Small Business For Delhi – The pandemic has left India’s small business sector in a tailspin. More than six million companies were closed at the start of the pandemic, and there are few signs of improvement.
Indian men work in a garment factory in Ludhiana, India’s industrial capital. Small and medium enterprises (MSMEs) are the backbone of the Indian economy. Photo: AFP
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As India’s economy is ravaged by the pandemic, hardware manufacturer Prakash Padikkal on the outskirts of Mumbai can do his bit for the ongoing crisis.
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“Input costs have doubled, credit is no longer available, margins are thin,” said Padikkal, whose company, Havistha Steelfab, supplies industrial steel equipment. “Businessmen can’t pay their debts.”
Padikkal’s company is one of India’s 63.4 million small and medium enterprises (MSMEs). The sector, the backbone of the country’s economy, provides employment to more than 120 million workers, contributing to a quarter of the country’s income from the service sector, the a third of its industrial output and 45% of its profits are exported, according to the Federation of Indian Industry, a trade association in New Delhi.
But two years of epidemics caused problems. A survey of 5,774 retailers conducted by the National Small Industries Association in August 2020 found that 9% had fallen. It is estimated that six million MSMEs across the country were shut down at the start of the epidemic.
There is no sign that things have improved much since then. The sector’s bad loans rose 18% in 2021 to $16.81 billion, according to the Reserve Bank of India.
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“The problem is deeper than the government’s data programs,” said Girish Pandian, President of Guindy Industrial Estate, an industry association in Chennai with more than 400 MSMEs as members. “Many entrepreneurs have sold their businesses and gone to work for others.”
With many MSMEs on the sidelines, the country’s budget, unveiled on February 1, revived hopes for a stimulus package. Instead, all that was offered was group help.
Finance Minister Nirmala Sitharaman’s decision to extend the Emergency Line of Credit for MSMEs till March 2023 has been criticized by Sangeeta Ghosh, assistant professor at the Institute of Industrial Development Studies in New Delhi. The credit program, designed for companies that have already borrowed from official sources, is of little help, he said.
“It does not help small businesses that do not have the resources to borrow from official credit sources, which are the majority of MSMEs in the country,” he said.
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Sitharaman’s announcement that 68% of the country’s defense budget, or $11 billion, will be allocated to domestic manufacturers is the biggest boost for SMSEs, said Vinod Kumar, president of the Small and Medium Enterprises of India, a trade group of 86,000. This is the first time that a separate portion of the country’s defense budget has been allocated to construction as Prime Minister Narendra Modi’s government has stepped up efforts to encourage foreign defense companies to build the region.
“What this will do is create a supply chain for these big manufacturers,” Kumar said, “and a big part of that supply chain will be businesses from the MSME sector.”
The problem isn’t a quick fix. “This will happen over time and if the MSME sector survives this difficult phase,” he added. “For now, the government needs to focus on the short term to avoid closing down many factories.”
Last month, a draft of the upcoming national policy on the country’s MSME sector was released. The idea is to improve access to finance for the sector, push for technological improvements for small businesses and ease of doing business through faster approvals and improved operations.
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According to Pandian, the MSME sector had hoped for government intervention to control the prices of commodities such as steel, copper and plastics, which have gone up in the last two years.
“The role of the government is to regulate and control the prices of key inputs such as steel and plastic, which are raw materials for most MSMEs,” Pandian said. “This step will help reduce our costs and keep us on track.”
Besides, Pandian said his party has requested the government to freeze interest rates on loans given to MSMEs for the next two years. That will help the industry find its feet again, he said.
“Even now, we don’t get reliable electricity, water and utility bills in the rural areas of the country,” Kumar said. “This needs to be changed in order for small businesses and entrepreneurs in rural areas to survive and thrive.”
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“Currently, MSMEs are broadly defined and most of the projects announced for the sector are focused on large industries instead of small and micro enterprises, which are the most vulnerable,” Ghosh said. .
Finally, he said, the government should announce a wage guarantee scheme for workers in the sector.
“The government should look at offering a wage guarantee by paying up to 30% of workers’ wages to workers in small businesses, based on what the UK government did recently,” he said. says Ghosh to the decision of the British government. March 2020 to pay up to 80% of wages to workers up to £2,500 per month for three months, to prevent employers from laying them off.
If none of these measures are in the budget, business owners can panic. Pandian said urgent action is needed to end the crisis as “businesses are still closed.”
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Kunal Purohit is a Mumbai-based journalist who reports on development, social justice and foreign policy. His work has appeared in publications including the South China Morning Post, Foreign Policy and Al Jazeera. He is a graduate of the University of London’s Institute of Oriental and African Studies.
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