COVID-hit small businesses worried about impact of possible third wave

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Just when micro, small and medium enterprises (MSMEs) were gearing up to recover from two consecutive waves of COVID-19 infections, a new variant of the coronavirus – Omicron – has them worried again.

“This is definitely a cause of concern for MSMEs,” R Ramamurthy, member of the All India Council of Association of MSMEs, told Moneycontrol. “We lost six months during the first wave and another four months this year. If a third wave comes, it would only mean the death of small businesses.”

Omicron, a variant of the coronavirus with a large number of mutations, was first detected by South African scientists last month. India has so far reported 21 cases of Omicron. The World Health Organization has designated Omicron as a virus of concern, although the scale and magnitude of rise in cases and the severity of disease that will be caused by the new variant are still not clear.

The uncertainty about Omicron is reason enough to continue to take precautions. However, MSMEs are concerned that more restrictions could be imposed again, hampering their prospects.

“There is no doubt that Omicron is a threat. Definitely, nobody would want to shut operations again because it takes a lot of hard work, time and cost to restart operations,” said DP Goel, co-chairman of the MSME Committee at the PHD Chamber of Commerce.

According to Goel, a key problem caused by lockdowns is the reverse migration of labour.

“Most of the labour moves back to their villages every time the lockdowns are announced. So it becomes very difficult to find the right labour at the time of restarting because most don’t even come back,” Goel said.

Goel and Ramamurthy noted that there has been a steep increase in input prices over the past year and MSMEs are forced to sell at a loss because most orders and contracts are pre-booked. This also makes them unable to compete in the export market.

“In the past one year, raw material prices have increased significantly – freight rates, container rates are all up. Units are already suffering because of this. My only request to the government would be that they do not announce another lockdown,” said Ramamurthy.

“One very big worry is losing out orders and customers in the international market in case another wave happens,” said Vinod Kumar, president of the India SME Forum.

MSMEs are also worried about a government scheme that provides guarantees to banks, non-banking financial companies and other lending institutions that advance credit to business entities suffering due to the pandemic and struggling to meet their working capital requirements.

“During the first wave, the government had announced the Emergency Credit Line Guarantee Scheme. Its moratorium period is about to come to an end, so MSMEs will be required to repay the principal amount,” said Mukesh Mohan Gupta, chairman of the Chamber of Indian Micro Small and Medium Enterprises. “This was not possible even if there was no third wave. Now, if the third wave comes and business is disrupted, it will become even more challenging to pay it back.”

Kumar noted that another issue is business development as MSMEs have only struggled to survive throughout the pandemic period and could not grow.