MSMEs AND COVID-19
Micro, small and medium enterprises are generally referred to as MSME. MSME India is providing employment and enabling entrepreneurs to innovate and contribute towards inclusive societal development by favouring jugaad – with limited resources to service the bottom of the pyramid. The number of MSMEs in India is 63 million that employs 110 million individuals, the next largest after agriculture. Indian MSMEs is estimated to produce more than 6,000 products for both local and global consumption. According to DGCIS data, MSMEs are exposed to higher level of integration with global value and supply chains and are playing a critical role in global trade systems. MSME sector has contributed to 29% to overall GDP for the year 2019. Coimbatore houses around 50,000 plus units in the MSME sector in the clusters of pump and motors, Foundries, Wet grinders, Gold Jewellery, Electronic products etc.
Survey reports have shown that disruptions caused by the Covid-19 pandemic have impacted MSMEs earnings by 20-50%, with micro and small enterprises facing the maximum heat, mainly due to liquidity crunch. Enterprises working in essential commodity business were better off in terms of interrupted but predictable cash flows. (TOI Sep 23, 2020).
The Covid-19 is the most significant economic crisis that has occurred during our lifetime. This Pandemic has brought our social and economic life to a standstill for nearly a year. 2020 is to be etched in our memories with experiences as never before where schools and colleges were left without reopening days, no transportation of any kind be it road, rail and air, government in full gear to provide essentials only etc. Covid 19 has impacted and continues to impact nations and citizens alike. Small units and big enterprises or MSME were no exception.
The crisis has brought many an opportunity and a challenge to the fore. Many proactive MSME opportunity seekers broadened their horizons and entered into new areas of business. Some businesses transformed and transcended with new business models paving new learnings, while a few were in a state of shock not finding an enabler and eventually closed the shutters. The multitutde of emerging cases provide the academic mind with stories to research, dissect and create new postulates.
Across sectors MSMEs faced problems during the pandemic some of them were common for all. Stoppage of operations halted the entire system, the machinery, the plant its maintenance and upkeep, total supply chain was out of gear. Health and safety were realised to be the only and foremost priority for the firms and for the public in general. People or labour were the most affected: at a personal level they had to deal with health and layoffs out of employment and means to livelihood, but on the other hand for the firm they had to deal with displaced migrant labourers, food and shelter needed to be provided for those who chose to stay back and many labourers left the place to their native, never to return. As the restrictions and lockdown was being released the firms were limping to restart operations and had to face labour shortage, lack of availability of labour was one thing and raw labour and lack of training added to the woes for MSMEs. There was a silver lining awaiting most resilient firms in the form of increase in orders. Many individual units across sectors saw a surge in orders tickling in where there was a digital platform available and most feeder firms were up in demand to supply. The MSMEs have reported supply chain chaos, followed by financial crunch as major problems during the pandemic. On the contrary the corporate sector has made bumper profits for the quarter September 2020. This is attributed due to low spend on inputs when compared to sales noticeably both expenses and sales declined during June the lockdown quarter. The corporate sector could reap bumper profits as the expenses fell sharply in comparison to sales.
The government of the day had brought in schemes to support MSME’s during the pandemic and among them most MSMEs used the moratorium scheme for loans and almost all of them used the waiver given for PF and ESI. The Pandemic has brought in a new realisation that the employees need to be insured even at the MSME level. It has also enabled new work models on online platforms and for once flexi working and work from home were considered as options to explore at the MSME level too. However, we need to await some more research of MSME units and its strategies during the pandemic to fully understand the colours painted by the pandemic on the MSME canvas.
Now, with the revised definition, combining manufacturing and service MSMEs to enjoy same benefits, investment less than Rs 1 crore and turnover under Rs 5 crore will be defined as micro-units while small businesses will be categorized based on investment less than Rs 10 crore and turnover under Rs 50 crore. Medium enterprises will be defined on the basis of investment under Rs 20 crore and turnover less than Rs 100 crore.
It is very satisfying to know that guarantee free and collateral free loans amounting to total Rs. 3.00 Lakh crores have been announced. It is also good that there will be a moratorium of 12 months on payment of Principal. It is expected that about 45 lakh units can take benefit and resume business activity and safeguard the employment of people. (II) As per the recommendations of the Reserve Bank of India and U.K. Sinha Committee, we had recommended setting up of a Sub-ordinate Debt Fund, with partial guarantee support. It is heartening that Government has announced making a provision of Rs.20000 crores and to provide a support of Rs. 4000 crores for this purpose. (III) Again, it is very satisfying that our demand for setting up Fund of Funds has been accepted and it is announced that Rs.10000 crore fund would be set up. We can leverage the fund for infusion of Rs.50000 crores through the market in the model of “Mother and Daughter Funds”. (IV) The matter of changing the definition of MSMEs upwardly has been hanging since few years. We had prepared a proposal in this regard. We are happy that the same has been accepted as a part of the Package. This will help the MSME Sector to grow. Basically, low threshold was being a dampner for an urge to grow. (V) One of the most important interventions as part of the announced Package is to say that in Government procurement, there would be no global tendering upto Rs. 200 crores. This will, help the domestic companies in general and on the other hand it will also help the MSMEs of the country in particular. These units are not able to withstand the pressure of undue competition from Companies of other countries. (VI) In the present circumstances, physical trade fairs and exhibitions would be difficult. The announcement to promote e marketing linkage would go a long way in helping the MSME Sector. (VII) Another important intervention is making it mandatory for the Departments of Government of India and the CPSEs to pay the receivables to MSMEs within the next 45 days. This will greatly help easing the situation of working capital of the MSMEs. (VIII) The announcements that TDS and TCS will be reduced by 25% and that all refunds to entities including Proprietorship, Partnership firms and LLP etc. would be issued immediately, will also help the liquidity situation of MSMEs. (IX) Similarly, the extension in the compliance date of various income-tax related deadlines is also very satisfying. The small units will now have a peace of mind and will focus on work and productivity for the next few months.