From Slowdown to Lockdown: Effects of the COVID-19 Crisis on Small Firms in India

Abstract

Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian manufacturing sector, contributing nearly a third of India's GDP and providing employment to over 110 million workers. Beginning on the 25th of March 2020, the Government of India has imposed one of the strictest lockdowns anywhere in the world in response to the COVID-19 crisis. Using data from a primary survey of MSMEs, this paper examines the current health of these enterprises along various dimension and surveys expectations of business owners during the crisis. Using data from 361 firms surveyed in May 2020, we find evidence of considerable distress, with 55 % loss in employment and production falling from an average of 75 % of capacity to just 11 %. Distress measures appear more severe for the smallest firms. Overall, 70 % of firms report that they will not survive the crisis beyond the next three months if the lockdown continues.

Keywords: Firm Survey; India; COVID-19; Small businesses

JEL Classification: O14, D22, D24, H32