SMEs type one of the big pillars of the Indian economy is an established truth due to their immense contribution to employment, national revenue, and exports. Their contribution in terms of innovations is hardly measured at the national level, and thus, goes largely unnoticed. The unexpected engulfing of the worldwide economy by Coronavirus jolted the Indian economy as effectively like its SMEs. The Covid-19 initial wave (FW) and the national lockdown implemented to include it for the duration of March-May 2020 gave an unprecedented blow to this vibrant sector. It had otherwise got accustomed to emerge and work constantly beneath constraints/challenges of many sorts: the most crucial becoming initial, accessing finance in the appropriate quantity and at the appropriate time, second, attracting and retaining certified workforce, and third, penetrating regional, national and international markets. The emergence of the Covid-19 Second wave (SW) is equally unexpected, for which the sector is ill-ready, as it has hardly recovered from the blow received from the initial wave.
The second wave of Covid-19 is probably to make a devastating influence on the SME sector in India, which has develop into fragile due to the onslaught of Covid-19 FW. This is so in spite of its recognized merits such as flexibility, adaptability, straightforward organizational structure, efficient internal communication amongst owner and workers, and so forth. However, national and cross-nation information recommend that relative to massive firms, SMEs have reduced productivity and wage levels, more generally comprising obsolete technologies and unskilled or semi-skilled labour, and thus more vulnerable to provide and demand shocks. Covid-19 FW and SW each have, precisely, generated provide as effectively as demand shocks to SMEs. A description of these shocks is proper to have an understanding of the complexity of the troubles encountered by Indian SMEs.
As a prelude, it is crucial to have an understanding of the nature/structure of SMEs in India, in terms of their finish-market place relationship. A big proportion of SMEs serves B2C markets followed by B2B markets, and a minority accounts for a mixture of each B2C and B2B markets. In basic, B2C SMEs are more fragile, generally money-starved, comprise obsolete technologies with unskilled/semi-skilled labour, dispersed across the nation, in metros, cities, towns, and villages. They invariably make use of nearby sources, nearby expertise and meet nearby requires. On the contrary, B2B SMEs are either metro/city-based or situated about massive firms, generally supported by the latter (in terms of markets, finance, technologies/technical inputs, and even human sources). Therefore, they are much better equipped with technologies, skilled labour, and comparatively established markets. The B2C cum B2B SMEs generally fall in the second category. A big proportion of B2C SMEs operates in the informal sector, irrespective of their place. In rural India, they are largely personal-account enterprises (household enterprises).
It is crucial to note that only the Economic Census of our nation throws light on the magnitude of personal-account enterprises (in terms of the quantity of enterprises and employment). Therefore, assessing the influence of Covid-19 on SMEs is completed either by ignoring this segment altogether or based on a guesswork. Of course, we do not have any periodical information gathering exercising even for bigger/formal/registered SMEs (excluding SSI/MSME Census, the newest one was completed in 2005/06). Given this, the only selection for an assessment of the influence of Covid-19 is field surveys or interviews. However, it is achievable to gauge the probably influence if one can have an understanding of the achievable provide and demand shocks that emerge from the Covid-19 crisis.
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Supply shocks are exhibited as follows: (i) Complete stoppage of production due to the national lockdown (for the duration of Covid-19 FW) and regional lockdowns (for the duration of Covid-19 SW), (ii) subsequent influence due to a disruption of the provide chain (of inputs and outputs), locally, regionally, nationally and internationally, (for the duration of Covid-19 FW) and partial influence (due to Covid-19 SW), (iii) mass movement of labour from metros and cities to towns and villages (for the duration of Covid-19 FW) and partial movement (for the duration of Covid-19 SW), and (iv) lowered monetary flow in the informal dollars market place, thereby adversely affecting the operations and output of informal/unregistered SMEs. As a outcome, Covid-19 FW would have severely curtailed the output emerging from the SME sector (which account for about 1/3 of the GDP), which was reflected in the sharp damaging development of Indian GDP (according to estimates, GDP would have contracted by about 20 per cent in the initial quarter of 2020/21). The influence of Covid-19 SW is probably to be more devastating, in spite of the absence of nationwide lockdown and state governments dealing with only partial lockdowns in most impacted regions (which are more created regions/states of the nation comprising metros such as NCR Delhi, Mumbai, and Bengaluru).
Demand shocks are in the type of (i) severely curtailed customer demand, which would straight have an effect on B2C SMEs (specifically in customer goods industries, services such as tourism, hotels, roadside eateries, shops, mobile cart shops, compact transport operators, and so forth.), (ii) curtailed sector demand, which would have an effect on subcontractors (B2B SMEs – intermediate item makers), (iii) curtailed export demand, which would have an effect on each B2C and B2B SMEs. However, only a negligible share of Indian SMEs operates in the export market place and thus disruption in the worldwide worth chains of MNCs might not straight hamper Indian SMEs to any considerable extent.
When provide and demand shocks emerge simultaneously and repeatedly, the wounded and currently vulnerable sector will diminish in size sharply, thereby affecting employment, revenue, and even exports. “Inflicting wounds on the already wounded entities will bring down morale and motivation to perform”. Overall, the brunt of lockdowns, national or regional, will be borne by the formal/registered SMEs and informal/unregistered SMEs, which are mainly confined to metros and cities. The SMEs situated in towns and villages will bear the brunt due to a decline in informal finance availability. But some of the personal-account enterprises (which are mainly meant for meeting nearby demand, by producing use of nearby sources and nearby expertise) might survive and some (self-financed) might even escape the brunt altogether. Given this, policymakers want to strategize their disbursal of fiscal and monetary stimulus accordingly.
M H Bala Subrahmanya is a Professor, Department of Management Studies at the Indian Institute of Science, Bangalore. Views expressed are the author’s personal.