The need of the hour is clarity in policy communication by making it simple for the MSMEs, without leaving any room for subjectivity.
By Nitin Mittal
The COVID-19 pandemic has wreaked havoc on the economy. Taking steps to protect our industries and commerce is an immediate and critical need of the hour. To this end, the government recently announced its intention to spend almost 10 percent of India's gross domestic product (GDP) in the fiscal year 2020 on economic relief measures towards reviving economic growth.
A sector that is reeling under the impact of the COVID-19 outbreak is the Micro, Small and Medium Enterprises (MSME), which contributes to around 35 percent of India's manufacturing output. The MSME sector, which is also the second-largest employment generator in the country after agriculture, needs special attention from the government.
The stimulus package announced is a mix of fiscal support, monetary support, ease of conducting business processes, as well as some fundamental reforms. The need of the hour is clarity in policy communication by making it simple for the end beneficiaries, the MSMEs, without leaving any room for subjectivity, which needs to be urgently taken up by the central and state governments. For instance, the Finance Ministry’s notification in May, amending the General Finance Rules (GFR) 2017, disallows global tenders to encourage MSMEs to take part in tenders below INR 200 crores, but has bestowed power to respective departments in ‘exceptional case’ scenarios to consider global tender enquiry (GTE). Policies cannot be left to individual inference when a critical step in economic progress like quality sourcing is being sought from domestic players, especially the MSME sector which is gearing to be a major supply chain player for domestic and global markets.
To make this a reality, certain measures with respect to limiting imports may be a necessary step, at least for the foreseeable future. China, for example, is one of our top three trading partners and the trade deficit with the country has increased manifold over the last few years. To stem this, the Government of India proposed amendments in the Customs Act which gives it the power to ban import and export of certain items, “under exceptional circumstances”. These measures are intended to make our supply chains more self-reliant and less dependent on imports, but it is also important to remember the unparalleled scale and capability of manufacturing-driven countries like China; it will take significant policy interventions and drastic structural changes to match their scale, expertise and skills, to be globally competitive.
This is a feat that India is not new to; the challenge has previously been overcome successfully by the likes of the textile industry in India, which is the second largest exporter of textiles in the world. As a country, we must collectively find ways to extrapolate the success stories of the textile industry to other import-heavy industries, while also learning from its failures to kickstart growth in the new normal.
Here are some of the essential steps needed to get the manufacturing MSMEs back on track.Financial incentives- RBI needs to immediately issue guidelines for higher provisioning revisions to banks, in the absence of which liquidity injection into the system is getting delayed
- Instant availability of subsidies, with simplified processes for getting them without hindrance
- Speedy cashflow issue resolution through GST refunds and short-term collateral free, low-interest loans to both large corporates and MSMEs
- 95% + of MSMEs are not in the formal finance fold currently; an urgent review of alternate lending mechanisms and credit scoring criteria needs to be undertaken
- Incentivising export-heavy manufacturing industries like textile & apparel with new capacity addition subsidisation
Stable power supply
Impact of the power sector on the manufacturing sector and consequently India’s growth can’t be underplayed. Capacity underutilisation in the manufacturing sector is also a function of the quality of power. Poor quality power, that keeps fluctuating, resulting in continuous tripping, resetting thousands of machines, loss of productivity and finally, poor asset quality for banks and investors, is a risk that needs to be mitigated
Protection of labour
The exodus of migrant workers from cities and towns has become a worrying scenario for small manufacturing units, as workers are key to their survival. Steps need to be taken urgently to counter the reverse migration trend:
- Special transport for workers to facilitate their return to work
- Unlocking government funds parked in Employees State Insurance Corporation (ESIC) as medical insurance cover and using part of them to impart training in occupation health and safety for MSME manufacturers
- Providing assurance to laborers that if they fall ill, their hospitalisation costs would be covered or subsidised, through Ayushman Bharat hospital insurance cards, if needed. This will go a long way in restoring confidence among them about returning to work
Waivers for raw material
- The extended lockdown has severely impacted the import of raw materials (sports goods, silk, rubber, etc.). Transport of these select imported materials should be allowed if they are stuck at ports or airports
- Waiver of rents levied on MSMEs for raw material stuck at ports and container deports
Digitisation of MSMEs
COVID-19 came as a bolt from the blue for the MSME sector and more so for businesses that were digitally under-prepared.
Technology is the new backbone of MSMEs who want to succeed in the post-COVID world. Digitisation is no longer optional; it has become a critical need in a scenario where physical interactions will continue to be extremely limited and remote access to everything will be the order of the day
Trade fairs, for example, will not be possible for a long time, so holistic e-marketplaces will become an important way for MSME manufacturers to reach out to potential customers, suppliers and lenders to grow their ecosystem and business
An accelerated pace of digitisation and progressive policies to support marketplaces promoting MSMEs in the domestic market as well as globally will be a crucial element in fast-tracking the revival of manufacturing MSMEs, going forward
(The author is founder and CEO, SOLV. SOLV is India’s first B2B conversational commerce platform for MSMEs)Follow our coverage of the coronavirus crisis here