Inadequate workforce, tepid consumption to make MSME recovery slow amid Covid-19 spike

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Micro, small and medium enterprises (MSMEs) indicate that challenges pertaining to availability of workers and consumption will make the recovery process slow across categories, amid restart of operations across clusters. Industry representatives and business owners say that while companies have managed to restart and sustain operations at low capacity levels in the past few weeks, challenges remain in the areas of working capital, availability of migrant workers, and offtake from consumers.

“Overall, there will be 20-25 percent schedule available for MSMEs. Of course, those who are in textiles may have better schedules due to new businesses like PPEs, masks, etc. But they face issues of workforce and inadequate working capital loans,” K Srikanth, Convenor, MSME Panel (Tamil Nadu), CII, told BusinessLine.

While the textile segment witnessed slow improvements in June and July beginning, compared with May, the recovery will be gradual in the textile value chain because of its interlinkage with various markets. “For example, yarn spun by TN spinning mills goes to Maharashtra weaving clusters. But if the weaving cluster is in the red zone and not fully operational, our yarn sector would need to wait for full recovery. The same applies to retail-linked products too,” said Prabhu Dhamodharan, Convenor, Coimbatore-based Indian Texpreneurs Federation.

“In segments like engineering or auto, the machinery is meant for a particular technology, unlike the textile machinery, where a stitching machine can stitch anything. So, these segments are having only 15-20 percent schedule due to poor demand,” added Srikanth. The business to consumer (B2C) segment is still hit by poor demand. Only some need-based or replacement products are seeing offtake. But that share is very small and sales are moving at a snail’s pace. People are unwilling to come out to buy due to Covid-19 related fears.

“Also, the entire workforce in India is paid less. Very few companies have paid full salary during this Covid-19 period. People will conserve whatever little money they have due to concerns over COVID-19-related expenses,” added Srikanth. While most of the representatives BusinessLine spoke to, admit that MSME unit are facing challenges in getting adequate working capital loans, they also urge the government to expedite the process of the income tax refund to people in the category of above 5 lakh. “Maybe a partial income tax refund in the category of 5-15 lakh will be of help in some way during this crisis period,” added a representative.

While consumption is expected to pick up gradually, MSME units worry over the availability of labour force. They expect the state governments to bring back the migrant labours the way they were sent to their native districts. However, states like Tamil Nadu have indicated that they are not yet ready to do so due to very high number of Covid-19 positive cases in the state.

GST collections

Meanwhile, the Consortium of Indian Associations (CIA) has warned that GST collection in June was not reflective of the true picture at the ground level.

“When the lockdown was announced on March 25, all MSME units had orders to be completed during the last week of March (the annual year-end). But nothing could be done till May end. In June, barring units in big cities, all others started operations. So, with about 65 days of invoicing, June collections should have been significantly higher. But it was not so,” pointed out KE Raghunathan, Convenor of CIA.

“The real impact of Covid-19 will be known only from August, as we will then know whether fresh orders flowed in or not,” he added.

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