Covid-19: Rescuing The MSME Sector

What The Government Has Been Doing

So far, the Reserve Bank of India has announced an indicative list of Covid-19 operations and business continuity measures to be set in place by scheduled commercial banks, nonbank financial companies, payment banks etc. Financial institutions have been directed to assess the impact of the health crisis on their balance sheets, asset quality, liquidity, etc. and introduce contingency measures to manage risks. The RBI has allowed a moratorium on term loans, eased working capital financing and deferred interest payment on working capital facilities without an asset classification downgrade. In terms of ad-hoc relief measures, many public sector banks have introduced emergency credit lines whereby a maximum loan amount of up to Rs 200 crore or 10 percent of the existing fund-based working capital limits can be availed by MSME borrowers. The Small Industries Development Bank India has announced a concessional interest rate of 5 percent for MSME loans under the SIDBI Assistance to Facilitate Emergency Response against Covid-19. These loans would be provided within 48 hours, with no collateral and minimum paperwork but only those MSMEs that are manufacturing products or deliver or delivering services related to the Covid-19 fight are eligible for these loans.The government has also introduced measures permitting delayed GST payments until June 2020, without levy of interest, late fees or penalties.

 A Composite MSME Policy Framework is needeed:
It is important that the Ministry of MSMEs draws up a policy framework with multiple scenarios for how to continue business operations, commensurate to the spread of the virus. Governments worldwide have been using various policy measures to soften the economic blow rendered to their MSME sectors. A policy framework could be considered for the Indian MSME sector, one that is based on fostering their resilience to the onslaught of this health emergency, not just in the short-term but also for the medium and long term – considering both supply- and demand-side impacts. It is pertinent to note that the lack of accurate information on this sector due to the absence of a dedicated MSME census conducted in recent years (the last MSME census was held in 2006-07), and the absence of a unified unified (and verified) MSME database could hinder targeted relief delivery and making access to credit easier for enterprises that need it the most.

That said, the proposed policy framework could consider the following...

  • Measures To Mitigate Impact On MSME Labour Workforce
  • Specific Measures For Self-Employed Or Owner-Managed Enterprises
  • Measures To Defer Utility And Social Security Payments
  • Measures To Enhance Access To Credit

Apart from such measures, it is also imperative that a plan be drawn up to allow businesses to reopen activity, in a phased manner, with social distancing norms in force. Regular and surprise checks even may be introduced to enforce state guidelines. But it is important to now engage with the idea of slowly restarting business operations in areas with low infection levels, albeit with necessary and vital precautionary measures in place.