Understanding the Impact of Covid-19 on MSMEs in India: Lessons for Resilient and Sustained Growth of Small Firms

Abstract

The pandemic has raised an issue of survival for most of the micro, small, and medium enterprises (MSMEs) because of their vulnerability in terms of size, limited financial resources, and inefficiency to deal with unpredicted situations. Therefore, the present study has adopted the contingency theory in times of change and uncertainties caused by COVID-19 on MSMEs and found out the ways to enhance its resilience and sustained the growth of this sector. This study has applied descriptive statistics and probit regression analysis to estimate the resilience and sustained growth of the firms through a change in the variables like turnover, labour employed, investment, and age of the firm. Based on the survey of 225 firms, the study observed that around 90 percent of surveyed firms realized a decline in their turnover with a 25 percent reduction in employment that mostly occur in the informal category. Interestingly, there was some increase in formal employment in around 50 percent of firms because of the business commitment of firms, shortage of informal workers, and availability of workers at lower wages. Smaller and younger firms in terms of employment and investment have a higher possibility to be affected by the external shocks indicating that the firm agility increases with firm age and size. Support measures by the government during the pandemic were found to be insufficient and have limited relevance to the MSME sector in its revival. For enhancing the resilience and sustainability of MSMEs, the study suggests small firms should be encouraged to financial planning against business uncertainties and proposes financial security measures viz. Uncertainty Corpus Fund for Small Businesses and Small Business Insurance.