Lt General P.C.KATOCH | 21 MAY, 2020
Labour and Small/Medium Business Look Out for Aatm Nirbhar
COVID-19 Relief to MSMEs – View From Below
Findings of a study by Ernst & Young appearing in media on April 21 highlighted that COVID-19 lockdown could wipe out about 40% of the defence sector's micro, small and medium enterprises (MSMEs) within three months unless a support package is put in place by government. Even with the support package, the study indicated that complete revival of “any MSME” shall require at least 6-12 months.
Among various recommendations, it suggested 20% cap on defence budget outlay for segments not hampering military modernization, which is already implemented.
On May 13, the Finance Minister announced an economic package for MSMEs, which is termed COVID-19 Relief for MSMEs to make them ‘Aatm Nirbhar’. In terms of figures this looks attractive but considering that MSME revival will take minimum 6-12 months, examine this package from the MSMEs end would be useful without dubbing it criticism, since almost 50% of Indian exports are affected by MSMEs and their revival is crucial to economy. But before this, there issues brought into focus by COVID-19 need to be seriously addressed. These are given in succeeding paragraphs.
First. The continuing terrible human tragedy of migrant labourers is a matter of great shame. We cannot absolve ourselves for the horrific treatment meted to them, notwithstanding Centre-State and political parties mudslinging. Fact is we had no idea of their numbers, locations and how to handle them despite the first COVID-19 case reported in India on January 30. Erratic, unplanned and conflicting orders consigned them to awful misery, making India laughing stock of the world.
Second. Wealth inequality and slums include reality of India; not Dharavi alone but pan-India where forget ‘social distancing’, pitiable conditions are thriving hubs for disease. Investments in health and child nutrition remain pathetic but we extract the best – a US officer attending National Defence College in 2000 surprised everyone by stating Johnson Baby Soap was being made in the slums of Mumbai. We excel in shielding slums from view of visiting dignitaries, not uplift them.
Third. Lack of population control remains the bane of India affecting not only economy and unemployment but behaviour patterns urgently required in pandemic. Political parties don’t want to touch this because there is but one religion for them – votes, rest being rhetoric. That is why lives are cheap, be it of labourers, security forces or anyone including through political killings, motivated riots, whatever. IT cells of political parties can convert anything into platitude or victory. Average daily death rate in India over past decade anyway is 21-22,000 - so common man is expendable!
Economic package for MSMEs announced by the Finance Minister comprises:
. Rs 3 lakh crore collateral-free loans – 20% of outstanding credit as on February 29, 2020 by Banks/NBFCs with up to Rs 25 crore outstanding credit and Rs 100 crore turnover eligible with 4-year tenor and 12-month moratorium on principal payment. Government to provide credit guarantee cover to lenders.
. Rs 20,000 crore subordinate debt - MSMEs declared NPAs/ stressed eligible for equity support as subordinate debt. Also Rs 4,000 crore to CGTMSE offering partial credit guarantee banks lending to MSMEs.
. Rs 50,000 crore equity infusion – ‘Fund of Funds’` with corpus of Rs 10,000 crore to give equity based funding to MSMEs having growth potential, also encouraging them to list on stock exchanges.
. MSME definition revised – addressing MSMEs fear of outgrowing in size to receive benefits given by the government to businesses categorized as per the current MSMEs, manufacturing and service MSMEs defined under common metric of mix of investment in plants and machinery or equipment and turnover: investment less than Rs 1 crore and turnover under Rs 5 cr defined micro-units; investment less than Rs 10 crore and turnover under Rs 50 crore defined small businesses, and: investment under Rs 20 crore and turnover less than Rs 100 crore defined medium enterprises.
. Global tenders – global tenders will not be allowed in schemes up to Rs 200 crore by MSMEs to halt unfair competition from foreign companies in government procurement tenders.
. MSME Dues - government and central public sector enterprises to release all pending MSME payments in 45 days.
It is not known what inputs were taken from the MSMEs before announcing the above package considering they number some 25 lakh. But interaction with some MSMEs owners have thrown issues relevant to revival of MSMEs, . which government may wish to consider. These are described as under:
. Most MSMEs were already on loan repayment. Therefore, the package offering more loans is an effort to ‘sustain’ MSMEs, which can hardly be classified ‘Relief’. Collateral-free loans offered are not interest free. Interest free loans (or with small interest rate) for repayment of principle over long period would have helped revive MSMEs. This should have been possible considering government wrote off Rs 68,607 crore bank loans of willful defaulters up to September 2019.
. Government and central public sector enterprises are to release pending MSME payments in 45 days but why were they held back for months with Digital India and talk of thriving economy before COVID-19?. Shouldn’t government institutionalize paying dues within 30 days and fix interest rates for delayed payments?
. Revival of MSMEs will likely to take more than 12-months. Reopened factories find 50% workforce gone. In few cases foremen working for more than a decade have left saying they want to leave permanently. Labourers returning from villages on premise of no jobs and nothing to eat there, is no wholesome guarantee. Some may like to stay away longer with COVID-19 pandemic persisting and others returning may not return to the same factory.
. For paying workforce during lockdown as per MHA orders, MSMEs were already seeking additional loans. The Supreme Court has now cancelled the MHA order but the flip side is that some of the workforce is not happy with non-payment and are quitting especially those employed since long. In addition are collateral-free loans now offered – cumulatively breaking the backs of MSMEs. Some of them have been thinking of shutting shop to migrate – though critics may snigger and ask where will they migrate to?
. Some MSMEs fear this could be recipe for another loan scam. They feel that loans will be given to the politically or mafia connected, some even to pseudo MSMEs like it happened in case of agricultural loans. One MSME owner was categorical in saying, “We all know who will get the loans…and those who will vanish very soon. Moreover, many MSME owners I know can barely service existing loans. Taking more loans is a sure-shot death knell.”
It is reiterated that this is not a critique of the government package for MSMEs but a view from the ground level. It is for the government to take a call on the issues or dump them
Lt General P.C.Katoch is a veteran of the Indian Army.