Micro, small, and medium enterprises (MSME) is known to be of immense importance to the Indian economy in terms of employment, output and exports. But presently, the sector is vulnerable. In the lockdown period, the entire MSME sector was shattered. But with the gradual unlocking phases, many MSME units began to open. At present, many MSME units are operational. These are trying to achieve the pre-Covid levels of production.
According to Biswanath Bhattacharya, President, Federation of Small and Medium Enterprises (FOSMI), West Bengal, “You are aware of the pre-Covid period when a large number of MSME units were suffering and they were not doing well. Those units that were suffering even before the pandemic will find recovery difficult in the post-Covid phases. But those sections which had been doing well in the pre-Covid period are reviving and it is expected that they may achieve their past level of production within a few quarters if other things remain favourable.”
Steps taken by the government with a view to boosting MSME
The lockdown resulted in a steep fall (about 24%) in gross Domestic Products (GDP). To counter this and also due to border tensions, the Government of India announced the Atmanirbhar Bharat Mission. This policy has two main thrust areas. First, to boost the MSME sector and secondly, it looked to lower India’s dependence on foreign countries. Several steps have been taken which include - 1) change of definition of MSME, 2) credit and finance scheme, 3) allocating funds for equity participation, 4) relief in non-performing assets, 5) clearing off dues for MSMEs, and 6) dis-allocation of global tenders.
But most of the units are unable to utilise these measures. This is because only a section of the units are reviving and going to reach the pre-Covid level of production. Some of the policies like the change in definition of MSME has had a complex impact on the sector. Arpan Mitra, President, Bengal National Chamber of Commerce, said that the change of definition has two sides. As bigger units were coming under the definition of MSME, a section of units who were not expanding their existing business would now look to expand to get MSME benefits. It is also feared that in the new definition, the bigger units would be able to reap the benefits more and the smaller units might actually lose out. Mitra also said that many of their smaller members who were working in different districts were not even aware of the benefits and had very little access to banking facilities. He added, “Unless these units are not benefited in different ways, recovery or revival will not be possible. Actually, most of the MSME units are micro producers.”
Many units in the MSME sector have been facing production problems. Input cost has been rising as availability of inputs is not easy now. Bhattacharya said that exporters were in trouble because costs of production has been increasing but the prices of the products were not been rising accordingly. So, the profit margin is getting reduced. For units related to export, it has been very difficult to get containers in time. At the same time, container freights have been increased by 40 to 60%. Even shipping charges have increased. Regarding financial matters, Bhattacharya said that it has been very difficult to get loans unless the balance sheets of the units were strong. The new entrants, although small in number, are facing a tough time to get bank finance. But those who have already deposited quality collaterals are facing no problems. But most of the producers are not going for any new venture or for capacity expansions even if their business prospects are good. They are expecting some favourable budget provision for the sector. He thinks that in West Bengal, the power tariff is also high and it should be lowered in the coming days - otherwise the state would lose competitiveness. FOSMI is preparing for making a group of quality producers who can produce some items which are otherwise imported. The organisation is looking to promote those quality producers who can supply items to government sectors as well as to big private sectors.
It is known that the MSME sector has been an integral part of the product supply chains and comprises about 30% of India's GDP, about 45% of exports, and ensures employment of around 114 Indians, which is around 30% of the Indian labour force. About 63 million unincorporated MSMEs are engaged in the non-agricultural sector, the majority of which are micro-enterprises in the informal sector. The government has to pay proper attention to this sector to revive the economy.