How the Sumpoorn Index helps banks and policymakers better understand SMEs

The goods and services tax (Goods and services tax) has revolutionized the country’s fiscal economics by transforming the way policymakers understand the functioning of small and medium-sized enterprises. Leveraging on this, the Hyderabad-based company jocataa financial advisory firm, has created an economic index for MSMEs, called Sumpoorn — in association with SIDBIShailesh Deshpande, Chief Growth Officer, Jocata, speaks to ET Digital about the initiative and how it represents the plight of SMEs. Edited excerpts:

ET: What is Sumpoorn and what are the key parameters it covers? How does it reflect the economic activity of SMEs?
Shailesh Deshpande (SD): Sumpoorn is an index like Sensex or Nifty but it is based on economic activity in the MSME world. It has been made possible by GST.

Obviously, there were difficulties at the beginning when people had to register, start complying with the rules and file monthly GST returns. But this has made it possible to create a centralised, consent-based and digitally accessible repository of SME sales and purchases. That has never happened before. In most countries, this data is not yet available. But in India, the digital public infrastructure or DPI has made it possible.

The first thing we did after understanding the data was to realise its value. GST gives you a complete view of SMEs across the country, geography, receipt amounts, turnover ranges, sectors, industries, etc. We built a product called SME DNA which scores an entity based on the underlying GST data. It is a widely used product in banking. It is like an entry criterion for them, just like credit scores or other scores. But ours is not a credit score, it is a behavioural score based on GST data. So that was the first step.

Last year, when we had almost three years of data from various lenders on SMEs applying for credit across the country, we came up with the idea of ​​creating a macroeconomic index, the Sumpoorn.

Why did we decide to create it? Because there was no such data. ET: How is Sumpoorn different from other indices?
SOUTH DAKOTA: Industrial production is measured by a handful of indices such as the Purchasing Managers Index and the Industrial Production Index, among others. But it leaves out a large part of the SME economy because it is not part of the industrial production value chain. Our index is based on actual sales and purchase data across the country. Essentially, it is not based on sentiments, but on data and analysis. It is published every month and there is no charge to access it. Anyone can refer to it to understand the methodology, scoring and tracking. You can register and receive monthly updates. We also have sub-indexes for specific industries or geographies.

ET: What does the Sumpoorn dashboard look like?
SOUTH DAKOTA: It’s a simple scale and it’s like a stock market index. You’ll see a continuous movement up and down. It’s what’s called a high-frequency index because the data is updated on a monthly basis. What you see is the relative contraction and expansion in the SME economy.

For example, if we go back to 2020, we can see that during the first COVID-19 lockdown, economic activity plummeted and there was a big drop in SME activity. Then, we can see that it recovered when the government announced relief measures and credit guarantee schemes. The index recorded the highest value in that quarter, January-February-March, and in particular in March 2021. Then, there were small spikes when the war in Ukraine started and there was a disruption in supply chains. So you can see these small bumps as well.

I think that in the last few months, after the elections, the economy has largely been in an expansionary range. SME activity is in a mild to moderate expansionary range. It is not negative, it is not stagnant, but it is not moving at a rapid pace either.

Also, if you click on the index tab, you will see that every time we publish the index, we also publish expert commentary on it, by economists and academics. If you see the index for the last month, there is a full interpretation of what it means – that there are still challenges in the rural sector, that exports are showing better performance, that there is a policy push from the government… So there is a ready-to-consume expert commentary that accompanies that index, because not everyone may really know how to interpret it or use it.

ET: Who will find such information useful?
SOUTH DAKOTA: This is not actually necessarily valuable for SMEs themselves, but it is immensely valuable for policy makers, government and credit and risk officers within lending institutions. This index is, in a sense, an early signal of the direction the economy in general or specific segments are taking. Bankers can be given orders to fund or withdraw money from certain sectors, because they are seeing this information in real time for the first time.

When you look at the sub-indexes, you can compare Maharashtra with Karnataka, with Gujarat, with Telangana and you can see how the states and MSMEs are performing there and use that for your credit applications, for your policy decisions.

People from the Reserve Bank of India to the Finance Ministry and chief economists at several large banks have subscribed to this index and consume it on a regular basis.

ET: Tell us about your data collection process.
SOUTH DAKOTA: We do not use data from publicly available sources. In fact, this is consent-based data from SMEs seeking credit or taxpayers. They share it with lenders and we work with that. The data is completely anonymous. We do not need to know who are the SMEs contributing in our index. We just need to know that there are 50 SMEs showing their turnover ranges and these are their GST returns. This data is then processed and algorithms are run on it. This is how the index is generated.

To date, there are over 1.5 lakh MSMEs that have been assessed and their data sampled to construct the index.

ET: Are the advantages of digital public infrastructure now becoming apparent?
SOUTH DAKOTA: We made a presentation on how digital public infrastructure benefits the country’s financial inclusion goals. We were invited to participate in 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 on a public good, as part of a delegation from the Indian government.

ET: What new features and subscripts do you plan to bring to Sumpoorn?
SOUTH DAKOTA: The idea is to incorporate more sub-indexes 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 look at Harmonized System of Nomenclature (HSN) levels to understand and compare export data of various products.

ET: Jocata has worked in financial crime. Do you plan to integrate that into your current offering?
SOUTH DAKOTA: Our roots are in that area: financial crime enforcement, which includes fraud, money laundering, transaction monitoring and catching criminals for banks. We’ve been doing that for over a decade.

While Sumpoorn has focused primarily on credit, there is no denying that we cannot create an index that focuses more on financial crimes. For now, we may start creating fraud indexes. We may not make 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 fraud.