MSMEs say jobs can be protected only with govt’s financial help

Amiti Sen/Garima Singh New Delhi | Updated on March 24, 2020

A relief package for sick, stressed MSMEs being worked out, assure officials

The Labour Ministry has advised against retrenchment of workers or salary cuts but many in the micro, small and medium enterprises (MSMEs) feel that if the current lockdown for containing Covid-19 continues over weeks, the government must step in with a financial package to protect both workers and enterprises.

“There is a symbiotic relationship between employers and workers. No employer would want to retrench now especially as they would need to hire again when normal times are back. But with shipments and payments stuck and orders getting cancelled, it will not be possible for MSMEs to maintain their workforce,” said Animesh Saxena, an exporter of garments based in Gurugram.

A relief package for sick and stressed MSMEs is likely to be announced soon, assured a senior official in the Ministry of MSME. “Covid-19 will have an impact on the MSMEs too but the government is taking measures to give a boost to the sector. In the next 10 days, a relief package for the sick and stressed industries is likely to be announced,” the official told BusinessLine.

Easy credit

The government has to at least give units some easy credit to tide over the current crisis, Saxena said. “For instance, it could give us about 25 per cent of our sanctioned limit with a moratorium on interest for a six months. This will help us pay salaries and wages and keep us afloat,” he added.

The MSME sector is most critical for India’s economy as it accounts for more than 90 per cent of manufacturing enterprises, 45 per cent of industrial output and 40 per cent of exports. They also provide employment to more than 60 million people.

The payment structure in the MSME sector varies depending on the article being produced, explained Anil Bhardwaj, Secretary General, Federation of Indian Micro, Small & Medium Enterprises (FISME).

“In sectors, like garments and leather, where payment is made on piece-wage basis, it is not possible to ensure wages are paid when pieces are not getting produced. However, employers do make advance payments to workers at times of crisis like this,” said Bhardwaj.

‘Govt must pitch in’

In other sectors, where workers are employed on a permanent basis, large-scale lay-offs were not happening yet. “The employers can pay their permanent employees for some time. But if the crisis extends then the government, too, has to chip in to pay part of the bill like it is happening in countries such as the UK,” Bhardwaj added.

Chairman of Khadi and Village Industries Commission (KVIC), Vinai Kumar Saxena, said the month of February and March are crucial for the sector as most of the exhibitions are held then and targets are achieved for the year. “We will not be able to achieve the target this time. These are tough times for us,” added Saxena.

Although the Finance Minister has said that a package was being worked out, the industry says it can’t wait for long. “If the government doesn’t step in right now with financial help for the MSME sector there will be utter chaos in the economy soon,” said a Delhi-based handicraft manufacturer and exporter.

According to Ram Iyer, Founder & CEO, Vayana Network, a third party supply chain finance platform, cross border trade is likely to get a hit as exports to prominent countries like Europe, US and China will see a decline.

For instance, the textile industry, which accounts for 10 per cent of the annual export, will see a major decline in revenue for corporates and its supply chain on account of reduced export orders.

“This will create serious working capital shortages for corporates and its supply chains. There would be a further dip in GST collections as most of the industries such as poultry and seafood, consumer durables and electronics, tourism, hospitality and apparel, will see a major decline in revenue due to the coronavirus outbreak,” Iyer said.

Post the pandemic, there is a need to create adequate trade finance support to deal with the massive increase in demand. “This would involve creating business continuity plans that involve more automation with suppliers and customers,” he added.

Published on March 24, 2020

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