In end of April 2020, SKOCH Group conducted a national level multi-institutional survey of MSMEs in India in collaboration with Federation of Indian Micro, Small and Medium Enterprises (FISME); Bhartiya Vitta Salahkar Samiti and Tax Law Educare Society (TALES) to bring out felt needs of the MSMEs from a government rescue package.
On 13 May 2020, Finance Minister Nirmala Sitharaman’s announced a package of the Rs 3.75 lakh crore for MSMEs businesses, which included the following:
Rs 3 lakh crore of collateral free automatic loans for businesses including MSMEs
Rs 50,000 crore of equity infusion for MSMEs through a Fund of Funds
Rs 20,000 crore subordinate debt for stressed MSMEs
The additional principle of turnover along with the investment was also added
Government and CPSUs will release all pending MSME payments in 45-days
Extension of the due date for ITR for FY’ 19-20 to 30 November 2020
At the end of May 2020, we conducted the second survey to understand the response of MSMEs to the announcements made under the “Atmanirbhar Bharat Package” as well as the announcements by the Reserve Bank of India.
[tie_index]Response to Atmanirbhar Package[/tie_index]
Response to Atmanirbhar Package
On the overall Atmanirbhar Package cutting across all sectors, 32% respondents found it useful, 44% did not and 24% were ‘Can’t say’. The sense is that people have not been able to fully comprehend the package and perhaps it should have been explained in simpler terms and publicized more. The fact that the details of most proposals were to follow later did not help and respondents were vary of the possible fine-print.
The RBI proposal of a further three month moratorium on all term loans was better understood but fell short of expectations of MSMEs. 43% found it useful but only 18% found the three month extension to be sufficient. 32% would need another six months, 36% need another year and 14% need two years extension on moratorium.
On MSME specific announcements by the Finance Minister, only 29% MSMEs found them to be useful, 43% did not find them useful and 28% were undecided.
47% MSMEs felt that they cannot use the facility of equity infusion being introduced through a Fund of Fund scheme, 40% could not say perhaps for lack of clarity and 13% felt that this could be useful for them.
The response to Rs 3 lakh crore of collateral free loan scheme was better at 38% finding it useful. By the time the survey was being conducted the relevant circulars, eligibility and implementation details were not widely available. 36% did not find it useful and 26% were ‘Can’t say’.
A good number – 27% could not say if the 20,000 crore subordinate debt would be useful for them. 59% felt that they could not avail this scheme and only 14% felt that it will be useful.
Overall sense is that the package was difficult to understand and not addressing the felt-needs that MSMEs have and therefore the mood overall is grim.
More MSMEs need emergency funds
77% MSMEs are in need of emergency funds as of end May 2020 compared to 69% in April 2020. Even the ‘Can’t say’ have come down to 7% in May compared to 13% in April. The strain for funds is clearly showing.
Do you need emergency funds?
The most immediate challenges remain paying salaries, vendor bills and other fixed expenses. This was the felt need voiced even in April 2020 survey but has not been addressed by the Atmanirbhar package that has been announced.
Direct Benefit Transfer (DBT) is required
An overwhelming 86% were in favour of getting a DBT from the government rather than a plethora of schemes and proposals. This number in April 2020 was also quite high at 89%. Respondents who ‘Can’t say’ are constant in both the months at 7%. Quite a few analysts and economists too have favored a direct benefit transfer like was done for Jan Dhan Accounts for MSMEs to take care of immediate expenses that can not be met due to the loss of income.
Do you think that there should be a consolidated financial help that should be directly transferred to MSMEs?
62% MSMEs are cutting jobs
Of the MSMEs surveyed 62% are cutting jobs. In April 2020 69% were planning to cut jobs. Overall job-cut situation in the MSME sector seems to be quite bad. In May 2020, number of MSMEs cutting 100% jobs rose to 6% from 4% in April. 30% are planning to cut half the jobs and 26% are cutting a quarter of the jobs.
How many employees you need to reduce in the current situation?
78% MSMEs are cutting salaries
For the period May-July 2020 43% are cutting salaries by half, 25% are cutting a quarter and 10% are planning not to pay anything at all. In April 2020 50% cut was by 42% respondents, 24% were cutting by a quarter and 16% were planning not to pay at all.
How much salary do you need to cut in May-July 2020?
Longer moratorium on term loans is required
RBI has extended the moratorium on term loans by another three months, i.e., August 2020 and also converted the interest payable to a term loan to be cleared by 31 March 2021. This is found to be insufficient. 76% respondents feel that this should be extended by 18-24 months. In April 2020, 90% respondents wanted this.
Do you think an 18-24 months moratorium on term loans is required?
MSMEs feel that a longer moratorium window announced in one go will help plan for revival instead of such announcements being made quarterly with the Monetary Policy.
Moratorium should be interest free
62% want this moratorium period to be without any interest. This is about the same as 63% who wanted interest free moratorium in April 2020. 36% want to pay simple interest and only 2% of the respondents are agreeable to a compound interest.
Do you think such moratorium should attract?
Delayed payments remain a huge problem
Only 31% payments are received in under 90-days. 45% take between 90-180 days and 24% are taking more than 180- days. This number for under 90-days was 41% in April and has gone up now. The provision of payment within 45-days under the MSME act remains dysfunctional.
How much time does your buyer take to pay you these days?
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