Cash-strapped MSMEs may see large layoffs
The MSME sector, which has already been hit by a slowdown in exports and costlier credit from banks, are feeling the biggest pinch of the cash squeeze.business Updated: Nov 24, 2016 10:33 IST
A large number of the 80 million people working in micro, small and medium enterprises (MSMEs) are likely to lose their jobs due to the cash crunch in the economy following the government’s move to stop the circulation of ₹500 and ₹1,000 notes.
The MSME sector, which has already been hit by a slowdown in exports and costlier credit from banks, are feeling the biggest pinch of the cash squeeze. Sources said several of these small units have no cash in hand and could resort to large-scale retrenchment.
Paper mills, leather, apparel, re-rolling of steel mills, pottery, woollen, brass are among those that have been worst affected.
In fact, the companies are planning to take up the demonetisation issue with finance minister Arun Jaitley in the pre-budget meeting.
The sector, which transacts mostly in cash —accounts for about 20% of the country’s GDP, and 40% of overall exports.
“SMEs are already struggling with multiple problems -- there was cash crunch as banks were reluctant to lend and the cost of loans was high, exports have been down and even Brexit (Britain’s exit from the European Union) had its own impact... Now with the announcement of the demonetisation drive, small businesses are left with very limited money and there could be many who may lose their jobs,” Anil Bhardwaj, secretary general, Federation of Indian Micro and Small and Medium Enterprises (FISME), told HT.
While the Reserve bank of India has allowed small businesses to withdraw up to R50,000 in cash every week from their overdraft and cash-credit accounts besides current accounts,sources said the amount was “grossly insufficient”, especially since most transactions happen through cash. The central bank has also given an additional 60-day repayment window for loans. It applies to dues payable between November 1, 2016 and December 31, 2016.
A senior government official said the Centre was reviewing the situation. “We will take steps that are necessary to ease the cash supply.