MSMEs And Covid-19 – Economics – Free PDF Download

• The Covid-19 pandemic has left its impact on all sectors of the economy including the Medium, Small and Micro Enterprises (MSMEs) sector.
• Earlier the government had declared the relief package namely, the PM Garib Kalyan Yojana for the poor to help them fight the battle against Coronavirus (Covid-19), the second package is expected to primarily focus on the MSME sector.

Definition of MSMEs

• In February 2018, the Union Cabinet decided the criterion of an annual turnover (in line with the imposition of GST) for defining MSMEs.
• Formally, MSMEs were defined in terms of investment in plant and machinery/equipment.
• According to the proposed definition (which is yet to be formally accepted), the categorisation would be:
• Micro Enterprise : An annual turnover less than Rs 5 crores.
• Small Enterprise : An annual turnover between Rs 5 crores and Rs 75 crores.
• Medium Enterprise: An annual turnover less than Rs 250 crores.

Statistical Data about MSMEs in India

• Total Number of MSMEs: According to the Annual Report of the Department of MSMEs (2018-19), there are 6.34 crore MSMEs in the country.
• Rural-Urban Distribution: Around 51% of these are situated in rural India and 49% of them are situated in urban India.
• Employment: Both rural and urban MSMEs together employ over 11 crore people but 55% of the employment happens in the urban MSMEs.
• Category-wise Distribution: 99.5% of all MSMEs fall in the micro category. While micro enterprises are equally distributed over rural and urban India, small and medium ones are predominantly in urban India.
• Social Distribution of MSMEs: About 66 % of all MSMEs are owned by people belonging to the Scheduled Castes (12.5%), the Scheduled Tribes (4.1%) and Other Backward Classes (49.7%).
• Gender Ratio in MSMEs: The gender ratio among employees is largely consistent across the board at roughly 80% male and 20% female.
• Geographical Distribution: Seven Indian states account for 50 % of all MSMEs. These are Uttar Pradesh (14%), West Bengal (14%), Tamil Nadu (8%), Maharashtra (8%), Karnataka (6%), Bihar (5%) and Andhra Pradesh (5%).

Problems Faced by MSMEs in India

• Being out of the formal network, these MSMEs do not have to maintain accounts, pay taxes or adhere to regulatory norms etc., which brings down their costs.
• But in a time of crisis, it also constrains a government’s ability to help them.
• Lack of Financing:
• Most of the MSME funding comes from informal sources.
• Further, banks dither from extending loans to MSMEs due to the high ratio of bad loans.
• According to a 2018 report by the International Finance Corporation (part of the World Bank), the formal banking system supplies less than one-third (or about Rs 11 lakh crore) of the MSME credit need that it can potentially fund.
• Delays in Payments to MSMEs:
• It is one of the biggest reasons for financial turmoil in the MSME sector.
• MSMEs face delays in payment from their buyers which also includes the government.
• It also faces delays in GST refunds.

Problem Aggravated due to Covid-19

• Declining Revenues: MSMEs are already struggling — in terms of declining revenues and capacity utilisation — in the lead-up to the Covid-19 crisis.
• Unavailability of Cash: The total lockdown has raised an issue of the existence of MSMEs primarily due to unavailability of cash which subsequently will result in the job losses.
• Lack of Labour Availability: The return of migrant labourers will create an issue of lack of labour availability.
• Loan Against Collateral : Loans to MSMEs are mostly given against property (as collateral) but in times of crisis, property values fall and that inhibits the extension of new loans.
• Steps Taken:
• Reserve bank of India has announced several measures such as a moratorium on term loans, and easier working capital financing.
• Some public sector banks have also opened up emergency credit lines for businesses.

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