Economy

MSMEs are in the ICU; a bandaid will not help, say industry representatives

G Balachandar Chennai | Updated on March 25, 2020

MSMEs (micro, small and medium enterprises) say it is going to be a nightmare for them for the next 3-6 months even if things get better by next month, which is still a big question.

Industry representatives feel that the battle against the Covid-19 outbreak could take longer than expected and there is no clarity on how to tackle the situation as this is a crisis like no other.

“With the Coronavirus outbreak and consequent shutdown for 21 days, MSMEs are in uncharted territory and they don’t see any early revival prospects,” X Arokianathan, Co-Convenor, MSME Panel, Confederation of Indian Industry,Tamil Nadu, told BusinessLine.

MSMEs are the backbone of this country’s economy and social well-being of a large section of the society. The government has been seeking solutions to mitigate the situation from representative associations, including CII and FICCI.

Several representations and suggestions have been offered to the Union Government and many of these have been addressed. But they are first-aid solutions to a grave disease.

“After the lockdown, it is going to take a very long time for businesses to resume normality. All major companies will relook into their priorities and change their business models, product lines, and may take a new avatar. To restart under this new era will take some time before orders start trickling down to Tier 2 and 3 smaller companies. Presuming it takes six or more months to receive new orders and cash flow resumes it will be almost a year to come back to normalcy, he pointed out.

Can MSMEs survive that long without cash flow? Apart from all statutory compliances, rentals, power and utility bills, financial debt services outstanding bills etc without inward cash flow how can the wages and salaries be paid, he wondered.

Arokianathan felt that the relief offered to defer payments up to June 30 is only first-aid, not a cure. MSMEs have to be brought out of ICU and treated to regain health.

Possible measures

An extended line of credit at very low cost for another year overruling all NPA norms with strict monitoring to restore them to health could be an answer.

Special incentives and tax holidays for MSMEs who retain their workforce and with a good past track record will also be required. All unpaid bills due to MSMEs by governments, PSU, and large companies must be paid immediately before April 30. This will go a long way to prevent healthy companies closing down, he added.

C Babu, Past President, TANSTIA (Tamil Nadu Small and Tiny Industries Association), said that unless more liberal measures relating to banks is extended it would be very difficult for MSMEs to survive.

“Even if the virus is contained by April 15, it will take a couple of quarters for us to revive. While the FM’s measures are a big relief, we would require support from bank side too. We need to pay salaries to the staff without any revenues. At least 25 per cent increase in working capital loans from banks without demanding documents would give a much-needed relief in addition to relaxation of repayment and NPA norms during this crisis period,” he said.

Published on March 25, 2020

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