MSMEs’ long term recovery likely ahead but subdued demand, lower disposable income among key issues

Ease of Doing Business for MSMEs: MSME was among five key sectors in India that witnessed the severe impact of the pandemic even as its recovery was expected to be long term ahead, according to a report by Dun & Bradstreet. “Subdued domestic consumption demand and lower disposable income would keep the revival of demand constrained,” the report said adding that the global recession will limit the revival for export demand for the MSMEs. Moreover, lack of technical expertise might continue to be a hurdle for MSMEs to adopt digital technology to enable business online. Also, costs for maintenance for required hygiene levels and change in work processes for MSMEs in the service sector such as the shift to teleworking would be higher for small businesses.

MSME along with automotive, gems & jewelry, hospitality and tourism, metal, and nine other key sectors were analysed for the impact they witnessed post Coronavirus and the near future outlook. MSMEs had largely faced challenges due to the disruption in the supply chain, lack of raw materials, unavailability of migrant labour, and restrictions in transportation.

Importantly, Rs 3.7 lakh crore package for MSMEs under the Rs 20 lakh crore economic stimulus was announced by PM Modi earlier this year. However, according to the report, since barely 5 per cent of India’s MSMEs have access to institutional credit, a huge number of such businesses have not been able to benefit from the package, which was essentially meant for Covid-hit enterprises, and will continue to have financial constraints.

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However, in terms of recovery, MSMEs belonging to retail and electrical goods segments and those working as vendors with the “government of public sector units are likely to revive first followed by the other segments.” Also, the government’s move to disallow global companies from applying for government procurement tenders worth up to Rs 200 crore to support local small and medium-sized businesses would offer opportunities to make goods as substitutes to products from China.

Meanwhile, MSME Minister Nitin Gadkari had earlier this month urged small businesses to focus on profitability through socio-economic impact creation. “These (economic downturn and Covid) times demand more empathy from businesses and investors – not only in empowering those who have been adversely impacted economically; but at the same time opt for a collaborative route to sustain these initiatives by involving smaller businesses, MSMEs, research and academic institutions through technology and knowledge” Gadkari had said at a summit organised by India Impact Council.