How should SMBs react differently to this crisis as opposed to corporates?
There is a basic difference in the working culture of SMBs and Corporates. While corporates are more innovative, technology-driven, structured, have their SOP, MIS System, HR Policies, delegated and defined responsibilities they also have better communication channel amongst all stakeholders. On the other hand, the CEO or the promoter of SMB is responsible for everything and is involved in every activity.
I would like to advise my SMB friends in this crisis that they need to be more communicative with their lenders, suppliers, customers, staff and other stakeholders to give them a positive sense about their going concern concept. While big corporates will be able to retain their staff and to capture the market again quickly, it may be slightly difficult for the SMBs to gain the faith of all stakeholders.
These SMBs should also be very selective while availing any credit facilities announced by the banks, as the repayment of these additional loans over a period of four years with moratorium of one year will not be an easy task for these SMBs.
With up to 25% of small business owners facing the shutdown of their businesses, how can you help businesses struggling with the decision of how (and whether) to stay afloat?
I do not agree with this 25% shut down concept. India is a country with large population. There have been crises in past also and we have overcome, always. India has and will always have demands of the products/ services manufactured/traded by these SMBs which normally caters to the local markets.
I would like to advise these SMB to remain positive, calm, innovative and to move towards technological upgradation. In times to come, many large companies from China may shift to India, which will be a blessing in the disguise and may open new doors for many SMBs. Cheap labor, the younger generation, lowest tax rates for new companies, US-China Trade war, continuous drop in World Bank Ease of Doing Business ranking are some of the factors which will attract large global companies to set up their businesses in India.
SMBs neither need not to be aggressive nor pessimistic at this time. Some SMBs may plan to change their sector also, more particularly if they are dealing into luxury items. Those SMB which will be able to survive at this tough time will reap the fruits in times to come.
How can governments / central banks stimulate small businesses to stay afloat?
Though Government and Central Bank have announced the packages for small businesses, I suggest following immediate actions to be initiated by the Government and the Central Bank:
Government of India
- MSMEs should be treated at par with Financial Creditors under water fall mechanism in Insolvency and Bankruptcy Code 2016 and no case should be admitted against MSMEs under Insolvency and Bankruptcy Code 2016, as in most of the cases against MSMEs there is no resolution and they are going for liquidation only. Also MSMEs should be allowed to use Insolvency & Bankruptcy Code for their default of Rs. 1.00 lacs or more, as was provided before the recent notification for 100 lacs.
- Separate Tribunals / Appellate Tribunals should be formed for the issues related to MSMEs, as there will be number of litigations after lockdown is over.
- SARFAESI Act should be put on hold for next one year or the same should be exercised only with the approval of Board of the lender on specific case to case basis.
- No minimum electricity charges till lockdown is over.
- 50% Salary and wages paid during lockdown to be deducted from the Income tax with carry forward provisions or Salary and wages for lockdown period should be paid by ESIC.
- GST should be payable on receipt of payment of any particular invoice as GST is not the liability of seller.
Reserve Bank of India
- Interest subvention on all loans should be provided for the lockdown period, as it was beyond their control.
- One-time Restructuring should be allowed to all MSMEs including NPA accounts. After restructuring theses MSMEs should be classified as Standard. Willful defaulter may be kept out of this scheme.
- There should be changes in the loan policies across all banks. Different banks are coming up with different schemes. RBI and IBA should come up with common scheme for all banks, which should be available online. Some changes may be increase in debtor’s period, 30% working capital than 20% under Nayak Committee, no requirement of External Credit rating and CIBIL for next two years etc.
- Close follow up on SCBs, NBFCs and FIs about the schemes announced.
Solutions on Delayed Payments to MSMEs
- Immediate payments of all due payments to MSMEs from PSUs and Government departments where 45 day’s period has lapsed.
- Immediate payments of all due payments to MSMEs from PSUs and Government departments where order by any Court / MSEFC/ Arbitration has been awarded in favor of MSMEs.
- No appeal by any PSU and Government department should be allowed in cases, where order/ award by any court/ MSEFC has been passed before lockdown, in favor of MSMEs.
- LC should be issued by PSUs / Government departments for all supplies of goods and services from MSMEs above Rs. 5 lacs.
- Under TReDS, the registration of all MSMEs and eligible buyers / Large companies/ PSUs/ Government Department should be ensured within 30 days, as many large companies/ PSUs are yet to be registered. All transactions with MSMEs by eligible buyers should then be routed through TReDs only.
Strengthening of Micro and Small Enterprises Facilitation Councils
- MSEFCs should be chaired by an independent expert, as most of the time the DI is busy in other important issues. MSCFC should have more independent expert members including those who are expert in MSME matters.
- MSEFCs should be constituted at each District level.
- Appellate MSEFCs should be formed for deciding appeals from MSEFCs. Appellate MSEFCs may be constituted at State Level. Appeal from Appellate MSEFC should vest only with Hon’ble Supreme Court.
- MSEFCs should consider all cases of MSMEs and not only of MSEs.
- Online Cause List should be available on a common website for all MSEFCs. The website should have online orders of all MSEFCs in a “Searchable mode”, the way it is available at NCLT, High Courts, Supreme Court etc.
- Award under MSEFCs should be recovered through Recovery Certificate under Revenue Recovery Act, which is already implemented by 3 States.
- There should be strict timeline compliance of all the Provisions under MSMED Act 2006. In case MSEFC is not able to pass the order in 90 days, it should be deemed in favour of MSME and the concerned MSEFC should be held responsible for the same.