Micro, Small & Medium Enterprises (MSMEs) & COVID-19

Q1. What is the impact of COVID19 outbreak on the Indian economy, especially the small & medium businesses? 

Global quarantines and 5-week nationwide lockdown in India, to contain the coronavirus outbreak, have impacted industries across and operations have literally come to a standstill. These are unprecedented times with domestic and external demand shock, production shutdowns and job losses in some sectors. The pandemic is likely to wipe-out 100+ bn USD from the Indian economy

The effect is even more amplified in the MSME sector in India which is second largest employer after the agriculture sector and is the backbone of the economy. There’s been a  90% drop in domestic sales across categories and supply chain disruptions & labor issues are putting millions of jobs at risk, resulting in millions of tonnes of commodities like wheat, pulses & rice and perishable essentials getting wasted and risking food inflation levels at record highs.  

Recently at SOLV, we conducted a study with SMEs on our platform and found that most of them are contemplating severe measures like headcount reduction, further adding to their woes. If the current scenario continues, over 90% of the SMEs have cashflows to sustain them only for 3 months and a significant number of them who are already indebted, will perhaps not be able to service their current liabilities. 

Q2. What should be done to save the SME sector and help them weather the crisis? 

The Covid crisis is perhaps once in a century black swan events that all of us together need to tackle. Governments & institutions globally like the World bank & IFC along with other major public & private sector banks have announced major stimulus packages to help the SME sector retain their labor and sustain their operations for at least 6-month. In India, the Finance minister announced a slew of debt relief measures for the MSMEs and the RBI has announced major credit easing and liquidity infusing measures and has also directed banks & shadow banks to open emergency credit lines. There are several other significant measures that need to be taken in this regard by the policymakers like incentivizing financial institutions to extend penalty-free interest payment, make interest subventions on working capital to diligent SMEs and adopt alternate credit scores to assess this segment in these extraordinary times. SMEs also need to have timely access to finance. Development finance which is being directed towards India now, needs to be channeled effectively into the SME sector. Additionally, in order to ensure timely payments & collections from large firms across, they must be incentivized/ mandated to onboard on the TReDS platform similar to how it has been done for Rs. 500 cr+ turnover cos in the apparel segment. 

If an adversity can be turned into an opportunity, there cannot be a more opportune time than now. A big push, by the government, to address fundamental issues such as credit flow, manpower issues, poor infrastructure and technology and digital gaps will not only support the SMEs in this crisis but will also help them emerge stronger.

Q3. What should SMEs do?

Most SMEs have already begun adopting measures to become leaner and more innovative, to protect cash flows by stopping all discretionary spends, and finding technology solutions that can help them increase their outreach and acquire new customers and scale.  It is an opportune time for SMEs to connect with each other digitally and first & foremost be aware of what’s going on in their sector, policy measures being put in place and how they can leverage these to make the best of the situation.  Also, it’s a great time for SMEs to leverage alternate lending and improve their credit profiles for growth capital that may be extended soon. 

Q4.  What is a B2B digital platform like SOLV doing to help SMEs?

The very premise of SOLV’s existence is to help SMEs grow. SOLV is a commerce platform connecting small businesses across the country and helping them trade with each other by supporting them with a platform, payments, logistics and end-to-end fulfilment. 

We understand that our service to this community is imperative in times like these. One of the related impacts of the COVID-19 lockdown has been the shortage of essential supplies. Millions of citizens are concerned about how they would meet their everyday essential needs. While e-commerce players are trying their best to cope with the sudden surge in orders, many small kiranas have also opted for an online-offline hybrid model of operations. They are leveraging platforms like SOLV, which support them with the business services they need acutely at this time.

For small kiranas, tapping into large supply chains of products is a challenge at the best of times and especially so in this time of crisis. So are procuring transport and labour, which are in very short supply now. When India went into lockdown in the battle against COVID-19, access to essential goods, such as groceries, fresh produce and medicine, was disrupted. India’s supply chains were impacted and small local retailers and grocers were unable to procure supplies without connections to larger manufacturers, traders and wholesalers. For small kiranas, tapping into large supply chains of products is a challenge at the best of times and especially so in this time of crisis. So is procuring transport and labour, which were in critically short supply during the COVID-19 led shutdowns and continue to pose a problem as the economy slowly limps back from the lockdown.

SOLV has been constantly innovating to address these challenges by leveraging its B2B commerce platform for SMEs in new ways. We are using the strength of our networks and resources to connect to sourcing units like tier 2 manufacturers and villages on the one hand and delivery channels on the other, to deliver essential goods to kiranas, RWAs, NGOs and small hospitals. More than 20,000 families have been supplied essentials through our SMEs every day.

SOLV also conducted 1:1 interviews with MSMEs on the platform soon after the lockdown was announced and published the findings of the study (which was also quoted by The Times of India). This study helped unveil a lot of insights about the impact of the COVID-19 crisis on the MSMEs and highlighted challenges like an acute shortage of credit. SOLV was then able to implement solutions for such challenges within a short period of time. 

SOLV also announced a partnership recently with FICCI-CMSME to launch a COVID-19 Emergency Credit Line Program for MSMEs that are helping the nation fight the COVID-19 pandemic. The nation-wide lockdown has badly hit business sustainability for the MSME segment due to the lack of cash-flows to meet their fixed cost. In this scenario, the COVID-19 Emergency Credit Line is aimed at easing the financial pain being faced by the MSME sector.

₹20 lakh crore Economic Stimulus: What will Fund India’s Covid19 Recovery Package?

On Tuesday, May 12, 2020, the Prime Minister of India, Mr. Narendra Modi announced the much-awaited COVID stimulus package of ₹20 lakh crore, which is 10% of the country’s GDP. The question that everyone’s been asking since then – what will be the source of these funds?

We are hazarding some assumptions here: 

  • Reallocation of government spending
  • Tapping domestic private savings
  • Bond purchases
  • Foreign borrowings

The good news is that though the announcements made are worth ₹20 lakh crore, the actual cash outlay by the government and its effect on the fiscal deficit will be far less, at least in the immediate term. That is because, most of the proposals of the government are credit-focused, and others are aimed at easing liquidity concerns for the sectors impacted due to the pandemic. Any costs incurred will initially be covered by financial institutions and will not result in actual cash outflow by the Centre.

Reallocation of government subsidies

Most of the existing government spending goes towards the subsidies, for food, fertiliser and fuel. ₹70,000 crore of these subsidies can be released for increased fiscal spending.

Privatisation of PSUs

Government decided to use equity to raise private funds via large-scale privatisation of PSUs. Not only will this help in raising required funds but will also improve the efficiency ofpublic firms when run jointly by private investors.

The number of PSUs in strategic sectors will be maximum four, remaining will either be privatised or merged. As per the new public sector enterprise policy, all sectors will be open to private sectors and PSUs will play a significant role in defined areas.

Bond markets

In the near-term, the funding burden will fall on bond markets and for it to stabilise markets, RBI’s participation is of prime importance. Market borrowing is likely to rise by at least ₹7-10 lakh crore via domestic means and bond issuances. RBI will play a key role in stepping up bond purchases since absorptive capacity of domestic investors and foreign portfolio investors is limited.

Tax-free bonds

These may turn out to be a preferred investment option for retail investors who are seeking debt mutual fund schemes. These bonds will open a new avenue of participating in a government instrument free of tax.

Foreign borrowings

  • FCNR account deposits

In 2013, at the time of taper tantrum, RBI permitted foreign currency non-residents (FCNR) account deposits, which fetched an inflow of $30 billion in FCNR bank deposits and attracted huge funds from abroad. This strategy may be reimplemented. Moreover, given the fact international borrowing costs are likely to be low, we can be open to foreign currency debt.

  • FDI

Being open to equity investment by foreigners is a smart way to fund our current and urgent needs.

With this in mind; in the fourth tranche of government’s ₹20 lakh crore special economic stimulus package, Finance Minister Nirmala Sitharaman raised the Foreign Direct Investment (FDI) in defence manufacturing to 74% from 49% via automatic route and announced several measures to make defence production self-reliant in the country under Make in India.

Increase in Direct Taxes

Depending on increased taxes is not a great idea as it will only deplete private spending and lead to huge inefficiencies in implementation. Besides that, there is a need of not just the government expenditure but also private consumption and investment for the economy to recover.

India’s ₹20 lakh crore COVID-19 economic stimulus package: Impact on MSME sector

As a part of the ₹20 lakh crore stimulus package announced by the Prime Minister Narendra Modi to spur growth and help build a self-reliant India, Finance Minister Nirmala Sitharaman on Wednesday, 13 May 2020 announced a economic relief package. This package will act as a helping hand for businesses, including micro, small and medium enterprises (MSMEs) to recover from the impact of the Coronavirus (COVID-19) pandemic.

The finance minister reiterated the thoughts of the Prime Minister and said that self-reliant India / a Aatmanirbhar Bharat rests on five pillars: Economy, Infrastructure, Technology-driven systems, Demography, and Demand. Thus, factors of production, such as land, labour, liquidity, and laws will be focussed upon with an intention is to make local brands global.

Here are the key takeaways from the press meet.

For the revival of the MSME sector:

1. Unsecured loan of ₹3 lakh crores for MSMEs to be given. Though this, 45 lakh units can resume work and retain jobs.

2. Subordinate debt provision of ₹20,000 crore has been announced for 2 lakh MSMEs to help the stressed MSMEs.

3. Infusion of ₹50,000 crore equity via Mother-Daughter fund for MSMEs that require handholding. An additional fund with ₹10,000 crore will be set up to aid these units in expansion or list themselves on markets.

4. Definition of MSMEs has been revised to help MSMEs expand and avail benefits. Moreover, no distinction between manufacturing and services sector MSMEs will be there.

As per the new definition:
– Micro units with investment up to ₹1 crore and turnover up to ₹5 crore
– Small units with investment up to ₹10 crore and turnover up to ₹50 crore
– Medium units with investment up to ₹20 crore and turnover up to ₹100 crore

5. For government contracts, global tenders will be disallowed up to ₹200 crore.

6. E-market linkages to be provided across the board to make for the absence of non-participation in trade fairs due to the COVID-19 pandemic. The receivables will be cleared by the Government of India and PSUs in the next 45 days.

For the benefit of Employees:

7. A liquidity relief of ₹2,500 crore EPF support is being given to all EPF establishments. For the next 3 months, EPF contribution will be paid by the government till August. This will benefit over 72 lakh employees from both small and big enterprises.

8. Statutory EPF contribution for all organisations and their employees has been reduced to 10% from 12%, except for government organisations. The intent is to infuse ₹6,750 crore liquidity into these organisations.

Detailed information about FM’s press meet

Infusing money via collateral-free automatic loans, subordinate debt for MSMEs and equity infusion through MSME mother-daughter fund will amount to 76% the credit disbursed to MSMEs during FY20.

Regarding the credit and finance for the Indian MSMEs, the Finance Minister Nirmal Sitharaman announced the mega ₹20 lakh crore stimulus to bring the COVID-battered economy back to life. She stated that this financial package is roughly 10% the Indian GDP and offered measures to boost liquidity in MSMEs and assured the much-needed help for them to avail the benefits of the government schemes. On the lines of PM’s local to global mantra, she mentioned that this package will enable them to compete with foreign companies and help strengthen their network.

Banks and NBFCs will offer up to 20% of their entire outstanding credit as on February 29, 2020 as collateral-free loans. Under this, those units with outstanding credit of up to ₹25 crore and turnover of ₹100 crore can avail the loans, which will have four-year tenor and a moratorium period of 12 months beginning on principal payment. The scheme can be availed till October 31, 2020.

₹20,000 crore subordinate debt as equity support for MSMEs declared NPAs or stressed enterprises. The government will also provide ₹4,000 crore to CGTMSE for offering partial credit guarantee support to the banks lending to MSMEs.

₹50,000 crore equity infusion by government in MSME sector. This will be done through a Mother fund and a few daughter funds. This Fund of Funds will be set-up to offer equity based funding to growing and viable MSMEs. It will have a corpus of ₹10,000 crore.

Global tenders disallowed

Addressing the issue of unfair competition from foreign companies against MSMEs, the government said it will not allow global tenders in schemes up to ₹200 crore. The government is entrusting India’s backbone – the MSME ecosystem by facilitating procurement tendering.

Implications on the stock market

As per analysts, the relief package will be helpful in fixing supply-side rather than the demand issues.

The market on Wednesday, 13 May rallied in anticipation of a full ₹20 lakh crore stimulus, however, the FM said the announcements will be made in tranches over the next few days. This led to disappointment in the market because the immediate spend out of the big fiscal stimulus is relatively small, and there remains scepticism if the economy will revive soon.

Moreover, the FM refused to reveal entire funding details until all the announcements were made.

Impact on GDP

India has higher sovereign debt-to-GDP ratio than other emerging markets. And with hardly any GDP growth this year, the debt-to-GDP is likely to rise substantially in India.

MSME Speak

The MSME sector is unconvinced of the finance minister’s announcement regarding collateral-free loans as there is still a lot to be read in the fine print. Also, it is yet to be seen how banks roll out the loans, since implementation of announcement can have several gaps.

The collateral-free loans are expected to infuse liquidity in the sector and help stressed units address their cash crunch issues. This happens to be a critical move to help MSMEs kickstart business activities and provide job protection to employees.

Regarding the 2% rebate on Provident Fund, MSMEs feel, it is a small sum and will not help small companies but the big players. As MSMEs mostly have employee strength between 10 and 15 which are covered by PF, a mere 2% will not do any good.

Change in the definition of MSMEs is a welcome move as the upward revision in the investment limit of MSMEs will give an increased number of MSME units the access to institutional working capital.

Moreover, removal of global tenders is being taken positively as this would offer the sector better opportunities for growth without straining the government finances.

ADB’s support of $1.5 billion for Indian MSMEs

To aid Indian MSMEs fight COVID, Asian Development Bank (ADB) is likely to provide $1.5 billion for India’s economic recovery and industrial support particularly to MSMEs.

As per a statement issued by the Ministry of Finance, this relief fund will be a part of the ADB’s existing COVID-19 Active Response and Expenditure Support (CARES) programme that is being offered to India. The support will be facilitated through credit guarantee schemes, MSME integration into global and national value chains through enterprise development centres, and a credit enhancement facility for infrastructure projects.

Though the government has taken several relief measures to make this lockdown easy on small businesses and help them sustain the current period in liquidity and access to credit, this additional help will help revive the faltering MSME sector.

  • SIDBI recently announced 90-day term loans to NBFCs, MFIs, scheduled commercial banks, and small finance banks for offering loans to small businesses.
  • The government is also looking at enhancing the credit guarantee limit to MSMEs to ₹5 lakh crore from around ₹1 lakh crore currently.

ALSO READ: Relief measures by govt in view of COVID-19

The Corona impact would most certainly leave the MSME sector bruised. According to a survey done by Local Circles, over 74% small businesses and start-ups are expected to either shut down or scale down their operations in the next six months. Another survey conducted by them states that 47% of Indian start-ups and SMEs have less than 1 month of cash left, many are out of funds already.

ADB had earlier approved the loan to provide budget support to the government to tackle the adverse health and socio-economic impact of the pandemic. This additional boost of funds will help government strengthen the implementation framework and capacities of the MSME sector.

COVID-19 oubreak: Impact on HORECA segment

By Nitin Mittal – Founder & CEO, SOLV

Covid19 outbreak led shut-downs are having disastrous impact on economies around the world, including India. Small and medium businesses are the worst hit segment and among them the most impacted are the ones in travel, tourism and entertainment. With more than 1.3 bn people confined to their home in India, the HORECA sement which relies on the very premise of discretionary spends, business travels and people ‘socializing’ is strugging to survive.

Current scenario

With occupancies crashing to below 5% in comparison to 95% last year, hospitality industry is the worst hit.

Hotels, restaurants and cafes are capex heavy businesses, with high fixed costs like rents that comprise of almost 60% of the cost. Hospitality industry often witnesses 70% to 100% occupancy by the end of the February in India, however, this year, with the outbreak accelerating, the occupancy has gone down to a minimum. This is leading to hotels towards a shutdown or to operate in a very limited cash-crunched manner.

Dominoes Effect of Impact on HORECA Segment on other sectors

High-value food commodities (HVCs), such as milk, fruits and vegetables, and meat, fish and eggs, account for 56% of the total value of output from agriculture and allied sectors. Prices of agricultural and high value commodities have fallen by more than 20% since bulk demand from HORECA has plumetted and export scenario is uncertain.

With rumors around consumption of poultry and other livestock and hotels & restraunts cancelling orders, their breeding has hit a major roadblock too.

Firefighting the Trend

Hotel chains like Oyo are partnering with embassies to accomodate foreign traveller stuck in India, to ensure occupancy. Restaurants are reworking their menus, operating on delivery & takeaway models only, operating with limited set of chefs since most restaurant staff comprises of migrant workers especially in Mumbai, Delhi & Bangalore.

Expectations from the Government

  • The industry is looking for support to survive, in the form of pushing back of instalment repayment, support in paying salaries to the staff and waivers in government levies such as tax, ESIC, bank guarantees, security deposits, etc.
  • Rental renogiations basis state level mandates are sought
  • Doubling of working capital limits on interest free and collateral free terms will also be helpful in preventing businesses from going bankrupt.
  • FAITH has sought a support fund for 12 months on the lines of MNREGA to support basic salaries with direct transfers to affected tourism employees.
  • There’s also a demand of setting up of a national tourism task force under PM’s leadership to fast track all tourism investment proposals and to withhold the tax collected at source (TCS) on travel provision proposed in Finance Bill 2020 as TCS on travel will displace business from India to overseas markets.
  • CII’s recommendations include release of SEIS and EPCG schemes on an urgent basis based on last year’s submissions of foreign exchange earnings of companies at an enhanced rate of 10%
  • Doubling the overdraft facility for the industry and provision of short term interest free or low interest loans for rebuilding businesses.

COVID-19: The Aftermath

The HORECA segment will have to create solutions to revive itself in a world that has become inward-looking and is following social distancing.

  • Health checks: To tackle the fear in the minds of employees and guests, the industry will have to conduct their health check-ups. Ramping up the health screening of guests and employees is necessary and must be diligently followed.
  • Better sanitization: In order to minimize any risk, the industry will have to offer better air quality, better sanitization solutions, food-grade chemical sourcing to sanitize deliveries & takeaways etc. Also, hotels need to issue personal protective gear and eadequate sanitization.
  • Sustainability and Self-sufficiency: Not only should the focus shift to food with higher shelf life to reduce shortages due to lack of supply chain capability; but also, there’s a need to create higher self-sufficiency by owning farms for constant supply of fresh vegetables and fruits or connect to ecosystem players that aggregate farm level stock and data
  • Healthcare specialist: Onboarding a healthcare specialist or partnering with a medical practitioner to offer quality healthcare solutions to guests should be looked at.
  • Space out workstations: Create workstations on either side of processing lines so that food workers are not facing one another

In the times of COVID-19, people will be sceptical of the quality of fresh-food products/ handling of cooked food. Therefore, ensuring food safety and communicating it to the customer would be of paramount importance.

Originally published here .

Covid-19 impact: Sale of mobiles out of range

The nationwide lock down announced on March 25 also marked a lockdown on annual profits of companies in the mobile and electronics sector. The sales have plummeted owing to the closure of electronics stores pan India. Ecommerce sales via retailers such as Amazon and Flipkart are in no good shape either, as these online platforms have temporarily suspended the sales of white goods and mobiles and are solely focused on essential goods. The electronics and mobile industry is looking at an annual decline of 25-30% in business.

China shutdowns hit Indian mobile companies

China accounts for 85% of total value of components used in smartphones, such as mobile displays, circuit boards, etc. From April to December 2019, India imported telecom accessories worth $4.5 billion from China which accounted for 40% of India’s total imports.

As the Coronavirus outbreak hit China, vendors hiked component prices by 2-3% due to supply shortage after closure of factories. The mobile market in India had started getting impacted due to the situation in China, even before the epidemic hit India.

The slowing Chinese economy could have been a shining opportunity for Indian exporters to supply more goods to the global market. However, Indian telecom accessory manufacturers could not make use of this opportunity, because of their dependence on inputs from China.

Plunging sales of smartphones in India

India’s smartphone market recorded 46.6 million units sold in 3Q19 (IDC India Report), however, due to the COVID-19 outbreak, smartphone brands are dealing with dipping sales. Also, India’s contribution to global smartphone production had jumped to 16% from 9% in 2016 owing to the US-China trade war. However, in the current scenario, manufacturing units have halted the production of mobiles and it is speculated that India’s share in global smartphone production will fall to the levels that were prevalent four years ago as organic growth will be bleak, and consumers will only buy a phone out of necessity or basis their spending ability.

Sales slowdown, supply chain squeeze and cashflow crunch have resulted in loss of approximately 50% of the electronics and mobile business on an average, over the same period last year.

The hit of custom duty

In Feb 2020, the government announced increasing customs duty by 5-10% on imported mobiles and chargers. While industry observers stated that the hike in import duty won’t impact consumers, since 97% of mobile market demand is being met through domestic production, the reality was different.

In an interaction with Karol Bagh Market Association members, SOLV found that there was a lot of angst on this issue. Since the manufacturing of mobile and accessories is not happening at the same scale as in China, sales in India have dipped. The cost of procurement of mobile parts and office infrastructure is thus being passed on to the customer, thereby making the product further expensive and leading to adverse impact on sales.

Moreover, mobile phones were earlier exempted from the 10% service welfare cess, but it will now be re-imposed on imported handsets over and above existing 20% basic customs duty.

Stay home, stay connected?

  • The lockdown led to closure of all educational institutions and offices. While schools have shifted to virtual classes, offices have shifted to virtual meetings. However, everyone has adequate hardware needed for participation in virtual classrooms or meeting rooms.
  • Given that many people are not stepping out of their homes, and ordering home delivery of essentials through online grocers, mobile phones have become vital in this lockdown period. And with mobiles not being considered as essential goods, it would imply that those who don’t already have one, can’t get one, and those who want their mobiles serviced, cannot get that done either.

Mobile phone – an essential?

In a letter written by the India Cellular & Electronics Association (ICEA) on Mar 29, the Prime Minister wase requested to consider the service, maintenance, and delivery of mobiles and ICT (Information and Communications Technology) products as essential, emphasising that mobiles/tablets and other computing devices are critical to proper functioning of crucial government bodies as well as hospitals and the police. ICEA also requested the PM to at least consider the sale of mobiles and computing devices via ecommerce platforms.

Now that the Government of India has also launched AarogyaSetu mobile app to track spread of the Coronavirus, having a functional smartphone becomes a must, which further highlights the importance of mobiles.

Recommendations

  • Mobile phone makers seek rollback of GST increase of 6% with immediate effect as the hike to 18% from 12% would draw out ₹15,000 crore from the ecosystem and devastate the retail sector
  • Correction of the inverted duty structure by bringing down duties on mobile and electronic parts and components is also needed
  • Mobiles should get the essential tag and the government should allow resumption of servicing and sales of existing mobile phone models.

What next – addressing the latency in demand?

To capitalise on pent up demand, mobile phone brands are likely to flood the market with new devices after the restrictions are removed. Though offering discounts in the near-term would be difficult because of the 6% GST hike on mobile phones, it is better to flush the market with aggressive discounts during festivals.

Make in India Investment Schemes

The ministry of electronics and IT has notified three incentives schemes worth ₹48,000 crore for pushing electronics manufacturing.

  1. Production Linked Incentive (PLI): With an outlay of ₹40,000 crore, this scheme will give incentive of 4-6% on incremental sale of mobile phones and specified electronic components, such as Printed Circuit Boards (PCB), photopolymer films and Assembly, Testing, Marking and Packaging (ATMP). It will be applicable from Aug 1.
  2. Electronics Manufacturing Clusters (EMC) 2.0: This scheme is aimed at development of world class infrastructure to help India to become the mobile manufacturing hub in the world. The government has proposed a total outlay of ₹3,762.25 crore.
  3. Electronics Components and Semiconductors (SPECS): This will provide financial incentive of 25% on capital expenditure for select electronic goods, like components, semiconductor/display fabrication units, ATMP units, etc. This scheme also supports expansion of capacity, modernisation and diversification of existing units, and investments in new units.
  4. ₹42,000 crore booster for India’s local mobile manufacturing: This scheme endeavours to integrate India into the global supply chain as China struggles to meet demand with shut operations amid the Coronavirus outbreak. As India’s electronics hardware manufacturing sector suffers due to lack of adequate infrastructure, domestic supply chain and logistics issues, high cost of finance, unavailability of quality power and inadequate design capabilities and skills, this scheme will help in removing these issues besides getting rid of dependence on China.

The bright side: Mobile and accessories import

The quantity and value of mobile phones, including accessories imported by India in the past three years, have witnessed a significant downfall of 64% in quantity and 57% in value due to rise in foreign investment and improved manufacturing capacities. Import of push-button mobile phones came down from $935 million in 2018 to $400 million in 2019; and smartphone import came down to $1216 million in 2019 from $2602 million in 2018.

Evolving state of Indian textile and apparel industry under Covid-19 outbreak’s influence

By Nitin Mittal – Founder & CEO, SOLV

India is the 2nd largest producer of Textiles & Apparel in the world, after China. 

The Textile & Apparel Industry in India is in itself, one of the oldest industries and among the highest in terms of output, investment and employment. The sector today employs 100 million+ people directly & through allied sectors, contributes to 5% of Global trade and earns USD 40 billion+ forex, apart from substantial revenue contribution towards the country’s tax revenues. With direct linkages to the rural economy and the agriculture sector, it is estimated that one in every six households in India is either directly or indirectly dependent on it for livelihoods. 

As the nation is undergoing a COVID-19 scare, there is an evident fall in apparel sale. With the closure of shopping malls and stores due to lockdown imposed by the government, and the focus of people shifting from buying lifestyle products to essentials like food and personal care, India’s apparel sector is witnessing a dip in revenues. This sector is in a crisis which must be managed to sustain it.

Today the growth of the Textile & Apparel segment in India is dependent on 20 Million+ MSMEs.

25% of jobs may be lost in Textiles & Apparels Industry and Millions of Small businesses may shut shop in the next 6 months due to the COVID19 Pandemic 

Grim Situation in South India

South India is famous for its textile industry, especially production.

Coimbatore, Tirupur, Salem and Erode in Tamil Nadu, known for this textile belt gobally , generate export revenue of over ₹25,000 crores. Tirupur alone is generates over ₹11,000 crores from more than 10,000 manufacturing units there. In Tamil Nadu there are 4.50 lakh power looms and is the second large to Maharashtra. Tamil Nadu alone represents roughly 45% of India’s entire spinning capability, 22% weaving and 70% of the knitted apparel production capability. Tirupur singlehandedly contributes to almost 50% of total knitted textile and clothing exports, followed by Ludhiana, Kolkata and Delhi NCR.

However, the crisis has brought the production to a grinding halt, because:

–       receivables and new business are affected severely

–       existing orders are getting cancelled or are on hold indefinitely, especially because global trade is yet to begin in the segment again

This has had a massive impact because almost 36% of the produce from Tirupur is exported to Europe and 34% to the US, and the remaining 30% to other parts of the world.

Double Whammy for Offline Stores

As it is the new coronavirus was plummeting sales, the covid-led shutdowns couldn’t have had a worse timinig, with regards to supplies and inventory. For most apparel retailers, the spring summer collection has arrived in stock. Now, with the current scenario – inventory levels are high, and footfalls are zilch – especially at the brick and mortar stores.These businesses are looking for ways and means to reduce the financial strain, which can be done by –

·       managing vendor payment cycles

·       working out the delay in rental pay outs

·       cutting down on extra expenses

Potential Impacts of COVID-19 on the entire Textile & Apparel Industry Value Chain

·       Cotton – Prices are speculated to take a dip

·       Man-Made Fibre – Prices of imported man-made fibre is expected to surge by approx. 30% by Sep 2020 due to China’s production on halt

·       Fabric – Due to decline in exports, the production is expected to decrease

·       Apparel – Due to decline in global demand, the production is speculated to decrease by approx. 18%

·       Yarn – Accounting for 29% of India’s textile trade – the demand and production have taken a hit. Its production is expected to decrease by approx. 15% in the coming quarter

·       Home Textiles – Due to limited or no global contact, this industry has very less impact of downfall triggered by COVID-19. Since, masks, medical gowns and PPE (personal protective equipment) have a high demand, many home textiles companies are pivoting their operations towards PPE production

Online Retailers Holding the Fort 

In comparison to offline stores and malls, fashion ecommerce online stores are operating with an intent to stay connected with their consumers during this tough phase to build stickiness and are also shfting their focus to build a demand pipeline through advance orders.

Manufacturers along with Industry Bodies are Recalibrating Strategies for Utilization of Excess Capacity

Along with majors in the industry like Welspun and re-focussing handloom & khadi industry towards mask production at state level, the governnment and the industry together are coming up with innovative ways to utilize excess capacity while also catering to the urgent demand of WHO recommended critical health protective gear manufacturing.

Policy Recommendations

To protect the textile manufacturers in India from crippling levels of bad debt, what is it that policymakers should do? Broad thoughts below:

·       Direct Wage Support: While the government may not be able to fund the daily wages in every sector, providing textile industry the wage support of ₹5000- ₹7000 per worker for at least one month should be helpful in warding off the problem of layoffs and unemployment to a large extent.

·       GST Refund: The faster way to provide support to a larger group of stakeholders is to refund GST payments made in the last six months. This will cover almost all industries – handloom weavers to shopkeepers and traders. The process has already begun but needs to be speedened to ensure cashflow is available to the micros and small players to sustain themselves, at least for the next 3-6 months. Once the lockdown is lifted, the government could offer a cut on GST rate on all textile products until the industry recovers properly.

·       Incentives for the Export Sector: Given the pandemic, the export will be worst hit, thereby losing further market share. Incentives such as duty drawback on exports made in the previous Financial Year and the current should be considered.

Also interestingly, this is the time peipeline for domestic demand for winter wear that was mostly imported could be sufficed by capacity built by manufacturers in India.

·       Revised credit appraisal lens: Guidelines for loan approval on the basis of credit rating need to be reviewed. Alternate credit lending models for the segment need to be considered seriously in order to fasten credit infusion in the segment.

·       Tax compliance: Given the nationwide shutdown, deadline for taxes should be extended. Also, because of drop in demand, the taxes need to be reviewed to minimise the impact.

·       Benefits to yarn and fabric: Rebate of State and Central Taxes and Levies (RoSCTL), IES and the Merchandise Exports of India Scheme (MEIS) should include cotton yarn and fabrics since the segment supports more than 60% of the textile and apparel segment jobs and more than 80% MSMEs.

·       TReDs compliance for cash-starved businesses: Trade Receivables Discounting System (TReDS) is a digital platform to support micro, small and medium enterprises (MSMEs) to get their bills financed at a competitive rate. Up until now, companies with a turnover of greater than ₹500 crore int he segment were mandated to be on the platform. However, the bar should be reduced to cover ₹100-₹250 crore turnover companies too, to protect the interests of smaller suppliers working with them.

Originally published here.

Farming communities feel the pangs of Covid-19 pandemic: Urgent remedial action sought to contain damages

By Nitin Mittal – Founder & CEO, SOLV

While the mustard adds a green-yellow lush to the fields and the wheat turns golden, this harvest season is singing a different tune for the farmers across India. Amidst the Covid-19 pandemic led shutdowns, flavours of this Baisakhi and the New year, painfully sown by the farming community have failed to reach us. 

Agriculture is the primary source of livelihood for about two-thirds of India’s population. Agriculture, forestry and fishing added a Gross Value of ₹18.55 lakh crore in FY19. Now, India is pegging to harvest a record wheat production of 106.21 million tonne in 2019-20, as per the latest government data.

The nation-wide lockdown though has put our farmers in a dilemma.

·       Labour cannot come to reap at such a crucial time of crop harvest and lack of skilled labour is adversely impacting their agricultural operations

·       Farmers are attempting to harvest and thresh the crops on their own to avoid the crop from withering away

·       Storing and selling the produce will also become a problem after harvest

Farmers are now resorting to measures like ‘off-market’ sale or ‘sell-from-farm’, as it will help them manage their funds by –

·       Cutting down on transportation cost

·       Avoiding commission and other labour charges incurred at APMCs

The need of the hour is for the government to urgently introduce a fool-proof strategy to deal with the situation to avoid any further wastage of the harvest crop, likely to shoot-up the country’s food inflation soon.   

Measure currently taken by the government to support farmers are aplenty but lacking in nature of urgency and on-ground implementation & communication of lock-down enforcement. 

·       Exemption of farming operations: The government has exempted farming operations, farm workers, mandis and procurement agencies, sowing-related manufacturing and packaging units of fertilisers, from the lockdown rules.

·       Ensuring safety and hygiene: ICAR, the government’s agri-research body, has asked farmers to practice social distancing and safety precautions on the farm – while handling machines and with labours in the field. In case, the farmers face any issues in managing crops or livestock, they can consult agri-scientists in Krishi Vigyan Kendras (KVKs), ICAR research institutes and state agricultural universities.

·       PM Kisan Scheme: Government will transfer ₹2,000 under PM-Kisan scheme to 8.69 crore farmers in April to provide relief to farmers affected due to the coronavirus lockdown. As the farmers already receive ₹6,000 per annum from PM-KISAN, they will now be given the first instalment of that as a front-load in April.

·       Supply chain movement: The home ministry has set some standard operating procedures for delivery of essential services through ecommerce to ensure supply. This includes ration units dealing with food, groceries, fruits, vegetables, milk products. It will help farmers sell their produce, while maintaining the availability of essential goods in the large organised retail stores and e-commerce companies.

About 1,900 wholesale fruit and vegetable mandis have started functioning smoothly after the govt took measures to normalise the supply during the lockdown.

·       Regular monitoring and coordination: Mother Dairy’s Safal vegetable outlets in Delhi, Sufal Bangla retail outlets in Kolkata, Hopcoms retail outlets in Bengaluru and similar outlets in Chennai and Mumbai will monitor the movement of supplies and coordinate with local administration. Control rooms have been set up at mandis to intervene and coordinate with local police, district collector and transport association.

·       Procurement by State Govt: Punjab Agriculture Secretary Kahan Singh Pannu assured farmers that the State government will allow harvesting, and will procure every grain from the market.

Some urgent mitigation mechanisms that can be mobilized by the government

·       There are about 6,900 wholesale mandis in India, including the ones selling grains, vegetables and fruits. Only 1900 of those are operative. It is important to activate most of them during the time of harvest to ensure supply meets demand.

·       Reduction in labour force is affecting production, processing of crops, leading to a loss of income and perishable produce; labor force must be equipped with protection like khadi masks procured from handlooms and incentivized to get back to work

·       Restriction on people’s movement may disrupt distribution too, as seasonal agricultural workers that constitute over 120 million or more are estimated to migrate from rural areas to urban labour markets and farms, are not migrating.

·       Encourage food majors to procure directly from farmers or generation of other means, such as e-Nam to help farmers trade directly.

. Regulations for Ecommerce and logistics players involved in fixing supply chain issues need to be directed from the center and adopted at state-level instead of the district-led calls that are proving to be a deterrent in speedy and hassle-free movement of essential goods.

E-NAM Mandis

To support the off-market selling option, e-NAM is coming across as useful platform.

It is an online trading platform for agricultural commodities in India that facilitate farmers, traders and buyers with online trading and smooth marketing of their produce.

Amid these difficult times of the coronavirus led lockdown & social distancing, National Agriculture Market (e-NAM) is playing a vital role in promoting the agriculture trade across nation. Traders and food majors can procure produce directly from farmers on this e-mandi/platform, ensuring:

·       Social distancing – trading, invoicing and payment, everything takes place online

·       Competitive price for farmers – the selling price is decided by the competition and not by intermediaries

·       Better reach – sellers get better reach to markets across the state

·       Real time information – buyers can get real time information on trade, price and commodities

In order to create awareness about e-NAM platform, organisations such as CSC e-gov, Panchayats, citizen service centres, etc can be leveraged by the government.  

Originally published here.

Views also published in Indore Samachar, dated Apr 7, 2020. Read here.