Micro, small and medium enterprises contribute significantly to the Indian economy in terms of GDP and employment generation. The coronavirus pandemic and the nation-wide lockdown announced to contain the virus have affected lives and livelihoods across the country. It is an extremely tough period for MSMEs due to the constrained operating environment especially in terms of non-availability of workers, raw materials and transport infrastructure. Some of them could face existential crises if widespread lockdowns get prolonged. Here is a seven-point plan for MSMEs on how to survive the current crisis and plan for a bright future.
Focus on health
While a vaccine for Covid-19 is awaited, the current health crisis has made everyone conscious of the virtues of a strong immune system. We should, therefore, consider the current crisis as an opportunity and take a strong pledge to follow a health regime that will keep us up and going even in the aftermath of Covid-19. Such an enduring health regime should include regular exercise, yoga and meditation. Moreover, if we can switch to a tailored diet and control our weight, it will help us putting a lid on all long-term morbidity producing diseases.
Ensuring the safety and well-being of staff members need to be the top-most priority of any organisation. Basic hygiene measures such as use of sanitisers & masks, and social distancing measures such as staggered lunch hours & staggered work hours, need to be enforced strictly. Enterprises need to have such steps to create a clean, hygienic and virus-free workplace. Let this be our lasting lesson from Covid-19.
MSMEs need to undertake optimal cost control measures to overcome the current phase. One such important measure would be to convert fixed costs into variable costs which will help companies stay financially prudent and enhance their adaptability. As a long-term strategy, this will enable enterprises to stay afloat and profitable during challenging periods. MSMEs should strive to reduce their procurement costs by joining hands with fellow entrepreneurs and placing group orders. All resources which have been invested in personal assets of owners should be brought into business as equity. The resultant higher equity stake by the promoters should enable them to raise capital.
Ensure cash flow
The need of the hour for MSMEs is to ensure cash flows for meeting working capital requirements. The available credit lines should be negotiated skilfully to ensure that peak working capital needs are met. Besides, MSMEs need to take benefit of all available public and private schemes that can support their cash flow needs. For example, the central government is setting up a debt fund to cater to the sector by providing guarantees and fresh capital to SIDBI, banks and NBFCs. These should be tapped to remain ready with reserve cash for tiding over the next 3-4 months.
MSMEs need to conserve liquidity by curtailing inventories across the value chain and put concerted efforts to collect their dues. Clearance of all payment dues by the central and state governments to the MSMEs would be extremely helpful. Though challenging, MSMEs should strive to treat their creditors with fairness and ensure discipline in meeting all statutory dues.
The central government has envisaged creating an e-marketplace for MSMEs to provide direct interface between buyers and sellers. MSMEs should look forward to tap all such opportunities in future. They should ensure competition in markets is fair and healthy which will enable them to deal with large customers from a position of strength. This will in turn help those receiving payments from such big customers on time.
Look for collaborations
Virtual or actual domestic mergers should enable MSMEs to skilfully negotiate using one-on-one relationship with bankers for appropriate terms including low interest rates. Institutional advocacy for a technology collaboration and equity support fund must be vigorously pursued. For this, the services of a multinational lobbying and catalytic organisation must be contracted by MSME associations and the central government. A $10 billion fund must be put in place with systematic effort.
Embrace exponential technologies
MSMEs should be confident about embracing exponential technologies over the next 1-2 years. Some of these technologies could include: Additive Manufacturing (also known as 3D printing), VR (virtual reality) based design, drone and autonomous transport, Artificial Intelligence and Machine Learning (AI-ML), Internet of Things (IOT) and sensor-based tracking of inputs and outputs. Adoption of such exponential technologies will result in tremendous efficiency gains and therefore, these must all converge into MSME manufacturing. This will make MSMEs cost efficient and enhance their export competitiveness.
Organise for strength
MSMEs need to have a single representative forum. A large-single voice will be more powerful than several smaller voices, as it is the case now. If MSMEs can come together and be a single voice, they will be more effective in putting across a collective point of view to the government as well as to the regulators. This is more so important during a black swan event like the Covid-19. In addition, this forum can also be used to build strong bonding among MSMEs by understanding and learning from each other.
And finally, be human
Covid-19 is undoubtedly the biggest threat that this generation has faced. The economic costs of the forced lockdowns have affected the balance sheets of governments, corporates and households. While all of us are worried about our financial well-being, the evolving situation will test our basic humanitarian traits. This is the time to be calm, be patient and be quietly effective by helping each other.
To overcome the current situation, collective effort of all economic agents is needed. Available resources must be used to meet the usual expenses. For instance, if you can afford to pay your bills, please do so; if you have resources, pay your employees. The need of the hour is to come together, work together and trust each other to make life simple and safe.
(Shailesh Haribhakti is corporate leader based in Mumbai. He is a chartered and cost accountant, and writes regularly on the Indian economy and public policy.)