The impact of Covid-19 containment lockdowns on MSMEs in India and resilience of exporting firms

Abstract

This study uses data from a survey of micro, small, and medium enterprises in India to document the impact of Covid-19 containment lockdowns on firms, their responses, and adaptation strategies. We find that the profits and sales declined substantially for the majority of firms. Temporary closures, pay cuts, and temporary lay-offs were the key measures utilized by firms to cope with the shock. Firms did not have adequate liquidity to last beyond six months, albeit the majority expected the pandemic to be over within that period. Micro-enterprises were the most fragile. Using a retrospective panel and matching-based difference-in-differences strategy, we show that exporting firms were able to cushion themselves from the domestic market contractions resulting from the lockdown.