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The Centre’s decision to change the definition of micro, small and medium enterprises (MSMEs), and address solvency issues, will help many companies stay afloat during this current economic slowdown, said Sunjay Kapur, chairman, Sona Comstar, and vice-president, Automotive Component Manufacturers Association of India, in a Mint Pivot or Perish interview. He said small parts suppliers are a critical part of the automotive supply chain, and automakers and tier-1 suppliers should step up to help them if banks don’t come forward. Edited excerpts:

How can MSMEs recover from the virus crisis?

There are three things that will help these companies to recover from this current crisis: cash, labour and raw material. In terms of cash, I feel that companies need liquidity and we are solving the problem of solvency. The measures that the government came out with were about solving this problem of solvency.

I don’t think anyone ever expected to run a business on zero revenue and it’s a new experience. The auto component industry is much stronger than what it was in 2008, so we have seen few bankruptcies so far. Rural India has received a lot of the money that the government has offered (through the financial package) and therefore we are looking at some recovery in rural India.

With regard to the measures brought out by the government, be it in terms of loans or helping with NPAs or creation of a fund of funds, these measures are definitely going to help MSMEs. The fact that they have changed the definition of MSMEs will get more companies under the fold. The OEMs have been very positive in terms of payments to its suppliers and that has been a big relief.

Are banks and other financial institutions helping MSMEs stay afloat? What happens after the moratorium on loan repayments gets over?

I think the financial institutions are doing what they can do, given the fact that we don’t want them (banks) to be stressed at the end of the day.

Companies that require financial help are getting assistance from banks. It is not as easy as we thought it would be. However, there is a process that needs to be followed and companies are being helped by banks.

Whether they (MSMEs) remain in a position to repay the banks depends upon whether there will be demand in the market and I am certain that demand will come back. Opportunity in the auto component market will be there because there is strong demand in the export market.

The demand in the rural market is coming back and tractor sales are better than before. So, I think it is a matter of time before the market revives.

Will MSMEs in the auto sector be able cope with the labour shortage after the exodus of migrants?

That’s a real problem and somewhere that needs to be addressed. Companies should collaborate more with educational institutions because if we don’t have labour, then, even if we have all the business in the world, production won’t be possible.

I think it will balance out in some months, but this is a very unique situation.

How are OEMs and tier-1 component manufacturers helping the small parts suppliers?

Fortunately, we have a strong supply chain, but yes, there are tier-1s whose suppliers have packed up overnight, and there is a threat. We are all trying to de-risk our supply chains now. Companies that have supply chains in China are trying to bring that to India.

So, in such times, it is critical that the suppliers survive, and it is critical for us to help suppliers. If they are not getting the help required from the banks, then the OEMs and tier-1 suppliers will have to step up. Our supply chain is extremely complex. If one manufacturer is down, it impacts the entire supply chain. Therefore, MSMEs will have to look at the bigger opportunities and stay afloat, but there will be MSMEs like some tier-2 and 3 component manufacturers who will fold up.

Will the government’s effort to ease access to liquidity help MSMEs? Will reserving tenders for MSMEs help them stay afloat?

Measures that have been taken are for solvency. If we don’t address the issues at the bottom of the pyramid then we won’t be able to address the other issues. Our country is very different from other countries. The fact that the rural Indian has got money, and the rural economy has been fuelled gives a great benefit to us.

Yes, the government can help us in demand creation through measures like tax cuts and vehicle scrappage policy. The fact that they have reserved defence and other tenders under 200 crore for MSMEs will play a key role in benefiting these companies. These companies will also adopt new technologies to bid for these tenders, which will help them.

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