MSMEs in essential operations are locked out; implementation paralysis hurting small businesses

Updated: May 05, 2020 4:13 PM

Ease of Doing Business for MSMEs: Even though clear guidelines have been issued permitting interstate trucking operations, significant concerns are being faced by stakeholders while requisitioning permits and in the inter-state and inter-district movement of cargo.

Over the 40-day lockdown period, MSMEs and industries otherwise permitted to operate have been constrained due to regulatory hurdles.
  • By Rudresh Singh

Ease of Doing Business for MSMEs: The Ministry of Home Affairs, Government of India (MHA) extended the lockdown for a further period of two weeks with effect from May 4 2020. The MHA issued new guidelines to regulate different activities based on the letter dated April 30, 2020, issued by the Ministry of Health and Family Welfare, Government of India (MoHFW). The lockdown is based on risk profiling by the MoHFW of the districts of the country into red, orange and green zones. This classification will enable more economic and other activities in the area of districts which is relatively less affected by the incidence of COVID-19. The containment areas will be defined by the respective district administrations by taking into account the total number of active cases, their geographical spread and the need to have well-demarcated perimeters from an enforcement point of view.

It may be noted that most of the commercial and private establishments have allowed even in Red Zones. These include print and electronic media, IT and IT-enabled services, data and call centres, cold storage and warehousing services, private security and facility management services, and services provided by self-employed persons. Further, manufacturing units of essential goods including drugs, pharmaceuticals, medical devices, their raw material and intermediaries; production units which require continuous process, and their supply chain; jute industry and manufacturing of IT hardware and manufacturing of packaging material will continue to be permitted. In Orange Zone, inter-district movement of individuals and vehicles will be permitted while in Green Zones, all activities are permitted except those activities like air travel and rail which are not categorized on the basis of zones.

More importantly, industrial establishments in urban areas like Special Economic Zones (SEZs), export-oriented units (EOUs), industrial estates and industrial townships will be permitted. Further, construction activity in the urban area has also been permitted to in-situ construction. Most importantly, all standalone shops and e-commerce are permitted for essential activity. Private offices can operate with up to 33 per cent strength.  All other activities will be permitted if they are not specifically prohibited or which are permitted with restrictions in various zones.

On-ground Challenges

While it appears that the extension of the lockdown was imminent and essential, it is time for the governments to take stock of the situation and contribute towards reviving of the economy and Industry. Over the 40-day lockdown period, MSMEs and industries otherwise permitted to operate have been constrained due to regulatory hurdles. Each continuous process, essential service manufacturer and other ancillaries and intermediaries have been unable to break the regulatory lock jam with respect to receiving approvals from district administrations.

Also read: SIDBI to handhold MSMEs post Covid; set to launch all-in-one hub for everything small businesses need

There are a lot of instances where approvals for starting operations for a continuous process or their raw material supplier or their intermediary has been pending for over 20-30 days. Further, various state governments and district administrations are not in sync with the guidances being issued by various departments of the central government. Similarly, various instances have been cited of district administrations not responding to formal requests and reminders citing capacity constraints. While this may be true, and there are many instances of young district collectors and superintendents of police going beyond their duties to assist MSMEs and small establishments, highhandedness of on-ground government functionaries in charge of these approvals and permits is unfortunately rampant.

In this background, a lot of industries including MSMEs and small retailers are unable to operate in the absence of requisite approvals and permit. Similarly, even though clear guidelines have been issued permitting interstate trucking operations, significant concerns are being faced by stakeholders while requisitioning permits and in the inter-state and inter-district movement of cargo. Various instances of cartelization and price gouging are also being witnessed across sectors.

Immediate Redressal

While these are extraordinary times and the central leadership is making exemplary efforts to sort out concerns faced by industry especially MSME, much is desired with respect to on-ground implementation by the respective district administrations. Perhaps, the Department for Promotion of Industry and Internal Trade (DPIIT) and the Ministry of Corporate Affairs may take a more active role with respect to ensuring that their requests and advisories are implemented properly. Many requests made by DPIIT to various state governments remain unattended for many days and weeks. Further, any interpretation issues of any central /state guidelines and orders should also be immediately clarified by the nodal central government agencies and the Chief Secretaries of State, failing which it leads to implementation paralysis at the ground level.

It is reported that more than one-fourth of India’s MSMEs may have to close operations if the lockdown continues for four-eight weeks. All regulatory hurdles and on-ground implementation issues are most adversely affecting the MSME sector in India. The Ministry of Commerce and Industry ought to make extraordinary efforts to sort out this lock jam especially if the lockdown is going to be extended beyond May 17, 2020.

Rudresh Singh is the partner at L&L Partners. Views expressed are the author’s own.

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