COVID-19: Sitharaman’s MSME talk draws scepticism

Demand needs a leg-up: experts; Migrants question goes unanswered

By Rajeev Khanna
Published: Wednesday 13 May 2020
An embroidery unit in Dharavi, Mumbai. Photo: Wikimedia Commons
An embroidery unit in Dharavi, Mumbai. Photo: Wikimedia Commons An embroidery unit in Dharavi, Mumbai. Photo: Wikimedia Commons

The relief announced by Union Minister of Finance Nirmala Sitharaman for micro, small and medium enterprises (MSMEs) on May 13, 2020, has been met with scepticism on the ground.

While industry associations have welcomed the pumping in of money towards the production side, there are many who have disputed the move. The government needed to do a balancing act instead of tilting towards one side, they said.

“The government is once again making a mistake. It is time to address the demand side instead of the supply aspect,” SS Sangwan, a senior economist based in Rohtak, who earlier headed the SBI Chair at Chandigarh-based Centre for Research in Rural and Industrial Development, said.

“If you are able to create demand by giving more spending power to the people, it will address the economic concerns to a large extent. The question today is whether the MSMEs are going to invest at this time,” he added.

The relaxations announced for Employees’ Provident Fund (EPF) were more of a ‘camouflage’ for political strategies, Sangwan said. More cash needed to be given to the labourers who migrated back to their native states and this was the area that needed to be focused upon.

Balwinder Singh Tiwana of Patiala’s Punjabi University said the manner in which the definition of MSME had been changed by the government was not likely to augur well for the smallest of the micro units.

“Ultimately, the economics of competition will come into play and the smallest of the units will not be benefitted,” Tiwana said.

“Imagine a unit with an investment of Rs 5 lakh and a turnover of Rs 10 lakh pitched against that, with an investment of Rs 1 crore and a turnover of Rs 5 crore in the same bracket. This expansion of the scope of MSME definition will only benefit the bigger units,” he added.

The relief announced by the government on EPF was also not in the interest of the working class, Tiwana noted.

This was because unit owners would prefer employee labour at lower salaries so that they fell in the bracket where the onus of their EPF contribution remained with the government.

“The main question is from where will the industry bring in labourers, given the fact that a large number of them have gone back to their native places and many would have to be re-employed again if they come back. How will you bring them back is the moot issue,” Tiwana said.

MSMEs manufactured products that were consumed by the working class and this was why they needed to have money in their hands to make the demand and supply wheel run, he added.

There are many who are keeping their fingers crossed, saying that they would rather wait and see how things translate on the ground.

“The policy is positive. But the prime minister needs to ensure that it gets translated into letter and spirit on the ground. It should not turn out to be plain promises,” Dinesh Zaveri, who is into textile manufacturing in Surat and is the secretary of Manmade Textile Research Association, said.

“My experience in the textile industry for six decades leads me to assume that we need sincere efforts for at least five years. We need people who understand the needs of specific sectors,” he said.

“The main thing is that funds need to be in circulation. It needs to be seen whether the MSME sector actually benefits from the measures announced. The textile industry in Surat is awaiting its payment of Rs 4,000 crore for the last three years,” Zaveri added.

He said that the government would have earned tremendous goodwill had it sent migrant labourers home in a dignified manner by offering them free train services and food for the journey.

“We are confident that they will come back. It is because they have no money. If they had money, they would not have travelled thousands of miles to Surat to earn their livelihood,” Zaveri noted.

A similar sentiment was aired by Mahendra Randia of Sachin Industries Association, representing the weaving industry.

“The measures would be a success if the smallest of the weaving unit gets something to stand on its feet again. We are keeping our fingers crossed. It remains to be seen whether we get power and other benefits for small units that are run from small sheds,” he said.

Vinod Thapar of Knitwear Club, that represents the hosiery industry in Ludhiana, was quite optimistic after the measures were announced by the finance minister.

However, he was also guarded about the implementation. “The government has addressed some of our long-pending demands. But what is necessary is that the funds actually reach honest beneficiaries unlike some previous occasions when government stimulus was not implemented ideally.” 

Thapar pointed that the current season for the hosiery industry, that is a seasonal enterprise, had been washed out.

“We normally procure orders in May and this will not be the case this time. The labourers have also migrated. We are now looking at the next season,” he said.

“The main question is who is ready to borrow loans in these times? This brings into focus the emphasis needed to address the demand side and not the supply chain. It is very simple that if there is no demand from the consumer, there would be less production and hence less employment,” ND Ranaut of Centre of Indian Trade Unions (CITU) in Himachal Pradesh, said.

“The changes that different states have brought in labour laws, are also going to have their detrimental impact. When you say that labourers would now be working for 12 hours, it simply means that the industrial units will now have two shifts instead of three. This automatically means a reduction in one- third of labour employment,” he added.

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