Third wave: How are MSMEs faring?
The threat of a third wave of the coronavirus pandemic had been looming for a long time. However, with the number of people getting vaccinated only rising month-on-month, there was still hope that a third wave would not necessarily land.
Nevertheless, almost eight months after the draconian second wave hit us in May 2021, the third wave has now come knocking, this time with a new variant, Omicron, termed as a ‘variant of concern’ by the World Health Organisation (WHO), and also deemed to be highly transmissible by health experts. What’s more, individuals who have been vaccinated with both the doses are also getting infected.
India’s Omicron tally, as of January 16, stands at 7,743 cases whereas the overall cases stand at over 2.71 lakh.
India’s micro, small, and medium enterprises (MSME) industry has shown resilience during the first two waves, and in this article, we explore if surviving the first two waves has made a difference at all in helping the industry cope with a third wave.
First, second and now a third…
Vivek Agarwal, Partner at KPMG, India says, “MSMEs have been the driving force of the Indian economy, promising growth, generating employment, and promoting inclusive development across the country.”
According to research firm India Brand Equity Foundation, India is home to about 6.3 crore micro, small and medium enterprises (MSMEs). They form the backbone of the Indian economy, contributing 48 percent to India’s exports, making them a major revenue generator for the country.
“However, with the two deadly waves of COVID-19 hitting the country, the impact on MSMEs has been heavy with units forced to shut down, creating a crunch on resources, and rendering them highly vulnerable,” Vivek adds.
And now the third wave has struck Indian shores. Although a blanket lockdown has not been imposed, Vivek says that the “mere buzz of a possible lockdown and covid restrictions” creates immense business uncertainty.
Moreover, weekend curfew and allied restrictions at night are responsible for chopping off the demand from this sector.
SMBStory spoke to a Delhi-based small business owner who did not wish to be named. Involved in the manufacturing of motor pumps, he says the demand is very low which is why he has decided to “keep the stock of inventories also very low. Demand is one-thirtieth of what it was earlier. Raw material prices have gone up considerably, which has made the day to day running of the business very difficult.”
The SMB owner also added that as a tool to survive the third wave, they have stopped taking orders on credit.
“Assured payments and no credits is one of the ways that is helping us cope with the current situation.”
According to a report by Dun & Bradstreet, lack of market access (42 percent), overall productivity improvement (37 percent) and access to more finance (37 percent) are the top three challenges cited by MSMEs.
Bangalore-based FMCG brand, GRUhasutram had to rethink its approach in the wake of the third wave. Facing supply chain disruptions and drop in B2B sales apart, the brand pushed its digital presence to cope with the present scenario. “To ensure continued sales of growth, we are directing our efforts at building a solid digital presence for our brand. While the B2C part of our business has grown during the pandemic, B2B sales have definitely taken a hit,” says its co-founder Usha.
Arun Nayyar, CEO of NeoGrowth Credit, highlights that certain segments such as salons, spas, restaurants will face the heat of the current scenario more than the others.
According to the same report by Dun & Bradstreet last year, 82 percent of the MSMEs claimed to be negatively impacted. Additionally, on a sectoral level, manufacturing firms were largely impacted (90 percent) versus the services sector (78 percent).
Another reason why the third wave has caused concerns in the business ecosystem is because it could lead to loss of jobs and unemployment, something that was apparent during the first two waves.
A survey by community social media platform LocalCircles reveals that 59 percent of participants are likely to scale down, shut down, or sell their businesses this year on account of the impact of the second COVID-19 outbreak in the country. The survey also revealed 49 percent of respondents planned to reduce employee compensation and benefit costs to sustain themselves.
What is the solution?
As the third wave is still raging across the country, an assessment of its true impact is still awaited. However, there is hope and the situation is not all dark and gloomy, says Jaspreet Dhingra, Founder of BANC.
“I strongly believe that the current form of COVID-19 Omicron would have an impact of about 10-15 percent on their top lines and they would see a stronger recovery in the coming months.”
He says that “people who are infected with Omicron are recovering fast” and flexibility of the government in not imposing blanket restrictions has upped the optimism of business owners and consumers.
Arun adds that “help from the government” and measures that ease doing business can further help the sector overcome a potential crisis. “Timely and affordable finance will help MSMEs put the right measures in place for their business.”
It is also widely proven that Indian MSMEs have realised that they need to adopt digital tools in order to survive and thrive. The Delhi-based SMB owner we spoke to also highlighted that he plans to take measures to “upskill his manpower” before bringing about any major technological changes.
Deepak Sood, Secretary General of ASSOCHAM highlights, “While the formal segments of the MSMEs have been able to take advantage of different government schemes like credit guarantee, those in the informal sectors do need effective intervention and holding of hand.”
He says that all eyes are now on the forthcoming Budget, and he urges the Finance Minister to respond to the calls of this sector. After the Rs 20-lakh crore Atmanirbhar Bharat stimulus package, Rs 3 lakh crore Emergency Credit Line Guarantee Scheme and allocation of Rs 15,700 crore to this sector, it is time to watch out for the next move the stakeholders have planned for this sector.