Long term recovery for Covid-hit MSMEs to be uneven; hinges on these sectors in 6-12 months ahead

Ease of Doing Business for MSMEs: Long term recovery for the MSME sector, which remains severely affected due to curtailed consumption and production activities, will be uneven across different scales of business and tied to the sector in which units are operational, said business data and analytics provider Dun & Bradstreet on Thursday. The steep decline in the overall growth would be largely due to the deterioration in the business of medium and small industries as large businesses having cash have been bracing themselves with different survival strategies. Moreover, large companies’ ability to avail the various policy benefits “are usually greater than MSMEs. MSMEs on the other hand often lack awareness. The recovery across different scales of business would thus be uneven,” it added in its outlook report for 15 key sectors contributing to the economy.

Importantly, with most of the economic activities being allowed by the government under Unlock 5.0 phase from October 1, 2020, onwards, businesses in the unorganised segment, which are mostly MSMEs are likely to gain traction. MSMEs working with the government of public sector units may recover first followed by the other segments, the report added.

Covid-induced lockdown enforced by the government in March this year had disrupted operations of MSMEs that have been relatively less resilient than large firms to withstand the crisis with respect to cash reserves, access to technology, ability to adapt to the new normal scenario with new product launches and engaging with customers through various digital platforms. Demonetisation and GST followed by the pre-Covid economic slowdown had put further debt burden on MSMEs.

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“Overall, the recovery time of an MSME will be tied to the sector in which it is operational. Sectors like online gaming, telecommunications, and e-education operating in the digital space are witnessing a positive impact by leveraging opportunities arising from the pandemic,” the report added. However, traditional sectors including food, drugs, pharmaceutical, ITeS, banking, retail, automotive, real estate, and jewelry are seeing moderate to severe impact, Hence, the recovery of these sectors will take six months to more than a year while others such as logistics and warehousing, metals, media, and entertainment will also take up to one year to return to February 2020 levels.

Other challenges that would hinder MSMEs recovery included the global recession that will limit the revival for export demand for MSMEs, lack of technical expertise, the difficulty for the government to identify unregistered micro-units that remains below the threshold limit of GST, costs for maintenance for required hygiene levels and change in work processes and more.