As India’s economy slows down with the rapid spread of coronavirus, the government and the Reserve Bank of India (RBI) could look at bringing a mechanism to allow loan defaulting micro, small and medium enterprises not to be treated as non-performing assets (NPA). Businesses, especially MSMEs, have been the worst impacted due to the nationwide 21 day lockdown.
Several factories have been shut temporarily to avoid the spread of the killer disease. Besides, those in the export segment have witnessed limited trade related activities.
The Federation of Indian Micro and Small & Medium Enterprises (Fisme) too has written to Prime Minister Narendra Modi to allow “non-habitual” defaulters to continue their operations without any break and not consider them as NPAs. “The lockdowns and social distancing, critically required as they are, have strangulated demand, disrupted supply chains and are set to bring the economic engine to a grinding halt. The scale of disruption is overwhelming and has left none of the sectors- manufacturing or services, unscathed,” the Fisme wrote in its letter.
Many MSMEs have already started running into losses with demand shrinking. “This loss may just keep increasing now till the time things normalize, which may take more than a couple of months,” an analyst said. Shortage of working capital has also hit these units.
Sources in the Finance Ministry said that the government was working on announcing a mega financial package to support businesses. Modi has held a few meetings with industry bodies and the captains of industries to understand the situation better. Meanwhile the Kerala government has announced three new loan schemes aimed at supporting the MSME sector.
Thousands of people employed by MSMEs may lose their jobs due to severe cash crunch arising due to the lock down. The MSME sector—the largest employment provider in the country—accounts for about 20 per cent of the country’s GDP.
On Friday, the World Bank announced a $1 billion emergency financing for India for tackling COVID 19.
“The World Bank is working in close partnership with the government of India to provide urgent and flexible support to the country as it fights the spread of COVID-19,” said Junaid Ahmad, World Bank Country Director for India. “COVID-19 is not only a health challenge. It has deep social and economic implications. In parallel, we are working with equal urgency with Government on social protection programs and economic measures that protect the livelihoods of people.”
The State Bank of India has estimated a loss of about Rs 8.03 lakh crore due to the lock down..
