H Shankar, who makes specialized paint near Mumbai, is going through hard times as Covid-19 hits the Indian economy.
Shankar and his 50 staff export a quarter of their outupt and sell the rest locally. It took him a year to secure an order from Belgium, but the packed boxes are still in his warehouse after the lockdown was declared. He is not alone in his predicament.
India has been under the world’s biggest lockdown since March 25 to contain the coronavirus. The pandemic has claimed 6,367 lives in India and affected 227,273 people, making India the seventh worst country to be affected.
India has almost 63 million micro, small and medium-sized businesses. They contribute 29% of the gross domestic product and employ 110 million people, about 40% of them in small towns and villages. Government data says there are 330,000 small and 5,000 medium-sized enterprises.
They play a key role in half of India’s exports, including jewelry, gems, textiles and leather products. Businesses range from the automated using modern technology to the traditional family-owned businesses. These enterprises provide the highest number of jobs in the country after agriculture.
“It’s been pretty bad,” Shankar says. “The lockdown has gone over the top from day one.”
Large businesses employing thousands of workers keep the staff on the factory premises to operate plant and machinery and ensure that the operations keep running, incurring higher expenses, after the first lockdown relaxation in less-affected areas.
Smaller businesses such as the one Shankar owns can’t match the larger ones, and have been shut for most of the past 73 days.
“Such enterprises are critical as the backbone of the Indian economy,” said KR Sekar, a partner at Deloitte Haskins & Sells, in Bangalore. “Large companies mostly sub-contract parts of their orders to these firms and develop them as vendors.”
Most small enterprises in India are running out of cash as expenses, including salaries, pile up while sales have stopped. Adding to the trouble, sales were declining over the previous few months because of a slowdown in the economy.
To make matters worse, the central bank says the economy is likely to contract in the year to March 2021.
There is hope for some of the stronger businesses as India begins to ease the lockdown. Still, restrictions such as permitting only 10% of the employees to work, the need for social distancing, the absence of public transport, non-availability of skilled workers and a rise in the cost of private transport leave the outlook gloomy.
“We are at a crucial juncture and don’t know how many will be able to survive the crisis,” said Chandrakant Salunkhe, president of the SME Chamber of India.
Most of these small units could take a long time to recover because many make non-essential products, says Subhash Sasidharan, an associatee professor at Indian Institute of Technology, Madras, who is surveying the impact of Covid-19 on smaller enterprises for the southern state of Tamil Nadu government.
Post lockdown, many Indian families restricted their expenses mainly to essential products as some faced salary cuts while others lost jobs. This pattern is unlikely to change soon and will cut demand for goods.
“Demand revival is critical for the survival of millions of these enterprises,” says Sekar. “Government spending on the infrastructure sector could be a faster way of helping ancillary companies and vendors. Infrastructure projects have a multiplier effect on associated industries.”
Larger companies will have to hold the hands of the smaller companies by clearing their payments quicker, and helping them with suppliers’ credit, say industry experts.
According to a recent survey by Chennai-based All India Manufacturers Organization, about a third of the small units and 37% of self-employed individuals are beginning to shut shop as they see no sign of an early recovery.