Rescuing Micro, Small and Medium Enterprises

Monetary and fiscal measures are needed to help MSMEs withstand the exogenous shock due to the lockdown.

Economic activities abruptly came to a standstill with the nationwide lockdown, the final closure of which seems a far-off prospect. In the event of its continuation, though in a diluted form, the lockdown is going to severely affect the micro, small and medium enterprises (MSMEs). In fact, the MSMEs have been one of the worst affected businesses due to the disruption caused by the pandemic. It is crucial that these enterprises, which are disadvantaged by their size as well as their limited cash flows, survive the onslaught of the imposed disruption. This is because a closure not only has a cascading impact on the entire supply chain, but it has also adversely affected the livelihoods of those involved in running these enterprises and those who are employed in them. The MSMEs, therefore, require immediate but substantial relief from the government to cushion the exogenous shock of the lockdown, at a time when the economy has already been reeling under a deep economic slowdown.

The MSMEs, being an integral part of the product supply chains, form an important sector of the economy. These enterprises contribute about 30% of the country’s gross domestic product (GDP), 40%–45% of exports, and employ about 114 million people who comprise about 30% of the labour force. About 63 million unincorporated MSMEs are engaged in the non-agricultural sector, the majority of which are microenterprises in the informal sector. Even before the lockdown, these enterprises were beset with problems of liquidity caused by delays in payment and unsold goods as well as insufficient credit and loss in business. The access to institutional credit has also been weak due to the fact that an overwhelming majority comprises single-person proprietorships that are not registered as companies, as per the National Sample Survey 2017 data on unincorporated non-agricultural enterprises.

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Updated On : 4th May, 2020

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