The MSME sector has been the lifeblood of India’s economy contributing to over 30% share of the GDP, 45% of domestic manufacturing and 40% of the exports. It is the second-largest employment generator in the country, providing employment opportunities to approximately 11 Crore people.
Check out the video on ‘Post-Covid Opportunities in Manufacturing Sector for MSMEs
The sector has been resilient to many conventional challenges; however, the challenge posed by the covid-19 pandemic was unprecedented. The pandemic indeed showed a negative impact on all the sectors, but its impact on the MSME sector is devastating, considering the unorganized nature of the sector. While many sectors have successfully recovered from the impact of covid-19 first wave and started the operations in full scale, the MSME sector is yet to recover fully from the impact.
Impact of the First Wave and Government’s Response
The Government of India, in order to contain the spread of coronavirus in the country, announced a nationwide lockdown that involved the complete closure of business activities and social gatherings across the country. The MSME sector suffered the most during the lockdown due to the unavailability of raw materials, shutting down of production units, shortage of working capital, sudden drop in the domestic demand and exports, migration of labour, etc.
As a part of the ‘Atmanirbhar Bharat’ mission, the government had taken several initiatives to provide relief to MSMEs from the pandemic. Some of the key measures taken by the government to boost the MSMEs in the country include:
1. Revising the definition of MSMEs
2. Rs. 20,000 Crore subordinate debt for stressed MSMEs
3. Rs, 50,000 Crore equity infusion through Fund of Funds
4. Disallowing of global tenders in the projects upto Rs. 200 Crore
5. Rs. 3 Lakh Crore collateral-free automatic loans
While the MSME sector was on the path of recovery banking on the government’s support, then started the rising of the covid-19 curve in the country. The coronavirus cases started increasing at a rapid pace in the country from March, 2021.
Second Wave and the Road Ahead
The rapidly increasing covid-19 cases in India in the second wave forced various state governments to impose lockdown-like restrictions in the states. The second wave of covid-19 is deadlier than the first wave with a greater death rate. The second wave led to the shortage of oxygen in hospitals across the country. To overcome the shortage of oxygen supply, the government stopped the supply of oxygen to industries and diverted it to the hospitals. This resulted in the halt of operations in industries that require oxygen.
The revival of the MSME sector is crucial to India’s growth story, considering their significant role in the economy. In addition to the earlier announced ‘Atmanirbhar Bharat’ initiatives, the government through various organizations, has been taking several other measures to revive the MSMEs that are hit badly by the pandemic.
The Reserve Bank of India recently announced the loan moratorium facility to businesses and individuals who had not availed earlier in 2020. Several banks have extended emergency credit loans at nominal interest rates for micro, small and medium scale industries in the country. SIDBI is also providing concessional loans that are collateral-free at a 5% interest rate for the MSME sector.
The covid-19 pandemic caused a paradigm shift in the business trends in the country. Business verticals such as pharmaceuticals like API manufacturing, food processing, particularly, nutraceutical and health foods, oxygen manufacturing, china-substitution products, like electrical and electronics, toys manufacturing, etc. are some of the areas that domestic MSMEs can explore in the manufacturing sector in near future. Existing MSMEs operating in other sectors can also diversify into the above sectors, given the potential opportunities in these sectors.
In wake of the second wave and a possible third wave that is in line, MSMEs must make the most of these initiatives from the government to survive the pandemic period and revive their operations. Apart from these, MSMEs should also focus on leveraging the latest digital technologies to overcome the challenges posed by the pandemic. Technology can help to reduce operational costs, maintain business continuity, minimize the workload of human resources, reduce the time to market, etc. Therefore, it is time for businesses in the country, particularly MSMEs to realize that digital is the only way forward to survive and sustain in the disruptive business environment.
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The government is taking several measures to encourage micro, small and medium scale enterprises in the country. Revising the definition of MSMEs, subordinate debt for stressed MSMEs, equity infusion through Fund of Funds, disallowing of global tenders, collateral-free automatic loans, etc. are some of the latest initiatives taken by the government towards MSMEs.
The MSME sector is one of the most affected sectors due to the covid-19 pandemic. MSMEs can overcome the pandemic by reducing operational costs, optimizing other expenditure, adopting technology, diversification into sunrise sectors, etc.
Technology can help to reduce operational costs, maintain business continuity, minimize the workload of human resources, reduce the time to market, etc.
The MSME sector holds a prominent future in India. The government is planning to increase the share of the sector in the GDP to 40% from the current 30%. As per the sources, the government is also planning to announce the PLI scheme for the sector to encourage micro, small and medium industries in the country. So, there exist a lot of scope for the sector in India in future.