Small biz, big trouble: Covid-19 disruption might prove fatal for many of India’s MSME units


In the afternoon of April 23, Thursday, greater than 100 small businessmen round Mumbai and Thane met by a convention name over the net conferencing software program Zoom, to debate the reopening of companies after the lockdown. There was a fast consensus within the assembly that went on for almost two hours — nobody is able to restart instantly. The provide chains for uncooked materials merely don’t exist at this level, though some units have permissions to function and others expect it in early May.
The assembly, organised by the Mumbai-based IMC Chamber of Commerce and Industry, had businessmen seeing May-end as a believable date for reopening. But there was one other, extra startling, consensus rising on the assembly organised to debate a reopening playbook — no less than 25-30% of the companies wouldn’t survive the disaster created by the Covid-19 pandemic.

ET Magazine spoke to a dozen businessmen from throughout India — house owners of companies that match into the class of micro, small and medium enterprises (MSME) — and located that this sense of watching an abyss was pervasive. The greatest fear is, of course, a liquidity crunch, adopted by a disrupted provide chain and labour availability. The sector employs virtually 12 crore individuals, making a big quantity of the nation’s households depending on the 63 million MSME units. It additionally accounts for a 3rd of India’s manufacturing output and 45% of exports.

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Many units have paid their employees wages for March in full and are ready for April funds. While there are not any revenues now, there’s a authorities mandate to maintain paying salaries and wages. There are different payments like electrical energy and water that additionally should be paid. But with out revenues or substantial authorities help, there is no such thing as a approach they will keep it up in May and past. “Wages and salaries are the biggest issue, and everyone is sweeping it under the carpet,” says Ashish Vaid, president of the IMC that can also be a federation of 170 trade associations from western India.

Labour Lost

Vaid, himself a realtor with annual gross sales of Rs 200 crore, says all MSMEs ought to be eligible for financial institution loans equal to 3 months wages at repo charges. Multiple trade associations, together with the Confederation of Indian Industry, have petitioned the federal government for a bailout package deal for the MSME sector (basically all companies with capital investments as much as a most of Rs 10 crore).

Apart from loans to cowl wages, there are othercommon requests like suspension of contributions to worker’s provident fund and Employee State Insurance Corporation (ESIC) for six months. Some demand that there ought to be a clawback of GST that has already been paid. Easier entry to financial institution loans, particularly at low charges, with assist from the state and central governments, is one other frequent theme, as is a moratorium on repayments for six months and a 25% enhance in working capital loans. Seeking extra loans and a simultaneous moratorium on repayments are additionally an indication of underlying desperation within the sector.

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Take first-generation entrepreneur Raja Shanmugam of Tiruppur. His 31-year-old knitted T-shirts manufacturing unit Warsaw International employs 650-800 employees. At least 150 employees are at present lodged within the firm’s hostels at Tiruppur. It is a labour-intensive trade and the annual wages invoice is sort of 30% of gross sales. Payment from his Indian in addition to European patrons stopped in March, and Shanmugam has not been capable of ship accomplished orders both. He needs the federal government to make use of ESIC cash to take care of the employees’ wages from April onwards.

DK Aggarwal, president of PHD Chamber of Commerce and Industry, an affiliation of MSME organisations throughout states, says restarting units received’t be straightforward as a result of of the liquidity crunch that the sector is going through. “Cash move has stopped.

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After paying April salaries, all MSMEs shall be hand-to mouth.

Plus, there shall be no demand, and employees would have additionally left for their villages.”

Reopening vegetation in May might result in income flows restarting. But issues received’t be so easy. While there’s common consensus that companies ought to pay their employees by the lockdown, there are a number of restrictions on the use of the identical workforce as soon as a manufacturing unit reopens.

Strict guidelines for social distancing whereas reopening will not be viable for manufacturing units, particularly MSME units which have small premises. Nayan Patel, a former president of IMC, defined that his personal enterprise, which makes movement management units, wants a 150-member shift, with a number of processes, that can’t function with fewer individuals.

The format and configuration of equipment and workstations are such that it can’t be achieved. Many from throughout the nation echo Patel’s view. For Jaipur-based switchgear maker Anil Saboo, the most important fear is labour scarcity, as many workers have left for their states in jap India.

“There are 15 men living inside my factory today, but the moment the lockdown is lifted, they want to leave for home,” Saboo says.

Gurgaon-based Dev Goel, who runs a package deal substations and switchboard plant from Manesar, sees a big fear in sustaining social distance contained in the manufacturing unit whereas labourers work as welders, or elevate giant gadgets. There was a concern of police motion and FIRs being registered towards manufacturing unit house owners if these norms weren’t adopted and negligence led to Covid-19 infections in employees. The central authorities clarified final week that no businessperson shall be arrested for employees getting contaminated with Covid-19 after reopening. However, restrictions have created impediments. Goel mentioned virtually 95% of the members of the Manesar Industries Welfare Association have determined to attend and watch and never rush into reopening their vegetation, in spite of having permission to restart.

Or, take the case of Chetanbhai Makwana, who runs a medicated cleaning soap manufacturing unit at Gheekanta, Ahmedabad. Makwana had began his cleaning soap unit as an important service, with 20% employees, however needed to shut it down on Friday as just one employee turned up for work.

Broken Chains

Apart from money crunches and labour dislocation, there are severe provide chain and regulatory points which have affected the MSME sector.

For occasion, permissions to restart operations don’t come simply, even if you’re deemed as an important service. Amit Seksaria, managing director of RRL Steels Group in Kolkata, says he obtained a letter from Coal India on April 8, asking him to restart operations. His unit makes floor participating instruments for coal mining and therefore is deemed to be an important service linked to the ability sector. However, his utility for restarting, filed with the state authorities, is but to elicit a reply. While one of his units is in a Covid-19 hotspot, the opposite one is in a rural space. Seksaria additionally exports to the Netherlands and Spain and export consignments have been loaded on containers at his manufacturing unit close to Kolkata for orders from these international locations. “I am receiving urgent missives from my European buyers but I am not able to send these containers to the Haldia port, which I am told is operating,” Seksaria says.

An injection-moulding unit proprietor in Daman mentioned he’s in the same predicament, as he manufactures packaging materials for the prescribed drugs trade, however his utility for restarting his unit has been caught on the collector’s workplace, whereas some of the bigger vegetation have gotten permission. Unwilling to be quoted, he says that as a purchaser of polypropylene from very giant petrochemical firms and a provider of bottle caps to big pharmaceutical firms, his money move is normally squeezed as he has to purchase with money and provide on credit score. The disaster has aggravated his downside.

In giant elements of Uttar Pradesh, whereas there is no such thing as a ban, the non-vegetarian meals chain has nearly shut down. Eggs, although, are promoting. Mukul Tandon, president of the Merchant’s Chamber of Uttar Pradesh, owns a poultry enterprise, with 75,000 eggs per day. “The retail channels have collapsed and we do not know how to sell the eggs. The industry as a whole in the state produces almost 6 lakh eggs per day. While costs are Rs 3.75 per egg, I am forced to sell them at Rs 2-2.5,” Tandon instructed ET Magazine.

Nitin Gadkari’s interview
by Prerna Katiyar

Various MSME chambers have sought aid measures. Is the federal government considering of a package deal for MSMEs?

To mitigate the influence on MSME sector, the RBI (Reserve Bank of India) has introduced a set of aid measures on March 27. A second set of measures was introduced on April 17. These measures had been primarily meant to keep up satisfactory liquidity within the system, facilitate and incentivise financial institution credit score flows, ease monetary stress and allow the conventional functioning of the sector.

The street forward shouldn’t be straightforward. As a nation, we have to battle this collectively. Industry associations have highlighted their calls for in my interactions. Some recommendations require complete authorities help, whereas others require coverage modifications and facilitation. We can’t be guided solely by the response of different international locations. Our financial system has its personal distinctive options and therefore its personal necessities for a return to normalcy. I can guarantee you that PM Modiji is totally conscious of the scenario and underneath his management we can chalk a approach ahead for supporting MSMEs in the absolute best approach.

Is there any plan to assist MSME units with wage fee if lockdown continues past May 3?

The authorities on March 26 introduced a Rs 1.7 lakh crore aid package deal underneath the Pradhan Mantri Garib Kalyan Yojana (PMGKY) for the poor to assist them battle the battle towards the coronavirus pandemic. As half of the mentioned package deal, the Centre proposes to pay the EPF (Employees’ Provident Fund) contribution for subsequent three months of sure classes of workers.

Our goal is to get one of the best influence of authorities help not solely for MSMEs but in addition for the poor. There needs to be a steadiness and the consequence ought to be the very best influence of authorities help on society.

The menace of an FIR in case a brand new an infection is detected at a manufacturing unit has scared many MSME house owners. Would you wish to reassure them?

Social distancing is a actuality. The Home Ministry has issued a number of orders and pointers, which give the framework for financial exercise to renew, respecting norms of social distancing and private hygiene. Industrial units and enterprise institutions have to reinvent their workspaces to adjust to the rules for their very own security in addition to the protection of the employees. The Home Ministry has additionally clarified that the lockdown pointers shouldn’t be misused to harass the administration of manufacturing and business institutions. That ought to assist in addressing any fears. We are proactively coping with such points.

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Once enterprise is disrupted, it’s troublesome for smaller gamers to recoup and restart. Seksaria says that until there is a chance to begin manufacturing in May, companies will begin crumbling. Goel of Manesar provides, the lockdown could also be adopted by lockouts.

Not each MSME enterprise proprietor is pessimistic.

Bhopal-based entrepreneur Kunal Giani says his motto of continually specializing in money flows and staying debt free has held him in good stead at the moment. Giani began his enterprise in rebonded foam, a uncooked materials for mattresses, in 2011, straight out of school. Giani’s father, a banker, had taken voluntary retirement in 2006 to begin the enterprise. Bad luck struck and he died in an accident earlier than he might begin.

Young Kunal accomplished his engineering schooling and took on the mantle.

No one was able to lend to a younger man promoting mattress foam on a motorcycle. The firm is a debt-free operation at the moment.

With gross sales of Rs 110-135 crore and two vegetation, one in Bhopal and one other in Uttar Pradesh’s Secunderabad, Giani says he’s in a great place to pay salaries for April. The uncooked materials inventory, chemical substances imported from Southeast Asia, also can final just a few months. The lockdown has, of course, impacted his plans to begin a brand new manufacturing unit in Colombo to provide the south Indian markets. It has additionally affected the launch of a brand new product, a mattress that is available in a field, priced at Rs 1,000.

Giani’s agency Sarva Foam Industries is an exception.

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But he, too, needs to borrow at the moment and is searching for simpler entry to credit score. However, most small companies in India will not be constructed like that, factors out Nayan Patel. “MSME businesses are usually a month-to-month operation, with little reserves for the future. A disruption like this might just mean restarting everything,” Patel says.

Therefore, so much of hope is now pinned on strikes by the federal government of India and state governments. Various MSME our bodies have even sought income-tax sops. Many MSMEs function as sole proprietorship corporations or partnerships, and will not be eligible for the decrease company tax charges, introduced by the finance minister in mid-2019. The US has introduced a $484 billion stimulus package deal for small companies. The MSME entrepreneurs are hoping that Finance Minister Nirmala Sitharaman will draw some inspiration from it and announce a package deal for Indian small companies too. After all, her first package deal of Rs 1.7 lakh crore additionally drew inspiration from US motion. Others, figuring out the Indian authorities has little leeway, have set their eyes on social safety funds just like the EPF or the ESIC. For a big and critically vital sector that generates a big quantity of jobs and provides parts for almost each product that we use, no straightforward options are in sight.

In a Fix Over Accommodation
by

Prerna Katiyar

It is 6 am when a bus pulls into Bhangel in Noida. A handful of workers of Medico Electrodes International Limited type a queue to board the car offered by their employer. But first, an attender checks if they’re carrying masks correctly and sprays sanitisers on their palms. The bus is stuffed from the again — one in every seat, each different row. Except for the occasional ringing of cell phones, the experience to workplace is eerily silent.

Medico, which makes disposable ECG electrodes, picks up its employees from a number of places in a 3-Four km radius round its manufacturing unit in Noida particular financial zone (SEZ). It takes satisfactory precautions. “The buses are disinfected after every trip,” says firm’s CMD Amit Mehra. “So is the factory after every shift.”

Before they enter the manufacturing unit, employees additionally undergo a thermal screening and hand washing-sanitising routine. They additionally get recent masks are head caps.

In the store flooring, they work on alternate machines to make sure social distancing.

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Employees keep social distancing on the work flooring

Medico, categorised as an important service unit, has been working at 50% employees capability with 300 employees throughout three shifts for the reason that lockdown. CMD Mehra has been busier than ever, juggling between video-conferencing with employees working from house and home and overseas shoppers. He visits the manufacturing flooring often to test social distancing and different sanitation preparations. “We give free ration to all workers every fortnight, provided additional Rs 3 lakh Covid-19 insurance cover and are providing transportation services,” he says. Regular counselling can also be offered to assist employees.

But Mehra, who managed to run his operations by the extreme lockdown, faces a major problem as the federal government partly opens financial actions.

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An order issued on April 22 by the deputy commissioner of the district industries centre, Gautam Buddh Nagar, to supply lodging to employees inside or close by manufacturing unit has put him in a bind. “We have three days to comply with the order or shut shop. How can we make such arrangements for 250 people so fast? Besides, will the families of our 60-odd women workers allow them to stay at factories? We are a healthcare unit. Do we shut down now?” says Mehra.

As such, the operations at Medico had slowed resulting from social distancing. During lunchtime, just one employee is allowed to sit down in a desk. So it takes virtually three hours for all the staff to complete their meals and return to work after a spherical of sanitisation.

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Medico workers bear a temperature test earlier than boarding the corporate buses

The scenario is sort of similar on the 13 important sector units among the many 250 factories operational at Noida SEZ now. As the morning shift involves an finish at Medico, employees toss the used head caps and masks in a bin, wash and sanitise their palms and put on recent face covers. Soon they line up a metre aside to board the buses for a experience again house. All in a day’s work now.

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