Revival package? 35% of MSMEs, 37% self-employed may not recover, to shut down

By Thomas Franco*

The All India Manufacturers’ Organisation (AIMO), founded by Bharat Ratna Sir M Visvesvaraya in 1941, represents the micro, small and medium enterprises (MSMEs) in the country. With the initiative of KE Raghunathan, immediate past president of the organisation, AIMO has conducted a survey between May 24 and May 30, 2020. The survey has received 46,525 responses. The participants were MSME owners (49%), employees (17%), self employed (16%), experts (11%) and corporate CEOs (7%).
KE Raghunathan says, “35% of MSMEs and 37% of the self-employed see no chance of recovery in their business and they are shutting down. India has 65 million MSMEs employing over 150 million people and over 130 million people are self-employed. This kind of mass destruction of business has never happened”.
Startups account for over 11% of the MSMEs and they are in the verge of closing down says a technology start up entrepreneur. While 46% of the corporates and 32% of MSMEs say it will take six months; 35% of MSMEs and 37% of self-employed feel that their businesses are beyond recovery.
While 21% have problems in getting new orders, 17% have problems with collection of dues, 17% have problems in giving salary, another 17% have problem with manpower, 15% have problem of raw materials and 13% have problem with EMI payments.
About 72% of the MSMEs respondents have stated that there will be employment reduction and 14% say it is uncertain now. 42% of corporates also say they will reduce manpower.
On the stimulus package, 52% of the respondents were MSME owners, 22% self employed, 17% experts and 9% corporate CEOs. Out of this 29% of the SME owners, 48% of self-employed, 21% of experts and 20% of corporate CEOs feel the package is inadequate.

Finance Minister Nirmala Sitharaman

After two weeks of announcement, 75% of the SME owners, 80% of self-employed, 75% of experts and 70% of corporate CEOs say they are not satisfied. 74% feel that it should have been better.
The problems highlighted are:

No alternate finance to those who do not qualify for the loans announced.
No support and hand holding to start up enterprises.
No relief for self-employed.
No relief from interest on loans.
No relief for payment of salary during lockdown.
Ne demand creation.
Government has not done anything to address these issues.

On feedback of manufactures dealing with the banks, KE Raghunathan says, “Only accounts up to SMA1 are given additional finance whereas it should have been up to special mention account-2 (SMA2) accounts, which may be temporarily irregular for reasons, many scheduled commercial banks say that they have not received the instructions, in some cases the enhanced loan limit is used by banks for payment of dues and the borrower did not get anything in the hand, in many cases only 10% increase is given on loan against the announcement of 20% and only State Bank of India (SBI) seems to give most of the additional credit and others are waiting”.
On enquiry with bankers, they say there is pressure to enhance limits but we require fresh balance sheet as financial year is over; we have to follow all the documentation procedure which the borrower finds it difficult, we have to complete memorandum of deposit (MOD) on the documents which requires time; we do not have adequate staff.
They also say that after a month no instructions have come regarding the loans to street vendors. So banks are only providing credit to the existing customers who are considered disciplined customers. They are doing it to safeguard the banks and themselves.
So there is a huge slip between the cup and the lip.
The headmistress reviewing the banks every week in not going to solve the problem of the economy unless the fundamentals are made strong through fiscal stimulus and expansion of bank branches and staff with clear cut, simple guidelines.
Even simplification of documentation procedures are needed. Monetary stimulus is not sufficient; We need fiscal stimulus and support on raw materials, salary, marketing and handholding for MSMEs. entire burden cannot be thrust on banks.
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*Former general secretary, All India Bank Officers’ Confederation. Source: Centre for Financial Accountability

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