Tradeindia's official blog for business tips and SMEs Insights

MSMEs – The Way Forward in The Shadow of COVID-19

The CoronaVirus or COVID-19 pandemic has severely affected businesses, consumers and communities across the globe. In India, where small businesses were already struggling before the crisis began suffered the most after a lockdown was announced in the country in March end. The businesses came to a complete halt, with millions of job-losses reported from every sector and a complete shutdown of economic activity plunged the economy deeper into crisis.

Liquidity crunch, disrupted demand-supply chain, manpower shortage, unavailability of raw material, tax burdens, unfulfilled orders, delayed payments added to the woes of MSMEs, often called as the backbone of Indian economy. 

MSMEs that contribute to almost 30 per cent of the India’s GDP, 48 per cent to the merchandise exports and about 45 per cent to the total manufacturing output besides been the second largest employment generator in India after agriculture often faced financial stress and challenges when it comes to getting credit from banks that charge higher interest rates, ask for additional collateral requirements, delay payments and take additional charges on bank guarantees among other things.

The clamour for financial support for MSMEs that started as soon as the first lockdown was announced in March prompted the government to act and and bail-out the distressed businesses and announced slew of measures to revive the Indian economy.

covid and msmes

In April, the RBI to ease liquidity crunch, announced targeted long-term repo operation (TLTRO) of Rs 50,000 crore so that small and medium-sized non-banking finance companies (NBFCs) and micro-finance institutions (MFIs) can better facilitate lending to the sector.

Further to above measures taken by the RBI, the Indian government also announced a 20 lakh crore stimulus package, close to 10% of the GDP, labelled as “Atmanirbhar Bharat Abhiyan” and aimed at building a self-reliant India on 12th May, 2020. The package aims to cater to businesses of all sizes, migrant workers, street vendors, middle class, cottage industry, real-estate and power sector. 

The economic stimulus announced is termed as a ‘game-changer’ by many industry experts and business owners with some of the opinion that measures announced will help India become self-reliant, will make MSMEs come out stronger from the current crisis and make India a manufacturing hub in the times to come. 

Many others are still skeptical and say that ground realities are very different. They call for faster implementation so that benefits can be availed.

Even after the schemes were announced, many banks have still not received any notification from the government and are unaware about the schemes and we are unable to procure loans or get our queries addressed, said one MSME owner. 

The details of the announcement made for MSMEs in the stimulus package are as under:

  1. 3 lakh crore collateral free business loans, including for MSMEs –
  2. Rs. 20,000 crore Sub-ordinate debt for MSMEs.
  3. Rs 50,000 crore equity infusion for MSMEs through Fund of Funds that will help to expand MSME in size as well as capacity.
  4. Global tenders will be banned for government procurement up to Rs 200 crore. This will help Indian MSMEs bid for government tenders without facing unfair competition from foreign companies. and will be a step towards making India self-reliant.
  5. e-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days.
  6. Definition of MSME has been changed and this will help the MSME sector to grow and emerge as a vibrant and dynamic sector, contributing to self-reliance and employment in a big way.

The government stimulus for the sector is no doubt a shot in the arm for struggling MSMEs. Having said that,  the coming days will determine how the sector is able to take advantage of these measures.  In the current situation which doesn’t look like improving very soon,  organisations have to look for ways and means to make adjustments in their operations to remain profitable. In our view,  a heightened use of various online tools and services will be the only way out. This is going to be the new normal and faster MSMEs realize that,  better it will be for them to beat the ill effects of the Coronavirus pandemic and to take their businesses to new heights.

Tags: , , , ,


If you enjoyed this article, subscribe now to receive more just like it.

Post a Comment

Your email address will not be published. Required fields are marked *

Tradeindia's Official Blog for Business Tips and SMEs Insights

© 2022 All rights reserved.