Making the best of the situation - Ten Point Plan for MSMEs in Pandemic

MSMEs – Think Anew and Act Afresh

A Ten Point Plan

MSME Surveys done by various organizations revealed that the packages released by the FM under Atma Nirbhar Abhiyan are not going to benefit them much. Now is the time to think afresh and move fast to be back on rails without expecting much from the Government over and above the guarantees announced. There is full realization among the MSMEs that they should live in debt, survive and if God helps, grow.

If there were perverse incentives earlier that only made them perpetuate small in size and not grow, now they will have to contend with no incentives but to grow with their own ingenuity. In a debt syndrome, this can happen only when there is a strong environment of mutual trust between the lender and borrower. Some State Governments are trying to create a better ecosystem and help the MSMEs.

What you should do as a MSME in this emerging scenario?

Covid-19 in a way opens a chapter in their enterprises. You are an important link in the supply chain and it is time that you make the government come to you and not you stand before them with a begging bowl. You should be able to dictate your supply terms instead of bemoaning that you are after all a cog in the wheel.

There have been surfeit of ideas and strategies but the question that stands in front of you, is: how to respond to their work force who were forced on holiday under lockdown and incentivize them to work for the Company?

All that the Bank wisemen would do is to give a moratorium for principal and interest if their credit record held you good – a standard asset in bank language – by January 2019, a la March 2020, the beginning of lockdown.

1.    

Make a reasonable assessment of receivables by discussing with the debtors. This will measure up the duration risk of receivables.

2.    Take full count of the stock available and see if there is any redundancy. Clear up all the useless stock.

3.    Assess the demand for the product in the context of sluggishness around in Consumption and the steep fall in Consumption index. It is very likely that the product required either a makeover or change in complexion.

4.    Set up a digitization environment – have a desktop or laptop and buy a ERP solution if you are beyond Rs.1.5cr turnover. Up to 1.5cr turnover, you have Zoho ERP solution offered by the MSME Ministry free of cost. Avail it. Incorporate every aspect of your data – from buyers to sellers, buy to sale, cash to credit, stocks to receivables and enable GST compliance. This will save you the bother of compliance. Any regulatory requirement either from the Bank or the Government, you can pull out.

5.    Take work force into confidence: Discuss with them how they would like to be paid their arrears given the firm’s predicament. Place before them your increased obligation to the Bank and tell them what would it mean to pay wages and salaries from the Credit window of the Bank and how much dip would be there for the firm. Disclose your own financial position.

6.    Present the future market scenario before them and the prospects it holds both within and outside the country. You may also discuss with them whether they would like to partner with you in the future of the enterprise taking into account the new dynamics of the market. Give them an undertaking that their wages and salaries will be packaged as mutually agreed after paying at least one month’s arrears.

7.    Strategize for attaining a brand value for your product within a set timeframe.

8.    Discuss with all the other units engaged in producing similar products to gain advantage of (a) a co-working space; (b) co-branding; (c) rational pricing of the product; (d) clusterizing for purchase of raw material in bulk on a shared e-commerce platform; (e) rediscovering the price of the final product taking the logistics into consideration.

9.    Rework your Business Continuity Plan and arrive at viability of your enterprise in the emerging post-Covid environment.

10. Place your cash flow position for the next 3, 6, 9, and 12 weeks and seek your Bank’s support.

In States like Telangana you have Industrial Health Clinic to help you out. In other States you have some responsible outfits of Associations like FISME in New Delhi, TANSTIA-FNF centre, KASSIA in Karnataka, etc., that would be happy to suggest right strategies. There would be little purpose in wasting your time any longer waiting for things to happen since the economy is opening up.

*The writer is Adviser, Government of Telangana, Telangana Industrial Health Clinic ltd and author of the Story of Indian MSMEs.

https://knnindia.co.in/news/newsdetails/msme/msmes-think-anew-and-act-afresh-a-ten-point-plan

Coping with post-COVID-19 Disruption

Coping with post Covid-19 Disruption

Post pandemic prediction can’t be a soothsayer’s job. Preparing the economy from a tremendous shock and staying inside home for nearly a month in some States and could be longer as we see the accelerated rate of spread of Covid-19 hit persons, is the biggest challenge. India is not a city state like Singapore or Finance hub like Hong Kong. The optimists expect the lockdown to be lifted by the 14^th April while the less optimistic put it to the end of April. We need to think of the strategies and actions phased over short, medium and long term with matching resources right now. This should be both sectoral and geographical specifics.

While we are the leading global pharmaceutical suppliers, the low and inefficient health sector management with historically low outlays suddenly got the awakening call with the CVD spread and the need for public health systems to step up their capabilities. Yet, the call of the nation has been very ably responded to the greatest consternation of the rest of the world.

The country, with diversity nowhere else existing, is the biggest challenge and opportunity to the governments. Diversity has capacity to cross hold risks across segments and has innate resilience when calamity befalls. It also provides scope for innovation as people think more actively under pressure than leisure. When none can be in laid back comfort that existed before, people keep working out differently different things. For example, there have been more webinars during the last one month than during the last six months. There have also been more video conferences and skype calls as people started working from home. This may gradually turn out as new order of functioning.

One of my nieces from Bengaluru tells me that as Director of a Union Government organization working from home became a true challenge as deliverables rest with her than with other members of her team. Even the forgotten kitchen started demanding her time with children demanding newer tastes and new dishes. This is making her work for 14 hours instead of 7 hours in office. There is a whole paradigm shift in the work environment., not for one but many like her – with no gender discrimination.

What would be the future like? Very many organizations could find new economies of scale in a combination of work from home and work at office. More factories will have to think of reworking their supply chains that thoroughly disrupted due to the CVD, New leadership paradigms emerge. The 10 percent manufacturing small enterprises manufacturing gloves, sanitizers, masks, medical emergency kits to combat CVD will find near extinction of such market. They should expect this to happen and therefore prepare from now on the way to re-engineer their process to newer products and new markets. They will notice that institutions and persons that were after them during their need will turn their faces and likely to hold up their bills in their search for finding cash margins for fresh initiatives.

Our country will have to reinvent itself in workspaces and relationships like never before. In this process, at the micro level, enterprises will re-engineer their production and processes and search for new markets. Many will find the exit to be a problem.

Amidst a supply driven crisis, the unrest and plummeted resources of all kinds, as also eroded markets, MSMEs will require sustainable process consultants to rescue them at affordable costs. Here, the governments in looking at the sovereign dues and the banks looking at the stuck balance sheets of MSMEs should learn the art of turn around management or seek recourse to experts in turn around management.

Every nation will be on the uncertainty horizon. Risk mapping will be difficult. Everyone has been a looser. Non-performing loans will surge unless the thresholds change. Indian regulators need not wait for the world to guide them. They can guide the world. BCBS has already provided for applying the thresholds for SME sector as per the needs of the country. The time for action is now. The threshold should move to a 180day horizon till December 2020 subject to a review after six months. This will automatically provide for higher leverage in lending for the MSME sector, the nerve wire of production that has been contributing 35% of GDP, 45% of exports and employing 112mn persons.

The poor and daily wage earners, the hawkers, the wayside eateries, many disabled, contract workers – both skilled and unskilled, need government subsidies, even salary buffers, supplies and cash to meet their daily needs for at least three more months until the industries and enterprises re-look for employing them.

Fiscal responsibility under these circumstances of both the State and Union governments already hit by the lowest ever tax returns requires out-of-the-box thinking to meet the situation. Several relief funds of the CMs and PM, private donors and even CSR funding even amidst the near 10 percent hit on most corporate balance sheets would be inadequate for revival of the economy. It may take at least nine months to one year to cone to a new normal which would be far less than that we had in the slowing economy.

Even if people have cash in their hands, which itself is doubtful, they will not get the goods and services as the lockdown succeeding the slowdown of the economy, there will be supply driven inflation. Scarcity stares in all areas.

Courage is the watch word. In times of distress people display amazing unity while immediately after normalcy is restored the same set of people will most likely diverge. While the demand to lift the lockdown in toto will surface with more vigor than now, it would be prudent to release in parcels to rework on the efficiency of the health sector infrastructure, doctors, nurses, para medical staff on one side and on to ensure that the wheels of production get back to normalcy gradually, on the other. Second, the discipline enforced should be redirected to finance, transport and manufacturing sectors.

The focus of trade will suddenly think of new protectionism, new direction of investments, newer regional allies in trade and new relationships. The denuded investor firms and the huge number of corporates off-loading the bonds in the markets for liquidity are bound to put pressure on the financial sector. This recession is very unlike the 2008 or even 1930 and it will be a prolonged and widely spread across 200 nations in the globe.

Banks are systems driven and not enterprise driven, Unless the instructions are fed to the system, the concessions do not take effect. In several Banks, even the usual half-yearly reviews of several accounts on a regular basis did not take place. The disaster today is extraordinary and requires extraordinary speed of action post new normal.

At a time when the demand for credit is at the lowest level due to several manufacturing and trading enterprises shut their shops due to lockdown and are seeing future as more uncertain than now, liquidity doors have been kept open by the RBI as though that was the problem area that required urgent attention. Even during the last six months RBI has been extremely accommodative to Banks both in capital buffer and liquidity commitments. But the credit did not move to a higher zone in non-food segments.

“These capital and liquidity buffers are designed to support the economy in adverse situations,” as the Fed said in a statement. Fed’s other hope is exactly what the India incorporated is looking for: less rigidity from the banks in extending the required debt, post pandemic. COVID-19 has caused serious disruption to global supply chains and has a huge impact on financial markets and trade ecosystem. It is important to retain the customers and governments post pandemic and rebuild their lost supply chains to operate sustainably.

India’s biggest advantage is its demographics and therefore, the future needs to be addressed with alacrity so that entrepreneurship will not be governed by the hoary past but a bright future.

The Author is an economist and risk management specialist. The views are personal.

Published in Money Life 2^nd April 2020; www.moneylife.in