How Coronavirus or COVID-19 can impact SME’s but is there a silver lining for India?

Covid-19 and SME's

Yesterday when I went to purchase Water gun [ pichkari] for my kid, the shopkeeper proudly mentioned a tagline “Made in India” for each item. Curious mind probed him asking is it because of COVID-19 that Indian items are displayed? He said – yes, very much.  “Corona has restricted our purchases from China and with festival round the corner, we need to fill the demand gap, hence these are picked from Indian manufacturers. I smiled, thinking what NaMo “Made in India” couldn’t do, COVID-19 did in few months. Jokes apart! But COVID-19 apart from impacting health of individuals has also put pressure on markets around the globe.

With COVID-19 spreading outside China, individuals are fearful of performing daily activities like using public transport, visiting mall/picnic spot, taking flights, going to school or workplace that would impact the retail, transportation and tourism industry. SME’s fuelling or supporting these sectors would be greatly impacted. Right now “the impact data” is yet analyzed and no figures are out, but slowdown [as experts predict] would happen. And the impact would be seen on small and medium-sized enterprises as they do not have “cash reserves” or a continuous supply of cash flow. Our post of today would try deciphering what it takes for an SME to boost his business in a panic situation like this.

Impact of COVID-19 on SME’s 

The top five items imported by India from China are Fertilizers, Organic Chemicals,Plastic, Electronic equipment’s/parts and Machine engine/pumps.  Most of the SME’s in India visit China, make some purchases and the items are shipped, that once received in India are sold to small SMEs and retailers. The transactions are handled in a different way. Only a % of the actual amount is paid to the Chinese manufacturer [as per the invoicing], rest once collected from small SME’s and retailer is paid back periodically. 

With COVID-19, 

  • People are not able to travel to China hence a deal cannot be made impacting the inventories of MSME’s
  • As smaller SME’s are dependent on the Medium SME’s for their supplies, they are finding it hard to maintain their daily activities and cash flow.
  • As a preventive measure in China, most of the production house is shut to avoid spreading COVID-19, that means “shortage of supply” and that can lead for MSME’s in India to look for alternative suppliers outside China at same rate.
  • As per research from Counterpoint Research – India imports ~87% of mobile phone components used in mobile phones of which 75-78% are imported from China. And then the SME’s in India assemble the phone with tag “Made in India”.  With supply chain disrupting, product prices can go up and the SME’s would have tough time planning and developing the products. 
  • India is also an exporter of tea and coffee to China, last year India exported $336 million (April-November 2019) worth of coffee, including tea and spices to China. But as per a news item on business standard – Two leading global retail coffee chains have temporarily closed over 2,000 coffee shops and there could be an impact in this sector.
  • The automobile sector in India is forecasting a 10% slowdown in sales due to raw material shortages because of the outbreak, but the hit on the EV sector is expected to be higher since it relies heavily on imported cells and other electronics
  • With the travel and tourism sector impacted due to choices made by people to stay indoors, The SME’s offering services to airlines and hotels and being impacted badly.
  • With travel restrictions and firms opting for virtual conferencing and remote working SMEs that collaborate with events organizers, photographers, caterers and videographers see a decline in business.

Which Sectors are Unaffected of COVID-19?

  • Telecom operators in India are untouched for now from the impact of COVID-19. One of the primary reasons is “sufficient buffer stocks” and no immediate need for supply challenges.
  • Fertilizers and the Plastic sector would also be free from pressure as India can source products from local manufacturers.

Silver Lining in the cloud? 

However, as it is said – Not everything is Black and white, things come in shade of greys! So with China in recovering mode, India has an advantage 

  • India could fill the gap of rice supply and lead itself to be the rice exporter that puts the SME in the food sector to earn profits.
  • India needs to take measures on becoming a “global manufacturing hub” for most of the items, that goes without saying – Made in India would benefit SME’s also derisking its supply chains and preparing for future scenarios.
  • As India aims to triple exports to $1 trillion in next five years [ HT], India should first start aiming to be an “export economy” that would only be possible if we implement the policies to capture the sweet spot of being an “export economy”
  • To capture the export economy stop, Banks need to participate! Without optimum lending and credit to SME’s it is hard for India to shine as an export economy. Neo Banks, Retail Banks, and Fintech need to launch products that assist SME’s in digitizing the overall supply chain financing and to speed up the payables and receivables cycle.

We at Hylo truly believe in the power of SME’s and they have the power to uplift any economy. With COVID-19 at our doors, we support our SME’s by offering digital channels for payment collection [ online and offline] and also raising invoices/purchase orders via our module SME Business assist. So while Hylo takes care of payments and reconciliation, you can strategies on how to reap benefits by focussing on your business. Together we can fight the blues of COVID-19! 

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CommunicationsToday, economictimes, business-standard, channelnewsasia, economictimes, theprint

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