Saving MSMEs essential now
Covid-19, triggered by novel coronavirus originated in China, is now killing thousands of people around the world. That apart, the world economy is on...
Covid-19, triggered by novel coronavirus originated in China, is now killing thousands of people around the world. That apart, the world economy is on a mat thanks to lockdowns. International Monetary Fund (IMF) already declared that global economy entered recession which could be as bad as or worse than 2009 global meltdown. This is a clear indication as to where economies around the world are heading now. It is laudable that India acted fast and declared a 21-day lockdown to rein in Covid-19 spread. Due to lack of adequate healthcare infrastructure, the country will not be in a position to provide healthcare services to all if the deadly virus spreads and Covid-19 cases rise exponentially a la Italy, Spain and the US, the developed countries that are struggling to provide hospital beds to corona patients.
Then, one can imagine the plight of India which is home to a large number of poor people. But the lockdown has its side-effects. It is now crippling the Indian economy. And the industry is the biggest victim. More so is micro, small and medium enterprise (MSME) sector which accounts for 33 per cent of the country's manufacturing output and 45 per cent of the total exports. As per official data, there are over 6.3 crore MSME units which employ 12 crore people and produce over 8,000 types of products. More importantly, an MSME generates 24 jobs for every Rs 1 crore of investment it makes.
Such a high employment generation is not possible for large companies though they make big investments. These numbers buttress the importance of the key sector. Further, for a country like India which is home to 1.3 billion people, MSME sector is imperative as it creates much-needed jobs. But it is a well-established fact that MSMEs operate on wafer-thin margins, pay high interests on loans they borrow and are not as financial strong as large companies. That is the reason why the ongoing lockdown is leaving a debilitating impact on the MSME sector.
Many MSME owners are not in a position to pay salaries to staff as their operations came to a grinding halt now. If the lockdown continues longer, this sector will indeed be in financial doldrums. And many MSMEs will shut operations permanently if the governments do not handhold the sector. Recently on March 19, Union MSME Minister Nitin Gadkari informed Rajya Sabha that MSME sector in India is on verge of collapse as private and public sector companies are delaying payments to MSMEs. As per his estimates, large private companies and government entities owe Rs 5.5 lakh crore to Rs 6 lakh crore to small businesses.
This amount may have ballooned now thanks to the lockdown. So, to save MSMEs from collapsing, the Central government should direct all the companies to clear all pending bills to the sector. It should also extend financial support so that small businesses can pay salaries for their staff during the lockdown. Besides, the State governments should immediately release pending incentives. Otherwise, this key sector will land in a mess, which will in turn have a cascading impact on economy and job creation. Therefore, it is essential for the governments to save MSME sector at this key juncture.