Mumbai: India re-opened for business in June after months of lockdown. However, for thousands of small entrepreneurs in the town of Meerut, near Delhi, the blow has been devastating. Businesses from textiles to sports goods and furniture are shuttered or working at a bare minimum. Cows roam streets that would be normally packed with workers and vehicles.
Prime Minister Narendra Modi’s programme to help small businesses back on their feet through $40 billion of government-gauranteed loans is too little. It may not be enough to save the many companies that form the backbone of India’s economy. Nearly three dozen entrepreneurs across India had the same opinion to offer.
Some said their business was so hamstrung by the pandemic that taking on new debt made little sense. They would rather the government had helped them by cutting the goods and service tax (GST). Otherwise the government could also waive off the interest on loans.
Others said that despite Modi’s promise to open up the credit lines, it was not easy convincing bankers to lend.
Ashok’s near 10 million rupees annual turnover company is based in Meerut. It makes steel furniture for hotels and schools. He said he had to let go of his 10 workers and was thinking of shutting down the operation. “It would be better for me to close the unit. I am being forced to run from pillar to post to get a loan. It is unacceptable,” said Ashok, who did not want to give his full name. He said his banker told him his creditworthiness is low as his business is struggling.
Small businesses account for nearly one-quarter of India’s $2.9 trillion economy and employ more than 500 million workers. These businesses are the worst affected by the pandemic.
Nearly 35% of the 650 million small businesses across India could shut down soon in the absence of government support. This is what the ‘Consortium of Indian Associations’ has said in a letter to the PMO.
Bankers said there is government pressure to dole out loans. However, businesses are not coming forward as demand remains tepid.
Till now, lenders have paid out Rs 561 billion, barely 19 per cent of the sum earmarked. They have approved loans worth Rs 1,145 billion since the third week of May, according to government data.
Business houses informed that the lenders are either asking for increased paperwork or the ones in desperate needs are being deemed ineligible.
“I was asked to provide a collateral and also buy an insurance for getting this loan whereas it is supposed to be collateral free,” said an entrepreneur in Modi’s home state of Gujarat.
Two bankers however, said that securing money from the government even in a fully-backed sovereign guarantee scheme is not easy. “The experience is unpleasant,” said the former corporate head of a state-owned bank. “You lend to most of these businesses only because government has directed. However, when it comes to getting back the money, one has to spend considerable resources and time. It makes little sense,” he added.
Businesses have been pushed to the wall as their suppliers have not paid. Orders have trickled to zero while fixed costs including electricity, wages and installment for earlier bank loans have drained their funds.
“We have not got a single rupee relief from the government,” said Sanjeev Rastogi, a garment manufacturer in Meerut. He has suffered losses to the tune of Rs 3.5 lakh in the last two months. He said he may have to close down his business in the next three months.
Rastogi is making last ditch efforts to remain in business. “Otherwise, I will sell the factory at any price to save some money for my retirement,” he stated.
About 25 per cent small factories out of over 10,000 textile units in Meerut could shut down and default on bank loans in the next few months, said Anurag Agarwal, chairman of the Meerut chapter of Indian Industry Association.