'At least 20-25% of MSMEs in Karnataka have shut'

The second wave of Covid-19 dealt a deadly blow to the micro, small and medium-scale industries as they face myriad crises on multiple fronts— labour, finance, raw material supply, bottlenecks in logistics, and spiralling prices among others. Despite ‘Unlock 3.0’ allowing all businesses to restart, thousands of these factories are not in a position to restart, says K B Arasappa, president of the Karnataka Small Scale Industries Association (Kassia), in an interview with Mahesh Kulkarni of DH.

With Unlock 3.0 beginning from Monday, are MSMEs ready to restart their factories?

MSMEs are more than ready and willing to reopen their factories since they have already incurred heavy losses due to the lockdowns since last year and they now have to recoup their losses. The reality is that most, if not all, sectors are ready to restart their activities more out of compulsion.

What are the challenges MSMEs face in restarting their factories?

Getting the migrant workers back to work is a major issue. A majority of the MSMEs hire on an average 5-10 workers and the absence of even a few of them can cause a major dent in productivity. A large number of units (Karnataka has around eight lakh MSMEs) are facing problems such as shortage of workers, lack of working capital, a sharp rise in raw material prices, and delay in payments from large industries. In our estimate, at least 20-25% of MSME units in Karnataka will not restart their factories.

During the lockdown, migrant workers had returned to their villages. How many have returned?

Not all. About 60% of the workers have returned, while the remaining perhaps are reluctant due to the fears over a potential third Covid wave. Going by available reports it would be fair to assume that about some 25% of them may not return at all.

Industries have expressed concern over the power tariff hike.

It is by far the worst time to think of a hike in tariff, considering that the MSMEs are facing extinction under a prolonged pressure of economic slowdown, followed by the first and second wave of Covid-19 and now a potential third wave. We have urged the government to rethink (and put off) the hike for at least 12 to 18 months.

How is your working capital situation?

The MSMEs have generally been working under working capital constraints, but this time, the government has indeed come to the aid of MSMEs through various schemes like the Emergency Credit Line Guarantee Scheme (ECLGS). While the nationalised banks have been, by and large, implementing the scheme, some of the private banks are reluctant to increase their lending to MSMEs, which is defeating the intentions of the government.

How are MSMEs in Karnataka benefitting from these schemes?

The various reliefs and concessions announced for MSME by the government on account of Covid-19 have not fully reached the small industries sector due to implementation bottlenecks. As per feedback received by MSMEs in the state, around 40% of micro and small-scale industries have been left in the lurch, and the ‘Atmanirbhar Bharat’ stimulus package 3.0 has had limited impact at the ground level due to improper implementation.

Though the stimulus packages have green-signalled banks to grant automatic collateral-free loans to industries, in many cases bankers are demanding security for loans under the package. We have repeatedly sought extension of NPA norms from 90 days to 180 days but this is yet to be considered. Given the devastating second wave and a potential third wave, we feel that NPA norms must be pegged at 180 days permanently, or at least until such time that the MSME sector and the economy return to normal.

What are your major demands from the government?

To motivate employees to return to their factories, we would like the government to take up free vaccination of all workers hired by MSMEs. Moreover, we want the government to provide us working capital loans at a concessional rate of interest not exceeding 6%, with repayment of three years, a moratorium of at least six months for existing loans, and deferment of property tax payments. These measures will help a large number of MSMEs which operate out of rented premises and are constantly in need of working capital loans. It will also help them to procure raw materials immediately.

What is the situation on availability of raw materials? Have prices gone up?

Supply chain disruptions continue to play havoc, with transport not fully operational across the state. The prices of a majority of the raw materials have risen sharply in the last year, whereas consumers are not willing to accept the rise in the prices of finished goods. For example, the prices of mild steel (MS) have gone up by 25-58% for different grades— to about Rs 95 per kg, while copper (8 mm rod) prices are up 76% to Rs 765 per kg. Similarly, prices of brass and aluminium are up by 20% and 44% to Rs 480 and Rs 72 per kg respectively over the last year. In addition to this, the power tariff has gone up twice in less than a year, and the daily increase in diesel prices has left small industries in deep distress.