Impact of COVID-19 on SME Clusters of North India, by Madhusudan Hanumappa and Trina Das

The Indian Micro, Medium & Small-Scale Industry (MSME) sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities. With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India's manufacturing output. They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India[1]. The sector has consistently maintained a growth rate of over 10%. About 20% of the MSMEs are based out of rural areas, which indicates the deployment of significant rural workforce in the MSME sector and is an exhibit to the importance of these enterprises in promoting sustainable and inclusive development as well as generating large scale employment, especially in the rural areas.

MSMEs are of two categories, one is manufacturing MSME and another is service MSME. Based on the investment in plants and machineries the industries are characterized into micro, small and medium enterprises (Ministry of MSME). 51% of the share of MSME is in rural area which caters to about 497.78 lakh employment and 49% share of MSME in urban area caters to 612.10 lakh employment (Ministry of MSME 2018). In the MSME share the Khadi and SFURTI (Scheme of Fund for Regeneration of Traditional Industries) clusters have the maximum contractual and traditionally skilled workers.

Unprecedented uncertainty is being witnessed in the wake of the COVID-19 pandemic; the way of life is not the same anymore with shutdown of the economy, social life, political activities, etc. Are we prepared for this kind of a long-term lockdown life? This pressure of the lockdown will affect one of the major employers in India, the MSME sector, that employs about 1109 lakh people and supports as many families.

Contractual nature of work is persistent in MSMEs where terms of credit and output depend upon piece rate work. COVID-19 pandemic has led to decrease in demand and thus suspension of production of all the items which are considered to be non-essential. There is a nature of informality in the working of MSMEs as 97.4% form the unorganised sector businesses (Mehrotra and Giri 2019). One of the worst hit contractual workers of MSME is from the Small and Micro clusters.

As per CII, a cluster is defined as,

“Concentration of units in a given geographical location producing same or similar types of products and facing common opportunities and threats is called a cluster. Clustering has been the age old phenomenon in India”, (CII 2010)

These Small and Micro clusters focus on development of traditional industries which are a speciality of the region. In this article we focus on looking at the such clusters in the northern belt of India. As mentioned, these clusters are specific to the region depending on the existing traditional traits.?For instance, Uttar Pradesh has carpet cluster in Mirzapur and pottery cluster in Azamgarh. These clusters support about 650 workers. Among the urban cluster there is Ludhiana Hosiery cluster that employs about 5 lakh people and has about 1500 units (CII 2010). This COVID-19 lockdown has hit the production in these clusters due to lack of demand, further the workers are also hit by loss of income in this given period due to the contractual nature of their employment. Cluster based impacts overall regional development as well. As per a recent survey by Tata Centre for Development, 71% did not pay their workers salary in the month of March (Tata Centre for Development 2020), though a stimulus package was given.

Since the production in the MSMEs was halted a huge group of labours were forced to distress migrate by walking, cycling or by other means, as the loss of income left them with no financial support for their rentals or food at their given locations. MSME industries gave a boost to the traditional skills and local manufacturing in the area, (NIRD 2015) but disruption of work in the industries has led to shift of labour back to agriculture. The other side of the story is, the labourers who are stranded in cities are not able to return to their village and contribute in the harvesting season which was due in April.

We hereby discuss the cases of these clusters and study the impact that COVID-19 entrapped these clusters.

SAHARANPUR HANDICRAFT CLUSTER: VALUE CHAIN ANALYSIS

The wooden handicraft sector of Saharanpur is a labour-intensive sector and skills are handed down through generations. The cluster engages manual labour in the form of “wood carving, metal ware, weaving and textile”[2],. The value chain of the handicraft industry includes procurement, manufacturing, packaging, distribution and sales. Each activity involves engagement of large contractual workers. 50,000 artisans are supported by this cluster (https://dcmsme.gov.in/dips/20%20DIPS%20Saharanpur.pdf).

·????????Procurement of raw materials: Wood is one of the raw materials used in handicraft production; the forest officials sell these woods to merchants who then auction these woods in a mandi. Tough wood is declared as an essential commodity, but during the time of COVID-19 the use of wood to make handicraft is not an essential industrial activity. Since demand for wood had decreased at the mandi level, the merchants associated with it are confronting losses[3]

·????????Manufacturing: The process of manufacturing involves drying, cutting and polishing the wood. The contractual labourers involved at this stage are losing their jobs. Since this work is a piece rate work and there is restriction on movement, industries put the income of the people dependent on this at risk. The wood carving industries come under the purview of informal sector and comprises of family owned contractual workers. Since the nature of work is family owned, loss of income will affect the entire family[4].

·????????Distribution and Sales: people involved from wholesale to retail sales are unable to supply materials to retail stores due to restriction of movement. Thus, warehouses are full with manufactured goods since there is unavailability of sellers[5].

LEATHER FOOTWEAR CLUSTER OF AGRA

Leather Footwear cluster of Agra has a special significance apart from supplying leather for domestic needs it is also involved in export of finished products. Since the COVID-19 problem is pandemic in nature there would be a decline in exports of these footwear. Also these SMEs receive prime attraction of tourists both national and international, because of location. Tourism industry being hit by pandemic declines the footfall in Agra due to which the retail stores of these SMEs suffer[6].

The traditional skill of shoe making in this cluster is dominated by 60,000 artisans from Jatava caste[7] and some poor Muslim households. Since the industry is a caste dominated occupation, what happens to be an economic problem now translates to be a social problem.

The household owned enterprises give employment to about 25,000 artisans and about 10,000 women artisans. The household enterprises wherein family members are employed will be the worst hit by this pandemic, coupled with lack of alternative sources of income. Apart from this type of enterprise holdings there are workshops and mechanized factories which engage hired daily labourers. These daily wage labourers do not fall under the purview of any government social security scheme which poses a greater pressing issue during this crisis (Ministry of SSI, 2016).

Khadi Gram Udyog centres across the city gives vocational skill training to labourers pertaining to the footwear industry. The pandemic has resulted in closing of all such training institutes for an indefinite amount of time. The labourers who were freshers and about to join the job market have to suffer because of this lockdown (Ministry of SSI, 2016).

This SME is a low-tech industry which depends on skilled labour (Knorringa 1996), which is has a dominant caste component. The workers had labour flexibility since the footwear cluster is a dominant one, but post COVID-19 labour crisis may unfold due to lack of demand.

EMBROIDERY CLUSTER OF UTTAR PRADESH

The unique feature of the textile SME sector is that the workforce are mostly women that are empowered. Bulk of the contracts are given to women to deliver the embroidery work within a given period. These members form a part of SHGs and their savings depend on the income they get from the work.

COVID-19 pandemic lockdown will give a blow to the work as well as to the savings of these women, which would eventually disrupt the functioning of SHGs as well. A village scenario with nationwide lockdown is bound to consume most savings of the household because of the informality of work. The sudden halt big industries would have ripple effect on these clusters. This cluster which is dependent on subcontracting would be hit. In turn impacting the village economy.

CONCLUSION

The SME case studies discussed summarize the given points:

1.?????In Saharanpur Handicraft industry the entire value chain is mapped in order to understand how many indirect and direct SME cluster workers are impacted due to the COVID 19 pandemic.

2.?????Agra Footwear cluster is strategic because of location, since it attracts many tourists. The wholesale to retail link is being broken due to the pandemic and the tourism industry being hit, this cluster would suffer many folds. There is a caste component of this SME cluster; COVID-19 lockdown would impact many such SMEs where there is a dominant caste factor. Poverty and unemployment emerging out of COVID-19 would impact all social institutions.

3.?????The textile clusters that promotes women empowerment is being hit beyond economic realm, COVID-19 will directly impact the disposable income of women making them fall back on their savings. Also, this pandemic is likely to impact the day-to-day functioning of the SHGs which is a major financial and social institution of the village economy.

The object of SME clusters was to promote regional development by giving opportunity for traditional skills and also skill new labour force from marginalized sections. But the virus has hit the backbone of the country weakening the economic and social fabric. Even as the country waits for the lockdown to end, the situation would not be the same since the economic brunt would have to be paid for a long time. The virus has turned to be a social lesson than a biological one.

References

1.?????https://msme.gov.in/. 2018.

2.?????Mehrotra, S., & Giri, T. (2019). The Size Structure of India’s Enterprises: Not just the middle is missing. Azim Premji University Working Papers.

3.?????Clusters in India. (2010). CII.

4.?????Das, R. (2015). Cluster Development Initiative for Poverty Alleviation: A Case Study. Journal of Rural Development, 43(3), 391–403.

5.?????https://tcd.uchicago.edu/. 2020.

6.?????Yadav, R., & Mahara, T. (2016). An exploratory study to investigate value chain of Saharanpur wooden carving handicraft cluster. International Journal of System Assurance Engineering and Management, 9(1), 147–154. doi: 10.1007/s13198-016-0492-5.

7.?????Diagnostic Study Report for Leather Footware Cluster, Agra. (2016). Ministry of SSI.

8.?????Knorringa, P. (1996). Lack of interaction between traders and producers in the Agra footwear cluster. Flexible Specialization, 69–83. doi: 10.3362/9781780440804.005.

https://dcmsme.gov.in/dips/20%20DIPS%20Saharanpur.pdf. 2016.

[1] Confederation of Indian Industry

[2] Yadav & Mahara, 2016

[3] Yadav & Mahara, 2016

[4] Yadav & Mahara, 2016

[5] Yadav & Mahara, 2016,

[6] Ministry of SSI, 2016

[7] Jatav is a sub caste of Chamar community and is found in northern India in the states of Uttar Pradesh (UP), Rajasthan, Madhya Pradesh (MP), Jammu and Kashmir (J & K), Punjab, Haryana and Delhi

Authors

Madhusudan Hanumappa is a Social Scientist working in the capacity of a Social Development Lead, Heading the Centre of Excellence for Social, Environment and Sustainability, South Asia and Central Asia with SMEC-SJ, Dhaka Bangladesh.

[1] Trina Das is a Research Scholar from IIT Kanpur working in the area of Science Technology and Policy with experience in development consultancy