Countless MSMEs, source of livelihood for over 120 million people, have folded up due to Modi govt’s apathy

The sector has been contributing 30% of India’s GDP and 40% of exports while employing over 90% people in the whole formal sector employment. It had a growth rate of over 10%

Representative Image
Representative Image

Dr Gyan Pathak

Micro, Small and Medium Enterprises (MSMEs) in India have been dying for a long time even before the outbreak of COVID-19 resulted in large number of job losses. The lockdown announced on March 24, 2020 and the containment measures aggravated the situation further.

The announcement of government support by the Modi government failed to stem the rot. The second wave of COVID-19 beginning from February 2021 and peaking in May brought further deterioration. About 15 lakh jobs were lost in a single month of May chiefly due to shutting down of MSMEs or scaling down of their operation.

We have yet again some further announcement of support by the government and the Reserve Bank of India (RBI), while last years’ announcements are yet hardly half-implemented, and the fate of the present announcements are buried in future.

There is no data with the government to share with the people that may give us a fair idea about what is happening to our MSMEs and to what extent. We can have only assessments on the basis of sporadic data coming out from various sources.

While announcing a $500 million programme in the beginning of June 2021, the World Bank has said that the MSME sector, a critical backbone of India’s economy, has been hard hit by the COVID-19 pandemic. Out of some 58 million MSMEs, over 40 per cent lack access to formal sources of finance, the World Bank release said.

It is indeed a very sad state of affair in the context of MSME sector in the country that has been contributing 30 per cent of India’s GDP, and 40 per cent of exports while employing about 120 million persons i.e. above 90 per cent in the whole formal sector employment. The most important thing is that the sector has consistently maintained a growth rate of over 10 per cent. Their survival is thus of paramount importance. However, to bring this about, a fundamental shift in policies and implementation will be required.

We are losing millions of jobs every month which indicates the closing shutters and scaling down of corresponding number of MSMEs. It was caused by disruption in production, distribution and supply of goods and services. There was a crisis of demand prior to lockdown, and now crisis of supply is added due to disruption in movement of people and goods and closure of services. Numerous schemes were announced and are being implemented for this sector, but nothing seems to be working in revival of the MSMEs.

As a relief, the Centre had announced Rs 3 lakh crore collateral free automatic loans for business, but could actually provide them only about half of the amount till date. The Union Budget allocation for MSMEs for the current fiscal have been doubled to Rs 15,700 crore as against last year’s allocation of Rs 7,572 crore. A fund of Rs10,000 was announced for Guarantee Emergency Credit Line (GECL) facility last year. Despite these deterioration of MSMEs could not be reversed.

Then in April 2021 NBFCs formally requested the RBI to extend on-time restructuring scheme for MSME advances since they were unable to revive their business. It has also been reported that MSMEs have been most impacted with nearly 60 per cent of addition to NPAs in April and May 2021 coming from them, which is twice the earlier amount. The disruption, according to Retailers Association of India, caused a 79 per cent drop in sales in May 2021 compared to May 2019.

To understand the present situation a little better, we will have to keep in mind that out of 6.3 crore MSMEs, we had only 25.13 lakh registered units in 2020, out of which around 60 per cent were situated in only five states – Maharashtra, Tamil Nadu, Bihar, Uttar Pradesh, and Madhya Pradesh. These are the very states that have been suffering from greatest disruption from the pandemic and the subsequent lockdowns and containment measures. We have now certain data only about Tamil Nadu, which gives a frightening picture.

A TRECSTEP survey conducted in Tamil Nadu covered only the MSMEs that employed less than 20 workers. About 94 per cent said their sales decreased substantially in 2020-21 compared to 2019-20, ranging from 25 to over 50 per cent, while 15 per cent of them shut down. A total of 91 per cent made loss, and for 90 per cent among them the loss was upto Rs 10 lakh. Almost 20 per cent had to cover their loss by investing own funds, about 15 per cent sold their assets, 35 per cent borrowed from banks or NBFCs and a little over 30 per cent from other sources.

Only about 35 per cent could take help from the Centre’s much touted Emergency Credit Line Guarantee Scheme (ECLGS) for Atamanirbhar Bharat. Around 44 per cent said that they had to shut down their operation, and only around 10 per said they have been working near full capacity. About 46 per cent had to scale down their operation.

Wage cuts were reported by 26 per cent, 33 per cent laid off their employees, 23 per cent retrenched and 18 per cent MSMEs had to resort to all these. Around 67 per cent employed fewer persons, 64 per cent reported at least five jobs loss, and 23 per cent said 6-10 jobs were lost.

This survey should be an eye opener for all interested in knowing actual job losses in the country in the last one year in the millions of MSMEs.

The World Bank says that only 5 million MSMEs have accessed finance from the government programmes. It is certainly disheartening because we have over 63 million MSMEs. Low MSME productivity and government financing in the economic recovery phase, crowed in private sector financing in medium term and long-standing financial sector issues are holding back the growth of the MSME sector, which the RAMP Programme of the World Bank intends to alleviate.

Amidst numerous programmes of the Union Government, RBI, SIDBI, and states, there is ‘a need for convergence’ of policies, programmes, and schemes at all levels. Better coordination is required between the Centre and the states, to devise such programmes and policies that might be easily accessible to the MSMEs.

Firms’ capabilities and their access to market and finance must be supported and their dues must be cleared in time. India needs not only a paradigm shift in its policies and programmes, but also much better implementation on the ground level.

(IPA Service)

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