Covid 19: Big opportunity or doomsday scenario for MSMEs? Stage set for firms to decide their future

Published: July 2, 2020 2:46 PM

Ease of Doing Business for MSMEs: The government has set up the stage, consumer perception can be made favourable, and means available with MSMEs are several. This provides them with the perfect platform to emerge stronger in the post-Covid-19 world.

To help businesses get back on track, the Prime Minister of India announced a host of relief packages to help India become ‘Atmanirbhar Bharat’ or self-reliant.

Ease of Doing Business for MSMEs: The Covid-19 pandemic has affected over 150 countries, and has disrupted international trade, its economies as well as the lives of its citizens. The governments have been quick to respond to deal with this unprecedented crisis by. Closing down its borders, imposing nationwide lockdowns, ramping up testing and healthcare infrastructure and announcing fiscal stimulus/relief packages which are of unimaginable proportions. The response from the Indian Government was no different. India is under a strict nation-wide lockdown for more than 70 days, followed by a relief package to the tune of 10 per cent of the country’s GDP, that is, Rs 20 lakh crore to kickstart economic activity.

Due to the lockdown, the Indian MSME sector suffered the most with its collective production decreasing by more than 90 per cent. This sector comprises around 64 million enterprises and employs close to 120 million people. It contributes 30 per cent to India’s GDP and constitutes 45 per cent of exports. Out of these, 14 per cent are women-led enterprises and close to 60 per cent are based in rural areas. Hence, its importance to the Indian economy is quite significant and critical for bridging the growing rural-urban divide.

To help businesses get back on track, the Prime Minister of India announced a host of relief packages to help India become ‘Atmanirbhar Bharat’ or self-reliant. Majority of the relief packages were targeted towards MSMEs. This was either in the form of liquidity support loans and equity infusion support to help MSME expand in size and capacity.

Further, the government also provided them with a level playing field by reserving government procurement orders of up to Rs 200 crore value and commitment to clear invoices within 45 days. The pandemic exposed issues with India’s fragmented supply chain. As a response, the government is in the process of setting up an online platform which will have a robust listing of businesses and provide them means to directly interact and transact without depending on intermediaries.

Other initiatives like the ‘One Nation One Card’ scheme and ‘Ajeevika’ app are in various stages of implementation. This can help employers tap into the locally available labour workforce and restart production activities that were hampered due to the migration of labour to their hometown.

The Government e-Marketplace (GeM) has already been set up to boost MSMEs’ share in government procurement of goods and services. The MSMEs have benefitted with orders worth Rs 20,000 crore since the inception of GeM. Along with the PM’s call for ‘self-reliant India’, the current face-off between Indian and China has led to an increased demand for locally manufactured goods, unleashing new opportunities for Indian MSMEs. We believe MSME businesses which are willing to reimagine their businesses and evolve with the changing times will be poised to leapfrog on the back of this unique opportunity.

Also read: Modi govt eases registration for MSMEs; launches portal for setting up business with only Aadhaar

There is a need for MSMEs to rethink/reinvent their product strategy, its differentiators, distribution models, product pricing and so on. While there is a visible dip in the discretionary spending of consumers, there is also a marked shift in consumer preferences which can be leveraged. For example, the consumers appreciate and are even willing to pay a premium for safe practices adopted by businesses during sourcing, manufacturing, storage and delivery. Similarly, digital marketing and online channels can offer an inexpensive way for MSMEs to reach a wider customer base.

MSMEs can also foster product as well as process innovations by partnering with knowledge partners, that is, academic institutions, tech startups, and students. Many state governments are funding such initiatives through grants. Alternatively, MSME clusters can crowdsource solutions to improve their overall competitiveness as well as resilience. 

Technology adoption is another factor that can help MSMEs to improve process efficiency, reduce cost, information visibility, and enhance worker safety. With the advent of cloud and cloud-based technologies, they can easily create an elastic and flexible IT infrastructure compared to its large enterprise counterparts to support digitalisation. For example, a cloud-based solution to ensure worker safety by monitoring social distancing norms and with contact tracing provision can help businesses prevent unexpected closures in case of infections. They can manage compliance requirements as well as provide assurance to workers.

Partnerships could be another avenue for MSMEs. Especially in sunrise sectors, MSMEs can partner with established foreign players looking to explore the Indian market or make a low-cost manufacturing base. Even the large and established players are exploring ways to future proof their business against disruptive market forces. Partnerships with MSMEs could be low risk and economical mode to achieve this. MSMEs, in return, can get support in the form of capital, technology, marketing, supply chain know-how, product development support and so on. To sum up, the government has set up the stage, consumer perception can be made favourable, and means available with MSMEs are several. This provides them with the perfect platform to emerge stronger in the post-Covid-19 world.

Nirav Shah is the Partner – Consulting at PwC India. Views expressed are the author’s own.

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