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Getting MSMEs back into business: Perspectives from Indian manufacturing clusters

NewsGetting MSMEs back into business: Perspectives from Indian manufacturing clusters

As MSMEs pan-India are in a dire need to get back into business post the nation-wide COVID19 lockdown, the United Nations Industrial Development Organization (UNIDO) reached out to 85 MSMEs to take stock of their perceived challenges, expectation and plans for recovery and revival of their business. The stock tale was taken by means of a telephone survey during the period of 9-13 April and included automotive components, bicycle, paper, textile, ceramic, foundry, tea and rice milling sectors from clusters across the country that are or have been working with UNIDO under any of its programmes with the Government of India (through Department for Promotion of Industry and Internal Trade (DPIIT), Department for Heavy Industry (DHI), Office of Development Commissioner (MSMEs) and Bureau of Energy Efficiency (BEE)).

MANUFACTURING INDIA IS STANDING IDLE

From the survey it emerged that regular manufacturing has halted, except for rice milling sector where production reportedly dropped to about half of normal. In several sectors, including automotive components, MSMEs already experienced pre-lock down decline in business, due to stagnating economy and market demand and disrupted international supply chains due to lock down in China. Some communication, sales, administrative and other support activities are being undertaken during the lock-down from home, yet of rather limited scale. Staff resources and skills stand idle in MSMEs, and migrant workforce, particularly semi and un-skilled sectors, have returned in large numbers to their home towns. One bicycle parts manufacturer initiated and succeeded to innovate and get involved in the manufacturing of ventilators, though only with a small fraction of its regular workforce.

Movement of materials, including fuels, and people has by and large come to an abrupt stand-still. Manufacturing MSMEs supply almost exclusively to other industries, which have also stopped operating, resulting across the board in reduced demand and cancellation of orders. Exception are essential industries, however, their demands for necessary inputs from non-essential industries cannot be met, as for example paper industry cannot meet current demands for high quality paper for pharma, food and hygienic applications. The disruption of the flow of materials and goods, is having negative implications on other aspects of business, particular an abrupt end to incoming cash flows and the migration of workforce across all skill levels.

RE-STARTING IS A MEGA-CHALLENGE

MSMEs foresee many challenges for restarting their business.

  1. COVID19 will remain around and create a high degree of uncertainty in all aspects of the business in particular to avoid further spread of COVID19 in the workplace or through the movement of people and materials, which may result in further restrictions and potential return to lock down.
  2. Upon lifting of restrictions, the market is expected to be very tight and extremely cash constrained. This is largely due to extreme uncertainties with regard to demand for MSME’sproducts (and/or ability to deliver products to the market) and consequent low or non-existing business income, whilst expenses are being incurred for labor, energy, rent and other business inputs.
  3. Manpower will be a constraint, with MSMEs indicating that 30 to70% of their pre-COVID workforce might have migrated back to their hometowns due uncertainties and loss of income due to lock-down. It will be a challenge to convince staff to return or acquire new staff, and the staff changeover is expected to impact negatively on productivity, quality and defect rates, adding further to financial concerns.
  4. Machinery and stocks of raw materials, work in progress and final product will have degraded. MSMEs will need to undertake outstanding maintenance and service and clean out wasted stocks, before they can resume operations, at a significant cost and with likely write offs to stocks currently trapped on-site.
  5. Ensuring timely supplies of essential inputs without price hikes, is of concern. Particularly those MSMEs that are critically dependent on specialized parts from other states or internationally express concern on their vulnerability to supply shortages.

FORWARD PLANNING HAS STARTED

Even though MSMEs have started to think through potential solutions to the many and diverse start-up challenges, forward planning still appearedto be in its early stages. Many trust that their problem-solving skills will help them succeed to address the issues one at a time on the go, whereas others put emphasis on their systematic problem-solving capabilities. MSMEs have started to consider work force related solutions, through ongoing communication with workforce (including those who returned to their home state), setting up of buddy systems (potentially with retired employees and/or client technical staff), engagement with Industrial Training Institutes (ITIs) and hiring of temporary workers on walk-in basis. To ease their financial crunch, MSMEs have started to look at options to reduce or defer less-essential expenses (including reduction of stocks, deferment of investments, etc.), to secure income (including outstanding dues from buyers, particularly government and Public Sector Undertakings (PSUs)), to access additional working capital (through low interest loans and/or from retained earnings) and/or to appeal for government fiscal and/or financial support.

KEEPING SAFE WITH COVID19

Several MSMEs had already started pre-lockdown with some COVID19 measures for infection prevention and control, particularly through awareness and communication (on hygiene, social distancing, etc.) and in some cases provision of hand sanitizers, masks and gloves. This forms the basis for stepping up preventive measures post lock-down, for which MSMEs are looking at government for specific guidance. Common measures under consideration are health checks at factory entrance, provision of Personal Protective Equipment (PPEs), staggering of shift and break times to minimize congestion of people, maintain social distancing during work and compulsory use of Aarogya Setu application. Few MSMEs are considering further measures such as installation of sanitization tunnels, pre-start up fumigation of factory premises and rearrangement of work stations to maintain social distancing. A share of MSMEs expect that they will need to reduce or even halve staff numbers and keep visitors out and may need to make alternative arrangements for providing food and drinks while in attendance. There is a general apprehension that the future new normal will be different from what it used to be in the past. Moreover, the time required to achieve some normalcy will be significant, with minimum estimates varying between some 6 weeks to 6 months. This will heavily depend on the how the COVID19 pandemic unfolds in India and globally in coming weeks as well as policy responses and stimulus packages.

OVERCOMING THE CASH CRUNCH

The most immediate concern currently on the minds of MSMEs are cash flow and working capital. Most are concerned that survival is only possible with a substantive financial and/or fiscal support package from government specific to MSME segment. Some MSMEs believe just a financial stimulus will be enough, yet others are recognizing that COVID19 is a wake-up call to change and improve different aspects of MSME operations as well as the MSME ecosystem and the value chains they are part of.

René Van Berkel, UNIDO Representative, Regional Office (India) r.vanberkel@unido.org.

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