The Covid-19 pandemic, evidently, sent economies across the globe into a tailspin. While governments tried to offer immediate relief, it was clear that recovery was going to take time. The MSMEs industry suffered a triple whammy when Prime Minister Narendra Modi announced a stringent nationwide lockdown in March 2020-demand was hit, the global supply chain was disrupted, and India witnessed a massive reverse migration among its laborers.
The government jumped into action with a series of stimulus announcements intending to boost demand and supply. The ambitious Atmanirbhar Bharat Abhiyaan, aimed at giving an impetus to the domestic industry, was especially welcomed by the MSME sector, which was hit hardest by the pandemic lockdown. But the sector needs more sustained assistance to get back on its feet.
On the macro level
While the MSME sector is looking for specific announcements regarding financial aid and stimulus, there is no doubt that the big picture needs to be clear before any such assistance to work. This means an overall economic recovery is essential, and policymakers need to curb inflation, the fiscal deficit with runaway prices.
The good news is that retail inflation has slowed on the back of falling vegetable prices and festival and pent-up demand. However, growth in capital goods and consumer goods contracted, showing that recovery is still in its nascent stage and has not taken deep root. Therefore, all eyes will be on the finance minister to see if she will offer significant measures to support growth.
MSMEs contribute over 40% to the Indian export basket. The government should focus on sustainable methods to increase the sector’s contribution to global trade. The Finance Minister could extend the Production-linked Incentive (PLI) scheme beyond ten sectors to encompass more export-oriented sectors. The government should also consider rationalizing duty and tariff rates, promote research and development, help small industries with tech upgradations plans. This, in return, could help Indian MSMEs improve their competitiveness in the international market.
On the financial front
A long-standing issue for MSMEs has been the availability of credit. The government has taken steps over the years to provide easier access to funds for MSME players, but it has never been enough. With fintech and digital payments becoming more accepted, the government could announce some support for creating a digital payments framework, which will offer MSMEs far easier access to credit and financial services.
Last year, the government announced a stimulus package for MSMEs, which included a moratorium on loans for three months and some tax relaxations. Given that the damage done by the pandemic-induced lockdown is deep and long-lasting, the government may look at extending these relaxations into the new financial year.
Because of the trifecta of demand slowdown, supply chain breakdown, and labor shortage, MSMEs are also finding it impossible to get their operating cycles back on track. This means that working capital requirements will change, and their assets and liabilities may need to be reassessed. By easing up the financial system to allow for easier access to credit, the finance ministry can offer MSMEs a helping hand.
The other specific area MSMEs hope will be addressed is mainstream existing bill discounting platforms such as TReDS (trade receivables discounting system).
Labour force issues
When the lockdown was announced last year, the significant immediate impact seemed to be on the workforce-specifically, on migrant workers who felt they would be better off in their home towns and began moving back. The result was a massive reverse migration- with workers walking thousands of kilometers with their families. Most of the workers who migrated back home were employed in small units as construction laborers, loaders, drivers, etc. With them accommodating back to their villages, MSMEs were left with huge gaps in the workforce. The Finance Ministry could formalize some employment benefits to such workers, making it possible and beneficial to return to their jobs.
Overall, the MSME sector seeks recognition from the government for its special status and its unique problems. While some of the issues dogging the sector are long-standing, the pandemic and subsequent lockdown have exacerbated most of its problems. The government has understood the impact of the lockdown on this sector. However, it is time for more help than temporary sops. Perhaps Budget 2021-22 will have long-term, sustainable solutions to offer.
(The writer is Co-Founder, CEO, Drip Capital)