CASIRJ Volume 11 Issue 4 [Year - 2020] ISSN 2319 – 9202 IMPACT OF COVID 19 ON MSMEs Dr. Digambar Kulkarni* Meaning and Introduction MSME Definition 2020: The Micro Small and Medium Enterprises (MSMEs) are classified as per the MSME Act-2006. In the economic package to the MSME sectors of the country, FM Sitharaman has provided 3 lac crore loan to boost up this sector. The Micro, Small and Medium Enterprises (MSMEs) sector has emerged as a highly vibrant and dynamic sector in the Indian economy over the last five decades. MSME sector had saved India's economy from great recession in 2008 and still contributing like the backbone of the economy. As per MSME Act-2006, The MSMEs are classified into two categories; 1. Manufacturing Enterprises-The enterprises engaged in the manufacture or production of goods (as per Development and Regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. 2. Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. As per the new definition of MSMEs announced in May 2020, the investment limit has been revised upwards and an additional criterion of turnover introduced. The distinction between manufacturing and services has been done away with. Now, a micro firm is one with investment up to Rs 1 crore and turnover less than Rs 5 crore, the small firm has investment up to Rs 10 crore and turnover up to Rs 50 crore and medium-firm will be one with an investment of up to Rs 20 crore and turnover under Rs 100 crore. OBJECTIVES OF MSMEs     Promoting competitiveness and productivity in the MSME space. Making the MSME sector innovative, improving technology and depth. Enabling environment for the promotion and development of MSMEs. Strong presence in exports. The MSME sector that forms the backbone of the Indian economy was hit due to the blows of demonetisation and GST implementation. However, as the situation began to show signs of improvement, the pandemic outbreak ushered in a new set of challenges, leaving many companies in the lurch due to the pandemic outbreak and the consequent lockdown. Additionally, factors like credit deficit, shortage of working capital, and a decrease in demand for non-essential goods paints a grim picture. International Research Journal of Commerce Arts and Science http://www.casirj.com Page 120 CASIRJ Volume 11 Issue 4 [Year - 2020] ISSN 2319 – 9202 Contributing almost 30 per cent to India’s GDP and about half of exports (data by Directorate General of Commercial Intelligence and Statistics (DGCIS)), MSMEs play a significant role in the economy. As the economic activities come to halt due to prolonged lockdown, MSMEs need a fiscal stimulus. Despite the fact that the government is taking countermeasures to combat the loss incurred due to the pandemic, MSMEs are struggling for stability as sales and revenue remain at a halt. As per the CII CEOs snap poll on the impact of COVID-19 on the economy and industry, 54% of company heads predict job losses in their respective sectors post the lockdown whereas 45% foresee 15-30% layoffs. Additionally, 33% of the firms are expecting a fall in revenue for FY21. For instance, auto manufacturers like Maruti Suzuki said the production for April was ‘zero,’ whereas, during February, the company produced 1,40,933 cars. This is the plight across the manufacturing industries, including textiles, chemicals, among others. What makes the situation worse is that with a decrease in demand, and no possible rebound in the future, it may get increasingly challenging for most of the businesses to adhere to their obligations. According to TransUnion Cibil, MSME loans worth Rs 2.3 lakh crore are at a higher risk of becoming non-performing. Further, the need for working capital will increase as payment cycles are likely to be extended, generating cashflow issues. This situation is expected to prevail, even as the government relaxes restrictions. In response to COVID-19 impact on the industry, the RBI has given a moratorium on term loans, eased working capital financing and put off interest payment on working capital facilities without an asset classification downgrade. Additionally, many public sector banks have introduced emergency credit lines whereby MSMEs borrowers can avail a maximum loan amount of up to INR 200 crore or 10 per cent of the existing fund-based working capital limits. Small Industries Development Bank of India (SIDBI) has announced a 5 per cent rate concession on all loans to MSMEs. The government has also extended GST payments date till June 2020. Despite these measures, however, due to the halted production and slump in demand, MSMEs are unable to pay their creditors. While the revenue generation remains on hold, there are several expenses that the companies can’t get their hands off such as salaries of employees, tax deposit, rent of warehouses and office spaces, among many others. challenges of MSME?       Most of the unregistered MSMEs would predominantly comprise micro-enterprises, particularly confined to rural India, operating with obsolete technology, limited access to institutional finance etc. And there is a need to transform the huge unregistered MSME into registered MSME. Need to improve the competitiveness of the overall MSME sector. Access to technology. IPR related issues. Design as a market driver. Wasteful usage of resources/manpower. International Research Journal of Commerce Arts and Science http://www.casirj.com Page 121 CASIRJ      Volume 11 Issue 4 [Year - 2020] ISSN 2319 – 9202 Energy inefficiency and associated high cost. Low ICT usage. Low market penetration. Quality assurance/certification. Standardization of products and proper marketing channels to penetrate Measures Taken by the Government To inject lifeblood to the MSME sector, the government needs to soon arrive at a fiscal stimulus. The Reserve Bank of India declared several monetary policy measures to curb the impact of the covid 19 pandemic:    Declared a considerable cut in the policy repo rate by 75 basis points to 4.4% – lowest policy rate in this century Announced to inject around ₹3.74 lakh crore liquidity into the system Allowed a 3-month moratorium on payment of installments on the existing term loans RBI has also opened another Rs 50,000 crore in refinancing window for Nabard, Sidbi and NHB under which:   Reduced the liquidity coverage ratio to 80% from 100% previously, and provided a special financial facility of Rs 50,000 crore to All India Financial Institutions (AIFIs) at the repo rate Banks will require to make these investments within one month from receiving the funds from the RBI Although these announcements are expected to assist the MSMEs in tackling economic stress, they may not prove to be remunerative immediately as the demand is likely to remain low due to the prevailing lockdown restrictions and low business emotions. Other measures to help the MSME sector comprises emergency credit lines announced by Public Sector Banks, a low-interest loan rate of 5% within 48 hours declared by SIDBI, and business continuity measures by the RBI. The Minister for MSME and Road Transport and Highways, Nitin Gadkari said that the government is working on an agro MSME policy that will focus on entrepreneurship development in rural, tribal, agricultural, and forest areas for manufacturing products using local raw material. While the measures are taken a focus on easing the short-term liquidity concerns, the stimulus package, soon to be announced by the government, needs to be far-reaching for the MSME sector to tide over the impacts of the pandemic. The government needs to arrive at a decisive plan to revive the MSME sector. However, it may not be an easy task as it will take time for the situation to get anywhere near normalcy. Working capital will continue to be the mainframe of the sector, and any shortage at it will challenge its survival. Having said that, the allocation of a contingency fund for the MSME sector is the need International Research Journal of Commerce Arts and Science http://www.casirj.com Page 122