In the wake of the coronavirus pandemic and ongoing lockdown, the fate of India’s MSME sector hangs in balance.
The most enduring image of the Coronavirus pandemic and ensuing lockdown in India is likely to be that of hundreds of migrant workers – desperate droves of scruffy men, women, and children – dotting the country’s highways as they set off for their homes on foot notwithstanding the scorching April heat or their ill-preparedness for the rigors of the journey ahead. It has almost been like witnessing a reverse replay of the Dust Bowl Exodus in the United States when, in the midst of the Great Depression, severe dust storms and drought caused millions to migrate to cities in search of work and livelihood.
This searing image, while being a shameful reminder of the state’s failure in extending help to India’s most vulnerable, is a telling indicator of the dwindling fortunes of the MSME (micro, small and medium enterprises) sector, which provides a livelihood to an overwhelming majority of the migrant workers who chose to flee our cities under lockdown. As the lockdown approaches its sixth week, the Indian Government – except a few desultory announcements – is yet to launch a concrete plan for rescuing the country’s 63 million MSME units, whose fate continues to hang in the balance.
The Lifeblood of the Indian Economy
MSMEs contribute 30 percent to the country’s GDP, account for nearly half of its exports, and provide employment to over 100 million people. It is scarcely an overstatement that MSMEs are the lifeblood of the Indian economy. The fate of countless migrant workers is inextricably entwined with that of the MSMEs. Their mass departure from cities, therefore, signals the decline of the MSMEs, severely debilitated as they are by the lockdown clamped on account of COVID-19.
MSMEs contribute 30 percent to India’s GDP, account for nearly half of its exports, and provide employment to over 100 million people.
Notwithstanding their importance, MSMEs have been the worst affected because they simply lack the kind of buffers that large blue-chip companies have. Without revenues or government support, the future – beyond the month of May – for most small and medium enterprises is at best, nebulous, and at worst, dismally dark.
Indolence of the Ruling Dispensation
The picture would perhaps not be this bleak had there been timely, effective government intervention. It must be noted that the fiscal package of Rs 1.7 lakh crore announced by Finance Minister Nirmala Sitharaman wasn’t meant exclusively for small & medium industries. No pecuniary measures were enunciated to address the needs of small & medium industries either.
Watch: MSME Minister Nitin Gadkari on impact of lockdown on India’s MSMEs
More recently, union MSME minister Nitin Gadkari spoke of the government working to set up a dedicated fund of Rs 1 lakh crore for MSMEs. However, this too is yet to be finalized. The proposal to guarantee loans, up to 100 percent, given to MSMEs by financial institutions may lead national credit to flow into MSMEs, but the details of the scheme are yet to take shape. To sum up, all plans and schemes to resuscitate India’s MSMEs are shrouded in ambiguity and uncertainty amid the lockdown. Needless to say, the indolence of the ruling dispensation at this critical hour is costing the sector, already teetering on the edge, dear.
Foreseeing Challenges of a Post-Lockdown Situation & Beyond
The imperiled MSMEs by the lockdown portend a collapse of the larger economy of India unless measures are taken without further tardiness. It must be noted that while most small industries have been forced to shut down operations due to the lockdown, nearly all MSMEs would find themselves beleaguered by a host of problems even after the lockdown is lifted including plummeting demand, blocked channels of export, labor unavailability, a liquidity crunch, and a disrupted supply chain.
While many of these problems are dependent on global factors and would only subside over time, vital steps that could breathe life into the moribund sector at this hour include extending wage support to enable employers to retain employees, deferring or partially waiving payment of utility bills including commercial electricity, water, and property taxes, facilitating access to credit by announcing a moratorium of at least six months on loans without accrual of interest in addition to providing credit guarantees on loans, an increase in working capital loans to start-ups, extending the moratorium on government payments such as statutory levies (GST, PF, and ESI) to six months or more, and refunds on GST, TDS that have already been paid, among others. Several companies are also waiting for substantial income tax refunds from the government which will be vital money in keeping businesses afloat.
Watch: Former Finance Minister P Chidambaram talks about the situation of India’s MSMEs during the lockdown
Policy-makers must also devise measures that are aimed at making smaller units more resilient in withstanding an onslaught of such severity. These measures include conducting a regular MSME census (the last MSME census was conducted in 2006-07) and setting up an MSME database to enable efficient relief delivery and easier access to credit for companies that need it most. It is also time fintech firms – digital lending platforms – were given more leeway in the lending landscape for MSMEs. Using advanced analytics tools for assessing the creditworthiness of micro and small businesses, these platforms, unlike traditional financial institutions, are able to make safer and faster lending decisions.
Policy-makers must devise measures aimed at making smaller units more resilient in withstanding an onslaught of such severity.
The only solace the Coronavirus pandemic has brought to any government in the world is the knowledge that it isn’t alone in fighting the apparently invincible behemoth. As policymakers the world over struggle to haul firms & businesses out of the COVID-19 quagmire, the Indian Government would do well to take its cue from other nations. The German Government has unveiled a €40 billion rescue package for freelancers and small businesses that employ up to 10 persons.
The UK has pledged an extra £617 million in grants to small floundering businesses, in addition to payouts of up to £10,000. Canada is providing a 75 percent wage subsidy to employers for up to 3 months. Banks and regulators in China have allowed borrowers to defer their loan payments. Even Brazil, whose President Bolsonaro has been notoriously dismissive of the hazards posed by the Coronavirus pandemic, has announced a multi-billion-dollar stimulus package, which includes a 70 percent wage subsidy.
The Genghis Khan of Maladies
As the deadly Coronavirus continues to gnaw away at our fragile health infrastructure, economy, and public life in general, one cannot help but liken it to the scourge of Genghis Khan, the medieval Mongol warrior-king, who rampaged through swathes of Middle East, Central Asia, China, and Eastern Europe, vanquishing, murdering, plundering, uprooting civilizations, razing cities to the ground. The analogy may be far-fetched, but the grimness of a post-Genghis Khan world and a post-COVID 19 world is strikingly similar.
How successfully India’s economy is able to weather the effects of this cataclysmic pandemic will vastly depend on how early the MSMEs are resurrected after lockdown and the dangers that threaten to cripple them are annihilated. Otherwise, all that will remain is an emaciated economy and the chimera of it becoming a $5 trillion juggernaut.
Contributions by Nandini Sen