MSMEs are essential in the economic and social fabric of India. The United Nations found that Indian MSMEs have been set back severely by the pandemic and are largely ill-equipped to bounce back swiftly, with widespread losses observed of jobs, livelihoods, sales and profits. Service sectors are more severely impacted than manufacturing, particularly the hospitality, travel, retail, and wellness sectors. These are key sectors of women employment and entrepreneurship. The dominant micro and small segments derive strength from diversity, short-cycle times, lean financial, managerial, and technical resources. Moreover, many are unorganised which stands in the way of availing and utilising recovery support. The pandemic crisis underscored that it is high time to treat the MSME sector with respect and dignity and commit to inclusive and sustainable recovery and growth.
The United Nations Industrial Development Organisation (UNIDO) conducted a firm-level impact survey during the peak of the second Covid-19 wave (April to May 2021). By exception, only a few firms were able to increase sales (14% firms) and/or profits (8% firms). Most saw business diminishing: one in three firms lost half of its sales, and one in three halved its profits. Firms in vulnerable manufacturing sectors like garments, footwear, beverages, and furniture reported, on average, 75% higher reductions in sales and 33% higher reductions in profits than firms in resilient sectors, like food, pharma, chemicals, plastics, and automotive. Half of the respondent firms had laid off people, one in six firms even laid off half or more of their workforces, with more women being laid off than men.
The International Labour Organisation (ILO) equally observes the extreme vulnerability of MSMEs. In its recent survey 60% firms reported a lack of access to policy measures, lack of information, eligibility requirements and/or digital barriers. 46% firms resorted to new work arrangements including laying off workers or wage cuts, which affected women the most. Over 90% MSME workers are in the informal economy and non-standard forms of employment and have no or limited access to social protection. 85% MSME workers reported an inability to access Covid-19 relief measures. Concerns on compliance burden deter MSMEs from registration, yet it blocks access to Covid-19 relief measures for MSMEs and the protection of their workers. ILO supports the FICCI on an MSME help desk to assist with registration issues and build capacity for business continuity. Some 10,000 youth have been trained by state governments using ILO resources to set up and run their own enterprise and some 100 MSMEs have received advice to get more competitive and responsible. ILO also supports state governments with the development of value chains that can boost the local economy and create more and better-quality jobs.
Farmers and artisans enterprises also qualify as micro or even small enterprises. The United Nations Development Programme (UNDP) has worked extensively on the creation of an entrepreneurial ecosystem that promotes such enterprises to create much-needed jobs. UNDP’s work in recent years has led to the creation of over 42,000 micro-enterprises with a strong focus on strengthening the leadership capabilities of women. Enhancing digital and financial literacy to enable access to alternate markets for entrepreneurs has also been a key area of UNDP’s socio-economic response to Covid-19. UNDP has also supported nearly 9,000 MSMEs in partnership with industry associations in Karnataka, Telangana, and Maharashtra through advisory, information, training, and linkages support during Covid-19.
Women own 20.4% micro-enterprises and only 2.6% medium enterprises, according to UN Women. A survey by UN Women showed that many businesses were unable to access the government’s pandemic recovery support due to a lack of information or track record of official lending. 69% reported working with reduced production or just staying afloat and 74% didn’t receive any new orders. Filling orders was a further challenge as 64% reported needing working capital and 60% couldn’t adequately manage to work from home. An important lever for unlocking the gender and youth dividends lies in supporting women to become, succeed, and excel as entrepreneurs. UN Women works with the Empretec India Foundation on entrepreneurial competencies training and peer-to-peer business coaching. This complements training in business skills and professional skills. Building back better will only be possible with access to financing, markets, entrepreneurship training, and mentorship, with a focus on survival and rejuvenation.
The pandemic has highlighted the need to change workplaces and procedures to work together productively in safe and hygienic manners. Manufacturing units have the option to turn this necessity into a new opportunity for recovery, rejuvenation, and growth based on the principles and practices of manufacturing excellence, starting with cleaning out factories and workshops — Swachh Udyog. UNIDO approaches this from three angles. Firstly, efficiency in the use of all inputs, including materials, energy, water, and chemicals, case in point energy efficiency. With the Bureau of Energy Efficiency, 345 MSMEs were assisted to implement 603 energy measures, that annually save 10,850 tonnes of oil equivalent to Rs 59 crore for a cumulative investment of Rs 90 crore. Secondly, effectiveness in terms of outputs meeting customer demand through lean manufacturing concepts and methods. Working with the Automotive Components Manufacturing Association, UNIDO supported seven clusters of 41 MSMEs that were able to achieve collective savings of Rs 2.8 crore, whilst also achieving significant reductions of rejects and absenteeism and zero out unsafe work conditions. Thirdly, maturity, that relates to the firm’s ability to observe, understand, predict, and adapt its business processes for optimal outcomes. Digital technologies play an enabling role but require parallel improvements in teamwork, anticipation, and problem solving of individuals and teams alike to deliver real-time benefits.
MSMEs provide a backbone to the Indian economy, in terms of their total contribution to the economy, job creation and exports, and also as suppliers of essential goods and services to government and large and transnational corporations. MSMEs are extremely diverse, for example, high-tech start-up innovators, low -tech backyard or street-side workshops and producer groups employing just a few up to thousands. Policy and support measures cater to this massive diversity and address specific needs of specific subsets of MSMEs. Despite many good examples, by and large, micro and small enterprises underperform in comparison to large and medium enterprises, in terms of productivity, quality, waste, effluents, emissions, work environment, safety, and employment conditions. This is of concern as it means wasted economic and job opportunities and the health and safety of workers and communities and environment put at risk.
Covid-19 brought the majority of MSMEs to an almost complete standstill yet presents opportunities for new business processes, models, products or services. Capturing such opportunities require conducive entrepreneurial and innovation ecosystems, designed and operated in partnership with MSME employers and workers, with specific opportunities for women and youth. Inclusive and sustainable recovery from the crisis is only possible when MSMEs are wholeheartedly supported by all to regain vibrancy and resilience – a task the UN system stands committed to support.
René VAN Berkel is Representative of the United Nations Industrial Development Organisation. Dagmar Walter is head of the India Office of the International Labour Organisation. Shoko Noda is Resident Representative of the United Nations Development Programme. Susan Ferguson is Representative of UN Women.