Clipped from: https://www.business-standard.com
The third of a five-part series looks at how lack of manpower and cash flow issues have put small units in dire straits despite govt announcing a Rs 3-trn package
The recent package announced by the government to address the woes of the micro, small and medium enterprises (MSMEs) has failed to assuage their financial concerns.
Empty shop floors, stockpiles of unsold goods and a few dispirited, masked workers greet you as you enter the Wagle Industrial Estate in Thane, 20 km from Mumbai. Thanks to the pandemic and the prolonged lockdown, the estate’s nearly 200 manufacturing units that feed everything from engineering and electronics goods to pharmaceuticals and garments to marquee large factories, are facing an existential crisis.
Over the years, the 58-year-old estate that once was home to 800 manufacturing units, has lost its charm to high real estate costs, traffic snarls and a dearth of blue collared workers. Still, these units are the vital cogs in the wheels of marquee brands, including Larsen & Toubro, Godrej & Boyce, Siemens, Kirloskar Oil Engines, etc.
The recent package announced by the government to address the woes of the micro, small and medium enterprises (MSMEs) has failed to assuage their financial concerns. And as if that weren’t enough, the hands that turn the wheels of these units have gone missing.
“The situation is ominous. We are having tough time running the factory.” says AY Akolawala, partner, TechMech Engineers, which manufactures pharmaceutical equipment. The unit started operations a fortnight ago after the lockdown rules were eased. But leave aside processing new orders, Akolawala is struggling to close even the unfinished jobs of March. And that’s due to an acute shortage of labour.
“People have fled to their villages or native places. We have 25 employees, but now I am working with just 10,” says he. He fears that those who have left may not come back any time soon. Since it is a supplier of an essential good, TechMech has no dearth of orders. But it is unable to take fresh orders because of the lack of manpower.
Others are facing a labour shortage for a different reason. “Our employees are unable to come to work as many of them live in
Thane’s containment areas,” says Jimmy Maliakkal, proprietor at Emkay Rubber Works.
A few meters away, Abhijat Sanghvi, director at Sang Fasteners, has been operating at 10-15 per cent capacity as only 10 out of his 50 employees are reporting for work. Most of the employees live in Mumbai and are unable to commute, mainly because of the lack of public transport.
Sanghvi fears the delay in starting production may cost him dearly as the business will go to his competitors. “We cannot provide material to our customers for whom we are single-source suppliers. So they might go to my competitors,” he says.
Apart from the shortage of labour, operations at these MSMEs have also been hit by a severe cash flow crunch. “We are struggling with our cashflow. Hence, we are asking our customers to pay us our dues for March so that we have some cash flow to run our factories, says Akolawala.
So far, Gujarat and Maharashtra have accounted for the maximum flight of labour, mostly to Uttar Pradesh, according to data on reverse migration shared by the Uttar Pradesh government. The two states have seen the exodus of about 200,000 and 50,000 labourers to Uttar Pradesh respectively, going by the numbers who have travelled via the Shramik Special trains.
Sandeep Parikh, vice-president, Chamber of Small Industries Association (COSIA), says that most of the units in the Thane region have paid full wages to their employees for the month of March and 50 per cent wages for April, even though the month was a complete washout.
Parikh’s firm, Esjay Industries, too, is facing multiple challenges due to the manpower crunch, the stockpile of unsold goods, a broken supply chain and the lack of transport facilities.
Miffed with the government’s directive to pay full wages to workers during the lockdown, COSIA, an industry body representing MSME associations, has moved a petition in the Supreme Court against it. According to Parikh, the workers were happy to get some sustenance allowance. Now that so many of them are gone, Parikh is not sure that they can be persuaded to come back.
“They are too scared, and they just want to leave,” he says.
The shortage of labour is one of the two big issues facing the MSME hub. The two-month-long lockdown has also burnt a big hole in their books. They were hoping to be rescued by the government’s relief package, but that hope has now been dashed.
“The government package is absolute hogwash. They have not done anything for the MSMEs except for the Rs 2,500 crore which has come in the form of EPF (employee provident fund) with several caveats. The rest is all about the postponement of non-performing assets,” says Parikh.
He goes on to say that instead of a moratorium on loan repayment, which will increase the overall cost of funding for ailing industries, steps like interest subvention and part payment of salaries by the government would have been of help.
Others agree. Says Akolawala: “The government package is all about loans, so it won’t benefit us in any way.” Instead, a GST reduction would have been of greater help as it would have given the units some liquidity to meet other fixed and operational costs, he adds.
Experts, too, feel that the government package for the MSMEs is a damp squib as none of measures are direct or aimed at reviving demand at the user industry level. “Though the package appears good, but it has lesser impact at ground level,” says K R Sekar, partner at Deloitte India. MSMEs are facing multiple issues — be it receivables or easy access to formal credit or high interests costs. The Covid-19 situation has only made things worse, he says.
Adds D K Srivastava, chief policy advisor at EY India: “The package offers no direct support to the MSMEs.”
Sekar says that one way to boost consumption and revive demand would be to reduce GST rates and cap it at 2 per cent. So the user industry sourcing from MSMEs will get the benefit, which they can pass on to the end user, This will not only boost demand, but also lead to more business for the MSMEs. He suggests, moreover, that in order to improve cash flow, it should be made mandatory for all companies that source from these units to pay them within 15 days.
Meanwhile, the owners of small industries are also demanding changes in the labour laws, which currently do not allow them to hire temporary workers. “We have been requesting for some change in the labour laws so that we can take temporary workers and negotiate with them outside the labour laws,” says Sekar.