How Lockdown Reformed the Indian MSME Segment
- BY Jaspreet Kaur
Feature Writer, BusinessEx
- Jun 05,2020
- 14 Mins Read
Medium-sized, small and micro enterprises (MSME), which account a major share in the Indian economy, have lost their sheen during the pandemic. The MSME space, despite being a vast niche, has been severely impacted and thereby, led to a downturn in the business ecosystem.
To avert such adverse variations, a slew of actions have taken place from secured government policies to redefinition of MSME to becoming suitable to the market demands. While there are companies that have shut due to liquidity crunch, on the other hand, there are also companies that have coped up with times. Important moves that have been taken in the private and public segment have enabled a portion of MSME to recommence operations again. Here is the list of shifts that have taken place in the SME space.
1. Redefining MSME Space
The government has recently changed the meaning of MSME companies so as to make them competent and buoyant in the changing business scenario. According to The Economic Times report, more than 6 crore SMEs beyond the nation will be categorised on the basis of the new criteria from July onwards, as agreed by the government.
According to the revised criteria, an enterprise having INR 50 crore of investment and INR 250 crore of turnover limit will be classified under medium category. While a business unit having INR 10 crore of investment and INR 50 crore of turnover limit will be called a small enterprise. In contrast to this, a manufacturing and services business having INR 1 crore of investment and INR 5 crore of turnover limit will be categorised as a micro enterprise.
Moreover, the government has proclaimed a new composite formula of classification for manufacturing and services units has been notified. Thus, there will be no difference between the manufacturing and service sectors, reported the cited media agency.
"The new definition will pave the way for strengthening and growth of MSMEs. Particularly, the provision of excluding the exports from counting of turnover will encourage the MSMEs to export more and more without fearing to lose the benefits of a MSME unit," Ministry officials told the cited media agency.
2. Financial Package for MSME
To keep MSME industry afloat, the government had proclaimed a stimulus package in the last month. Stressed MSMEs that are announced as NPAs are now eligible for equity support as the government introduced a provision of INR 20,000 crore as subordinate debt. Moreover, INR 4,000 crore was offered to CGTMSE that will render credit guarantee aid to the banks in lending money to MSMEs.
The government also declared INR 50,000 in equity in MSMEs in the form of ‘Fund of Funds’ which will be managed through a mother fund and some daughter funds. The ‘Fund of Funds’ will be initiated with a collection of INR 10,000 crore to offer equity-based funding to MSMEs having growth potential and viability. It also requests MSMEs to list on bourses.
Of late, the Reserve Bank of India (RBI) gave a boost to MSME in the form of credit support. Exim Bank received a credit line while the credit facility of SIDBI was rolled over. Furthermore, exporters and importers have also got a few added sops, reported The Economic Times.
Earlier in March this year, RBI declared a INR 15,000 refinance facility to SIDBI at RBI’s repo rate for a period of 90 days for on-lending and refinancing which has been rolled over by another 90 days, according to the cited media agency.
3. Businesses Becoming Suitable to Market Environment
The market is distraught as consumers are shunning most of the non-essential items. Essential items like food, sanitation products, and pharma products are only in high demand. As a result, large corporations and MSMEs are struggling to survive, thereby, creating a suite of new products. Businesses, across the country, are switching to essential items business. Now, micro units like apparel shops can be seen selling sanitizers and disinfectants because consumers are not interested in purchasing apparels as it is classified as a non-essential item by demographic.
Even though big corporations like Godrej Security Solutions have started a new healthcare unit seeing the current demands in the market.
As the Coronavirus has hit Indian economy, the government is taking small steps to control this contagion. Businesses have resumed and adequate safety measures are taken. At the same time, the government is forming strategies to gradually reopen other sectors as well.
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