Covid-19 lockdown: Govt considers wage stimulus for MSMEs amid survival battle | Latest News India - Hindustan Times
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Covid-19 lockdown: Govt considers wage stimulus for MSMEs amid survival battle

Hindustan Times, New Delhi | By
Apr 24, 2020 06:54 AM IST

Unsold goods and delayed payments have turned off liquidity taps for the MSMEs sector, leading to a “complete breakdown”, according to the business lobby FICCI, which has mooted proposals for support.

The Union government is weighing options for a stimulus to protect wages of workers employed in micro, small and medium enterprises (MSMEs) as the sector fights a survival battle.

As an extended lockdown until May 3 bites industry, smaller businesses are facing an acute shortage of cash.
As an extended lockdown until May 3 bites industry, smaller businesses are facing an acute shortage of cash.

As an extended lockdown until May 3 bites industry, smaller businesses are facing an acute shortage of cash. Unsold goods and delayed payments have turned off liquidity taps for the sector, leading to a “complete breakdown”, according to the business lobby Federation of Indian Chambers of Commerce and Industry, or FICCI, which has mooted proposals for support.

Labour secretary Heeralal Samariya interacted with business leaders via video-conferencing on Wednesday organized by FICCI, in which he discussed the possibility of a payroll-focused stimulus so that small businesses could retain workers and pay wages.

The MSME sector accounts for 28% of India’s gross domestic product and employs 30% of the country’s labour force, making it a significant employer to over 100 million workers.

Business leaders told the bureaucrat that the lockdown could deal a crushing blow to a majority of small businesses. According to the All-India Manufacturers’ Association, another business lobby, nearly 70% of small businesses failed to pay wages to workers in March.

The government last month allowed small businesses to defer paying Goods and Services Tax from February onwards till June to help improve their cash flows.

Disrupted supplies of raw materials, shuttered transport and labour shortages have brought the sector to a standstill and unless the government provided quick relief, many will have to lay off workers, the FICCI said in its proposals for relief measures.

Samariya told participants at the videoconference his ministry was looking to also support out-of-work migrant labourers. The labour ministry is collecting data of migrant workers through 20 regional call centres established in coordination with states.

Following Wednesday’s consultation, FICCI on Thursday came out with its proposals to support MSMEs. “MSMEs operate on cash and are in need of immediate liquidity to cope in the current circumstances as a majority of these enterprises are micro/small household-run businesses,” the organisation said.

“Non-availability of workers, restrictions in the availability of raw materials and transport infrastructure is making matters worse,” it said.

FICCI has sought interest- and collateral-free loans for MSME companies with a turnover of less than Rs 500 crore for up to 12 months to enable them to cover fixed costs, salaries and other operational expenses.

For non-Good and Services Tax paying companies, an alternate mechanism could be worked out based on income tax filings. Even in usual times, the MSME sector has to negotiate hard business decisions.

According to the UK Sinha Expert Committee formed to look into MSMEs, which submitted its report to the Reserve Bank in June last year, unsold inventory and delays in payments were the biggest reason for small businesses defaulting on loans. Small businesses typically take more than 220 days to realise payments, while India’s 30 largest companies take a just a month, according to the committee.

MSMEs also have limited access to credit, their share in overall bank credit being just 6.3% compared to 28% of large industries.

Softer loans could be given with “pre-conditions that businesses will continue to run and there would be no layoffs of workers and after one year it will be converted into a grant if all conditions are met”, the FICCI said in its proposals.

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