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MSME: Some post-Covid survival skills

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WorldIndiaConfirmed2,069Deaths53Confirmed932,605Deaths46,809By Aditya Ghosh

The Covid-19 crisis is truly unprecedented and the current crisis will go through four stages: acknowledgement, containment, survival, and recovery. India’s 1.3 billion has less than 1 lakh intensive care unit (ICU) beds. Therefore, unless we put all our might behind flattening the curve, we will be confronted with an impossible problem.

This is not just another economic crisis, or another Great Depression. There will not be a single industry or sector immune to its effects. GoI faces an enormous task to safeguard the small and medium enterprise (SME) segment, which represents over 95% of the total industrial units in the country, employs 40% of India’s workforce, delivers 45% of the total Indian manufacturing output and 40% of its total exports.

Credit support and availability of working capital to MSMEs across all sectors is critical to keep many enterprises from simply dying. Banks will struggle operationally to deal with the inflow of requests for new loans. Appointing intermediary players that can pre-screen borrowers for all banks can free bandwidth and ensure quicker disbursals.

While recession is undeniable, the question is whether there will be a permanent loss of output after the initial shock, or real structural damage with significant impact on growth. For a supply-constraint and emerging economy like India, one hopes to see a U-shape scenario of the economic shock, where eventually, growth will rebound.

In the private sector, decisions will need to focus on immediately reducing variable costs and focusing on core competency. This is not the time to experiment, but establish what is mission critical. In the middle of these turbulent times, the role of a business leader becomes pivotal.

Staying calm and focused while being patient and empathetic towards consumers and employees is the job. Leaders able to maintain an open and transparent communication channel with their employees and businesses are the ones best placed to grasp the requirements and deliver on promises.

Given the limited fiscal resources, India needs to prioritise efforts in testing and healthcare facilities; largescale quarantine facilities; immediate economic attention through direct support transfer to daily wagers, semi-skilled workers, SMEs and early stage companies; easing movement of critical goods and food supplies; strengthening managerial leadership in public administration; longer-term economic stimulus to industrial sectors – in that order.

Given pressures on India’s fiscal resources, GoI should consider providing stimulus and bail-outs only to those businesses who commit to increase cost-efficiencies, create jobs, offer more affordable products for consumers, and ensure long-term environmental sustainability.

Government and public bodies must actively seek help — and, if needed, co-opt experienced professionals — from the private sector who can take charge of various initiatives and strengthen the arms of government.

In the post-Covid world, government will play an involved role with the private sector. There may also be a tendency for countries to safeguard themselves from future breakdowns in global supply chains and strongly incentivise self-reliance, at least, in certain critical sectors.

As in history, opportunities will emerge from this extreme crisis. For a country highly dependent on oil imports and for businesses whose cost structures are closely tied to fuel prices, there will definitely be some cushioning available for India due to the steep drop in global crude oil prices. There is a natural hedge between the rising exchange rate and crude oil prices. Companies able to latch on to a hard problem to solve and use technology or an innovative approach will be able to take advantage of these opportunities. Much of the innovation and disruption may, indeed, come from the entry of low-priced products and services that challenge the cost structure, and ultimate cost of delivery, of established players.

In all this, it is important to remember that the fundamentals of the Indian market, which in most sectors is extremely supply-constrained, have not changed. Both the challenge and the opportunity are staring at us at this point.

The writer is board member, OYO


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