Sway of Covid-19 on the MSMEs

The (MSME) micro, small, and medium enterprise sectors generate the second-largest employment opportunities after agriculture in India. It acts as a development ground for emerging entrepreneurs and innovators with substantial support in escalating the business ecosystem. There are an estimated 64 million MSMEs in India and offer employment opportunities to 111 million individuals. The MSMEs based in India produces more than 6,000 products for both local and global consumption. MSMEs are exposed to a higher level of integration with global value, and supply chains play a critical role in international trade systems. The statistics from 2019 show that the MSME sector contributed 30% to the overall GDP.

The micro, small, and medium enterprise sectors act as a stimulant for the country’s socio-economic development. Its importance escalates even more, when the government targets to achieve the novel mission of $5 trillion economy target by 2025. To achieve the target, the MSME sectors will play an important role, with an anticipated contribution to GDP beyond 50%. The MSME sector’s potential in India is still introductory, which is why government policies are now coming together towards building flexible ecosystems with better depth and breadth.

 

The declaration of global lockdown paused MSME owners, employers, and extraneous stakeholders at unforeseen times, where no one had experience handling this critical situation. The lockdown extension had negatively affected the supply of the goods produced, the acquirement of raw material, and employees’ availability to work for the further production and supply processes. From April to June 2020, the MSME sector has faced many challenges associated with debt repayments, wages/salaries, statutory dues, etc.

Several study reports have shown that interruptions caused by the Covid-19 pandemic have affected the Msme’s earnings by 25-50%. The micro and small enterprises have encountered maximum heat, mainly because of the liquidity crunch. Enterprises serving in important commodity businesses were sound compared to the interrupted business. Some enterprises had to shift their focus from non-essential goods towards essential goods, which why there was an increase in the production of masks, hand sanitizer, and toiletries, PPE kits, etc., and survived in tough times. The MSMEs located in the remote areas also had to face many challenges because of the interruption in the supply chain systems and intrastate lockdown provisions.

Not only the enterprises faced challenges, but even the consumers were also left with less disposable income. Many businesses laid-off their employees because of their inability to pay salaries, left their offices due to incurring debts, and suspended production due to less demand. In future trade and bounce back of new normal, uncertainty keeps financial institutions at bay to increase any new financial lending or potential cover risk. All the uncertainties need a government’s push to boost market confidence and bring back the economy’s expected cash flow.

The economic slowdown, along with border tightness, had again pulled us to focus back on self-sustainable contents, the Swadeshi dream. The Atmanirbhar Bharat Mission was introduced to face two heating issues simultaneously, one to boost-up the MSMEs, and the other one is to be less dependent on foreign countries.

Out of 15 relief measures declared under this package, six measures were taken only to empower MSMEs. These six measures are:

  1. Change in the definition of MSME
  2. Credit and finance scheme
  3. Distributing funds for equity participation
  4. Relaxation in Non-Performing Asset
  5. Clearing off dues to MSMEs
  6. Denying Global Tenders

The government is taking steps towards improving MSMEs and the overall business environment by making it more conducive and transparent.

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