Economy

Is LOCKDOWN – ADDING SALT TO WOUND FOR SMEs

When in January 2020, I talked to one of my friend who is 1st  Generation entrepreneur, he said he is planning to buy Maruti Suzuki Ciaz which is in Rs 8 – 9 lakh bracket. He runs a business of producing plastic balls, as an ancillary product of the plastic industry at Kalyani Industrial Estate. The maximum of his workers is from the locality.

Another known businessman of mine, who is my friend’s father, and runs a family business of manufacturing  different  parts  for  heavy-duty  transformers,  said  he  got  the  largest  order  from Indian Railwayin his business historyof around Rs 80 lakhs. He was also planning to renovate his house and to upgrade his bike to Royal Enfield Interceptor which is in the price bracket of Rs 3.10 Lakh.

As my research area is MSMEs and their financial conditions, seeing these instances I perceived the drivers of growth for the Indian Economy is maximizing their opportunities and performing well.

The situation drastically changed after February. The one who is in the business of plastic balls mainly depends on export along with local market supplies. With the advent of this pandemic, exports restricted  and  lately  become  zero.  After lockdown, the production stopped, finished products although not perishable, stacked in the godown. Capital locked, clients are not taking delivery of the product ordered.  And to my utter surprise, Indian Railway also stopped taking delivery of the order from the manufacturer of transformer units. Both have to stop their dreams of getting bike or car, and also repenting upon spending the advance booking amount paid. So, as entrepreneurs are also consumers, other industries also facing this slowdown.

The main problem of SMEs in India is lack of capital but along with that lack of working capital management is worsening the scenario. Both of the entrepreneurs have to maintain a payroll of around 40 employees, security guards, some employees are from outstation, they could not be able  to  go  back  to  their  native  places,  so  arrangements  are  made  for  accommodation.  So,  the owners of the establishments have to incur costs. As a result, they are facing a working capital crunch.

To  prevent  the  virus  from  community spreading  lockdown  is  the  call  of  the  situation,  but  no planning or  arrangements  were  made  to  phase  out  the  problems  occurring  from  this  situation. The government is announcing bailout packages like 3 months’ moratorium for EMIs, but after 3 months the owners have to pay the pending EMIs so that they have to arrange for funds.

But there is no guarantee that after 3 months the situation will be at ease. Large companies can fight with  the  current  situation  as  they  are  well  planned  and  well  managed.  But  1st   generation entrepreneurs or those who are in family run businesses never saw any situation like that. As a result, most of them are not prepared for this scenario.

The government is emphasizing Make In India concept, but in many cases, the incentives are not adequate to move away from assembling to local manufacturing. So when this change needs to be done, proper planning and infrastructure should be provided. In states like West Bengal, still, getting land for establishing a plant is difficult.

Thus COVID 19 puts in some big questions in the future of SMEs. It’s evident that in coming 3 to  4  months  or  if  I  am  more  pessimistic,  in  the  next  6  months,  there  is  minimal  chance  of improvement. As India is in the stage of community spreading, it is very hard to regain normal business during this period, where as, as per Government order payroll and other things to be maintained. So, owners will be taking a herculean task of maintaining their business. Many small firms  will  shut  down,  a  lot  of  people  will  be  retrenched,  consumer  spending  will  be  less, production will be hampered, as a result, the economy will be in a mess. If the drivers of growth, who  contribute  more  than  6.11%  of  manufacturing  GDP,  and  24.63%  of  service  GDP  with around  63.4  million  units  all  over  India,  get  a  pink  slip,  then  it  is  the  evidence  of  a  gloomy future. We can only hope that this situation fades out quickly enough so  that we will be on a normal track soon.

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