMEs sales and purchases. That never happened before. In most countries, this data is still not available. But in India, digital public infrastructure or DPI has enabled it.
The first thing we did after understanding the data is realising its value. GST gives you a complete view of MSMEs across the country, geography, ticket sizes, turnover ranges, sectors, industries, etc. We built a product called SME DNA that scores an entity based on the underlying GST data. It is a widely used product in banking. This is like an entry criteria for them, just as credit scores or other scores. But ours is not a credit score, it is a behavioural score based on GST data. So that was step one.
Cut to last year, once we had almost three-plus years of data from several lenders on credit-seeking MSMEs across the country, we got the idea to build a macro index. That is Sumpoorn.
Why did we decide to build it? Because there wasn’t one such data in existence.
ET: How is Sumpoorn different from other indices?
SD: The industrial output is measured by a handful of indices such as the Purchasing Managers Index, the Index of Industrial Production, among others. But it leaves out a large portion of the MSME economy because that is not part of the industrial output value chain.
Our index is based on real data of sales and purchases across the country. It is essentially not sentiment based, it is based on data and analytics. It is published every month. There is no fee to access it. Anybody can look at it to understand the methodology, the rating and tracking. You can register and get monthly updates. We also have sub-indices for specific industries or geography.
ET: What does the Sumpoorn dashboard look like?
SD: It is a simple scale and is like a stock market index. You will see a continuous movement upwards and downwards. It is what you call a high frequency index because the data is refreshed on a monthly basis. What you see is the relative contraction and expansion in the MSME economy.
For example, if you go back all the way to 2020, you can see that during the first lockdown of Covid-19, the economic activity went down a cliff and there was a big crash in MSME activity. Then you can see it picking up when the government announced relief measures and credit guarantee schemes. The index saw the highest value that quarter, January-February-March, and particularly in March 2021. Then there were small spurts around when the Ukraine war started and there was a disruption in supply chains. So you can see these small blips as well.
I think the last few months, after the elections, the economy has been largely range-bound. MSME activity is in the mild-to-moderate expansion range. It is not negative, it is not stagnant, but also not moving at a rapid pace.
Also, if you click on the index tab, you will see that every time we publish the index, we also publish expert commentary about it given by economists and academicians. If you see the latest month’s index, there is a full interpretation of what it means — that there are still challenges in the rural sector, exports are showing improved performance, there is a policy boost from the government…. So there is a ready-to-consume expert commentary that comes along with that index, because not everybody may really know how to interpret or use that index.
ET: Who will find such information useful?
SD: This is actually not necessarily valuable for the MSMEs themselves, but this is immensely valuable to policymakers, the government, credit and risk officers within lending institutions. This index is in some sense an early signal of which direction the overall economy or specific segments are going. Bankers can take calls to either fund or pull back money from certain sectors. Because they are seeing this real-time information for the first time.
When you look at sub-indices, you can compare Maharashtra versus Karnataka versus Gujarat versus Telangana and you can see how the states and MSMEs there are performing and use that for your credit calls, for your policy decision.
People from the Reserve Bank of India to the Ministry of Finance to chief economists of several large banks have subscribed to this index and they are consuming this on a regular basis.
ET: Tell us about your data collection process.
SD: We do not use data from publicly available sources. In fact, this is all consent-based data of credit-seeking MSMEs or taxpayers. They share it with the lenders and we work with that. The data is entirely anonymised. We do not need to know who the contributing MSMEs are in our index. We just need to know that there are 50 MSMEs that are showing their turnover ranges and these are their GST filings. This data is then processed and algorithms run on it. That is how the index gets generated.
As on date, there are more than 1.5 lakh MSMEs that have been scored and their data sampled to build the index.
ET: So the advantages of digital public infrastructure are becoming apparent now?
SD: We made a presentation on how the digital public infrastructure is benefiting the financial inclusion goals of the country. We were invited to be a part of the Citizen Stack Conference at the United Nations in May. We were the only private company that was invited to come and make a presentation about a public good, as part of a delegation of the Indian government.
ET: What new features and sub-indices are you planning to bring to Sumpoorn?
SD: The idea is to bring more sub-indices based on industries and cities. For example, Ludhiana versus Coimbatore. In terms of industries, for example, we want to compare textile hubs in different parts of the country. We are also going to go down to HSN — the Harmonized System of Nomenclature — levels to understand and compare export data of various products.
ET: Jocata has worked on financial crimes. Do you plan to integrate that with the current offerings?
SD: Our roots are in that space — financial crime compliance, which is fraud, anti-money laundering, transaction monitoring and catching the bad guys for banks. We have been doing that for more than a decade now.
While the focus of Sumpoorn has largely been on credit, there is no saying that we cannot also build an index that is more financial crime focused. As of now, maybe fraud scores is something we will do. We may not do an index right away because it is harder to get fraud data from multiple banks. There is no unified repository. There are repositories for credit defaults, etc, but not for frauds.
