Reinforcing the MSME Sector in the Lockdown Phase
- BY Jaspreet Kaur
Feature Writer, BusinessEx
- Aug 10,2020
- 12 Mins Read
Even though nationwide lockdown has been lifted, the economy has not come on the track yet. Similar to the lockdown phase, small businesses are still grappling to survive in the market. Owing to the layoffs, furloughs and pay cuts, the consumption rate of the masses have dramatically decreased, in turn, begetting plummeted demands. Thereby, MSMEs are seeking financial support to withstand the pandemic-led hailstorm.
Before the onset of the pandemic, the country's MSME were already struggling for survival.
According to the latest report by Council on Energy, Environment and Water and the National Institute of Public Finance and Policy (CEEW-NIPFP), the MSME sector, despite its rapid expansion in the past few years, was already in distress before the COVID-19 lockdown due to a perceived lack of creditworthiness. While short term relief measures are imperative to ease working capital constraints, the benefits of indiscriminate lending will be short-lived and only delay the inevitable nonperformance of assets.
To uphold the MSME sector, the government has to form a thriving regime for small businesses and create structured amendments to the existing reforms. The report suggests four relief and recovery actions, “recognise micro, small and medium enterprises along with their workers; create a vulnerability assessment framework for MSME segment; Enhance capacity of the SAMADHAAN system to efficiently clear government dues; improve creditworthiness of small businesses”
Recreating the Economy
To uplift the MSME industry, government bodies along with the private ones have to work together. They have to concertedly create a sustainable, flourishing environment for small businesses. They further should address lack of employment opportunities and create new ones for the unemployed demographic. The MSME entrepreneurs have to be stimulated to upskill themselves.
Digitize the Business
Digitization of every business is another solution that will help increase revenue. By digitising the business, a company will have a wide consumer base to target. More so, this eliminates the need to have a physical space for walk-in customers. Now, small businesses can showcase products virtually, thus, digitization becomes cost-effective and efficient.
In response to the pandemic-led downturn, the government had proclaimed a INR 20 lakh crore Atma Nirbhar scheme. Despite increased loan disbursement under the package, the MSMEs are not able to fully benefit from it.
When woes of the MSMEs were not lessened, the government launched a slew of other measures as well. In late July, it released a mentoring platform, Restart India. The platform gives information regarding various plans that are initiated by the government. It acts as a niche for advisory support. It connects MSME companies with experts working in diverse fields and is in association with the Atma Nirbhar plan. Muthoot Fincorp and INKtalks are together conceptualising the platform.
Following this, the government agreed to offer salary assistance upto INR 1 lakh crore to the MSME segment for continuous three years. This is one of the propositions used by the government to uphold the falling out economy. According to the media reports, a minimum number of employees hired by the unit could serve as selection criteria and the support could be extended for upto three years.
Of late, the RBI has provided a lifeline to distressed SMEs by enhancing the provision of restructuring of loans. According to the media reports, the central bank has agreed that the MSME borrowers will be eligible for restructuring their debt under the existing framework, provided their accounts with the lenders were classified as standard as on March 1, 2020.
The recovery of the MSMEs is mainly dependent on managing problems like poor financial background, inflated consumer demands, and employing migrant labourers. Although, the government is forming a slew of reforms for MSMEs, it has to be observed if MSMEs recover or not.
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