In-Depth: With Omicron, what awaits for India’s MSME sector as third wave fear looms

India had reported 23 Omicron cases, till the time of filing this report. (Image: Reuters)

Ease of Doing Business for MSMEs: Micro, small and medium enterprises (MSMEs) in the country are once again fearing Covid stress. The Omicron variant of SARS-CoV-2 or third wave, which is likely to peak in February 2022, is staring down small businesses that had barely managed to recover from the first two waves on a shoestring budget. The World Health Organization (WHO) has already designated Omicron “a variant of concern” with several mutations. While researchers globally are trying to understand its transmissibility and virulence or severity versus previous variants including Delta, preliminary evidence indicated that there may be an increased risk of reinfection with Omicron as compared to other variants of concern. However, the information is limited, according to WHO.

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The impact on MSMEs during the past two waves has been deadly with many being forced to shut their units down during the period and/or lay off employees, according to industry experts, even as there is no data recorded on this by the government. While the human casualty during the second wave was extremely high, the economic impact was reportedly milder than the first wave. Now with the third wave seemingly round the corner, experts note that the fallout from any type of restrictions to control the virus may again disrupt their recovery while the level of disruption would be known in weeks to come.

“The situation has definitely caused concern among MSMEs. They are awaiting things to unfold with bated breath. If God forbid, the new variant is more severe, then everybody would have to pay the price for it. Lockdown is the last thing government should do as it chokes the supply chain and as a result entire manufacturing goes for a toss. MSMEs should try to keep stock of raw materials at least for a month or so in order to continue work if there is a lockdown. I hope that the government takes a cue from the second wave and allow businesses to operate during the third wave as well,” Anil Bhardwaj, Secretary General, Federation of Indian Micro, Small and Medium Enterprises (FISME) told Financial Express Online.

IIT Kanpur Professor Manindra Agrawal – among scientists working on mathematical modelling of forecasting rise of Covid in the country – in a report on Saturday said that based on evidence, there will be a mild third wave in India early next year that would peak between 1-1.5 lakh infections per day “occurring sometime in February,” he tweeted. Using various inferences to predict the future trajectory in India and assuming that Omicron has already arrived and is spreading, Agrawal said “We can conclude that omicron is not bypassing natural immunity in any significant way…and it may well be that hospitalisation load is even lower as there are indications that the cases are mostly mild.” However, more data is awaited to be sure, he added. Nonetheless, the findings of the report and others globally are still preliminary and would evolve as the virus progresses given that it is heavily mutated.

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“Omicron is just beginning to spread. So, how precisely you could know its level of fatality? Maybe in the coming two-three weeks, we would see the real possible impact it would have on everybody. If it is fatal and the death rate goes up then the government would have no alternative but to impose lockdown. As a result, the MSME sector will be affected more as they had just stepped out of ICU and trying to cope with the present trend. If the situation worsens again, MSMEs will again be on death bed,” Jacob Crasta, Chairman at environmental test chambers maker CM Envirosystems and Founder-director at Alliance of Indian MSMEs (AIM) told Financial Express Online. Crasta was former President at Assocham Southern Council and had launched AIM with former MSME Secretary Dinesh Rai three years back.

The room for the MSME sector to absorb the third wave doesn’t seem to be much. While white-collar jobs and online businesses including retail have a reasonably robust playbook when it comes to dealing with lockdowns, but MSMEs remain vulnerable, with blue-collar jobs and small units quite underprepared for another shock of the magnitude felt in the first two waves.

For perspective, 73 per cent of SMEs were not able to make a profit during the last financial year (FY21), said a survey by the Consortium of Indian Associations (CIA) covering more than 81,000 self-employed individuals and SMEs in India through 40 partner SME associations of CIA in June this year. Likewise, around 59 per cent of startups and MSMEs were likely to scale down, shut down or sell themselves this year due to the second wave, community platform LocalCircles had said in its survey receiving over 11,000 responses from more than 6,000 small enterprises in May this year. Moreover, only 22 per cent of respondents had over three months of runway left. 

“The only option that might be available to many MSMEs who lack a cash cushion, or who have exhausted it in the first two waves, might be extreme cost-cutting. The repercussions of that would be felt on the blue-collar economy first; and as long as the third wave is contained and well managed, it will be a recoverable impact. But if it persists, the effects will bleed into white-collared jobs and larger enterprises as well,” Utkarsh Sinha, Managing Director, Bexley Advisors told Financial Express Online. 

The sectors to be hit hardest in case of high severity are again likely to be hospitality, travel and tourism, retail, aviation, and to an extent realty and automobile as well if lockdown is imposed. Particularly restaurants and hotels, which were first to be impacted and last to be recovered, have run out of capacity to go through another wave. Renewed international and domestic travel restrictions can further squeeze the life out of such establishments. 

Mumbai-based Pradeep Shetty who runs Maharaja Foods and Restaurants said that fearing the devastation the third wave might bring, the industry members don’t want to even discuss it. “There is no capital available. 25-30 per cent of businesses have still not opened. Many restaurant chains have shut down and standalone have suffered a lot during the previous waves. If there is no impact then the overall sector can recover in the next six months but I don’t think there is any wherewithal with industry to bear another lockdown. We would urge the government to avoid any restrictions. Also, the Rs 60,000 credit scheme announced by the government is yet to be notified,” Shetty told Financial Express Online. Shetty is also the joint secretary at the hospitality body Federation of Hotel & Restaurant Associations of India (FHRAI).

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The association had last month submitted a representation to the Finance Minister Nirmala Sitharaman seeking her intervention in notifying the Rs 60,000-crore Loan Guarantee Scheme for Covid affected sectors announced in June this year. The association had earlier as well requested Nirmala Sitharaman to take cognizance of notifying the scheme. The economic relief package of Rs 6.29 lakh crore announced in June this year for recovery post the second wave of Covid also included Rs 1.1 lakh crore Loan Guarantee Scheme for Covid affected sectors. Under the scheme, Rs 50,000 crore was aimed at the health sector and Rs 60,000 crore for other sectors including tourism, a government statement had said. 

“While all MSMEs can’t be painted in one stroke, those that remain unaffected by consumer mobility will continue to do well, especially post the preparedness from the first two waves. Most sectors that require in-person presence will reel under a third wave. The resilience that MSMEs have shown in the face of the first two waves is unexpectedly remarkable, and the optimistic view would be that this prepares them well for a potential third wave. But the reality might be that the resilience came at the expense of exhausting reserves, and an MSME sector that is already running on fumes to re-energize itself may have little room to give,” added Sinha. 

India had reported 23 Omicron cases, till the time of filing this report. Different states had also issued guidelines and advisories to contain the spread. On Monday, Aviation Minister Jyotiraditya Scindia had asked Delhi airport operator DIAL for better crowd management strategies. Tamil Nadu had undertaken door-to-door vaccination while Maharashtra Deputy Chief Minister Ajit Pawar said that a national-level decision needs to be taken on the need for a booster dose of the vaccine to stop the pandemic. Delhi, Maharashtra, West Bengal, Gujarat, Karnataka, Odisha, and others had called for steps such as mandatory RT-PCR testing for international passengers, night curfew, etc.