Urgently needed in Tamil Nadu, an MSME survival kit

Chennai: Tamil Nadu has become an experimental crucible for evolving an economic recovery and governance delivery model. Enjoying the honeymoon period with the voters, the newly crowned Chief Minister M.K. Stalin has done the most sensible thing to do—leave the thinking and planning to the experts—to inject fresh perspective and approach to problem solving on social and economic issues the state is grappling with.
This is why, Tamil Nadu is leaning on a Nobel laureate and development economist Esther Duflo, former RBI governor Raghuram Rajan, and former Chief Economic Advisor to PM Arvind Subramanian for ideas to help revive the state’s debt-ridden economy, also crippled due to the coronavirus outbreak that forced the manufacturing activities in the state to a near grinding halt.
The other two members of the Tamil Nadu economic advisory council are Jean Dreze, development economist and social scientist; and S. Narayan, former Union finance secretary and also a former economic adviser to Prime Minister Modi.
Although it is only an advisory body, its composition with people of such high capability and calibre will help Tamil Nadu as it attempts re-building its economy. This panel could also reinforce confidence of foreign investors and help the state in attracting foreign capital too. Among the top of the key tasks for the council is to look at the rescue operations for reviving the nearly dear Micro, Small and Medium Sector Enterprises (MSMEs). The owners of small firms and workers there look to the government to intervene and save their livelihood by breathing life into the seriously ailing sector.
A manufacturing state, Tamil Nadu suffered more. The pandemic disrupted the supplies of raw materials and components, and local shutdowns meant idle factories—and this hit the MSMEs the hardest. Tamil Nadu, the manufacturing hub of the country for automobiles sector, textiles, and low and middle end engineering goods, hosts hundreds of thousands of MSMEs. The state has third-largest number of MSMEs in the Country (49.48 lakhs—consist of 49.27 lakhs of micro industries and 0.21 lakhs of small industries) and accounts for 18% of all MSMEs and has the highest number of non-farm units.
MSMEs are a major contributor to the socio-economic development of the country and contributes immensely to Gross Domestic Product (GDP) and exports. India had 6.3 crore MSMEs, manufacturing more than 6000 varieties of products.
The contribution of manufacturing MSMEs in the country’s total manufacturing GVO (Gross Value of Output) at current prices has also been as high as 30%. It contributes about 40% to the exports in the country and contributes about 29% towards the GDP. The MSMEs in Tamil Nadu, like similar units elsewhere in the country, face sustained intense pressure and constraints in sustaining competitiveness. The MSME sector is also afflicted by structural and systemic issues, which now have been exacerbated by the impact of the pandemic associated lockdowns.
More important, non-pandemic constraints such as high cost of credit, low access to new technology, poor adaptability to changing trends, lack of access to international markets, lack of skilled manpower, inadequate infrastructure facilities, including power, water, roads, etc., and regulatory issues related to taxation (state, central), labour laws, environmental issues etc. are also linked with its growth process.
The industry has its own suggestions for the economic advisory panel to consider. Industry veterans are sure that innovations in manufacturing processes, increased use of technology and flexible business models would create newer markets and fuel growth. Constant changes in consumer demands needs close monitoring and quick responses will make all the difference. The more creative and innovative the MSMEs are, they more their chances of facing challenges of global market.
One suggestion could be to encourage MSMEs to “innovate your way to success”. The MSMEs must be made capable to face increasing competition in foreign and domestic markets as well. Besides, they must be able to plug into new markets outside the country.
Even during the pandemic there are example of successful MSMEs that have harnessed technology, adopted modern professional management practices and pursued new opportunities. Such examples can be found in the automotive sector units in Sriperumbudur (just outside Chennai, a village where former Prime Minister Rajiv Gandhi was assassinated in May 1991), and also from Tirupur and Coimbatore. From out of these successes, a template could be found that can help the struggling units in the state. For sure, strengthening of a thriving start-up ecosystem, driven by technological innovations, and availability of skilled manpower are the factors that will revive the MSMEs.
In May, the Union government came out with steps to revive the MSME sector and advised the banks to support the MSMEs with schemes for stressed MSMEs, such as the Emergency Credit Line Guarantee (ECLG) and mandated public and private sector banks to supply the much-needed credit.
A suggestion that could go a long way in helping revival of MSME units is postponement of GST collections for one year, allowing the sum be used for business operations.
The steps urgently needed to rescue the ailing sector are: 1. Liquidity crunch: Relaxing rules and norms to give loans to MSMEs to meet working capital requirements to stay afloat; 2. Deferment of payment of loan Principal amount of for the next 6 month and add in the tenure of EMI; 3. Immediate release of fund from the banks 20% of CC limit, to pay the employee’s salary and statutory dues; 4. Defer payment of EB, ESI, EPF, local taxes & GST till lock down and pay monthly; 5. Electricity bill for next three month should be adjusted with the deposit available with the department; 6. To reimburse the medical bill of the ESI covered employees who have taken medical treatment privately either to him or to the employer who have paid the amount; 7. To reimburse the Covid insurance premium taken by the employer; 8. To announce a grant of 5-year salary for the employees who lost their life due to Covid-19 to maximum of Rs 10 lakh to support their family; 8. Interest subsidy for the stressed account @5%; 9. Reduce the electricity tariff for LT & HT MSME units. Reduce electricity demand Charges for HT MSME units; 10. Long Term steps: Need clarity on start up funding, and need for clear cut guidelines; 11. Strengthening governance delivery and policy implementation on the ground; 12. Needed huge investments in modern technology up graded machines and AI, IOT and machine learning enabled system and process; 12. Need government help to take on MNCs in domestic market – making it mandatory for MNCs to have an Indian partner; 13. Making it mandatory that a percentage of total procurement of parts and components from domestic market only; 14. Development of skill development centres; 15. Undertaking sectoral studies to identify and rectify unique concerns.
Lakshmana Venkat Kuchi is a senior journalist tracking the social and economic changes taking place in the country; Ganapathi Ramachandran, is the Chairperson of the IIT Madras Entrepreneurs Forum & member of Executive Committee of FICCI; Dr. S. Raghavan, is a Ph.D. in Economics from the Madras University, and is a former Secretary General of the Southern India Chamber of Commerce and Industry (SICCI).