The MSME sector has been in trouble for some years. However, the situation aggravated from 2016 in India. During the pandemic in 2020, the situation went from bad to worse. The Indian government has announced several policies for the development of this sector. But only a few MSME units have been able to utilise the special offer of the government. In terms of economic intervention, Finance Minister Nirmala Sitharaman announced a 1.7 lakh crore package on March 26, 2020. Then on May 15, 2020 Prime Minister Narendra Modi declared a relief package of `20 lakh crore. Again, on November 14, the FM announced another relief package of `2.65 crore.
The MSME sector gained through these packages. It included redefining MSMEs to bring more industries under its ambit. The relief measure was extended in the form of credit guarantees, funds for MSMEs, credit facilities for street vendors among others.
Last year, Manguirish Pai Raiker, Chairman, National Council of MSME of ASSOCHAM reportedly said, “The initiatives taken by the Centre and the RBI to support and promote the MSME sector are a step in the right direction. However, the government must also ensure that the bureaucratic hurdles are removed.” Reacting to the decisions taken by the RBI, Raiker also said, “Now the government should step in to stem the rot caused by the second wave of this pandemic. It is time for the government to stand by the entrepreneurs, support, supplement and promote them instead of creating bureaucratic hurdles.”
Some glimpses of the problems that the MSMEs have been facing
Padikkal, owner of Havista Steel based out of Navi Mumbai makes equipment and storage tanks for chemicals, food and the pharmaceutical sector. He reportedly stated that he faced the financial squeeze with low demand. He mentioned that the Covid crisis had hampered business and increased input costs. He also pointed out that the price of mild steel, his main input, increased from `40 per kg to `85 per kg in a few weeks. But he had to sell at agreed fixed prices. Another report points out that S Jaya Prasad, who runs a metal business in Thane said, “The problem is that no one is operating anywhere near optimum capacity.”
It is known that when a producer produces far below its optimum capacity, it means that the production unit is running inefficiently and hence its cost of production gets to be higher. It is also reported that many migrant labourers from the textile hub of Surat have been returning home to UP, Bihar, Odisha or Andhra Pradesh because of the fear of a fresh lockdown. The power loom operators are reportedly talking of at least 40% reduction of production which would damage the fulfilment of their export orders. The garments makers of West Bengal are reportedly anxious about labour shortages after the state assembly election as workers of the sector are expecting a complete lockdown in a few weeks.
The status of MSME in India
The Confederation of Indian Industry (CII) has done a survey on the industrial sector. In its estimates, India has about 63.4 million MSME units. They account for 33.4% of manufacturing output, 45% of exports and employ about 120 million people. It is known that the sector was most severely impacted during the lockdown last year. It is said that nowhere in the world, the MSME sector suffered in such a way in the lockdown phase. A report points out that on the basis of a survey by All India Manufacturers’ Organization, as many as 35% of MSMEs and 37% of self-employed individuals had to close their business as an impact of the pandemic last year.
In the second wave, only the migrant workers of Kerala have got assurance from the government about their jobs, treatment and food supply. In the last two weeks or so it is reported that a large number of workers from industrial places of Ludhiana Jalandhar and Amritsar in Punjab and Ambala Karnal and Gurugram in Haryana have been returning to their homes. Reports also depicted a more or less similar picture in Haridwar and Dehradun where governments have already imposed curfew.
An important point on financing of MSMEs
Last year, the government’s important scheme for MSME was the Emergency Credit Line Guarantee Scheme (ECLGS). In this scheme, businesses could take loans underwritten by the government. The total funding was `2.46 lakh crore (in end February), according to a written reply in Rajya Sabha a few weeks ago by Nitin Gadkari. In this scheme, 9.2 million units borrowed and out of this, 8.7 million were MSMEs. But many industry insiders feel that in most of the cases, the borrowed money was not utilised properly. A large amount was paid to repay old dues. So productive capacities of the units were not raised and employment did not increase according to the desired level. Anil Bhardwaj, Secretary General, FISME, said that it was not finance but more flexible NPA norms that were needed from the government.
MSMEs need various policies
The problems of MSMEs are different for different units. So, no particular policy of the government or the RBI can address the entire problem of the sector, said Biswanath Bhattacharya, President FOSMI, Kolkata. He also added that the problems are mounting. Most of the MSME units are talking about delay in payment from big business units. The government should step in to solve the problem. The rising cost of production is also a cause for concern. Bhattacharya also pointed out that the export facility was weakening due to disturbances in getting containers, rising input costs and lack of export incentives.