MSMEs in the time of Coronavirus
It is worth repeating a truism that calamities, be they natural or manmade, affect the underprivileged the hardest; COVID-19 is no exception. The COVID-19 shutdown has been particularly devastating for a sector that is often depicted as the backbone of the economy — Micro, Small and Medium Enterprises (MSMEs).
Prior to the lockdown, the sluggish economy was already detrimental to these micro-enterprises with new policies like Demonetisation, GST, etc. But the ongoing pandemic has severely hampered the operations of these businesses because MSMEs are highly dependent on the cash economy, which has been adversely affected by the pandemic. Besides, the unavailability of labour, supply chain disruption, shortage of raw materials, decrease in demand due to loss of consumers or buyer flow and transportation disruptions among others had major ramifications on these businesses.
MSMEs usually do not possess sufficient resources, especially financial and managerial, and their ability to weather shock is not adequate as they aren’t prepared for such disruptions likely to go longer than expected. Since MSMEs are financially fragile, smaller in size and less equipped with resources, they are more vulnerable to the environmental crisis than their counterparts — large enterprises.
The biggest and most immediate impact of the lockdown was the halt in business operations. While there are the masses of largely unskilled or low-skilled people (such as domestic workers, waste recyclers, and construction workers) who work in different industries and rely on daily wages to meet their needs, these daily wagers were hardest hit by the lockdowns. After them, there is a class of micro-enterprises (also known as self-employed persons) such as small shop owners, household businesses, and street vendors, among others. According to the twin parameters of investment and turnover, an entity can be classified as a micro-enterprise if the investment is up to Rs1 crore and turnover does not exceed Rs5 crore. This change in the definition of micro-enterprises has turned India into a country of small businesses as nearly 99% of the entities now fall under the category (TOI, 8July2020). Then there are small and medium-sized enterprises. They are expected to face liquidity issues and are hard hit by the ongoing crisis. For instance, the textile and apparel industry, agriculture sector, etc. has been affected mainly due to the imposition of lockdown and non-availability of labour and transport.
Restrictions due to Covid-19 not only caused economic losses but also created a severe threat to business continuity. According to the International Labor Organisation (ILO), almost 25 million people around the globe could lose their jobs. ILO stated, “It is the worst global crisis since the Second World War”. Most of MSMEs have been shut because they do not have any coping strategy in place to chart their recovery plan and those open are not only facing a major financial crisis but also have issues in getting back their full labour force either due to unavailability of transport or insufficient work orders to keep the workers engaged.
It is extremely important to mitigate not only the ongoing crisis but also the long-term effects caused due to COVID-19. The revival of the MSME can be speeded by protection of employees and information accuracy, Credit Enhancement Support, developing a vulnerability assessment framework, improving the creditworthiness, income and employment support, among others.
The pandemic made the government realise the significance of MSMEs as they are the wheels driving the economy, therefore it has come up with several policy measures but whether these policies will be effective in the long run or not, will be known in the near future.
