COVID-19: WTO pushes long-term agenda of liberalising MSMEs

World Trade Organisation recommends digitalisation, transparency, trade facilitation and finance of MSMEs to revive economy

By Kundan Pandey
Published: Thursday 04 June 2020

The novel coronavirus disease (COVID-19) pandemic has bruised several sectors of the Indian economy, but the micro, small and medium enterprises (MSMEs) has been particularly badly hit. Calling for a revival, the World Trade Organization (WTO) in an information note on June 3, 2020, pushed for long-term measures to increase the resilience of MSMEs.

The suggested measures, however, have attracted flak from industry experts, with some saying that the new recommendations were simply a repackaging of what the body has been pushing for several years.

The trade body suggested focusing on digitalisation, saying it can help MSMEs overcome damaged supply chains by tapping into a wider range of international buyers and alternate suppliers. Export participation rates for traditional MSMEs range between 2 and 28 per cent in most countries, it said.

It also emphasised on need for transparency; it said access to information was critical for MSMEs. It also stressed on trade facilitation, trade finance and government procurement, e-commerce etc as measures to improve resilience of the sector.

The world trade body is pushing for developed country agenda of liberalisation of the sector in the name of benefitting MSMEs, according to experts.

Senior researcher with Third World Network (TWN) Ranja Sengupta said that the WTO is aiming to “hijack the narrative of benefitting MSMEs to push a developed country agenda when the sector is going through the worst crisis”.

“India has been opposing proposals at the WTO to liberalise e-commerce, investments, domestic regulation in services — all in the name of MSMEs. Domestic procurement will benefit local MSMEs the most. Why does the WTO want to liberalise it?” she said.

She added that India was apprehensive that liberalising e-commerce, another recommendations to the benefit of MSMEs, will ensure control for digital corporations and challenge MSME’s independent existence.

MSMEs worldwide

The world trade body claims that MSMEs represent 95 per cent of all companies worldwide and account for 60 per cent of employment. The sector contributes around 35 per cent of GDP in developing countries and around 50 per cent in developed countries, it stated.

However, the COVID-19 pandemic has hit the sector hard. MSMEs are over represented in economic sector, and which has been badly affected because of social distancing measures and low resilience.

There are few surveys around the world that highlight the MSME crisis across the globe. Here is a glimpse by the WTO.

Around 42.1 per cent MSMEs in South Korea can continue business for no more than three months under the current quarantine conditions, and 70.1 per cent for no longer than six months, according to the report. The situation is similar in China, wherein a survey revealed that 85 per cent MSMEs would not be able to survive the lockdown conditions for more than three months.

Another survey revealed that 50 per cent MSMEs in the United States have already shut down or laid off employees; 27 per cent stated that they will be obliged to take such measures in the next few weeks if the situation does not improve, according to the note.

Though no such survey has been conducted in India on the state of MSME crisis, policy makers have their eyes on the sector.

Some of the measures announced by Union finance minister for the stressed MSME sector reeling under COVID-19 impact included Rs 3 lakh crore collateral-free automatic loans for business, including MSME; Rs 20 thousand crore subordinate debt for MSMEs; and Rs 50,000 crore of equity infusion through MSMEs funds of fund.

Finance minister Nirmala Sitharaman also announced changes in the definition of MSMEs — the investment limit for micro-manufacturing and services units was increased to Rs 1 crore with Rs 5 crore turnover. The limit of smaller units was increased to Rs 10 crore of investment and Rs 50 crore turnover. Similarly, the limit of medium units was increased to Rs 20 crore of investment and Rs 100 crore turnover.

On June 1, the Union ministry announced further upward revision of MSME definition — for medium enterprises, investment limit was revised to Rs 50 crore with Rs 250 crore turnover.

The WTO note added that 44 countries introduced urgent stimulus and backstop measures for MSMEs by April 2020.

“These measures essentially comprise liquidity support, particularly state loans, credit guarantees, wage subsidies, and the deferring of tax payments, such as value-added/goods and services taxes,” the note said.

Liquidity support measures introduced by WTO members. Source:WTO report

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