SMALL BUSINESS, BIG STRESS
Business Today|August 08, 2021
Government relief measures for MSMEs have benefited only a few players. A large number may be unable to survive the pandemic
ASHUTOSH KUMAR

The last 15 months have been a non-stop downhill slide for Ananya Bahl, who runs a small unit manufacturing mobile chargers in Delhi’s Samaypur Badli industrial area. The second-generation entrepreneur’s woes started last March after the nationwide lockdown due to the Covid-19 pandemic. That meant the 27-year-old couldn’t collect his dues from pre-Covid sales. His costs spiralled after the lockdown was lifted. Now, as the second wave ebbs with the possibility of a third looming, Bahl’s business has all but been run into the ground.

“There is no demand, due to which manufacturing units have been impacted. Compared with March 2020, output has plummeted by almost 80-90 per cent,” says the second-generation entrepreneur. “Even if you set aside the generic cost of transport, specific raw materials related to my sector have seen a massive price rise on account of the import ban from China. Prices of raw materials such as charger cabinets, copper wires, and circuits have gone through the roof,” he adds.

On top of that, he is struggling to access capital under a government scheme for small businesses. Bahl says his multiple trips to a public sector bank for a collateral-free loan worth ₹30 lakh have been futile. He concedes that the fear of a third wave has stifled the prospects of recovery in the unorganised sector and made people wary of making investments.

Bahl’s story will find succour among many of the 6.33-crore micro, small and medium enterprises (MSME) that dot the country. Their combined worth was ₹60 lakh crore and they accounted for at least 30.27 per cent of India’s GDP in 2018/19, according to the Ministry of Micro Small and Medium Enterprises’ 2020/21 annual report. Not to mention the 11 crore-plus jobs MSMEs have created, according to the 2015/16 National Sample Survey. But all of that is under siege now.

MSMEs are in dire straits as an economic slowdown has added to their litany of woes such as limited access to capital, high raw material cost, supply chain disruptions, labour migration and overdue collections. As a result, several firms haven’t been able to resume operations even after state-specific lockdowns were eased after the second wave. Those that have restarted were able to do so after either curtailing their operations or their workforce.

Roughly two out of every three respondents to a survey — conducted jointly by the Federation of Indian Chamber of Commerce and Industries (Ficci) and Dhruva Advisors in June — say the MSME sector has faced the brunt of the second wave of the pandemic and needs immediate relief.

Existential Crisis

Sanjay Aggarwal, President of the PHD Chamber of Commerce and Industry (PHDCCI), an industry body that has a large representation from MSMEs, explains the hurdles the sector faces. “Firstly, the MSME supply chain is completely disrupted and they do not have the capacity to handle it. Secondly, a spike in commodity prices translates into higher working capital requirements. With depressed demand, margins come under stress. Thirdly, there is a huge pendency in both government as well as PSU payments to MSMEs,” he says. His conclusion is dire. “All these factors combine to give a death blow to small industries.”

And this is for the firms that made it as far as this March. About 70 per cent of small businesses were disrupted from March to August last year, and 40 per cent until February this year, according to a survey by US commercial data firm Dun and Bradstreet. There is a very real fear that a large number of MSME entities may permanently shut shop after the debilitating effects of the second wave of the pandemic.

That fear is palpable in the industrial hotspots in the country, from Bawana in outer Delhi to Chandrapur MIDC in Maharashtra, and from Kovai in Tamil Nadu to South Delhi’s small industry cluster of Okhla.

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