Pre-mature withdrawal of economic stimulus can trigger MSME crisis, warns Mr. Wilson

AIIB proposes USD 500 million funding for India’s social protection system

“Policymakers should not be complacent about the health of the micro, small and medium enterprises (MSMEs). Some Latin American countries that have withdrawn stimulus measures early have witnessed renewed stress and defaults by MSME borrowers. When stimulus measures are withdrawn, banks will again become risk averse in lending to small enterprises. Even now, around 30-40% of the MSMEs are pessimistic about business outlook. Small enterprises are still struggling with weak balance sheets, huge burden of debt, unpaid invoices,” said Mr. Andrew Wilson, Global Policy Director - International Chamber of Commerce at World Trade Day 2021. The program was organised by MVIRDC World Trade Center Mumbai.

Highlighting the initiatives of ICC to empower MSMEs, Mr. Wilson said, “We wish to support MSMEs in India and elsewhere through our app Trade Now, which facilitates access to trade finance. ICC also runs dedicated programs for capacity building to support MSMEs navigate through the challenging global trade environment.”

Speaking about policy measures to overcome pandemic, Mr. Wilson suggested governments to take steps to increase production and distribution of vaccines, use cutting edge tracking and tracing technologies and maintain social distancing norms.”

Mr. Wilson emphasized on digitization of MSMEs to become globally competitive. He said, “Even in this age of digitization, around 99.9% of bills of lading are prepared in hard copies. MSMEs should adopt digital identity which can reduce KYC cost for banks. MSMEs should prepare their business for digital revolution and become ideal client to banks by getting digital identity and use of digital processes. Government should get policy framework to enable digitization SMEs. This is a clear area for government to work.”

Mr. Wilson suggested Indian MSMEs to adhere to sustainable business practices to integrate into lead firms in Global Value Chains. He said, “Multinational companies have committed to net zero carbon emissions in European Union and these companies are looking for reliable supply chain partners who adhere to sustainable environment practices.”

In his remarks, Mr. Abhijit Sengupta, Senior Economist, Asian Infrastructure Investment Bank (AIIB) informed, “AIIB has proposed a USD 500 million program for India to Creating a Coordinated and Responsive Indian Social Protection System (CCRISP). The program will help national and state governments in India to modernize social protection systems for informal workers, migrant workers and returnee migrant workers. This program is proposed under the COVID-19 Crisis Recovery Facility of AIIB and it is co-financed with the World Bank.”

Mr. Sengupta raised concern about the lack of transmission of low interest rates to the MSME borrowers and he suggested governments to convince banks and NBFCs to come out of risk aversion and lend to MSMEs. He also suggested adoption of digitization to reduce high cost of supervision and due diligence involved in MSME lending.

Earlier in his welcome address, Mr. Vijay Kalantri, Chairman, MVIRDC World Trade Center Mumbai remarked, “World Trade Week is the flagship program of WTC Mumbai to create awareness about importance of international trade in promoting regional development. Similar programs are also organised by the global network of 315 WTCs across 90 countries.”

Speaking about shifting global value chains, Mr. Kalantri remarked, “Since the outbreak of the pandemic, companies have been diversifying their supply chains and India has emerged as a preferred supplier of food products, medicines and other manufactured goods, besides IT & software products. MSMEs should look beyond the negative impact of the COVID crisis and grab opportunities from shifting global value chains.”

Mr. Kalantri suggested multilateral institutions such as WTO and Asian Infrastructure Investment Bank (AIIB) to offer capacity building programs for MSMEs in developing countries and Least Developed Countries. He suggested AIIB to allocate funds for MSMEs as they have limited sources of funding unlike large companies that can raise finance from capital market and foreign currency debt.

Finally, Mr. Kalantri recommended local administrations to ease lockdown restrictions in Mumbai, which is the financial capital of India, as the infection rate is well under control. He remarked, “Instead of creating dire forecasts about emerging variants of the COVID 19 virus, policymakers and experts should facilitate early normalization of the situation by ramping up pace of vaccination. Capt. Somesh Batra, Vice Chairman, MVIRDC World Trade Center Mumbai proposed vote of thanks for the event. Capt. Batra pointed out, “MSMEs are risk averse because of limited source of finance and also because of intense competition. Another major challenge facing MSMEs, as also large businesses, is supply chain disruption caused by shortage of containers, delay in berthing ships at major ports in East Asian countries. Capt. Batra further remarked, “India needs to upgrade internet connectivity in hinterland to enable exporters digitize their customs documents. Adopting digital process can improve supply chain performance and increase competitiveness of MSMEs”

Mr. Siddhartha Rastogi, Expert – Behavioural Finance and Capital Markets moderated the panel session. Mr. Rastogi remarked that the severity of the current pandemic is far less compared to the Spanish Flu and he expects economic condition and market demand to recover in the coming months. Mr. Rastogi suggested MSMEs to convert the current crisis into opportunity by addressing shortage of critical components for automobiles, bicycles, electronics and meeting pent up demand for textiles, fashion and travel goods.

Speaking on this occasion, Ms. Rupa Naik, Executive Director, MVIRDC World Trade Center Mumbai suggested ICC to collaborate with WTC Mumbai in connecting local business to the global market. Ms. Naik also informed about, which is the new age digital platform launched by WTC Mumbai to connect Indian MSMEs to global market.

The program was attended by members of trade & industry, consular corps, financial institutions and academia.