Majority of micro, small and medium enterprises (MSMEs) in India, a major employer to millions of workers, may have to shut shop unless immediate government support reaches them, warned rating agency CARE in a report on Monday.
“Besides the lockdown the sector is likely to witness tepid demand going forward due to the overall slowdown in the economy. Most small scale business may not be in a position to survive long without timely support from the government,” said CARE.
There are more than 6.3 crore unincorporated non-agriculture MSMEs (excluding construction) in the country engaged in different economic activities and the sector provides employment to more than 11.1 crore people. As for employment, the manufacturing segment would be affected more with around 75 percent employment being under pressure, CARE said.
The micro sector with 6.3 crore estimated enterprises accounts for more than 99 percent of the total estimated number of MSMEs. The small sector with 3.31 lakh and medium sector with 0.05 lakh estimated MSMEs account for 0.52 percent and 0.01 percent of total estimated MSMEs, respectively.
“The MSME sector comprises manufacturing, trade and service providers. A large number of MSMEs are ancillary units catering to the needs of large industries,” said CARE report.
Even after one and a half months of nationwide lock-down, the government is yet to come with a rescue package for industries. This has put companies, especially smaller ones, in a tight financial position. The Reserve Bank of India (RBI) announced two rounds of COVID-19 relief measures but these steps have largely benefited only big firms.
These included two rounds of long term repo operations, special refinance facilities to NBFCs and a sharp cut in the policy rate. The government, on its part, announced a welfare package for the poor worth Rs 1.7 lakh crore to provide immediate assistance. But, it is yet to come with a solid fiscal stimulus package.
The government plans to increase the MSME sector’s contribution to GDP to over 50 percent in the next few years. However, this plan hasn’t progressed quite as planned. MSMEs are already struggling with a slowdown in demand and disruptions led by demonetisation and GST implementation. The COVID-19 pandemic has further aggravated stress in the sector.