Like every year, I am happy to present the Outlook Business State of the Economy edition. This year, too, our reporters visited important industrial clusters to bring you up to date on the prevailing business sentiment. What they have gotten back with is a mixed bag.
While the earlier pain points — largely infrastructure, like good road connectivity — and capital persist; at the moment, the most important problem MSMEs are grappling with is availability of labour. It is a paradox that businesses need labour but social welfare schemes continue to skew the playing field.
The bigger problem though is that of tepid demand. Add to that, the inability to realign to GST which has resulted in several MSMEs shutting shop. As a consequence, the hiring scene this year looks bleak. In some pockets, like Kanpur’s leather cluster or the UP sugar belt, the problem is acute as there is a question mark on the solvency of smaller units.
That’s not the only reason. What is also increasingly coming to the fore is that there is no longer such a thing as cheap labour, especially in established industrial clusters such as Pithampur or Coimbatore. Entrepreneurs at garments hub Tirupur, for example, are moving to Madurai in search of cheap labour so they remain competitive.
However, what’s interesting to note is that despite these concerns, the entrepreneurs themselves are a picture of confidence. While the recent growth in industrial production of just 0.5% is cause for concern, a majority of respondents across the clusters believe that FY20 will not only be good for their business but they would also be able to maintain profitability, despite an increase in input costs.
One hopes that comes through because the downside is that MSMEs tend to get the short end of the stick. When times are great, the larger companies might not pass on the benefits but during a downturn, the small suppliers get squeezed for every penny. While all eyes are on the Budget and what kind of surprise is in store ahead of the forthcoming elections, the bigger challenge for many SMEs will be to ensure their survival.