CHAPTER 1

INTRODUCTION TO THE
TOPIC

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INTRODUCTION TO THE TOPIC
As a very important segment of the Indian economy, micro, small and medium-sized
enterprise (MSME) sectors have arisen, making a major contribution to the production,
creativity, export and inclusive economic development. The socio-economic growth of our
country is focused on micro, small and medium-sized enterprises (MSME). It also accounts
for 45% of overall factory output, 40 % of total exports and provides a huge contributor to
GDP. In the MSME development market, 7.09% of GDP is produced. In comparison,
MSMEs contribute 30.5% to facilities. The MSMED Act 2006, which allowed the growth
and advancement of the industry in a system for MSME, established a Mechanism for
MSMEs to grow and boost the competitiveness of MSMEs, provided for credit flow to the
sector and paved the way for government procurement preferential treatment of MSE
products and services, tackled the problem of de lending to the sector The new legislation is
supposed to face the main challenges of physical infrastructure bottlenecks, lack of
formalization, implementation of technology, construction of power, backward and forward
links; lack of access to credit; and risk-capital, perennial problem of delayed payments, etc.
These concerns impede the creation of a commercial climate favourable to growing the
industry. The MSME Ministry has noted that a flourishing market eco-system is a policy
necessity in order to realize the sector 's potential and to ensure a sustainable sector
development.

Global developments in classifying micro-enterprises indicate that they vary considerably

between various jurisdictions. A comparison of some countries has shown, however, that
most workers use a vector to describe micro-enterprises, in India, the concept of micro-
enterprise is currently focused on the expenditure in equipment and machinery. The new
requirements for the designation of micro, small and medium-sized businesses based on
profitability, which would be of benefit for microenterprises, have been adopted by
government in order to encourage market easing.

There was not a legal concept for medium-sized companies in India before the
implementation of the MSMED Act in 2006. Consequently, there was no formal concept for
small and medium scale enterprises [SME's] as well as for what was generally known then as
large and medium scale enterprises [LME's]. The official meaning was small business (SSIs)
because what wasn't a small business unit by design simply became a big and medium

2
company or a non-SSI entity. According to the latest definition, a little unit with investments
of up to Rs 1 crore in plant and machinery was specified before the enactment of the
MSMED Act in 2006, provided it is not owned by or controlled by a subsidiary of any other
industrial undertaking. This condition was set to prevent big firms from grabbing the benefits
extended to small-scale industries by setting up their subsidiaries as small-scale undertakings.
In addition, it was intended to discourage the misuse of incentives by establishing more than
one SSI unit by the same person. The various definitions of SSI over the years are given in
the Table below.

Studies by Small Industries Development Bank of India (SIDBI) found that although the
ceiling limit for investments in the SSI sector was lifted globally, the actual impact of the
revision was not important. However, the 1997 reform of the allocation criteria presented
small units with potential for higher expenditure. In the meantime, the government of India
has agreed to reduce from 300 lakhs to 100 lakhs the expenditure limit. Particularly within
the US government, there is no widely agreed concept of a SME. In the US, businesses with
less than 500 workers are listed by SMEs. The related U.S. meanings Commerce Agency,
United States. Administration for Small Business (SBA) and the United States This 2010
study of the US Foreign Trade Commission is applicable to the Department of Agriculture
(USDA).

The MSME is a Chinese corporation with between 1 and 3000 workers with a gross asset
between 40 with 400 million yen. Depending on the field market turnover is between 10 and
300 million yen. In 1966, a subsidiary unit with an investment cap of up to a maximum of Rs
ten lakhs was established. An auxiliary Unit is defined as a commercial enterprise engaged or
proposed to engage in the production or manufacture of parts, components, subassemblies,
equipment, or intermediates, or in the provision or rendering of services and enterprises for or
the supply or rendering, as the case might be, of at least 50% of its production or services to
one or more of the indigenous enterprises.

A small unit with investment in machinery and plants up to one lakh in rural areas or towns
with up to 50,000 inhabitants was established by the 1971 census in1977. The new
description for a small unit has an expenditure cap of Rs 25 lakh, regardless of where the unit
is situated (in factories and machinery). Since 1982 the Small Scale Business Establishments
(SSSE) have been known as business focused businesses. This included service-oriented
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companies with expenditure in capital assets, except land and development and up to Rs. 2
lakhs if situated in rural or population-dwelling towns of up to 5 lakhs. Small Scale
Enterprises (SSSBEs) was introduced in 1991 with the exception of property and
construction, up to Rs. 5 lakes and irrespective of areas, like units invested in fixed assets.
Both benefits and services for tiny units accessible are eligible to SSSBE's. This limit has
been enhanced to Rs. 10 lacs in 2000.

MSME SECTOR IN INDIA

MSME sector in India is second largest employment generator after agriculture, and acts as a
breeding ground for entrepreneurs and innovators with considerable support in strengthening
business ecosystem. The estimated number of MSMEs in India is 63 million and employs
110 million individuals. Indian MSMEs produce more than 6,000 products for local and
global consumption. According to DGCIS data, the value of MSME related products in India
is $147,390.08 million and contributed 48.56% of total export during 2017-18. MSMEs
exposed to higher level of integration with global value and supply chains are playing critical
role in global trade systems. Data from 2019 shows that sector contributed 29% to overall
GDP.

Various reports, researches and surveys have proved again and again that this sector act as a
catalyst for socio-economic development of the country. All this becomes more important
with government’s new mission of achieving $5 trillion economy target by 2025. Within this
target the role of MSME sector is going play an important role, with expected contribution to
GDP above 50% mark. The potential of Indian MSME sector is still untapped and that is one
of the reasons why government policies are now more convergent towards building resilient
ecosystem with better breadth and depth.

The announcement of country wide lockdown dragged MSME owners, employers and
external stakeholders in unexpected times, where no one had experience to handle this kind
of situation. Extended lockdown had negative impact on supply of finished goods,
procurement of raw material and availability of employees to work in production and supply
processes. During April to June 2020, sector faced challenges related to debt repayments,
wages/salaries, statutory dues, etc.

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Survey reports have shown that disruptions caused by the Covid-19 pandemic have impacted
MSMEs earnings by 20-50%, micro and small enterprises faced the maximum heat, mainly
due to liquidity crunch. Enterprises working in essential commodity business were better off
in terms of interrupted but predictable cash flows. Some enterprises innovated their ways by
shifting focus from non-essential commodities towards essential commodities; like
production of hand sanitizer and toiletries, PPE kits, reusable masks, etc. and are able to
survive in tough times. MSMEs present in remote areas also faced lots of difficulties due to
interrupted supply chain systems and intrastate lockdown provisions.

It is not only the enterprise which faced challenges; even consumers are left with lower
disposable income. Many enterprises laid-off their workers because of inability to pay
salaries, vacated their offices due to incurring expenses and halted their production due to
stopped demand. Ambiguity in future trade and bounce back of new normal is keeping
financial institutions at bay for extending any new financial lending or cover potential risk.
This all-round uncertainty needed a push by government, to boost market confidence and
bring back regular cash flow in economy.

Economic slowdown along with border tensions, had again dragged us to focus back on self-
sustainable values, the Swadeshi dream. The Atmanirbhar Bharat Mission was launched to
face two burning issues simultaneously; one being boost to MSMEs and other being less
dependent upon foreign nations.

Out of 15 relief measures declared under this package, 6 were entirely focussed to empower
MSMEs. These 6 measures are:

Definition level change for MSME

Credit and Finance Scheme
Allocating Fund of Funds for Equity Participation
Relief in Non-Performing Asset
Clearing off dues to MSMEs
Disallowing Global Tenders

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Ministry of MSME is taking steps towards making these enterprises global and improve the
overall business environment, by making it more conducive and transparent for all
stakeholders. The sector also hold answer to critical questions like unemployment, local
economy development, fiscal deficit, trade balance, financial sector development, SDG
alignment and so on. Private sector engagement in various bottlenecks of value chain and
supply chain system is critical for success of various policies announced by the government.

Enterprises of any size in India is facing issues related to procurement of raw material, credit
need, market linkages, quality, standardization, pricing, business turn-around time, lobbying
and many more. New steps taken by government are expected to act as a catalyst for the
sector, not only to come out of pandemic related shocks but also to get ready for brighter
future.

OVER 82% SMALL BUSINESSES HAD NEGATIVE COVID IMPACT;

LACK OF MARKET ACCESS TOP CHALLENGE: SURVEY

Covid impact on MSMEs: India has a base of around 6.33 crore MSMEs out of which 6.30
crore (over 99 per cent) are micro-enterprises while 3.31 lakh (0.52 per cent) and 0.05 lakh
(0.01 per cent) are medium enterprises, as per MSME Ministry's 2020-21 annual report.

Covid impact on MSMEs: Over 82 per cent of more than 250 small businesses in India said
that they had a negative Covid impact while 70 per cent believed their pre-Covid level
recovery to take nearly a year, according to a survey by Dun & Bradstreet. Moreover, around
60 per cent survey respondents expected more measures and support from the government
even as lack of market access (42 per cent), overall productivity improvement (37 per cent),
and access to more finance (37 per cent) were the top three challenges cited by MSMEs in the
survey titled Impact of COVID-19 on Small Businesses in India and the Way Ahead. The
surveyed businesses in seven major cities belonged to the manufacturing and services sectors
with annual revenue between Rs 100 crore and Rs 300 crore.

Moreover, around 95 per cent respondents said that they were impacted in April 2020 when
the national lockdown was imposed. Even with progressive unlocking, 70 per cent businesses
remained disrupted till August 2020 and 40 per cent till the end of February 2021. “The

6
pandemic has speed up the pace of digitization across sectors and businesses have reaped
advantages like cost reduction and increased productivity. Globally, digital adoption has
accelerated by seven years due to the Covid-19 crisis. Our survey points out that 82% of
surveyed Small Businesses have digitized their daily operations during this pandemic, which
helped them in Reduction in Cost (54%) and Enhancing Competitiveness (51%),” Avinash
Gupta, Managing Director, Dun & Bradstreet India in a statement.

India has a base of around 6.33 crore MSMEs out of which 6.30 crore (over 99 per cent) are
micro-enterprises, according to the MSME Ministry’s annual report 2020-21. Small
enterprises are 3.31 lakh and 0.05 lakh are medium enterprises accounting for 0.52 per cent
and 0.01 per cent of total estimated MSMEs, respectively. Ever since Covid struck India,
there have been multiple surveys looking to ascertain the impact of the pandemic on MSMEs.
According to an RBI survey last year, the MSME segment struggling to survive and scale
amid Covid has been among the five sectors adversely affected by the pandemic. 60 per cent
respondents had claimed recovery in the MSME sector, which suffered from massive labour
migration, production halt, and cash flow crunch during the lockdown. Moreover, according
to a Crisil survey published in December last year, the adoption of digital channels such as
online aggregators or marketplaces, social media, and mobile marketing has increased from
29 per cent micro-enterprises using them before Covid to 47 per cent as of November. The
jump was marginally higher among small enterprises from 29 per cent before Covid to 53 per
cent during the said period for revenue generation.

Modern nightmares like COVID-19 are being faced across the planet, which has left the
whole community muddled and in the grasp of how one epidemic has halted the nation. This
deadly epidemic has spread over about 195 nations, and has been labeled a pandemic by the
WHO. This virus also presents a significant challenge to the increasingly fragile global
economy. There is little question that the sputtering Indian economy in the past six years has
been rising at one of the lowest rates. Right still, several industries are devastated by a fresh
collection of economic problems raised by the virus. It is a well-known reality that in the
global supply chain, China plays a very crucial position for India and its MSME industry as
well, this industry is largely dependent on China for its raw material. For eg, Indian drug
makers import almost 70 per cent of their ingredients from Chinese factories and Chinese
products worth $30 billion. As a consequence of the full Chinese shutdown and partial Indian

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shutdown, different concerns involve export declines, stoppage of production, unavailability
of jobs, demand instability and liquidity constraints on the industry. Online retailing of SME's
will also be affected by the corona pandemic (Mahajan, 2020).

Accordingly, 70 million traders in India and the bulk of them are MSMEs are CAIT. The
Confederation of All India Traders (CAIT). The trade influence in India is valued at about Rs
380 lakh, with a major strike of Rs 12 crore 90 lakh in the chemical industry. Tiny, SMEs are
the sector still in immense trouble due to demonetisation, then due to badly executed GST
accompanied by sustained stagnation, and the largest of all - COVID-19 - which in this
particular sector would worsen the crisis further. After the COVID-19 pandemic in India has
already reached the second stage and as many experts claim, we will very soon reach the
third stage involving a cluster-to-community spread. One thing is fairly certain while the
nation is locked down to 3 May that the MSME will strike as many as possible and that the
troubled economy will leave many workers unemployed and will forever carry thousands of
manufacturing outlets to a halt. In India, over 75 million MSMEs now operate, and almost 25
thousand of those businesses risk closure, the lockout enforced by the AIM0 is about four
weeks longer and an astounding 43% shuts off if a crisis stretches beside for more than eight
weeks. MSME is the pillar of the Indian economy and one of the main sectors that have
helped a spring and boundary economy to develop. One of these difficult stages is the
industry, which provides more than 114 million citizens with work and contributes over 30%
of GDP, so decisive intervention is expected.

Given the widespread havoc of the COVID-19, a constant monitoring system is required by
the government and urgent relief steps should be announced to improve trust in this very
critical industry which has been beaten by the government's flurry of disturbances. To re-
energize the consumer economy, a financial stimulus package is needed. A number of reform
initiatives were adopted by countries such as the USA and China in order to preserve the
COVID 19 MSMEs. The complete shutdown posed a lot of concerns, especially as these
businesses are not cash-intensive enough to wait for the crisis. That's why he said work cuts.
A new study for "small and medium businesses" in manufacturing shows that, once their
company is suspended, only 7% of them would be able to live with their cash in their hands
for about three months. The shortage of jobs available is a huge barrier to restarting now.

The government would have a long time to do its part otherwise, otherwise it will be too late
to reverse the error. Indian start-ups and SMEs are among the worst hits to control the spread

8
of COVID-19 as a result of a sudden pause in economic operations during the national
lockout. About 80% of start-ups and small and medium-sized companies in the country plan
their activities either to decrease or to shutter or to sell off in the next six months. According
to a survey of local circles, 47 percent of start-ups and small- and medium-sized businesses in
India are left with less than one month of cash and several of them have already run out of
money. The survey, which was conducted in over 90 Indian districts, earned over 13,970
responses from small firms, including start-ups, SMEs and entrepreneurs. In comparison,
24% claimed cash would only be available for up to three months and 23% only for up to six
months. Just 6% of entrepreneurs and small companies have registered being insured for
more than six months. The loan taken by the kirana stores through government schemes like
mudra loans (Mahajan, 2019) will be difficult to repay. The CSR activities of the SME's will
also be affected (Mahajan, 2018).

The COVID-19 epidemic has flooded industries across the globe, with some businesses
impacted more than others. The shutdown that was introduced to combat the epidemic has
made several businesses cash-dry, as business growth has ground to a halt as their profits
unexpectedly slows down. Start-ups and small and medium-sized businesses in India have
reached out to the government for assistance with the ongoing crisis. They submitted
numerous applications through Local Circles, some of them repaying 50% of startup
employees ' salaries for one month, or granting one-time Rs 20 lakh registered startups.

In March, the financing of Indian start-ups dropped by more than 50 percent. According to
data from Venture Intelligence company market tracker, they raised around $354 million in
34 deals in March 2020, which is less than half of the $714 million generated in February in
46 deals. More than a dozen entrepreneurs have requested danger debt companies to fund
their loans over a longer period of time than initially negotiated, as was stated earlier this
month. The study stated that those in industries that have been affected hardest by the
pandemic leisure, lodging, transport and also the distribution companies have demanded up
to 6 months longer than initially expected.

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COVID-19 IMPACT ON MSMES & ITS SIGNIFICANCE ON
ECONOMIC

The coronavirus crisis has spelt crisis across the world as several countries now focussing on
curbing the rapid spread of the virus while dealing with the economic ramifications. With
governments around the world imposing lockdown and social distancing becoming the new
norm, the post-pandemic world will wake up to a new trading culture. On the home grounds,
the COVID-19 pandemic has battered all sectors of the economy, with the micro, small and
medium enterprises (MSMEs) among the worst-hit.

Considered as the growth engine of the nation, the MSME sector accounts for 33.4% of
India’s manufacturing output, employing about 120 million and generating 45% of India’s
export. However, the pandemic outbreak and the consequent stoppage of economic activities
have triggered panic across the nation, with businesses facing extinction risks. Although
some business activities within the ‘non-essential category’ were resumed as the lockdown
extended, economic activity, except for agriculture and essential activities, remains halted.

The MSME sector, the majority of which relies on day-to-day business to stay afloat,
continues to be the most vulnerable owing to the lockdown and a decrease in demand.
According to a survey covering 5000 MSMEs, conducted by the All India Manufacturers’
Organisation (AIMO) has revealed that 71% of the businesses weren’t able to pay salaries in
March. The survey further revealed that a whopping 43% would shut shop if panic extends
beyond eight weeks. Considering the stoppage of economic activity over the past few weeks,
it is unfathomable that a vast number of MSMEs will be choked, perhaps to the point of
permanent closure.

How Can The MSME Sector Survive COVID-19?

The MSME sector that forms the backbone of the Indian economy was hit due to the blows of
demonetisation and GST implementation. However, as the situation began to show signs of
improvement, the pandemic outbreak ushered in a new set of challenges, leaving many
companies in the lurch due to the pandemic outbreak and the consequent lockdown.
Additionally, factors like credit deficit, shortage of working capital, and a decrease in demand
for non-essential goods paints a grim picture.

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Despite the fact that the government is taking countermeasures to combat the loss incurred
due to the pandemic, MSMEs are struggling for stability as sales and revenue remain at a
halt. As per the CII CEOs snap poll on the impact of COVID-19 on the economy and
industry, 54% of company heads predict job losses in their respective sectors post the
lockdown whereas 45% foresee 15-30% layoffs. Additionally, 33% of the firms are expecting
a fall in revenue for FY21. For instance, auto manufacturers like Maruti Suzuki said the
production for April was ‘zero,’ whereas, during February, the company produced 1,40,933
cars. This is the plight across the manufacturing industries, including textiles, chemicals,
among others.

What makes the situation worse is that with a decrease in demand, and no possible rebound in
the future, it may get increasingly challenging for most of the businesses to adhere to their
obligations. According to TransUnion Cibil, MSME loans worth Rs 2.3 lakh crore are at a
higher risk of becoming non-performing. Further, the need for working capital will increase
as payment cycles are likely to be extended, generating cashflow issues. This situation is
expected to prevail, even as the government relaxes restrictions.

Countermeasures Taken By the Government to Tide over the Pandemic

To inject lifeblood to the MSME sector, the government needs to soon arrive at a fiscal
stimulus. The Reserve Bank of India declared several monetary policy measures to curb the
impact of the coronavirus pandemic:

Declared a considerable cut in the policy repo rate by 75 basis points to 4.4% – lowest policy
rate in this century
Announced to inject around ₹3.74 lakh crore liquidity into the system
Allowed a 3-month moratorium on payment of instalments on the existing term loans
RBI has also opened another Rs 50,000 crore in refinancing window for Nabard, Sidbi and
NHB under which:

Banks will require making these investments within one month from receiving the funds from
the RBI
Reduced the liquidity coverage ratio to 80% from 100% previously, and provided a special
financial facility of Rs 50,000 crore to All India Financial Institutions (AIFIs) at the repo rate
Although these announcements are expected to assist the MSMEs in tackling economic
11
stress, they may not prove to be remunerative immediately as the demand is likely to remain
low due to the prevailing lockdown restrictions and low business emotions.

Other measures to help the MSME sector comprises emergency credit lines announced by
Public Sector Banks, a low-interest loan rate of 5% within 48 hours declared by SIDBI, and
business continuity measures by the RBI.

The Minister for MSME and Road Transport and Highways, Nitin Gadkari said that the
government is working on an agro MSME policy that will focus on entrepreneurship
development in rural, tribal, agricultural, and forest areas for manufacturing products using
local raw material. While the measures are taken a focus on easing the short-term liquidity
concerns, the stimulus package, soon to be announced by the government, needs to be far-
reaching for the MSME sector to tide over the impacts of the pandemic.

The government needs to arrive at a decisive plan to revive the MSME sector. However, it
may not be an easy task as it will take time for the situation to get anywhere near normalcy.
Working capital will continue to be the mainframe of the sector, and any shortage at it will
challenge its survival. Having said that, the allocation of a contingency fund for the MSME
sector is the need of the hour, whereas, businesses need to rework on their budgetary
requirements and restructure accordingly to keep functioning.

The post-pandemic world will experience a dearth of capital and will require financial
institutions to lend a helping hand to the MSME sector. The government will need to enable a
comprehensive ecosystem for the MSMEs to get back on track and start conducting business.

The Bottomline
Considering the current situation, the need of the hour is the allocation of a robust fiscal
package to revive the confidence of the MSME sector and thereby initiate economic
recovery. It is also important that the financial relief not just provide temporary relief by
infusing short-term liquidity, rather address medium to long term requirements. It is critical
for the government to introduce a policy framework, keeping various scenarios in mind, and
foster a holistic approach toward building the MSMEs resilience to the pandemic outbreak, as
once the pandemic fades out, the nation will require its growth engine to start building the
economy.
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THE MSME SECTOR IS CRITICAL IN TIMES OF COVID-19
While Indian policymakers face the tough task of containing a public health pandemic as well
as formulating swift policies to protect the most vulnerable from its adverse economic effect,
a committed response to support the MSMEs is essential, imminent and key to easing the
impact of the crisis for these entrepreneurs, their employees and the Indian economy as a
whole.

A large fraction of India's firms are small, informal and operate in the unorganised sector.
Recent annual reports on Micro, Small and Medium Enterprises (MSMEs) indicate that the
sector contributes to around 30% of India's GDP, and based on conservative estimates,
employs around 50% of industrial workers. Over 97% of MSMEs can be classified as micro
firms (with an investment in plant and machinery less than ?25 lakh), and 94% are
unregistered with the government.

These MSMEs are uniformly spread across rural and urban areas and are equally represented
in the manufacturing, trade and services sectors. Two thirds of MSMEs are operated by
socially vulnerable groups (Scheduled Caste/Scheduled Tribe/Other Backward Classes) and
20% by women.

The current coronavirus pandemic (Covid-19) lockdown will substantially disrupt the
operations of these MSMEs due to their dependence on the cash-economy that is severely hit
by the lockdown, the physical non-availability of workers, and restrictions in the availability
of raw materials and transport infrastructure. This will have substantial ramifications
throughout the economy and therefore, a robust policy response is essential.

How can Indian policy respond to this crisis?

A useful place to start would be to examine the policy response of other countries in
protecting their industries during the pandemic. From the International Monetary Fund's
policy tracker (that tracks key economic responses to the Covid-19 pandemic across 192
economies), these policy responses can be broadly categorised into: (a) loan guarantees and
immediate liquidity provision; (b) loan extensions and penalty waivers on repayment delays
and (c) interest rate reductions on future loans.

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In line with the global response, the Government of India slashed interest rates, increased
limits on Non-Performing Assets (NPAs) to prevent triggering insolvency, and offered
payments from the government's share of Employee Provident Fund (EPF) to avoid layoffs.
Several leading banks have announced special purpose loans at reduced rates for up to 10-
20% of the firms' working capital limit.

While these policy measures are encouraging, they are biased towards the larger, and more
formal/organised firms. However, the measures are inadequate for the smaller,
informal/unorganised firms, which form an overwhelming majority of India's industrial
landscape. According to the Economic Census data, over 95% of firms (over 55 million
firms) employed fewer than five workers, and 94% were not registered with the government.
Thus, it is unlikely that these small firms contribute to EPF and may not benefit from the
Government's contribution to EPFO.

Additionally, more than 81% MSMEs are self-financed with only around 7% borrowing from
formal institutions and government sources (Economic Census, 2013). Credit market
interventions (cheaper loans, increased limits on NPAs) therefore may not benefit this sector
directly. Since most MSMEs primarily operate on cash, they require immediate liquidity to
cope with adverse events. Moreover, many micro enterprises are small, household-run
businesses.

Given that other sectors of the economy and in particular, seasonal migration and agriculture,
are severely hit by the lockdown, allowing these micro enterprises to operate smoothly could
substantially help households cope with this economic shock. Hence, more direct measures of
liquidity may be the need of the hour, similar to the initiative of the Confederation of Indian
Industries (CII) that sets up a fund targeted directly at easing the liquidity constraints of
MSMEs.

Lastly, MSMEs are spatially concentrated, with accounting for around 30% of MSMEs and
ten states accounting for around 75% of MSMEs. A joint effort from both the state and
central government therefore, is critical. Supply-side interventions, in particular strengthening
supply chains for MSMEs, can also help them weather the storm. Ensuring that the MSME
sector has access to raw materials and robust downstream supply chains would not only help
mitigate production shortages in the health and the essential goods sector, but given its size,
14
also potentially slowdown the adverse impact on the Indian economy as a whole. The
Government of India has already appealed to MSMEs producing medical and other essential
products to register and sell in the Government's e-marketplace. This should be expanded to
other sectors as well with co-ordination across different states to meet local supply and
demand requirements.

While Indian policymakers face the tough task of containing a public health pandemic as well
as formulating swift policies to protect the most vulnerable from its adverse economic effect,
a committed response to support the MSMEs is essential, imminent and key to easing the
impact of the crisis for these entrepreneurs, their employees and the Indian economy as a
whole.

FIGURE 2 Share of employment (in lakhs) in rural and urban MSME sector.

As Figure 1 illustrates, there are 186.56 lakh people employed in the rural manufacturing
MSME sector compared with 173.86 lakh people working in the urban MSME sector. On the
other hand, the share of the population involved in trading services in the MSME sector in
rural India was 160.64 lakhs while 224.54 lakh people were engaged in trading services in the
urban MSME sector in 2019. A survey that was conducted by Endurance International Group
in India with 500 respondents employed in the MSME sector in India. One-third of total
respondents stated that they were compelled to shut down their businesses for a temporary
period during the period of nationwide lockdown. They waited to resume business operations
until the tenure of lockdown completed. A higher number of MSMEs comprising
manufacturing and retail firms, especially in metropolitan cities in urban India shut down

15
their businesses for a temporary period during the nationwide lockdown. The major section of
the respondents, by 60%, believed that it would be up to six months of returning to normality.

The primary research aim of this study was to explore whether COVID-19 pandemic was
choking MSME sector in India, as a result of nationwide lockdown and absence of relief
measures. The secondary aim was to propose remedial measures for the betterment of the
MSME sector in India.

Role of relief measures for better business prospects of MSME sector

According to the literature, the Indian Government has not concentrated on providing relief
measures to help business entrepreneurs of MSMEs to manage the threat of the COVID-19
pandemic. Additionally, the status of the national budget could not favour the Indian
Government to announce relief measures for protecting business entrepreneurs of MSMEs,
operating in rural and urban regions. However, the need for the provision of relief measures
was felt when the decision of extending the tenure of nationwide lockdown was made. The
Indian Government announced a fiscal stimulus package worth a nominal amount and
withdrew distribution of dividend taxes up to 0.3% of GDP.

The relief package was not sufficient to compensate for the losses that were faced by business
entrepreneurs of MSMEs in India.

On the other hand, the Government failed to realise the importance of providing relief
measures in the form of income support schemes to rural business entrepreneurs under the
MSME sector. Many people became jobless soon after the nationwide lockdown was
announced. Hence, it was imperative for the Indian Government to announce relief measures
in the form of employment guarantee programs for supporting unemployed rural youths
during the crisis period.

16
 CHAPTER 2
LITERATURE REVIEW

17
LITERATURE REVIEW
The ongoing COVID-19 pandemic is causing unprecedented disruptions to economic
activities across countries, and India is no exception. The pandemic has severely affected and
continues to disrupt global value chains (GVCs), domestic production network, trade,
services and MSMEs thereby affecting overall growth and welfare. The current pandemic is
working its way through a highly globalized world with interconnected financial markets and
production networks. The complete lockdown and currently the ongoing partial lockdowns
have both demand-side and supply-side effects on the Indian economy.

On the supply side, the restrictions of movement of goods, services and personnel affects the
production networks. The plunge in economic activities and overall output growth leads to
employment loss. The supply shocks will further create demand-side effects by reducing the
economy’s disposable income, savings and giving rise to unwanted uncertainty.

Therefore, the economic impact of COVID-19 is expected on every sphere including growth,
international trade, financial markets, unemployment, income, poverty and many more
variables. The impact of the virus spread is expected to lead to a huge loss as global trade is
severely affected. The Indian growth model depends on the export-led-growth (Mishra,
2019), and hence can experience massive impact on growth due to lockdown amidst the virus
spread. On the international trade front, it is expected to plunge in a range of 13–32 per cent
under optimistic and pessimistic scenarios, respectively (WTO, 2020).

In another estimation, McKibbin and Fernando (2020) utilized the computable general
equilibrium (CGE) modelling and reported that global GDP would be reduced by around
US$2.4 trillion in 2020 under a low-end pandemic considering the Hong Kong Flu as a
reference point. However, the fall can extend to the tune of over US$9 trillion in 2020 in case
of a serious outbreak similar to the Spanish flu.

Ozili and Arun (2020) noted the spill over effects of COVID-19 and hailed that the social
distancing measure of virus controlling led to the shutdown of financial markets, corporate
offices, businesses and events which in turn may have significant impact on economic
growth.

18
As per the International Labour Organization estimation, the total value added of industrial
enterprises in China declined by 13.5 per cent during the first 2 months of 2020 (National
Bureau of Statistics of China, 2020). There are many projections and estimations by
institutions and scholars on the economic fallout of COVID-19 pandemic. Though there are
variations in degree and magnitude of the fall out, now there is a reasonable amount of
coconscious that the economic impact would be severe on the world economy and also on
Indian economic growth, much more than the global financial crisis (GFC) of 2008. IMF in
its latest estimate in June 2020 projected that the global economy may shirk by 4.9 per cent,
almost three times more than GFC, and the Indian economy is likely to witness 4.5 per cent
negative growth for the 2020.

With regard to the impact on employment and income, (2020) estimated that global
unemployment can range between 5.3 million and 24.7 million from a base level of 188
million in 2019 pushing these people towards below poverty line. Most of existing studies
have focused on global growth, trade and unemployment, a few are country specific
especially India. In this context, the present study aims to make an assessment of COVID-19
on Indian economy and highlights key policy measures to control the possible fallout on the
economy. The study contributes the existing literature while analysing the impact on Indian
economy with more focus on growth, trade, manufacturing and MSMEs. The detailed
procedure of the assessment is reported in the next section.

Yi Lu (2020) and his co-authors observed that, because of lack of disease prevention
resources, workers' failure to return to work, production lines interrupted, and a decreased
business demand, most SMEs were unable to restart work. A number of SMEs often
experienced cash flow problems, and while they did not have many to no sales, they also had
to compensate for different fixed expenses. Because these delays in the resumption of work
have placed immense strain on the viability of several small and medium-sized businesses,
guidelines relating to cash-flow relief for China and the other countries involved, work
restarting and stimulating demand help SMEs thrive and recover from catastrophe. (Yi Lu,
2020).

Mahajan (2015) describes the factors that drive Indian millennials to a particular online
retailer in India and perceptions of millennials towards these online retailers. The paper
studies the same in the Indian context. It is found that millennials are more or less satisfied
19
with the services of selected online retailers. It was also found that four factors where
statistically significant for millennials for selecting a particular online retailer (Mahajan,
2017; Mahajan,2015).

Ahmad 2020 The effect of MCOs on SMEs was categorized as organizational challenges
(i.e. instability of businesses; disturbance in the supply chain; planning of potential course in
the business) and financial difficulties (i.e. disparity of cash flow; access to funding
packages; danger of bankruptcy). In the meantime, strategic and communication techniques
address key elements in modern survival methods. The paper proposes few guidelines for
potential studies, companies and agencies (Ahmad, 2020)

Narula 2020 claimed that the threats and opportunities would be different in the long term
based on the SME form. Instead of a one-size-fits-all solution, policy initiatives can also be
sensitive to various forms of SMEs. The policy mix would have to transition from its original
emphasis on short-term sustainability to a longer-term, strategic solution that will encourage
transformation and development through creativity, internationalization and networking. The
policy mix will be a significant subject of concern (Narula, 2020).

R. Kumar, Res. 2019.According to the literature, the movement for a cashless economy was
started long enough in India. The Indian Government launched initiatives of digital payments
for firms under MSME sector in February 2016. Furthermore, the monetary policy favoured
the rural Indian economy to transform to a cashless economy, starting from a cash-reliant
economy. The MSME sector was under consideration of the Indian Government since 2015.

However, as a part of a monetary policy schemes, the Indian Government had announced the
Indian Government declared schemes such as “Digi-Dhan Vyapar Yojana” and “Lucky
Grahak Yojana” to merchants of MSMEs who utilized instruments of digital payments. The
monetary policy should reduce the rate of interest on investment and enable a scope to
business entrepreneurs of MSMEs to deposit monthly interest payments. Commercial banks
deter from lending financial credit to firms under MSME sector due to rising bad loans .

20
S.K. Hooda, (2020) in this article he described the other remedial measure would be to
provide cash liquidity to business entrepreneurs of MSMEs operating in rural regions in
India. As commented by the researcher in his study, the problem of liquidity has agitated
entrepreneurs of MSMEs in rural regions. The problem has led to emergence of associated
problems such as lack of employment creating opportunities, high debt in the market,
procuring required raw materials and manage skilled human resources. They are unable to
sustain the competitive pressure from leading multinationals due to acute shortage of liquid
cash.

N. Dhewan. Suresh Prabhu, 2020 as attested by previous research, the reason why the
Indian MSME sector failed to survive the threat of COVID-19 pandemic was that the Indian
Government announced the nation-wide lockdown within a notice of short period. The
MSME sector was categorised as most vulnerable to COVID-19 pandemic because workers
do not have the capacity to tackle the unprecedented crisis.

Furthermore, small business enterprises that comprised the MSME sector in India suffered
massive losses due to the lockdown because they had to run their regular business operations
with only a handful of labourers. They lacked managerial expertise and worked with limited
financial resources to sustain business operations. However, the lockdown mounted
difficulties that were faced by business entrepreneurs of the MSME sector in India.

21
 CHAPTER 3
RESEARCH
METHODOLOGY

22
RESEARCH METHODOLOGY
The paper studies the present impact of Covid19 on MSME's in India. The study is
descriptive in nature. The study uses secondary data for the analysis of the MSME's. The
secondary data is collected from websites, blogs, magazines and newspapers in India. The
study critically analyses the present situation of manufacturing industry in India and its
impact on employment. The geographical scope of the study is India. The paper first studies
impact of Covid19 on MSME's. Then the impact of Covid19 pandemic is studied
employment in this sector.

SOURCES OF INFORMATION

In order to gather sufficient information on the topic, and to get the practical knowledge of
the subject matter and the way it is analyzed, both the sources of data, that is Primary Source
and Secondary Source have been used.
A] PRIMARY DATA:
It is original data, first hand and for the specific purpose of the research project. Primary data
can be collected in a number of ways, including questionnaire, be face to face or telephone
interview, observation, mailed surveys and more recently over the internet. For this project,
following research instruments are used:
B] SECONDARY DATA -
Secondary data means the data that already exists because it has been collected previously by
other researcher for some other purposes. It includes both raw data and published summaries.
Secondary data will be collected from relevant books, library sources, journals, magazines,
newspaper articles, company’s data and the internet which will be used in literature review. It
has some advantages which are time and cost saving.

RESEARCH DESIGN

23
Research design is a plan, structure and strategy of investigation. Research design is a plan of
activities that in the final analysis would constitute a research study. It refers to the
methodology used for conducting the research investigation. It is a process of making
decision before the situation arises in which the decision has to be carried out. It is the
blueprint of the detailed procedure of testing the hypothesis and analysis of the obtained data.
The research design in a way tells us what observations to make, how to make them and how
to analyse the quantitative representations of the observations.

QUANTITATIVE RESEARCH
In this project, Quantitative Research method is used. Quantitative Research is the precise
count of some behavior knowledge, opinion or attitude.

Sampling methods
Researcher have selected the convenience method of sampling

Note : Hence Researcher have used the convenience method. Convenience sampling is non-
probability sampling technique where subjects are selected because of their convenient
accessibility and proximity to the researcher.

METHOD OF DATA ANALYSIS

Analysis of data is a process of inspecting, transforming and modeling data with the goal of
highlighting useful information and suggestion.

* Bar & Pie charts: -A Pie chart is a circular chart divided into sectors, illustrating
proportion. In a pie chart, the arc length of each sector is proportional to the quantity
it represents.

* Graphs: -Diagram representing a system of connections or interrelations among two

or more tings by a number of distinctive dots, lines and bars.

24
STUDY PURPOSE AND METHODOLOGY

The International Labour Organisation, with a mandate to promote decent work for all, had
proposed a study 'Situation analysis on the COVID-19 pandemic's impact on MSMEs Sector
in Indian enterprises and employment in the formal and informal economy in India;. The
objectives of the study are:
1) To study the impact of Covid19 on MSME's Sector in India
2) To study the impact of Covid19 on employment in MSME's Sector in India
3) To suggest measures to improve the present situation of MSME's Sector in India

Given the objectives, it was proposed to undertake a mixed method of data collection. The
data collection included a desk review, quantitative and qualitative data collection. For the
collection of primary data, secondary data it was decided to focus on present data
availabilities.

The paper studies the present the Impact of Covid19 on MSME’s in India. The study is
descriptive in nature. The study uses secondary data for the analysis of the MSME’s. The
secondary data is collected from websites, blogs, magazines and newspapers in India. The
study critically analyses the present situation of manufacturing industry in India and its
impact on employment.

The geographical scope of the study is India. The paper first studies impact of Covid19 on
MSME’s. Then the impact of Covid19 on MSMEs Sector in India is studied employment in
this sector.

25
OBJECTIVE OF THE STUDY

1) To study the impact of coronavirus on MSME's Sector in India

2) To study the impact of coronavirus pandemic on employment in MSME's Sector in
India
3) To suggest measures to improve the present situation of MSME's Sector in India

LIMITATIONS

While undergoing any project one has to face certain limitation and restriction. To make this
project report even i had to face certain limitations.

Difficulty in Data Collection

It was difficult to get certain information from MSMEs.

Time constraint
Time is major constraint in the study.

26
 CHAPTER 4
DATA ANALYSIS

27
DATA ANALYSIS
The Covid 19 pandemic has had an effect on all economic sectors but nowhere is it affected
so much as the MSMEs in India. All the available empirical data, such as the hundreds of
thousands of stranded migrant workers throughout the world, indicates that the Covid-19
lockout triggered MSMEs worst death. Like the first relief package, which the government
declared on 26 March, PM Garib Kalyan Yojana, the second package, was also reportedly
based primarily on the MSME market. In deeper analysis of the nature of the MSME field,
MSMEs are so prone to economic stress.

According to the latest available (2018-19) Annual Report of Department of MSMEs, there
are 6.34 crore MSMEs in the country. Around 51 per cent of these are situated in rural India.
Together, they employ a little over 11 crore people but 55 per cent of the employment
happens in the urban MSMEs.

There are 6.34 crore MSMEs in the world, as defined in the latest Annual Report (2018-19)
for MSME Department. Roughly 51% of these are in rural India. They have over 11 crore-
workers together, but the urban MSMEs account for 55% of jobs. On average, fewer than two
workers per MSME are recorded in these statistics.

On a basis that provides an explanation of the smallness of these. However, it is much more
obvious that all MSME are broken into large, tiny and medium groups. 99.5% of all MSMEs
fell into the micro category according to the available info. Whereas small and medium-size
companies are spread similarly throughout rural and urban India, they are mainly urban India.
In other terms, micro-enterprises apply generally to a single person or wife who operates at
home.

The other 5 crore-odd workers of the medium-sized and small companies that is, 0.5% of all
MSMEs. The company's caste allocation extends the image more. Around 66 percent of all
micro-small and medium-sized businesses are operated by persons of the Scheduled Castes
(12.5 percent).

At around 80% of men and 20% of women, the gender distribution of workers is relatively
stable across the board. Seven Indian states alone account for 50% of all MSMEs in terms of

28
regional distribution. They are Uttar Pradesh (14%), West Bengal (14%), Tamil Nadu (6%),
Maharashtra (8%), Karnataka (6%), Bihar (5%) and Andhra Pradesh (5%). Most are not even
registered. One big explanation is that they're so little. Even GST does not count and most
micro-enterprises do not. This inherent invisibility appears to work both with and against
corporations. They may not have to manage account, pay taxes or meet with regulatory
requirements since they are beyond the structured network.

This rising the prices. Although that still constrains the willingness of a country to assist
them, which is evident in a period of crisis. For example, the government has sought to offer
pay and extra credit for smaller businesses in certain developing nations, but it might do so
when the smaller companies were identified.

This could be the greatest obstacle posed by MSMEs – lack of support. According to a study
from 2018 by the IFC (part of the World Bank), less than a one-third (or around Rs 11 lakh
crore) of the MSME credit requirement is supplied by structured banking structure that it may
theoretically finance. This is because this explains why attempts by the Bank of India
Reserve to raise liquidity in the MSMEs have had such a small effect. The bulk of the funds
remain from informal outlets.

In other terms, this reality is critical. The high proportion of incorrect credits, which suggests
higher slip estimates for comparatively larger firms, is a primary explanation why banks
should not allocate credits to MSMEs. The other significant challenge for the business is the
pause with respect to MSME payments whether that is from their customers (including the
government) or items like GST refunds, etc.

29
1) Current Scenario of Micro Small and Medium Enterprises in India
MSME acts as a pillar of Indian economy and is one of the most critical segments that let the
economy grow by leap and bounds. The sector which provides employment to over 114
million people and contributes to more than 30 per cent of the GDP is going through one of
the tough phases, thus actions are required immediately. Nonetheless, MSMEs constitute
about 80 percent of the total number of industries in India. Micro, Small and Medium
Enterprises offers a heterogeneous and varied nature of fabric in terms of the size and
structure of the units, variety of products and services, scale of production and application of
technology in India (Das, 2019).

Therefore, table 1 shows that in case of rural areas the highest number of units are Micro
units, which comprises 324.09 lakh, i.e. 99.76 percent of units are Micro units, followed by
Small units, which consists 0.78 lakh units and Medium units which consists 0.01 lakh units
respectively. Similarly, in case of urban areas, the total numbers of Micro units are 306.43
lakh units, which comprise 99.17 percent, followed by Small units 2.53 lakh units, which
comprises 0.82 percent and Medium units 0.04 lakh, which comprises 0.12 percent
respectively. The total numbers of Micro units in both rural and urban areas are 630 lakh
units, followed by small units 3.31 lakh units and Medium units 0.05 lakh units respectively
with 51 percent share in rural area and 49 percent share in urban area.

Sector Micro Small Medium Total Share (%)

Rural 324.09 0.78 0.01 324.88 51

(99.76) (0.24) 0.01 (100.00)

Urban 306.43 2.53 0.04 309 49

(99.17) (0.82) (0.12) (100.00)

Total 630.52 3.31 0.05 633.88

(99.47) (0.52) (0.01) (100.00) 100

Source: MSMEs Annual Report 2019-20

Table 1: Distribution of Micro, Small & Medium in Rural and Urban Areas (in Lakhs)

30
2) Percentage Distribution of Male/ Female Ownership of MSMEs in India
Table 2 shows the distribution of enterprises among Male and female wise in rural and urban
areas in India. Therefore, table 2 highlights that in case of rural areas 77.76 percent of
enterprises are owned by male entrepreneurs and 22.24 percent of enterprises are owned by
female entrepreneurs, while in case of urban areas 81.58 percent of enterprises are owned by
male entrepreneurs and 18.42 percent of enterprises are owned by female entrepreneurs,
which is 3.82 percent less as compared to rural female entrepreneurs. Therefore, the overall
results show that in both rural and urban areas, MSME units are dominated by male
entrepreneurs in India.

Male Female Total

Rural 77.76 22.24 100

Urban 81.58 18.42 100

Total 79.63 20.37 100

Source: MSME Annual Report 2019-20

Table 2: Percentage Distribution of Male/ Female Ownership of MSMEs in India

31
3) Enterprises Wise Percentage Distribution of Ownership of MSMEs in India
Present section explores enterprises wise percentage distribution of ownership of MSMEs in
India. Therefore, table 3 highlights that in case of Micro units 79.56 percent of units are
owned by male entrepreneurs and 20.44 percent of enterprises are owned by female
entrepreneurs. Similarly, in case of Small units 94.74 percent of enterprises are owned by
male entrepreneurs and 5.26 of enterprises are owned by female entrepreneurs. Moreover, in
case of Medium units 97.33 percent of enterprises are owned by male entrepreneurs and 2.67
percent of enterprises are owned by female entrepreneurs.

Therefore, the overall results shows that MSMEs are male dominant, but in case of female
entrepreneurs only Micro enterprises are owned by a significant number of female
entrepreneurs, while the ownership in Small and Medium enterprises are insignificant i.e. the
ownership among female entrepreneurs is very less in Small and Medium as compared to
Micro enterprises ownership in India.

Enterprise Type Male Female Total

Micro 79.56 20.44 100

Small 94.74 5.26 100

Medium 97.33 2.67 100

Total 79.63 20.37 100

Source: MSME Annual Report 2019-20

Table 3: Enterprises Wise Percentage Distribution of Ownership of MSMEs in India

32
4) Percentage Wise Distribution Ownership among Social Groups in India
The Table 4 depicted below shows that in rural areas the highest ownership among social
groups is among OBC category, which comprises 51.59 percent, followed by other category
25.62 percent, SC category 15.37 percent and ST category which comprises 6.70 percent.
Similarly, in urban areas the highest ownership is also among OBC category, which
comprises 4780 percent, followed by other category 40.46 percent, SC category 9.45 percent
and ST category which comprises a marginal ownership of 1.43 percent respectively

SC ST OBC Others Not known Total

Rural 15.37 6.70 51.59 25.62 0.72 100

Urban 9.45 1.43 47.80 40.46 0.86 100

Total 12.45 4.10 49.72 32.95 0.79 100

Source: MSME Annual Report 2019-20

Table 4: Percentage Wise Distribution Ownership among Social Groups in India

33
5) Activity wise estimated Employment in Rural and Urban area (in Lakh)
This sector explores the activity wise estimated number of employment in MSMEs in rural
and urban areas in India. Table 6 depicted shows that in case of employment in
manufacturing activities in rural areas, it is providing employment to 186.56 lakh persons,
which comprises 51.80 percent of manufacturing employment of MSMEs in rural areas and
in urban areas it is providing employment to 173.86 lakh i.e. 48.20 percent of manufacturing
employment of MSMEs in urban areas. Similarly, in case of Trade activities in rural areas it
is providing employment to 160.64 lakh persons i.e. 41.5 percent of employment of trade
activities in rural areas and in case of urban areas it is providing employment to 226.54 lakh
persons i.e. 58.5 percent of Trade related activities employment from MSMEs in urban areas.
Moreover, in case of other services of MSMEs it is providing employment to 150.53 lakh
persons in rural areas, which comprises 41.6 percent of employment from other services and
in case of urban areas it is providing employment to 211.69 lakh persons with 58.40 percent
of employment from other services.

Rural Urban Total

186.56 173.86 360.42
Manufacturing (51.80) (48.20) (100.00)

160.64 226.54 387.18

Trade (41.50) (58.50) (100.00)

Other Services 150.53 211.69 362.22

(41.60) (58.40) (100.00)
497.73 612.09 1109.82
Total (44.80) (55.20) (100.00)

Source: MSME Annual Report 2017-18

Table 5: Activity wise estimated Employment in Rural and Urban area (in Lakh)

34
6) Employment Distribution of MSMEs in Rural and Urban areas in India
The table 6 shows that in case of Micro enterprises of rural areas it is providing employment
to 489.30 lakh persons, while Small enterprises are providing employment to 7.88 lakh
persons and Medium enterprises are providing to 0.60 lakh persons. Similarly, in urban area,
Micro enterprises are providing employment to 586.88 lakh persons, while Small enterprises
are providing to 24.06 lakh persons and Medium enterprises are providing to 1.15 lakh
persons respectively. Therefore, the overall result shows that MSMEs are providing highest
employment in urban areas as compared to rural areas. Moreover, results also show that
Small enterprises are providing a significant employment in urban areas as compared to rural
areas in India.

Micro Small Medium Total

Rural 489.30 7.88 0.60 497.78

Urban 586.88 24.06 1.15 612.10

Total 1076.19 31.95 1.75 1109.89

Source: MSME Annual Report 2019-20

Table 6: Employment Distribution of MSMEs in Rural and Urban areas in India

35
7) The income for businesses has reduced substantially due to a fall in demand.
Fewer customer footfalls amid lockdown
 The reduction in customer footfall was uniform across enterprises owned by men and
women.
 39% of enterprises were not able to restock as per the demand largely due to a
reduction in supply
 Restocking is a bigger issue in rural areas where 85% of enterprises have not
able been to restock
 Enterprises that reported a decrease in volume of supply also reported a median 50%
reduction in household income

Interpretation
“My shop is open and business is running, but the footfall has gone down drastically.
Everyone is afraid that the police will beat them up if they step out during the lockdown.
Only those who desperately need medicines visit my shop.” A medical shop owner from a
rural area
“Sales are down by more than 75% since last month. Retailers are demanding tea but I am
unable to supply to them as transport options are not available.” A female tea distributor from
a semi-urban area.

36
37
8) Disrupted supply chains have further affected income
Declining income and rising expenses: a double whammy
 37% of enterprises reported an increase in transportation costs by a median of 20%
 While urban enterprises reported a median 20% increase in transportation costs, semi-
urban and rural enterprises reported a 10% and 18% increase respectively
 In rural areas, 63% enterprises had to go and pick supplies themselves. This is one of
the contributors to increased transportation cost.
 Moreover, about 75% of the women-owned enterprises mentioned that they now have
to go and pick up all the supplies themselves.

“We are incurring additional transportation cost to get the supplies on time. There is already a
huge demand and supply gap in the market.” - A grocery shop owner from a rural area
“Whenever I call my distributors to deliver my supplies, they ask me to come to the
warehouse and take the supply. This is not an option right now.” A medical shop owner from
a rural area.

38
39
9) While the overall income for MSMEs has reduced, panic buying or bulk buying from
customers has mitigated the impact for some enterprises.
Is hoarding a bad thing? Not for enterprises at least.
 The drop in income was relatively more common for female- owned enterprises. 82%
of enterprises owned by women reported a decline in income compared to 72% of
enterprises owned by men
 However, bulk buying has resulted in higher sales per customer: a median 40%
increase for urban enterprises, 20% for semi-urban enterprises, and 15% for rural
enterprises. However, customer footfall has decreased for all enterprises in rural,
semi-urban and urban areas.

“I used to earn around INR 5,000-7,000 (USD 67-93) per day, now it is only INR 2,000
(USD 27) per day.” -a medical shop owner from a rural area
“These days I am not able to get new orders from customers as they cannot travel to deliver
clothes for stitching.” - a female tailor from a rural area
“Some of my customers have started buying in bulk now to stock up during the lockdown
period.” -a tobacco and snacks trader based in an urban area.

40
41
10) A decline in the availability of supplier credit alongside pending receivables and an
increase in the cost of supplies has hurt cash-flows.
Need money to earn money
 Qualitative data suggests that receivables from customers are frozen on the one hand
and customers have stopped advance orders on the other hand.
 Enterprises who reported an increase in cost of supplies, also reported a median 50%
reduction in business income.

“I had some customers who would pay their pending credit on a weekly or a monthly basis. It
has been more than a month now since I have received any payments from them.”
- a tobacco and snacks trader from an urban area
“We can take care of the business for 1-2 months but beyond that, it is not possible to bear
the expenses. Our payments are already blocked.” - A motor part manufacturer from an urban
area

42
11) Adverse cash-flows along with increased household expenses have forced enterprises to
dig into their savings.
Savings for survival
Enterprises that reported an increase in household expenses also reported a 45% decrease in
business income
“My business closed down after the lockdown. Since only essential goods and medical shops
are allowed to function. All my savings are being used to meet household expenses now.” - A
sweet shop owner from an urban area
“We have family savings that we depend on. These emergency savings will last for a only a
few months. I do not know how long the COVID-19 lockdown will continue.” - A female
tailor from a rural area
“I am currently using my savings to meet my business expenses. I think I can sustain for 5-6
months, after which I will need support from the government and financial institutions.” - A
garment trader from an urban are.

43
12) ) STATUS OF THE MSME SECTOR IN INDIA
Definition of MSME for manufacturing and services, based on investment in plant and
machinery

Manufacturing sector
Annual investment amount in plant and machinery
Medium enterprises INR 50 million to INR 100 million
Small enterprises INR 2.5 million to INR 50 million
Micro enterprises Does not exceed INR 2.5 million
Services sector Annual investment amount in equipment
Medium enterprises INR 20 million to INR 50 million
Small enterprises INR 1 million to INR 20 million
Micro enterprises Does not exceed INR 1 million

44
 CHAPTER 5
CONCLUSION AND
RECOMMENDATIONS

45
 CONCLUSION

During the COVID-19 era all the MSME’ are struggling. Their biggest problems have been
declining demand and broken supply chain. Yet there is hope for the challenge. After the dust
settles, MSME’s find it necessary, with time to stay competitive, to evolve and alter. The
responses to this issue include the introduction of protection procedures, sanitation and
sanitization methods, an updated sourcing policy, the incorporation of new vendors, the
streamlining of their product portfolio, a more responsive evaluation of supply chain
resilience, an analysis of disaster or emergency management plans. In this way MSME’s can
cope with the coronavirus pandemic.
But with this current pandemic of Covid-19, production of goods and services in this sector
has been curtailed and this sector has started suffering from the shortage of necessary inputs,
which led to supply shock. On the other side decline in the demand of its products due to
pandemic has started sickness in this sector, which results job losses, export crisis and also
credit crisis in this sector.

46
 RECOMMENDATIONS

It can be deduced that the nationwide lockdown led to deterioration of the business prospects
of business entrepreneurs of the MSME sector in India. The researcher concluded that non-
disbursement of relief measures affected production of both essential and non-essential
commodities. Moreover, there was a gradual spike in the amount of losses incurred by small
and medium business enterprises due to non-availability of relief measures. However, it was
shown that the Indian Government took steps thereafter, and disbursed automatic credit worth
Rs. 3 lakh crore against no collateral. It was deduced that the announcement of nationwide
lockdown choked the Indian MSME sector because a majority of firms were shut down
permanently.

There were no alternative options whatsoever as financial resources were reducing workforce
and workers returned to their home towns. However, the workers who remained lacked
managerial expertise to tackle crisis. The study thus proposed remedial measures such as flow
of cash liquidity and tax relief for safeguarding the interests of entrepreneurs of MSMEs
during the COVID-19 pandemic.

Besides, some other probable recommendations for protecting the business entrepreneurs of
MSME sector in India are discussed below:
● Disbursement of credit guarantees: The Indian Government should take the initiative to
provide credit guarantee scheme for MSMEs in India. The firms operating under the MSME
sector have incurred massive losses amidst the pandemic and the subsequent period of
lockdown. As a result, a huge volume of assets was drained away from generating liquid cash
and continuing business operations. Therefore, there is a high chance of default of payment of
loans that are sanctioned by commercial banks. This is where the role of the Indian
Government comes into action. The Government would guarantee payment of the loan
amount to the respective commercial bank in case of default.

The Indian Government could impose regulations that would provide an extended tenure for
repayment of loans by MSMEs. This would be deemed as a key financial support that would
facilitate entrepreneurs to recollect amounts equivalent to incurred losses.

47
 APPENDIX
BIBLIOGRAPHY

48
REFERENCES

[1] U. Mishra. indianexpress.com, msme sector crisis due to lock_down and lack. Of relief,
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