India’s micro, small and medium enterprises (MSMEs) are grappling to survive amid this groundbreaking crisis. Experts are still uncertain about the scenario of these small companies at the end of the coronavirus pandemic. Many questions like “how many of these MSMEs will stay afloat or remain as standard accounts on the books of banks,” remains unanswered during this unpredicted crisis.
However, a deeper analysis of the situation will help you to understand.
How bad is the condition of the MSME sector?
Mostly, MSMEs are the first to be badly affected during an economic downturn when compared with the big companies. So, this time too many small and medium companies are seriously affected due to the coronavirus outbreak. The demand has dripped down to almost zero and a good number of skilled laborers have moved back to their hometowns complicating the matter further. Even some of the companies are unable to pay salaries to the existing workforce.
How important are MSMEs to India?
These small and medium companies are very important for employment generation. India’s MSME sector contributes over 28 per cent of GDP and more than 40 per cent of net exports and employs around 11 crore people. MSMEs are one of the major employers in the Indian economy, especially in rural areas. This is the reason why the government must ensure that the MSMEs survive this pandemic.
How many of them will get through the pandemic?
According to a survey by the All India Manufacturers’ Organisation, about 35 per cent of micro, small and medium enterprises and 37 per cent of self-employed individuals have already started shutting their businesses, stating they saw no chance of recovery.
What the government has done?
A collateral-free loan scheme was announced by FM Nirmala Sitharaman, to help MSMEs. Under the scheme, the government will act as a guarantor to compensate banks for a percentage of the potential losses if the money isn’t repaid.
Companies with a turnover up to Rs 100 crore can avail this benefit for a tenure of four years, Sitharaman said. Also, these loans will offer a moratorium of 12 months on principal payments. Approximately 45 lakhs units will benefit from this scheme. Companies can draw up to 20 percent of the outstanding loan as of 29 February.
What lies ahead?
The survival of MSMEs majorly depends on how soon economic activities can get back on their track. The demand needs to increase for the revival of MSMEs. Cash flows need to stabilize. Moreover, as per the experts banks need to think for MSMEs in order to help them revive.