Rising cases and mounting restrictions have meant that economic activity has buckled in April. The central government may have avoided a lockdown but growing local restrictions, rising infections and fear, along with slowing demand are hurting small businesses, which may not have the staying power that larger enterprises do.
BloombergQuint spoke to representatives of small businesses to understand conditions on the ground as India grapples with the second Covid-19 wave.
Different States; Different Rules
The strictest restrictions have so far been announced in Maharashtra. While manufacturing continues, rules on operations and staffing have been tightened.
Only a fraction of manufacturing activity is permitted in states such as Maharashtra, said Sushma Morthalia, director general at the India SME Forum.
Other states have also slowly started imposing restrictions amid rising cases but each differs from the other.
Considering the interconnectedness in the economy, different states having different guidelines and varying restrictions has disrupted economic activity across small businesses, said Animesh Dixit, president at the Federation of Indian Micro, Small and Medium Enterprises. If manufacturing in one state is shut, even if surrounding industrial areas are permitted to operate, it does not help, he said. MSMEs mostly place orders on spot rather than enter into long-term contracts and the current restrictions have caused supply chain disruptions, Dixit said.
Reverse Migration 2.0
The rising restrictions have also meant that some reverse migration has resumed from cities like New Delhi and Mumbai.
In Delhi, for instance, curbs have gradually became tighter. The conditions that migrant workers had to face in the first lockdown has left them with low confidence and trust in the government, Dixit said. Despite pleas by small businesses, some workers are preferring to go back, he said.
Raiker also said that migrant labour has again begun to go back, creating a crunch in some industrial belts, such as the Mumbai-Thane-Belapur cluster. Despite the cooperation of most state governments, there is labour paucity that has hampered manufacturing and forced some manufacturers to already close their units, he said.
In other industrial clusters of the country, such as in Coimbatore, manufacturing continues uninterrupted, he added.
Healthcare workers dressed in personal protective equipment prepare to conduct Covid-19 rapid antigen testing for migrant workers arriving from neighboring states at a temporary facility set up at the Anand Vihar inter-state bus terminal in New Delhi, India.
(Photographer: T. Narayan/Bloomberg)
Early Signs Of Slowdown
The new restrictions came after a few months of strong demand in the economy and may hurt the ability of small manufacturers to complete orders.
The second wave and the restrictions have come at a time when the SME industry was recovering and orders had stepped up, said Morthalia. The industry has been caught off-guard, she said.
Nikunj Dube, head of operations at SMERA, an MSME focused rating agency, pointed to disrupted supply of raw material which could hurt output.
Stocking has already reduced depending on the nature of the commodity manufactured as consumers will cut down on discretionary spending fearing uncertainty, said Raiker. Dixit also said demand has begun to falter and consumer sentiment is down. “Markets are being closed, creating a sudden demand slump”, he said.
Several manufacturers, such as those in the manufacture of ready made garments, continue to adapt and reorient their manufacturing process towards PPE kits and masks to meet the new wave of demand, Raiker said. But not all can.
Police officers wearing protective face masks stop motorcyclist during a curfew in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
Financing Not A Concern Yet
Financing is not a concern yet as lenders are willing to lend. But credit appetite is low, said Raiker. “It is the first time that money is flowing in but has no takers as concerns over loan repayments and interest servicing quell appetite,” he said. Raiker added that SMEs have found themselves with weaker balancesheets after a year of weak demand and disruption.
Dixit, however, said that the availability of bank credit and the measures announced by the government and the central bank are available to those with an existing credit line with banks. Those with no access to bank credit and institutional finance have found it even harder to gain access.
There is no uniform flow of money and stressed assets in the SME segment are bound to rise, said Morthalia. Even moratoriums may be of limited help as the SME industry has entered the second wave with a weakened balance sheet, she said.