Intense impact of COVID-19 on MSMEs

The pandemic has given the most significant blow to the world economy after the great depression of 1930. The Micro, Small and Medium Enterprise sector has been a pillar for the Indian economy that accounts for 30% GDP and 45% merchandise exports. This sector creates employment of about 70 million. It manufactures more than 6000 products. It is important for us to recognize the indispensable contribution of this sector and take measures to support these units in these troublesome times.

It has been noted that the MSME industry has been experiencing a sluggish growth since the end of 2016. Considering the unprecedented crisis and the outbreak of the COVID contagion, MSMEs are expected to be the worst hit segment of the Indian economy. It has been rendering scores of people jobless and obliterating the closure of various industry outlets.

COVID has disrupted the functioning of MSMEs aggravating their stress levels mainly because of their size, the scale of operation, lack of financing, COVID induced liquidity crunch and logistical issues, and their inability to cope with the after-effects of such an unexpected catastrophe.

The emergence of twin demand supply shock had led to a domino effect. Manufacturing came to a sudden standstill due to the lockdown, leading to supply side disruptions which led to the demand shock. The supply chain and production chain had to adjust to the new policies and rules. Inflationary pressure has been sparked on the country due to the demand supply gap in various sectors. Financial distress amongst the labourers caused mass exodus from the cities. This caused disruption in the functioning of MSMEs. 

Insufficient funds prevail to be one of the most important factors that impede the advancement and expansion of MSMEs. Our MSMEs are facing a liquidity crunch and are grappling for sustenance. The report of International Finance Corporation, 2018, unveils that the credit assistance by formal banking to MSMEs are less than one-third of the credit requirement it can potentially fund, The Indian Express, 2020.

MSMEs have been jeopardized by the consequences of COVID-19, however, some measures taken by the government must be highly appreciated. Collateral free loans, credit guarantee schemes, provision of subordinated debt along with due clearance are helping MSMEs enduring deceleration. To provide immediate relief to the MSME sector, various announcements have been made under the Atmanirbahar Bharat Package.

On 12th May 2020, a relief stimulus package of 20 lakh crores amounting to approximately 10% of our GDP was announced to speed up the economic revival of the country. However, there is a constant need to check the effectiveness and enforcement of such stimulus provided by the government. Very often most MSMEs are unaware of such privileges and fail to reap the maximum from the opportunity.

The way forward is to open the cognisance of the COVID inflicted economic shock and carve a new pathway. A pathway that strengthens the foundation of our fragile economy and guides us towards technological, logistical, and infrastructure improvements. The curtailed demand along with the resources available for functioning has derailed the growth of MSMEs. We need to ensure resilience to such events in the future.