Role of SMEs and the Post COVID-19 economic recovery in India

Aside from the country's size and per capita income, other factors such as the availability of skilled labor and the conducive environment for SMEs can also affect their export activities. This is why state policymakers should support small and medium enterprises (SMEs) by networking them to R & D facilities and making them more attractive to foreign investors. SMEs play a vital role in the growth and development of economies globally. They account for over 90 per cent of all enterprises and have a significant role in the manufacturing industry. In India, they have created over 30 million jobs in the past five years.

Despite the general appreciation of SMEs in India, little is known about their manufacturing exports. As a result, state governments have recognized the importance of internationalization of SMEs for boosting domestic export performance. This is because SMEs contribute significantly to India's overall export performance. The study also identify the various factors that are important in improving the export competitiveness of SMEs. The coronavirus pandemic has affected various sectors of the economy, such as SMEs. On the demand side, companies have reduced their workforce because of the disease. As a result, they have also lost a huge amount of capacity.

On the demand side, a sudden and drastic decline in revenue and demand can severely affect a company's ability to function. It can also cause severe liquidity shortages. On the consumer side, the fear of contagion and uncertainty can reduce spending and consumption. The virus could have a negative effect on financial markets and confidence. It is especially affecting SMEs, as they are more vulnerable to the effects of the crisis. In most countries, SMEs account for the majority of companies, but in some regions, such as Northern Italy, SMEs are even more significant. Due to the impact of the virus on certain sectors, such as transportation and tourism, SMEs are also heavily represented.

Some SMEs may be able to shelter themselves from the impact of the pandemic by having a limited number of suppliers. Others may rely on regional supply chains to avoid getting affected by the outbreak in Asia.

This will affect all businesses, especially SMEs, which are vulnerable to the impact of a reduction in global demand. This is especially true for SMEs in the tourism industry.

SMEs may find it harder to deal with the costs associated with the pandemics, especially since many of them are smaller and have less flexibility in dealing with these types of shocks. The impact of the virus on production is also expected to be severe since SMEs account for the majority of firms in the country. Due to the limited resources of SMEs and the obstacles they face in accessing capital, the survival rate of many SMEs is typically lower than that of larger firms. This is evidenced by the research conducted in the US which revealed that around 50 per cent of small businesses have less than 15 days of cushion cash.

Since 2020, over 25 million COVID cases have been reported in India. The country has already lost over 274,000 people due to COVID infections.

Over 80 per cent of the new infections reported in India were caused by COVID-19. The outbreak is believed to have been triggered by the failure to prevent it during religious and election rallies.

Conclusion

While a number of states are interested in realizing the potential of their SMEs, there is not much information available about the inter-state trade patterns of SMEs. Similar to the manufacturing industry, SMEs export performance is characterized by inter- regional differences. West India and South India are the main contributors to the total exports of SMEs from India during 2000 to 2018.

This suggests that states with low income levels have to make more efforts to promote SMEs' exports than those with larger states. This can be done by encouraging SMEs to focus on national markets and explore other regions for their products.

As for coastal states, they can improve their port facilities by developing good roads linking their manufacturing sites to nearby states. Non-coastal states can also improve their credit facility for SMEs. This can help them realize a greater export potential.

The bad quality of road infrastructure can affect the export competitiveness of SMEs. It is therefore important that states improve and maintain their road infrastructures.

Due to their limited knowledge and lack of training, newly established SMEs tend to have a lower export orientation. This could be a result of their lack of information and support programs designed to promote overseas business.

This is a concern for policymakers as SMEs tend to focus on R&D activities in-house, which consumes a huge portion of their limited resources. In order to stimulate more in-house R&D activities, state governments may offer special incentives.

After years of robust growth, India’s economy started to slow down in 2016. The country’s growth rate had reached 8.3 per cent in 2016 before it hit a peak of 9 per cent in 2019. In response, the government imposed a series of restrictions to contain the outbreak.

The three-month shutdown sent the economy into its worst recession in history. The economy grew at a steady pace in the fourth quarter of 2020.The composite PMI rose to its highest level since the start of the year. The upgraded GDP forecasts of the International Monetary Fund and the Asian Development Bank highlight the downside risks to India's growth. However, the ability of the industry to bounce back depends on various uncertainties, such as the impact on business, employment, and supply chain. The impact of services such as tourism and travel on the economy will have a multiplier effect. However, these sectors have a strong backward link to other sectors of the market.

Private capital expenditure will take a bit of time to recover due to uncertainties related to the second wave of the recovery. As of 2020, public sector banks have almost 9 trillion rupees of non-performing assets. Factors that contributed to the decline in India's COVID-19 cases include the country's younger population and its rising herd immunity. India’s ambitious vaccine drive, which started in January 2021, has already reached its goal of reaching a total of 35 million people. The country’s drug regulators have now given approval to two manufacturers, which are both based in the country.

Aside from its own people, India also supplies vaccines to other developing countries. Through its partnership with the WHO, India is also helping develop vaccines for other countries. However, the second wave of COVID-19 has affected the export of some vaccines, which could have detrimental effects on their countries’ efforts to contain the outbreak.

With the post-COVID era upon us, India has an opportunity to become a digital economy that can provide new opportunities in areas such as insurance payments and data-driven lending. The potential of India's space technology and its innovations holds great promise for global firms. As a result, other countries could benefit from the country's efforts in launching educational satellites and other space-related projects.

To become a global player, Indian corporates need to acquire niche technologies and develop open innovation models. They must also adopt a global brand strategy and overhaul their organizational structures. The effects of the crisis have affected the patterns of electricity consumption. As a result, non-essential purchases have stopped. This provides an opportunity to implement demand-side solutions that can help consumers adopt sustainable habits.

While encouraging the continued growth of these new behaviors, the government should also encourage new behaviors, such as encouraging people to adopt new modes of transportation. This can be done through the introduction of various measures such as implementing road congestion pricing and discouraging the use of luxury vehicles. The gig economy and e-commerce sectors have the potential to create more jobs in the future. However, to support their development, policymakers need to put in place the right regulations in place.

Pic Courtesy-Surya Prakash at unsplash.com

(the views expressed are those of the author and do not represent views of CESCUBE.)