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Lockdown effect: Majority of Karnataka MSMEs may shut if situation does not improve

Express News Service

SHIVAMOGGA: Covid-19 has rubbed salt over the wounds of Micro, Small and Medium Enterprises (MSMEs), which were already reeling under the impact of economic slowdown.

Though some of them have just started to breathe, it may take a long time before they are back on track.

Karnataka, considered one of the most-industrialised states in the country, is home to over 7.6 lakh MSMEs of which 2.6 lakh are in Bengaluru alone and the sector employs nearly 2.6 crore people.

The lockdown hit 20 per cent of industries, and only less than 10 per cent of these have reopened. 

“The business turnover for MSMEs is back to where it was 10 years ago,” said Srinivas Asranna, president, Peenya Industrial Association.

The Peenya Industrial Area, on the outskirts of Bengaluru, has 8,500 MSMEs. Around 80 per cent of them, except those supplying essential goods, had shut during the lockdown, and nearly 10 per cent of them are unlikely to open again, he said.

After the lockdown was lifted, many industries could not operate because of unavailability of labourers, who had returned to their hometowns.

The government announced many sops and schemes targeting the MSME sector to tide over the crisis triggered by the pandemic, but they are only on paper and never put into action, said K B Arasappa, president, Karnataka Small Scale Industries Association (KASSIA).

For example, he said, single-window agencies in districts often don’t meet for months, depriving entrepreneurs of avenues for effective redressal of their problems.

“These agencies are ineffective. Once you apply for a new project, you still have to get multiple clearances. There is no meaningful coordination or follow-up among agencies. The promised online systems or deemed clearances are only talked about, but never implemented,” he said.

“Among many problems that have pushed MSMEs to the brink is non-availability of bank loans. Though the Central government has asked banks to extend Covid emergency loans, many MSMEs have not been able to get them,” he alleged.

When the lockdown was announced on March 23 and all industries were shut, it became difficult for MSMEs to get their pending dues, affecting their cash flows.

“Many large industries delayed payments, citing lack of business and also, more ludicrously, shortage of workers at the accounts departments,” he said.

Now, the sector is dogged by low production, absence of labour, lack of orders, difficulties in making payments, insufficient supply of raw materials and low business turnover, he added.

Arasappa feared that a large number of SMEs in the state may completely shut if the situation does not improve.

“Under the Emergency Credit Line Guarantee Scheme (ECLGS) for stressed MSMEs, SME-1 category got good support from the government, but SME-2 and 3 are struggling to get Covid emergency loans from banks. The Central government should support such industries,” he said. 

Also, the loan moratorium should be extended till the financial year-end. Any relief given should be comprehensive and consolidated and not piecemeal in the interest of the industry and country’s economy at a time when the decline seems precipitous, he said.

“The government, instead of giving cash benefits to MSMEs, is again asking them to borrow when they are already reeling under a debt-trap. We are struggling to clear our existing dues, and how can we repay if we take fresh loans,” asked Ramesh Patil, national executive committee member, Federation of Indian Chambers of Commerce and Industry (FICCI). 

“If at all the government wants to rescue ailing MSMEs, which contribute significantly to the GDP of the country, the government could have announced direct cash benefits instead of collateral-free automatic loans,” he said.

“Never have we asked the government for any rebate due to natural calamities. But this time, we do need help because of Covid. We are disappointed as an effective rescue plan is missing,” he said.

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