COVID-19 Impact on MSMEs in India – An Overview

COVID-19 Impact on MSMEs in India – An Overview
Karan Singh
| Updated: Aug 24, 2021 | Category: MSME

Every country in the globe is on high alert after announcing Covid-19, a global pandemic by the WHO (World Health Organisation). This pandemic impacted the countries’ economies all around the world; many businesses or start-ups get closed. India is also highly affected by this pandemic. The pause in social & economic activities worldwide subsequently had a direct effect on the company in almost every economic sector. However, during the global crisis, the Government of India came forward and introduced a scheme called “Atma Nirbhar Bharat Abhiyaan” to ease the companies during this pandemic; the MCA issued a circular announcing numerous required measures for Indian Companies. These measures include relaxation in a board meeting, independent director meetings, permitting delayed filing for a definite time, and other various provisions to be executed by companies in India. In this article, we will discuss the Covid-19 impact on MSMEs.

As per the United Nations Economic & Social Council report, SMEs have endured the worst impact of the Covid-19 pandemic. MSMEs (Micro, Small, and Medium Enterprises) are the largest employment generator in India after the agricultural sector and play an essential role in elevating and helping the business environment in India. Regardless of 16 years of the MSMED Act governing MSMEs, these industries still face a lot of hurdles regularly due to lack of sufficient infrastructure, inadequate financial literacy & several other reasons. This intends to examine & explore the Covid-19 impact on MSMEs in India in the IBC (Insolvency and Bankruptcy Code), 2016, during the Covid-19 pandemic.

What is the Covid-19 Impact on MSMEs?

As per the WHO report, India has had over millions of cases along with many deaths. This shows how the Covid-19 impacted Indian, and it has been on the health of the huge population in the country. India has an immense population of migrant workers & daily wages; the Covid-19 has proved to impact the MSME the worst as these standard workers all over India proceed back home to escape the unkindness of lockdown on their daily life. Given the MSMEs nature, the genuine threat of Insolvency is constantly hovering over these Micro, Small, and Medium Enterprises. Before the Covid-19 pandemic, the MSMEs already had a variety of survival problems to concern themselves with, such as capacity utilisation & generation of revenue efficiently declining.

What are the Steps Taken to Safeguard MSMEs in India During Covid-19?: Covid-19 Impact on MSMEs

Section 4 (Amendment) of the IBC raising the threshold limit for CIRP from Rs. 1 lakh to 1 crore. The Finance Minister of India announced some incentives to overcome the challenges & hindrances faced by the businesses in the nation due to the Covid-19 pandemic. One such incentive was Section 4 (Amendment) of the IBC, 106 through Notification No. REGD.NO.D.L-33004/99, where the limit to start the resolution process of corporate Insolvency was changed to Rs. 1 crore from the initial amount of Rs. 2 lakhs, taking effect from March 2020. The same was suggested by the 3rd Annual Insolvency Law Committee Report to decrease the number of insolvency cases pending in the NCLT due to the Covid-19. The problem that arises with this particular application is that in the case of Insolvency, the Bankruptcy Code fails to equally aid the corporate creditors in recovering their outstanding or dues from the corporate debtors due to the increased threshold; these creditors are in lieu of becoming debtors themselves. This brings continuous financial distress & litigation for the corporate creditors to get their dues and make them incapable of returning dues owed by them to their creditors.

In case it happens, it becomes against the purpose of the IBC. Another issue that increases here is that there was no order mention having a traditional effect in this notification. It means that the new threshold amount will not be applicable for those applications seeking commencement of CIPR (Corporate Insolvency Resolution Process) before March 21, 2020, and they will instead have to follow the past threshold for Rs. 1 lakh whereas, those applications filed after the announcement of this notification will have to adhere to the new threshold of Rs. 1 crore.

Measures Taken by Government to Deal with the Covid-19 impact on MSMEs Internationally

As per the report, MSME is the core of each economy. MSME represents over 70% of the world’s employment and 50% of the worldwide GDP. Keep in this mind, the UNGA or United Nations General Council identifies the role of MSME in creating employment opportunities & acting as the spine of the world’s economy. Following are some countries where the Government take some measures to deal with the Covid-19 impact on MSMEs:

  • France: The French Government decided to adopt definite schemes & regulations under Emergency law to deal with the Covid-19 impact on MSMEs in pursuit of imitating the distress caused to MSMEs during the pandemic and aiding them to retain their businesses during the worrying situation. These regulations are announced with the objective of adapting the rules concerning corporate meetings, consents, and filings of managerial or accounts documents to fit the bad circumstances better.
  • Singapore: To help the citizens & businesses of this country during a pandemic, the Government of Singapore announced a new Act on April 20201 known as COVID-19 (Temporary Measures) Act, 2020. This Act was introduced to specifically help those who are not able to oblige with the terms of their agreements. Singapore has also, similar to India, increased the insolvency threshold & has also raised the time duration to fulfil the legal demand from 21 days to 6 months.
  • USA: As per the Facebook survey in 2020, around 33% of the MSMEs in the US have been mandated to close down due to the deficiency of finances or lack of client demands. Due to these losses faced by small entities, the USA President passed the CARES (Coronavirus Aid, Relief & Economic Security) Act to provide help and shelter to Americans from the economic & health poor effects of the pandemic. In this Act, the US Small Business Administration, with support from the Treasury Department, introduced specific programmes to help these enterprises. Some such major programmes were:
major MSME programmes by US
  1. Paycheck Protection Program.
  2. Economic Injury Disaster Loan.
  3. Employee retention Tax Credits.


After discussing the Covid-19[1] impact on MSMEs, it is pretty evident that this exceptional situation brought upon by the pandemic has pushed countries & Governments into taking excessive steps to protect the people’s safety and the economy. In India, several MSMEs have been forced to shut down due to the lack of finances & customer demand during the pandemic. So it is important for the Government to focus on this part of the economy to make sure a smooth functioning and order were given by the Government for Insolvency during the Covid-19 pandemic, there exist multiple ambiguities & confusions concerning the application of such orders as per the present laws.

Read our article:MSME Registration for Partnership Firm – An Overview

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Karan Singh

A legal writing enthusiast, a wanderer, and a zealous reader. After gaining a lot of knowledge about the diverse legal topics and developing research skills, Karan joined the league of legal content writers to deliver quality-rich blogs.


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