The news of the COVID-19 pandemic shattered the world, and most nations were left gasping for money. With entire countries being locked down and life ‘as we knew it’ coming to a standstill, it was a bad start to an already reeling year. The worst hit segments in India were aviation, tourism, construction, and automobiles. The MSME owners, employees, stakeholders were being dragged into unexpected times, where no one had experience to handle this kind of situation.
Survey reports showed that disruptions caused by the COVID-19 pandemic impacted MSMEs earnings by 20-50%, and micro and small enterprises faced the maximum heat, mainly due to liquidity crunch. After the lockdown was lifted, aviation, tourism and construction industry slowly started getting back to pace, whereas the automobile industry still faltered to adjust to the ‘New Normal’. The reason: lack of free-flowing cash.
In the automobile sector, MSMEs are the second largest employment generator, and act as a breeding ground for entrepreneurs and innovators with considerable support in strengthening business ecosystem. Of these, more than 800 manufacturers contribute over 85% of the auto component industry’s turnover in the organised sector. Few of these MSMEs turned to manufacturing masks, sanitisers, PPE kits and other essential items, just to survive.
One such segment of the automobile industry which faced a major brunt was Rubber and rubber components. The demand was low, the workforce was scarce, and the inflow of cash had slumped. But not all can be blamed on the liquidity crunch. What caused an even greater effect, was the Supply Chain.
To quote famous words by Napoleon Bonaparte, “The amateurs discuss tactics. The professionals discuss logistics.”
To put this into perspective, consider this : the lockdown forced people to sit at home, public transport was halted, schools were shut and there were no signs of tourism as far as the eye could see. This caused the sale of buses to discontinue. And with no place where you could take your cars (else risk being made to do sit ups on the road by cops), the 4-wheeler sales also dipped. This caused a major breakdown in the supply chain. Because of bus sales stayed, majority of the bus-building OEMs, were left jobless. This caused a major dent in the Supply Chain.
Now even after the lockdown was lifted and public transport and flights resumed, the restrictions of the government and paranoia in the public acted as a speed breaker for the manufacturers. Because people were still not getting on airplanes and tourism still affected, the fuel sales were below the mark. This caused a tumultuous reaction far down along the line. The prices of all the products, linked directly or indirectly to fuel, got increased manifold. And yet again, the MSMEs faced the burden.
According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country (Chart 2). Around 51 per cent of these are situated in rural India. Together, they employ a little over 11 crore people. From all anecdotal evidence available, such as the hundreds of thousands of stranded migrant workers across the country, it can be concluded that MSMEs have been the worst casualty of Covid-19 induced lockdown.
