Epidemics of COVID-19 is not only alarming for the persons who have been infected, but equally or more damaging to the world economy even worst than second world war. Almost all the countries are badly affected and economy of each country in the world is not only showing the negative growth but is eroding liquidity, reducing demand, creating high un-employment.

In accordance with the opinion expressed by Ex-Governor of Reserve Bank of India Mr. Raghunath Rajan and Governor of Reserve Bank of India Mr. Shaktikanta Das. Impact on economy has been enlisted below in brief:

  • Western Economy worstly affected. Projected Growth of Indian Economy at 1.9%
  • India may escape worst of pandemic but will to be cautious . Re-occurrence is possible.
  • Germany have lodged the financial claim against China. Others will follow,
  • HIGH RISK OF GLOBAL RECESSION
    • There is a high risk of global recession in 2020 as COVID-19 has slowed down the entire global economy.
  • NOW A SERVICE SECTOR RECESSION
    • The recession had already hit the manufacturing sector and now it has hit the service sector as well.
  • A SUPPLY, DEMAND & MARKET SHOCK
    • COVID – 19 is a severe shock to economy which shook off the supply, demand and market.
  • PMI INDICATION RECESSIONARY CONDITIONS
    • Purchasing Manager’s Index (PMI) has shown a reading of 50, which indicates recessionary conditions.
  • STEEP FALL IN NON-ESSENTIAL GOODS
    • The most impacted goods are the non-essential goods due to shut down of it’s production units

Fortunately, Hon Prime Minister of India Narendrabhai Modi have taken the right & bold decision of declaring lockdown in the country, otherwise spread of COVID-19 might have been uncontrollable and killed our Indian Economy including loss of number of human beings. The lockdown has been declared on 23rd March and continued till 3rd May 2020 and in certain parts of India it may continue in future. Scientist and Medical Researchers have advised to open lockdown only in the phased manner and with certain conditions like social distancing, reduced manpower strength, sanitization and  no gathering at public places and therefore, it is expected that the situation will become normal by the end of 2020.

The present strength of Indian economy is Agricultural Sector, MSME Sector & Service Sector.  It is expected that due to better monsoon projection, agriculture sector will have better days to come and also migrant labour in Industries will be available for agricultural labour and therefore, it is expected that agriculture sector will grow subject to better environment and better pricing for agriculture produce. However, MSME Sector will be badly affected and there is a need to revamp and to put liquidity for survival of MSME.

Attempt has been made in this article to focus on various challenges which MSME will face and possible measures what MSME should adopt and expectations from Govt for survival & revival of MSME sector and in turn economy of India. It will also help in achieving dream of Hon Prime Minister of having $5 Trillion Economy by 2025.

Certain factual data of MSME Sector :

1. Represent over 95% of industrial units in country

2. Employs 40% of India’s workforce, Over 1109.89  lakh people

3. Delivers 45% of the total Indian manufacturing output

4. Provides more than 60% employment in service sector

5. 40% of its total exports, 633.88 Lakh – No of units

6. Strongest pillar of Indian Economy

7. Second largest source of employment

8. Contributes 8% of GDP

9. Social and economic balance

10. Major Role of making inclusive growth

At present MSME are going through critical time:

  • Before lock down, MSME were going through difficult times despite of number of government directive to PSU’, Corporate Sectors and Bankers.
  • During 2 months, liabilities have increased without any income and recoveries
  • If situation remains, most MSME’s will not survive over 3 months.
  • Additionally almost 25% of the MSME’s loans will slip into default as well as there other payments
  • If interest subsidies and wages subsidies is not provided further MSME will be reported as NPA
  • MSME’s are not equipped for #WorkFromHome which is leading to delay in compliance
  • Due to total shutdown, MSME’s are failing to meet the commitments made to their clients. Turning profit making deals into loss making.
  • New set of supply chain and cash crunch will delay deliveries and commitments.
  • Rather than growth & expansion plans MSME’s are now working on survival plans
  • Many MSME’s have withdrawn their growth plans for F.y. 2020-21 and have kept it for second half of the year or next year.
  • COVID – 19 has come up with it’s of set of problems and challenges for MSME’s. The solutions are the perfect way outs.

Problems, Challenges & Solutions:

Human Resources

We have identified certain challenges which MSME will face almost in all the functions namely Sales & Supply, Supply Chain & Inventory, Sourcing of Services, Manufacturing, Accounting & Finance, Human Resource & Admin & Marketing and Probable solutions thereto for survival of MSME.

Function Challenges Solutions
SALES & SUPPLY
  • Review of Open orders
  • New Orders with target costing
  • Commitment vs. Deliveries
  • Logistics Plan
  • Price Reduction?
  • COVID 19 Precautions for prevention of spread
  • Rescheduling Open Orders
  • Accepting New Orders in Accordance With New Policies (Target Costing)
  • Value Addition To Current Orders and New Orders
  • Key bottleneck factors and contribution per product
  • Man, Machinery, Material, Money planning and capacity planning
  • Best order – without credit
SUPPLY CHAIN & INVENTORY
  • Review of Suppliers and their suppliers post COVID-19
  • Existing Inventory Review
  • Process MRP (Material Requirement Planning)
  • Procurement Planning
  • Renegotiate Price
  • Shortage of Raw Material
  • Logistics Availability & Cost
  • COVID 19 Precautions by suppliers and by Manufacturers
  • Planning of balancing of imbalance inventory considering production plan
  • New supplier identification and import substitution
  • Payment Extensions
  • Renegotiating Price
  • Logistics Management
SOURCING OF SERVICES
  • Sourcing of service is very difficult due to piece meal opening of lockdown
  • Outside contract employees
  • Lack of availability of Efficient Services (less work from home)
  • Highly Skilled Service Providers not available
  • Transportation and stay arrangement coupled with liability of food
  • Demand of contractual business during lockdown – force majeure clause
  • COVID – 19 Precautionary measures
  • Negotiated Price
  • Payment Term Extension Facility
  • Selection of proper service provider with commitment value
  • Payment conditions to be relaxed
  • Applicability of force majeure and guidelines of home ministry

 

ACCOUNTING & FINANCE
  • Debtors Outstanding
  • Bank Financing and limits
  • Existing production fund planning
  • Debt Control Planning
  • Vendor Payment Plan
  • Other Repayment Plan
  • Discounting Offers
  • Credit Worthiness
  • High fixed cost
  • BEP increase substantially higher
  • Strategic Recovering with discounting offers
  • Renegotiation of interest rate
  • New Order Supply Strategies
  • Credit Worthiness of New Customers
  • Discounting Offers
  • Advance Payments
  • Refinancing
  • Debtor Management
  • Vendor Management
  • Better Cash Flow & fund flow Management
  • Budgetary control
  • Monitoring MIS
HUMAN RESOURCE & ADMIN
  • Post COVID – 19
  • Appraisals and Salary Hikes: expectations
  • Retention of good Talent
  • Delay in payments of wages and salaries during lockdown
  • Outstation employees and transportation issue
  • New Recruitment?
  • Old employees not joining, issue of gratuity
  • New policies, directives & supervision for effective and efficient operations
  • COVID – 19 Precautions
  • Lockdown Salary
  • Morale Increase Activities
  • Non-Violation of Labour Law
  • Sterilization of Materials as well as Employees
  • Stay and Transportation Arrangement with Social Distancing
  • Methodology for Maximum Work From Home
  • Aligning of Manpower responsibility with target setting
  • Promotion to local manpower/service provider
MARKETING
  • Review Marketing Strategy
  • Budget Constraints for new Marketing
  • Re – Penetrating in a competitive market
  • Cancellation of old export orders and getting new export orders
  • New Marketing Strategy
  • Diversification
  • Offers & Discounts
  • Promotion of high contribution products
  • Use the principle of Product V/s Time
  • Selection of export market
  • Promotion of digital marketing
  • Doing the work indifferently
  • Promotion of ECommerce
  • New marketing segments

PARAMETERS TO REDUCE EXPENDITURE

In current scenario MSME’s should review their monthly expenditure sheet and reduce the expenses with below parameters:

  • Survival Expense: They are important for your business survival, don’t delay in it’s payment
  • Urgent & Important Expense: Review it and ask for interest free credit. If can’t be delay then pay
  • Important but Not Urgent Expense: Review & Cut Down if possible
  • Not Urgent & Not Important Expense: Cut Down

It is the time for each MSME to implement the followings :

1) Best Manufacturing Practices

2) Lean Manufacturing through developing multi skill operations & focusing on automation

3) Establishing Budgetary Control System

4) Start of contribution analysis for each product everyday, working of the contribution for limiting  factor and selecting the correct product mix for offering to the market

5) Tightening the belt and accepting the challenge of target pricing and target costing

6) Continuous value engineering and cost reduction practice

7) Better HR practices for building the moral of employees and start of Kaisen alike activities

8) Focus on improvement of productivity and efficiency at all level

9) Aggressive marketing and sales promotion

10) Diversification after studying of demand supply analysis

11) Better Inventory Management and Sourcing Management

MEASURES UNDERTAKEN BY GOVERNMENT :

  • Relaxation to MSMEs from furnishing of Reconciliation Statement in FORM GSTR – 9C, for the financial year 2018 -19, for taxpayers having aggregate turnover below Rs. 5 crores
  • A new facility called ‘Know Your Supplier’ to be introduced so as to enable every registered person to have some basic information about the suppliers with whom they conduct or propose to conduct business
  • The special refinance window (INR 50,000 Cr) provided by the RBI should instantly start pumping liquidity into 3 large sectors of the economy i.e.agriculture (NABARD), MSME (SIDBI) & real estate (NHB). This should help revitalize the economy quicker in terms of funding as well as employment
  • Construction activities such as construction of renewable energy projects, roads, irrigation projects, buildings, all kinds of industrial projects, including MSME’s in rural areas, etc, will be allowed to operate
  • Due to the emerging financial distress faced by most companies on account of the large-scale economic distress caused by COVID 19, it has been decided to raise the threshold of default under section 4 of the IBC 2016 to Rs 1 crore (from the existing threshold of Rs 1 lakh). This will by and large prevent triggering of insolvency proceedings against MSMEs. If the current situation continues beyond 30th of April 2020, we may consider suspending section 7, 9 and 10 of the IBC 2016 for a period of 6 months so as to stop companies at large from being forced into insolvency proceedings in such force majeure causes of default.

EXPECTATIONS FROM GOVERNMENT

  • Reduction of electricity bill and fixed demand charge
  • Reduction in GST rates for non-essential goods& luxurious goods for increasing the demand
  • Wage Subsidy
  • Interest Subsidy
  • No interest on delayed payment of taxation
  • More bank financing and working capital financing
  • Speedy payment of pending refunds
  • Soft attitude and helping attitudes of bureaucrats
  • The Government needs to spend considerably more to revive the economy; and
  • It needs to raise additional revenue, but in ways that must not burden the already distressed common man.
  • Taxing the wealthy (Super Rich) for Revenue Mobilization
  • Raising highest slab rate to 40% for total income levels above a min. threshold of Rs. 1 Cr for revenue mobilization
  • Introduction of COVID Relief Cess for revenue mobilization
  • Weighted Deduction from Income Tax for Fixed Cost & Salary wages upto Dec 2020.

GOVERNMENT ALSO CAN PROVIDE SUPPORT TO MSME THROUGH FOLLOWING ACTIONS :

  • RESTORE THE CASH TRANSACTIONS LIMIT UNDER SECTION 40A (3) AND 40A(3A) TO 20000: the COVID crisis has hit the economy really hard and worst hit is the informal sector. what people would be looking for in this sector is hard cash. But a low limit of 10000 may inhibit firms from dealing with workers. a higher limit would certainly go a long way.
  • Provision for carry back of net operating losses arising in the current and previous financial year upto five years may be introduced. This provision will especially beneficial for start-ups. It will improve cash flow by way of immediate refund of taxes paid earlier.
  • Due to the current crisis, there is likely to be a significant delay in tax audits under section 44AB. Thus assesses having income unto 10 crores may be exempted from tax audit requirement for the current fiscal year only.
  • Presumptive taxation under 44AD should be allowed at 6 percent for all transactions and not just digital transactions.
  • TDS deducted u/s192 for the employees can be deposited by the end of the FY, rather than monthly deposit. This will give relief for the deductors and ease the cash flow pressure for the business and able to maintain the payroll without any job cuts

WHAT WILL DEFINE MSME’S SUCCESS?

DEFINE MSME'S

Let MSME come out with from this crisis and start marching ahead for building strongest Indian Economy.

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