Introduction
SKOCH Group conducted its third national level multi-institutional survey of MSMEs in India in collaboration with Federation of Indian Micro, Small and Medium Enterprises (FISME); Bhartiya Vitta Salahkar Samiti and Tax Law Educare Society (TALES) to bring out felt needs of the MSMEs from a government rescue package. The survey shows that minimal hiring of new employees has started in the sector, and while businesses are restarting, they remain acutely stressed. As per the survey, the sector has also started availing COVID Emergency Fund. Rs 3 lakh crore package announced as part of the Atmanirbhar Bharat scheme, term loan moratorium and deferment of taxes have enabled some liquidity for the sector.
Signs of Greenshoots
More than 50% have hired new employees from April-June showcasing that minimal hiring has started in the sector.
As compared to April and May, 19% have availed COVID Emergency Fund through their bank.
Business sentiment has marginally improved since April when 42% firms wanted to slash employee salaries by half. As the cash position of the MSMEs remain precarious due to delayed payments, organisations which have avoided salary cuts may also cut salaries over the next two months. From 16% percent in April to 10% percent in June, there is a decline in firms seeking to cut 100% salaries of their employees.
As compared to April and May, 19% have availed COVID Emergency Fund through their bank.
Job loss of 2.5-3 crore by the end of June 2020
Around 17% of the workforce has been reduced since March 2020. From 4% in the month of April, over 12% now feel the dire need to look at upto 100% job cut in this grave situation. Estimated job loss of 2.5-3 crore has happened by the end of June 2020. Another 1-1.5 crore jobs may be lost by the end of August 2020.
NPAs Ahead
61 per cent of the MSMEs are not in the position to service the debt from September once the moratorium period expires. While 37 per cent of the MSMEs wanted the moratorium to be extended by another 6 months. 32 per cent respondents suggested a one-year extension. Even the demand for a two-year extension has noticed a one percent hike in June. Given the situation, the sector is likely to witness a large number of NPAs.
Interest Payments to speed-up NPAs
RBI has announced further three months moratorium on term loans and also the interest to be treated as term loan. 49% respondents found this useful in this struggling period. 34% organisations stated that such moratorium is going to attract simple interest. In longer run interest burden is going to speed-up NPAs.
Rising need for emergency funds
The need for emergency funds has jumped from 68.6% in April to 82% in June. Although 79% have not yet availed the scheme of Rs 3 lakh crore of collateral free loans for MSMEs. The Rs 3 lakh crore package has fulfilled 19% demand but mostly to customers having abundant collateral.
Cashflows are strapped
Maintaining cashflows is a herculean task in front of the MSME sector. 24% respondents said that their buyer is taking more than 180 days to pay in recent times effecting cashflows to a large extent. Over 87% are looking for instant release of government payments. 85% organisations demanded for the release of government / GST refunds instantly.
Existing government schemes are not useful
Although government is putting a lot of efforts for the revival of the sector, MSMEs do not perceive the existing government schemes to be useful. 85% have not taken any financial benefit from any government scheme for MSMEs in the past three years. Over 50% are not finding mega schemes for MSMEs of much use which are announced by the government under Atmanirbhar Bharat on 12 May 2020.
The Survival Issue
As compared to 78% in April, 70% of respondents in June have stated that their business will not survive without government financial help. 89% have raised the voice for a consolidated financial help from one Ministry that should be directly transferred to MSMEs. Business confidence is bleak.
Cashflow Lending is the key to survival
76% felt the need for collateral-free credit on the basis of invoices raised. Overwhelming response received from 91% MSMEs on one integrated electronic platform for identifying, delivering and monitoring financial support. Earlier U K Sinha committee had recommended cashflow lending as a second window on TReDS. But this is still stuck in bureaucratic inertia. Udyam platform alone can’t form the infrastructure for this.
Response to Atmanirbhar
On the Rs 20 lakh Crore financial package under Atmanirbhar Bharat, 24% respondents found it useful, 55% did not and 21% were ‘Can’t say’. Interestingly majority of the MSMEs supported the move to stop imports from China. Although 42% said that reducing or stopping imports from China will not help their business.
Stringent efforts required from Government for timely revival
Despite various measures and relief packages from the Government, the sector is not getting the much-required push to recover in the challenging COVID era. Majority of the respondents felt that government’s announcement to stop tenders under 200 crores to be global tenders has not helped them so far. 88% have not availed the scheme of Rs 50,000 crore of equity infusion for MSMEs through a Fund of Funds. 89% have not availed the Government scheme of Rs 20,000 crore subordinate debt for stressed MSMEs.
Survey and Recommendations –
Impact created Moratorium Extension
At the beginning of the COVID crisis, SKOCH group had taken up providing a moratorium on term loans with RBI and the government resulting in the announcement of a moratorium on all term loans by RBI. The first national multi institutional survey on MSMEs in India released on 29 April 2020 pointed out a need for extension of this moratorium. Subsequently, the RBI Governor’s Statement of 22 May 2020 provided a further three-month extension for the moratorium on term loans. This ends 31 August 2020. This has perhaps been the single biggest relief that has helped MSMEs survive this period. Allowing late payment of taxes has had a similar impact.
The June edition of the National Multi-Institutional Survey on MSMEs in India shows that 67% respondents need a moratorium of another 12 to 18 months. This figure was 65% in April and had gone down to 54% in May. This also points to the latent problem of an inability to service loans and resultant NPAs.
Udyam created by Ministry of MSME
Based on the recommendation from SKOCH group an integrated platform called Udyam has been setup. By the ministry to ease the registration process of enterprises as per the new definition of MSME. The new MSME registration process is simple, seamless, and entrepreneur friendly. It is an excellent step towards Ease of Doing Business (EODB). One of the key benefits of registration is that a business can easily avail the state and central government business schemes. Registered MSMEs can get protection against delay payments, collateral free loans, subsidised interest from the banks, excise exemption, easy bank mortgages, tax & tariff subsidies, etc.
Working Capital Limit
The First National Multi-Institutional Survey on MSMEs in India had flagged that the most immediate challenge for MSMEs is the working capital limit. Although towards the end of March, SIDBI announced a scheme for loans for MSMEs manufacturing Goods fighting COVID-19 and several banks had announced a COVID emergency fund. 93% respondents could not avail this facility. SKOCH Group therefore once again recommended to both RBI and the govt. that the working capital limit issue needs urgent attention. On 12 May 2020 under the ‘Atmanirbhar Bharat’ scheme, the Government announced collateral free loans of Rs 3 lakh crore for MSMEs.
Further Recommendations
- Need to restructure all term loans under moratorium now.
- Any restructuring of term loans must simultaneously take care of restructuring of personal Housing, Loans, and Loans Against Property (LAP).
- Making TReDS registration mandatory for all non-MSME buyers.
- Explicitly allow Aadhaar-based eSign in all situations requiring a customer signature – whether the customer is an individual, a partnership, or a business via its authorised signatory.
- Substantially reduce the price of e-Sign from Rs 20+ to Rs 5.
- Extend e-Sign facility to non-NBFC FinTech companies or at least in collaboration with a supporting Bank partner.
- Explicitly allow e-KYC & Remote/Video KYC for NBFC’s.
- Banks & NBFC’s to use e-KYC & Remote/Video KYC for MSME’s
- Extend to non-NBFC FinTech companies that have a bank partner.
- e-KYC/Video KYC (Contactless) should be extended to employees of Authorised Agents so that FinTech companies working with multiple partners can scale.
- Open up PAN Verification API to start-ups.
- UPI-based recurring mandates – increase limits to Rs 25,000. Mandates to allow up to 3 attempts for one successful transaction rather than only one attempt – which may fail.
- Ministry may examine separate provisions for micro enterprises in every scheme.
- The Udyam platform can emerge as a single integrated platform that links MSMEs to all the services that they need and also helps coordinate services and schemes related to MSMEs across Ministries as a single-window solution.
- Interest burden will speed-up NPA. Only simple interest to be charged.
- Large number of MSMEs need credit.
- MSMEs do not perceive the existing government schemes to be useful. Approach for scheme formulation to be more consultative.
- Need for NREGA equivalent for urban India to be used for MSME wages
- Need for equity support instead of debt.
- Further strengthening of the TReDS system as the number of transactions on TReDS and MSMEs using it has gone up during the COVID period, however the number of buyers registering is not commensurate with this increase.
- Urgent need to implement the Cash Flow Lending (CFL) system as a second window on TReDS. Cashflows and delayed payments remain a huge problem.
ABOUT SKOCH GROUP
SKOCH Group is India’s leading think tank dealing with socio-economic issues with a focus on inclusive growth since 1997. The Group companies include a consulting wing, a media wing and a charitable foundation. SKOCH Group brings an Indian felt-needs context to strategies and engages with Fortune-500 companies, State-Owned Enterprise, Government to SMEs and Community-Based Organisations with equal ease. The repertoire of services includes field interventions, consultancy, research reports, impact assessments, policy briefs, books, journals, workshops and conferences. SKOCH Group has instituted India’s highest independent civilian honours in governance, finance, technology, economics and social sector.
ABOUT FEDERATION OF INDIAN MICRO AND
SMALL & MEDIUM ENTERPRISES (FISME)
Federation of Indian Micro and Small & Medium Enterprises (FISME) evolved into a large national Federation of geographical and sectoral associations of Micro, Small and Medium Enterprises (MSMEs) in 1995 following India’s embarking upon liberalization in 1991 and India’s accession to WTO in 1995. Till then it used to be known as National Alliance of Young Entrepreneurs which was established in 1967. It works for ‘Survival and growth of MSMEs’. It focuses on creation of an eco-system which is enabling to entrepreneurship and competitive at the same time. The key thematic areas of work at FISME constitute: Securing market access for MSMEs in India and abroad and ensuring competitive functioning of factor-markets; Advocacy reforms; execution of MSME development projects funded by GoI, as well as by all major multilateral and bilateral agencies. With over 730 associations as its members, FISME network reaches out to over 2 million MSMEs. For detail please visit: http://www.fisme.org.in
ABOUT BHARTIYA VITTA SALAHKAR SAMITI (BVSS)
Bhartiya Vitta Salahkar Samiti (BVSS) is a leading think tank of Indian finance professionals having membership from CA, CS, CMA, Tax Advocates, Bankers, Educationists, Finance consultants, Brokers, CxO’s & Board of Directors of large corporations as its members. BVSS has been making professional representations on important policy matters to Governments, and other Regulatory authorities from time to time. We have been able to influence them by providing a wholistic view to the decision makers. BVSS has also represented professional community in judicial and quasi-judicial forums, and helped improve the existing legal frameworks. Our representatives have been appointed on various expert committees formed by Government, The Institute of Chartered Accountants, The Institute of Company Secretaries, Department of Company Affairs, Customs and Excise Department, etc.
TAX LAW EDUCARE SOCIETY (TALES)
Tax Law Educare Society (TALES) has been established in year 2005 as a non-profit making voluntary organization, with the main objective to educate general public and professionals on Taxation, Law and Allied Matters. The Society caters to the needs of its members in particular and tax paying public in general, and ensures that its members keep pace with the changing times. It also provides courses for self-development for its members and professional course students. ‘Tax Law Educare Society’ functions through its Managing Committee, which has various sub-committees dealing with all subjects of professional interest. The Society be a catalyst for bringing out better and more effective Government policies & laws and for clean & efficient administration and governance. It promotes healthy interface between the tax consultants, business community and the government. The society also makes representations to various authorities on different laws which are in the offing. It also publishes its monthly journal, which is subscribed not only by its members but by corporate bodies. The Society is a principle-centered and learning-oriented organization to promote quality service and excellence in the tax, law and accounting profession and shall be proactive to change. The Society harness talent of and disseminate knowledge to professionals, build skills and networks amongst them and encourage them to adhere to highest ethical standards and professional integrity. The Society also provides citizens’ education programs like budget talks, group discussions, citizen programs etc. It also provides to members an environment conducive to the pursuit of knowledge and encourage them to achieve their potential to become complete professional in their field.
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The Survey was conducted by Skoch Consultancy Services Pvt Ltd in collaboration with Federation of Indian Micro and Small & Medium Enterprises (FISME), Bhartiya Vitta Salahkar Samiti (BVSS) and Tax Law Educare Society (TALES)