Date: April 17, 2020
“What we want the government to do is to pay salaries to employees of MSMEs”, said Rajeev Saini, who owns a manufacturing unit of engineering goods in TTC Industrial Area, MIDC. “The government says do not retrench employees, do not cut salaries. All of us who own units are more than ready to do it, but where are the revenues? Factories are shut, materials are lying unused and suppliers have to be paid, bank loans for machinery, electricity bills–all these have to be paid even if the government is giving us relief with regard to late payments,” Saini said.
The government is considering providing payroll support and overheads for the MSME sector for 110 mn workers and staff which could cost up to around Rs 1-1.5 lakh crore. There are an estimated 6.33 crore unincorporated MSMEs employing 11 crore persons across the country. The sector contributes nearly 30 percent of India’s GDP and close to half of the country’s total exports.
On 15 April, Union Minister Nitin Gadkari held talks with the representatives of the micro, small and medium enterprises (MSME) industry and assured them all possible help from the government to tide over the challenges created by the coronavirus-enforced lockdown.
Cash flows hit
Several MSME units in the country have not been in a position to conduct normal business activities since the coronavirus outbreak and subsequent Janata Curfew. This has adversely impacted their cash flows, eroded at least six months of their potential profits, and led to a tightening of their liquidity positions, said Mahesh Singhi, Founder and MD, Singhi Advisors, a deal advisory firm. “The government will have to place an onus on rolling out long-term fiscal interventions to revive the MSME sector which plays a key role in generating large-scale employment and contributes to the growth and development of the economy. Priority focus should be given to providing a dedicated funding pipeline to MSMEs in the form of a financial package to raise affordable working capital for business sustenance and expansion,” he said.
Govt offers relief to the MSME sector, stakeholders say take care of salary payments, provide 6 months interest waiver on loans
Representational image. Reuters.
The losses suffered by various sectors will be huge and some may time a long time to recoup. Arjit Rawal, Director, Logitech India Private Ltd, said, asset-heavy companies can take a longer time to recover if they are dependent on clients belonging to sectors like construction, etc. “Whereas asset-light companies will also face several difficulties but can be more flexible and agile to adapt to the situation. The difficulties will be faced in manpower shortages in the unskilled sector, manufacturing shutdowns and cash flows due to debtor recoveries,” he said.
March is the year-end month and many MSMEs claim they would have closed it with higher revenues. But everything got scuttled by the virus outbreak and subsequent lockdown. “Our warehouses are shut and sales are on a standstill. Based on the current situation of extended lockdown, we are expecting a further hit of 15 percent on our top line and around 25-30 percent hit on our bottom line,” said Rohini Walia, Director Sales and Marketing, Thomson Audio India.
Workers afraid to resume work
Most of the workers employed in the MSME sector are living in the cities while a small fraction has left for their home towns-to be near their family members in the time of coronavirus outbreak. Though the government has now said certain sectors will be allowed to resume operations, the MSME sector is worried if their workers will resume work. “We have two factories–in Vapi and Daman. Most of our workers have left-a large majority is migrant workers,” said Siddharth Desai, Partner, and Director, Hindustan Electric Motors. “My worry is that if we were allowed to open our units; where do I go looking for my workers? Migrant labor has left. Our highly skilled labor who operate presses, some are dye makers–these are people from other states. They have all left the Vapi and Daman units. How will we get them back soon,” he asked.
Another worry, or rather the major worry of the sector, is the payment of salaries. Desai said that though he has paid his over 100 employees’ salaries for the month of March (factories functioned till lockdown was announced on 25 March), he wonders how he will be able to pay them for the month of April. “The government has asked us to make 100 percent salary payments. But there is no revenue. How do I retain my employees? It will take some time for the sector to recoup,” he said.
The finance minister had announced an easing of tax deadlines and business regulations, but these do not percolate down to the government departments who continue to ‘harass’ MSME units even in the time of a lockdown. Some association members have complained to the Chamber of Small Industries Association, Wagle Industrial Estate, Thane, of the Provident Fund (PF) department who called up a few units asking them to pay the dues. “There is a lockdown and the units are struggling to make payments for salaries,” said Eknath Sonawane, Executive Secretary, Chamber of Small Industries Association, Thane. “In these times, the PF department has been asking us to make the dues. How are we supposed to do it when the sector is shut with no manufacturing taking place? We struggle to make cash payments to workers as there is no permission to go to the factories,” he said.
City transport services are limited to emergency staff and those with special travel passes. All trains and flights have been suspended. The lockdown makes it impossible for teams to travel and work on projects. This has brought about an unexpected challenge.
For any consultant company, clients and employees are two stakeholders and both are working remotely. Amit Aggarwal, Co-Founder and Director of Effectual Services-Advisory firm that offers IP support solutions to Fortune 500 companies, said, given how quickly the slowdown swooped globally, the speed at which the company normally receive work orders has suffered – this might be due to the slow decision-making process which is a result of people working remotely.
What the sector expects from govt
An MSME-focussed B2B player-Tradeindia.com said the Centre should prepare a composite MSME policy framework to soften the economic blow rendered to the sector during this difficult time.
To revive this sector, sustenance is the key, said Prakash Padikkal, vice president, TTC MIDC Industries Association, Navi Mumbai. “Employees have to be paid salaries. For the sector to sustain until the end of the lockdown extension, the government should lend a supporting hand by taking care of one-third of the salaries of employees. This issue can be resolved if one-third amount of the total salaries to be paid are taken care of: 33.3 percent government can pay, 33.3 percent by the employer, and the employee should be ready to give up 33.3 percent if the lockdown extends further. The government should also consider opening up the non-priority sector with limited labor just like it has announced for the essential sector. The government should ensure that the supply chain network is established for raw materials,” Padikkal said.
Many MSME units have taken overdraft (OD) facilities from banks, incurring an interest, so as to be able to pay staff salaries. An owner of a micro workshop measuring 500 sq feet in the Thane industrial area told Sonawane that he paid the salary for March to his five employees by taking an OD facility from a bank. However, he is worried about making payments for April. “It is a serious crisis-like situation and may lead to some units being shut down and a rise in unemployment,” Sonawane said.
Siddharth Shenoy, President, Bombay Industries Association said, if the government was considering payroll support, it should do so on ‘war footing’. “Roll out the terms of this directive at the earliest. We only hope that there is no added pressure on the MSME space in the future because of this move,” he said.
Not just revenues of the units in the sector but also GST collections will take a hit, said Ram Iyer, Founder & CEO, Vayana Network, one of the largest 3rd party supply chain finance platform. He suggested the government create adequate trade finance support to deal with massive increments in demand. “A trade finance support by the government would involve creating business continuity plans that involve more automation with suppliers and customers”, he said.
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