How the Pandemic is a Nightmare for Small Businesses and Ways to Help Them

How the Economic Crisis Due to the Covid Pandemic Has Been Disastrous for the SMEs

While the Covid 19 Pandemic has been hard on all, including businesses, individuals, and other entities, it has been nightmarish for Small and Medium Enterprises or SMEs.

This is because the SMEs typically operate on a smaller scale when compared to other businesses and hence, lack the wherewithal in terms of capital, human resources, and liquidity to weather months of lockdowns and closures.

Indeed, if there is one segment of our economies that has borne the brunt of the economic crisis caused by Covid, it is the SMEs that have either folded up in the thousands or are struggling to stay afloat.

While Tech Majors and Big Manufacturing Firms can always declare a lockdown or make their employees WFH or Work from Home, this is not the case with SMEs which have to be necessarily opened and working on a day to day basis if they are to stay afloat.

Moreover, most SMEs employ less than a hundred or at the most a few hundred employees leaving them with little leeway as to being solvent even after lockdowns. Therefore, the Pandemic has been an unqualified disaster.

Why the Indian SMEs are Facing a Perfect Storm of Converging Crises

While many SMEs worldwide faced some of the problems described above, in India, they had to face another situation perhaps a unique one in the sense that the workers who were staffing such firms returned to their native places during the lockdowns.

Considering that a majority of the SMEs in India employ Migrant Workers, this Reverse Migration meant that there were short staffed even after the lockdowns were lifted.

Added to these problems is the issue of Working Capital wherein many SMEs simply were not liquid enough to pay salaries and other monetary expenses to resume operations after the lockdowns.

With most SMEs lacking access to Bank Credit or Formal sector financing, they closed down or are operating at subpar capacity even now.

In addition, with export markets drying up, and logistics networks and supply chains disrupted, they are finding it tough to sell their goods.

Apart from this, the threat of Infection and Observing Social Distancing has made them wary of operating like during the Pre Covid Times and this has exacerbated their misery.

All in all, it can be said that the SMEs are facing a Perfect Storm of Crises due to the Pandemic that are drowning them.

How the Indian Government Has Been Proactive in Bailing Out the Indian SMEs

Of course, it is not the case that the Governments and other stakeholders did not help them or washed their hands off the matter.

For instance, the Indian Government has come out with a Generous Liquidity and Tax Breaks as well as Bailout Packages aimed specifically at the SMEs that has loan waivers, moratoriums, deferral of power and water charges, and lines of credit at easy terms, among other incentives.

Moreover, with Banks and other Financial Institutions eager to lend at concessional or zero interest terms, there is no dearth of working capital for the SMEs.

In addition, the Atmanirbhar Policy announced by the Indian Government takes note of the lack of export orders and focuses specifically on how SMEs can tap the domestic consumers.

So, the government has indeed gone a step ahead and been proactive as far as policies aimed at rescuing the SMEs are concerned.

However, many experts believe that these measures are still limited and the government should go all out to address what they see are structural issues wherein SMEs are often at the mercy of Big Businesses as far as dependence on buyer and supplier networks are concerned and hence, they should be addressed.

Addressing the Structural Problems

For instance, the Indian Laws are still vague on what SMEs are and how to classify them such. A SME that is an exporter still needs multiple licenses from various governmental agencies and even for those SMEs that are domestic market oriented; they need to comply with a complex set of rules and regulations.

The Indian Government which prides itself on Reforms and Minimum Government as well as Ease of Doing Business must and should address the structural problems that are holding back SMEs.

Moreover, talk to any owner of a SME and he or she would tell you the problem of lack of continuity in policies when governments change.

Indeed, when faced with such uncertainty, how can SMEs draw up longer term plans?

In addition, lack of access to the policymakers unlike the Big Businesses who have Lobbyists means that most SMEs do not have a direct channel to the Who’s Who of the Indian Polity and they have to depend on their Federations or Associations to petition the government.

Above all, the Indian SMEs operate in what is known as a Grey Zone between the Formal or the Organized Sector and the Informal or the unorganized sector niche.

Concluding Thoughts

Last, there has to be more clarity from the Policymakers as to whether they would like Big Businesses to Monopolize or Let the SMEs coexist with them.

While the former is happening rapidly, the SMEs are closing down at an accelerating pace and this does not augur well for the Indian Economy in the Long Run.

Indeed, it is now or never for the Millions of SMEs that are caught in a Do or Die Situation.

In conclusion, it is hoped that the Indian Government would address both the Structural as well as the Immediate Problems of the SME Sector.

❮❮   Previous

Next   ❯❯

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.