It has been a year since the second lockdown induced by Covid-19 infections was lifted, but the entrepreneurs in this major MSME hub have not yet come out of the aftereffects of the pandemic that almost washed away their businesses.
Coimbatore is known for the manufacturing of high-class motor pumps, wet grinders, components and spare parts of various products among others due to the vibrant presence of MSMEs that are known for their skills. But the industry has been waking up to one crisis after another for the past six years since 2016 when the Union Government announced demonetization out of the blue.
Micro and small enterprises, and job units were the worst hit due to the note ban and subsequent introduction of Goods and Services Tax (GST) as the moves snatched away liquid cash from them. However, the majority of the affected units did bounce back by 2019 when the global slowdown affected their orders and the last straw was the Covid-19 pandemic which resulted in a months-long lockdown in 2020 and weeks-long shutdown in 2021.
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Covid and the aftermath
The Covid-19 pandemic led to a huge slump in demand which resulted in massive job losses. Migrant workers, especially from northern states, relocating to their native places led to a major shortage of skilled and unskilled labour in cities like Coimbatore. Add to these, the ever-increasing prices of raw materials since September 2020 when the units began resuming operations.
Five years later, the tax slabs in the GST regime continue to be changed making things worse for entrepreneurs.
“The change in tax slabs continues till date even after five years of the launch of GST. I think it will be a never-ending process. One has to understand the losses the industry suffers due to such moves,” K Mariappan, President, Tamil Nadu Small and Tiny Industries Association (TANSTIA), told DH.
A recent study commissioned by the Tamil Nadu government to suggest ways to revive MSMEs said the state has 50.29 lakh MSMEs as per the Sixth Economic Census. However, the number of businesses in Tamil Nadu with GST registration is only around 10 lakhs which points to the informal nature of almost 80% of the enterprises, the report said.
How are micro units faring?
Many micro units have closed, while others have downsized their staff. Take the case of 39-year-old Prabhakaran who makes machinery spare parts with 10 people, now down to five.
“My orders have come down due to a slump in demand but my debts have increased. I had to halve my work force as managing the current lot and paying them salaries on time itself is very difficult. The ever-increasing raw material price is such a huge burden on us,” Prabhakaran told DH.
Prabhakaran says he considers himself “lucky” as he still runs the unit, while many of his peers have closed their shops and took up jobs.
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“For now, raw material price is the biggest issue. The Union Government intervened at our request and imposed a ban on export of iron and steel. But despite the ban on exports, the rates of the raw materials haven’t come down to the level we expected. We can’t keep handling one crisis after the other,” K V Karthik, President, Southern India Engineering Manufacturers Association (SIEMA), told DH.
Raw material price hike
The prices of iron and steel have doubled since 2020 which has a huge impact on the MSMEs, Karthik said, and wondered as to why prices haven’t come down despite the government's intervention. Talking about the pump industry, Karthik said many micro units in the sector suffered much after the introduction of GST as paying taxes every month smashed their liquidity.
“97 per cent of those who manufacture pumps across the country fall into the MSME category. This 97 per cent contributes to 70 per cent of volumes. Several factors have led to many micros leaving the business which is sad news for the industry as they are the backbone,” he said.
M V Ramesh Babu, President of the influential Coimbatore District Small Scale Industries Association (CODISSIA), expressed the hope that their business is likely to pick up from the third quarter of 2022-2023 fiscal. However, he said the Centre and state governments should “handhold” the MSMEs till the time they are able to walk on their own.
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“I would say medium and small enterprises have managed a tad better than micro enterprises. While many micros have vanished, we are still hanging around. Our working capital took a huge hit during the Covid-19 lockdown. We hope to do better from October,” he said.
However, Babu also spoke for the micro industries saying the government should reduce the tax slabs for many products to ensure more people get into the tax net. “The more we reduce, the more people will get into the tax ambit. Micro units are very crucial for the industry and they should survive at any cost,” Babu added.
‘Reduce the tax slab’
C Sivakumar, President, Coimbatore Tirupur district Micro and Cottage Entrepreneur Association (COTMA), said a micro unit barely survives on a 5 to 7 per cent margin and it cannot afford to fulfill all compliances in a month that GST warrants without a dedicated accountant.
“To hire a dedicated accountant, the micro enterprise doesn’t have the wherewithal. He tries to manage for sometime and if things continue the same, he shuts shop,” Sivakumar added. He demanded that the tax slab for micro units should be reduced to 5 per cent from the current 12 per cent to prevent many from leaving the business.
Sivakumar said one would never know the “real impact” of the events from 2017 on the micro and small industries as Covid-19 has reduced many entrepreneurs to gig workers who are on the constant lookout for a job.
“Two or three in ten calls we make while inviting members to our meetings meet with the same response – we have shut shop and we are not in the business,” Sivakumar added.
‘Let banks be reasonable’
Another demand that entrepreneurs place is that the governments should ensure that MSMEs get loans without any hassles. Lack of proper response from banks, they say, force them to knock at the doors of private lenders who charge exorbitant interest.
Babu said banks should drop “healthy books” as the criteria for providing loans. “People who are suffering should be given the loans. They are the ones who need some support, and they should be infused with fresh funds. The government should launch a separate portal to allow entrepreneurs who need funds to register and help them,” he added.
To this, Karthik demanded “disbanding” of the current rating system and replacing it with a new method which reflects the current realities.
“Loans should be given to entrepreneurs based on the collateral as the property value will only be appreciative and never depreciative. We need hand-holding from the banks to stay in business,” Karthik said.