ET Boardroom’s MSME day which got
Animesh Saxena, President, Federation of Indian Micro and Small & Medium Enterprises (FISME),
Mahavir Pratap Sharma, Chairman, TiE Global and
Ashish Vaid, former president IMC Chamber of Commerce & Industry to talk about the experiences and lessons learned in the last 11 months.
ET Digital: What was your experience in the last 10 months and how did Covid affect your business?
Ashish Vaid (AV): It all started on March 25 and the first six months saw an absolute shutdown of everything. I am in the real estate business; we have projects in the western suburbs of Mumbai and work in all our sites came to a halt completely. Within a month, all the migrant laborers who were working for us left for their hometowns. Transport had come to a standstill, so there was no material or labour and everything came to a grinding halt. Our sales plummeted as everything was shut down for the first six months. The real estate sector caters to 250 ancillary industries, so all those sectors also took a big hit.
Animesh Saxena (AS): It was a disastrous time for the SMEs. This sector was already stressed even before the pandemic with the demonetization and the GST. The SMEs were severely impacted by these two reforms introduced by the government. Unfortunately, when we were trying to recover this pandemic came. SMEs work on very limited funds and very thin margins in the business with no holding capacity. So when the lockdown started immediately, all the payments got blocked, supply chain disrupted and no demand. And SMEs had no means to support their manpower, whether there were 10 or 200 people. There were other costs like rental, electricity etc to be taken care of. SMEs had to literally start from the starch again once lockdowns were eased after September. The AtmaNirbhar package of Rs 3 lakh crore announced by the government to help the SMEs didn’t have its desired effect, as majority of the SMEs do not have access to institutional finance. So, for them, this scheme was not helpful.
Mahavir Pratap Sharma (MS): It was a double whammy for the export sector. The pandemic affected everyone across the world. Even if you have products ready to export, the importing countries are not open. There were perishable goods, seasonal products like colours, textures and designs from the fashion segment that could not be exported. We also had to deal with losses on account of goods and services that were stuck because the consuming markets were not open. China opened before us and they had a lead advantage. We had shortage of containers and shipping lines increase their prices so even after September this ordeal continues to challenge us because we are now struggling to not only retrieve our market, try to sell the old stock at losses, try to make new products and services in quick time because China has a lead, but also compete costs of increased logistics, costs of all the capital investments and the bank loans that were staggered to the last nine months. It has been a tough going especially for luxury goods segment.
ET Digital: What are some things that you picked up during these months of lockdown?
AV: The biggest learning for us in real estate has been to have a leaner organization that means we should know how to downsize the staff and automate more things. On the financial side to be debt free as much as possible and not to leverage, from banks and NBFCs. We must be the asset light, keep selling and keep moving on. Before COVID hit us, we were working 12 to 18 hours a day. We should learn to slow down and learn how to treat ourselves well, physically and mentally. We have to learn lessons from this pandemic about everything.
MS: You have to be in a product that is a consumer oriented product and not an optional one. You need to have a varied product line where essentials and important things are part of your services line, otherwise it doesn’t work. Just having an optional product or service lines can make you vulnerable.
Now, more than ever, it is time we understood the importance of technology whether it is for you to have a website, understand ecommerce, B2B2C, product delivery through e-catalogs, planning especially because of logistics and areas or countries that are difficult to reach out to. I believe physical distance does not really matter anymore. You can reach out to Europe, America, Chile and Brazil, whatever countries where your products mainly work. I think lowering of operational costs and product costs are also very critical because there’s cutthroat competition. Spending lakhs of rupees on exhibitions and travels is no longer critical. Be on social media, direct to consumer marketing and safeguard your important wholesalers so multiple dimensions were added because now you’re trying to reach out to a medium which is open to all. So you have to be very careful with pricing, positioning, product and country, product and distributor match. All those things have become far more important than physical involvement and travel.
AS: Since our membership basis is right from micro, tiny to medium enterprises, our learning for each sector was different. We are trying to educate our members about online selling. We have tied up with Amazon and are holding workshops in different parts of the country now to take them on board and learn how they can get a wider market for their products. So Amazon has taken up a social project with FISME. We did a study of 15 clusters in pan-India and noticed that imports had taken over those products. Now, in collaboration with SIDBI, we are trying to find out why we lost and what technological inputs, upscaling are required so that we can regain that market. The Ministry of Commerce and Industry is keen on us to do this study. So we will find out what interventions can be supported by the government and create small and micro units which can again make those products. Finally, the biggest learning was going digital. Most of our people, especially small and micro unit owners, were not tech savvy. So we are starting digital literacy for them. This includes using technology as a platform for transacting their payments, finding raw material, looking for the best material available at the cheapest prices, and using technology to enhance the competitiveness of your business and profitability.
ET Digital: What do you think should be the funding avenues for small businesses from now on?
AV: For the first time I think the government was listening to us and they came up with a moratorium period for six, eight months on interest payments. We must try to make our organizations leaner that means we must try to borrow less especially in the real estate sector. We should not depend on banks and NBFCs, but can look at FDIs for money. So we have to look at such avenues where we will give up a little equity in our company. SBI and Yes Bank have tied up with MSMEs and will give loans of up to Rs 5 crore. Such things have to be encouraged to get people out of the woods, because as we all know that in the financial year of 2021 our GDP is about the sink by 10.6%, and we hope that in 2021-22 we make up this gap. One positive of the pandemic is the digitization boom that we have seen.
MS: Any business owner optimizes his or her money and works on low debt, but in this case everyone was caught off guard and cash-flow suffered. The banks and the government came to help and the policies on banks being insured for up to 90% of the loan from 60% were great steps but these are gobbled by the medium and large sectors while the micro and small sectors suffer. Now people say that we don’t have money as this has been a tough year, don’t buy 100 but buy 50 because I need the money, so this has been a good shift. You need to have money in the bank. That element for the SME sector, export sector and the importing country and the governments that we export to that includes Europe and the US have money in their banks given by their governments, so they are in a better position than us in terms of cash flow. Things are tight, but we have realized that now we need to be paid as much as they need to pay, and it’s no longer over 15 to 30 days, that’s a good thing.
AS: There’s hardly any support system for the micro and small sectors. Most of them were depending on the private lenders, where the interest rate was 24 to 36%.
They were getting some support for the NBFCs, but the private sector banks are reluctant to fund the small and micro firms as their books are not that credit worthy and there is a huge trust deficit also the last mile connectivity is missing. These units are scattered in villages and small towns everywhere. People who own these companies don’t have the confidence to walk up to the branch manager and ask for some money and present their businesses as safe and profitable. So all these factors made them dependent on either lenders or NBFCs. The latter because of their mismanagement has gone out of the scene. So, they are left to fend for themselves. And that is what we have been pressing for the last six months to the government and various parliamentary committees that you need to do something. Why can’t you guarantee schemes for people who don’t have access to institutional finance and need just Rs 1 lakh? Make it mandatory that their payment is done in a fixed timeframe. Although there is a 45 day norm, it is not fully operational. My job is to run my business, not running around for my payments and filing a grievance report. There are a lot of out-of-the-box solutions needed by the government to improve the MSME sector. This has been everyone’s favorite, but we are the most downtrodden community of the industry.
ET Digital: In management there is a term, called Business Continuity Planning (BCP). Do you think all businesses understand that they need to have a in place?
AS: That’s what we have been doing a lot of education, seminars and webinars which we are organizing, and we are now working on this. It is extremely critical because if we have to move to the next stage we cannot run our businesses the way we were running earlier. We are insisting now that we have to follow a due process and how to improve that and introduce technology in that. So this is an initiative by FISME. When we were interacting with international associations we realized that Taiwan doesn’t have big companies like Korea has Samsung, LG or India’s big companies. They just have two or three large companies, rest are all SMEs, but they have very advanced technology and a skilled workforce. So we are learning from them on how they did this over the last 20-30 years. We want to apply the same model in different clusters and upgrade the skills of the people who own the enterprises as well as micro those who are working in it. We have signed a MOU with the SME associations of Korea and Taiwan for the exchange of knowledge.
AV: Technology is the buzzword and if we can use it across all sectors including real estate then we can make a difference. Unfortunately, we tend to get carried away in making new designs for each building instead we can standardize these then the cost can be much lower and the product can be better. The whole process can be made simpler by digitization. We get materials from all across the country, if we can see that products made closer home can reach us sooner then it’s much better. What I’m really excited about is what they said in the Budget speech last year of spending, Rs 100 lakh crore in five years in infrastructure. And that’s the buzzword.
MS: There’s no easy way out! Unlike services, products have to be made, inspected and shipped or sold out of physical or online stores. The transport element in all of it, and physical presence is critical. If there is a repeat of a similar kind of a pandemic then we are better prepared. We know what to do with our employees. We know how to segregate products and change our product line. We have already started to improvise and we’re using handheld machines for handmade stuff because we feel that too much dependence on labor that’s far flung areas, too much art is important but price has to be reduced so improvisation is happening. E-commerce for B2B and B2C through portals has become an important tool.
If we made our companies lean from both debt and operating costs point of view, and try to reduce costs then we will be better off. The economy is going through a tough time and it will take time to stabilize, but we are on the right track.
(For front-line insights on Economy, Retail, MSMEs, Manufacturing and Banking & Finance tune in to ET India Inc Boardroom (www.etboardroom.com) from 22-26 February and hear from over 50 industry leaders.)