Reviving MSMEs hit by pandemic

Recommendation by the Parliamentary Standing Committee on Industry for the formulation of a new national employment policy is timely and essential to creating new avenues of employment to provide a cushion for millions who lost jobs due to the COVID-19 pandemic. The Committee's recommendation is based on the observation that a large number of jobs were lost due to the Covid-19 pandemic and economic conditions of the households suffered a jolt and their regular income declined significantly during lockdown periods. In its report to the Rajya Sabha, the parliamentary panel has recommended that the government should focus on employment generation and ensure that new means of livelihood are generated especially for the youth of the country. It has also urged exploring the feasibility of establishing a national electronic employment exchange and building a skill-based database to employ skilled manpower in their area of expertise. The committee has harped on facilitating the Micro, Small and Medium Enterprises (MSMEs) to scale up their capacity building but its observation that decline in registration of MSMEs after new reclassification criteria was notified in July last year and the introduction of the Udyam Registration Portal calls for identification of the gaps. The report states that it appears that the MSMEs feel better off without registration as the compliance costs would be greater than the benefits that would accrue post-registration. Besides, without registration, they find it more convenient to escape the income tax net and compliance structure. The Committee's recommendation for providing incentives to attract more MSMEs to register themselves on the Udyam Portal and extending the timeline for registration with PAN and GSTIN can be explored by the Ministry of MSME. The Ministry of MSME informed the Committee that the Covid-19 pandemic battered the economy as a whole but the MSME sector has been the most adversely impacted one, the report states. The Committee has flagged an important issue of MSMEs constrained to divert their working capital towards servicing their loan instalment clearing their dues at the cost of normal business operations due to pandemic impact. The Reserve Bank of India will have to take the call on the recommendations made by the committee for raising the limit fixed for classifying MSME over dues from existing 90 days to 180 days for saving a large number of MSMEs from turning sick or getting closed resulting in loss of economic activity and employment. The committee is of the view that such relaxation will also prevent the avoidable classification of bad debts and unwarranted litigation by banks, thereby saving the banks too, from losses. Ministry Data show that as of January 11, 2021, altogether 17,66,651 new MSMEs have registered on Udyam Registration Portal and 2,82,627 MSMEs have migrated from Udyog Aadhar Memorandum to Udyam. Till December 30, 2020, altogether 5.4 lakh enterprises have registered under the manufacturing category and 8.7 lakh enterprises under the service sector. The report states that while the share of Microenterprises is 92.61 per cent, those of Small and Medium Enterprises are 6.30 per cent and 1.07 per cent respectively. While altogether 11.31 lakh enterprises are owned by males, 2.4 lakh enterprises are owned by female entrepreneurs and 20,463 enterprises are owned by Divyangjan entrepreneurs. Major Industrial Sectors of registrations are - food products, textile, apparel, fabricated metal products and machinery and equipment and these registered MSMEs have given employment to 1,47,40,589 persons. These data highlight the critical role MSMEs play in employment generation. And how they are facilitating more registration of MSME units and support to COVID-affected MSMEs is important to build pandemic resilience against economic shocks. The committee expressed concern that "rising unemployment has emerged as the biggest economic concern during the second Covid-19 wave" and "even though no nationwide lockdown was imposed during the current wave, the local complete lockdown imposed across many large states had a vast economic setback". Another key observation of the parliamentary panel is that while reinstating traders, retailers, as well as wholesalers in the MSME category, will make 2.5 crore traders eligible for obtaining credit facility under Emergency Credit Linked Guarantee Scheme, extending the benefit of the scheme to small trader/dealers who have no access to institutional finances meant for MSMEs is also equally important to make a turnaround. The committee's observation that the stimulus package announced by the Central government for the economic revival from the pandemic-hit economy has been "inadequate as the measures adopted were more of loan offering and long-term measures instead of improving the cash flow to generate demand as immediate relief echoes the concern of affected MSME owners and why they stimulus failed to enthuse a large section among them. All eyes will be on the government if it accepts the Committee's recommendation for coming out with a larger economic package aimed at bolstering demand, investment, exports, and employment generation to help the economy, including MSMEs to recover from the Pandemic fallout.