Small firms choke as pandemic tightens grip

Heyday, a small-scale unit located in Thrissur, is a misnomer today. Gone are the heydays for the company, which operates out of an independent gala off the national highway, currently struggling to start production and pay salaries.

The company, which specialises in bulk balloon printing and counts McDonald’s, Toyota, Pizza Hut, State Bank of India, and Malabar Gold as its clients, was left with no option but down the shutters when the pandemic-induced lockdowns hit their business ruthlessly. As gatherings and celebrations came to a naught in the pandemic, the demand for personalised, theme-printed, and branded balloons saw a steady decline.

“We are hoping that the demand will slowly pick up post the second wave. We invested over ₹50 lakh in a unique balloon printing machine imported from China. It was operationalised in December 2019, just three months before the first lockdown began on March 24, 2020,” says Joson Therattil, one of the promoters.

The unit had raised capital from individuals and NBFCs. “After signing up clients from across India, we were gearing up for a better topline growth. The pandemic and the 58-day-long first lockdown was like a big blow to our dreams. The year 2020 was nearly a washout. By January 2021, we somehow came back to near-normal. But the second wave broke our back,” he says.

Heyday has now expanded into manufacturing face-masks, with premium offerings. “It was first suggested by one of the staff. As balloon printing slowed down, the workers themselves brought their own sewing machines to the company premises and started switching masks. We only provided the basic infrastructure support as well as marketing of the masks,” said Joson, adding that there is demand for quality face-masks in the market.

The new line of business has given his company a breathing space till such time the primary business gets back on track.

But not everyone is as lucky as Joson.

A garment exporter from Tiruppur, the knitwear capital of India, said several units in and around the city are shut after it was hit by the second wave of the pandemic. Many units are gasping for funds, while some are working partially, he said.

“The government has announced many schemes. But nothing has come to our help on the ground level. Apart from the order cancellations, a clutch of issues like sky-rocketing yarn prices, ever-increasing container freight rates and an inordinate delay in the GST refund have hit the industry badly,” said a director of Christy Apparels.

“We have huge funding issues. When we go to banks seeking working capital, they are turning their back,” said another official from Tiruppur.

Vishal Garg, promoter of Psuche Pumps based out of Ambernath in Maharashtra, has seen the impact of the second wave from the close quarters. “Production in many units at the industrial area in Ambernath operated by Maharashtra Industrial Development Corporation (MIDC) has gone down. A lot of migrant workers have gone back to their respective states. Many units faced cash flow issues, leading to delay in salary payments,” he said.

One of the biggest issues SMEs faced was the delay in payments from their end-buyers. “When big fishes starve, small ones also end up starving,” he said.

For Garg, however, the pandemic opened up a new line of business in the pharmaceutical and chemical industries. “Since I supply different varieties of pumps, such as centrifugal pumps and gear pumps, we found an immediate surge in the demand in pharma/chemical industries which produce sanitizer and disinfectant in the wake of the pandemic.”

Garg, who has the biggies like Tata Steel, Deepak Nitrate, and ISRO’s propellant division at Patalganga as clients, expanded his supply to an array of new companies, in order to survive in the pandemic.

“Labour and funds are two perennial problems. Banks are not ready to fund us on purchase orders. They are asking for mortgages,” said Garg.

Though the government promised salaries for employees whose factories were shut, through ESI Corporation, nothing has materialised so far.

Joson said his employees did not receive unemployment relief under the ESIC scheme. “As per the rule, each employee should have contributed at least 78 days in the contribution period (April-September or October-March) immediately preceding the unemployment. It is only then, employees will be eligible for the salary benefit in the next assessment period (January-June or July-December), in case there is any disruption. No employer could offer 78 days of work during the six-month contribution period since they were shut during the lockdown,” he said. The confusion between the contribution period and the assessment period, thanks to the two being distinct, has created a big mess for MSME employees.

Most companies kept their employees on the rolls because slashing jobs during the pandemic was seen as unethical. But employers were unable to pay salaries amid demand destruction. “Only those employees who were axed from their job got the benefit under the ESIC scheme, which was announced much later. If the staff continued to remain on the rolls, though without salary, they were not eligible for any benefit,” said one official.

According to the latest Financial Stability Report by the Reserve Bank of India (RBI), given the elevated level of debt of the stressed MSMEs, the implications of business disruptions following the resurgence of the pandemic could be significant. Net credit flow to stressed MSMEs during March 2020-February 2021 rose to ₹50,535 crore with the shares of public sector banks and private banks being at 54% and 35%, respectively. The credit flow was primarily boosted by the government's Emergency Credit Line Guarantee Scheme (ECLGS) disbursements to eligible categories, says the RBI report.

For several years, the growth in the MSME (micro, small and medium enterprises) sector, which employs millions of Indians, has been critical for the country’s economic growth. The government may have to focus more on the sector to get them back on track.