The annual report of the Department of Micro, Small and Medium Enterprises (MSMEs) for 2018-19 states that there are 6.34 crore MSMEs (including both services sector and manufacturing sector) in India and they employ around 11 crore people, out of which 55 percent of the employment lies in the urban MSMEs (here it is pertinent to note that 51 percent of the total MSMEs are in rural India).
The services segment of MSMEs contribute about 25 percent to the country's GDP (gross domestic product) and the manufacturing segment contributes to over 33 percent to the GDP. Besides, according to trade experts, this sector accounts for over 45 percent in the country's total outbound shipments.
However, the sad news is, in this Covid-19 situation, the economy is badly hit across all the sectors and the condition of Medium, Small and Micro Enterprises (MSMEs) is worst of all. As per reports in media, many MSME units have been shut down, with no sign of reopening in the near future and there has been huge efflux of migrant labourers from places of employment and those stranded are appealing to their respective Governments to take them back to their home States.
Out of the 66 percent of all MSMEs, the Scheduled Castes own around 12.5 percent, the Scheduled Tribes own around 4.1 percent and Other Backward Classes own around 49.7 percent. From the above data we can also understand the huge social stake involved in this sector of the economy.
As per reports, the relief packages like, the one announced on March 26 under the PM Garib Kalyan Yojana and one to be declared soon, will have a tough time handling the situation, since many MSMEs are not registered anywhere, as they are just too small. At times, it is seen that, lots of the enterprises don’t even come under the GST domain, primarily because they are too small to fall within the fold or cross the GST threshold. either they maintain accounts, nor follow any regulator norms or even pay taxes. This has now worked against these MSME units, for instance, they are apparently invisible and beyond the scope of knowledge of the Government. So it is impossible that any help within the relief network will reach them. Even if, the Government well intends to provide them with something like, wage subsidy or extra credit, it cannot do so, as to do it, they have to be first brought under a well meaning network.
Adding to the above problem is that, MSMEs are already under-financed. If a report by the International Finance Corporation(2018) is to be believed, less than 1/3rd of MSME credit need is supplied by the formal banking system, much less than what it can fund, which means most of the funding comes from informal sources. And this is the reason why efforts to push more liquidity towards the MSMEs like that is done by the Reserve Bank of India probably had very little impact in resurrecting the MSMEs.
At present, the most excruciating part of the entire MSME saga is mainly two-fold. One there is enormous dearth of funds to restart the sector and secondly terrible lack of labour availability owing to the Covid-19 efflux. Besides, according to experts, the plight of the MSMEs prior to the lockdown wasn’t also any good, since the sector was already wrestling to come out of the situation caused by declining revenue and capacity utilisation. What has further worsened the situation is that, the exemplary delay in payments faced by the MSMEs, both from private buyers and the Government.
But there is still some hope, that is remaining, as according to the Small Industries Development Bank and Trans Union CIBIL, micro enterprises with borrowings of less than Rs 1 crore are best positioned to pull the economy out of the Covid-19 economic crisis. In a joint report, the two entities said leverage ratios and non-performing assets (NPAs) of micro enterprises are the lowest in the commercial segment. According to Md Mustafa, the Chairman-cum-Managing Director of SIDBI, "The micro segment can be the next growth driver for the economy and credit institutions must capitalise on this opportunity by identifying the micro segment entities that have stood strong through the past disruptions and fund them during these times."
As per the report, the response was analysed from the perspective of loan delinquency post-GST implementation and the drying up of financing by the non-bank lenders following the Infrastructure Leasing and Financial Services Limited (IL&FS) crisis, which showed that, the NPA accretion by micro enterprises was low. So, it seems that micro enterprises sector is the area which can show best results in reviving the economy if proper stimulus is given. Otherwise, the picture is quite grim in the other segments of the MSME sector, since, as the situation goes, most enterprises cannot in any possibility withstand the crisis.
What can be best done now is a question, to which the answer is quite intangible under the prevailing circumstances. However, we have to answer and try to rescue the economy and more particularly the MSME sector, by figuring out at least some relatively feasible remedies like, providing better liquidity to rural India, the extension of moratorium on payment of loans up to one year, tax relief should be provided (both GST and Corporate tax), credit guarantee by Government should be given in case of MSMEs those have maintained certain benchmarks in the past (those benchmarks to be suitably fixed by the Government), as this shall go a long way in assuring the banks that loan will be repaid by the Government in case the beneficiary MSME unfortunately fails.
(The writer is lawyer and public policy expert. He can be reached at sjyotiranjan3@gmail.com)