How Hit Are MSMEs?
Summary
TLDRThe 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
- π 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.
- π 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.
- πΌ 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.
- π 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.
- πΌ The impact on businesses is significant, with some sectors experiencing a standstill in economic activities due to the cash crunch.
- π Some sectors, such as handicrafts, handlooms, and carpet industries, are more affected due to their dependence on daily wage workers and cash transactions.
- π The extent of the hit on business is difficult to quantify but is expected to be substantial, especially for those operating informally.
- π’ 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.
- π·ββοΈ 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.
- π« The immediate impact seems temporary, with workers possibly sent home until the situation stabilizes, but prolonged issues could lead to long-term unemployment.
- π‘ 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
πΌ 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.
π 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.
Mindmap
Keywords
π‘De-monetization
π‘Micro, Small, and Medium Enterprises (MSMEs)
π‘Investment in Plant and Machinery
π‘Supply Chains
π‘Rural and Urban Impact
π‘Cash Transactions
π‘Informal Sector
π‘Economic Activities
π‘Job Losses
π‘Consumption Postponement
π‘Opportunity Loss
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
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