Impact of CoViD-19 on MSMEs
Updated: May 3, 2021
Ever since the Covid-19 pandemic dealt a hard blow to the global economy, the vulnerable MSME sector has been reeling under its impact in India. Enterprises have faced a host of issues, ranging from zero cash flow to lack of demand and unavailability of labor. The loss of business activity has led to the closure of at least 35% MSMEs, says a survey by the All India Manufacturers’ Association. Another study says nearly 50% of MSMEs have faced a 20-50% impact on their earnings.
Addressing The Cash Problem
In the post-Covid world, the problems ailing MSMEs are many. Infusing liquidity into the sector facing a massive fund crunch is the immediate priority. The government has launched an economic relief package worth Rs. 20 lakh crores called Atmanirbhar Bharat Abhiyan. Under this, it has announced a slew of measures directly aimed at revitalizing the battered MSME sector. These enterprises can now avail collateral-free loans of up to Rs. 3 lakh, which come with a principal repayment moratorium for 12 months, capped interest rates and no guarantee fees. To expand the size and capacity of MSMEs, the government also plans an equity infusion through a fund for which it will provide an initial corpus of Rs. 10,000 crore. Apart from the government, fintech firms like Crediwatch, Happy Loans and others are helping plug the credit gap.
Helping MSMEs Bounce Back
The pandemic has cast its shadow on the MSME sector, and its revival is of great significance to the economy. This unprecedented situation has forced experts to look closely at the problems ailing the sector. While stakeholders are trying to address the main challenge of cash flow, the sector is also in desperate need of a digital transformation.
Taking The Digital Route
Over the last decade, the wave of digitization has swept through the Indian economy transforming many big businesses. However, a majority of MSMEs have been continuing to do business the conventional way. According to a report, only 16-18 million of the 75 million MSMEs in India have a website, an online listing or social media accounts. A weak digital presence is one of the reasons why these enterprises have been hit the hardest during the pandemic.
Some MSMEs have responded to the crisis by establishing a digital presence. According to this report, 30% of MSMEs have started a website or enabled e-commerce since the lockdown. As digitization is the way forward, this sector needs to be well-equipped to make the transition.
Innovations and Interventions
Proactive policies and accelerated digitization will be critical in the sustainable revival of MSMEs. The startup ecosystem and larger organizations are stepping up to serve the MSME sector. Startups like Bikayi have raised funds for their Whatsapp-based innovations, while Razorpay has launched ‘payment buttons’. Larger organizations like Facebook are running a cash & ad credits grants programme, whereas Mastercard announced a commitment of Rs 250 crore.
This is a watershed moment for MSMEs. If they are willing to disrupt themselves in the path to recovery, this sector can unlock its potential and turn into a significant driver of growth.