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Wednesday, June 23, 2021

Lockdown effect: SMEs in Pune struggle to raise working capital as cash flow dries up

The SMEs have urged the Maharashtra government to waive off government dues like electricity charges and corporation taxes.

Written by Parthasarathi Biswas | Pune |
Updated: June 4, 2021 10:34:04 am
Many migrant workers had left Maharashtra before the lockdown kicked in. (Express File Photo)

The lockdown induced by the second wave of the novel coronavirus has come to haunt the small and medium scale enterprises (SME) of Pune with most struggling against a shortage of working capital as cash flow has dried up.

Even though the work-flow is slowly becoming normal, the need of working capital and mounting debts may result in around 35 per cent of the units in the Pimpri, Chinchwad and Chakan areas becoming sick units and being forced to shut down.

Abhay Bhor, president of the Forum for Small Scale Industries Association, pointed out as to how the last three months have seen the sector facing a paucity of man power and raw materials. Unlike the lockdown last year, the sector had not seen mass migration of workers but around 20-25 per cent of the 4-5 lakh workforce had moved out of Maharashtra at the start of the lockdown.

Raw material availability and want of work post April had seen SMEs pinched for cash flow. Price of steel had doubled and once Covid-19 cases started to rise, an abnormal increase in oxygen demand further dented the industry. In April, the state government banned industrial use of oxygen and diverted it to hospitals.

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The gas is used for welding and is also important for the automotive SMEs, the hub of which is Pune. As such, many of these units had to remain shut due to a lack of oxygen supply.

Post May, as demand for oxygen dipped, the state government allowed diversion of 20 per cent of the gas for industrial operations. Also, relaxation in terms of working hours and shop timings have come as a relief to many.

But Bhor pointed out that problems for the sector are far from over. “The biggest concern for us is now the difficulty in raising working capital,” he said. The last three months saw cash flow completely dry up as automobile sales dipped. In want of raw material and workforce, the orders in the pipeline also failed to be delivered. The minimum working capital needed for running any unit is around Rs 15 lakh which the units are in no position to raise.

“The dead investments include government dues, salaries and servicing of existing loans. For the smallest of the units, these work out to be around Rs 2-3 lakh, and without any income, they are left to fend for themselves,” he said.

Almost 35 per cent of the 11,000-15,000 units in the area, Bhor said, are at risk of being declared defaulters by banks, which would stop all sources of institutional finance for them.

The SMEs, Bhor added, have requested the state government for a short-period holiday from paying government dues like electricity charges and corporation taxes. “What is necessary for the sector to survive is access to finance. At present, most banks are refusing to extend credit to the sector. The government must intervene at this moment,” he said.

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