Impact of Covid-19 on the Indian MSMEs Sector
In India, one of the sectors badly impacted by the COVID-19 Pandemic and the resulting lockdown was the Micro, Small and Medium Enterprises (MSMEs) sector. There were 63.4 million crore unincorporated non-agricultural enterprises in India in 2016, as estimated by the National Sample Survey 73rd Round in the Jul 2015-Jun 2016 period. A vast majority, 84.2% were “own account enterprises” (OAEs), that is, units run entirely by the proprietor and his/her family members, with no hired worker. Still, the employment in the sector, including the owner-workers was 111.3 million workers, which was only second to employment in the agricultural sector. The upper end MSMEs, though only 11.4% in number, accounted for about 40% of the employment.
To understand the issues being faced by MSMEs, a telephonic survey was undertaken. Of the total 421 respondents (75% male), about 36% were from manufacturing and the rest were service enterprises. About 43 % were below Rs 0.1.5 million per annum turnover, and 58% had less than ten workers. Only 27% had a Unified Aadhaar Memorandum (UAM) number of registration with Government of India, and only 50% were members of any professional business MSME association.
About 71 % of the respondents felt that their business has been/would be adversely impacted by COVID-19 related lockdown to the extent of 90% of the earlier prevailing levels. Only 4% of the respondents also stated that their business has improved during the lockdown. Yet, there seems to be an optimism for the future with 80% of the respondents expecting their business to swing back to the original level within a year. As many as 56% of the respondents did not expect to retrench any workers while a little less than a quarter of the respondents felt that they would have to retrench more than half of their existing workers.
The major constraint in re-staring their business was lack of demand or opportunity, as cited by 28 % of the respondents. Lack of adequate capital was cited by 22 % of the respondents. This was more pronounced in the Manufacturing as compared to the Services sector.
The GoI’s package giving a Rs 3 lakh crore guarantee for additional working capital loans to existing borrower MSMEs had not reached many, with 27% of the respondents not being even aware of the package at all. Over half i.e., 53% of the respondents felt that the package announced by the GoI will not benefit their enterprises. This was despite the fact that 90 % of the respondents had loans (because we chose the sample from the MYUY scheme) and were eligible for the additional working capital loan.