The MSME sector will have to bear the brunt of the biggest impact as COVID-19 rips across people and the economy – my authored piece in Business World
The MSME sector will have to bear the brunt of the biggest impact as COVID-19 rips across people and the economy writes Atul Raja, Executive Vice President- Global Marketing, Wadhwani Foundation.
The Micro, Small and Medium Enterprises (MSME) sector is often described as the backbone of the Indian economy employing ~120 million and responsible for ~45% of exports. About 20% of the MSMEs are based in rural areas and despite the odds and lack of adequate economic and technical support, the MSME sector has shown a consistent growth of over 10%. COVID-19 could break the MSME backbone given that the manufacturing of textiles, furniture, electronic components, hotel services, etc., has come to a grinding halt. The pandemic, with no end in sight at the moment, could threaten 40% of total GDP that is generated by the MSME sector. If anything can propel the Indian economy to its target of $5 trillion by 2025, it is the MSMEs. The nation cannot afford a catastrophic breakdown in the MSME sector and must act with urgency.
The government has been quick to respond with measures to ensure that payments to MSMEs do not remain frozen during the lockdown. For example, it asked the NHAI to release payments for contractor bills to the tune of Rs 25,000 crores. Public sector companies have also been instructed to settle vendor bills without procedural delay. This, of course, partly takes care of wages but does nothing to revive demand or put the MSME workforce back into production.
So far the RBI has instructed banks to allow a moratorium on term loans, deferred interest payment on working capital and public sector banks have extended emergency credit lines of up to Rs 50 lakhs (or 10% of existing working capital limits) under the IND-MSE COVID Emergency Loan with a tenure of 60 months and zero processing fee. An IND COVID Emergency Salary Loan can be availed equivalent of 20 times the latest gross monthly salary with a cap of Rs 2 lakhs. SIDB has announced concessional rates for loans that will be issued in 48 hours with minimal paperwork for those providing emergency products and services related to the battle against COVID-19. In addition, the GoI has allowed MSMEs to delay payment of GST until June 2020 without penalty. One supposes that bill discounting on various platforms will also be enabled and power and water bills will be deferred along with property tax payment.
One of the reasonably fast measures the government can take is to launch an intelligent mobile app that allows MSMEs to upload the required documents to access credit lines, tax breaks and loans. The app should use Robotic Process Automation (RPA) at the back end to read the documents, run the extracted data past an AI engine to match it with various databases, use the data to complete forms and directly approve loans/ relief measures and release payments into the accounts of the MSME practically overnight. The goal should be to minimize paperwork, the dependence on application scrutiny by human teams that can cause damaging delay, eliminate the need to access bank and government websites to avail the financial assistance using desktops, and deliver funds using zero-touch online processes.
Given the number of jobs endangered in the MSME sector, the priority should be to bring them back on stream as quickly as possible by (this must have equal priority as making funds available to MSMEs):
-Boosting healthcare facilities around zones that have significant MSME activity
-Ramping up education around social distancing, healthcare tips and awareness using online videos distributed over mobiles
-Creating, implementing and supervising back-to-production protocols and processes
-Setting up MSME-specific COVID-19 service desks that use chatbots and are available online as well as over IVR to provide information related to the pandemic and the fiscal assistance they can avail of (basically, zero-manpower call centers)
Also, it is extremely important to set up a MSME-COVID Response Task Force. This should have industry, government and banking representation. The remit of the task force should be two-fold: First, draw up plans that bring MSMEs to a back-to-production mode; second, create a blueprint for action once the virus is brought under control and market demand returns to normal levels. Many MSMEs will not have access to capital and labor required to get back to 100% production levels for quite some time. Can innovative pathways be created such as investments into their businesses from existing buyers or an industry consortium? Can a technology-driven, scalable, centralized Human Resource service, that works to revive the MSME labor force, be provided? These services can be made available online/ over mobile using remote collaboration technology in a bid to hasten the return to normalcy.
The MSME sector will have to bear the brunt of the biggest impact as COVID-19 rips across people and the economy. In this extra-ordinary circumstance, a variety of aid packages and technology-driven low-cost functional assistance can be the mitigating factor between MSMEs and full impact of COVID-19.