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Renewed Hope and Fear for Small and Medium Business Owners in 2021

Policy makers need to make choices that align well with advantages that India could have globally and not to be trapped in the democratisation of resources that deceptively helps the masses and all but in reality, actually damages them.

By Samir Sathe

 

Small and medium business (SMB) owners will experience both renewed hope and renewed fear in 2021. The hope is to emerge stronger in 2021 revenue growth expected between 10% and 25%, against 10-50% fall in the revenue in 2020, the year in which the global commercial, social, political order changed as much, if not more than the global order post the second world war in 1945.

Fear is due to the potential lockdown with the second wave of COVID is lurking around the corner with the last few weeks of a surge in the number of COVID cases. However, the real fear in 2021 is that of heightened stressed assets that envelopes even the lockdown anxieties.

The credit gap for SMBs ranges between $500 and $600 Bn with non-performing assets between 3% and 30%. As of mid-Feb 2021, six months of implementation of the ~2.7 Bn subordinate debt scheme for stressed MSMEs, the actual uptake is not even 1% of this amount. On the other hand, the lending start-ups and new fintech players continue to be funded by financial and in some cases, strategic investors alike.

One sees the spirited Indian business owners, with hope and resilience of not giving up and one also sees worried Indian business owners, with fear of not being able to repay any borrowed in the first place, let alone giving confidence to lenders of the visibility of sweating the potential new loans. 2021 will witness a tussle between the objectives of lenders to protect their balance sheets and those of borrowers. I expect the situation of low uptake to marginally improve by the end of H1 FY22 and return to normal in H2 FY22. The real worry is who will survive till then?

The only way to break the vicious circle of conflicting goals to make it a virtuous one. There are no quick fixes. The SMBs need an infusion of demand that would create life up the demand for credit. Announcements of available credit without supporting the visibility of demand for borrowers would only mean the repeat of the abysmally low uptake of schemes such as the subordinate scheme announced in June 2020, well, unsurprisingly. Unfortunately, current policies want us to think that infusion of credit will allow businesses to shore up demand. Unsure, how.

The fundamental issues of the businesses remain what they have been for centuries whenever such tsunamis of a pandemic or any such global crises have occurred. After Spanish influenza in the 1920s, great depression in 1929-30, the second world war between 1939 and 1945, SE Asian financial crisis in late 1990s, the global financial crisis in 2008-09 and now COVID in 2019-20, situations have become better only when the demand situation has changed, not when governments or private players have made more money available to borrow to fund businesses. We do not seem to have paid enough attention to the resurrection of demand situations that face small and medium businesses.

For small and medium businesses, the capabilities needed to shore up demand situation range from strategic, management, organisation and technology, and they need to learn how and become Atmanirbhar, in true sense.

Policy makers need to make choices that align well with advantages that India could have globally and not to be trapped in the democratisation of resources that deceptively helps the masses and all but in reality, actually damages them. The worthy do not get enough resource allocation while the needly do not have the ability to earn returns from the resources. Both deliver suboptimal outcomes, and the country suffers. They ought to focus on making demand generating policies.

Source: BW Disrupt

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