Wednesday, August 17th, 2022 10:56:43

Impact of COVID – 19 on MSMEs: Sustained India

By Dr. Alok Chakrawal
Updated: July 30, 2020 2:58 pm

The state of micro, small and medium scale (MSME) industries in India is at the center stage during COVID – 19 times. Television news channels, newspapers, blogs, FM radio and all platforms of social media are flooded with the concern over MSME. There are all types of opinions on various media channels in this regard. Even those who have never run a micro or small or medium scale enterprise are giving expert opinion on the state of MSME in India during this pandemic conditions. India is a country where everyone has the freedom of speech but sensible use of this freedom will always be a contribution to the nation building. There is no doubt about devastating impact of COVID – 19 on Indian MSMEs; but same is the case with the rest of the world or the situation is even worse with the rest of the world.

 

Indian Scenario

Statista.com is a global business data platform which authentically gathers vital business data and publishes it on its website under various categories. Statista has given its projection impact of COVID – 19 On Indian MSMEs between April and June 2020 by sector wise Gross Value Added (GVA). Financial services, real estate and professional were the worst affected (-17.3%) sectors by COVID – 19 in India during the specified period. Mining and quarrying were equally hit (-14.7%) sectors by the pandemic in India. Electricity, gas, water supply and other utility services were negatively affected by 13.9%; whereas construction business went down by 13.3% in terms of GVA. The worst hit sectors across the globe were aviation, tourism, hospitality and hotel industry. However, the projected loss in Indian trade, hotels, transport, communication and broadcasting was only 9.7%. Overall loss of GVA in India MSME was of 9.3%. As a matter of fact, public administration, defense and other services were the least affected sectors as the estimates was of only – 0.4%. The most amazing data of the global business data portal was of manufacturing sector; as per the estimates the Indian manufacturing sector was negatively affected by 6.3% only. Agriculture, fishing and forestry were affected very negligibly i.e. – 1.3%.

Chines Scenario

India and China are the archrivals in terms of operations of MSME segment of the industrial set up. We have seen the worst projection for India. We need to have a realistic look of Chinese condition also so that we could be able to assess and reconcile our situation better. As the Peoples’ Republic of China is the epicenter of corona virus COVID – 19, its impact on MSME sector was seen quite early as compared to India. During January – February, 2020, China experienced its worst phase in the sector. Motor vehicle sector went down by 31.8% leaving China spellbound. General machinery industry declined by 28.2% in this period. Railways, shipbuilding and aerospace were equally affected in China by 28.2%. COVID – 19 came to Chinese textile industry as a nightmare as it went down by 27.2%. Fabricated metal products industry slipped by 26.9%. China is dependent on its rubber and plastic industry as it gives huge forex to the central exchequer but this sector was also badly affected by the pandemic as it went down by 25.2%. Electric machinery and equipment, yet another sector garnering huge forex to the Chinese economy, was shattered by the spread of virus as it shrinked by 24.7%. Special – purpose machinery industry in China declined by 24.4% during this pandemic period. Nonmetal mineral products segment was reduced by 21.1%. Amazingly, foods segment was also significantly affected i.e. 18.2%. Agro based food processing industry was affected by 16%. Interestingly, computer and communication equipment sector were comparatively less affected by the pandemic in China (13.8%) as compared to other sectors. The reason behind it may be pending global orders and presence of Multi National Corporations (MNCs) in the sector. But its impact started showing in the later part as many countries, including India and the USA, cancelled their orders of communication equipment from China. Chemical raw materials and chemical products were negatively affected by 12.3%. China is the cheapest medicine exporter to the rest of the world, of course there is no surety of quality, but this sector also saw a decline of 12.3%. Non ferrous metal segment was adversely affected by 8.5%. The least adversely affected sector was ferrous metal smelting and pressing (- 2%).

Rate of Unemployment

As per the data released by Centre for Monitoring Indian Economy (CMIE), 120 million people lost their job after the Lockdown – I; however, 100 million people could get back to their job after Unlock – I. The rate of unemployment was on its peak in India during April – May, 2020. The rate of unemployment in these tow months were 23.52% and 23.48% respectively. The interesting revelation is that the rural scenario was better as compared to urban area in terms of employment rate during COVID – 19 times. The rate of rural unemployment was 2 to 3 percent lesser in this period. By the end of July 2020, rate of rural unemployment was 6.6 percent – quite below as compared to the rate of urban unemployment i.e. 10.5 percent. Very simple interpretation of this vital data is that Indian MSMEs are on the track back very quickly. Despite the danger of corona virus, Indian industries have taken the challenge to recover the economy. The rate of unemployment in the moth of February 2020, just before the lockdown, was7.76 percent which is 7.8 percent by the end of July 2020. So, India have almost recovered itself from the impact of COVID -19 in terms of unemployment considering the CMIE data on this important indicator of the economy. There may be sectoral and categorical change in the placement of employees across the Indian economy. At least 30 million people migrated one state to another state in this troublesome period. The estimates of such migration may be even more. But this is the time of challenge for state and central Governments. Both layers of Governments are trying their best to restore the economy by providing job opportunities to the jobless people. Government of Uttar Pradesh has initiated ‘Vishwakarma Yojna’ to engage incumbent migrated laborer by providing skill and training-based employment opportunities to them.

India on Front-foot to Revive MSME

The Government of India is one of the front leaders in the world in terms of supporting its MSME sector to recover from deadly impact of COVID – 19. The Finance Minister Nirmala Sitharaman declared a bundle of reliefs, including Rs. 3 lakh crore collateral free loan scheme for businesses, for Micro, Small and Medium Scale industries under the 20.94 lakh stimulus package of the Government of India.  Further, she added that only domestic firms can bid, to avoid foreign competitors, for Government procurements up to Rs. 200 crores. The Government announced a Rs. 30,000 crore special liquidity for micro finance, housing finance and NBFCs. To enhance take-home pay of MSME sector employees, Minister of Finance slashed Employees Provident Fund (EPF) deductions from 24% to 20% of salary for three months, and Income Tax return filling deadline was extended to give comfort to the employees in the sector. Power PSUs lend Rs. 90,000 crores to stressed state distribution companies. Deadline for public infrastructure contracts and reality projects was extended by the Government of India. The Government extended its hand further to the Non-Banking Finance Companies by giving fresh Rs. 45,000 partial credit guarantees. Besides, the Government of India has decided the following measures to boost MSMEs to fight against COVID-19 pandemic:

  • Adequate working capital finance to the existing 45 lakh MSME units in India
  • Rs. 20,000 crore subordinate debt for 2 lakh MSME units considered to be NPA
  • Infusion of Rs. 50,000 in MSME as equity fund

The Central Government is determined to revive MSME sector with a new energy and supply of sufficient capital and working funds. In the wake of such revival, the Ministry of Finance has revised the definition of MSME to enable them for reaching out more benefits and capital base. As per the revised definition the medium scale industry’s investment has been increased from Rs. 10 crores to Rs. 20 crores in manufacturing segment; and for service segment it has been enhanced from Rs. 5 crores investment to Rs. 100 crores turnover. Similarly, small industry’s investment limit is enhanced from Rs. 5 crores to Rs. 10 crores in manufacturing segment; and Rs. 2 crores investment in service segment has been enhanced to Rs. 50 crores turnover. Accordingly, micro industry’s investment threshold has been increased from Rs. 25 lakhs to Rs. 1 crore in manufacturing segment; and Rs. 10 lakh investment to Rs. 5 crores turnover in service segment.

As per the estimates of Organization for Economic Co-operation and Development (OECD), India is not amongst top ten worst hit economies by the pandemic COVID -19. Badly hit countries are United Kingdom, Italy, France, Euro Asia, Canada, United States of America, Germany, Japan and China. As a matter of fact, India is the least affected country by the corona virus catastrophic economic effects. Indian micro, small and medium scale industries have started gaining momentum very quickly. Of course, the threat of COVID – 19 is still prevailing in the economy but the entrepreneurs have found the way out to run the economic operation with taking adequate safety measures against the virus. Newspapers are full of advertisements of recruitment of industrial workers these days.

One has to realize that this is the crisis time and everyone has to scarify something in one or the other form. Same is the case with industries as they are part and partial of the society. Industries are run within the society only for the society and with the people coming from the society. For safeguarding themselves against the threat of the virus, this was probably the biggest migration of Indian people after the partition of the country. Sad part of this was that some of the workers walked more than 1000 miles bare footed from one state to another state. These episodes and incidents were reported on news channels and in newspapers with loads of added flavors. Nobody can deny that the pandemic has created tough times for the Micro, Small and Medium sector industries in India; this situation is not India specific but it’s a common phenomenon worldwide. On the contrary, India is probably the only country to manage the crisis times so successfully by providing financial, administrative and motivational support to the MSMEs.

 

By Dr. Alok Chakrawal

(The writer is a Professor, Saurashtra University, Rajkot, Gujarat)

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