As the world braces itself to counter the spread of COVID-19, its impact will be felt on all sections of the Indian economy, not just in the immediate term but also over the short to medium term. All India Manufacturer’s Organisation (AIMO) forecasts that about a quarter of over 75 million MSMEs in India will face closure if the lockdown is extended beyond four weeks. This figure is expected to touch a whopping 43 per cent if the situation extends beyond eight weeks. The impact will be high considering the fact that these MSMEs provide employment to over 110 million people and contribute 30 to 35 per cent to the GDP.
MSMEs are affected at several levels - with the lockdown across the country, retail has been hit big time. Entities engaged in the hotel industry, tourism sector and logistics are witnessing a sharp drop in business. The e-commerce segment is partly operational; however, it is unlikely to remain immune from the prevailing sentiment and purchasing capacity. Moreover, the impact on businesses will have a cascading effect across the value chain. The consumer goods segment (garments, footwear, utensils etc.) and automotive segments will see a major decline due to decreased demand. Sectors that are dependent on high imports (of raw material) such as electronics, consumer durables, pharms marble are facing bottlenecks and so are the export focused sectors due to a major drop in demand globally. The RBI’s announcement of a three-month moratorium on repayment of term loans and a reduction in the repo rate will provide some relief.
The following short-term and immediate measures are being suggested by KPMG to help the MSMEs stay afloat. Conservatively speaking, the short-term impact will spread over the first quarter of the financial year 2021, some of which will also reflect in the current quarter of 2020.