Situation analysis on the COVID-19

pandemic's impact on enterprises

and workers in the formal and
informal economy in India

NAME- SAURABH RATHORE

ROLL NUMBER – 20MBA13
SEMESTER – 2 ND
MICRO SMALL AND MEDIUM ENTERPRISES
INFORMAL SECTOR
o, small, and medium enterprises
ibute a third of India’s gross domestic
uct and provide employment to over
million workers. Using a mixed
ods design to ascertain the level of
ral distress at the peak of the
nwide lockdown in May 2020, we INTRODUCTION
d production falling from an average
% of capacity to just 13%. On an
ge, firms retained only 44% of their
force, and 69% of firms reported
ity to survive longer than three
hs. Distress measures were more
e for smaller firms by employment
CLASIFICATIONS
 Statistical Data about MSMEs in India:
Total Number of MSMEs: According to the Annual Report of the Department of MSMEs (2018-19),
there are 6.34 crore MSMEs in the country.

Rural-Urban Distribution: Around 51% of these are situated in rural India and 49% of them are situ
in urban India.

Employment: Both rural and urban MSMEs together employ over 11 crore people but 55% of the
employment happens in the urban MSMEs.

Category-wise Distribution: 99.5% of all MSMEs fall in the micro category. While micro enterprises
equally distributed over rural and urban India, small and medium ones are predominantly in urban
India.

Social Distribution of MSMEs: About 66 % of all MSMEs are owned by people belonging to the
Scheduled Castes (12.5%), the Scheduled Tribes (4.1%) and Other Backward Classes (49.7%).

Gender Ratio in MSMEs: The gender ratio among employees is largely consistent across the board
roughly 80% male and 20% female.

Geographical Distribution: Seven Indian states account for 50 % of all MSMEs. These are Uttar Prad
(14%), West Bengal (14%), Tamil Nadu (8%), Maharashtra (8%), Karnataka (6%), Bihar (5%) and And
Pradesh (5%).
 Problem Aggravated due to Covid-19
Declining Revenues: MSMEs are already struggling — in terms of declining revenues and capacity
utilisation — in the lead-up to the Covid-19 crisis.

Unavailability of Cash: The total lockdown has raised an issue of the existence of MSMEs primaril

due to unavailability of cash which subsequently will result in the job losses.

Lack of Labour Availability: The return of migrant labourers will create an issue of lack of labour
availability.

Loan Against Collateral : Loans to MSMEs are mostly given against property (as collateral) but in
times of crisis, property values fall and that inhibits the extension of new loans.

Steps Taken: To ease the firms’ financial distress during this period, the Reserve bank of India has
announced several measures such as a moratorium on term loans, and easier working capital
financing. Some public sector banks have also opened up emergency credit lines for businesses.
 IMPACT OF COVID 19 ON MSME
id-19 pandemic is the most significant economic event in our lifetime. The pandemic that halted soc
mic life for the spring and summer of 2020, has impacted and continues to impact nations and citizen
is has a multi-sector impact, and according to the International Labour Organization, has already
rmed into an economic and labour market shock, impacting not only supply (production of goods an
s) but also demand (consumption and investment).

s, as we know, it has changed, perhaps irrevocably, and the biggest impact is on people and livelihoo
ng to the ILO, about 400 million people (76.2% of the total workforce) working in the informal econo
ere said to be at risk of poverty, because of the unknown duration and severe economic impact of th
virus, with particular vulnerabilities in the realm of low-paid, low-skilled jobs where income loss can
arly severe effect.
e coronavirus impacting their cash cycles, MSMEs, who are the backbone of India’s inclusive growth
t a significant impact and faced severe disruptions. As an important part of the domestic and global
the plight of MSMEs is of deep concern.

small businesses, as for other sectors, the crisis has called for an approach that necessitates enhanc
cies and accelerates modernization. In a way, covid-19 is a watershed moment, that may lend itself t
ated business transition for India’s vast MSME sector. While this is no silver lining, the reality of the s
ced businesses to look at any means necessary to adapt to grow. And for India, the pandemic has so
call to accelerate reform and growth. In fact, according to McKinsey, a program of targeted reforms
antly shore up economic fundamentals by enabling greater productivity in several sectors, and creati
on nonfarm jobs India needs to create by 2030.
 prime businesses for this path, the acceleration of digital adoption in various sectors cannot be
stated. Many organizations have had to reimagine what their businesses will look like in the future,
icro, small and medium enterprises (MSMEs) sector is no exception, yet digitization has been an imp
us for the sector’s growth for many years. And, according to experts, over the years, many more MS
evolved core selling from traditional platforms to digital infrastructure, which has become more imp
ever.

veral of them have lagged behind on the expected growth curve of digital adoption, simply
estimating the importance of adoption and adaption of the digital ways of working. Having said that
g the lockdown a number of MSME business have realized how important going digital is and hence
started a website or expanded their offering on to e-commerce. A survey by Endurance Internation
p shows that around 50 percent2 of them embraced video conferencing and WhatsApp for business
ses. It also indicates a close to 50 percent increase in revenue contribution from e-commerce in the
hs of the lockdown.

from using digital platforms as a channel to market their products and services, digital tools can also
in helping MSMEs in various ways. This is a great opportunity for them to reimagine their business
scope of reach, modernize, and update their enterprises with new business processes and aid their
eting efforts for business growth.
 What this growth looks like

any businesses are seeing today, digital adoption (with the necessary enabling tools) can be a short-
solution to aid business continuity, but many are yet to see this as a long-term solution to build
ess resilience. Through digital adoption and technology access, MSMEs can modernize not only rout
arket and audience access, but streamline payments, obtain financing, and expert advice, all aiding
growth, and necessary to match the Government’s vision of enabling this key sector. In fact, a Cisco
SMB Digital Maturity Study 2020 also reveals that the digitization of SMEs could add up to $158-216
n to India’s GDP by 2024.3

ng up exports is one of the many visions of the government for the betterment of MSMEs in India.
aring for their integration into global supply chain becomes a key priority. Meeting this vast vision in
bound manner will need a systematic and collaborative approach inclusive of policy enablement,
city building, and private sector partnerships, all involving solutions at unprecedented scale. Digital
tion will be at the core of this approach. Digitally, gaining exposure to global markets will also add a
benchmark for MSMEs based on quality, offering them an opportunity to embrace innovations and
l best practices. Thus, becoming an important stepping stone in fulfilling the Government’s vision of
forming India into a manufacturing hub.
 Addressing challenges
gital transformation has its own set of challenges and it is crucial to address the complexities that co
th it. First is the pressing and inevitable issue of cybersecurity and data privacy concerns. Partnership
ature and well-established digital supply chains can help MSMEs modernize without this threat loom
ge, and also help them understand the essentials involved in marketplace linkage. Understanding ho
sinesses navigate consumer demand, inventory management, pricing and marketing, are invaluable
at can help MSMEs really tailor their product for the market, and move forward in their growth journ

e second is addressing the lack of expertise or digital skills in its workforce. To get the newly adopted
ital framework moving further, business owners will have to upskill employees to keep the business
ck and drive this change from within.

e third and final challenge is addressing the persistent digital divide and infrastructure-related issues
eamline the new operational environment. In the current context, since managing cash flow and IT
pansion are to be addressed together, enterprises will have to make a smart investment in quality
utions to ensure a balance in capacity building and financial safety of the business.
 Toward a resilient future

we surge to live in a post covid-19 world, it is crucial to facilitate MSMEs in

r quest to scale up adoption of digital interventions. Capacity building and
hnical support through extensive training and upskilling programmes will
erate employment, which is needed urgently amid this crisis. Programmes
foster the growth of these enterprises to engage successfully in global
ply chains not only drive job growth but provide broad economic benefit
value. Given their capacity to drive economic development and job
ation, as well as to foster innovation, assisting them to expand through
bal supply chains should be a top priority. Afterall, a resilient MSME sector,
automatically translate into a sound economic future for the country.