How Hit Are MSMEs?

Summary

The video script discusses the impact of demonetization on India's micro, small, and medium enterprises (MSMEs), focusing on the cash-dependent informal sector. Mr. Bhardwaj, Secretary General of the Federation of Indian MSMEs, highlights that nearly 80% of SMEs are affected, with the most significant impacts on sectors like handicrafts, handlooms, and carpet industries. He emphasizes the temporary nature of job losses but warns of potential long-term effects if cash shortages persist, urging for increased access to bank funds to mitigate the crisis.

Takeaways

• 📈 The script discusses the impact of demonetization on micro, small, and medium enterprises (MSMEs) in India, focusing on investment in plant and machinery rather than revenue.
• 🏭 The categorization of MSMEs is based on varying investment levels, with micro enterprises being defined as having investments up to 25 lakhs in manufacturing and up to 10 lakhs in services.
• 💼 Mr. Bhardwaj, Secretary General of the Federation of Indian Micro and Small and Medium Enterprises, indicates that nearly 80% of the SME sector has been affected by demonetization.
• 💔 The informal sector, which makes up approximately 90% of Bhardwaj's organization's members, is particularly hard hit due to their reliance on cash transactions.
• 💼 The impact on businesses is significant, with some sectors experiencing a standstill in economic activities due to the cash crunch.
• 📉 Some sectors, such as handicrafts, handlooms, and carpet industries, are more affected due to their dependence on daily wage workers and cash transactions.
• 📊 The extent of the hit on business is difficult to quantify but is expected to be substantial, especially for those operating informally.
• 🏢 The organized sector and those integrated with rural supply chains are comparatively less impacted, suggesting a varied impact across different segments of the SME sector.
• 👷‍♂️ There is a potential for significant job losses if the cash flow issue is not resolved within a few quarters, affecting daily wage workers the most.
• 🚫 The immediate impact seems temporary, with workers possibly sent home until the situation stabilizes, but prolonged issues could lead to long-term unemployment.
• 💡 Bhardwaj suggests that increasing the withdrawal limit from banks could help alleviate the immediate cash flow problems faced by SMEs.

Q & A

What is the primary criterion for defining micro, small, and medium enterprises (MSMEs) in the context of this discussion?

The primary criterion for defining MSMEs in this discussion is based on the investment in plant and machinery, not on revenue or any other criteria.

What are the investment limits for micro enterprises in manufacturing and services sectors?

For micro enterprises, the investment limit is up to 25 lakhs in the manufacturing sector and up to 10 lakhs in the services sector.

What is the investment range for small enterprises in manufacturing and services sectors?

For small enterprises, the investment range is 25 lakhs to 5 crores in the manufacturing sector and 10 lakhs to 1 crore in the services sector.

What is the investment range for medium enterprises in manufacturing and services sectors?

For medium enterprises, the investment range is between 5 crores and 10 crores in the manufacturing sector and between 1 and 5 crore rupees in the services sector.

How has demonetization impacted the MSME sector according to Mr. Bhardwaj?

According to Mr. Bhardwaj, demonetization has impacted the MSME sector widely, with almost all segments affected, particularly those that are part of the informal sector and rely heavily on cash transactions.

What percentage of Mr. Bhardwaj's organization's members have been affected by demonetization?

Approximately 80% of the members of Mr. Bhardwaj's organization have been affected by demonetization in varying degrees.

Which sectors are comparatively less impacted by demonetization?

Sectors that are part of large supply chains and the organized sector are comparatively less impacted, as they are more integrated with formal financial systems.

What is the estimated percentage of SMEs in the informal sector according to Mr. Bhardwaj?

According to Mr. Bhardwaj, almost 90 percent of the SMEs under his organization's umbrella are in the informal sector.

How has the demonetization affected the daily wage earners in the MSME sector?

The daily wage earners in the MSME sector have been greatly impacted, as they may be sent on holiday due to the cash crunch, affecting their income and livelihood.

What are the potential long-term impacts of demonetization on the MSME sector if the cash shortage persists?

If the cash shortage persists for several quarters, there could be significant job losses and a negative impact on economic growth, particularly in sectors that rely on daily wage labor.

Which sectors are most vulnerable to the immediate effects of demonetization according to the transcript?

Sectors such as handicrafts, handlooms, glass industry, carpet industry, and others that operate on a cash basis and employ people on a daily or piece wage basis are most vulnerable to the immediate effects of demonetization.

What is the current limit for MSMEs to withdraw from banks, and what is being suggested as an improvement?

The current limit for MSMEs to withdraw from banks is 50 thousand rupees. Mr. Bhardwaj suggests that this limit should be increased to 5 lakh rupees to help restore normalcy to daily activities.

How does Mr. Bhardwaj view the potential impact of demonetization on consumption and economic growth?

Mr. Bhardwaj believes that demonetization could lead to a loss of opportunity in sectors where consumption cannot be postponed, which would have a bearing on economic growth.

Outlines

00:00

💼 Impact of Demonetization on SMEs

The first paragraph discusses the effects of demonetization on micro, small, and medium enterprises (SMEs) in India. It defines these segments based on investment in plant and machinery rather than revenue. The Secretary General of the Federation of Indian Micro and Small and Medium Enterprises, Mr. Bhardwaj, explains that nearly 80% of SMEs have been affected by the cash withdrawal, particularly those in the informal sector and rural supply chains. The impact ranges from temporary standstills in economic activities to potential long-term job losses if the cash shortage persists for several quarters. The conversation highlights the urgent need for increased bank access to alleviate the immediate hardships faced by these businesses.

05:01

📉 Sector-Specific Impacts and Economic Ramifications

The second paragraph delves into the sector-specific impacts of demonetization, emphasizing the plight of industries like handlooms, textiles, and others that operate on a cash basis. Mr. Bhardwaj outlines the immediate challenges faced by these sectors, including difficulties in purchasing raw materials and paying wages, which could lead to temporary closures and job losses. He also discusses the potential long-term effects on economic growth, noting the loss of opportunities in sectors where consumption cannot be postponed. The conversation underscores the importance of swift resolution to the cash crisis to prevent severe economic repercussions.

Keywords

💡De-monetization

De-monetization refers to the withdrawal of a currency unit from circulation, making it no longer valid for transactions. In the context of the video, it is the process that has impacted the micro, small, and medium enterprises (MSMEs) by removing cash from the system, causing economic activities to come to a halt or be adversely affected.

💡Micro, Small, and Medium Enterprises (MSMEs)

MSMEs are business entities classified based on the investment in plant and machinery rather than revenue. They are crucial for the economy, providing employment and fostering innovation. The video discusses how different segments of MSMEs, defined by investment limits, have been affected by de-monetization.

💡Investment in Plant and Machinery

Investment in plant and machinery refers to the capital spent on acquiring equipment and infrastructure necessary for business operations. The script uses this metric to classify MSMEs into micro, small, and medium categories, highlighting its importance in defining business size and scope.

💡Supply Chains

Supply chains are the networks of organizations, people, activities, information, and resources involved in producing and delivering a product or service. The video mentions that MSMEs part of large supply chains are comparatively less impacted by de-monetization, indicating the importance of integration within the business ecosystem.

💡Rural and Urban Impact

The terms 'rural' and 'urban' are used to differentiate the geographical areas where MSMEs operate. The script suggests that rural sectors, particularly those employing daily wage workers, are more adversely affected by the cash crunch caused by de-monetization.

💡Cash Transactions

Cash transactions are financial exchanges conducted using physical currency. The video emphasizes that MSMEs, especially those in the informal sector, rely heavily on cash for transactions, making them vulnerable to disruptions caused by de-monetization.

💡Informal Sector

The informal sector consists of economic activities and workers not registered with the government, often characterized by unregulated work conditions and cash-based transactions. The script indicates that MSMEs in the informal sector are greatly impacted by de-monetization due to their reliance on cash.

💡Economic Activities

Economic activities refer to the tasks and actions involved in the production, distribution, and consumption of goods and services. The video discusses how de-monetization has caused these activities to come to a standstill for many MSMEs, affecting their operations.

💡Job Losses

Job losses occur when workers are laid off or made redundant due to economic downturns or business closures. The script suggests that prolonged de-monetization could lead to significant job losses in the MSME sector, particularly in industries operating on daily or piece wages.

💡Consumption Postponement

Consumption postponement is the delay in purchasing goods or services. The video mentions that some sectors, like automobile and card industries, might experience a delayed impact of de-monetization as consumers postpone non-essential purchases until cash becomes more available.

💡Opportunity Loss

Opportunity loss refers to the potential gain missed due to a decision made. In the context of the video, it is the loss of income and production that MSMEs face due to de-monetization, especially in sectors where production cannot be postponed, leading to long-term economic consequences.

Highlights

De-monetization's impact on micro, small, and medium enterprises (MSMEs) is significant, affecting nearly all segments.

MSMEs are categorized by investment in plant and machinery rather than revenue.

Micro enterprises in manufacturing and services are defined by investment limits of up to 25 lakhs and 10 lakhs, respectively.

Small enterprises have an investment range of 25 lakhs to 5 crores for manufacturing and 10 lakhs to 1 crore for services.

Medium enterprises are defined with investments between 5 and 10 crores for manufacturing and 1 to 5 crore for services.

The Federation of Indian Micro and Small and Medium Enterprises represents 740 SME associations.

Approximately 80% of SME sectors have been impacted by de-monetization to varying degrees.

Sectors integrated with rural supply chains and the informal sector are more adversely affected due to cash reliance.

90% of the organization's members operate in the informal sector, experiencing a substantial impact.

The extent of business hit due to de-monetization is difficult to quantify but is significant for informal sectors.

Handicraft, handloom, and sectors employing daily wage workers are particularly impacted by the cash shortage.

Temporary shutdowns and worker furloughs are common in sectors unable to access cash for operations.

Prolonged cash shortages could lead to significant job losses in the SME sector.

The impact on the economy includes lost opportunities in sectors unable to postpone consumption.

Sectors such as the automobile industry may see delayed impacts as consumer purchasing power diminishes.

The textile and handloom industries, reliant on cash transactions, are severely affected.

Clusters like Ludhiana and Moradabad, known for their SMEs, are facing significant operational challenges.

The Federation is urging the government to increase bank withdrawal limits to alleviate the cash crunch.

The potential for economic growth is threatened by the de-monetization's impact on consumption and production.

Transcripts

act of de monetization on the vast micro

small and medium enterprises a segment

and before I get into and bring my

guests and to discuss that let us

quickly define what constitutes these

various segments which are quite

frequently used so I mean the graphics

will come up on your screen these are

defined based on the investment and

plant and machinery not in terms of

revenue or any other such criteria but

investment and the numbers are up on

your screen

they're different from both

manufacturing and services that's a

micro enterprise 25 up to 25 lakhs for

manufacturing services up to 10 lakhs

small manufacturing 25 lakhs to five pro

services 10 lakhs to 1 troll and medium

enterprise manufacturing 5 fro so 10

crores and services between 1 and 5 odd

crore rupees let us get an onion part of

our Secretary General of Federation of

Indian micro and small and medium

enterprises mr. Bhardwaj thank you very

much for your time so appreciate your

joining in yours is an organization

which has about 740 SME associations

under it under the umbrella can you tell

us very clearly straight away what

percentage of your organization's are

impacted and to what extent to what

degree see the impact has been

widespread that I think there's hardly

anyone who has gone unaffected by the

monetization and surely almost all

segments in them SME sector have been

affected now the impact has been layered

of course I mean there are certain

sectors which are comparatively less

impacted especially those that are part

of large supply chains and organized

sector and the ones that are part of

more connected to or integrated with

rural supply chain informal sector they

are greatly impacted because most of

their transactions whether buying raw

material paying wages or selling their

goods everything is in cash and once

cash has been taken out of the system

their economic activities have come to a

standstill or are affected very

adversely so what percentage of the of

your members it's almost 80% of em SME

sectors would have been affected in

different degrees but this is primarily

because of the cash

have been withdrawn yes average I

understand already have on an average

what would be the extent of the hit on

business I think that's a little

difficult to question because you need

to really go into details you know

that's what I said you know if the

sectors that I have been in operating

informally they are affected more than

the ones that are part of a larger

supply chains or they are part of the

Albright sector one would believe that

the the organization's under your

umbrella bulk of them are in the

informal segment that's right almost 90

percent would be in the informal sector

so the impact would be large you said it

will it did very well yes yes okay all

right it varies but its widest range

okay

mr. Pires Fanshaw just wanted to

understand if you can give us a break up

in terms of how many jobs are probably

impacted in the rural space as opposed

to urban at this point of time I'm

afraid I it would not be in a position I

would not be in a position to give you

the number right now but I can give you

some indications for example if you're

talking about handicraft sector handloom

sector or sectors like glass industry

carpet industry typically where most of

the people are employed on daily wages

basis or peace wage basis they are

usually impacted and the impact is not

in terms that they're the services are

completely taken out but I think they

this is height asur they may be sent on

holiday that okay you go home for 15

days or a month and come back once

things are settled down a bit because if

it's not that the industry have collapse

but I think because of the cash they are

finding it difficult to buy raw material

and give also the wage radius to the

workers so it's temporary in many many

sectors but eventually it would depend

if it prolongs then they would be a huge

job losses there could be huge job

losses if it continues for couple of

quarters so so you're saying right now

the impact seems temporary transient

people would have gone back to the

villages especially people who paid on a

daily basis etc and what if money comes

back into the system very fast then

these units can be up and running you

said if they if it's prologue right can

hurt more what is

I mean we are hearing that to print or

to prolong get all that cash back it

would it could take anything between

three four five months that's right I

think we would be hoping against the

hope that the metal is sorted out as

quickly as possible especially we have

recently when our president met the

finance minister

we have impressed upon him that you know

ms amis should be allowed to get more

money from the banks you know currently

the limit is 50 thousand which is of

obviously very less and we are thinking

that maybe is given to the tune of 5

lakh rupees much of our daily activities

perhaps could come back to normalcy but

you're right I mean if it goes to 4 or 5

months then it would certainly help hurt

many many sectors ok fair enough

so in terms of sectors which i impact it

the most you outlined some of them right

main handlooms textile etc yeah these

are the industries which are all cash

completely cash

there are many sectors actually is

starting from plywood industry to read

rolling mills to glass industry woollen

industry of as well as teleport it in

two different clusters like T report or

Ludhiana or muradabad I mean all these

clusters where number of people have

been operating basically on daily wage

basis or peace wage basis they are

failed like that that's the tradition or

system of the industry so those are

definitely impacted much more than the

ones for example who are working in

automobile industry there the impact

perhaps is going to be coming back in

several other quarters when you know

people are not in a position to buy cars

and also let's not forget the nose there

are certain sectors there you can

postpone your consumption like cards so

if you can't buy it now maybe you can

buy it to ones down the line when there

is cash more money available but there

are many many sectors where such a

postponement may not be possible so if

something is lost like winters if winter

is long and in the sweaters you would

not be requiring in a place you know so

say there's a loss of opportunity so

many sectors are such where they would

be lost of opportunity people would not

be on would be able to earn wages

but not be able to produce and then it

will have its own spiral in the

consumption and then you have of course

impact on the economic growth as such

different people are saying one to two

person I don't know that wha how it will

pan out in next quarter's but surely

many many segments such consumption

which cannot be postponed

would be an opportunity lost and would

have a bearing on the economic growth

mr. Bhardwaj thank you very much

appreciate your joining