What could be right recovery strategies for SMEs?

SMEs have been severely impacted by Covid 19 pandemic. IPF webinar elaborates on relief measures that they can avail and also suggests long term growth plans.
What could be right recovery strategies for SMEs?

SMEs have been severely impacted by Covid 19 pandemic. IPF webinar elaborates on relief measures that they can avail and also suggests long term growth plans.

SMEs are considered to the backbone of the country and the Covid 19 pandemic is threatening to break the backbone and cripple India’s economy. Till now many measures have been announced by the government to reduce the burden on common people and also industries, in particular MSMEs. However, the real relief measure is yet to be offered to MSME sector as it was brought to the notice during the webinar organised by Industrial Products Finder (IPF) magazine on April 16.

Webinar - titled “Recovery strategies for SMEs” - was moderated by Pratap Padode, Editor-in-Chief, IPF magazine and Founder, FIRST Construction Council and ASAPP Info Global Group.

Panellists for the webinar included Bhavesh Thakker, Partner (Tax and Regulatory), Ernst and Young LLP (EY); Rachana Bhusari, VP - SME, National Stock Exchange of India Limited (NSE); Rajive Chawla, Chairman, IamSMEofIndia; Saikat Roy, Director - West, CARE Ratings Ltd; Subba Bangera, Director of PMMAI (Plastics Machinery Manufacturers Association of India), and Chairman, Active Biz Solutions Pvt Ltd; and Advocate Mohit Kapoor.

Rajive Chawla said, “MSMEs are the worst hit by Covid 19 pandemic. “About 99 per cent of the businesses have not generated any revenue during the last one month and they are also been told to pay wages on time. But, interest on their loans have not stopped and their debt burden will keep on going up during the six-week lockdown period.”

In the present scenario, industries can be grouped into two categories depending on the kind of products they manufacture - essentials or other (discretionary). Saikat Roy said, “Over two-third of the MSMEs are in services sector, while the remaining about 33 per cent are in manufacturing segment. Demonetisation and GST had severe effect on SMEs finance, and they were not in the pink of their health with many of factories running at 50-60 per cent capacity.”

Saikat Roy added, “Among with cash flow and liquidity, demand disruption and supply chain challenges are the worries before SMEs. From April 2015, every central ministry, departments and PSUs have been mandated to procure 25 per cent of their requirement from MSME Sector. But this is not practiced on the ground. If this is enforced, some of the pain of the MSME sector will be reduced. Large corporates - who have access to funds - have no reasons to hold back their payments to MSMEs during this time of crisis. Post lockdown, spending on discretionary products will be deferred. Also, companies will look at localisation of their supply chain.”

According to Advocate Mohit Kapoor, compliance to Disaster Management Act is must during the lockdown period. “Wages need to be paid and retrenchment will not be easy. Under the Industrial Disputes Act, companies employing more than 100 workers will need to seek permission of the State Government to retrench or close down. At the most, companies can defer or stop future increments. Considering the hardship faced by SMEs due to the lockdown, government can, like many other countries, take measures to aid the employers. For example, government of Denmark has announced that it will cover 75 per cent of wage bills,” he said.

Rachana Bhusari added, “Finance is the biggest worry for SMEs and funding options for SMEs are very limited. Debt trap is very real.  Listed SMEs can look at raising funds and also use TReDS - which facilitates the financing of trade receivables of MSMEs through multiple financiers. Government should incentivise listing of SMEs on stock exchange as they will have more option available for financial needs.”

Speaking on relief package, Bhavesh Thakkar said, "Filing GST returns for months of March-May to June 30 have been extended under the relief package. On late filing of GST returns, no late fee, penalty or interest will be charged for companies with turnover of up to Rs 5 crore. For companies with more than Rs 5 crore turnover, no late fee and penalty will be charged on GST return filed by 15 days. A reduced interest rate of 9 per cent will be charged which if further delayed will be charged at the 18 per cent.”

All large companies have been directed to clear funds and payments of their supplier MSMEs. “But these can only be availed if they have ‘Udyog Aadhar’, an identity of government registered MSME in India. Only 20 per cent of MSMEs in India have obtained Udyog Aadhar,” he informed.

He said, “If you look at the relief measures in India, it accounts to a share of around 0.88 per cent of GDP while in USA it accounts to a share of around 10 per cent of its GDP. Here we need to support MSMEs as a larger portion of MSMEs drive businesses in India. Of all these relief measures announced, we are still waiting for larger measures to come.”

Speaking on expectations of MSMEs, Subba Bangera, said, “There are two kinds of issues we are currently looking at: short-term issues and long-term benefits. What MSMEs demand today from the honourable government is to extend support for next 6 months through social security funds (which are available in plenty). If given right support, MSMEs will restructure, upgrade, come out with flying colours. The only demand that MSMEs have is support from the government for a short period of time via its different channels—be it through loans, waivers, extensions etc.”

According to Rajive Chawla, “The relief measures announced by the are not wholesome. These measures may burden MSMEs with further liabilities as their loan will be extended and if they fail to pay the same they will be in a flux. The provident fund relief is also conditional. Companies below 100 employees and 10 per cent of employees having salaries above 15000 will be considered for relief and rest will not be entitled for measures announced. Additional loans by banks to the SMEs will serve as an added burden as banks will make good business depressing all the SMEs at the receiving end.”

Speaking on hygiene, allowance to resume partial production, steps that every company needs to look at while resuming production/ manufacturing, he said, “Bearing community consciousness in mind will be a key in following hygiene, sanitisation in the premises of the facility/ factory. HR departments need to communicate right hygiene practices that shall be followed after resuming operations to its workforce. This is the best time to win your employees confidence by establishing communication.”

“Sophisticated arrangements on hygiene, sanitisation of workforce and components/machines etc.  be made post lockdown. All business enterprises will see a huge change in post Corona times. In the meanwhile, we are still awaiting a wholesome relief package having some real benefits and support for MSMEs,” said Rajive Chawla.  

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