The third wave of the coronavirus pandemic is expected to hit the already stressed Micro, Small and Medium Enterprises (MSME) segment in India hard. The last two years have been difficult for MSMEs, as many have been forced to close their doors during this period or lay off their employees. According to industry experts, there is no exact data recorded on the extent of this phenomenon. Although death rates during the second wave were extremely high, the economic impact was milder than the first wave. Now, with the third wave seemingly approaching, the fallout from any kind of restrictions to control the virus could disrupt the recovery of MSMEs, and the level of disruption would be known in the coming weeks.

“Small businesses are already under pressure, with their margins squeezed by soaring input costs and cash flow impacted by government and private sector payment delays. To date, more than 57% of MSME inquiries regarding late payments, from government and the private sector, remain unresolved under the MSME Samadhaan Platform, since its launch in October 2017,” Arun noted. Singh, Global Chief Economist, Dun and Bradstreet.

According to Singh, RBI data showing signs of strain in bank lending to MSMEs emerged in September 2021, well before Omicron was triggered. Proprietary data from Dun and Bradstreet shows that operational risks remain high in SME-dominated sectors in September 2021, compared to the previous year. That is to say before the second wave. Dun and Bradstreet’s Global Business Rankings, which predict the likelihood of a business going bankrupt, becoming inoperative or inactive over the next 12 months, remain high in sectors such as textiles, paper and printing, textiles, retail and construction. .

“Small businesses that were in the nascent stage of recovery would therefore be badly affected as the current surge in cases suggests that tight restrictions and even localized lockdowns cannot be seen as a remote possibility. MSMEs have already faced severe financial crises in the previous two waves and would therefore need special incentives, loan restructuring and a moratorium, adding to government budget pressure and extension monetary policy support,” Singh added.

MSMEs contribute around 30% of India’s GDP, employ around 11 million people, account for almost 40% of total exports and more than half of them are located in rural India. The government is keen to revive this sector to achieve inclusive growth, thus achieving self-reliance.

“An analysis of the CMIE Prowess database reveals that Indian MSMEs mostly rely on unsecured loans and take out few long-term loans for their capital expenditures. Lack of sufficient asset coverage [collateral] discourages them from taking secured loans at lower interest rates and therefore they have to rely on unsecured loans at higher interest rates. This hurts the profitability and economic viability of their businesses,” said Girish Linganna, Aerospace Expert and Director of ADD Engineering Components India Limited.

Linganna points out that many MSMEs in the aerospace sector have also been affected by the pandemic. “The supply lines of aerospace component manufacturers have been impacted after the recent increase in infection cases across the country. Due to the disruption of supply lines, HAL has previously indicated a possible delay in the delivery of 10 Tejas MK1 jets,” he said.

It is a well-known fact that with the help of a series of support measures, Indian MSMEs rebounded from the second quarter of 2021-22, after the second wave. The Emergency Credit Line Guarantee Scheme (ECLGS) has proven to be a lifeline for the sector. It provided 20% additional unsecured loans to existing borrowers at very low interest rates with liberal payment terms. More than 1.3 crore of MSMEs benefited.

“Before the current wave, MSMEs faced a double challenge, namely high commodity prices and financial difficulties. The prices of metals and plastic raw materials have increased by 40-50% over the past year, which has made it difficult for most of them to meet their previous commitments and reduce their cash flow. The third wave could delay the recovery. MSMEs expect [Union] Budget to alleviate commodity prices by reducing tariff and non-tariff barriers and help improve their cash flow,” Mohan Suresh, President of the Indian Federation of Micro, Small and Medium Enterprises (MSMEs) told THE WEEK.

Many other representatives of the MSME segment with whom THE WEEK spoke expressed their concern over the increasing restrictions related to COVID-19. Many believe that the Omicron variant is a cause of great concern for the industry and for the economy as a whole, as it had already faced difficult economic conditions in recent times.

“No company today wants to suspend operations because it was on the road to recovery. Every time operations stop, it takes a lot of hard work, a huge amount of money and a lot of time to restart the operations. operations everywhere. Workers, who would be deprived of any income due to the suspension of operations, may prefer to return home. Such a situation will surely cause long delays in many small manufacturing units and in turn affect large prolonged shutdown can lead to reverse labor migration and will prove to be a death knell for many already struggling MSME units,” remarked Namish Gupta, MD (Asia) of Annanta Source, a US-based company that operates in India.

Many MSME representatives echo the same sentiments. “It is well documented that the activities of MSMEs suffered a debilitating impact in the aftermath of the second wave. If the impending third wave of the pandemic is to hit businesses, then this will be the straw that breaks the camel’s back. will have a cascading impact on business and job creation, which is crucial to sustaining our burgeoning HR capital We hope state governments across the country exercise caution, particularly with the model of proposed lockdown as it will completely devastate and trample the green shoots that are emerging The MSME sector must grow as it is the biggest contributor of revenue to the public treasury and in turn contributes to GDP growth,” remarked BS Srinivasan, Vice President, Laghu Udyog Bharati Karnataka.

Srinivasan said that instead of the lockdown option, the government should step up medical support and improve vaccination coverage. “It will automatically reduce the impact of COVID and Omicron, and directly prevent the MSME sector from falling off the cliff,” he said.