Workers at a spice factory in Pune
Workers at a spice factory in Pune | Representational image | Udit Kulshrestha | Bloomberg
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Finance minister Nirmala Sitharaman recently announced a series of measures for India’s industry as part of the Narendra Modi government’s effort to address the economic impacts of the coronavirus crisis and the resultant three-week nationwide lockdown.

While the government’s package of Rs 1.7 lakh crore promises some relief for companies under various sectors, none of the measures specifically addressed the needs of the MSME sector. Perhaps, the finance minister missed a trick or two in her announcement.

If there is one sector of the Indian economy that desperately needs immediate assistance, it is the micro, small and medium enterprises (MSME). It is seen as the backbone of the economy, accounting for a little under half of India’s manufacturing output. According to the ministry’s annual report for 2018-19, there are over 63 million MSME units in India.

While a relief package for the small companies may be on the anvil, the immediate announcement by the Modi government will keep them going through the tough times brought by a global pandemic. Time is of essence.


Also read: Economic costs for India may be huge if COVID-19 fallout lasts 6 months: Arvind Panagariya


Seeking urgent relief

With over 100 million people employed — nearly 40 per cent of India’s workforce — the urgency of addressing the needs of the MSME sector can hardly be overstated. These small units, since they are nimbler than larger companies, have growth rates higher than that of the Indian economy and are also able to react to immediate needs of the region they are in.

That is why it was important for the National Highways Authority of India (NHAI) to release payments worth Rs 25,000 crore owed to the contractors this week. It helps put money into the hands of smaller companies and their employees as they try to find a way to live through the slowdown and the 21-day lockdown period.

Over the last few quarters, several industry bodies have approached the Modi government to raise the issue of the payments — which the government-run companies and departments owe them — being stuck due to procedural delays.

As the first half of the financial year 2019-20 came to a close on September 30, Nirmala Sitharaman had to step in to make sure payments were released to the vendors of public sector companies. Economic growth was at its lowest for the NDA government. 

“Government should not sit on overdue payments,” Sitharaman was quoted as saying.

Getting payments in time is critical for small companies since they have to pay GST in the month after they raise their invoices. When their payments are stuck for several months, the capital cost adds to the inefficiency. For companies in the MSME sector, it could occasionally threaten survival. With taxes paid in advance and payments due from PSU companies, small firms have been facing the heat.


Also read: Beyond speech, Modi must open govt purse for poorer Indians, businesses affected by COVID-19


Industry-government dialogue

Whether it is realisation of pending bills or easier credit terms, access to finance is the biggest concern for small companies in these uncertain times. The Confederation of Indian Industry (CII) has announced to set up a fund specifically for the MSMEs to tackle the Covid-19 crisis.

While some of their payments have been cleared, the industry is demanding more. There is clearly a need for strong measures too. ASSOCHAM has sought access to finance at easier terms, which can serve as a lifeline. The industry body, which counts over 400,000 companies as its members, has also asked for a three-month relief from payment of GST, utility and other statutory payments.

A survey by another industry body, FICCI, of 317 companies found that 73 per cent businesses have reported a fall in the number of orders. During the survey, 50 per cent of the respondents said that their inventory levels were up at least 15 per cent or more.

An immediate announcement which could cut their cash outgo in the next few months will be a big relief for most small businesses. Cash, in these times, is king.


Also read: What’s common to the lockdown and demonetisation? Modi govt’s lack of planning


Policy to extend a helping hand

Several countries have been quick to announce relief for small companies. Some have also given benefits to freelancers.

Germany is readying a €40 billion package for small businesses, up to 10 people, and freelancers. The UK has announced grants up to £10,000 for eligible small businesses. Among the benefits that the US government has announced is loans up to $2 million at preferential rates. China, too, has announced to defer loan payments for its small businesses.

A similar injection of funds, through various measures, may be critical for India’s MSME sector too. It will help these companies stabilise their operations over the next few months.

With the large-scale migration of workers from urban centres to rural areas, small businesses are staring at more uncertainty. Restaurants, retail shops, hotels, personal care and grooming, and other similar small businesses may find it tough to get up and running immediately after the lockdown ends on 14 April. Since the supply chains are disrupted, manufacturing units may also find it tough to begin operations immediately after the lockdown.

With the coronavirus health scare not expected to die down any time soon, generating cash for businesses will be the next big challenge in the near term. Every day that the relief is not provided will add to the overall delay and further choke India’s small and medium companies.

The author has been a business journalist, having tracked markets & economy across print & television media. Views are personal. 

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7 Comments Share Your Views

7 COMMENTS

  1.  

    To,

    Dear medam/Sir,

    विषय. MSME samadhan बाबत ।

    लेट पैमेनट के लिये MSME  samadhan के अंतर्गत  केस फाइल करने के बाद ऑर्डर एवं डिग्री मिलने के बावजुद भी  तीन – तीन साल तक पैसा नही मिल रहा है जिससे MSME यूनिटो की हालात बहुत ही खराब होती जा रही है। ऊपर से भारी भरकम स्टाम्प ड्यूटी भरनी पडती है जिससे MSME पर ओर ज्यादा भार पडता है ऐसा बताया जा रहा है कि अगर सामने वाली पार्टी 75% डिपोजिट नही कराती है तो वह पार्टी कोर्ट मे अपील फाईल नही कर सकती है लेकिन बगैर 75% डिपोजिट किये एक्ट को चैलेंज ओर झूठा
    एफिडेविट कोर्ट मे प्रस्तुत करके 3/4 साल आराम से निकाल सकता है इसका मतलब यह है कि MSEFC के समाधान मे केस फाइल करने पर भी MSME के पैसे आने में 7 से 10 साल भी लग सकता है। यह मेरा तजुर्बा है और मै पिछले 7 सालो से कोर्ट कसेरी के धक्के खा खा कर थक सुका हु लेकिन अभी तक मेरा पैसा नही मिल रहा है। हद तो तब होती है जब सरकारी क्षेत्र कि कम्पनी ही इसका दुरुपयोग करते है यह बहुत ही चर्म की बात है।
    हमे ऐसा लग रहा है कि कई न कई MSME के साथ धोखा हो रहा है। अगर नही तो कोई भी कोर्ट बगैर 75% डिपोजिट अपील या ऐफिडेविट केसे स्वीकार करते है  जैसा MSME गाइड लाइन मे बताया गया है इस मामले मे अगर कोई मेरी सहायता करके मुझे न्याय दिला सकता है तो दिलाओ वरना मै ऐसा समज सकता हुं कि MSME के पेमेंट की कोई गारंटी नही है और सामने वाली पार्टी 8/10  साल तक तो आराम से निकाल सकती है मेरे जैसी तकलीफ और किसी के साथ भी हो सकती है। क्या सरकार इस तरह से MSME की सहायता कर रही है? मेरा सभी सम्बन्धित विभाग से अनुरोध है कि उपरोक्त विषय पर तत्काल संघान ले और उचित कार्रवाई करावें ताकि और किसी MSME को भविष्य मे तकलीफ न उठानी पडे। और MSME बगैर कोई शंका अपना धंधा कर सके।

  2. It’s so true words, I’m also suffering like same problem month gone workers left and asking salrys owner want rent and electric bill may be ready, we have not even any penny in hand and not knowing what happened, already have lot’s of debts government not given any response all house are in mortigage , bank will sale it
    it’s condition talking near to sucide.

  3. We the small business firms not get counted in any catagory neither rich neither poor because we are not allowed to have govt relief because they say we are not that poor . When other side our business is locked up completely but we have to pay salaries to our staff. We have to responsible for our all losses and credits. Means we are not allowed to work, neither they count us in any relief. When we are in the large quantity. Thats all.

    • It’s so true words, I’m also suffering like same problem month gone workers left and asking salrys owner want rent and electric bill may be ready, we have not even any penny in hand and not knowing what happened, it’s talking near to sucide

    • It’s so true words, I’m also suffering like same problem month gone workers left and asking salrys owner want rent and electric bill may be ready, we have not even any penny in hand and not knowing what happened, already have lot’s of debts government not given any response all house are in mortigage , bank will sale it
      it’s condition talking near to sucide.

  4. This is a very important issue for us in the MSME sector. Despite Finance Minister’s call to Public Sector companies to release funds withheld for as long as a year in many cases, these companies (including govt departments like The Navy) are still not complying with the government instructions. MSME’s are at their wits end.

  5. The coporate sectors are not making payment to MSME’s since last 4-5 months.
    This is much more need of hour.
    Ministry of MSME, Please take a note urgently.

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