Small businesses struggle to stay afloat in second wave – The Economic Times

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The second lockdown, following the more deadly second wave of the pandemic, has completely disrupted the entire payments cycle that’s critical for small manufacturers like Chawla.

Sitting at his office in Ludhiana’s Jammu Colony, DS Chawla, a plastic parts supplier to cycle majors like Avon, TI Cycles and Hero Ecotech, is combating lockdown-related issues daily.

Stocks are piling up at his godowns, a labour shortage looms, and suppliers are asking for payments to be cleared.

“From working 24×7, I first cut production to 6 days (8-hour shifts), then 5 days (8-hour shifts). Now, employees work on alternate days. All the big factories we supply to are shut currently, so we can’t ship the finished goods, but we still have to continue manufacturing to fulfil pending orders and keep the remaining labour busy,” said Chawla, proprietor, Chawla International.

The second lockdown, following the more deadly second wave of the pandemic, has completely disrupted the entire payments cycle that’s critical for small manufacturers like Chawla.

“If we don’t supply, we don’t get paid. If we don’t get paid, how do we pay our suppliers. Small businesses across the chain are cash strapped,” said Chawla, who is also president of United Cycle & Parts Manufacturer Association.

The restrictions have taken a heavy toll on lakhs of small businesses across the nation as they fight for survival in the face of crippling labour shortage, disrupted supply chains, logistic blocks, raw material shortages, serious cash flow problems and plunging demand.

Even in states that have allowed industrial activity to continue in lockdowns, major SME clusters like Ludhiana, Kanpur, Madurai, Coimbatore, Cuttack, Tiruchirapalli, Agra and Rajkot, have reported major drop in economic activity as large factories have shut down, or are operating at partial capacity, and local demand has plummeted.

Footwear exporters in Agra were gearing up to raise production to meet the autumn and Christmas demand from Europe and the US when the state imposed Covid-19 restrictions impacting business activity.

“In 2020, after the first lockdown, our exports shrank by 30% compared to 2019. In 2021, we expect a further 30% dip in exports from 2020 levels. The whole leather ecosystem has been impacted by the second wave at the time when we should be at peak production,” said Puran Dawar, president, Agra Footwear Manufacturers & Exporters Chamber.

While SMEs catering to corporates or local markets struggle, small businesses that supply to government departments are facing a different kind of challenge; a raw material shortage and rising prices have meant that they will end up taking losses while fulfilling contracts at old rates.

“Steel prices have gone up substantially, so how do you supply finished goods at old rates? We will have to fulfil the orders even if we are running losses to avoid penalties or being blacklisted. The government should extend existing contracts or renegotiate contracts or cancel penalties,” says Jatinder Agrawal of Amar Promoters, a Himachal Pradesh-based manufacturer who supplies steel products to various government departments.

Small Businesses Struggle to Stay Afloat in 2nd Wave

Since the restrictions started in March, small businesses have also lost out on orders companies and government departments dole out before closing accounts for the year.

The second lockdown has pushed small businesses to the brink as they are unable to fulfil formal banking requirements. For some, the choice is stark — shutter businesses or bear deeper losses.

“Even as we struggle with the second Covid wave, the banking sector is offering inadequate support to the SMEs. After these many years, banks have not been able to pinpoint the main areas of concern for SMEs. They just look at the balance sheets and some other requirements, but no one looks at the potential of the business, employment generation capability, the challenges, the growth story,” said Chandrakant Salunke, founder, SME Chamber of India.

The government had announced an Emergency Credit Line Guarantee Scheme last year, providing funding of up to ₹3 lakh crore in the form of a fully guaranteed emergency credit line for SMES.
And the scheme was even expanded to cover 26 distressed sectors and extended to June 30, but still a large number of 45 lakh plus SMEs haven’t been able to take advantage of the scheme, especially the micro and small businesses.

“The small businesses are still not getting the benefits because they still mostly rely on private finance,” said Salunke.

The way some state governments rolled out restrictions also created hurdles for smaller businesses.

While the large and medium sized industries could run operations, smaller businesses like mechanics, lathe machines, drilling shops etc, which are important for servicing the bigger businesses, were not allowed to operate.

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