The slew of measures announced by finance minister Nirmala Sitharaman on Wednesday aimed reviving micro, small and medium enterprises (MSMEs) — a segment worst impacted by the pandemic induced lockdown will help resolve severe supply side constraints which in turn will have a multiplier effect on the economy, experts feel. As non essential businesses shut operations in India since March 25, smaller companies with weaker cash flows had stopped paying wages and retrenched employees, creating a supply side side shock, as underlined by the contraction of the Index of Industrial Production which fell by 16.7 percent in March over last year.
“It is a very good deal for MSMEs. It is good for jobs and starting the industry again," Mohandas Pai, chairman of Manipal Global and Aarin Capital said of the stimulus package. “Once MSMEs start buying raw materials, everything will start moving again. It would boost demand over the next two-three quarters," he added.
The finance minister announced ₹3 lakh crore collateral-free automatic loans for MSMEs, ₹20,000 crore subordinate debt for stressed MSMEs and ₹50,000 crore equity infusion for MSMEs through a ‘Fund of Funds’.
Raja M Shanmugham, partner at Warsaw International, a textile exporter in Tiruppur, said that 75% of the units in the region’s textile cluster would benefit from today’s announcement. Exporters in Tiruppur have inventories worth around ₹9,000 crore stuck because of market closures in Europe and other parts of the world. Customers have also withheld payments. “Lot of small companies here are under stress over the last two years because of macroeconomic changes. They have a chance to get out of their financial troubles and grow now," Shanmugham said.
Industrialists said they would wait and watch for the rest of the stimulus announcements over the following days. But they expect the broad theme to be around sorting the supply-side since reviving demand is more complicated. Experts Mint spoke to hoped that the demand side of the economy would get sorted over the next few quarters as people get their pay — eventually, they would consume more.
“There is very little you can do on the demand side unless you do a direct benefit transfer again," M.S Unnikrishnan, managing director and CEO of Thermax said. “No government in the world can do much in increasing the demand right now. What ever you do on the supply-side, there would be an indirect impact on demand. If you put money into circulation, it ends up in consumption at some point," he added.
Besides the efforts around employment preservation, the industry welcomed the government’s intent to enhance liquidity. Arun M. Kumar, chairman and CEO of KPMG in India particularly noted the measures for NBFCs, MFIs and those for the power sector aimed at “easing the situation of distribution companies and cash-strapped independent power producers". These measures to ease liquidity for lenders and businesses, he said, would make a “tangible difference".