Save the Indian MSME sector from COVID 19's implications
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Everyone is going through a tough time, let it be individual, businesses, governments, economies because of this unprecedented situation due to COVID 19.
India is under lockdown for 21 days with the uncertainty of opening after that.
MSME sector (Manufacturing, services and trade) are the biggest employer in the country. It is necessary to save them to save employment. In this tough time, all the 135 crore Indians have to suffer in some way and also to contribute to their capacity for this fight. One side there is an appeal from the prime minister to donate for this cause which is mainly expected from the business community at the same time it is a responsibility to save the businesses which are the pillars of the economy.
Little suggestion in this regard:
1. Under lockdown, most affected are the migrant workers and daily wage earners. Government has to support than in whatever way it is possible.
2. Businesses have to support their employees in the best possible way.
Question is how to support businesses?
Businesses have to be divided into two categories:
a. Essential services – who are doing business -
b. Non-essential services – which are under lockdown
Steps to support businesses under lockdown:
- Waive off Business Interest, Commercial Rent & Partial Salary for lockdown days.
For this, we have to understand what is the main outflow of businesses without inflow
1. Employee’s salary:
Solution: it should be paid with deduction ranging between 10 to 50% over and above the minimum threshold. For example :
Up to 15k 100%
15k to 20k 90%
20k to 30k 80%
30k to 40k 70%
40k to 50k 60%
50k and above 50%
This can be calculated on slab wise like income tax.
The government should also apply the same for PSU’s and central and state government employees who are not into essential services as by this they will have sufficient money to fight this pandemic.
2. Interest on Business Loans:
one of the major outflows is interest towards term loan, working capital loan from banks, financial institutions, and private lenders. If an establishment is not allowed to work how can we allow money alone to work and earn interest for itself? There should be no interest inward or outward for the lockdown period.
3.Rent of Commercial Space (Office / Warehouse):
The same logic of interest applies here as well.
If this is not applied, businesses not with sufficient reserves will collapse in a short period (including self-employed)
Example: (figures are for illustration purpose only and will vary widely from business to business)
Small/ medium business with gross income/ month: Rs 10 Lakhs
Salary paid -Rs. 3 Lakhs, (employing aprox. 10 to 15 people) interest paid 2.5 Lakhs (term loan and wc loan on 3 crore), Rent Paid 2 Lakhs (using aprox. 5000 to 10000 sq.ft of space), miscellaneous 50 K – net take home 2 Lakhs
In current situation: outflow 7.5 Lakhs without any inflow, the businessman may exhaust all his reserves very soon and become employment seeker from the employment creator and default in repaying the interest, principal and rent)
If the above formula is implemented, his outflow will be approx. 2.1 Lakhs, with which he will be able to sustain using his reserves as his monthly earning was 2 Lakhs.
If some assurance is received from the government in this regard, all businesses will come forward with an open heart to contribute towards the fight against this pandemic and by this salaried are also contributing in their capacity against this war.
Why should only businesses suffer and contribute, each segment of society like salaried class (private and government), should also contribute (directly or indirectly) towards the fight against this pandemic, then only we can win the war. We are also not asking for a bailout or funds from the Government.
This is an appeal to the Government of India to come out with clear guidelines and solutions by waiving of Interest, Rent and partial salary in these unprecedented times to save the businesses. Timely action is required in this regards so that businesses can sustain longer and keep serving their employees.
Imagine the situation if SME's collapse leaving millions of people unemployed.
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