Pandemic impact on Micro Enterprises: A case study of Sawada Ghevra, New Delhi



Introduction


To try and prevent the spread of COVID-19, the Indian government imposed a nationwide lockdown on 24 March. While the national lockdown ended on May 31, the localized lockdowns since then, continue in varying parts of India. This virus has posed quite a serious threat to the global economy as well as Indian economy with certainty upon the fact that the Medium, Small and Micro Enterprises (MSMEs) will be taking a maximum hit in India. According to a study commissioned by All India Manufacturers Organization (AIM0), India is currently home to over 63.3 million MSMEs. It was anticipated that close to 25 percent of these firms will face closure, if the lockdown imposed due to the COVID-19 goes beyond four weeks while a whopping 43 percent would close if lockdown extends beyond eight weeks.[1] With no clear data on the number of Micro, Small and Medium Enterprises (MSMEs) that have faced closure during the lockdown period from the government (June 2020, Minister of State for MSMEs) the ambiguous situation poses a difficulty in trying to come up with MSMEs support policies. Following the end of national lockdown, almost nine out of every ten of India’s MSMEs restarted operations with 85% of MSME units operate from households. With limited exposure to formal banking, they are not able to take the benefit of the Centre’s liquidity package, which is linked to outstanding bank credit.


MSME sector is considered as a backbone of the Indian economy and it is one of the integral sectors that help the economy grow, but considering the past trends, it is a known fact that MSME sector has faced one setback after another, first being demonetization, followed by poorly implemented GST, the economic slowdown and then the financial and banking crisis. Now, the biggest of all, the COVID-19 is feared to aggravate the crisis in this specific sector further, the sector which provides employment around 11.1 crore people (about 30% of Indian's labour force)[2] and contributes to more than 30 percent of the GDP is going through one of the toughest phases.[3]


Understanding the MSMS’s sector in India


Definition: Initially, MSMEs are defined in terms of investment in plant and machinery, but this criterion for the definition has long been criticized due to unavailability of credible and precise details of investments by the authorities. In February 2018, the Union Cabinet decided to change the criterion to “annual turnover”, which was more in line with the imposition of GST. The newly proposed definition is yet to be formally accepted. (refer the tables below for the definition criteria.)

Current status: According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country. Around 49 percent of these are situated in urban area. Together, they employ around 11.1 crore people out of which 55 percent of the employment happens in the urban MSMEs. It also accounts for a third of India’s manufacturing output and 45% of exports.[4]


These numbers suggest that, on average, less than two people are employed per MSME. At one level that gives a picture of how small these really are. But a breakup of all MSMEs into micro, small and medium categories is even more revealing. Table below shows, 99.5 per cent of all MSMEs fall in the micro category. While micro enterprises are equally distributed over rural and urban India, small and medium ones are predominantly in urban India. In other words, micro enterprises essentially refer to a single man or a woman working on their own from their home. The medium and small enterprises — that is, the remaining 0.5% of all MSMEs — employ the remaining 5 crore-odd employees. [5]

Finance: In spite of accounting for 30% of Indian’s GDP, the share of MSMEs in total outstanding bank credit in 2017-18 was just 6.3%. According to a 2018 report by the International Finance Corporation (part of the World Bank), the formal banking system supplies less than one-third (about 11 lakh crore Indian Rupees) of the credit MSME need that it can potentially fund against the credit demand of 36.7 lakh crore, which shows the credit gap of 25.6 lakh crore.5

A key reason of why banks hesitate to provide the loans to MSMEs sectors is, the high ratio of bad loans, data show higher slippage for relatively bigger enterprises. Another reason is most of the MSME/s are not registered as companies, as most of them are single-person proprietorships.


Understanding the effect of pandemic on ME: Case of Sawada


Savda Ghevra, a resettlement colony established by the Government of Delhi in 2007, at the city’s northwest edge, has provided a marginal civic experience to nearly 8000 families. Families relocated from inner city slums were given small plots of 12 sq. m. or 18 sq. m. Centre for Urban and Regional Excellence (CURE) started working with the people of Savda Ghevra in 2008, in partnership with the Government of Delhi under its ‘Bhagidari’ program, to help resettle the relocated households - improve access to basic services and transfer of health, education and social welfare benefits. For micro enterprises, the strategy spanned up-skilling, financing, resourcing, formalizing, marketing, sales and management. Over the two phases of the project, 15 micro enterprises were set up - many continue successful; expanding businesses and reinvesting profits into better equipment.


To measure the impact of lockdown and the post lockdown challenges faced by existing micro enterprises, six micro enterprises groups were contacted and interviewed upon the challenges they are facing along with their expectations and plans for the revival of their businesses post the lockdown phase. The interview was carried out by us telephonically and included enterprises engaged in the stitching of hospital garments & others products, carry bag making, spices, furniture, waste collection and broom making groups.


The overall results of the interviews indicated that all the businesses related to manufacturing products faced severe loss since it was brought to a complete halt during lockdown phase except DTD waste collection system which also dropped by two third of their households. Daily wage workers involved in business like stitching, carry bag making, furniture have slowly returned to their hometowns but a lot of them are still struggling with the unavailability of labour even after the lockdown has been lifted. Also, the availability and mov