Majority of the Micro, Small and Medium Enterprises (MSMEs) don’t have money to pay salaries to their employees for April month and they have not been able to avail the benefits of emergency funds through the banks, an industry survey has revealed.

According to an online survey conducted jointly by SKOCH Group, Federation of Indian Micro, Small and Medium Enterprises (FISME), Tax Law Educare Society and Bhartiya Vitta Salahkar Samiti, 90.7 per cent MSMEs have not availed COVID Emergency Fund through banks. Only 7.5 per cent of the respondents said they have availed COVID Emergency Fund and 1.9 per cent opted for can’t say option implying they might not have heard about it.

In order to provide support to the businesses impacted due to the COVID-19 outbreak, the government has notified all state-owned lenders to offer emergency credit lines to corporate borrowers.

The survey revealed that the benefits of the scheme have not reached to the majority of the small businesses. Of the total respondents, 68.6 per cent said there is need to create emergency funds to help the small businesses. Only 13.2 per cent said there is no need to create emergency funds, while 18.2 per cent opted for can’t say.

The country is under unprecedented lockdown due to COVID-19 outbreak. As a result majority of the businesses are shut. Small businesses are the worst hit due to the lockdown. A majority 64 per cent of the MSMEs who participated in the survey said they don’t have funds for paying salaries to their employees for the month of April 2020. Only 24.2 per cent MSMEs said they have funds for paying April month salary, while 11.8 per cent opted for can’t say.

Questions are being raised how come the businesses don’t have funds to pay even salaries just because of one month of lockdown. However, such arguments ignore the facts that the small businesses were under pressure even before the Covid-19 outbreak. The lockdown has further complicated the problem.

While, it is evident that the small businesses are facing unprecedented crisis and a large number of them are staring at collapse, there is hardly any government support. 72.7 per cent of the respondents said they have not availed government’s scheme for paying provident fund for employees. Only 6.8 per cent said that they have availed government’s scheme for paying provident fund for employees while 20.5 per cent said it is not applicable.

Finance Minister Nirmala Sitharaman announced on March 26 that the government would contibute 24 per cent of salary of employees whose salary is not more than 15,000 per month. The government’s contribution include 12 per cent of employer share and 12 per cent of employee share. This scheme is meant for the firms whose employees strength is not more than 100.

“Wage-earners below Rs 15,000 per month in businesses having less than 100 workers are at risk of losing their employment. Under this package, government proposes to pay 24 per cent of their monthly wages into their PF accounts for next three months,” an official statement had said.

Employees of most of the small businesses are not benefited from this scheme. The reason being very few employees are registered for PF in that segment where the salary is less than 15,000.

When asked whether they have been able to use EPFO portal for availing the government’s scheme for paying provident fund, 67.1 per cent replied in negative, while only 9.9 per cent replied in affirmative. For 23 per cent of the respondents it is not applicable.

Delayed payments from buyers remain a major challenge for the MSMEs. When asked ‘how much time does your buyer take to pay you these days’ 22.8 per cent of the respondents said it is more than 180 days, while 36.1 per cent said they get the payment between 90 to 180 days. Only 40.1 per cent manage to get payments within 90 days.

This is a clear violation of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006. As per the law buyers must make payments within 45 days. The rules say “the buyer is to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement, before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days.”

The survey data clearly show that majority of the buyers are flaunting the law and not making the payments to the small businesses in time. The biggest culprit in this is the government departments and organisations, including the PSUs. Big companies are also not far behind. In fact, the tendencies of big companies are often exploitative. They not only delay the payments to the small businesses but also put pressure on them by engaging with new suppliers. So the MSMEs suffer not only due to delayed payments but also end up losing the business.

RECOMMENDATIONS

• Moratorium on all term loans should be extended to two years. Only simple interest should be charged on the payments due during the moratorium period. The interest payment can be made only after the situation stabilises and the businesses get back to normal.
• The most critical immediate challenge for the MSMEs is working capital. Cash credit limits of the MSMEs should be increased by 4 times to help meet their working capital requirements.
• The definition of MSMEs need to change. The method of identification of MSMEs need to be made transparent and in tune with the economic and technological changes. MSMEs need to be defined on the basis of turnover instead of investments. The turnover based categorisation is transparent and in tune with the economic and technological changes.
• The financing system should be based on cash flow. This is particularly important under the current environment when there is a lot of uncertainty regarding the payments. The banks need to extend credit to the small businesses on the basis of invoices. The genuineness of invoices could be ascertained through the GST framework.
• SIDBI perhaps is the single biggest point of failure for SMEs. Over the years, a lazy habit of parking all the funds with SIDBI has been developed. Most of these funds are not performing or even disbursed. The policy on this needs to be reviewed and ground created for a more professional intervention from the private sector.
• There are pressing demands for relief package to MSMEs. The important issue here is not only about the amount of the package but also its implementation. It is a herculean task to identify the real beneficiaries. Aadhaar and Jan Dhan have enabled the governments to extend immediate support to poor in this time of crisis. Similar system should be developed for the MSMEs.
• There is need for creating an enabling ecosystem for the MSMEs. The system should be in place to identify the genuine beneficiaries in a transparent and real-time manner. The other important aspect is providing the relief transparently and efficiently.
• Less than 10 per cent small businesses are registered as MSMEs. Therefore, the government does not have any existing system to identify all the deserving MSMEs. A technology based system should be developed to enable identification of all MSMEs in a transparent manner.
• Development of an app based credit network is the best option. It should be linked with the GSTN and Income Tax system. The system should be linked with all the banks. It would help get credit details of sellers as well as buyers. This app based system can enable real-time assessment and disbursal of credit to MSMEs.