Death by a Thousand Cuts

Why the relief package will not undo the lockdown’s destruction of the MSMEs

Migrant labourers stranded at Delhi’s Ghazipur border, after the Uttar Pradesh police refused to allow them to enter the state on foot on 15 May. Many of the workers we see on the streets today are employed in MSMEs. ajay aggarwal / hindustan times / getty images
01 June, 2020

Many in India have finally woken up to the precarious conditions in which a majority of the country’s workers live and work. Driven to starvation because of an abruptly announced lockdown, migrant labourers have had no option but to try to return to the safety of their homes in villages. As a callous government blocked all public transport, many decided to make the journey on foot or on bicycles, even as the police came down heavily on them. Several perished of starvation, or in mishaps, on the way. Most of them had led financially precarious lives even before the pandemic. The choice for migrant labourers was to either take the risk of contracting COVID-19 by venturing out or confront the danger of death by starvation.

The lockdown has entered its third month, and is unlikely to be lifted any time soon, even though daily circulars keep changing its definition. While the effectiveness of the lockdown in containing the spread remains unclear, the economic devastation it has caused is plain to see. Many of the workers we see on the streets today are employed in enterprises categorised as micro, small and medium enterprises. Even though data is limited, it seems suffice to say that the economic impact of the lockdown is likely to be far worse for the MSME sector than its larger counterparts. Unlike big companies that have large cash reserves and access to credit, the MSME sector not only loses out due to a lack of economic activity but also due to insufficient access to credit and other support provided by the government.

In an attempt to save face, on 12 May, Prime Minister Narendra Modi announced a grand relief package to revive the economy of Rs 20 lakh crore, almost ten percent of the GDP. However, after the finance minister Nirmala Sitharaman subsequently revealed details of the package, many have questioned why it has been called a “stimulus” or a “relief package.” For the MSME sector, the package mostly contained liquidity measures. Going by actual numbers, the package is not only insufficient on its terms, but also pales in comparison to measures being taken globally. Historically, various governments have overlooked the sector, when it needs to be a vital part of any economic policy.

Although the MSME sector is managed by a separate ministry, it has largely been ignored in the mainstream discourse on economic growth or policy. Unlike other countries, we do not have a defined policy for the sector, with a ministry that exists in name only. It has primarily been perceived by policymakers as all other enterprises besides the large ones. This perception really hurts the sector because of its heterogeneity—it comprises manufacturers as well as firms that provide services, single-person enterprises as well as those employing up to 99 workers. Despite this, the MSME sector contributes 45 percent of the manufacturing output of the country. It accounts for little more than thirty percent of the GDP and two-fifths of the total exports of the country. But more importantly, excluding construction and agriculture, it is the largest employer with about 111 million persons working in the sector in 2015.