MSMEs need immediate relief from banks, govt: CARE report

The micro, small and medium enterprise (MSME) sector needs immediate assistance, including enhancement in working capital limit and the immediate release of tax refunds, otherwise many units may go out of business, cautioned CARE Ratings.

The sector, which operates mainly on a cash basis and has less access to formal source of credit, has been under immense financial stress as operations have been curtailed due to the lockdown but overhead cost still remains to be borne by the companies, the credit rating agency said in a report.

Without a steady stream of income to cover the expenses, many companies may not survive and shut down or are on the brink of shutting down, it added.

Besides the lockdown, the sector is likely to witness tepid demand going forward due to the overall slowdown in the economy. Most small scale business may not be in a position to survive long without timely support from the government.

“The government has been nudging banks to provide credit to the MSME sector. However, banks are unwilling to lend to the sector given the high risk of default of such loans in the current economic scenario.

“The government should extend guarantees on loans to small businesses (up to 100 per cent) under the government’s credit guarantee scheme, which will alleviate banks’ fear to lend to the MSME sector,” said Rashmi Rawat and Bhagyashree C Bhati, Deputy Managers, Industry Research, CARE Ratings.

Financial requirements

The report’s authors emphasised that MSMEs need enhanced working capital limit as they are in need of finance to meet their regular expenditures even when they are not earning any revenue due to lockdown.

Further, all pending dues owed by public sector units and electricity distribution companies to the small businesses should be cleared.

They sought immediate release of GST (goods and service tax) and tax refunds by the government. Further, GST payment should be waived off or should be reduced by half.

The State governments should consider MSMEs’ demand for waiver of fixed electricity charges and electricity charges for the months of March and April, as production was affected due to lockdown.

Pressure on jobs

“Even while relaxations for manufacturing units were provided in the second and third phases of lockdown, clearance of formalities from district administrators is delaying operations at mills and factories. The mills nevertheless are resuming work at below normal operation rates,” the report said.

“The disturbance caused due to lockdown has not just affected the demand-supply scenario of these activities but also created pressure on the employed workers,” it added.

As a result, stress continues to surmount on around 2.75-3 crore workers involved in MSME manufacturing units, it added.

As per the report, almost 40-45 per cent of the workers employed in the trading enterprises and other services categories are likely to see their jobs under pressure. The estimated number of workers employed in trading enterprises and other services is at 3.87 crore and 3.65 crore, respectively.

The report said there are more than 6.3 crore unincorporated non-agriculture MSMEs (excluding construction) in the country engaged in different economic activities, and the sector provides employment to more than 11.1 crore people.

The MSME sector comprises manufacturing, trade and service providers. A large number of MSMEs are ancillary units catering to the needs of large industries.

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