The pandemic-brought lockdown and an unproductive year was like a violent storm followed by an uneasy calm for about 10 lakh medium, small and micro enterprises (MSMEs) in Karnataka that employ around 60 lakh people. Most of these have seen a total destruction of their supply chain. With revenue streams drying up and labour force returning to their hometowns, they faced a huge cash crunch.
Micro enterprises were left to operate at suboptimal levels; many had a hand-to-mouth existence, and were unable to purchase raw materials or pay wages. Meeting overheads/operational costs became a daunting task for most MSMEs as banks refused them credit. But what was worse was that most schemes and relief packages by the Union and State governments came with riders and restrictive clauses.
A year after, and cases rising again, Karnataka’s once vibrant MEME ecosystem tells a different story: thousands of micro businesses have gone down the drain, hundreds of small businesses are still fighting for survival while only a small number of medium and large-scale enterprises have managed to survive.
Trade bodies who represent these enterprises say that businesses need government support without riders so that relief packages become more real, meaningful and inclusive. President of Federation of Karnataka Chambers of Commerce and Industry, Perikal M. Sundar was of the opinion that the government should support the MSME sector by offering direct cash benefits instead of pushing them under the debt trap by compelling them to borrow.
“Small and medium scale firms are still staring at the uncertainty promulgated by the devastating pandemic-induced lockdown. Unfortunately, MSMEs which did not have existing loans or were not classified as NPAs (non-performing assets) weren’t qualified to benefit from the government's ₹20 lakh crore relief package,” he said.
The hike in fuel prices was an additional burden. Trade bodies in general claim that the operating cost of MSMEs has gone up by 30% as a consequence of the recent hike in fuel prices.
Despite drastic disruptions followed by the lockdown and economic slowdown, some enterprises could overcome some supply chain bottlenecks and be able to bring back some normalcy in the last couple of quarters. “However, if there is a second wave, the MSME apple cart would be upset beyond recovery and repair,” warned K.B. Arasappa, president, Karnataka Small Scale Industries Association (KASSIA). “Notwithstanding the challenges and current circumstances, MSMEs in the State are hopeful that things will turn close to normalcy by 2022,” he added.
D.R. Subramanyam, member, CII Karnataka State Council, said, a few sectors like defence and aerospace were seeing some recovery while many other industries, mostly due to price hike in commodities and raw material are yet to get back on growth track. Other sectors where demand has not picked up yet included garments and textiles, he added.
Digital acceleration
On the positive side, the pandemic ushered in digital acceleration, which probably would not have happened in the next 10 years.
T.R. Parasuraman, president, Bangalore Chamber of Industry and Commerce (BCIC), said, “A large number of MSMEs were able to catch up with online and digital race in the last one year.”
MEMEs built a substantial online presence for themselves. As a result, their customer touch-points have dramatically increased. To an extent, these digital advancements brought in some amount of comfort and confidence to the MEME ecosystem. In addition to this, many micro and small enterprises innovated their businesses and repurposed their production centres to make essential commodities and items, Mr. Parasuraman added.
