A recent survey by the All India Manufacturers’ Organisation (AIMO) revealed that around 35% of micro, small and medium enterprises (MSMEs) and 37% of self-employed individuals are on the verge of shutting their businesses, as they see no hope of recovery amid the COVID-19 pandemic.
The AIMO claims that the government’s financial package has not reached the MSMEs and that the scale of “mass destruction of business” is unprecedented.
The survey findings were gathered from over 46,000 responses received from different associations and industry groupings in the country.
Chandrakant Salunkhe, Founder & President of SME Chamber of India, however begs to differ and says that this number is inflated. He says that a large number of companies are struggling for survival due to the current crisis, but they are not shutting down yet.
“MSMEs are facing difficulty because the business is stuck, migrant labour has left for their native places, supply chain is disrupted, and banks are not hand-holding these companies which are in distress now,” he told TNM.
He says that it is still early to gauge how many companies will shut down. With businesses resuming in green and orange zones earlier in May, nearly 10% of companies in India started operations. But because of the supply chain issues, non-available of raw material and due to shortage of labour, some companies have not started full-fledged operations.
“So, after another 2-3 months, we would be able to gauge the exact number of companies that may shut down,” he adds.
According to him, around 7.5 lakh companies out of the total 6.5 crore companies in India, are struggling to survive due to the current pandemic but won’t close immediately.
Anil Bhardwaj, secretary general of FISME (Federation of Indian Micro, Small and Medium Enterprises), is also of the view that many companies are reducing their workforce and cutting down on fixed costs such as electricity and labour force, but that these companies are not necessarily shutting down.
“They do not have enough orders. Even the firms that have orders, they do not have cash and other raw material that they can work full-time. So, in such a scenario, several companies are reducing workforce to stay afloat for some time,” he says.
Informing that there is an elaborate process for a company to shut down, Chandrakant says that they have to first inform the RoC (Registrar of Companies) and the Ministry of Corporate Affairs. Following this, they will inform the bank to which they owe any outstanding amounts. Also, companies cannot declare NPA (non-performing assets) till the financial year ends in March 2021.
Amid the pandemic, there are multiple issues being faced by the MSMEs, says Anil. “Firstly, the economy is down, it is just restarting. The demand is non-existent and so the production is down. They are waiting for the demand to pick up. They are re-establishing their manufacturing capabilities whether it is raw materials, people etc. At many places, the companies are facing problem of shortage of labour because people are leaving for their homes, particularly migrant labour.”
In the short term, there are three issues viz. of workforce; generating cash to pay salaries, rent, electricity etc. to restart your engine; and third is orders.
Many MSMEs who haven’t opted for loans up till now can’t avail the Rs 3 lakh crore collateral-free loans announced by the government as there is no provision for them. “We have requested the government that they should come out with a policy for such companies who do not qualify for a loan under the present scheme but are still in need of financial help,” he adds.
Chandrakanth too, is of the opinion that the government has not given direct benefit to the MSME sector. “The companies that are capable can go for a loan, but many companies are not interested in loans. Rather, they are looking for direct support from the government, and if it is not forthcoming, there is a fear among companies that they will be forced to close down,” he adds.
State governments are not giving the concession in power tariffs, local taxes; banks are not giving support in reduction of interest rate; and this is where the fear lies for companies, he says.
Spelling out expectations from the government, he says that they should reduce the GST rate; give relief in paying of income tax, say for a company with a turnover of up to Rs 5 crore, government should not ask for income tax for next 3 years; and they should charge 5% GST for transactions between companies in the SME sector.
“The steps announced by the government of collateral-free loans worth Rs 3 lakh crore for MSMEs, as well as a fund of funds that will invest Rs 50,000 cr as equity in small businesses, are only on paper at the moment and we are waiting for actual implementation,” adds Chandrakant.