April 15, 2024


Delighting finance buffs

Further delay in stimulus for MSMEs can jeapordise India’s growth story

Ironically, May-Day of 2020 will be remembered for delayed wages, salary cuts and job losses across the world.

Over 40 days into the lockdown and with no stimulus for micro, small and medium enterprises yet, tens of thousands of labourers employed in factories, restaurants, salons, small shops could not get paid for the month of April or had to take salary cuts as India shut down for business to contain the spread of the novel coronavirus.

India imposed the strictest lockdown imposed anywhere in the world and while the spread of the pandemic has been contained as compared to other countries -India has a little over 42,000 cases, while the United States has over a million. The MSMEs that form the backbone of the Indian economy are broken and fractured. Thousands have lost their source of employment and returned to their native villages. Despite the loss of pay, their operating expenses continued -rentals and electricity bills piled up even as businesses had come to a standstill.

Orders for exports have been deferred or are held up in transit or cancelled. In April, several businesses told India Today that they only had enough to sustain salaries for a month, hoping for the government to put out a relief package. There is also speculation that the Employees’ State Insurance Corporation could be tapped into for payment of salaries. The corporation has a fund of over Rs70,000 crore.

Meanwhile, the government had announced that they would take care of employer and employee PF contributions for firms with less than 100 employees, but businesses have said that this relief measure is of little help considering how businesses are struggling to sustain basic operations.

Union Minister for Micro, Small and Medium Enterprises Nitin Gadkari has been assuring employers that a relief package is on its way and the government will try its best to help businesses. However, the wait seems to be inordinately long and is giving way to more and more workers falling out of the workforce to head back to their native homes.

India’s labour participation rate is down from 45-46 per cent before demonetisation in 2016, to about 36 per cent now. Labour force participation is intrinsically linked to the growth of the economy. A decline in participation implies falling productivity. India’s core sector output contracted by 6.5 per cent in March 2020.

Leading the contraction was a 13 per cent decline in steel output and 7 per cent fall in electricity generation-the two sectors account of 40 per cent of the index. Cement production went down by 25 per cent and fertiliser production also fell by 12 per cent.

The government has announced a relief package in the form of food grains, cash and gas cylinders for the most vulnerable, however, that does not include India’s growing blue-collar workers.

According to a ministry of labour report (2015-16), the ratio of blue-collar to white-collar workers is 78:22 with blue-collar workers employed largely in machine operations, transportation, production, and equipment cleaning etc.

Even as the future of blue-collar workers that run India’s factories is at risk, what is also in jeopardy is the future of millions of micro and small enterprises who will not be able to restart businesses for lack of skilled workers. Further delay in a rescue package could break the backbone of India’s growth and jeopardise the great Indian story of an expanding middle-class economy.

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