Micro, Small, and Medium Enterprises (MSMEs) in India have been a major contributor to the socio-economic development of their country, contributing 18.5% to its 2019 to 2020 Gross Domestic Product (GDP). The sector has also contributed immensely to entrepreneurship development, especially in the semi-urban and rural areas of India. However, the global pandemic has affected every sector in the world indiscriminately, albeit in varying degrees, and MSMEs have proven to be more vulnerable to income and asset losses than larger firms.
To better understand and address this issue, India’s National Productivity Council (NPC), in association with the Asian Development Bank Institute (ADBI), decided to conduct an online survey to look into the pandemic’s size, aspects, incidence, and how it has impacted MSMEs in India, Bangladesh, Pakistan, Indonesia, the Lao PDR, Mongolia, Vietnam, and Malaysia. They combined elements of qualitative and quantitative research approaches in their study design to ascertain the level of sectoral distress at the peak of the nationwide lockdown in May 2020. The results were concerning, as they showed that production levels fell from an average of 75% capacity to just 13%, firms retained only 44% of their workforce, and 69% of firms reported an inability to survive longer than three months.
The study had some notable findings on the state of MSMEs since the onset of the COVID-19 pandemic. First, they found out that MSMEs in developing Asian countries experienced considerably reduced employment and sales revenues in the first few months after the outbreak. The reduction in employment was, of course, more severe for the employment of non-permanent employees, but the employment of permanent or regular employees was also significant. Although there are considerable differences among countries, one-fourth to one-half of the sample MSMEs experienced a temporary close down during this period and one-third to two-thirds were facing a cash shortage at the time of the survey. Thus, the impacts of the pandemic on employment and the sustainability of business were quite severe.
Second, some enterprises were earning from online sales before the pandemic, many of them were either 1) young firms, 2) export-oriented firms, 3) even firms facing a cash shortage, and 4) those who have already been using online sales. Moreover, these firms are also planning to increase their utilization of online sales amid the pandemic.
Third, the share of online sales has a nonlinear relationship with employment. As the share increases until it reaches about 40% of the total sales, its relationship with employment is negative, suggesting that the use of online sales displaces labor input. Fourth, MSMEs tend to prefer tax payment deferral, tax rate reduction, and loan repayment deferral to many other possible forms of government support for MSMEs, even though considerable differences exist among countries and among firms regarding which type of support they prefer
The lessons presented by these findings are of significant use to the public sector as well. The difficulties faced by MSMEs, as seen in the study’s overall findings of sectoral distress across the board during the height of the pandemic, should be taken into consideration by the public sector in its development of interventions to drive recovery from COVID-19. Especially concerning is the widespread layoffs among MSMEs, which could have widespread ramifications that the public sector will have to address.