One in four MSMEs may shut if coronavirus lockdown extends beyond eight weeks: PHDCCI President
On March 24, 2020, Prime Minister Narendra Modi announced nationwide lockdown to contain the spread of the novel coronavirus. Manufacturing units were shut, exports blocked, and supply of goods to the markets restricted.
This crippled the MSME sector, where businesses largely depend on recurring sales to meet fixed costs.
Further, the freeze in production in China meant Indian MSMEs in the automobiles, pharmaceuticals, and apparels sector were disrupted, as they are dependent on Chinese components.
During this nerve-wracking and make-or-break period for small businesses, SMBStory spoke to DK Aggarwal, National President, PHD Chamber of Commerce and Industry (PHDCCI), about the current scenario and what measures can help MSMEs.
Aggarwal said the closure of malls, gyms, pubs, restaurants, spas, bazaars and vegetable markets have resulted in a “complete blackout” of revenue streams for small entrepreneurs.
“25 percent, or one in four of India’s 6.9 crore MSMEs might get closed if the lockdown extends beyond four to eight weeks,” he says, adding the number could go even beyond 25 percent.
PHDCCI National President DK Aggarwal
While the PHDCCI has submitted timely inputs to the government of India for boosting the performance of MSMEs in this scenario, a lot more work needs to be done to give a lift to the struggling sector.
Edited excerpts from the interview:
SMBStory [SMBS]: How has the lockdown impacted the MSME sector?
DK Aggarwal [DKA]: The lockdown has the potential to restrict the demand for MSMEs products, and the disruption in the supply chain has a tendency to push prices for raw materials up. This may negatively hurt MSMEs’ cash flows.
Also, as a result of payment delays, MSMEs face financial hardships and liquidity constraints, which lead to pressure on their working capital management. Further, they have low or zero manpower due to the unavailability of migrant workers. These factors severely affect the sustainability of their operations.
The immediate challenge for MSMEs is to pay statutory dues and wages, and to repay creditors. The payment of PF, GST, advance tax and running cost, including the payments for electricity, water and other bills, EMIs for pending loans from banks or financial institutions, are severely hit for the MSME sector. This calls for seeking soft loans and deferment of GST by MSMEs to embrace the crisis.
MSMEs pertaining to supply chains of hotels, airlines, logistics, and tourism and transport have seen their businesses drop. Other impacted sectors include consumer goods, garments, and automotive sector, which have seen a sharp decline in their export orders.
SMBS: What does the PHDCCI do?
DKA: PHDCCI, established in 1905, is a proactive national apex chamber working at the grassroots level, and has strong national and international linkages. We have 1,30,000 companies in our member base. We focus on the development of small and medium businesses.
We help provide information and guidance to MSMEs to access financial assistance under various subsidy and assistance schemes of the government, facilitating MSMEs for raising fresh capital and credit, provide information about government procurement operations and government tenders, and maintain a technology bank to provide information about appropriate technologies.
We also provide new project ideas and project profiles, facilitate MSMEs to participate in national and international events, provide consultancy services for various government agencies and MSMEs, and a lot more.
SMBS: What efforts are being made to address the pandemic situation?
DKA: Through our member industry stakeholders, around Rs 450 crore has been contributed so far to the PM-CARES Fund, which aims to help India get relief from the pandemic. Many of our member organisations have also extended help to various state governments and provided ventilators and other hospital machines and essentials required to cater to the increasing number of patients at hospitals and medical centres.
There is still a need for sizeable funding for industry and MSMEs to restart and stabilise. They currently have frozen incomes and large amounts blocked in inventories, apart from huge outgoing wages and salaries.
SMBS: What is the way forward for MSMEs and what more needs to be done to help them?
DKA: MSMEs are facing various challenges to meet their financial requirements, hence, at this juncture, collateral requirements by the banking sector from MSMEs against sanctioning loans should be removed.
Additional 25 percent enhancement of their existing working capital limits should be granted to MSMEs by banks and financial institutions, without any new application or collaterals.
Interest subvention of two percent should be given to all severely-affected industries, such as travel and tourism, aviation, leather, textiles, hospitality, and electronics. Since MSMEs are facing various challenges to fulfil their financial requirements, the interest subvention for MSMEs should be three percent.
The recent cut in corporate tax for domestic firms is highly appreciable as it will significantly accelerate investments in manufacturing, open up new employment opportunities, and kickstart the economic growth trajectory of the country.
Going ahead, it is suggested that the corporate tax for proprietorship and LLPs, which are more than 95 percent of MSMEs, should be reduced to 25 percent for old companies and to 15 percent for newer companies in these difficult times.
Further, the change in the definition of MSMEs based on turnover should be notified quickly so that many MSMEs being adversely-affected can access concessions being made available to MSMEs.
The government of India and the state governments must also clear all outstanding dues and payments of MSMEs by April 30, 2020. All IT/GST refunds for all MSMEs should be cleared.
Lastly, the lockdown period should be declared a zero financial period, i.e., no interest on borrowing, no GST/excise liabilities and no time barred cases for a period of six months. Also, all previous payments may be deferred for three months after the lockdown period.
(Edited by Javed Gaihlot)