1.COVID 19 Pandemic: MSMEs are so vulnerable to economic stress.

How are MSMEs defined?

How many MSMEs does India have, who owns them, and where are they situated?

What kind of problems do MSMEs in India face?

UPSC Can list these Questions under

GS paper 3 ( Indian Economy)

What is the context about?

  • The Covid-19 pandemic has left its impact on all sectors of the economy but nowhere is the hurt as much as the Medium, Small and Micro Enterprises (MSMEs) of India.
  • The hundreds of thousands of stranded migrant workers across the country, suggests that MSMEs have been the worst casualty of Covid-19 induced lockdown.
  • It has also been reported that just like the first relief package, called the PM Garib Kalyan Yojana, which was announced by the government on March 26, the second package, too, would primarily focus on the MSME sector.

How are MSMEs defined?

  • Formally, MSMEs are defined in terms of investment in plant and machinery. But this criterion for the definition was long criticised because credible and precise details of investments were not easily available by authorities.
  • That is why in February 2018, the Union Cabinet decided to change the criterion to “annual turnover”, which was more in line with the imposition of GST.
  • According to the proposed definition, which is yet to be formally accepted, a micro enterprise will be one with an annual turnover less than Rs 5 crore; a small enterprise with turnover between Rs 5 crore and Rs 75 crore; and a medium enterprise with turnover less than Rs 250 crore.

How many MSMEs does India have, who owns them, and where are they situated?

  • According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
  • Around 51 per cent of these are situated in rural India.
  • Together, they employ a little over 11 crore people but 55 per cent of the employment happens in the urban MSMEs.
  • These numbers suggest that, on average, less than two people are employed per MSME.
  • 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.
  • In terms of geographical distribution, seven Indian states alone account for 50 per cent of all MSMEs. These are Uttar Pradesh (14%), West Bengal (14%), Tamil Nadu (8%), Maharashtra (8%), Karnataka (6%), Bihar (5%) and Andhra Pradesh (5%).

What kind of problems do MSMEs in India face?

  1. To begin with, most of them are not registered anywhere. A big reason for this is that they are just too small.
  2. Even GST has its threshold and most micro enterprises do not qualify. This apparent invisibility tends to work for enterprises as well as against them.
  3. Being out of the formal network, they do not have to maintain accounts, pay taxes or adhere to regulatory norms etc. This brings down their costs. But, as it is clear in a time of crisis, it also constrains a government’s ability to help them.

qIn other words, most of the MSME funding comes from informal sources and this fact is crucial because it explains why the Reserve Bank of India’s efforts to push more liquidity towards the MSMEs have had a limited impact.

How has Covid-19 made things worse?

qMSMEs were already struggling — in terms of declining revenues and capacity utilisation — in the lead-up to the Covid-19 crisis.

qThe total lockdown has raised a question mark on the existence of many primarily because these are not firms that have too much cash to wait out the crisis. That explains the job losses.

qAccording to a recent survey for “small and medium” firms in manufacturing, only 7% said they will be able to survive for more than three months with their cash in hand if their business remains closed. A big hurdle to restarting now is the lack of labour availability.