COVID-19 crisis: How India's small businesses will survive

'Their dharma propels them to pay their workers; otherwise, they know the boys would starve.'
'At the same time they will not allow their business to suffer,' observes Dr Sudhir Bisht.

Prime Minister Narendra Damodardas Modi's 21-day lockdown announced on March 24 now extended till May 3 has posed a stiff challenge to the entire nation.

The world has transformed completely for every organisation and every human being. Simple daily events like going to the gym every day and the weekly visit to the crowded Press Club of India for savouring that 60 ml of Old monk now appear distant dreams.

This is for me, a man blessed to be born into the privileged class. For the ones who are at the bottom of the pyramid the anguish is so much more real than my useless lamentation.

For the poor of India -- the daily wagers, the low level workers in the factory, the e-rickshaw drivers, the cooks and the bearers in the numerous eating joints that dot the streets of Delhi -- the struggle is now for survival of oneself and the survival of those who depend upon these breadwinners.

The prime minister had two options on how he wanted India to defend itself against the onslaught of COVID-19.

The first one was to enforce a total lockdown in an effort to break the chain of infectious virus, buy time and quickly prepare the infrastructure to meet the unmatched health crisis caused by the coronavirus.

The other option was to allow things to continue with a partial lockdown so that the economy would not come to a screeching halt.

The PM wisely chose the first option, but this option brought all the economic activities to a standstill.

No one can fault the PM for taking the course of action that he chose for the nation. He acted in the best interest of the nation and the compatriots have adhered to his call for self-isolation and social distancing (a better word would have been physical distancing) with a great degree of steadfastness.

If we ignore the bizarre cases of the Tablighi Jamaat and its ignoramus followers, most people have backed our PM so far.

Enough has been said and written about India's response to the COVID-19 challenge and here I would like to draw readers's attention towards the serious challenge that now confronts the thousands of small enterprises that do not enjoy easy liquidity or access to bank finances.

These small enterprises typically are at the mercy of the timely payments of their direct customers or their marketing intermediaries for paying monthly wages to their workers.

This is truer for those enterprises that are labour intensive and low on technology and hence operate in a very, very competitive environment.

Their overdraft facility never comes without the equivalent of one hundred percent collateral that they have to pledge with the banks.

These small enterprises have their own suppliers who threaten to cut off supplies if their payments get delayed and they are themselves chasing their channel partners or industrial consumers for collecting their outstanding payment.

On top of that, the small entrepreneur is now face-to-face with a lockdown and cannot even move around to collect cash to pay the salaries of his employees.

The financial situation of small-sized entrepreneurs was not very rosy even before COVID-19 reached Indian shores but then he had learned to live with those circumstances.

When the prime minister made an appeal to the private sector not to retrench workers and not to treat the period of lockdown as period of shutdown when no wages would be payable, the overzealous bureaucracy went on overdrive.

The circulars from various secretariats started going around in no time. The circulars not only asked businessmen not to treat the period of lockdown as a planned or unplanned shutdown, these communique also explicitly mentioned that the employers would have to pay full salary on time, without any delay.

The tone and tenor of these messages were not soothing for the small enterprises. There were veiled threats of scrutiny of all enterprises by the various government agencies.

In short, the state governments did not understand that the PM's appeal was not a signal to the bureaucracy to go overboard and create a panic among employers in the midst of a life-threatening pandemic.

The confusion further worsened when some state governments initiated pay cuts for their employees. Telengana Chief Minister K Chandrasekhar Rao held a review meeting on the state's finances in the backdrop of the coronavirus lockdown and impact on the revenues. After the meeting it was decided to cut 75 per cent of salaries of the chief minister, ministers, MLAs, MLCs, chairmen of various corporations and local public representatives, an official release said.

There would be a pay cut of 60 per cent for IAS, IPS and IFS officers while it would be 50 per cent for state government employees. However, the government spared Class IV employees, outsourcing and contract employees with just 10 per cent cut.

'Salaries and pensions of all employees of all public sector corporations and government aided organisations will also be deducted by 50 per cent.'

The state governments of Maharashtra, Rajasthan, Odisha and Andhra have announced pay cuts or delays for elected representatives and government employees. These governments also announced that all elected representatives as well as most government employees would receive 50 to 70 per cent less pay in March to aid the battle against COVID-19.

I quote Livemint as under:

'AP, Odisha, Rajasthan have announced a cut in government staff salaries, from 10% to 100%, depending on the ranks. States have cited the financial crisis in the wake of COVID-19 forced lockdowns as the main reason behind the move.

So we have a very, very, shambolic situation where someone in the top echelons of power asks employers to pay all employees on time, his own colleagues start to defer payments to their employees and elected representatives.

Not only are the payments delayed, pay cuts are also announced for the governmental staff.

This sounds so strange to me. A situation where the various arms of government as employers are not fulfilling their duties that they are trying to enforce upon private sector employers.

Some of the big private sector players have nevertheless gone about announcing pay cuts with due caution.

There are reports that aviation biggies like GoAir and SpiceJet have announced leave-without-pay and have laid off expatriate pilots. Many startups in Bengaluru have announced job cuts.

This brings us back to the issue of the dilemma of a small enterprise owner who always faced routine liquidity crunch, low business margins and now faces an uncertain future too, due to COVID-19.

How would such a person pay his staff on time on May 1 and honour the appeal made to him by the prime minister and at the same time not allow his business to go belly-up?

One of the partners of a small-scale factory at Greater Noida told me what he and his partner intend to do for their employees.

They have a small garment factory that runs up a wage bill of Rs 10 lakhs a month. They are still paying installments on the machines that they installed a couple of years ago.

The building is owned by them, but is hypothecated to the bank for the term loan they took from the bank when they started out a few years ago.

They do have a credit line, but it is used up for now.

The two partners have now decided to put in personal funds of Rs 5 lakh each in the business in the form of zero interest loan. This will help them to pay the April wages for their workers. However, they will not let the workers just enjoy their 'unearned' salaries.

The partners would appeal to them to pledge to make up for the lost business days by working extra hours each day without claiming overtime wages. The workers would call this shram-daan (gift of free labour) and would not make a song and dance about it.

This they say is the Gandhian way of doing business where the owners view themselves as the trustees of their company's assets and workers's interests.

The workers they say are not as loyal as they used to be about 20 years ago, but they have a better understanding of the challenges the employers face today.

This is how India works.

It does not work on the diktats of overenthusiastic bureaucrats.

Ordinary business owners who run their small factories from 100 square metre plots aren't too bothered to check if they can be arrested under the National Disaster Management Act, 2005 and the Epidemic Diseases Act, 1897 if they are not able to pay the salaries during the lockdown.

Their dharma propels them to pay their workers; otherwise, they know the boys would starve.

More than dharma, it is business sense that tells them that it is their turn to do good to the workers and reap a dividend later. Nevertheless, at the same time they will not allow their business to suffer.

The small-scale entrepreneur of the brick-and-mortar model works with a big heart and a bit of chutzpah. This is how it was when P V Narasimha Rao was PM and this is how it would be when PM Modi hangs up his boots.

Nothing changes for him at the ground level.

Here's wishing everyone good health and return to the normal days.

The small scale industry shall survive, physical distancing, COVID-19 and lockdown notwithstanding.

Dr Sudhir Bisht, author and columnist, tweets @sudhir_bisht. He can be reached at Sudhir_bisht@rediffmail.com.