MSME sector is bleeding – What is the cure?

The businesses in cities have taken a bad hit due to the pandemic and subsequent lockdown. The COVID-19 has thrown unparalled economic challenges. In India every sector of the economy is bleeding but one of the biggest sufferers is MSME sector

The COVID-19 lockdown has effectively shutdown the small and medium scale businesses based in the cities of India. In a bid to curtail the spread of the novel coronavirus, the nation wide lockdown that got extended for three times saw business owners, outside of essential businesses, out of work for a time period that was initially expected to be end in 21 days. It appears that it would be a long haul for the sector to be back in business with its full potential. All India Manufacturers’ Association (AIMO), recently did a survey to asses the damages of the lockdown. The result of the survey is alarming. It covered 46,525 MSMEs, self-employed, corporate CEOs and employees. The report said that 33 per cent of small businesses and self-employed businessmen stands no chance of recovery. Now, as the Central Government has gone for unlocking and reopening of almost all the businesses even as the cases continue to mount, the big question is how long will it take to for the sector to recover completely. Crores of jobs have been lost because the owners were not able to pay their employees because of no warning while they themselves survived on their savings. Those who lost jobs went back to their villages and home towns and in short run likely to cause a shortage in work force.

Addressing the issue

Sensing the urgency to revive the economy, the Union Government announced an economic package of about 20 lakh crores, allocating a substantial amount to MSME sector. Prime Minister Narendra Modi while addressing the importance of reviving the MSMEs and hence, the economy under their Aatma Nirbhar Bharat Abhiyan, took to the twitter. He tweeted “To give impetus to the self-reliant India campaign, we have not only changed the definition of MSMEs sector, but have also approved several proposals to revive it. This will benefit the small and medium scale industries, as well as create huge employment opportunities.” The important thing is that out of the20 lakh crores, only 3 lakh crores have been announced for the MSMEs to tide over their financial issues post extended lockdown.. Moreover, Nitin Gadkari, Union Minister of MSME, said after the package was announced that, “State governments, their ministries and public sector undertakings, Government of India, its ministries and undertakings, and major industries combined owe an estimated5 lakh crore to MSMEs, money that is stuck and not cleared,”

The response of the sector towards the package has not been positive. Approximately 78 per cent of the MSMes that were surveyed under AIMO’s study were not satisfied with the economic relief package

The response of the sector towards the package has not been positive. Approximately 78 per cent of the MSMEs that were surveyed under AIMO’s study were not satisfied with the financial package. The general expectation was that the government would provide an alternative financial mechanism rather than just loans, and provide them a wage stimulus for their workers, AIMO said. It said financial package worth around `3.5 trillion announced by the union government in May was a good amount Even though the amount is great, the general consensus is that it has not percolated down to beneficiaries faster and it may not benefit 85 per cent constituents of the sector. Further, the survey highlighted that 78 per cent of the small companies’ owners were just not satisfied with the package’s implementation, whereas 80 per cent of self employed traders in the sector were not happy either.
But some economists think that things does not look as grim as it is being made out to be., Dr Anil Kumar, associate professor at Sri Ram College of Commerce believes that a V-shape recovery can be expected for the Indian economy, predicting that the demand may shoot up around the festive season. Dr Kumar says “, the businesses have been unlockeded just recently after the prolonged inactivity. The major issue is that even though the businesses have reopened, people are a little hesitant to get back into the markets, as the pandemic is yet to subside. Moreover, people employed by the small businessmen won’t be coming soon. Even if they do, it has been made mandatory that businesses are to resume at 20 per cent, 30 per cent or 50 per cent staff in the near future. Along with this, they have to follow Standard Operating Procedures (SOP), which make sanitisation. So maybe that once we reopened, the people will gain confidence that, if they take precautions and all things that have been prescribed, they can work along with COVID-19. So maybe very soon, in around 2 months, people will discover and realise that they win over corona through community togetherness, action and mass precautions only. The government may not have much of a role to play.”
Crisil Research, a prominent survey and analysis group has suggested that Micro, small and medium enterprises in India are expected to see a 21% decline in revenue. This is largely because of the sharp fall in demand as people are still hesitant to come out and go to market fearing a big crowd and physical distancing norms not being followed.
Another factor that is heavily weighing on the minds of the people is that unlocking has made the matter worse and the country is breaking its own record everyday so far as corona positive cases are concerned. Dr Kumar explains the phenomenon and says “Demand is still there and I am of the opinion that people have just postponed their requirements that are not necessary at the moment. For example, marriages are stopped. So, once the festival season comes in the month of October, marriages and other ceremonies are likely to resume and hence, demand of certain operations will be there. By the time of Diwali, I think we will be back on track and would be able to resume full-normalised operations”. He also underlines that migrant laborers will come back to the cities and short fall in workforce would be bridged. Dr Kumar adds, “Talking about the migrant laborers who have moved back on June 9, a landmark decision has been given by the Supreme Court that those who want to return to their work place, state governments would be providing proper arrangement for their safe travel . Thus, this will ensure the labor’s movement back to the cities because, ultimately, they need employment. Incase, they fail to get that in their villages, small towns, etc., they will have no other alternative than to return provided that they are given some kind of assurance that how they will live with corona also. The time will come in about maximum 4-5 months when things may get normalised.”
Meanwhile, a vital sector like MSME, with the help of the government, needs to sort out its difficulties, be it financial or that of the workforce and start contributing to the economy which every credit rating agency and even government owned institutions have predicted is heading towards
negative growth.