Date : 09/05/2020
The Commerce and Industrial Minister
Ministry of Commerce and Industry
Udyog Bhawan, New Delhi 110 107 , INDIA
Small and medium enterprises (SME) sector, rightly known as India’s ‘engine of growth’, has scaled significantly over the years on the back of increasing awareness, digital advancements and better opportunities that have encouraged many entrepreneurs. to offer innovations and emerge as success stories. Despite several challenges in the form of infrastructure constraints and lack of access to formal credit, they are thriving and standing tall to shoulder India’s economic and social development.
India has been in a race for the past two and a half centuries but unfortunately it has been a race to the bottom. What is more unfortunate is that India is winning this race. To put things in perspective, we need to go back to the 1760s when the Mughal empire was at its zenith. Amongst the seven major economies of the world that could be considered a peer group, there were only two countries, Britain and France,that were ahead of India nad though we may say that we rae fifth in world but in realty we are not doig well and since EUROPE and USA have badly affected due to corona Virus spread in these countries we may be ahead of few countries but we must consider that our economics Condition is also not good and we must lean two things from picture “BHAG MILKHA BHAG“ the we must break our own records and do not look behind accordingly we should not compare unfavourable coundition of other countries and we must focus on our capabilities and present position.
The global economy has entered a recession as a consequence of the coronavirus pandemic. There are lockdowns across the world, hitting economies hard. The International Monetary Fund (IMF) has said this recession will be worse than the one in 2009, caused by the global financial crisis. With its low dependence on exports and the advantage of moving early on social distancing, the Indian economy may do better than some other developing countries but same is not possible unless otherwise SMEs are given priorities and they exist to take the advantage of global recession.
At the outset, we must understand the limitations of any predictions about the economy that anyone makes at this juncture. Economists are losing hope of a sharp V-shaped recovery and expect the effects to last longer, but their forecasts differ, and are conditional upon what happens to the spread of the novel coronavirus. The IMF’s prediction, for example, says it expects a recovery in 2021, provided that countries succeed in containing the coronavirus and preventing bankruptcies and layoffs.
Though India will face serious challenges on the economic front, the economy may do better than some other developing economies, which are heavily dependent on world trade.Lower dependence on exports means less exposure to the decline in world trade. This and the low price of crude oil, our biggest import, may mean that we don’t suffer an external shock. In terms of policy, India imposed a lockdown at a very early stage of the spread of the epidemic. This has bought us time to prepare our health system for the coming onslaught of Covid-19 patients, and also benefit from the research that scientists across the world are doing. If we can manage supply chains and follow a plan for maintaining social distancing to the extent possible over the next few months to put our country slowly back on track, the summer heat can bring a ray of hope.
For millions of small businesses struggling with a slowing domestic demand over the last few quarters, the collapse of economic activities due to Covid 19 pandemic has raised existential questions. Small businesses now want the Government to be proactive in implementing relief measures and there is a growing chorus for the Government to come up with an assistance package to help ride the crisis.
With the situation changing by the day, much of the economy is coming to a grinding halt and businesses are now facing the brunt of a brutal virus that is ravaging nations across the world and the third quarter of this fiscal, the business sentiment has been very bad and this quarter could be even worse. “The negative sentiment is likely to be extended to the first quarter of the new financial year.
Recently Government given three months to all borrower to pay interest and instalment payments to the banks, banks will not declare them NPAs. “Banks will give them more time to pay interest and instalment without paying charges, treat them as regular accounts and allow them some grace period but this will not sufficient because after three months these SMEs will not be position start payment interest and EMI as impact of this lockdown will be much higher in second quarter hence government must waive the interest at least for 6 months and then only start paying interest and Emi we are surprised that while Governments the world over have so far taken drastic measures to keep businesses afloat, the Indian government has not done that much. This in terms of putting in funds, announcing a package, etc, including the US, the UK and China have already unveiled plans that will see the Government rolling out billions of dollars to help business.
With 99 percent of MSME sector enterprises categorised as micro, it is clear that a large percentage of the 11 crore persons employed in this sector work in these vastly informal enterprises. Wage support could be made available to workers employed in such units. In Brazil, for instance, the government has decided to pay part of the salaries of micro and small units. Countries such as Canada and New Zealand have offered temporary wage subsidies (capped) for a fixed period of three months. In India, the government has not yet announced a wage support or subsidy package to incentivise employers to retain employees during this crisis although it has directed employers in all commercial establishments to continue paying wages, as per due date, without any reductions.
In order to ensure health safety of Micro, Small and Medium Enterprises (MSMEs) workforce amid coronavirus outbreak, we RSRV and Associates Chartered Accountants has suggested a slew of measures to the government. And also to the Industries.
1. All the MSMEs are requested to prepare a detailed Strategy for resuming operation after Lockdown by renegotiating with suppliers for Credit Period, Rate and Payment old dues In instalments , they must discuss with their workforce whether on floor or in administrative department for negotiation on payment including different of salaries and productivity improvement.
2. All these MSMEs are requested to change themselves by adopting Technology driven methods and engage professionals on contractual basis for Fund management, Representing with authorities and online portal registrations, must be used for advertisement and marketing purpose. We suggest Government to interfere in reduction of fees being charged by these Online portals such India Marts just Dial, Sulekha, AMAZON etc . like Credit Rating Fees 75 percent of these marketing and advisement cost should be borne by Government.
3. With the increasing internet penetration in tier-3 and 4 regions, entrepreneurs are able to explore the markets without having to worry about geographical limitations. Furthermore, it is also helping small businesses connect with manufacturers, exporters, suppliers and buyers to generate value from unlimited online trade opportunities and buyer inquiries via dedicated online platforms. Meanwhile, an improvement in access to financial assistance and payments is also reassuring many SME owners to scale their businesses.
4. All these MSMEs are requested to appoint marketing professional and indenters on commission basis for procurement of additional orders. Technical and managerial Supports should be taken from these Professionals on contractual basis.
5. It is extremely important to ensure the flow of money into the working capital of such enterprises otherwise there will be a risk to the survival of these enterprises According we request government to Sanction Working Capital Term Loan Repayable in 7 years including moratorium period of one year and part of the loan should be converted into equity.
6. We Suggest Government and RBI to introduce swapping of Credit Facility amongst banks and financial Institutions with increased amount at lower rate of Interest on term and condition being accepted by respective Banks and this Swapping should not be treated as restructuring and it also should be covered for Interest Subvention as suggested below. All the charges including processing fees should be waived completely under this Credit Swapping Scheme.
7. To maintain Cordial Employer/Employee relationship Advisory should be released by government that due to financial crunch employees should be accompanied with decision being taken by management for survival of the organisation and if needed they must agree for hard work for longer period and also agree for deferment or reduction of their wages if warranted for at least one year.
8. We in our suggestion urge to the government to clear all pending dues including GST refunds to MSMEs at the earliest and all complaints for recovery should be resolved within 30 days from date of said complaint. Interest as per provisions of MSME Act must be paid for delay in payments. Legal support must be provided at free of cost if warranted. Government can empanel legal advisors for this purpose. All the interest from March to August 2020 should be waived and All the EMI for period of one year should be differed and all working capital finance should be rolled over up to one year relaxing Drawing power ceiling.
9. We suggest that interest rate subvention at 3 per cent instead of 2 per cent on loans that are healthy and not NPAs etc.to be given to all MSMEs. All the Banks and Financial institution must disburse all credit facilities under special window to be given by RBI. Maximum rate of interest after Interest Subvention should be capped at 8 percent and Bank processing and Renewal Charges should be waived at least for one year.
10. We also suggest that all the receivables of MSMEs either from the government or from third parties should be converted into one-year commercial paper to be subscribed by banks under special refinancing window of RBI. Under special scheme all the inventories must be purchased by large organisation or government companies at market price at least for 1 years.
11. All government concession should be provided only for those organisation or establishment which have 50 percent procurement from MSMEs and all Governments including Government Undertakings should procure all their requirement from MSMEs only at market price on transparent basis.
12. We also suggest that ‘MoF, through RBI, should give directive to the Banks for continued support to SME sector, especially service sector, for automatic renewal for a year of credit limit sanctions being processed from March onwards, till present scenario improves, without change in commercial terms.
13. We also suggest that the SEBI to issue Advisory to the Rating Agencies not to downgrade SME sector from March onwards, till present scenario improves. Those downgraded by one notch, should be restored to original ratings, which should be reassessed after one year and we should consider the rating just before the COVID impact.
14. To increase consumption with is essential toady to raise demands all the Investment in Mutual Funds Insurance policies, Gold and Equities must be discouraged by allowing deduction under Income Tax except term Insurance and Health policies which are purely Expenditures.
15. Concessional Insurance premium must be charged for all non-life Insurance policies including workmen policies taken by all MSMEs for period of two years. Partial insurance premium can be borne by Government and in case Transit insurance premium for transaction between MSMEs and large organisation should be borne by large organisation only. Amount spent for technology Up gradation of these MSMEs should be allowed under income tax and also should be treated as CSR activities for purpose of compulsory CSR Spending.
16. Labour laws should be relaxed for All MSMEs and MSMEs upto 50 employees should be excluded from applicability of all labour laws including factory licence, Provided Fund, Leave Entitlement, Bonus and Gratuity etc .special rating for netter HR Policy must be awarded for entitlement of all government entitlement schemes.
17. In India, the government has currently proposed to pay the Employees Provident Fund contribution for businesses having less than 100 workers, where 90 percent of these employees earn less than Rs 15,000 per month. Such contribution amounting to 24 percent of wages will be credited to PF accounts for the next three months. While this is estimated to benefit 80 lakh employees and incentivise 4 lakh establishments to retain their employees, it is unclear due to lack of information in this regard, how many MSMEs will benefit from this measure. The EPF and Miscellaneous Provisions Act is presently applicable to establishments with 20 employees or more whereas most tiny and micro-businesses that comprise 99 percent of all MSMEs are known to have between 5-10 workers. This makes most small, informal economic units ineligible to have PF accounts for their workers and therefore are excluded from availing this relief measure and even if units are employees less than 100 employees tahn also at least 10 percent employees will be receiving salaries accordingly it will be not eligible. Hence it is advisable to take this sector under this crucial position otherwise there will be serious finnacial crisis and crores employees may lose their jobs where present support of alla state and central will not have any value.
18. Provide a Wage Subsidy to MSMEs, especially in the Manufacturing sector, to the extent of 50 per cent for all registered workers for a period of 6 months, Cash grant be provided to small businesses a). In UK also small businesses will be provided with a one-time grant of equal to three months with minimum of Rs 10000 to meet the ongoing business costs.
19. Concessional power supply facilities should be given to all these MSMEs including waiver Electricity Duty for one year. Additional Funding at very concessional rate for longer period of 15 years can be provided for installation of Solar Power System to reduce the cost of power.
20. Export Incentive on full value of export should be given to these MSMEs and export Channelize agencies such as PEC or STC should facilitate in procurement of orders and execution thereof and Export Finance under Peaking credit facility and Post shipment facility should be given at marginal rate of interest including hedging for foreign exchange fluctuation.
21. Treatment of commercial electricity, water, and other utility bills could be examined especially in a scenario where lockdown is extended further. It will be extremely beneficial for units to be offered deferment or be required to only partially pay property taxes, rent and other utilities in order to avoid further costs and liquidity shortfalls as since payment of personnel salaries should be a priority for enterprise owners.
In lockdown situation, MSMEs will be the worst sufferers if the lockdown continues for a longer duration in wake of the Coronavirus epidemic. A large number of MSMEs could incur business losses and also face severe cash flow disruption, which in all likelihood will have an adverse effect on the livelihood of several people working in this sector accordingly Additional measures could be considered to the tune of 10 lakh crore Indian rupees, or more than 5 percent of GDP in fiscal year 2021. All the estimated requirements may not necessarily be reflected in the fiscal deficit of the current year but some support may be structured as contingent liabilities that only get reflected when they devolve. However, a package of this order of magnitude may be essential in supporting those dealing with the possible steep declines in aggregate demand and in protecting the financial system from the possible solvency and liquidity risks arising from stressed MSMEs.
We hope that you being professional with full knowledge of business and able to judge the present scenario affecting the MSMEs will implement above suggestion in your relief package for MSMEs
Thanks with warm regards and awaiting your response on it.
For RSRV And Associates
CA R S Sharma ( Partner)
Office address :
301 Apollo Arcade R K Singh Marg
Andheri East Mumbai 400069
Tel 42117900(30 Lines)
Mobile Number : 9322661576/9321222881