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Lockdown 4.0: MSMEs open factories with 30-50% capacity; face raw material labour, cash crunch

The government last week announced a slew of measures including Rs 3 lakh crore collateral free loans, but most MSMEs say this will not help much given that they need immediate cash support

Nirbhay Kumar        Last Updated: May 18, 2020  | 13:16 IST
Lockdown 4.0: MSMEs open factories with 30-50% capacity; face raw material labour, cash crunch

KEY HIGHLIGHTS

  • MSMEs have opened factories with 30-50% capacity but face issues such as shortage of raw material, labour and cash crunch
  • The firms said that earlier payment cycle was 3-4 weeks but now it has gone up to almost two months
  • MSMEs are among the worst-affected by coronavirus-induced lockdown and struggling to survive
  • Centre last week announced Rs 3 lakh crore collateral-free loans to support the crisis-hit sector

The small and medium firms (SMEs) have opened factories with 30-50% capacity but are grappling with issues such as shortage of labour, stuck payments in trade and limited raw material. They are, however, planning to scale up operational capacity and have been in touch with workers who went back to their native places during lockdown. The SMEs expect the demand to pick up as shops open up amid easing of lockdown restrictions.

"We are currently running only one shift and that too with 50% of the workforce. The actual capacity operational is only 25-30%. There are logistics related issues. We get our inputs from Hindalco. They have informed that they will soon start sending raw materials. So currently we are facing issues. Above all, we see subdued demand," says VK Aggarwal, Managing Director, Shashi Cables.

Many SMEs BusinessToday.in reached for comment said they were facing cash crunch as payments remained stuck in the trade. The firms said that earlier payment cycle was 3-4 weeks but now it has gone up to almost two months. Muzaffarnagar-based Chakradhar Chemicals, which produces micro-nutrient and water-soluable fertilisers, says their payments remain locked in both local and export market. The company's chairman Neeraj Kedia says that buyers have been asking for supplies but remain non-committal on payment timeline.

"One of our major payment for exports is awaited from the Philippines. Due to lockdown, necessary papers could not reach the buyer as courier company returned documents after lockdown was announced on March 24. There is a lot of payments stuck locally too," Kedia says. SK Jain, Managing Director of Haryana-based Solo group engaged in auto-components manufacturing says that he is planning to start night shift in the factory and has asked workers to report for duty.

The country's micro, small and medium enterprises (MSMEs) are among the worst-affected by coronavirus-induced lockdown. The government last week announced a slew of measures including Rs 3 lakh crore collateral free loans, but most MSMEs say this will not help much given that they need immediate cash support.

"The measures announced by Finance Minister (Nirmala Sitharaman) are of zero help for the MSME sector. MSMEs were struggling to repay loans even before lockdown due to low demand and sales. Now, government wants MSMEs to take further loans. It does not make sense to increase liability when there is no demand in the market or fresh orders," says Sanjay Kaul, Chairman (taxation and banking) of Lucknow-headquartered Indian Industries Association.

Also read: Stimulus package has done nothing to spur demand, says Maruti's Bhargava

Also read: PM Modi forms group of ministers to monitor implementation of Rs 20 lakh crore package

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