The Centre’s penchant for creating hype on almost every decision it takes is becoming farcical. A recent cabinet meeting was expected to come up with ‘historic’ decisions, once again. What was decided in reality was a tweak in the already proposed and announced package for the micro, small and medium enterprise units. The change lay in relaxing even further the size limit for being classified as an MSME unit. There was no other materially significant announcement that would facilitate economic recovery after the pandemic subsides. It may be noted that all the financial benefits offered to these sectors are in the form of loans, which are cheap and easy to obtain. Sometime or other, the firm would have to repay the principal along with the interest. It is a fact that a large number of these units are cash-constrained as they do not have enough working capital to sustain production. A large number of them are facing a persistent demand crunch too. Under such circumstances, firms may be averse to take additional loans even while resuming production. A survey conducted by the All India Manufacturers’ Organisation, the results of which were reported in the media, has estimated that about a third of the MSMEs have started shutting down not for the lack of funds but from the lack of demand.

Investor and consumer pessimism would be hard to change in this milieu. Another index used frequently for gauging the level of economic activity is the purchasing managers’ index. If this index is above 50, it shows economic growth and activity, leading to an expansion in orders. If it is less than 50, it indicates a contraction. Usually the index, in normal times, varies between 48 and 52. This was below 50 before the pandemic began. Then it fell precipitously to historically low levels. In May, the index for services stood at 12.6 and for manufacturing at 30.8. The story of the MSMEs is not uniform across all sectors. Some sectors are doing better than others. For instance, a food processing unit would be in a better condition than a business producing non-essentials such as cosmetics. The policy makers are being rigid in suggesting one-size-fits-all remedies. A large number of these businesses will go under even with easy credit lines open. It will add to an already alarming unemployment rate in a sharply shrinking economy.