50% of Micro Industries at Risk of Closure: K’taka Industries Head

Many factory owners said that only 25-30% of their employees had returned to work after they were allowed to open.

Factory workers at a unit in Peenya, maintaining social distancing while on shift, as the industry chugged back to work. following a graded lifting of the lockdown to allow businesses to restart from May.

(Photo: Sourced by The Quint)

After 40 days of remaining shut due to the national lockdown announced to curb the spread of COVID-19, industries in Karnataka slowly chugged back to work on 4 May. However, more than a week into resuming operations, owners of small and medium enterprises are finding it hard to operate with a reduced workforce, pending dues owed to workers and unavailability of raw materials for certain industries.

The government announced a slew of liquidity measures for the micro, small and medium enterprises on Wednesday, 13 May, including collateral-free automatic loans to the tune of Rs 3 lakh crore, subordinate debt support of Rs 20,000 crore for stressed MSMEs and an equity infusion of Rs 50,000 crore through Fund of Funds. While industry owners welcomed the finance minister’s announcements, they said the real impact would depend on the fine print.

By passing the buck to the banks to provide the financial cushioning required, the government has precluded itself from specifically stating the interest rate on these loans. “There is no mention of the interest rate. We had requested a low rate of 4 percent. If this interest rate is to be decided by banks and can be decided by market rates, what is the relief being provided by the government,” one factory owner in Bengaluru asked.

Additionally, they claimed that the government had failed to account for ongoing loans that industries had taken and had not waived high interest rates payable on these.

Several factory owners whom The Quint spoke to said only 25-30 percent of their employees had returned to work, as many of them had left town owing to the lockdown and had not yet returned.

R Raju, president of the Karnataka Small Scale Industries Association (KASSIA) said that the unplanned implementation of the lockdown was going to cost the industries dearly unless the government fixes low interest rates on the collateral-free credit.

Raju added that the fund influx for expansion of industries was welcome but misguided as industries were looking to barely survive the next few months. He said 50 percent of micro industries are at the risk of closure.

“The SMEs are in very bad shape due to the lockdown. Before COVID-19, because of the auto sector slowdown, the aftermath of demonetisation and GST, there was already a slump in operations. Around 25-30 percent of SMEs are on the verge of closing down after this lockdown has happened. On the one hand, the government is sending migrant workers back home, on the other they are asking to reopen industries. How can both happen?”

R Raju, President, KASSIA

(Photo: Sourced by The Quint)

(Photo: Sourced by The Quint)

(Photo: Sourced by The Quint)

(Photo: Sourced by The Quint)

Inadequate Workforce, Limited Funds, No Transport

Mallyadri Reddy, proprietor of Srinivasa Engineering Works in Bengaluru’s Peenya industrial hub said that with many of the workers travelling to Bengaluru from work from the outskirts of the city and from neighbouring districts Like Tumakuru had become a major issue.

“Bengaluru Urban and Rural, Ramanagara, Chikkaballapura have allowed inter-district movement, but a huge proportion of the workforce comes from Tumakurua and they are not being allowed to enter the city. Many of them work at very small enterprises and don’t have the proper documentation and ID cards. When our workers are not there, how do we work,” he asked.

Another huge problem faced by the industry owners is reportedly that of wage payment for the month of April. While both the central and state governments have exhorted industry owners not to fire workers, owners are grappling with a shortage of funds.

“How to pay the wages for April. 90 percent of the industries are micro, with less than 10 employees. After paying salaries worth Rs 1.5-2 lakh, he (the employer) will only have a few thousand rupees left,” Reddy added.

While Karnataka is mulling relaxations to labour laws that would provide for extended working hours, reducing minimum wages among other, things, along the lines of the changes proposed in Uttar Pradesh and Madhya Pradesh, nothing concrete has emerged so far.

Broken Supply Chain Hampering Work

While stating that social distancing guidelines, temperature checks, and other preventive measures were being followed by many industries, practically, it did not make sense for the industries to open at this time.

“There were 50 people working in my factory, now five to six people are at work. Not one migrant worker has turned up to work. We are following all the guidelines prescribed by law but when the demand is down by 75 percent and the supply chain is broken, it does not make business sense to keep working,” said Venkatesh DT, CEO of Growell CNC Systems in Peenya.

He added that migrant workers from north Karnataka were always absent from work, having gone back home because of the shutdown.

“There are essential supplies and raw material that many industries need from Mumbai, Chennai and Hyderabad, from where there is no movement of goods. Without them, the industries cannot function. We might be able to function for another week with the stock we have, but will have to shut if we don’t get timely supplies.”

Venkatesh DT, CEO, Growell CNC Systems in Peenya

Backlog of Payments & Proper Infrastructure Needed

Anand Hiremutt, president Tumakur small scale industries association, said that while it was relatively easy for large companies to go on with operations, small industries formed 90 percent of the MSME sector in the state.

“Like the transportation of labourers, we have to depend on BMTC, buses, autos, and trains to get the employees to come to work. Without public transport, how are the workers supposed to come? The owners of small industries are such that they only won’t have a vehicle, then how can they arrange transport at this time? Moreover, there are several industries that have not recovered payment for orders they had completed, both to government departments as well as to private players. We need help from the government to pressurise the companies to pay the dues,” he said.