Anushruti Singh
The coronavirus outbreak has put businesses across sectors in the riskiest zone – especially the MSMEs (micro, small and medium enterprises). The backbone of India’s economy is the hardest hit – where their survival is in question. Disruptions in cash-flows, wage bills and payments, inventory management are some of the major challenges that the MSME sector is facing currently because either they are reliant on a single geography or a single supplier for key products.
As per the Confederation of Indian Industry (CII), the time to bounce back will depend on several factors. Services sector may bounce back in a month or two, but the manufacturing sector will take 6-12 months to come back – only if the MSME has been a sustainable or profitable unit. Another related concern is the location of the units of the buyer and the supplier in different states, which may cause significant losses for the manufacturing and the supplying units.
Engineering Export Promotion Council of India, an apex trade body suggests that labour-intensive SMEs, which employ over a 100 million of India’s urban population, need immediate fiscal relief and credit flow to keep their workforce and essential plant and machinery running.
“The need of the hour is to take appropriate measures to mitigate the economic and business impact of the present pandemic,” M. Srinivas Rao, CEO, Global Alliance for Mass Entrepreneurship (GAME) tells SME Futures.com. In an one-to-one conversation, Rao shares his thoughts on what the current lockdown means for small businesses and what can be done.
Excerpts:
What are the major challenges that MSMEs are going through in the current scenario?
The biggest challenge for small businesses at this point is the uncertainty of anything – even as small businesses are grappling with survival issues, having no specific timeline to work with, has compounded the problem. The extent of the damage and impact to the supply-chain networks is also unknown. Majority micro and small businesses do not have the luxury to work from home due to the nature of their work.
Another issue is the complete shut-down of transportation, that has resulted into a broken supply chain. Shrinking stocks and a limited or a lack of procurement options because of the lockdown means an imminent closure of their businesses. Many of these businesses also work on a monthly cash-flow cycle and do not necessarily have enough saved for a “rainy day”- this has implications on not just their livelihood but also on the people they employ.
Estimates indicate 30-60 per cent MSMEs will get wiped out in India, if the current situation extends for 8-12 weeks. This in the context of an already existing situation of the highest job shortage in history. Given that MSMEs are the second largest job providers, after agriculture, the implications are dire.
Further, out of jobs immigrant labourers returning to villages pose a huge danger in carrying the virus with them, which in turn can lead to a large number of cases. On the other hand, those remaining in cities remain vulnerable with no necessities.
In villages and small districts, shops – in cultural context – is a place where people gather around, that usually result in sales. With people staying at home, this aggregation has come to a standstill – impacting sales in a big way.
In cities, with the closure of malls, gyms, pubs, restaurants, spas, midnight bazaars and mandis, thousands of small entrepreneurs are facing a complete revenue blackout. Apart from paying salaries and wages, the pressure of statutory dues such as PF, GST, advance tax and running costs – which include the payment of electricity, water and other bills – makes their survival difficult. The EMIs for pending loans from banks or financial institutions will make the situation worse for them.
Beyond the overwhelming economic impact, is the emotional toll that this unprecedented situation is having and will continue to have on an entire ecosystem of small business entrepreneurs.
At the times of global crisis and total lockdown, what steps can MSMEs take on their own to mitigate the challenges?
Small business owners, who can manage, have started servicing their customers at home and are taking orders over the phone. However, this solution will only work till stock lasts. While some businesses are re-thinking ways to incorporate technology to enable work from home, some are trying to raise funds to meet working capital gaps.
Many MSMEs are trying to re-negotiate their repayment terms so that they can buy some more time. However, most small businesses simply do not know what to do.
What are the major relief measures MSMEs are expecting from the government?
The most important step that the government can take at this point is to facilitate an ecosystem required to produce the absolute essentials. This specifically means expediting measures to fix the broken supply chain of certain businesses, which simply must be helped to survive.
Further, there must be payroll subsidies (enabling at least 80 per cent of salaries), moratorium of payments and other economic support – that is need of the hour for small business. The government has already announced extension of the due dates for income-tax and GST compliance; and interest rate applicable on various delayed payments has been lowered to 9 per cent from 12 per cent or 18 per cent, otherwise applicable.
In the agriculture sector, since supply and transport is the bigger challenge, all efforts must be made for the strict and focussed creation of a “green channel” – that was adopted in China for the procurement of fresh produce – that can be extended for supply in smaller districts too.
While all government circulars mention that trade and transport of essential products should not be hampered, there seem to be some unintended consequences of transport bans on the ground – disrupting the supplies. Additionally, the government can also leverage the network of entrepreneurs in villages and towns as a way of providing healthcare services, selling essential household products, and monitoring and sharing real-time on ground information.
The government must come up with relief packages for affected sectors and companies, before the whole ecosystem collapses. The economic package should include a direct cash transfer to workers in the un-organized sector and farmers, regulatory forbearance on NPA classification for companies, moratorium on repayment of MSME loans and housing loans etc.
Nothing we have experienced in our lifetimes has prepared us for a situation like the one we currently face. It, therefore, is imperative that if at all we live to tell the tale, the government should spend whatever it takes, and is necessary.
