Covid 19 has come as a big blow for the SME segment which was already struggling with the side-effects of GST, costly credit and muted demand. How can you manage your house to keep afloat during this time of crisis? The speaker will throw light on the levers SME owners can pull to secure a better future.
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NewsTranscript
00:00 (upbeat music)
00:02 - Welcome ladies and gentlemen,
00:12 delighted to continue with our webinar series
00:14 Outlook Business Masters Feed.
00:16 Our first webinar was with K Ganesh,
00:17 a serial entrepreneur who talked about strategies
00:19 for startups as we emerge out of the lockdown.
00:22 Today we have with us Rajiv Chawla,
00:24 Chairman IMSME of India.
00:26 IMSME of India stands for
00:28 Integrated Association of Micro, Small
00:31 and Medium Enterprises of India,
00:32 India's largest SME network.
00:35 Thank you Rajiv for joining us today.
00:37 Rajiv is also the founder and chairman of
00:39 Jairaj Group of Industries engaged in manufacturing
00:42 of auto components, electrical, white goods,
00:45 molded and molded products.
00:47 Before I pose questions to Rajiv,
00:49 I would like to thank our presenting partners,
00:51 Hyperlink Infosystems and co-sponsor, RR Solutions.
00:56 Rajiv, first off, can you give us a glimpse
00:58 of how the SME sector has been affected
01:01 by the current slowdown?
01:02 - Well, these are unprecedented times
01:07 and something which we've never thought of ever.
01:12 No one except some of the science fiction movies
01:16 could imagine this kind of a situation
01:18 that we have the world is facing today.
01:21 So the COVID situation is an unprecedented situation
01:26 for the first time in our lives,
01:28 we've seen almost more than two months of lockdown,
01:31 complete business, complete economy coming to a standstill.
01:36 Millions of people walking back home
01:41 in very difficult conditions,
01:43 some by foot, some by train
01:46 and all this culminating to a situation
01:51 when millions are losing jobs.
01:55 People who invested in the recent past
01:59 are facing huge stress and the challenge
02:03 in meeting with some of those debts in times to come.
02:06 So this is a very uncertain situation.
02:10 And in a situation like this,
02:12 when the government of India also asked all entrepreneurs
02:17 to pay salaries and wages, even for the lockdown period,
02:20 so that even further added to the stress of the MSME sector.
02:25 So I believe that with zero business in the last two months,
02:31 with a huge stress and burden of the salaries
02:36 that was imposed upon the MSMEs
02:39 and with an uncertain future that lies ahead,
02:42 this is what I call a perfect town.
02:48 - Sure, and how do we survive this perfect storm?
02:52 - There are a couple of things that I would like to mention.
02:56 One is that it's not only about survival
03:01 for one or two months.
03:02 I'll try to look at what would happen on 31st of March, 2021.
03:08 So let us say this financial year.
03:12 If I take a typical example of a very good, strong SME,
03:18 that would do a business of let us say 50 crore
03:20 and would make a profit of almost two crore.
03:22 An SME which would be in the best of the books
03:27 of every bank and banks would lend them money
03:31 and they would grow aggressively and invest.
03:34 So this kind of a blue-eyed SME till March, 2020,
03:39 this year would see a downturn
03:43 because the revenues would be at best half
03:46 of what they achieved last year.
03:48 So this 50 crore SME has to come down
03:51 to about 25, 30 crore depending upon which sector.
03:54 But even if the sector is great,
03:57 hardly it would achieve a turnover of 25 or 30 crore.
04:00 And with a depreciation element of full 12 months,
04:04 all fixed costs of 12 months,
04:06 salaries and wages for 12 months,
04:08 and bank interest burden for 12 months,
04:11 this SME would see a rent of almost four crore
04:15 by the end of 31st of March.
04:19 And this is what would change the rating of this SME.
04:23 And next year, the same SME,
04:26 which could get access to all the bank funds
04:29 at the best rate,
04:30 next year could have a different credit rating.
04:34 And how would the bank then treat this SME?
04:37 So it's not only about immediate survival.
04:40 It is also about carrying one's burdens through this storm
04:46 and looking at a better future ahead.
04:49 So it's a challenging situation.
04:52 I believe that till yesterday,
04:54 SMEs who would not get loans would feel deprived
04:58 and they would always complain
05:00 that the banks are not treating them well.
05:02 I believe they are the luckiest today
05:04 because they don't carry a big burden,
05:06 if that is the situation.
05:07 On the other hand, SMEs which had access to a bank fund,
05:12 which was growing, progressing, expanding, investing,
05:16 imagine the situation of an entrepreneur
05:18 who would have borrowed, let us say some bank funds
05:21 six months back and opened a restaurant or a pub
05:25 or a brewery or travel, tourism.
05:29 So both of the sectors which have gone for a six
05:33 or a long, long time.
05:34 So I believe depending upon where and which sector
05:38 an entrepreneur is situated,
05:40 one, also depending upon his or her fixed cost situation,
05:45 that is the debts that they need to carry at this situation.
05:49 Depending upon these two things,
05:52 their survival or their future,
05:54 that would come up in front of them.
05:58 And therefore, it is very important for every entrepreneur
06:01 to assess immediate cash flow situation,
06:05 the future credit scenario,
06:07 the future fund flow situation through the 2021.
06:11 And then of course, beyond,
06:12 there are some businesses who would revive very fast.
06:17 In fact, there are some businesses
06:18 who could be making much more money than ever before.
06:22 For example, the health sector.
06:23 Maybe this country today needs budget
06:26 equal into the defense budget for the health sector.
06:29 And therefore, entrepreneurs in the health sector,
06:33 food processing, agriculture,
06:35 some of these areas are really going to be,
06:38 it could outpace the normal growth.
06:42 But on the other hand,
06:44 you look at the gems and jewelry sector,
06:46 you look at the garment sector,
06:48 if you look at the automobile of the higher end sector,
06:53 lot of luxuries.
06:54 So all those sectors would take a much, much longer time.
06:59 So depending upon which sector,
07:01 I think survival depends upon
07:04 how a person is placed in this storm.
07:07 And then if one can find a way out.
07:10 - Rajiv, last week we had a webinar
07:13 on strategies for startups,
07:14 where we talked about how companies are pivoting
07:17 as a way to survive this disruption.
07:19 Does such an option really exist at all for the SME sector?
07:23 And do you have any good examples of companies
07:26 or entrepreneurs hustling to make such a thing happen?
07:30 - In fact, I'll give you a very interesting situation.
07:34 Imagine a cricket match, two teams playing.
07:38 In the first inning,
07:39 there's a team that scores 500 runs
07:42 and the other scores lesser.
07:44 Now between the first inning and the second inning,
07:47 there is a rain and the wicket gets wet
07:51 and conditions change.
07:53 So the second inning now begins.
07:55 And then the second innings begin,
07:58 it is no guarantee that the team
08:00 that scored 500 in the first inning
08:02 would also do better in this inning.
08:05 In fact, bowling conditions have changed,
08:07 batting conditions have changed.
08:09 This is the second inning.
08:11 This is the restart,
08:13 or should I say the reboot button
08:16 for the world of businesses.
08:18 And therefore, while in the past,
08:22 before COVID situation,
08:23 or should I say the first inning,
08:26 the first inning gave us two great things,
08:29 experience and resources.
08:31 Some of us could manage some capital,
08:35 we have some resources,
08:36 some factories, some machines, some infrastructure.
08:39 But then these two things are not all
08:42 that are required for the second inning.
08:44 For the second inning,
08:46 there are two different things,
08:47 two more elements that are required.
08:50 One element is technology and the new skills.
08:54 And that is what these youngsters have.
08:56 And second is innovation.
08:59 So if people who did great in the first inning,
09:04 if they are not looking at these two elements,
09:06 they are out of the circuit.
09:08 And therefore, these young startups,
09:10 they have to understand
09:12 that they carry these two elements in them.
09:14 They have technology skills,
09:17 they have innovative ideas.
09:19 However, they have to integrate
09:22 with the experiences and resources of others.
09:26 So they can't be flipping from one project to another.
09:30 And because when I look at many of these startups,
09:33 I find that it is only one out of 1000
09:37 that can actually make it really, really big.
09:41 And gone is the time
09:42 when people would keep pumping business money
09:45 in loss-making businesses only for its outreach
09:50 and the future valuation.
09:52 So most of these startup companies,
09:54 they would run continuously on cash losses
09:57 in a bid to make money in the market
10:01 and the valuations later on.
10:03 I think that scenario also would change.
10:06 So it has to be about bootstrapping every business.
10:10 It has to be that every business has to break even.
10:14 There is no more fees, free flowing cash
10:17 traveling around the world.
10:18 There's no more valuation
10:21 that I'm looking at two months from now
10:23 or three months from now.
10:24 The markets themselves are very, very different.
10:27 So I come from a world where one plus one is two.
10:31 And so it's not that every SME
10:34 would go to the stock exchange
10:35 and look at the large valuation.
10:37 So while your call is great,
10:39 startups have excellent dreams,
10:42 great ideas, great skills.
10:44 I believe in this time,
10:46 they also have to survive
10:48 and they have to keep their ideas afloat.
10:51 And they have to ensure
10:53 that whatever ideas they have today,
10:55 they take concrete shape
10:57 and find roots within the next few months
11:01 because things are going to change much faster
11:04 than they ever did before.
11:06 - Coming back to the goals of the SME sector,
11:10 a survey done by an SME chamber of commerce
11:13 shows that 69% of the SME said
11:16 their biggest concern was supply chain issues.
11:20 How do you see these issues
11:21 and when do you see these things
11:24 getting back to normalcy?
11:26 - Well, I believe,
11:27 I don't know how this survey
11:31 and what exactly was the basis
11:32 for this kind of a survey.
11:33 This challenge of course is very, very true.
11:36 But I believe that today in this scenario,
11:40 the bigger challenge,
11:41 there are other bigger challenges.
11:43 For example, there is one challenge
11:45 which is of the market,
11:46 the consumers,
11:48 whether consumers are actually going to the market
11:50 and buying,
11:51 whether one's trade has future,
11:53 or if someone is in travel and tourism
11:56 or hotel,
11:57 or so how much time that would take to revive.
12:02 So that is one challenge.
12:03 Second is, of course, again, of cash management,
12:06 the credit management with internal deals
12:09 or further new sourcing that could be required.
12:13 Logistics, supply chains and other things
12:16 of course are a challenge.
12:18 You know, when you talk about immediate post COVID situation
12:22 when let us say an OEM like Bajaj or Maruti
12:26 or any large auto wheel company,
12:28 they want to restart.
12:29 Then many of their supply chain people
12:32 could be in a red zone or a containment zone
12:35 and the supply chains could be choked.
12:37 So some of these things may have that challenge.
12:41 Having said this,
12:42 I believe that all these challenges would be met.
12:46 They need to be met.
12:47 And as we move from lockdown one, two, three, four,
12:52 and now to lockdown five,
12:54 many of these logistic challenges
12:56 would get removed very, very soon.
12:59 In fact, there are bigger challenges,
13:01 including the manpower availability
13:04 that would face the sector for revival.
13:07 - At this point, we'll take a five second break
13:10 and come back to deal with questions
13:12 related to working capital issues.
13:15 (upbeat music)
13:18 Moving on to something that has been a pain point
13:25 for SMEs anyway, which is working capital.
13:28 The FM has announced a 3 lakh crore
13:31 emergency working capital facility
13:33 for businesses, including SMEs.
13:35 Last year, also talked about
13:36 an additional working capital finance
13:37 of 20% of outstanding credit as of 29th March, 2020
13:42 in the form of term loans
13:44 at a concessional rate of interest,
13:46 which is going to be collateral free loan
13:48 with guarantees from the government.
13:50 - Okay, this cash flow situation
13:53 is really one of the biggest challenges
13:56 that I see in immediate future.
13:58 And there are a few reasons for that.
14:00 One major reason being that,
14:02 let us say typically from 22nd of March,
14:05 when it was a Janata curfew that was announced.
14:09 Starting that day, the lockdown
14:11 and the curfews were getting announced.
14:14 And finally on 24th of March, it was locked down.
14:17 And that has extended till now.
14:20 Now, during this period, there have been zero sales.
14:24 So for the last two months, the sales have been nil.
14:29 And therefore, even if my payment cycle,
14:32 for example, is 30 or 60 days,
14:35 there will be no payment coming in June and July.
14:39 So when I look at immediate, these months,
14:43 so June and July, and I talk for most of the supply chain
14:48 as in India.
14:49 And so their June, July incoming revenue would be nil
14:54 because the sales in the March and April were nil.
14:59 Second, there are some accumulated statutory dues.
15:04 For example, we had to pay income tax returns
15:08 on the 31st of March.
15:10 And we had to buy some saving plans for the year 2019-20.
15:15 Then there is GST of March 2020 that was deferred.
15:22 Then there are bank installments of March, April, and May.
15:28 Those have been deferred.
15:29 Bank interest have been deferred.
15:33 Similarly, ESI, Provident Fund,
15:36 some of these things need to be paid.
15:38 Many state electricity boards,
15:40 they deferred their electricity bills.
15:43 Now, mind you, all these are deferred.
15:46 These are not waivers.
15:48 And for most of these dues that have accumulated
15:52 in March, April, and May,
15:54 the last day to pay is 30th of June.
15:57 And that is really, really worrisome
16:01 because two months of nil business
16:03 means nil revenue in June and July.
16:07 All statutory dues accumulated, as I just counted for you,
16:11 including the bank interest and installments, et cetera.
16:14 And therefore, to pay these dues by 30th of June
16:18 is a huge challenge.
16:20 Therefore, this announcement of 20% emergency loan
16:25 to MSME sector, it comes in very, very handy
16:30 because these are collateral-free loans.
16:32 Existing bankers would give 20% of the outstanding
16:36 as on 29th of February.
16:38 Outstanding as on 29th of February,
16:40 the entrepreneurs would get 20% extra on that.
16:45 And now, there are two important things
16:48 that I would like to mention.
16:49 One is that all this amount,
16:53 all this amount would actually go
16:56 in paying the accumulated dues of these three months.
17:00 So if I do a sum total of all that I have to pay
17:04 till 31st of March or then April and May,
17:08 which I have to clear till 30th of June.
17:10 So when I raise this 20% additional working capital,
17:14 most of this would go
17:16 in paying these statutory accumulated dues.
17:19 This is one.
17:20 Second thing is to call this loan a collateral-free loan
17:25 is actually a misnomer.
17:27 The reason is that the entrepreneurs
17:30 have already mortgaged their factories and homes
17:33 and other assets with the bank when they raise these funds.
17:38 So for example, I have already mortgaged
17:41 my securities with the bank
17:43 and I have some outstanding on 29th of February.
17:46 So when my bank gives me 20% additional,
17:50 to call it a collateral-free loan is actually a misnomer.
17:54 In fact, normally also we go to banks sometimes
17:57 and request for TOD is a temporary overdraft.
18:00 So I believe that this 20%, of course it would help.
18:04 Of course it would help because government is guaranteed.
18:08 So banks will not be shy
18:10 of giving this 20% additional funds.
18:12 But let me tell you that the banks
18:15 have always been seen sitting very, very pretty.
18:18 And in fact, it's very unfair at a time like this.
18:21 You know, in the lockdown,
18:23 even a taxi driver was asked to stay at home,
18:27 not to drive a taxi.
18:28 Even a rickshaw puller had to stay at home, not go.
18:32 Even a construction worker, daily wage worker
18:35 could not make money.
18:37 All factories, all businesses closed.
18:40 And the only thing that kept making money is banks
18:45 just because the bank interest would keep moving
18:48 with the time clock.
18:50 That is very, very unfair.
18:52 How I wish this entire interest cycle
18:55 also should have come to a complete halt,
18:58 at least for the lockdown period.
19:00 And that would have been very fair for every business.
19:03 So even at this time, when the banks kept making money,
19:07 even if those are accrued or accumulated dues
19:10 that they would now recover.
19:11 And then RBI gave huge liquidity into the market.
19:16 The CRR was reduced.
19:19 Banks are flush with funds and with reverse repo rates
19:23 so low, banks, of course,
19:26 we are the best market for the banks.
19:28 So to give a 20% extra loan to an existing customer
19:33 who's already mortgaged his collateral assets,
19:38 or should I say his own future with the banks,
19:41 I think this is the easiest thing for the banks to do.
19:44 And the government also now supporting this as a guarantee.
19:49 So I think this is just a very, very easy for banks.
19:54 They'll easily give this 20% now to entrepreneurs.
19:58 However, entrepreneurs may find it extremely insufficient
20:01 because this 20% would hardly suffice
20:04 for three months of accrued statutory liabilities
20:09 that they are.
20:11 And I don't know how they would restart their businesses
20:14 actually in June and July,
20:17 even if they get orders in the future.
20:19 So what you're saying is net, net,
20:21 it's not going to help too much
20:22 because it's not sufficient to reset.
20:25 But my question to you is this,
20:27 why do you even say it's an easy way out for banks?
20:30 Because given the stress in the sector,
20:32 and if you are suggesting that a lot of companies
20:35 that already pledged to the brim,
20:37 a lot of them may not be credit worthy anyway.
20:41 So any money that is being put on the table
20:44 is a blessing that is being handed out.
20:47 - Okay, there is, of course,
20:49 I admit that there is support
20:51 in what the government is doing.
20:53 Ultimately, there is this 20% additional liquidity
20:56 is coming to entrepreneurs.
20:58 But let me tell you a very typical situation.
21:01 Suppose I have an outstanding,
21:03 or let us say two crore or three crore
21:06 on 29th of February.
21:08 Now this fund I raised one or two years back,
21:11 and part of it was term loan,
21:13 part of it was working capital.
21:16 Term loan as it is, I have been paying over a period of time.
21:19 So my outstanding has been regularly,
21:22 I took a let's say term loan of two crore,
21:24 and that is now slowly coming down,
21:26 and today the outstanding could be 1.5 crore.
21:29 And the CC limit as it is,
21:30 all the receivables stocks are hypothecated,
21:33 and I keep paying interest on my working capital.
21:36 So it is not that the banks are taking additional risk.
21:42 Already I have repaid part of my borrowing,
21:47 and therefore my collateral security,
21:49 in any case, banks would take a risk
21:52 of only up to 70% on a collateral security.
21:55 So if on a property of one crore,
21:57 bank gave me 70 lakhs,
21:58 on that 70 lakhs,
22:00 I have paid through my EMI regular term loan,
22:03 the today's outstanding is 50 lakhs,
22:05 and now on that 50 lakhs,
22:07 if banks again give me 20% more,
22:10 that is 10 lakh rupees more,
22:11 the total outstanding comes to 60.
22:14 And my collateral,
22:15 in any case was one crore at that time.
22:18 So I believe that it's almost a zero risk proposition
22:21 for banks.
22:22 Banks already have collateral,
22:24 they already have all the receivables
22:26 and stocks as securities,
22:28 and government additionally is giving some guarantee.
22:31 So banks are,
22:33 I think they have zero risk
22:35 in giving at least these 20%.
22:37 Let me also remind you,
22:39 banks are giving this 20%
22:40 only to the regular account,
22:42 not to the NPAs or stressed account.
22:45 So all the regular accounts,
22:47 so that they keep a plot,
22:49 banks would be giving this 20% extra,
22:51 they already have the collateral,
22:53 government is further guaranteeing
22:55 this kind of a situation.
22:58 So I really believe it is the easiest thing
23:00 for banks to do,
23:01 and banks should do it.
23:03 However, the call now is,
23:05 that what if someone needs more?
23:08 Will the banks then come forward?
23:10 Will they demand some additional collateral?
23:14 Or would they be going in for,
23:17 because there are some recent stories
23:20 that I'm hearing,
23:21 that some of the banks are not renewing the loans,
23:23 and especially the private sector banks,
23:26 they are trying to reduce the debt
23:28 with their entrepreneurs,
23:31 those in cases where renewals were due.
23:34 So markets have different stories and experiences,
23:37 because it is not that the banks
23:40 have to actually take a call,
23:42 whether they would be funding a future CAPEX,
23:46 whether they would be giving something extra,
23:49 other than a bit more than 20%,
23:52 what government is guaranteeing.
23:54 So all that would depend upon a lot of assessments,
23:57 a lot of ratings.
23:59 We need a new rating mechanism,
24:01 in future for the entrepreneurs,
24:05 who have been doing well,
24:07 and whether they trade have a future.
24:10 And also whether a particular business model,
24:14 or a particular entrepreneur has a plan for future,
24:18 or an entrepreneur,
24:20 whether is also engaging new skills,
24:23 new technologies, innovative areas to look ahead.
24:27 And therefore, assessment, credit rating,
24:31 credit assessments, requirement assessments,
24:33 by the banks for the assessments in future,
24:36 also will not be easy,
24:37 because there is a bit of uncertainty.
24:40 And therefore, as I said in the beginning,
24:43 this is an unprecedented situation.
24:46 And therefore, this situation demands unprecedented measures,
24:51 both by the government and the bankers.
24:55 And if the government also today,
24:58 thinks of itself as an investor,
25:02 if the government today invest in me,
25:05 in entrepreneurs, in MSME,
25:07 we would be paying the same government back
25:10 many, many more times,
25:12 through GST, through taxes,
25:15 through other ways of means employment.
25:18 But if the sector itself goes down,
25:22 then how many people will pay income tax this year,
25:25 for example?
25:26 If, as I just told you,
25:28 when entrepreneurs, if I look at my 2021 projection,
25:32 I see a net loss in my business also,
25:35 because the revenues would be only for six to seven months,
25:38 with costs for almost 12 months.
25:41 So a good, healthy SME last year,
25:44 would be a negative red SME this year.
25:47 And therefore, there would be no taxes this year.
25:50 Maybe it is the only minimum advance tax,
25:53 the MATs, you know that sometimes entrepreneurs
25:55 have to pay.
25:56 So if 100% MSMEs are in losses,
25:59 and if they don't pay income tax this year,
26:02 there would be the government revenue there.
26:04 And also government has already hit on GST as well.
26:08 And therefore, I believe,
26:09 that in this unprecedented situation,
26:12 government has to find ways and means
26:15 to invest in MSMEs,
26:17 so that these MSMEs can retain their base,
26:21 they can bring back their people,
26:23 they continue to give employment,
26:25 they continue to play a good role in export,
26:28 and then of course, on GST for the government,
26:32 and also pay taxes in times to come.
26:35 Many more times will be paid back the government.
26:39 It is only that in this time,
26:41 SMEs are looking at a huge support.
26:43 Of course, government has given some,
26:45 but I believe much, much more needs to be done.
26:50 - I understand your point on collateral free loans,
26:54 not being too helpful,
26:55 because it only pushes companies further into debt,
26:58 and does not provide real relief.
27:01 But there is also an equity infusion of 50,000 crore,
27:05 and a subordinated debt of 20,000 crore
27:07 that has been put on the table.
27:08 Now, who could really benefit from this?
27:11 And do you really see the traditional industries
27:14 taking advantage of this?
27:15 - Yes.
27:18 Ma'am, this 50,000 crore mother of fund,
27:24 is a great scheme, a great program of the government.
27:29 But let me tell you,
27:30 the beneficiaries of this program
27:33 will be high tech MSMEs, startups,
27:36 and very high potential SMEs that have a huge future,
27:40 those who can look at future listings, future valuations,
27:44 because this is the fund
27:46 that would come to these entrepreneurs as equity.
27:49 And needless to say,
27:50 that this fund will come as equity
27:53 only to those entrepreneurs
27:55 who have a very high potential or high technology,
27:58 those in maybe pharma sector, maybe health sector,
28:02 in high technology sector,
28:04 maybe some of the entrepreneurs would get.
28:06 But then I don't believe
28:08 that this is for the traditional MSMEs,
28:12 the thousands, the millions of manufacturing MSMEs
28:15 that are in India.
28:16 So this mother of funds is available for the high tech,
28:21 high potential SMEs and startups.
28:24 Three lakh crore is for the existing borrowers,
28:28 not for those who don't have access to the credit.
28:32 And then there's another scheme of subordinate debt
28:37 that the government has brought in.
28:39 That is for the stressed and the NPAs
28:43 amongst the MSMEs,
28:46 those who would need that restructuring and future revival.
28:49 So these three programs remain,
28:51 but what about those who do not have access
28:55 to bank credit as of date?
28:58 Those who are still struggling for institutional finance
29:02 or the formal sector to fund them?
29:05 I believe that is also a very, very large sector.
29:10 And let's see what government does for them.
29:13 Let me also make a mention
29:15 that on 2nd of November, 2018,
29:19 Honorable Prime Minister launched an SME outreach program.
29:24 And in this MSME outreach program,
29:26 he announced 2% interest subsidy for incremental loans,
29:31 which are availed by MSMEs.
29:33 Unfortunately, that scheme ended in March this year.
29:37 In fact, we believe that this is the time,
29:40 not only to extend that scheme further,
29:43 at least for next two years,
29:44 but enhance this 2% subsidy to 5%.
29:48 Because that would be help for those entrepreneurs
29:51 who would be going afresh to the bank
29:54 or who would be reinvesting or investing more
29:57 in CAPEX and future expansion.
30:00 - So Rajeev, what's your advice to entrepreneurs today?
30:06 Anybody whose business is disrupted,
30:09 somebody who is cash strapped,
30:12 does not see too much revenue,
30:14 coming back this year,
30:17 how should you deal with this situation?
30:19 Should they be taking additional debt
30:20 and keeping the business going
30:23 or cut fixed costs hugely to fight another day?
30:26 What would be your advice?
30:28 - All right.
30:29 The first thing entrepreneurs have to understand
30:33 is that the world of business
30:36 will never ever be the same again.
30:39 And past success is no guarantee for future success.
30:45 Remember these things
30:47 and you have to actually restart from where you are.
30:52 This is one.
30:54 Second is that do not go in for additional funds,
30:59 bank loans, just because government is offering
31:03 or banks could be offering.
31:04 Loans have to be repaid.
31:08 These are not waivers.
31:10 And these add to future debt
31:13 and future stress.
31:15 Let me tell you that every personal guarantee
31:18 that an entrepreneur signs
31:20 while availing of a loan from a bank,
31:23 he's actually mortgaging the future
31:26 of the next generation also in the family.
31:29 Therefore, it is extremely important for entrepreneurs
31:33 to focus on their immediate debt,
31:36 what are their past debts,
31:38 can those debts be cut down,
31:41 are there some wasteful stocks,
31:44 unused stocks, unused machines,
31:47 unused assets lying in the family,
31:50 can those be liquidated now that the markets open up?
31:55 So that is one very important thing
31:57 that I would ask every entrepreneur
31:59 to slim down, reduce the debt burden
32:03 as much as possible,
32:05 even at the cost of sometimes losing some money.
32:10 I also appeal to Reserve Bank of India
32:13 and Government of India through your program
32:16 that many banks are today,
32:18 even in such a challenging time,
32:20 very ruthlessly demanding 4% to 5% foreclosure charges,
32:25 penalty on prepayment.
32:29 Imagine the situation of an entrepreneur
32:31 who would be perhaps selling his or her jewelry
32:34 or gold in the family
32:36 or some asset at a lesser rate
32:38 to pay back a loan so as not to become a defaulter.
32:41 And some of these ruthless banks
32:43 are demanding prepayment charges,
32:46 penalties 4% to 5% on their previous loan.
32:50 So I really want to appeal to the government agencies
32:53 as well as to the banks
32:55 that there should be no preclosure charges
32:57 at least in a time like this
32:59 when some entrepreneurs come back to them
33:01 and want to reduce it.
33:02 So, third very important thing
33:06 that raise funds if one sees a future market,
33:11 someone gets a new export order,
33:13 after all work has to restart,
33:15 revenue has to come in
33:17 and therefore new loans only for productive work,
33:22 don't take loan to pay off past debt,
33:27 you will be getting into a worse debt path
33:29 in times to come.
33:32 Next very important thing,
33:34 these deferments that the government is also offering,
33:38 the banks are offering,
33:39 do not defer high cost loans.
33:42 It may be someone is using a credit card,
33:45 do not defer that.
33:47 Defer a home loan maybe
33:48 because those are low cost loans,
33:51 but not high cost loans like personal loans,
33:54 unsecured loans, credit cards.
33:56 Third very important thing is
33:59 that this is the time
34:02 when technology has to be taken very, very seriously.
34:06 So, irrespective of what one is doing,
34:09 whether one is running a bakery,
34:11 whether one has a Karyana shop
34:15 or whether one is in manufacturing
34:17 of essential items or non-essential items,
34:19 technology is must
34:22 and that is where one has to understand.
34:26 Fourth, new skills are required,
34:29 therefore start hiring people
34:32 who are smarter than you.
34:34 Normally entrepreneurs don't do this
34:36 and they would engage low cost people
34:39 or those they can afford properly.
34:42 This is the time to think out of the box,
34:45 bring in good talent
34:46 because I possibly cannot be an IT expert
34:49 or technology savvy at this stage.
34:52 So, I need to bring in people who are.
34:55 Another important thing is to think differently,
34:59 innovate, that is so important.
35:02 Maybe a restaurant today
35:04 can become a food supply, home food supply
35:08 or supply food to railways or airlines
35:11 or buses or schools,
35:14 door delivery, home delivery.
35:16 So, even a small Karyana shop
35:20 should tie up with Swiggy
35:23 or some other home delivery companies
35:26 and start delivering home.
35:27 So, new innovative models,
35:30 those need to come in.
35:32 I was discussing with a travel tourism company
35:36 and I said that,
35:38 suppose I travel to Mumbai
35:39 and I have to stay in a hotel there,
35:42 now, when I get down at the airport,
35:46 would I go in for Ola or Uber now?
35:49 And I'm not very sure who wrote that earlier
35:53 and whether it is infected or not.
35:57 So, the point is how we can give confidence
35:59 to a traveler, to a mover,
36:01 of a complete disinfected cab
36:06 coming to receive,
36:08 with proper social distancing measures.
36:10 So, a lot of innovative models,
36:12 innovative thinking one has to do,
36:15 whether it is a hotel or restaurant,
36:17 maybe different cabins need to be made
36:20 with social distancing.
36:22 Cinema halls could be drive-in cinemas,
36:24 if possible,
36:26 while some could be sitting in the car
36:27 and watching a movie.
36:29 So, I think many new innovative things,
36:33 those need to be done.
36:35 And then, of course, is developing markets.
36:39 And the Prime Minister has talked about
36:41 an Aatmanirbhar Bharat,
36:42 a self-reliant India.
36:44 And therefore, it is time to recapture
36:48 domestic markets.
36:49 Why should imported goods sell in India?
36:52 Let's produce the best in the right quality.
36:55 Let's recapture our domestic market.
36:58 And then, of course, go global.
37:00 So, we have to become vocal for the local.
37:03 And then, of course, local has to become global.
37:07 And then, lastly, I would say that
37:10 entrepreneurs have to keep themselves updated.
37:13 Every day, laws are changing.
37:16 There are changes in income tax rates.
37:19 There are changes in TDS rates.
37:21 There are changes in GST rates.
37:24 Provident fund rates have changed.
37:26 So many things have changed in the last few months.
37:29 And every week, there are new announcements
37:32 and new challenges.
37:33 In fact, my ERP, on which I work,
37:36 it is not updated as per the latest
37:38 Provident fund changes, let us say,
37:40 which have recently been announced.
37:42 And then, of course, the GST, TDS rates,
37:45 those have been announced.
37:46 So, those are some areas where entrepreneurs
37:49 have to understand.
37:50 They have to keep themselves abreast
37:52 and keep looking at what's ahead.
37:55 So, be confident.
37:56 Don't be fearful of the world.
38:00 But then, of course, be cautious.
38:02 This is not the right time for CAPEX, let me warn you.
38:06 It is not the year for CAPEX capital expenditure.
38:09 So, even if one gets orders,
38:11 one should look around,
38:12 see if someone else has a spare capacity,
38:15 offload that work, give it on job work,
38:17 get it done, consolidate your work on your core areas.
38:21 Don't go for short-term businesses like,
38:24 okay, I'll start trading in sanitizer
38:26 just because today people are doing that.
38:28 So, there are thousands of, you know, a lot of things.
38:31 Last, there are some sectors which would see huge growth.
38:36 The health sector, the food processing sector,
38:41 the agriculture sector,
38:42 a lot can be done in these areas.
38:47 Therefore, do look at options.
38:50 If I run engineering industries
38:53 and I have been manufacturing
38:54 the traditional automobile components,
38:57 it is time, can I also make something for the health sector?
39:01 Can I make beds for ICU?
39:03 Can I make ventilators?
39:05 Or there are millions of other things
39:07 that health sector would need.
39:09 So, I'm sure if entrepreneurs bring in their experience
39:13 and resources with the skills and the innovation
39:17 of the new generation,
39:18 magic can happen in the second inning.
39:21 - Sure, that sounds good.
39:23 One big issue that entrepreneurs are worried about now
39:27 is the problem of migrant labor.
39:29 How real is this concern
39:31 and how do you really deal with this?
39:33 - I think it has been one of the biggest tragedies
39:39 of these COVID times.
39:41 And something that has been mishandled,
39:46 I would say, by a lot of authorities.
39:50 So, I'm not blaming any one agency or any one government.
39:55 I think it is a collective responsibility
39:58 that society has to take, including entrepreneurs.
40:02 Because I know that there was complete communication
40:05 breakdown between the industry,
40:08 the contractors, and the migrant workers.
40:11 And sectors like construction, sectors like garment,
40:15 these are the sectors that give huge employment
40:18 to migrant labor.
40:19 And there are thousands of people,
40:21 they work in one garment factory or at construction sites.
40:25 There was complete breakdown in the communication.
40:29 And no certainty was shown to them,
40:32 whether they would get business in some time,
40:35 whether the salaries and wages would continue to
40:39 be credited to them in time, as the government wanted.
40:42 So, just because of this breakdown,
40:44 uncertainty, no immediate thing in sight,
40:49 with landlords demanding rent from these people.
40:52 And then, of course, a lot of paranoia
40:55 that was around, a lot of rumor mongering
40:58 for COVID and corona.
41:00 So, we could all see millions of people
41:03 walking on roads back to the home,
41:05 and the sad story that has ever since been.
41:09 I'm sure it would not be an easy way back for them.
41:14 Someone who's traveled all the way by foot or in train
41:19 that has taken such a long time in reaching destination.
41:23 People who've been in moratorium or, you know,
41:27 stranded midway in various tents and relief camps.
41:32 I'm sure they've seen a lot of pain,
41:35 much more pain than you and I.
41:38 And we would have to bring back their confidence.
41:42 I think this call is upon the industry also.
41:46 Let us bring back their confidence.
41:49 I'm very happy to inform you that in Haryana,
41:52 and I speak right now, I'm in Faridabad,
41:55 so Gurgaon-Faridabad belt.
41:57 Haryana has received one lakh requests
42:00 from migrant workers presently in Bihar and Jharkhand
42:04 who want to come back to Haryana.
42:06 That is a tough time.
42:08 But the point is, how do you bring them back?
42:12 Will they come back on train?
42:14 When they come back, how we will screen them for COVID,
42:18 for corona?
42:19 How well whether they would be,
42:21 they would need to be quarantined for seven or 14 days
42:25 and then taken to businesses.
42:27 Would landlords and people happily accept them back
42:31 when they come?
42:32 So point is, A, how to bring them back,
42:36 B, how to provide quarantine facilities for them.
42:41 And so that is a huge challenge.
42:44 And let me tell you, till now,
42:48 the labor was less, the work demand was also less.
42:53 So no one in business circle felt pain in May.
42:57 But let me tell you, by June end,
43:00 when the markets would revive better.
43:04 And I have a lot of news that in June,
43:07 the automobile sector, especially the two-wheeler sector
43:11 is looking at producing at least 60 to 70%
43:14 of what they did last year.
43:16 And that sounds really, really great.
43:18 But how will they achieve it without the labor
43:22 in the supply chain?
43:23 So how labor would come back
43:26 and then how they will be quarantined
43:28 and taken back to work?
43:30 I think these are gaps.
43:32 So challenges are there.
43:34 Challenges are likely to worsen by June end, as I say.
43:39 And maybe by July, I hope that once again,
43:45 when the trains start running,
43:47 public transport starts running,
43:49 and hopefully by then the COVID
43:52 and its infection spread is in sight check,
43:56 then maybe by then there is some herd immunity
43:59 that gets developed in our nation.
44:02 That is the time when I see some of these things
44:04 coming back to normal.
44:06 - Okay, at this point, we'll take a five-second break again
44:11 and come back to you with some questions from the audience.
44:14 (upbeat music)
44:17 (upbeat music)
44:19 (upbeat music)
44:20 - RR Gifting, gifting for memorable brands, call now.
44:25 - Welcome back.
44:27 The first question is from Mukul Vashis,
44:28 Director of RR Solutions.
44:30 With the absence of cohesive data on informal enterprises,
44:34 which by some estimate makes up for more than 90%
44:37 of small businesses in India,
44:39 how do you think the government can identify,
44:41 reach and help these enterprises
44:43 which have been facing shutdown at this time of crisis?
44:48 - Okay.
44:48 Actually, it is on demand of the MSME sector
44:53 that government of India had introduced a system
44:57 called UAM, Udyog Aadhaar Memorandum.
45:02 It was an option given to MSMEs
45:06 that they could just go online
45:08 and link their Aadhaar card with the business,
45:11 do self declaration on their investment
45:14 and take a registration online for micro, small or medium.
45:19 This process takes less than two minutes,
45:23 less than two minutes.
45:25 And this is something which came in very handy
45:28 and millions of entrepreneurs in India,
45:30 they've taken this registration.
45:33 This registration in India is optional,
45:35 which means that if someone wants to avail
45:38 of the government benefits or the bank priority sector loan
45:42 or some other subsidy, then one needs to register.
45:46 So the scheme till date is optional and rightly so.
45:51 Second is that now that the definition has been widened,
45:55 now the government has introduced two aspects.
45:57 One is that they have increased the investment limits
46:00 for the MSMEs.
46:01 For micro, it has been enhanced from 25 lakhs to one crore.
46:07 For small, it has been enhanced from 25 lakhs to five crore
46:12 to five crore and 10 crore.
46:16 And for medium, it is now 10 crore to 20 crore.
46:19 Government has also introduced a turnover criteria.
46:24 For micro, businesses less than five crore are micro,
46:28 businesses between five crore and 50 crore are small
46:31 and businesses between 50 to 100 crore would be medium.
46:36 In this arena, I believe that this definition
46:41 that has been proposed by the government at this stage
46:44 is not favorable to the MSME sector.
46:49 And let me tell you why.
46:50 Two years back, the same cabinet passed a resolution,
46:55 a decision that small would be till 75 crore
47:01 and medium would be till 250 crore.
47:03 And two years later, now that the government
47:06 is finally announcing in the COVID time,
47:09 it is diluting its own previous decision
47:12 and bringing down small from 75 crore to 50 crore
47:16 and medium from 250 crore to 100 crore.
47:19 And therefore, a lot of entrepreneurs
47:22 who are deserving entrepreneurs,
47:25 they would be missing out on the benefits
47:27 that come to the MSME sector.
47:29 And I really believe that this definition
47:32 needs a relook by the government agencies
47:35 and government should have a relook.
47:37 For example, someone in gems and jewelry sector,
47:40 for such an enterprise, a 50 crore turnover,
47:43 100 crore turnover is hardly anything
47:45 because of the very precious gems, diamonds, gold,
47:49 raw materials that they use.
47:51 So I believe government should have,
47:54 they should revert to their previous definition
47:58 of 75 crore and 250 crore.
48:00 And of course, the enhancement in the investment limits
48:03 that they have announced right now
48:05 is really a welcome step.
48:07 So my answer would be that it is an optional system.
48:12 It is a two minute self declaration system
48:16 where someone can just go on the portal and self declare.
48:20 Of course, at the time, when the real situation comes,
48:25 these data, these details that an entrepreneur today
48:29 files and self declares, these details can be verified
48:33 by looking at the balance sheet
48:36 or through a CA certificate or something else.
48:38 So government has made it easy initially
48:41 for the initial registration.
48:42 But then later on, of course,
48:44 some of these things as required
48:46 will be checked by the banks when they give loans
48:49 because that is where the real balance sheet will be coming,
48:52 the audited balance sheet will be coming
48:54 and the actual investment and its relation to the turnover
48:59 and turnover, of course,
49:00 is corroborated by the GST returns nowadays.
49:03 So I believe very soon,
49:04 this entire system will become streamlined
49:07 and will be very, very fair in transfer.
49:09 - The next question is from Harne Lohsa,
49:14 founder and CEO of Hyperlink Infosystem.
49:17 Do you have any ideas on how small businesses,
49:20 especially financial businesses
49:22 can use technology as a differentiator?
49:26 - FinTech companies are the flavor of the time.
49:30 In fact, all the disadvantages of a very large bank
49:35 or should I say all the bureaucratic
49:38 or red tapism of a large bank
49:40 is done away with the minute one when comes,
49:43 when one talks about technology and finance together.
49:47 And that is what FinTech companies is.
49:49 I personally know a lot of FinTech companies
49:52 that are doing amazing businesses
49:55 at the micro finance level as well.
49:57 Going up to lakhs, millions of borrowers with small loans
50:04 and then doing their immediate background check
50:06 through those apps.
50:08 Now that the technology has integrated.
50:10 In fact, the government also wanted a similar program
50:14 and they launched a portal called
50:17 PSB loans in 59 minutes.com.
50:20 PSB loans in 59 minutes.com.
50:23 And in fact, government also wants
50:25 that all this traditional PSUs,
50:27 the PSBs, the public sector banks,
50:30 they should also act like FinTech companies
50:33 and within 59 minutes a loan can be processed
50:37 and principally sanctioned.
50:38 So I think integration of technology with finance
50:43 is of course the future.
50:45 For the rest of the entrepreneurs, let me tell you,
50:50 normally we identify technology only with IT.
50:53 Let me also tell you that in manufacturing,
50:55 technology has its base to lot of automation
50:59 that one can do in an enterprise.
51:01 The industry 4.0, which would now see the real surge.
51:06 On one hand, the shortage of manpower,
51:09 shortage of migrant labor coming in.
51:11 Maybe it is the technology and the automation
51:13 in the automotive sector, that helps them go ahead.
51:17 And it's not only about manpower.
51:20 Let me tell you, when we talk about the self-reliant
51:22 and self-assured India,
51:24 and if I have to compete against China or Vietnam
51:28 or Thailand or Korea,
51:29 and in the export market in Latin America or US,
51:34 then I need to produce the same quality
51:36 and the same cost effectiveness
51:39 because internationally the competition
51:42 is very, very severe.
51:43 And therefore technology,
51:45 even at that level is very important.
51:48 Lastly, of course, is when we integrate
51:53 some services with technology,
51:55 be it retail services, e-commerce,
51:59 killing of entirely new,
52:02 the way we are talking today,
52:04 in the interviewings, all the webinars that are happening,
52:07 normally large conferences would take place in hotels.
52:11 Now it's all on webinars like this.
52:15 So a lot of technology is going to give a huge boost
52:20 to those who can integrate,
52:24 be it manufacturing, services, e-commerce,
52:27 or of course, hardcore technology.
52:30 And that would make a huge difference.
52:32 Finance, of course, I see future,
52:35 or I see all future financing happening
52:39 only on the touch of a map.
52:41 - We'll take one more question.
52:44 Jayant Nair from Transact Incorporated.
52:46 Would you suggest entrepreneurs invest in technology
52:50 and automation at this point in time?
52:53 - It is the only way out.
52:55 In fact, it is not only the right time,
53:00 it is the only tool that can make any business
53:05 remain competitive and a plot.
53:08 Otherwise there would be no growth.
53:10 So of course the time is right,
53:13 and this is the only time that we have.
53:16 And if we miss now, someone else would take a lead.
53:20 So therefore, in the second innings,
53:24 if we are very lucky to survive and live a second inning,
53:29 one of the best gifts in the life is to get a second chance.
53:33 So take it as a gift, and technology and skills,
53:36 these are the only two things
53:38 that you can avail of in the second inning.
53:41 - Sure.
53:42 Thank you so much, Rajiv.
53:43 It was a great lively discussion.
53:46 Thank you so much for sparing the time
53:48 to be with us to do this webinar today.
53:51 I definitely enjoyed it.
53:52 I hope everybody who's watching
53:54 has benefited from this discussion.
53:56 - Thank you so much.
53:57 It was such a pleasure.
53:58 Thanks for all your time.
54:00 - Thank you, Rajiv.
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