India's small businesses face existential crisis due to COVID-19: CRISIL

Small businesses in India are facing existential crisis due to the coronavirus-induced lockdown that could pose insurmountable challenges for them, according to CRISIL.

The credit rating agency has warned in its study that coronavirus crisis will knock off a fifth of the revenues of micro, small and medium enterprises (MSMEs), as the Indian economy is pegged to shrink 5% in FY21 owing to weak demand due to COVID-19 pandemic and the subsequent lockdown.

The report further highlighted that the margins of small businesses will also contract by 200-300 basis points (100bps=1 percentage point), especially for the micro-segment, which accounts for 32% of the overall MSME debt.

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"A sharp decline at the operating level will also impact creditworthiness, aggravating the liquidity stretch these units have been grappling with, particularly on the working capital front," Crisil cautioned in its study released on Monday.

The report added that a contraction in the Indian economy will hurt MSMEs considerably across sectors.

It stated that pain will exacerbate as India Inc heads towards around 15% drop in its revenues and about 25% decline in earnings before interest, taxes, depreciation, and amortisation (EBITDA). This could turn out to be a death knell for small businesses.

"For MSMEs, the fall in revenue will be steeper at 17-21%, while EBITDA margin will shrink 200-300bps to 4-5% as weak demand gnaws away gains from lower commodity prices," the report pointed out.

Indian economy came to a standstill over the last three months as a countrywide lockdown to stem coronavirus spread shuttered shops and factories alike, destroying consumption.

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