Micro, Small and Medium Enterprises (MSMEs) – the largest employer of workforce in India’s unorganised sector – is set to get much needed helping hand from the government.
The move will surely prove beneficial for the ailing sector and may also help kickstart the economy.
According to news report, the government is exploring the possibility of providing second stimulus package worth around Rs 1 trillion in coming days. The focus will be to help MSMEs weather the Coronavirus outbreak.
Last month, the government outlined a Rs 1.7-trillion economic stimulus plan providing direct cash transfers and food security measures to give relief to millions of the poor hit by an ongoing 21-day nationwide lockdown.
Small businesses account for nearly one-quarter of India’s $2.9 trillion economy and employ more than 500 million workers, according to government estimates.
The new package aimed at MSMEs could include increases in the limits of bank loans for working capital needs, hiking threshold limits for availing of tax exemptions, and relaxing rules for deposits of income tax and other dues.
MSMEs are the backbone of the economy, employing over 114 million people and contributing to more than 30% of GDP.
The current coronavirus pandemic (Covid-19) lockdown will substantially disrupt the operations of these MSMEs due to their dependence on the cash-economy that is severely hit by the lockdown, the physical non-availability of workers, and restrictions in the availability of raw materials and transport infrastructure.
This will have substantial ramifications throughout the economy and therefore, a robust policy response is essential.
The ground impact information gathered from various sources shows that over 22% of the over 75 Million MSME units in India will be shut if the lock down in cities extends beyond four weeks and a staggering 43% will close down if the panic extends beyond 8 weeks.
Banking sector, chemical industry, automobile and auto ancillary sector, textile- garment and hosiery makers are some of the key industries that will be greatly relying on MSMEs revival.
Hence, a joint effort from both the state and central government therefore, is critical. Supply-side interventions, in particular strengthening supply chains for MSMEs, can also help them weather the storm.
Ensuring that the MSME sector has access to raw materials and robust downstream supply chains would not only help mitigate production shortages in the health and the essential goods sector, but given its size, also potentially slowdown the adverse impact on the Indian economy as a whole.
The Government of India has already appealed to MSMEs producing medical and other essential products to register and sell in the Government’s e-marketplace.
This should be expanded to other sectors as well with co-ordination across different states to meet local supply and demand requirements.
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