Covid impact: MSME among most adversely affected sectors; recovery chances ‘bleak’ in 6 months

Ease of Doing Business for MSMEs: The MSME sector is affected because of a lack of cash flows. Low demand, lack of manpower, stuck working capital, and lack of capital may lead to further stress on employment, according to an RBI survey.

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Ease of Doing Business for MSMEs: MSME segment struggling to survive and scale amid Covid has been among the five sectors adversely affected by the pandemic, RBI said in a survey. Even as majority sectors have witnessed “sizeable and immediate revenue losses”, the adverse impact has been in sectors where “consumption spending is discretionary in nature,” said the systemic risk survey by the central bank published recently. 60 per cent respondents claimed recovery in the MSME sector, which suffered from massive labour migration, production halt, and cash flow crunch during the lockdown, to be bleak in the next six months. However, the rest 40 per cent believed it to be moderate. “The MSME sector is affected because of a lack of cash flows. Low demand, lack of manpower, stuck working capital, and lack of capital may lead to further stress on employment,” the survey noted.

“The recovery will depend on segment-to-segment in the MSME sector. More than 99 per cent MSMEs are micro-units. In manufacturing, there are around 16 million units employing around 9-10 people and are ancillary to large companies. Their recovery depends on the recovery of large businesses and to whom they supply goods. Capital goods recovery will take 1-1.5 years. However, even in manufacturing it depends on what type of manufacturing they are into. Services and IT-related MSMEs are not much affected,” Nandakumar, Chairman, MSME Sub-committee, Western Region, CII told Financial Express Online.

Also read: Nitin Gadkari suggests way to boost credit access for micro units; discussions underway with Niti Aayog

The recovery, however, has already started ever since the government announced unlock 1.0. “There has been a recovery of 20-25 per cent,” Chandrakant Salunkhe, President, SME Chamber of India had told Financial Express Online. The challenge particularly concerning credit access has been seemingly addressed by the government to help MSMEs resume activity. Under the Emergency Credit Line Guarantee Scheme, as of July 23, 2020, the amount disbursed by public and private banks to Covid-hit MSMEs stood at over Rs 82k crore out of more than Rs 1.30k crore sanctioned. The number of MSME accounts disbursed was over 20.16 lakh.

Other sectors, according to the RBI survey, adversely affected were tourism and hospitality for which 90 per cent respondents believed the recovery in six months to be bleak. Others were construction and real estate, aviation and automobiles.

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