High interest, liquidity crunch hit MSMEs

No working capital

In May, when the Central government announced the COVID-19 stimulus package to help revive the economy, it left out aviation, automobile, travel and tourism, hospitality and retail sectors from any direct and major relief.

Despite being a priority sector, formation of a National Tourism Taskforce was the only measure announced to support the travel and tourism industry. Travel and Tourism provides jobs to 40 million people in the country and is likely to witness a revenue loss of $17 billion (about Rs 1,29,000 crore) in the next one year.

The automotive industry employs around 37 million people and contributes 15% of GST collection, amounting to Rs 1.50 lakh crore every year. The sector contributes around 7% to the GDP. However, the government has not announced any direct stimulus package for the sector.

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Provide direct cash transfers to the vulnerable

The retail sector, which employs 46 million people in the country, is one of the most affected sectors. As many as 12 million retailers across the country transact business worth Rs 5,000 crore a day. With over two months of lockdown, the sector has been severely impacted, with a majority of them not in a position to pay salaries to their employees, rent to their landlords. Many lack the working capital to restart their businesses.

“The government has not announced any specific measures to address the problems of retailers. We need urgent working capital to restart our businesses,” Kumar Rajagopalan, CEO, Retailers Association of India said.

Unable to restart business

While the government announced Rs 3 lakh crore collateral-free loans, the implementing banks are still insisting on collateral to sanction the loan. They are even attaching fresh loans to existing loans, for which collateral needs to be pledged. The banks are also taking their own time to sanction loans and not showing any urgency to meet the requirements of the borrowers, Rajagopalan said.

According to him, an estimated 25% of the retailers are unable to restart their business due to the lack of working capital.

There is an urgent need to provide one-time restructuring of the loans of retailers, Rajagopalan said adding the government should provide Rs 25,000 crore additional finance via banks with government guarantee.

Given the present situation, it may take more than a year to get back to pre-COVID-19 levels of output.

No uniformity

Micro, small and medium enterprises sector is also the worst affected as most of the units are utilising just 20% of their capacity. In Karnataka alone, an estimated 1.5 lakh MSMEs are facing severe distress. Though the government has eased access to working capital and term loans in the immediate future, these may not be adequate to revive the industry. The interest rates capped at 9.25% is too high for many MSMEs to avail loan in the current situation.

“The government must reduce the rate of interest on loans to 4% and provide fiscal stimulus and monetary support in all possible ways. Moreover, each bank is charging its own rate of interest,” says R Raju, President, Karnataka Small Scale Industries Association (KASSIA).

The bankers should follow uniform procedural guidelines and offer loans at a uniform rate of interest, he added.

In a letter to Finance Minister Nirmala Sitharaman, Kassia has urged for providing direct financial grants to MSMEs by paying 50% of the salaries of their employees for at least three months. This will help these units survive and benefit labour by achieving dual purposes stimulating the economy in multiple ways.