AS UNLOCK 1 kicks in, more than a third of self-employed and small and medium businesses do not see any grounds for recovery and are on the verge of winding up, according to a survey by All India Manufacturers’ Association (AIMO) in partnership with nine other industry bodies.
The AIMO survey comprises 46,525 responses from MSMEs, self-employed, corporate CEOs and employees. It was conducted online between May 24 and May 30.
While 35 per cent of Micro, Small and Medium Enterprises (MSMEs) and 37 per cent of the self-employed respondents said their enterprises were beyond recovery, 32 per cent of MSMEs said recovery would take six months. Just 12 per cent expected a recovery in less than three months.
The sentiment for business is more optimistic in the response from corporate CEOs who expect a recovery in three months, the survey showed.
“Scaling down of operations, uncertainty about future orders are among the major factors concerning smaller and medium enterprises, but the reasons for winding up businesses may not be completely due to the pandemic. The respondents were already facing issues in their businesses, whether from demonetisation or GST, over the last three years, along with a slowdown in the economy. Their debts would have piled up and the final nail in the coffin has been the Covid-19 pandemic”, KE Raghunathan, former President, AIMO said.
“This kind of mass destruction of business has not been witnessed since Independence,” he said.
India has seen one of the harshest lockdowns in the world, with gradual relaxations for resumption of economic activities being allowed after the third phase that ended May 17. Growing Covid cases in states including Maharashtra, Gujarat, Tamil Nadu and Delhi have posed challenges for full resumption of economic activity.
According to GDP data released last week by the National Statistical Office, the country’s growth rate slumped to an 11-year low of 4.2 per cent in 2019-20. The RBI too recently said the growth may be in the negative territory in 2020-21.
The AIMO survey also showed that only 3 per cent of MSMEs, 6 per cent of corporates, and 11 per cent of the self-employed respondents stated they will stay unaffected and will continue to do well, primarily since they were engaged in supply of essential services during the lockdown.
On a consolidated basis, the survey showed that 32 per cent of the respondents view their enterprise is beyond recovery, while 29 per cent of respondents stated that they will take six months to recover.
“Our business depends on the business of our clients. We are uncertain on whether they will continue, if so at what scale and how much budgets they will allocate to specific heads like design, marketing etc. We have been informed that they will revert only post October. This is a period of uncertainty for us – whether to search for a job or continue as a freelance designer,” the survey quoted Ruhi Jani, a freelance designer, as saying.
MSMEs, which are over six crores in number in the country and employ an estimated 11 crore, are stressed due to depleting internal reserves and low visibility of demand. MSMEs make up for about 45 per cent of the country’s total manufacturing output, 40 per cent of exports, almost 30 per cent of the national GDP, and operate across the value chain.
The government has announced emergency credit lines from banks and NBFCs to MSMEs of up to 20 per cent of their outstanding credit as on February 2, 2020, with these loans having a four-year tenor, a 12-month moratorium on principal payments, and a cap on interest costs. A total of Rs 3 lakh crore is projected to be disbursed under this scheme that will be open until October 31, 2020.