COVID 19 EFFECT AND RECOVERY: THE MSMEs PERSPECTIVE
MSMEs are one of the prime drivers behind the growth of the Indian Economy. In terms of employment generation, the MSME sector stands second after agriculture and acts as a base ground for entrepreneurs and innovators along with significant support in strengthening the business ecosystem. The sector’s service, manufacturing, packaging, infrastructure, food processing, IT, and chemicals industry has been the most vibrant and dynamic source behind the growth of the Indian Economy. In recent years, the growth rate of the MSME sector has been higher as compared to the industrial sector. This sector, along with creating employment contributes to regional development by creating an industrial environment in remote areas.
According to the data released on May 16, 2021, by the MSME Ministry, there are approximately 6.3 crore MSMEs in India which contribute approximately 29% of the country’s GDP by its nation and worldwide trade. The sector accounts for nearly 50 percent of the country’s exports. As per the national sample survey’s 73rd Round (2015-16), the MSME sector has offered around 11.10 crore jobs out of which 3.9 crore have been in trade, 3.6 crore have been in the manufacturing sector, and 3.7 crores in further services. After kind consideration of the mentioned facts and figures, it is quite unstated that for achieving the target of being a $5 trillion economy by 2025, the growth of MSMEs is crucial for India.
The Covid-19 hit to MSMEs
The Covid-19 pandemic has been disastrous not only for humans but has also affected all sectors of the economy severely, but nowhere is the hurt as much as in the Medium, Small, and Micro Enterprises (MSMEs) of India. According to all the anecdotal pieces of evidence available, like the hundreds of thousands of stuck migrant workers across the country, told that MSMEs have been the worst hit of Covid-19 induced lockdown. Just like the first relief package, that is the PM Garib Kalyan Yojana, which was announced by the government on March 26, 2020, the second package, too, would primarily focus on the MSME sector.
Because of its scale of business and availability of financial resources, this sector has been one of the most vulnerably hit sectors of the pandemic. Approximately 95% of firms got destructed because of the nationwide lockdown imposed in April 2020 and 70% of businesses remained to be disrupted until August 2020. Indeed, even after progressive normalizing, reports recommended that almost 40% of organizations stayed interrupted till the end of February 2021. The three main hindrances faced by MSMEs were market access, overall productivity, and gaining access to additional funds. The average 11% decrease in business volume of Indian MSMEs has been recorded on account of lockdown in 2021 in contrast with a 46% downfall during cross-country lockdown in the year 2020.
The clothing manufacturing units of the export area acknowledged losses of over 150 crores INR from March 2020 to May 2020. The loss of India’s leather ventures has been valued to be Rs. 11,210 crores in the worldwide market. All India Manufacturers Organization’s study on MSME stated that the independently employed MSME units, predominantly 35% of MSMEs area, had no extent of recovery for their organizations and had proactively started wrapping up their units.
The May 2020 survey of MSMEs prepared by the ILO’s SCORE program shows that despite the fact that SCORE Training has permitted them to work on their efficiency and guarantee better possibilities of endurance by turning out to be more competitive, nothing might have set them up for the hard-hit they got from the COVID-19 pandemic. The effect on business continuity, workforce, incomes, and security has been devastating. It is hence that on June 27, MSME Day, we center around their necessities and how to help them.
Lower Revenues: Over 75% of SMEs have encountered a decrease in incomes through 2020. 33% of organizations lost the greater part of their incomes — and the circumstance wasn’t supposed to improve, as per the business visionaries overviewed.
Reduced Demand and Cash Flow Shortages: With 75% of organizations experiencing decreased requests and 33% encountering an over half drop in client orders, the demand reduced and although those surveyed expect demand to recover through the remaining of 2020, the larger part actually expects a decrease between 25% and 50%. These were the very nations that were the most uncritical about revenues. The situation was critical for SMEs and turned out to be much more so while seeing the income cash flow. Almost 9 out of 10 ventures encountered a shortage in income.
There is a report on ‘Impact of Covid-19 Pandemic on MSME Sector and mitigation strategy adopted to counter it’ released on July 27, 2021, by The Standing Committee on Industry, Chaired by Dr. K Keshava Rao which stated certain recommendations of the Committee which included:
Lockdown Hit: The Committee, after observing large number of unemployment and a decline in the routine income of households significantly during the lockdown period, found that no thorough study had been conducted by the MSME Ministry to find out the actual loss faced by the sector. It rather recommended the authorities to lead a definite report to evaluate the actual losses that were incurred, think about another National Employment Policy, investigate the accessibility of a National Electronic Employment Exchange, and form a skill-based data set of job seekers for work coordination.
Incentive Package: The Committee saw that the stimulus package reported by the government for MSMEs was lacking. It was to a greater extent a credit offering long haul arrangement as opposed to giving immediate help by further improving incomes.
Emergency Credit Line Guarantee Scheme (ECLGS): ECLGS was launched under the Atmanirbhar Bharat Abhiyaan in 2020 to help MSMEs in gathering their functional liabilities and restart their organizations. The Committee noticed that just around half of the total assurance amount of three lakh crore rupees has been given to MSMEs. That’s what it suggested: (I) banks ought to be more liberal in expanding credit offices and separate counters ought to be opened to solely manage MSMEs, (ii) advantages of the plan ought to be stretched out to little merchants/vendors, and (iii) credit ensure sum ought to be upgraded.
Raw Materials: The Committee noticed the concern for MSMEs in regards to the non-accessibility of raw components at a reasonable cost. That’s what it suggested: (I) reasonable courses of action ought to be made by the national small industries for simple accessibility of raw substances, using a credit basis, (ii) Public Sector Enterprises (PSEs) shouldn’t penalize and boycott MSMEs for wiping out of orders, and (iv) import of all steel materials ought to be permitted at zero import obligation and steel products of iron metal and ought to be banned until further notice.
Along with all these, there were several other points and suggestions that were brought up by the Committee like the dues of MSMEs, the need to encourage import substitution, provide loans at a minimal interest rate, encourage startups, and setting up MSME technology centers. The launch of the UDYAM portal in June 2020 for registration of MSMEs was another mandatory setting by the government for MSMEs to feel better off and enjoy the post-registration benefits which also created awareness among them all.
The MSMEs growing post Covid
Companies responded to the financial fall-out from COVID-19 in multiple ways. A big part of the SMEs overviewed had diminished their production of goods and services to match demand reductions. More than 33% (38%) of SMEs were modifying their wages with laborers or reconsidering installment terms with banks and providers. Less habitually, some SMEs are attempting to enhance their business channels or items to attempt to diminish the impacts of the pandemics on their business. There’s a diversity in responses by the SMEs to the surveys, yet all private companies are joined together in asking to guarantee their sustainability through the pandemic like many would like advice, especially on business progression.
It was obvious from the survey responses that occupational health and safety and business continuity training are essential to helping businesses survive the pandemic. Be that as it may, these services should be complemented by strong government action.
With income being a key concern, organizations need simple access to short-term liquidity, the deferral of utility installments, and the deferral of government-managed retirement commitments. An ILO blog entry as of late recognized basic approaches that can assist independent ventures with enduring COVID-19. These incorporate crisis premium free advances and money awards to help with compensation, preparing, efficiency upgrades, and new items.
The right arrangements are pivotal to guaranteeing SME endurance. Regardless of the critical battles that SMEs face, the public authority’s reaction to the COVID-19 pandemic can assist with supporting a positive, strong, and maintainable future for private ventures all over the planet.
Research Intern at CPRG