Small Scale Sector: Slow Recovery
Prof. Lallan Prasad
‘Small is beautiful’ is true for small scale sector of economy which with much lower investment, consumption of energy, machines and equipments, raw material and other resources compared to large scale sector, contributes greatly to the production of goods and services, employment, export and income to a substantially large section of population. In India it accounts for approximately one third of all economic activities, is more decentralised and environment friendly also. COVID 19 has hit the sector hard resulting into closure of most units, creating shortage of supply, loss of jobs for millions of migrant and local labour, pushing large number of small companies and firms to the brink of bankruptcy. With unlock down decisions in phases in different states more than half of the sixty three million units have started functioning though at a very low capacity. The critical problems faced by this sector relate to liquidity, fresh orders, logistics, labor and raw materials.
Central Government has come up with some schemes to help entrepreneurs and units in small scale sector to overcome the problem of liquidity. All MSME’s with a turnover of upto ₹ 100 crore and with outstanding credit of up to ₹ 25 crore can borrow up to 20% of their total out standing credit as on Feb. 2020. The loan will have a tenure of four years and the scheme will be open until October 31, 2020. A total of ₹ 3 lakh crore has been allocated for this purpose. Government has offered collateral free loans which will be fully guaranteed by the Centre. There will be a principal repayment moratorium for 12 months. Government has also announced creation of a Funds of Funds with a corpus of ₹ 10000 crore for equity based funding to MSME’s having growth potential and validity.
MSME’s are redefined to enlarge their scope of business, borrow from banks and take advantage of various government schemes. They are classified into three categories: micro, small and medium. Units with investment of ₹ 1 crore in plant, machinery and equipment and turnover ₹ 5crores will be considered micro, those with investment less than ₹ 10 crore and turnover ₹ 50 crore small and units with investment less than ₹ 20 crore and turnover ₹ 100 crore medium. Prior to this the investment limit was ₹ 25 lakh, ₹ 5 crore and ₹ 10 crore respectively. Limits are also raised for service MSME’s. Foreign companies are barred for bidding to tenders upto ₹ 200 crores. This will be advantageous for the Small scale sector. Government has directed its departments and PSU’s to release all payment dues of MSME,s within 45 days. The sector will also be assisted in access to IT services, technology upgradation, innovation and developing quality standards and certifications. There is a scheme for partial credit guarantee scheme for banks also for lending to small industries.
Government schemes to help small scale sector are laudable, however the benefits have not reached the large number of units. Banks and financial institutions are hesitant to sanction loans liberally in spite of Government guarantee due to rising NPA during COVID. MSME’s are feeling liquidity crunch all over the country which needs policy makers urgent attention. The Emergency Credit Line Guarantee Scheme has been used by far less number of enterprises than expected. Units in export business are hit hard due to cancellation of orders and non payment of dues by importers. Entrepreneurs apprehend that they may have to refund/return the drawback and RoSCTL with interest even when importers fail to pay.Withdrawal of certain subsidies and incentives to small scale sector in period of depression has further aggravated difficulties of small entrepreneurs. Power loom operators in Banaras for instance, were charged a fixed sum of Rs 75 per loom per month were suddenly asked to pay full power charges and bills in lakhs were handed over to them for COVID period resulting into closure of large number of units for days together and a sense of despair. The toy city in Noida has not been able to attract many entrepreneurs who bought the land to establish manufacturing units but stayed away due to lack of facilities and adverse policy measure. Power disruptions have been a major problems with captive generators running for hours everyday. Reduction in import duties after liberalisation helped Chinese exporters capturing Indian toy market as it happened with many other products resulting into closure of manufacturing plants and creating unemployment. Toy manufacturers want easing of import of machines, tools and dyes, a deign Centre and right policy to promote toy industry which has estimated market worth ₹ 10000 crore. Auto part manufacturing which has been declining from second half of of FY19 is picking up and want ignoring current ratio while restructuring loans to enable them to start manufacturing on the just in time model. Recovery in units in small scale sector producing goods services for family functions, marriages and other ceremonies, festivals, cultural and social activities and for ornamental purposes, is considerably slow due to lack of demand as a result of months of lockdowns, closure of businesses, unemployment, reduced family income and increased liabilities of millions of households in the country and depressed markets abroad.