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Hoping against hope

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COVID-19 has kicked business owners in the gut. Thousands of small businesses, employing millions, face the grim prospect of permanent closure. A survey by the All India Manufacturers’ Association found that more than a third of the self-employed and small and medium businesses did not see any hope of recovery and were on the verge of winding up. A national multi-institutional survey by the SKOCH Group, a private think-tank, and FISME (the Federation of Indian Small and Medium Enterprises) conducted towards the end of May, found that 62 per cent of surveyed MSMEs (micro, small and medium enterprises) would let go of employees, and 78 per cent would cut wages. Both surveys were conducted after the recent government interventions.

On May 13, Union finance minister Nirmala Sitharaman unveiled a Rs 3.75 lakh crore package for MSMEs, including Rs 3 lakh crore of collateral-free loans for businesses with outstanding dues up to Rs 25 crore, equity infusion of Rs 50,000 crore through a fund of funds, a reclassification of MSMEs to encourage growth and a promise that government and central public sector undertakings (PSUs) would release all pending payments to MSMEs within 45 days of the announcement.

While a section of economists termed the package fiscally prudent, business owners withheld their verdict till more details were available. Three weeks later, thousands of MSMEs feel a sense of abandonment. They draw comparisons between India’s stimulus package and those announced by the United States and Germany, the US has cleared a $500 billion aid package for small businesses, while Germany is considering giving aid of up to 50,000 a month to freelancers and companies that employ up to 249 workers. Germany has allocated up to 25 billion from June to August to make up for coronavirus-related loss of sales.

Millions of small Indian businesses are suffering on several counts, higher compliance costs relating to the physical distancing and sanitisation demands of a post-Covid world, a lack of labour to resume operations, a lack of direct fiscal support and vulnerability on the health front. Issues like these are weighing on the minds of millions of small business owners, leaving them asking: Will my business survive?

PAIN POINTS

In the recent past, small business owners have also had to deal with policy flip-flops. Amitabh Kharbanda, director of Sunlord Apparel in Noida, an export-oriented unit of home furnishings and garments to the US and European markets, points out that the Uttar Pradesh government had said, in early May, that labour laws would be relaxed and factories would be allowed to operate 12-hour shifts. However, the latter provision was soon revoked. (The state government had issued a notification on this matter on May 8 that was to remain in force till July 19. But the state authorities had come under fire for this and had to revoke their decision.)

Meanwhile, the promoter of an MSME based in Odisha says his unit had orders for personal protective equipment (PPE) kits from a Bhubaneswar-based PSU. However, the firm received an email from the PSU on May 26 saying that it would not be accepting any deliveries after the end of that day. This sudden announcement left trucks full of PPE kits stranded outside the PSU’s warehouse. This, despite repeated assurances by Union MSME minister Nitin Gadkari that the government and PSUs would make good on finance minister Sitharaman’s promise that all pending dues to MSMEs, a staggering Rs 5 lakh crore, by some estimates, would be paid within 45 days of the announcement on May 13. Nearly 88 per cent of those surveyed in the FISME-SKOCH survey said they wanted government payments to be made urgently, while 90 per cent said they wanted immediate income tax and GST refunds, a move that was announced in April, to be implemented with ‘immediate effect’.

An assessment by FISME finds that only about 40 per cent of MSMEs were able to open nearly a month after the government began its staggered easing of lockdown restrictions, and that nearly all are working at 20-30 per cent capacity. “[The government] has closed its eyes to this,” laments Anil Bhardwaj, secretary general of FISME. “The EPF announcement benefits a minuscule percentage [of firms]. The Rs 3 lakh crore bonanza is mostly optics. Banks will do their due diligence before giving loans.” Putting this in perspective, Sanjeev Kapoor, a Delhi-based chartered accountant advising MSMEs, says that even though the government has pledged full guarantees for up to 20 per cent additional, collateral-free working capital loans under the Rs 3 lakh crore emergency credit line guarantee scheme for MSMEs, banks and shadow banking firms have been given the leeway to do their own due diligence, which will restrict availability of credit.

POLICY PRESCRIPTION

MSMEs want an extension of all term loans by two years, with the first year made interest-free and only simple interest charged in the second. They say interest payments should resume after business returns to normalcy and have asked for an increased working capital limit requirement and a unified electronic platform for all services and financial support to MSMEs. Kapoor’s advice to his clients is that they reduce workforces and build war chests, monetising assets for liquidity or taking an overdraft, if needed. He also advises that manufacturers keep units running to avoid idle capacity. As MSMEs go through this trial by fire, one thing has become clear, it is time to get down to business.

Ajay Joneja, 53

Owner, Oliver McInroy, Moradabad, UP (‘Small’ manufacturer/ exporter of furniture, furniture accessories and lighting)

Turnover: Rs 30 crore p.a.

No. of employees: 170

The CRISIS

Joneja, who says he’s lost Rs 1.5 crore over the past three months, has restarted operations at a third of his set-up capacity. Six ready-to-ship containers are idling because buyers have pushed delivery dates. For future orders, he says, supply of hardware inputs like screws, rivets and such have been impacted. “Ours is a labour-intensive unit and we’re facing a labour shortage.” Given this, he is re-training workers across departments, though his production line requires specialists. He has paid minimum wages but those earning over Rs 50,000 per month have taken 50 per cent cuts. Rajiv Kumar, 42, a packer in the factory, supports a family of five on a salary of Rs 10,200. “We have cut back expenses drastically,” he says.

DID THE STIMULUS HELP?

Joneja says he might go for the collateral-free working capital loan “depending on my order book”. His company does not qualify for employees’ provident fund relief since most of his workers earn more than Rs 15,000 per month.

WHAT MORE/ ELSE IS NEEDED?

Support in paying salaries would have freed up capital to soften the blow of deferred orders, says Joneja, adding that the state should have intervened more effectively to prevent the exodus of labour.

Ashish Grover, 50

Managing partner, Hawk Eye, Raisen, MP (‘Small’ packaging firm dealing with diapers, sanitary napkins and batteries)

Photo by Pankaj Tiwari

Turnover: Rs 25 crore p.a.

No. of employees: 1,000

THE CRISIS

Hawk Eye’s packaging plant can process 5.4 million diapers, 4.4 million sanitary napkins and 423,000 batteries per day. The plant was closed for the first two weeks after the lockdown was announced. After sanitary napkins and diapers were reclassified as essential goods, it was allowed to reopen, but battery packaging was not permitted for another two weeks. Now, though there are no restrictions, output has fallen. The plant is operating with 40 per cent of its workers and without night shifts. Grover says the company has lost about Rs 50 lakh per month in billing, roughly half its revenue.

DID THE STIMULUS HELP?

Grover says the government’s package did not do enough for factories, there is no support for running costs like electricity bills. He says the company is currently studying the schemes for fresh credit. The support for employees’ provident fund payments will help, he says, and the reduction in tax deducted at source has also given the company some support in terms of liquidity.

WHAT MORE/ ELSE IS NEEDED?

More support was needed to meet running expenses. Better access to liquidity would also help. Grover says the lockdown also led to an exodus of skilled workers, and that measures to prevent this should have been taken in time.

Arun Sarnobat, 71 Priya Vishwasrao, 38

Photo by Mandar Deodhar

Chairman/ director, Prijai Heat Exchangers, Navi Mumbai, Maharashtra (‘Medium’ manufacturer of spare parts for the air-conditioning industry, and makers of the ‘Enero’ brand of air-conditioners)

THE CRISIS

Arun Sarnobat’s factory remained closed for 45 days during the lockdown. Since partially reopening on May 6, he has found it difficult to find workers, almost half his staff of 400 are migrants, who have left for their home states. He says he spends Rs 10,000 a day just ferrying staff to his plant. Despite having no revenue at all, he paid his staff for March and half their salaries for April. Since resuming operations, his factory has been running a single shift instead of the usual three. He says he has lost Rs 17.4 crore in sales between April and May.

DID THE STIMULUS HELP?

Sarnobat says the initiatives announced by the Centre are insufficient. “The government has only postponed the repayment of loans. We will have to pay them back with [added] interest,” he says. Priya Sarnobat says the initiatives are more likely to benefit medium-sized companies than small and micro firms. She adds that the Centre’s support for employees’ provident fund payments will not benefit their company since most of their workers earn over Rs 15,000 per month.

WHAT MORE/ ELSE IS NEEDED?

Priya says firms were looking for cash to get through the lockdown rather than the option of taking on more loans. “The government should have reimbursed or waived fixed expenses and interest on loans, reduced GST and income tax rates and electricity charges, and reimbursed at least 33 per cent of wages and salaries for the lockdown period,” she says, adding that having to pay wages despite the lockdown hits firms hard. Most of the 300,000 workers living in the TTC industrial area in Navi Mumbai live in unhygienic conditions, she points out, urging the government to offer them living spaces at subsidised rates.

PRASHANT PATEL, 37

Photo by Nandan Dave

Owner, R.K. Synthesis, Ahmedabad/ Surat, Gujarat (‘Medium’ firm producing chemicals for pharma, cosmetics and agriculture sectors and dyes for textiles, leather, wood, food, paper, ink, wool and pigment industries)

Turnover: Rs 81 cr p.a. No. of employees: 160

THE CRISIS

The lockdown halted all work, but Patel had to continue paying salaries. “Our products were ready, but we couldn’t send them; our revenue target for April was Rs 8-10 crore, which was lost.” When the lockdown was partially lifted in May, nearly 60 per cent of workers left. He is bracing for losses of Rs 20 crore in three months (March-May).

DID THE STIMULUS HELP?

Patel says: “We do not see loans as a stimulus.” EMIs and GST payments may have been deferred, but interest will still have to be paid. He says the Gujarat government’s move to waive minimum electricity and CNG charges and levy only usage charges helped.

WHAT MORE/ ELSE IS NEEDED?

Patel suggests that business expenses incurred during the lockdown, interest, salaries, utility bills, etc., should be considered as industry credit, to be adjusted against government dues. He says this would have the added benefit of not burdening bank balance sheets.

Gaurav Ghosh, 30

Owner, Garden View Hotel, Jaipur, Rajasthan (‘Small’ budget hotel with a popular bar)

Photo by Purushottam Diwakar

Turnover: Rs 6 crore p.a.

No. of employees: 75

THE CRISIS

Ghosh says that one-seventh of his turnover goes to paying taxes, excluding local municipal taxes, and that after accounting for salaries and other expenses, his hotel earns a profit of six to eight per cent. During the lockdown, with no business, Ghosh was still left with major running costs, Rs 10-12 lakh in salaries and advances, Rs 3.5 lakh in fixed electricity charges for March-May, Rs 1 lakh to take care of staff on site and Rs 1 lakh for other costs, including utilities. Additionally, he had to pay Rs 5 lakh in interest on loans until June and lost about Rs 5 lakh in food and drinks that had to be dumped.

DID THE STIMULUS HELP?

Ghosh says he couldn’t avail the employees’ provident fund benefit because 90 per cent of his employees earn more than Rs 15,000. He also rules out taking an additional loan from either the government or banks. He says that the moratorium on EMIs is a good move, it could free up some capital to take care of expenses.

WHAT MORE/ ELSE IS NEEDED?

A direct benefit transfer from the government to employees would have helped more, says Ghosh, adding that a deferment of electricity bills for the next six months would have eased the financial pressure. He is hoping for measures to ease the reopening of business.

Pradeep Aggarwal, 55

Photo by Shekhar Ghosh

Director, Spark Engineering, Sahibabad, UP(‘Small’ manufacturer/ exporter of bicycle gears)

Turnover: Rs 33 crore p.a.

No. of employees: 250

The CRISIS

Aggarwal’s company has been manufacturing bicycle gears for over 30 years. He has restarted operations, but output is down to a third, from 300,000 pieces a month, he is currently manufacturing 100,000 a month. Only about 80 of his 250 workers remain. Some of those who left for their hometowns want to return, but with no transport available, he does not expect them back until the middle of July. He approached his bank for an export loan (which have better terms), since exports comprise 90 per cent of his business but was told he could apply only for a domestic loan. Unsure when again he can run at full capacity, he has written off sales for nearly a quarter, and is bracing for losses of Rs 8-10 crore.

DID The Stimulus HELP?

“The package is helpful, but I doubt banks will give loans. We expected much more.” Besides access to finance, he says, access to labour is a big issue: there are orders he can’t fulfil.

WHAT MORE/ ELSE IS NEEDED?

Aggarwal says what’s sorely needed is a direct transfer of cash to tide over the liquidity crunch and effective interventions to bring back labourers.

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