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Covid-19 lockdown 2.0: Need govt support to keep units open, say MSMEs

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April 16, 2020

Micro, small and medium enterprises (MSMEs) across the country are keeping a wary eye on the government’s decision to allow select manufacturing units to reopen on April 20. While MSMEs in most sectors have welcomed the latest move, they argue that lack of financial support from the government might result in these firms not running even if they manage to reopen.

The Confederation of Indian Industry (CII) has recommended focus primarily on increasing the financing available to MSMEs with relaxed collateral norms, an extension of the RBI moratorium and wage support. It also suggested expediting fund of funds for MSMEs which has been under the government’s consideration and augmenting the assets of MUDRA Bank.

“Many MSMEs are an important part of larger supply chains and their health has a bearing on the supply chain, including large firms. Therefore, special, immediate, and substantive support measures are required to see MSMEs through this crisis,” said CII Director General Chandrajit Banerjee.

To ease the liquidity crisis that most MSMEs had been facing for the last couple of months, Assocham has suggested a 40 per cent government or Reserve Bank of India guarantee on fresh loans, while the balance risk premium can be made up by a huge spread available to banks between their cost of funds and the yields.

ALSO READ: Covid-19 impact: India’s exports fall nearly 35% in March; dip 5% in FY20

On Tuesday, MSME Minister had stated during a meeting that unpaid dues of MSMEs at the central and the state levels will be released at the earliest. He estimates Rs 40,000-50,000 crore could be injected into the market by releasing the due payments.

Stuck far away

Procedural changes have also been demanded. With the majority of rural factories having little provision of accommodating large numbers of workers, transportation remains a challenge. In the garment manufacturing hub of Tamil Nadu’s Tirupur, workers are spread across a 60-100 km radius from industrial units.

The majority of workers in Uttar Pradesh’s Noida SEZ — the biggest such facility in northern India — come from nearby districts. For Gujarat’s gems and jewellery industry, the labour force originates from West Bengal. With the vast majority of the nation still under lockdown, businesses dependent on migrant labourers want the government to arrange for their transportation.


“We are awaiting more clarity on how workers will travel to their units. Also, with most public transportation closed, it would be foolish to think that workers can negotiate through the web of red and green zones to reach their factories,” said a senior functionary of the Federation of Indian Micro and Small & Medium Enterprises.

Unpaid orders

On the exports front, small businesses require more than just a reopening at this stage. MSME exporters are out of cash to even pay salaries, said Sharad Kumar Saraf, president of the Federation of Indian Export Organisations (FIEO).

ALSO READ: Idling trucks, staff shortage: Bottlenecks for industries amid lockdown

He said the order to allow the opening of export-oriented units in special economic zones and rural areas will reinstate about 80-85 per cent of their manufacturing capacity. “But since documents are extremely important to show proof of delivery and negotiation, exporting companies (having Importer-Exporter Code Number) should be allowed passes for two persons, once a week, to collect documents from the office for submission to banks, shipping lines, courier companies,” he pointed out. Despite the gradual opening up of most sectors, small exporters are expected to remain under immense business pressure as the lockdown came at a crucial juncture of the business cycle. Exporter’s bodies representing engineering goods, apparel, and electronics, among other sectors, have already pointed out the April-June export season is critical and 50 per cent of orders have already been lost.

ALSO READ: Manufacturers reach out to govt for clarity, tweaks in lockdown norms

On the other hand, the FIEO said that realisation of payments has become difficult as increasing economic downturn grips nations, which are major markets for India, such as European Union countries, the United Kingdom and the United Arab Emirates. As a result, more than 30 per cent of export orders remain unpaid.

“The latest government directive will help sampling units in the hub of textiles in Tirupur to immediately send out samples to global buyers, who can then approve the collections and place orders for the spring-summer season,” said Raja M Shanmugham, president of Tirupur Exporters Association.

Gadkari: Will clear Rs 10K cr for MSMEs

A Rs 10,000-crore “Fund of Funds” will be approved by the Centre to buy up to 15 per cent equity in MSMEs with a high-credit rating — AAA — that want to be listed on exchanges , Union Minister Gadkari said. He said a separate scheme was being formulated for according credit rating to MSMEs based on their turnover, exports, and GST payments, and that the National Small Industries Corporation or some other government body will control the Fund . “It is going to be placed before the Cabinet and will soon be cleared,” said the minister. PTI

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