Covid-19 – Impact on Bharatiya MSMEs

As we are all aware, Government has rightly announced lockdown from 22nd March 2020 to 14th April 2020 due to Covid-19. Naturally, though the step is in the interests of the country at large, in this critical lockdown situation, all the business activities have got held up completely and financial situation of all industries and business will have suffered very adversely.

We are not even sure whether this lockdown will end on 14th April, 2020 (safety of citizens is paramount, if we are alive there is something to look forward to and so, the Government’s decisions in these regards have to be fully respected and adhered to) and even if it ends on 14th April 2020, when will the business cycles attain normalcy again is an open question. Hence, the financial position may worsen further. 

We are assuming that the situation will normalise from 15th April 2020 but if the situation does not get normalised or this pandemic extends; then the situation will further be worsened. On a very conservative note, as per my limited understanding, it will take more than three quarters i.e. a minimum of 9 months to get back into a proper operational cycle. 

The further challenge will be to seasonal businesses having a few slack periods in a year and if this period of opening of businesses is during or very near the slack period, these businesses will need more than 3 quarters to recover.  

Thus, there is a need to have a holistic review of Bharatiya businesses and more particularly MSMEs. There has to be a guidance and support from the government and all stakeholders plus associations covering all aspects – employee payments, vendor payments, statutory payments, operating expenses, cost of restarting operations particularly in Continuous Process Industries, recovery period, frivolous litigations (protection therefrom), increased health and safety costs (very essential), and so on and so forth.

We are sure that many will have actually worked on this and may be working. For MSMEs, Business Continuity Plan has generally not been an integral part of their business processes unlike many large corporations and businesses which have also not been spared by this pandemic. So, to repeat, a very holistic review of all businesses leading to support guidelines across ALL items is very essential.

I came across a very relevant aticle by Indian Express titled ‘What if the employer becomes unemployed?’ We have reproduced the article below for reference; the comments in brackets are this author’s:

  • The Punjab government had recently said that factories can be opened provided industrialists quarantine their workers inside the units, provide them food and maintain all healthcare standards. If found guilty, their licenses will be terminated.

(Author – Non-compliance should not necessarily be construed as a guilt. Even the courts of law say that person is not guilty till the person is not given a fair chance to represent his case. Hence, it is required that efforts should be made to understand reasons for inability to comply and if these are genuine the industrialists should be supported by the government. If not, punitive measures should be graded and if the industrialist complies then okay, if they do not then only license may be terminated. Terminating a license will have much wider ramifications on all stakeholders).

  • With industries in Punjab being closed amid the curfew, Small and Medium Enterprises (SMEs) have raised concerns as to how to run fixed expenses if the COVID-19 pandemic continues for long. Though they have been asked to pay salaries of employees, power bills without any extension in date, industrialists have asked the state as well as central government as well to support the industry sector, which pays taxes and generates employment.

(Author – It is a very apt request).

  • D S Chawla, president, United Cycles Parts and Manufacturing Association (UCPMA), and Upkar Singh, president, Chamber of Industrial and Commercial Undertakings (CICU) have sent emails to the Financial Commissioner Employees State Insurance (ESI) Corporation, New Delhi, saying that units are under lockdown under medical emergency and hence wages of insured persons (IPs) should be compensated by ESI during the shutdown period, as it is a national medical emergency. “We have been told by the government to pay wages, but it is difficult for us to pay wages during the lockdown period with zero production, no orders from the market and with sealed borders across the country under section 99 A of the Indian Epidemic Act, ESIC should compensate their salaries, as we are regularly paying ESI of these employees to ESIC.”

(Author – Whether this is workable or not, is for the Government to decide. My perspective is whether only ESIC support be enough?)

  • The Punjab government had recently said that factories can be opened provided industrialists quarantine their workers inside the units, provide them food and maintain all healthcare standards. If found guilty, their licenses will be terminated. Chawla, who is the owner of Chawla International, said, “My monthly fixed charges are around Rs 4 lakh including salaries, power, EMIs. We are supporting our employees and will support them. But what if the employer goes unemployed?”

(Author – I am reproducing statements by these MSMEs, quoted in the same article):

    • Chawla has a bicycle parts manufacturing unit and according to him, the bicycle industry of Punjab generates direct employment to around 5 lakh people and hence is feeding around 1.5 crore people (including their family members). “if we go unemployed, what will happen to the economy of the country? The states as well as Centre need to think about the industry sector as well like other COVID-19 affected countries are doing.” 
    • Tarun Jain Bawa, president of the Bahadurke Textile Knitwear Association and owner of Jain Shawls said, “I have 300 employees and my monthly expenses including salaries are around Rs 70 lakh per month, which include salaries worth approximately Rs 50 lakh, monthly power bill of around Rs 5 lakh, of which Rs 1.25 lakh are fixed charges, which I have to pay even if my factory is closed. We have asked the power corporation to take metered bill for lockdown period and waive fixed charges. We are supporting ration supplies of workers, but difficult to manage Rs 70 lakh expenditure without any work.”
    • Bawa said, “We have 350 units on Bahadurke Road and I am the president of the association. All units provide employment to around 40,000 employees and hence we are feeding nearly one lakh people (including their family members).
    • Kamal Chopra, general secretary, Offset Printers Association (OPA), Ludhiana, and owner of Foil Printers, said, “I have 30 employees and my monthly fixed expenses including salaries, power bill and EMIs is around Rs 9 lakh. While countries abroad are supporting industries which generate employment, here, we are being overburdened.”)

How are other nations addressing this very burning issue during the COVID 19 pandemic? Yes, each country’s facts and ground situation will be different. Yes, one size cannot fit all. Yes, we need to draw reference to what is happening around us and write our own path for supporting businesses and industries particularly MSMEs. But still, it is useful to see how other countries are responding to this crisis.

Germany

An article on the Coronavirus Crisis titled Nearly Half A Million Companies In Germany File For State Funds To Pay Workers,” some key extracts of which  are given below:

    • In Germany, nearly half a million companies have applied for government funds to support employees with reduced work hours, as the country with the largest economy in Europe pushes to contain the new coronavirus.
    • Heavy restrictions on public life, an export slump because of nations’ lockdowns and broken supply chains throughout industry have meant millions of Germany’s workers are eligible for public financial aid.
    • Known as Kurzarbeit, the government’s compensation program allows firms to reduce employees’ hours while the state provides much of the lost income, a cushion meant to help them avoid layoffs.
    • Twenty times more companies have filed for the Kurzarbeit to help deal with coronavirus reductions than the number that used the federal subsidy during the global financial crisis a decade ago.

Canada

Couple of quotes from an article show what the Canadian government intends:

    • “Small businesses are the backbone of our economy, and an important source of good jobs across this country. They are facing economic hardship and uncertainty during the COVID-19 pandemic, and that is why we are taking action now to help them get the financial help they need to protect their workers and pay their bills.” The Rt. Hon. Justin Trudeau, Prime Minister of Canada.
    • “The measures that we are taking to protect Canadians and our economy from the impacts of the COVID-19 pandemic remind us that extraordinary times demand extraordinary actions. With the new measures we are announcing today to support businesses, we are showing once again that we will do what we must to ensure that workers and businesses are supported through the outbreak, and that our economy remains strong in the face of adversity.” The Hon. Bill Morneau, Minister of Finance.

Extraordinary times call for extraordinary measures. Government of Bharat will have to provide every support possible to Bharatiya industry, especially MSMEs, to ensure that our nation survives this crisis.

-by Rohit Kothari (CA)


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