Prof Dr Ravi Goyal, Principal School of Entrepreneurship Skills, BSDU shares how the COVID-19 induced lockdown has taken a toll on MSMEs and measures that need to be taken for its revival
The deadly Coronavirus which has taken over our world in a blink of eye has not just forced the people to move inside their houses but also has left an impact on all the sectors of the economy. But nowhere is the hurt as much as the medium, small or micro enterprises MSMEs. As per the empirical observations thousands of the stranded migrant workers across the country suggests that the MSMEs have the worst casualty of COVID-19 induced lockdown.
How is MSME defined: MSME stands for Micro, Small, and Medium Enterprises. In accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the enterprises are classified into two divisions. Manufacturing enterprises – engaged in the manufacturing or production of goods in any industry. These are defined in terms of investment in plant and machinery.
Despite the government announced slew of the measures to revive MSME is reeling under the lockdown blues. Also as the MSMEs get set to reopen their firms they say they are facing majorly the feeding issues. Operational hurdles which the factory owners face and the SOPs announced by home ministry is going to be tough to adhere.
Most factories face space issues to accommodate workers, also transportation of workers is a challenge. Small firms also face cash crunch due to poor realisation of payments due to lockdown.
According to the annual report over 25 per cent of India’s economy, 6.9 crore micro, small and medium enterprises (MSMEs) may close down if the lockdown extends. Total they employ to almost 11 crore people.
Prolonged lockdown will have material impact for the products / services offered by small firms. It might also restrict the demand for their products, the disruption in the supply chain may push prices for raw materials up that may negatively hurt SMEs’ cash flows.
Though the bank dues have been deferred, the immediate challenge of MSMEs will be to pay their statutory dues, wages, bills and pressing creditors. It will definitely affect the consumer sentiments; and with the ongoing liquidity concerns and lockdown situations it seems there’s more trouble brewing for the MSMEs.
Because most of the MSMEs are not registered anywhere, for the reason that they are very small. Being out of the formal network, they need not maintain accounts, pay taxes or twig to major regulatory norms to bring down their costs. But, at the time of crisis, like now it also constrains a government’s ability to help them.
They are set to face an acute cash crunch due to a sharp fall in business and operational challenges with low or zero manpower over the next few weeks since migrant workers are fleeing to their hometown because of the fear their families suffering with no income and no food to survive.
MSMEs are the biggest mass employers in the economy and have been hit the most due to nationwide lockdown.
According to the World Bank’s assessment, India is expected to grow 1.5 per cent to 2.8 per cent. And IMF projected a GDP growth of 1.9 per cent for India in 2020 because the global economy is affected by the COVID pandemic, the worst recession since the Great Depression in the 1930s. Also, we can’t ignore that the lockdown and pandemic hit several sectors including MSME, hospitality, civil aviation, agriculture and allied sector.
Govt is trying to do the much needed relief but the task ahead to tide over the crisis is not an easy one. Nearly a third of the globe is in lockdown. Due to this, lack of trade and shrinking sales, MSME’s are feeling the burden of loans, repayments, GST filings, etc.
Businesses have completely frozen and liabilities are staring before them which in turn is raising a question mark on the existence of the company because not all firms have too much cash to wait out the crisis.
With the current situation it has become very clear that businesses will grapple tremendous uncertainty about their future with 70 per cent of the surveyed firms are expecting a degrowth sales in fiscal year 2020- 2021.
According to KPMG, the lockdown in India will have a sizeable impact on the economy mainly on consumption which is the biggest component of GDP.
Reduction in the urban transaction can lead to a steep fall in the consumption of non-essential goods. Due to weak domestic consumption and consumer sentiment, there can be a delay in investment which further adds pressure on the economical growth.
The major industries which will get affected are constructions, pharma and transport. As majority of the raw materials used in these industries are imported from China and because of the disruption in transportation due to lockdown the industries are bearing the gap of demand and supply. FMCG
Companies which manufacture daily lifestyle products have shut down their production because of the pandemic.
According to CII, GDP could fall below 5 per cent in FY 2021 if policy action is not taken urgently. It is said that the government should take some strong fiscal stimulus to the extent of 1 per cent of GDP to the poor, which would help them financially and also manage consumer demand. FICCI survey showed 53 per cent of Indian businesses have indicated a marked impact of COVID-19 on business operations.
The outbreak is declared as a national emergency by the World Health Organisation. In India the major contributor to GDP are MSMEs, literally the backbone of all Indian sectors often engaged in manufacturing and export activities — two key drivers of the Indian economy have been hit
the most due to nationwide lockdown leading to MSMEs completely inoperative, chocking all production activities at major firms across sectors leaving industries with no money to pay their employees.
Opportunities :
When we look down at the brutal meltdown in the financial economy it might seem to indicate that the world economy is on a path to recession.
But we cannot take this as a foregone conclusion because history has often shown that bear markets do not necessarily lead to recessions. The best part with our country is we have a large domestic economy and dependence on exports is not very high.
We need to focus on how does the impact manifest itself. We know from past crises that companies must act quickly to build up reproving workforce capabilities. The coronavirus pandemic has accelerated a trend in workplace dynamics that was already underway through automation and AI, shifting
marketplaces, and changing workplace roles.
Current trends are accelerating the need to enhance skills. The need for some skills, such as technological as well as social and emotional skills have marked an acceleration in the corporate ecosystem.
It’s about how can we reskill and upskill the workforce to deliver new business models in the post- pandemic era .
In 2017, the McKinsey Global Institute estimated that as many as 375 million workers —or 14 per cent of the global workforce—would have to switch occupations or acquire new skills by 2030 because of automation and artificial intelligence.
Workers across industries must figure out how they can adapt to the dynamic conditions, and companies have to learn how to match those workers to new roles and activities. The migrant skilled labour who had to move back to their native towns could be regenerated in more effective and efficient manner by being hired by their local company owners which will also turn to be an opportunity to get the local readymade labour. This rapidly changing uncertain situation is about more than remote working or the role of automation and AI.
The learning structure will be modified in ways that will foster teaching new skills to employees, wherever they may be.
COVID-19 has speeded up the acceptance of fully digitised approaches to recreate the best of in-person learning through video conferencing and social sharing.
Also, e-commerce is gearing up with the reason to maintain social and safe distance.
This transformation makes it possible to gain knowledge in a more cost-effective way and permits greater personalisation for learners—and in turn greater efficiency and effectiveness.
It is advisable to get started on reskilling programmes rather than to wait for the situations to get better, but make organisations better prepared for potential future disruptions.
Don’t waste two to three years to get things back to normal and forego the efficiency and resilience you could develop now but focus on the resilience of learning ecosystem: make it both more digital and more accessible to the employees.
The current crisis will require a larger skill shift. So many skill development institutions to offer skill-based programmes that focus on holistic skills training, excellence in skills training and competitive abilities in students or employees to make skill a key strategic lever for adapting to the next normal.
The need of the hour to sustain in the post COVID time is to develop practically sound, functional and useful skills.