01/09/2020

The Struggles of Indian MSMEs During Covid-19

By Anitej Singh Grewal & Arjun Lahkar

MSMEs (Micro, Small & Medium Enterprises) in India generally have a difficult existence. No matter what sector they belong to, Indian MSMEs find it difficult to follow through with plans for expansion especially since loans are difficult to come by as opposed to how large banks facilitate extensive credit for large companies, and even the profit margins of MSMEs are smaller. Now the Covid-19 crisis has made their situation all the more dire. Mere survival has become the goal of most small businesses in India, especially with the disruptions that they face due to multiple lockdowns in every part of the country. The future has become very uncertain for small and medium sized businesses - as uncertain as the end of the Covid-19 pandemic continues to remain for the year 2020.

According to the data provided in the Annual Report (2018-19) of the Indian Ministry of Micro, Small & Medium Enterprises, there are roughly 6.34 crore MSMEs in the country. 51% of these are located in rural areas and provide employment to close to 11 crore Indians. However, it is interesting to note that 55% of employment actually happens through Urban MSMEs. As one can surmise, the latter are the most severely affected due to the ongoing lockdowns in most Indian cities and the consequent disruption to business operations.

In general, the sectors that are faring the worst during the pandemic include construction and real estate, gems and jewelry, textile among several others. Meanwhile, the Government is launching various schemes to strengthen small companies. For example, the change in the definition of turnover (medium companies have revived upward from Rs.5 crore turnover to Rs. 250 crores). As a result, it makes it easier for small companies to get working capital loans. 

A good example is the Joy Alukkas Jewellers outlet located on MG Road in Kochi, Kerala. The manager of this outlet is worried as the fine and once popular jewelry products of the franchise (the Joy Alukkas chain has outlets in the Middle East) have seen very few customers over the last 4 months. The business has naturally come to a standstill, since no marriages or religious functions of any kind are allowed to take place in the state of Kerala at this point. Even if marriage functions are allowed to take place, curbs imposed by the Kerala state government include limitations on the maximum number of people who are allowed to gather during the ceremony. Such measures have seen most people postpone their plans for a wedding by a year or more. Meanwhile, retail demand is under pressure due to the rise in gold prices. Now that budgets have tightened in general, the once insatiable demand for jewelry in Kerala has now fallen drastically. 

The central government is cognizant of this crisis, as evidenced by the numerous measures that they have taken over the past several months. Most recently, the NCGTC (National Credit Guarantee Trustee Company Ltd.) under the Ministry of Finance expanded the scope of their Emergency Credit Line Guarantee Scheme to include individual loans given for business purposes, increase in the upper ceiling of outstanding loans for being eligible under the Scheme (from 25 crore to 50 crore) and an increase in the annual turnover ceiling for being eligible under the Scheme (from 100 crore to 250 crore). These are backed by a revised definition of MSMEs issued by the Reserve Bank of India which aims to be more inclusive of all such enterprises in order to ensure that maximum companies are able to avail of the benefits mentioned above.

It is a well documented fact that small businesses are the backbone for the middle-class and lower class sections of the Indian populace. The opportunities they provide in terms of employment and income for these sections of the population are enormous. The struggle of small companies during the pandemic will exacerbate the supply side of the value chain in India, in turn aggravating the downfall of the Indian economy and serving as a major roadblock for its recovery. It is vital that the struggles of the MSMEs during the pandemic are taken seriously into account so that the Indian economy’s recovery - slow as it will be once the pandemic is over - doesn’t become all the more slower.