HOPING AGAINST HOPE
THOUSANDS OF SMALL BUSINESSES ARE ON THE BRINK, WITH THE GOVERNMENT RESCUE PACKAGE FALLING SHORT OF THEIR EXPECTATIONS
COVID-19 has kicked business owners in the gut. Thousands of small businesses, employing millions, face the grim prospect of permanent closure. A survey by the All India Manufacturers’ Association found that more than a third of the self-employed and small and medium businesses did not see any hope of recovery and were on the verge of winding up. A national multi-institutional survey by the SKOCH Group, a private think-tank, and FISME (the Federation of Indian Small and Medium Enterprises) conducted towards the end of May, found that 62 per cent of surveyed MSMEs (micro, small and medium enterprises) would let go of employees, and 78 per cent would cut wages. Both surveys were conducted after the recent government interventions.
On May 13, Union finance minister Nirmala Sitharaman unveiled a Rs 3.75 lakh crore package for MSMEs, including Rs 3 lakh crore of collateral-free loans for businesses with outstanding dues up to Rs 25 crore, equity infusion of Rs 50,000 crore through a fund of funds, a reclassifica
tion of MSMEs to encourage growth and a promise that government and central public sector undertakings (PSUs) would release all pending payments to MSMEs within 45 days of the announcement.
While a section of economists termed the package fiscally prudent, business owners withheld their verdict till more details were available. Three weeks later, thousands of MSMEs feel a sense of abandonment. They draw comparisons between India’s stimulus package and those announced by the United States and Germany—the US has cleared a $500 billion aid package for small businesses, while Germany is considering giving aid of up to €50,000 a month to freelancers and companies that employ up to 249 workers. Germany has allocated up to €25 billion from June to August to make up for coronavirus-related loss of sales.
Millions of small Indian businesses are suffering on several counts—higher compliance costs relating to the physical distancing and sanitisation demands of a post-Covid world, a lack of labour to resume operations, a lack of direct fiscal support and vulnerability on the health front. Issues like these are weighing on the minds of millions of small business owners, leaving them asking: Will my business survive?
PAIN POINTS
In the recent past, small business owners have also had to deal with policy flip-flops. Amitabh Kharbanda, director of Sunlord Apparel in Noida, an export-oriented unit of home furnishings and garments to the US and European markets, points out that the Uttar Pradesh government had said, in early May, that labour laws would be relaxed and factories would be allowed to operate 12-hour shifts. However, the
latter provision was soon revoked. (The state government had issued a notification on this matter on May 8 that was to remain in force till July 19. But the state authorities had come under fire for this and had to revoke their decision.)
Meanwhile, the promoter of an MSME based in Odisha says his unit had orders for personal protective equipment (PPE) kits from a Bhubaneswarbased PSU. However, the firm received an email from the PSU on May 26 saying that it would not be accepting any deliveries after the end of that day. This sudden announcement left trucks full of PPE kits stranded outside the PSU’s warehouse. This, despite repeated assurances by Union MSME minister Nitin Gadkari that the government and PSUs would make good on finance minister Sitharaman’s promise that all pending dues to MSMEs—a staggering Rs 5 lakh crore, by some estimates— would be paid within 45 days of the announcement on May 13. Nearly 88 per cent of those surveyed in the FISME-SKOCH survey said they wanted government payments to be made urgently, while 90 per cent said they wanted immediate income tax and GST refunds—a move that was announced in April, to be implemented with ‘immediate effect’.
An assessment by FISME finds that only about 40 per cent of MSMEs were able to open nearly a month after the government began its staggered easing of lockdown restrictions, and that nearly all are working at 20-30 per cent capacity. “[The government] has closed its eyes to this,” laments Anil Bhardwaj, secretary general of FISME. “The EPF announcement benefits a minuscule percentage [of firms]. The Rs 3 lakh crore bonanza is mostly optics. Banks
will do their due diligence before giving loans.” Putting this in perspective, Sanjeev Kapoor, a Delhi-based chartered accountant advising MSMEs, says that even though the government has pledged full guarantees for up to 20 per cent additional, collateral-free working capital loans under the Rs 3 lakh crore emergency credit line guarantee scheme for MSMEs, banks and shadow banking firms have been given the leeway to do their own due diligence, which will restrict availability of credit.
POLICY PRESCRIPTION MSMEs want an extension of all term loans by two years, with the first year made interest-free and only simple interest charged in the second. They say interest payments should resume after business returns to normalcy and have asked for an increased working capital limit requirement and a unified electronic platform for all services and financial support to MSMEs. Kapoor’s advice to his clients is that they reduce workforces and build war chests, monetising assets for liquidity or taking an overdraft, if needed. He also advises that manufacturers keep units running to avoid idle capacity. As MSMEs go through this trial by fire, one thing has become clear—it is time to get down to business. ■