A report from a group of experts on the post-COVID-19 economic and industrial revival of Punjab has suggested that the State government pay special attention to Micro, Small and Medium Enterprises (MSMEs), as some estimates suggest that as many as 20%-40% of MSMEs in the State could permanently close.

The first report of the group of experts has pointed out that the smaller units in the MSME sector suffered from the effects of demonetisation in 2016 and also from the introduction of GST in 2017, which imposed very strong compliance requirements. “They have been hit again by the three-month lockdown, and the uncertainty about the pace of recovery which has disrupted both supply and demand linkages, leading to a collapse in sales and a depletion of cash reserves. This poses an existential threat and some estimates suggest that as many as 20%-40% of MSMEs in Punjab could permanently close,” said the report.

“This would create a serious employment problem, which could quickly snowball into a social crisis,” it added.

In April, the Punjab government set up a group of experts, headed by former deputy chairman of the Planning Commission Montek Singh Ahluwalia, to come out with a post-COVID-19 revival strategy for the State. The group of experts had recently submitted its report.

The report added that the Global Alliance for Mass Entrepreneurship (GAME) has produced a national report for MSMEs, which outlines a three-stage approach consisting of ‘survive, revive and thrive’. “...this categorisation captures the essence of the problem. Survival is the first priority and the aim should be to ensure that large numbers of MSMEs are not immediately wiped out. However, those that survive the immediate shock will also need to be helped to revive as the economy gets back to normal. Thereafter, we have to address the long-term objective of how MSMEs can actually thrive and support a faster growth rate for industry in Punjab,” said the report in its recommendations.

Tips to cut expenses

As the State continues to face financial crunch, the report has outlined a comprehensive strategy for long-term fiscal adjustment based on expenditure control and raising additional revenues plus some other institutional reforms.

Among a few recommendations to curb expenditure, the report, while pointing out that Punjab government pay scales are much higher than the Central government, has suggested that State implement only Central pay scales for all future employees. “The higher pay scales of the existing employees need not be reduced but they should not receive any additional payments until the Central pay scales catch up with the current pay,” it said. Also the police-to-population ratio is much higher in Punjab than in other States and hence the report has advised not to raise additional contingents of police and also to refrain from fresh recruitments for the next few years.

In one of its recommendations to enhance State’s revenue, the report pointed out that as the demand for both India Made Foreign Liquor (IMFL) and beer and wine are relatively price inelastic, it would be advisable to increase the duty. Punjab should consider substantially increasing the rates at least for the next two years.

Also, pointing out that State government as well as the municipal corporations have land and buildings that are leased out for long time periods and these lease rents typically do not get revised, the report has suggested the government sell off these properties at market rates.