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Covid-19 and Its Impact On Micro, Small, and Medium Enterprises in India
Covid-19 and Its Impact On Micro, Small, and Medium Enterprises in India
Covid-19 and Its Impact On Micro, Small, and Medium Enterprises in India
D. Indrakumar*
ABSTRACT
Micro, small, and medium enterprises (MSMEs) are playing
a critical role in the economic development as well as acting
as an important source of livelihood for millions of Indians.
They are a vital source of gainful non-farm employment for
people, particularly those living in rural areas. According to
the Ministry of MSME, the sector absorbs around 111 million
workforce and is the second largest job creator after agriculture.
Being a highly unorganised sector consisting of large number
of micro-sized units, the sector is highly prone to economic
crisis. The lockdown, which was declared in the last week of
March 2020 owing to the spread of COVID-19 and continued
till 3 May 2020, considerably impacted the economic activities
of MSMEs. Some initial assessments show that the sector faced
an acute cash crunch, shutdown of businesses, and large-scale
job loss across all types of units irrespective of their size.
Keywords: COVID-19, Employment, Lockdown, MSMEs,
Workforce
1. Introduction
The coronavirus disease, 2019 (COVID-19) is a highly transmissible and
pathogenic viral infection caused by severe acute respiratory syndrome
coronavirus 2 (SARS-CoV-2). COVID-19 originated from Wuhan City, China
and quickly spread to every corner of the world. Almost all countries having
human habitation were infected with COVID-19. More than 60% of the world
all Indian economic activities. The data also show that the majority (51.2%) of
MSMEs are located in rural areas. After agriculture, the MSME sector is the
second largest job creator, providing employment opportunities to a whopping
110.99 million Indian people (GoI, 2020)1.
At the state level, 2015–16 MSME census data show that of the 6.38 crore
enterprises in the country, approximately 15% (8.78 million) enterprises are in
Uttar Pradesh. West Bengal has shown a tremendous progress in registering
new MSME enterprises during this period and has 8.48 million enterprises with
a share of 13.9%. Tamil Nadu and Maharashtra have a share of 7.8% and 7.6%
enterprises, respectively. Karnataka stands at the fifth position with a share of
6%. Interestingly, Bihar has shown an impressive growth in registering new
enterprises under MSME during this period with 3.41 million enterprises (Table
A1).
The number of MSME units has increased significantly over the years,
particularly during the post-reform period compared with the pre-reform
period. The unorganised segment of manufacturing industries has expanded
rapidly during the post-reform period possibly due to a greater expansion of
large industries during that period, in turn creating a larger scope for outsourced
and contract-based business activities. This has also encouraged the growth of
ancillary and subsidiary units around big companies. The second reason could
be that an increase in foreign direct investment cap allowed multinational
companies to flourish during the post-reform period, and subsequently, they
outsourced their manufacturing and services activities to smaller subsidiary
units owing to cost effectiveness.
Trends of the growth rate of MSMEs presented in Figure 1 show a steady
increase in the number of enterprises from 1977–78 to 2006–07; the enterprises
grew to an average of more than 15% during the aforesaid period. However, a
rate below the double-digit growth rate was registered between 2006–07 and
2015–16. The 2015–16 MSME census data show only a nominal growth (4.5%)
of MSME units in 2015–16 over 2013–14. Similar to the trends of growth rate
of MSME units, employment in the sector had recorded on an average a double-
digit growth during 1977–78 and 2006–07. However, employment growth
recorded a sharp fall during the post-2006–07 period, registering a negative
growth rate of 8.1% between 2015–16 and 2013–14.
1 https://pib.gov.in/PressReleasePage.aspx?PRID=1617900
78 Manpower Journal, Vol. LIV, No. 3 & 4, July – December, 2020
24 Enterprises Employment
21 19.9
18.4
18
16.1 19.0
15
12.2
Growth Rate (CAGR)
14.7
12
12.0
9 9.3
6
4.5
3
0
-3 1977 to 1987-88 1987-88 to 2001- 2001-02 to 2006- 2006-07 to 2013- 2013-14 to 2015-
02 07 14 16
-6
-9 -8.1
-12
Source: Report of the Census of Small Scale Industries/Micro, Small, and Medium Enterprises,
DC, MSME, Different Periods, Government of India
month of the previous year. Although IIP growth gradually recovered in the
subsequent months, the growth rate however remained in the negative territory
until September 2020. The fall in the IIP growth rate was much higher in labour-
intensive industries such as food processing and textiles than capital-intensive
industries such as metal, petroleum, and chemical industries (Table 1). Because
firms under the labour-intensive manufacturing industry are largely micro and
small in size, the significant contraction of IIP of these sectors may also directly
reflect the impact of COVID-19 on the MSME sector.
Figure 2: Growth Trend of Monthly IIP (%Y-o-Y)
-30
-40 -37.8
-50
-60
-66.6
-70
-80
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
Metal industry 17.1 -19.3 2.6 -70.7 20.8 -38.2 18.1 -19.9 20.3 -8.3 11.8 1.4 8.4 3.7
Coke and petroleum 4.7 -1.7 3.9 -28.3 -2.1 -24.5 -7.7 -13.8 0.7 -17.1 3.3 -21.4 -5.3 -10.4
Chemical products 1.6 -21.6 2.8 -54.3 -0.8 -19.3 -0.4 1.1 7.0 -3.3 -4.5 -0.9 -1.2 5.1
Food products 8.2 -14.9 11.3 -22.3 16.2 -17.2 15.9 -6.0 22.1 -5.0 5.5 -2.2 1.3 0.4
Pharmaceuticals -1.7 -25.9 4.1 -53.8 7.6 4.8 6.0 18.0 3.2 11.4 6.4 -1.6 -2.1 7.0
Textiles including
15.5 -56.9 34.8 -184.9 5.6 -126.9 4.4 -79.4 9.5 -45.4 1.0 -40.7 -3.9 -25.8
apparels
Motor vehicles -6.5 -48.9 -5.0 -99.4 -6.4 -82.5 -14.7 -49.1 -12.7 -31.9 -25.0 -11.7 -26.0 2.1
Machinery &
-5.8 -37.6 -0.9 -91.3 -0.7 -61.7 -6.8 -31.2 -4.9 -18.2 -22.0 -8.7 -18.3 -3.6
equipment
Non-metallic
8.2 -23.7 0.2 -86.6 -0.1 -27.3 -3.8 -10.0 6.9 -13.5 -4.7 -12.5 -2.3 -7.1
mineral
Electrical
-7.6 -34.2 -0.5 -94.5 -5.0 -69.8 -11.7 -37.3 1.3 -22.4 -0.4 -12.8 1.3 10.0
equipment
80 Manpower Journal, Vol. LIV, No. 3 & 4, July – December, 2020
Fabricated metal -15.4 -35.0 -10.0 -96.0 -8.4 -55.1 -11.6 -30.5 -10.0 -13.8 -19.1 -4.4 -22.8 6.1
Rubber and plastic -2.0 -28.6 -4.4 -70.9 -2.4 -35.5 -4.5 -11.6 -0.7 -5.7 -8.1 -2.6 -12.8 9.1
Other transport
-19.1 -11.8 -4.7 -99.9 1.4 -84.8 -3.5 -50.2 -4.2 -25.3 -11.9 -2.6 -8.6 7.7
equipment
Computer,
11.4 -43.5 12.1 -92.6 9.6 -68.1 -15.8 -23.8 3.7 -19.0 -2.0 -11.0 -10.8 -7.5
electronic, etc
Beverages -1.7 -27.7 6.0 -94.2 2.0 -59.5 6.3 -32.8 2.2 -26.1 -6.0 -21.1 -3.9 -15.3
All manufacturing 3.1 -22.8 2.5 -66.6 4.4 -37.8 0.3 -17.0 4.8 -11.6 -1.7 -7.9 -4.3 -0.6
2 https://www.cmie.com/kommon/bin/sr.php?kall=warticle&dt=2021-01-19%20
10:45:34&msec=233
Covid-19 and Its Impact on Micro, Small, and Medium Enterprises in India 81
3 https://economictimes.indiatimes.com/small-biz/sme-sector/iit-m-industry-bodies-to-study-
covid-19-impact-on-msmes/articleshow/75738629.cms?from=mdr
Covid-19 and Its Impact on Micro, Small, and Medium Enterprises in India 83
adversely affected during the lockdown period. The data suggest a decline of
output, employment, revenue generation, and capital flow to the sector. To
address the unprecedented challenges faced by the sector, the government of
India and industrial bodies have announced key policy measures for the survival
and revival of the sector.
4 https://www.cii.in/PressreleasesDetail.aspx?enc=yyACb78onutb4jh0ys5LLuOY00
tSiabdNEEaT7hIfzc=
Covid-19 and Its Impact on Micro, Small, and Medium Enterprises in India 85
5. Concluding remarks
MSMEs have been playing a key role in providing livelihood to millions of
Indians. The sector also offers a substantial gainful non-farm employment in
rural areas. However, due its nature of being unorganised and small size, the
sector is highly prone to external and internal crises. COVID-19 has created an
uncertainty in almost all segments of economic activities including the supply
of raw materials, demand for final goods, and even employment opportunities.
The data analysis and studies conducted by individuals and institutions indicate
that the sector has lost a large number of jobs during the lockdown and even
beyond owing to the decline of output, revenue, and capital flow to the sector.
Many units particularly in the micro and small segments of the sector were
forced to extinct from the market due to persistent loss of business. Therefore,
financial support needs to be urgently extended to this sector.
The measures announced by the central government for the MSME sector
under the ‘Atma Nirbhar Bharat Abhiyan’ have probably arrived at the right
time and with a noble intention of reviving the sector and making them ‘local
to global’ under the umbrella policy of ‘Make in India’. The Hon’ble Prime
Minister has emphasised on implementing structural reforms in land, labour
laws, and infrastructure in order to strengthen the ‘Make in India’ vision and
help the country play a bigger role in the global value chain. Many foreign
companies have shown interest in shift their manufacturing base out of China,
which in turn has created a golden chance for India to grab the opportunities and
make the country truly a global manufacturing hub.
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88 Manpower Journal, Vol. LIV, No. 3 & 4, July – December, 2020