Even as factories around the country open up gradually, the fear of Covid-19 remains. Migrant workers are reluctant to come back. Most SMEs are working with marginal staff and the question on everyone mind is, when will things become normal again?
The Indian MSME sector has been particularly hit hard by the COVID-19 pandemic. Millions of businesses across different sectors have seen widespread economic destruction. To gauge the sentiment of small businesses, the state they are in, and why only a few have opened for business since the lifting of the lockdown curbs, ET Digital spoke to Animesh Saxena, President, Federation of Indian Micro and Small & Medium Enterprises (FISME). Edited excerpts.
Even before the pandemic the MSME sector had been under stress. There were the challenges of payments not coming on time, and lack of skill set and limited technology being available. These were some of the challenges MSMEs were already facing. The pandemic has brought havoc on this sector. In terms of the cash flow also as there has been zero revenue coming in the last few months. This has broken their back, as if this wasn’t enough; they had fixed costs to be borne, which included salaries, wawages, electricity, rentals and more.
The biggest challenge for the sector was the survival, whether they can handle this lockdown and endure the shortage of orders. We are still passing through the same phase because even after the unlocking, many SMEs are facing the challenge of not having enough orders. Add to it the payments are still stuck. The government’s announcements have made it mandatory, especially for the government and PSUs to clear all the payment in 45 days that has come s a relief. Now, we have to see on the ground, whether the PSUs do their job.
But apart from the PSUs, the private sector also owes huge sums and this is where we wanted the government to do something. We need a mechanism to ensure that the private sector also pays MSME on time, which is within 45 days.
Another thing to keep in mind is that the supply chain is not completely open. Let’s say your company makes auto components, but if the cars and two wheelers are not selling, enough ordered are not being generated. Secondly, a lot of the workers have gone home to their villages and getting them back is still a challenge, especially in the metropolitan cities where the number of Covid-19 is still rising. Most MSMEs have a limited number of people and most of them are technically qualified and you need them to run your operation. Around 30 to 40% units have opened and work has begun as they had some unfinished orders to complete, which they were unable to do because of the shutdown.
As a relief the government came up with the guarantee free loan, which is not finding many takers because most SMEs feel it can be a cost burden on them as it is a term loan with an interest rate ranging from 7.5% to 9.25%.
Most of the private banks are asking for more than 9%, and I think only the State Bank of India is offering it at 7.5%. Also, banks are asking for a lot of papers, including balance sheets to check your creditworthiness.
