COVID-19 wreaks havoc on MSME revival

COVID-19 wreaks havoc on MSME revival

Representative image.

Just when micro, small and medium enterprises (MSMEs) were slowly limping to normalcy from losses incurred due to the economic slowdown, the coronavirus pandemic came as a bolt from the blue.

Often described as the “backbone of the Indian economy”, MSMEs are literally on their knees due to the more than 1-month long COVID-19 lockdown with entrepreneurs struggling to even pay their employees’ salary for April.

Tamil Nadu, which is home to more than 8.5 lakh MSMEs employing more than 12 million people, has not allowed many industries to operate even after the Centre relaxed norms. Government data says that 20.13 lakh entrepreneurs have registered/filed Udyog Aadhaar Memorandum (UAM) with a total investment of Rs 2,23,783.75 crore as on March 31.

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MSMEs were the worst-affected due to the twin blows of demonetisation and GST. They had to bear the burden of the economic slowdown as the situation began to show some improvement, COVID-19 stuck.

This has, in essence, meant that from textiles to automobiles to knitwear to fireworks to engineering industries – the engines that fuel Tamil Nadu’s vibrant economy are in crisis. Though a few knitwear and textile units upped their shutters to manufacture protective medical gears, the money they make now will not be enough to make up for the losses.

Entrepreneurs say it will be problems galore for them even if the factories are opened post-May 3 when the second phase of the lockdown ends as they fear an exodus of migrant labourers to their home towns and liquidity crunch as most of them have drained all their resources to stay afloat.

MSMEs want the government to pump in funds

Though the MSMEs are confident of grabbing business opportunities that are expected to move out of China soon, they want the Union Government to step in immediately and help the industry survive by pumping in Rs 10 lakh crore in the form of bank loans.

“It is the right time for the government to intervene and save the industry. If not now, the MSMEs will not be able to survive. We expect more opportunities from abroad after the COVID-19 storm ends, but the government should support us till the time we stand up and walk straight,” R Ramamurthy, President of the influential Coimbatore District Small Industries Association (CODISSIA), told DH.

The loans, MSMEs say, should be disbursed by banks across the country with an interest of 6% and the payback period of up to 10 years which will lessen the financial burden of the companies.

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C Babu of the Tamil Nadu Small and Tiny Industries Association (TANSTIA) echoes Ramamurthy’s views, saying the MSMEs are only asking the government to be liberal in granting loans and extend the payback period, without asking for concessions.

“We need to survive for the good of the country. MSMEs in Tamil Nadu alone employ more than 1.2 crore people and what will they do if we all close down. The government should consider our plight and ask banks to give loans. If the payment period is of 10 years, the amount that we pay every month will be less. We won’t even feel the burden and think about losses,” Babu said.

‘Expected more from TN Govt’ & Labour shortage

However, K E Raghunathan, past president of All India Manufacturers’ Organisation (AIMO), felt that the government in Tamil Nadu, which accounts for 18% of MSMEs in the country, could have been more “pro-active” in lifting the spirits of MSMEs by opening up a few existing industrial estates and sealing them.

“The industrial estates are located away from the city normally. Some industries could have been allowed to work from these estates and get their labourers to stay there. The government could have easily set up makeshift arrangements for labourers to stay inside the estate. Saving industries is also the responsibility of the government,” Raghunathan said.

Explaining the problems of the MSMEs, he said more than 80% of the companies will not be able to pay salaries for the month of April due to liquidity crunch.

“The employers are also suffering. March to July is the peak season for the solar industry and the losses cannot be calculated now. Already two months of the peak season is gone, and I do not know when we will attain normalcy,” he said.

Babu says the shortage of labour would be an issue that MSMEs are likely to face after the lockdown ends. “We really don’t know how to handle the issue. We have a sizeable number of labourers from North India who are waiting for train services to resume. If they leave, we will have a shortage. The shortage means less production which in turn would lead to more losses,” he said.

Turning an obstacle into an opportunity

Ramamurthy said COVID-19 was the last straw for the already struggling MSMEs as most of them expected to come out of the slowdown losses by June this year.

“We were hoping that things will get normal by mid-2020. But everything has gone for a toss. This is the time for financial institutions to come forward and help MSMEs in tiding over the current crisis. By infusing funds through bank loans, the government is only making an investment. It will get the returns as we make good business,” he said.

The CODISSIA president said the government should instruct financial institutions to give 25% of working capital as loans to companies to tide over the crisis spawned by COVID-19 prevention efforts.

“We already see a bright future for MSMEs in the country. If we stand now courtesy government and banks, we will be contributing to the economy much more than we do now in about a few years,” he said.

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