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Preparing MSMEs for effective disaster management

April 2016

KPMG.com/in

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© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.2

Table of content

1 Foreword 3

2 Associations that supported thereport 6

3 Introduction 7

4 Analysing the impact of the 2015 Chennai floods on MSMEs 8

5 Challenges faced by the MSME sector in Chennai 11

6 Analysis of current disaster preparedness level of MSMEs 12

7 Effective risk response framework 17

8 Our recommendations 21

9 Annexures 29

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1. Foreword

Chennai witnessed the heaviest rains inover 100 years in November 2015,affecting the city to a great extentThousands of houses were submerged,property was damaged, and the veryfabric of was life disrupted due to theshortage of essentials and disruption ofall public utilities, power and telecom.The spirit on Chennai should beapplauded and the fact that the entirecity united to fight against the naturalcalamity, should be appreciated. Not justlarge corporates, but thousands ofindividuals contributed in cash and kindto help those who were affected by thefloods, thereby setting an example of anideal society, where we stand with oneanother.

CII formed a National Task Force forRelief and Rehabilitation, headed by Mr.Seshasayee, who was the formerPresident of CII. The task force sprung toaction immediately and helped inmobilising resources for rescue, relief,short and long-term rehabilitation. Weacknowledge the support received fromour members, volunteers and our staff.

What is not largely known to mostpeople is the devastation caused by thefloods to Micro, Small and MediumEnterprise (MSMEs) in the industrialestates not only in and around Chennai,but also in Cuddalore, Thiruvallur,Tuticorin and other surroundingdistricts. Thousands of micro, smallentrepreneurs suffered completedamage. Entrepreneurs sufferedfinancially, as their property andbusiness both were impacted by thefloods. .

CII, as India’s primary businessorganisation, took initiatives to not

only help our own SME members, butalso the larger MSME industry. Movingvery quickly, on 7 December 2015, CIIsubmitted a petition to the UnionMinister for MSMEs, and to theSecretary MSME, Government of India,to assist MSMEs revive from thedisaster. This was followed up withadditional representations to the MSMEMinistry and to the Finance Ministry inNew Delhi. We interacted with theGovernment Of Tamil Nadu and theReserve Bank of India for relief packagesto MSMEs

Meetings were organised with banks,insurance companies, experts andMSME members to discuss, highlightand arrive at action plans on reliefmatters. In this context, major MSMEassociations and its members in TamilNadu were invited to join the effort.

Based on the feedback received, werealised that insurance was a majorweakness and assisted MSMEsassociations by arranging insuranceworkshops at different industrial estates.CII office bearers also interacted withbanks and insurance companies torequest their guidance and assistancefor helping MSMEs.

Our extensive interaction with MSMEs,both within CII and with other MSMEassociations, indicated that smallenterprises were completely unpreparedto handle natural disasters like therecent floods. In this context, CIIengaged KPMG in India to prepare areport on how MSMEs should protectthemselves from such disasters, and thesteps they need to take to safeguardthemselves from unforeseencircumstances.

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It is our duty to acknowledge thewonderful support, co-operation andguidance given by all our MSMEassociations.

We hope this report will be useful toMSMEs in protecting themselves fromnatural disasters. We realise that this isonly a small step to take in a longjourney, however, this is indeed goodfor the development of the MSMEsector, which is the backbone of TamilNadu’s economy.

We also acknowledge with deepgratitude for the support received fromthe Government of India, Government ofTamil Nadu and the senior officials, thebanks, the insurance companies andinsurance experts.

T. T. ASHOKChairman, CII MSME National CommitteeFormer Chairman CII – Southern region

1. Foreword

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1. Foreword

The floods that hit many parts of TamilNadu in November 2015 were areaffirmation of the very serious threatof climate change faced by our planetand the subsequent compounding effectof disasters owing to man-made factorssuch as environmental degradation andpoor infrastructure planning. Thecrippling impact on industries was of anunprecedented level with automobile, ITand manufacturing industries sufferingthe bulk of the impact.

The central government’s initiatives suchas ‘Start Up India’ and ‘Make in India’highlights the increasing governmentfocus on nurturing indigenous industriesand augurs well for promotion andadvancement of the MSME sector in thecountry. Despite the commendablecontributions made by the MSMEindustry to the country’s economicgrowth, the Chennai floods of 2015 werean example of their under preparednessin terms of disaster management andrecovery.

The impact of the floods was especiallynegative for MSMEs due to their lack ofrisk management mechanisms ascompared to their larger counterparts. Itis essential for such firms to build asustainable working environment that isresilient to natural disasters and has thecapacity to resume critical operations inminimal time to ensure businesscontinuity, in order to to maintain theircompetitive advantage. In addition, dueto the inherent inability of MSMEs to getappropriate support from banking andinsurance agencies, the impact wasescalated and the industry tookcomparatively longer period for revival

At KPMG in India, we are committed tohelping firms achieve sustainablegrowth by providing an appropriateapproach to help businesses remainresilient and stable during naturaldisasters by implementing

strong business continuity plans. As partof this report, We have worked closelywith CII and its supporting associationsto conduct primary research among theflood affected businesses to assess theadequacy of their internal disasterresponse framework and to address thefocus areas of improvement. We alsoconducted workshops, facilitated by theCII, with industry representatives tounderstand the major challenges (bothinternal and external) in the event of adisaster and their role in enablingbusiness continuity. This report providesrecommendations for disasterpreparedness and recovery of MSMEclusters, which we hope will serve as aguide for MSMEs while preparing theirstable business continuity plans.

We acknowledge the immense supportreceived from CII and other participatingassociations, towards the facilitation ofthis study. As MSMEs are becoming oneof the focus areas of growth for the nextgeneration of India. KPMG in India looksforward to supporting the entireecosystem of stakeholders to makeMSME initiatives in India a success

Nilaya VarmaPartner and Head

Government and HealthcareKPMG in India

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2. Associations that supported the report

CII has collaborated with the various MSME associations in and around Chennai for this report, the content of which is based on the meetings and discussions with the below associations

• Tamil Nadu Small & Tiny Industries Association

• Ambattur Industrial Estate Manufacturers Association

• Manali Industries Association

• Thirumudivakkam Industrial Estate Manufacturers Association

• SIPCOT Irungattukottai Manufacturers Association

• The Industrial Estate Manufacturers Association

• Tamil Nadu Small and Medium Industries Mutual Association

• South Chennai Industries Association

• Indian Drug Manufacturers Association

• Thiruvottiyur Small Industries Welfare Association

• Thirumazhisai Industrial Estate Manufacturers Association

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3. Introduction

Chennai has been inundated by fourmajor floods in the last decade – 2005,2010, 2013 and the most recent one in2015, which was brought about by theheaviest rains in a century, causedunprecedented damage, bringing the cityto a standstill. U.K.-based reinsurancebroker AON Benfield estimated theChennai floods as the eighth mostexpensive1 natural disaster to have hit theworld in 2015. Small and mediumenterprises, automobile and engineeringindustries, Information Technology (IT),ITeS, textile and tourism were the worstaffected sectors by the massive rainfall.

Vulnerability

Chennai is particularly vulnerable toflooding owing to its low elevation abovemean sea level, which means that a lot ofits neighborhoods are at sea level –making the task of drainage an evenbigger challenge. The rapid urbanisationand destruction of wetlands has alsocompounded the troubles of the city, withkey waterways, such as the Adyar andCooum rivers and the Buckingham Canal,are no longer capable of drainingfloodwater at desired capacities. Thesewage infrastructure too is ill-equippedto cope with rampant flooding due to thelack of enough lines and pumps to dealwith the huge population. A 2011 study bythe National Institute of DisasterManagement2 (NIDM) noted that the cityhas only 855 km of storm drains against2,847 km of urban roads and the total areaof 19 major lakes in the city has nearlyhalved from 1,130 hectares to about 645hectares.

The city, hence, faces a very real threat ofreoccurrence of a calamity of this scale orworse, which makes it essential forindustries to put in place the necessary

1 - 2015 Annual Global Climate and Catastrophe Report – AON Benfield, January 20152 - Urban floods in Bangalore and Chennai: risk management challenges and lessons for sustainable urban ecology - NIDM , 10 June 20113 – Estimated figures provided by CII – Chennai and supporting associations

disaster recovery mechanisms to ensureminimal impact to infrastructure, businesscontinuity and, most importantly, humanlives.

The Chennai floods of 2015 causedextensive damage to industries andbusinesses and the impact was felt to ahigher extent in the case of Micro, Smalland Medium Enterprises (MSMEs).

The data related to damages from actualresponses received from CII members andother associations is as below:

Note: Total value of the damage is estimated to bemuch higher.

This report focusses on assessing thecurrent disaster preparedness level ofMSMEs based in Chennai, analysing thegaps in the same compared to leadinginternational practices, and proposes aneffective disaster preparedness andmanagement framework to suit the needsof the MSME sector in the city. It alsoprovides recommendations to be adoptedby the government, banks, insurancecompanies and MSMEs in the near future.

Particulars of damages to MSMEs3

Number of units affected due to loss of machineries and raw materials in all rain affected districts

8,500 approx.

Number of workers affected by floods in industries (direct employment)

56,000 approx.

Number of units affected by floods indirectly

20,000 approx.

Number of workers affected (indirect labour)

160,000 approx.

Value of damage by machinery and building

INR 1000 crore approx.

Analysing the impact of the 2015 Chennai floods on MSMEs

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4. Impact on the MSME sector

MSMEs were the most affected from thedevastating floods in Chennai, incurringan estimated loss of around INR1,700crore by the most conservative figures injust two weeks of peak flooding,according to a report released by Smalland Medium Enterprises RatingAgencies (SMERA)4. The figures riseeven further if opportunity costs and joblosses are taken into account. However,since the figures are only related to themanufacturing sector, they do not takeinto account the losses incurred by theservices sector, which come to asubstantial amount

Several MSMEs are part of a supplychain that cater to large manufacturingand automobile industries. A delay onthe side of the MSMEs can have hugeramifications on the overall supplychain, and most customers may not bewilling to wait for production to get backon track to meet the shortfall. Thesecustomers may resort to alternativesources of supply, resulting in loss ofbusiness for MSMEs, making recoveryeven more challenging.

Compared to large MNCs, MSMEs aremore vulnerable to natural hazards dueto resource, knowledge, planning andexperience gaps. MSMEs, especially indeveloping countries, have additionalconstraints such as informal operationswhich keeps them out of the reach ofdisaster risk management strategies likeinsurance, lack of ability to diversifytheir supply and customer base and lackof compliance with norms andregulations thus increasing disaster risk,lack of social protection for theiremployees and so on5.

The challenges they face duringcalamities have a domino effect on thesupply chain involved, and yet MSMEsdo not have proper business continuityplans in place. Disasters affect MSMEs’operations because of the resultantsupply and demand constraints and mayalso result in huge financial burdensthrough resources spent for physicalreconstruction, and loss of businesscontinuity through loss of inventory, etc.All these factors suggest an increasedvulnerability of MSMEs in, especially inpost-disaster situations.

4 - Chennai Floods: Small Units Stand to lose INR 840 crore per week – The Hindu Business Line/SMERA Agency, 8 December 20155 - Small Businesses: impact of Disasters and Building Resilience – United Nations Office for Disaster Risk Reduction (UNISDR) Report 2013

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4. Impact on the MSME sector6

Impact on infrastructure:

Infrastructure damage is the mostsevere source of financial stress forMSMEs post natural disasters of anytype. It can lead to business closure forextended periods while infrastructuralrepairs take place to restore operations.This, naturally, calls for large amounts ofresources which is an unforeseenfinancial burden. Moreover, if MSMEsdo not have insurance cover or lackresources for these repairs, the entiresurvival of the business can be underthreat. In case of disasters of amagnitude like the Chennai floods, evenif operations do resume somehow,physical damage to infrastructure canlead to continued dip in businessperformance of surviving firms as longerclosure periods could lead to loss ofcustomers. In addition, disruptions afterdisasters regarding the provision ofutilities such as electricity, water, fuel(e.g. petrol and natural gas),transportations andtelecommunications, can be responsiblefor businesses closing down.

Impact on business continuity:

Damage to property and premises can,in turn, disrupt the business operationsof manufacturing MSMEs as it causesextensive losses to raw materials ininventory, work in progress goods aswell as finished goods in storage. Notbeing able to honor their commitmentsto customers can be a huge blow toMSMEs as they are very easilyreplaceable by other firms. This, alongwith damage to manufacturingequipment and machinery, may lead toextended disruptions to the productioncycle. The longer it takes for an MSMEto recuperate and get back to normaloperations, the more attrition it can facefrom consumers.

As the demand side of operationsweakens, sales turnover dips andMSMEs find it difficult to manage theiraccounts payable to their suppliers, thefinancial stress is exacerbated by the factthat most MSMEs do not have adequateinsurance coverage to provide protectionduring these times. Futher, they do nothave sufficient access to reliable creditfacilities for quick loans that can helpthem stabilise their operations, owing towhich MSMEs have to rely on aid fromcentral or state agencies. However, bythe time help comes their way, it couldbe way too late to build back the erodedconsumer base.

Impact on employee health and safety:

Immediate evacuation of employees tosafer locations is of prime importanceduring a natural disaster. Promptmedical attention through first aid canaddress the immediate injuries thatemployees sustain. However, the staffcan still be vulnerable to the numeroushealth hazards that prevail in the days,and even weeks, after the outbreak of aflood. Water-borne diseases, such asleptospirosis, diarrhea, malaria, dengue,cholera and typhoid, are the mostcommon epidemics that can spark aftera flood. Employees who may already beunder severe personal financial distressbecause of the losses incurred during anatural calamity may come under morestrain in the event of a disease outbreak.Lack of proper health insurance cover foremployees may prevent them fromseeking timely and quality medical help.Employees are the prime asset for anyorganisation and, for an MSME withlimited staff, each member counts, thusmaking it crucial for employees to regaintheir health and resume their duties atthe earliest

6 – KPMG in India’s analysis, 2016, based on survey conducted with members of supporting MSME associations in Chennai after the December 2015 floods

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5. Challenges faced by the MSME sector

The following are the high level challenges faced by MSMEs in Chennai in terms of disaster preparedness6.


Category Challenges

Insurance • MSMEs are sometimes not aware or are not educated enough to deal with claims management

• The long drawn processes of claims and lack of documentation of business assets has led to rejection of claims, thereby creating low confidence in the insurance mechanism

• There is a lack of awareness of information needed to support claims leads to undervaluation of losses

• Insurance does not cover raw materials and inventory• Low familiarity with insurance coverage can also lead to under-

coverage• Indirect losses are not recognised and, hence, not calculated.

Banking • MSME sector has not received the required support from the banking sector due to structural issues

• Centralised banking procedures have led to unsatisfactory structure of sanctioning disaster relief loans, with no local guidelines being issued to banks

• Track record of companies is not taken into account while extending loans for disaster relief

• Immediate relief measures offered by the banks are inadequate, e.g. the extension of overdraft limits by 10 to 15 per cent

• The State Level Bankers’ Committee (SLBC) guidelines issued and RBI circulars are not fully implemented

• Banks should look at extending all possible support in terms of working capital flexibility, overdraft limit extension, term loans, letter of credit, etc., considering the track record of MSMEs and order book values.

Infrastructure • Industrial estates are in flood prone areas.• Waterline, gradient and water-flow studies were not taken into

consideration before setting up factories• No storm drain facility is available to divert water to water bodies• Several estates have implemented incorrect master-plans.• Lack of training and knowledge on the banking, insurance, accounting

and book keeping processes• Unorganised micro sector employs contract staff and do not have any

cover like Employees State Insurance or Provident Fund

Government • Lack of standard guidelines for assessing the losses • The tax holidays provided to MSMEs are not sufficient to enable revival• The calculation of various fees and taxes basis the past six months or

one year industrial output data seems to be an inadequate benchmark for any calculation of losses, payment of utility bills and tax holidays

• The existing industrial estates are very old and may have had no infrastructure upgrades since their inception

Analysis of current disaster preparedness level of MSMEs

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6. Current preparedness levels of MSMEs

1. Does your organisation have aninternal disaster response to ensureminimal business impact?

2. Are your stock, electrical fittings andvaluable equipment stored elevatedabove flood level?

3. Do all members of your staff havehealth insurance coverage providedby your organisation?

4. Have you developed externalcontingency plans with your clientsor suppliers?

5. Is your entire staff aware of andtrained in flood safety procedures?

6. Do you have emergency safetyequipment such as lifeboats orinflatable boats stored in theworkplace?

81%

19%No

Yes

88%

12%

No

Yes

50%50%No

Yes73%

27%No

Yes

38%

62%

No

Yes

96%

4%

No

Yes

In order to assess the current preparedness level of MSMEs in Chennai to dealwith floods, a primary research survey was conducted for MSME units in theregion through a questionnaire. The survey was facilitated by the CII and othersupporting associations and was conducted between January 2016 to February2016. The responses to the survey questionnaire are highlighted below.

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7. Do you have a stockpile of floodprotection material in yourmanufacturing unit(s)/office(s) suchas plywood, plastic sheeting, unfilledsandbags and sand, blocks of woodwith nails and hammers to createbarricades?

8. Do you have the emergency contactinformation of your utilities suppliers(gas, electricity, water) so that thesecan be turned off in the event of animpending disaster?

9. Does your organisation have anemergency evacuation plan and safeassembly points in the event of adisaster?

10.Does your organisation have anevacuation plan to transport outfinished goods, raw materials andvaluable portable equipment to asafer location in the event of a flood?

11.How often does your organisationhold mock drills to gauge disasterpreparedness?

12.Do you have insurance coverage foryour manufacturing unit(s)/office(s)?

73%

27%

No

Yes

38%

62%

No

Yes

88%

4%4%4% No drills heldfor over a yearOnce a month

Once a quarter

Once every 6months

65%

35%No

Yes

81%

19%

No

Yes

65%

35%Completeinsurancecover

PartialInsuranceCover

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66%15%

19%No insurancecover

Yes, for a portionof the value ofthe contractYes, for theentire value ofthe contract


13. Are you aware of the informationyou need to provide to your insurer tosupport your claim?

14. Do you secure insurance coverage for the contracts between you and your clients and your suppliers?

0%

20%

40%

60%

80%

100%

% Of MSMEs Insured

Un

its

Insurance cover by type of calamity

Fire Flood Earthquake Cyclone Riots

42%

58%

No

Yes

Source: KPMG in India’s analysis, 2016, based on survey conducted with members of supporting MSME associations in Chennai after the December 2015 floods

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6. Current preparedness levels of MSMEs6

The analysis of the responses gatheredfrom the MSMEs during the studyhighlights the under-preparedness of thesector in facing and recovering fromnatural calamities with respect to thefollowing aspects:

Business recovery plans: Owing to the informal nature of operations of several MSMEs, there are no formally documented internal disaster recovery plans that identify the possible disasters that the business is at risk from, the likelihood and impact of these disasters and the set of activities to be carried out before and after the occurrence of a disaster to reduce impact and resume operations at the earliest.

During these natural calamities, MSMEs’coordination with their suppliers,vendors and partners should beenhanced to help entities arrive atadequate business continuity measures,so that an incident affecting them doesnot adversely and drastically affectoperations. A key component of anybusiness recovery plan is thepreparedness of an organisation’s staffto handle an emergency. Most MSMEsdo not have their staff aware of andtrained in emergency safety procedures.Neither do they stock emergency safetyequipment stored in the workplace incase of an emergency. Organisationsalso do not store basic flood protectionmaterials that can greatly help inprotecting critical assets and helplighten the impact of flood water anddebris induced damage.

Location constraint: Adding to the vulnerability of MSMEs is the fact that industrial estates are located in low lying flood prone areas that have no storm water drainage facilities.

The offices and manufacturing units inthe region are not elevated, and theinternal electrical wiring is notconstructed by taking the 100 year floodlevel of the area into consideration.

Inadequate insurance cover: Insurancecover is one of the most critical pillar forsupport in any disaster recoverymechanism to cover financial losses.However, due to lack of awareness, mostMSME view insurance coverage as anexpenditure rather than an investmentfor protection. Infrastructure is insuredfor many organisations, however, theydo not see the importance in insuringtheir raw material and finished goods.The contracts they enter into with theirsuppliers and customers are also notinsured which makes it harder to resumebusiness operations at the earliest.There is a critical need for sensitisationon the importance of sound insurancecoverage followed by theimplementation of policies that offerfinancial protection to help the businessget back on track at the earliest.

Banking support: Inadequate bankingsupport in terms of loan waiver,extending the loan period, increasing theworking capital, term loan limits,providing moratorium etc. are some ofthe measures that need to be consideredby banks and RBI. The current RBI /SLBCguidelines do not have adequaterecommendation to banks on dealingwith disasters.


Effective risk response framework

R E C OV E R Y

R P R E PA R E D N E S S P L A N N I N GES Plan DevelopmentPO Awareness and TrainingNS Logistics

E Testing and Exercises

M I TI GATI ON Operational Excellence

Risk Assessment

Vulnerability Reduction

Lessons Learned

Event Monitoring

Notification andEscalation

Disaster Declaration

Mobilisation

Crisis Communications

Functional Reconstitution

Business Resumption

Remuneration

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7. Risk Response Framework for effective post disaster recovery

Post-disaster recovery models generallyhave a stronger focus on infrastructurerestoration and other elements ofphysical recovery than on buildingeconomic resilience through businesscontinuity. According to a GlobalAssessment Report on disaster riskreduction by the United NationsInternational Strategy for DisasterReduction (UNISDR) in 2013, MSMEs areat the forefront of livelihood recoveryafter disasters as local MSMEs are theengine of local markets which underpineffective recovery efforts. Communitiestrying to rebuild need goods andservices at even higher levels thanduring pre-disaster times. Incomegenerating opportunities provideddirectly (e.g. employment) or indirectly(e.g. demand for goods and services) byMSMEs, even if temporary, can act as aneconomic buffer in times of distress. Thesooner local MSMEs step in aseconomic engines of communityrecovery, the better the prospects ofachieving sustainable post-disasterrecovery becomes, with local MSMEsbeing placed to identify the fastchanging needs of the recoveringcommunity and finding ways to meetthem

In addition to this, recovery of localeconomic activity is an importantindicator of the pace at which acommunity is recovering, that canpromote new public and privateinvestment. Hence, livelihood recoverystrategies focussing on the survival andrecovery of local businesses are likely tospark the recovery of the entirecommunity7. Moreover, if the recovery ofMSMEs is sluggish, they tend to bereplaced by bigger MNCs. Thus,leveraging MSMEs as catalysts of localsocio-economic recovery is of primeimportance and requires investment tofocus on both infrastructure restoration,financial back-up, as well as a robustsocio-economic policy framework6.

Stakeholders Involved

The following are the majorstakeholders who play an important rolein disaster preparedness and post-disaster recovery.

1. Government

As per a 2013 UNDP study7, immediatepost-disaster financial, technical andpolitical support roles are betterperformed by central level institutionswhich possess greater capacity anddecision-making power than localgovernment institutions that themselvesare disaster affected7 . Alternatively, pre-disaster cooperation agreements can besigned with neighboring localgovernment institutions which canensure prompt delivery of aid. Bybuilding such pre-disaster partnerships,local-level institutions can mobiliseadequate response to affected MSMEsand curtail the disruptions to theiroperations. Central governments arealso responsible for ensuring that duringpost-disaster recovery, the businessenvironment remains as stable aspossible for MSMEs to developstrategies and make appropriatedecisions. State-level institutions shouldalso provide adequate disaster recoverymeasures such as financial and logisticsupport to MSMEs.

2. Non Governmental Organisations(NGOs)

NGOs that are functional in an areareliable understanding of the socio-economic structures prevalent in theregion before the disaster7. Their focus ismore on reinstating livelihoods whichcomplements the infrastructure focussedefforts of governments5.

6 – KPMG in India’s analysis, 2016, based on survey conducted with members of supporting MSME associations in Chennai after the December 2015 floods7 – Small Businesses: impact of Disasters and Building Resilience – United Nations Office for Disaster Risk Reduction (UNISDR) Report 2013

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7. Risk Response Framework for effective post disaster recovery

NGOs also act as effective ‘brokers’between the private sector andgovernment agencies to implement longterm socio-economic recovery after theimmediate emergency disaster responsephase is over. They also serve as atimely source for MSMEs to receivetechnical and financial inputs to resumenormal operations

3. Associations

Business Associations of MSMEs areinstrumental in ensuring that disasterresponse aids meets their needs.Governments often seek the support ofassociations on areas such as datacollection, sector specific strategicadvice, coordination of stakeholders andassessment of the effectiveness ofdisaster response aid programmes.

4. Banking and Insurance Sectors

Insurance companies should proactivelysupport MSMEs for claims processing.This should be in the form of support inclaims filing, conducting quickinspections, accurate reporting to arriveat a shorter claims processing time. Thiscalls for Standard Operating Procedures(SOPs) for insurance companies duringcalamities from the government’s side.The Insurance Regulatory andDevelopment Authority (IRDA) also has agreater role to support the insurancecompanies and MSMEs.

Banks and RBI need to be proactive andalso support business rejuvenationproposals in terms of soft loans,extending the term limit/working capitallimit and period, etc. Better coordinationwith State Level Bankers’ Committeesand the RBI to frame SOPs for acting ondisaster recovery is also required.

Following are some focus areas that should be included to arrive at a wholesome risk response framework6:


Response framework focus areas

Infrastructure • Structural maintenance considerations• Back-up power supplies• Flood protection materials• Accessibility for evacuation and rescue operations• Emergency repair contracts

Staff • Extensive training in emergency response and first aid• Early notification mechanism to ensure speedy evacuation• Comprehensive health insurance – including families

Business continuity

• Secured storage for critical tangible and non-tangible assets• Robust insurance policies.• Coordination with suppliers and customers with well documented

plans to resume operations• Financial support

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7. Risk response framework – steps6


Conduct regular preparedness drills

Engage in collaborative preparedness exercises with local community

Steps Guiding factors

Identify emergency contacts and enter into post-disaster assistance agreements

Identify an internal planning committee responsible for developing a BCM strategy

Develop emergency response plan with procedures to be followed

Know the region and the likely disasters it can face

• Utility companies, local public health institutions, emergency medical services, neighboring businesses etc.

• Scope, aim and objectives of the strategy. • Leadership structure with designated

responsibilities.

• Pre-disaster precautions, disaster evacuation plans and shelter points.

• Identification of essential business functions. • Agreements with suppliers and vendors.

• Disasters that have occurred in the past. • Proximity to dangerous areas like large water

bodies, transmission stations.

Provide emergency preparedness training to employees

Purchase necessary safety equipment, as identified

• First aid kits, emergency supplies and flood protection materials.

• Roles and responsibilities of key personnel. • Warning and communication procedures• Evacuation routes. • First aid training.

• Assess readiness of employees as well as business facility.

• Use lessons learned from drills to improve procedures.

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Our recommendations

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8. Recommendations – policy and structural measures

Government (central and state):

• The central government needs toissue appropriate guidelines to assessthe losses due to floods for MSMEsector, which should be circulated tobanks/insurance agencies

• It should also provide adequatedirections to RBI/banks/insuranceagencies on flood relief measures andcarry out proper implementation ofthe same

• There is a dire need to centrally deviseand implement adequate mechanismsfor customer redressal in case of non-supportive actions from banks,insurance agencies, etc.

• State government should havepolicies supporting SOPs to guide thetax departments for with respect towaiver of taxes/tax holidays post thecalamity period

• It should also provide directions toutility agencies for waiver ofpayments/holiday period postcalamity period

• The state should support therebuilding of the damages inindustrial estates post disaster, andshould also take adequate actions toensure these estates have precautionsagainst natural calamities

• The master plan for industrial estatesand other surrounding infrastructureneeds to be revised, as several of thenew infrastructure projects haveelevated the roads, affecting the freeflow of natural drains

• New land development bygovernment need to consider theoverall master plan for the industrialestates and provide adequatemeasures for addressing naturalcalamities

• Legal assistance needs to be providedon insurance, banking and pendingcontracts

Banks/RBI

• RBI circulars on MSME lendingguidelines may be extended to includeassistance extended by banks duringnatural calamities

• RBI guidelines for Relief Measures byBanks in Areas Affected by NaturalCalamities should cover MSMEspecifically and appropriately as asector

• RBI should issue guidelines forrehabilitation packages for the MSMEclusters post calamity period inconsultation with banks

• Banks need to take a more proactiveview to ensure the revival of theMSME clusters by providing adequatefacilities of term limit, overdraft, loanholidays, increasing working capitallimit, etc.

• Banks should also provideconsultancy support for educating theMSME sector on maintaining the bookof accounts so that proper records areavailable

• Banks should ensure the SLBC haslocal guidelines for each MSME sectorand are adequately covered tomeeting disaster recovery measures

• State-level institutional committeesand empowered committees needhave local branches that areauthorised to take decisions andsupport MSMEs .

Based on the inputs from the MSME associations in Chennai that participated inthis study, we recommend the following measures that may help in improvingdisaster preparedness and facilitate faster revival of disaster hit MSME units.

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8. Recommendations – policy and structural measures

MSMEs:

• The master plan of the industrial areasneeds to be revised. Over the years,major infrastructure projects havecome up which has elevated thenearby land and roads. As a result thenatural flow of water is blocked inthese industrial areas which results inflooding

• Companies should provide moreattention to book keeping and properaccounting procedures. Statutorybodies/institutions may considerstandard practices only for supportmechanisms such as loans/insuranceclaims, etc.

• MSMEs should receive training onbanking, insurance, and legal policiesand processes. This may help them inchoosing the adequate instrumentsfor coverage and protection

• Adoption of standard personalinsurance policy for employeescouldbe in the form of cluster-based groupinsurance schemes, so that thepremium is affordable for MSMEs

• MSMEs need to have robustdocumentation and robust IT systemsin place, e.g. cloud based solutionssuch as Software as a Service (SAAS)for clusters

• MSMEs can also initiate a cluster-based fund pooling which can beused in case of emergency.

Insurance companies

• Standardisation of a transparent andadequate assessment of lossesaccording to the kind of disaster is amust

• The filing of claims and subsequentprocesses should be made simplerand easier for MSMEs

• Insurance companies need to assist indocumenting the losses to ensurelegal backing for the coverage

• A helpline, if established, can helpensure that claims are processedwithin a stipulated timeframe

• Guidelines need to be issued toMSMEs on the process of filinginsurance and receiving claims byinsurance players.

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8. Recommendations – the BCM approach for MSMEs

The Business Continuity Management(BCM) approach can be divided into sixsteps as elaborated below8.

1. BCM programme management

• Develop a BCM approach and set outthe scope, aim and objectives, and theactivities needed to be carried out todeliver these

• Formulate a communication plan toincrease awareness of the BCMapproach to the organisation’sstakeholders

2. Business impact analysis

• Identify and document theorganisation’s key functions andservices

• Recognise the activities and resourcesrequired to deliver these functions

• Assess the impact that a disruption ofthese activities may have on theorganisation

3. Determine the BCM approach

The following activities can be adoptedto protect the organisation’s keyresources.

8 – ‘Business Continuity Management’, Normit and Norfolk County Council, 2010

Resource Recommended approach

People • Enable cross deployment and allow staff to undertakeunfamiliar roles through multi-skill training and cross-trainingof individuals

• Properly document succession planning• Use third party support and contractual agreements to supply

manpower

Technology • Keep old equipment as emergency replacement or spare in separate locations to restart operations.

Information • Allocate data backup and storage at different offsite locations• Secure essential documentation in safes with copies in

different locations.

Suppliers and partners

• Store supplies and inventories at different physical locations• Resort to dual or multi-sourcing of materials• Identify alternative/back-up suppliers• Apply penalty clauses on supply contracts

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8. Recommendations - the BCM approach for MSMEs

4. Develop and implement BCM response

This involves the creation of arrangements that detail how to manage and respondto any disruptions due to natural disasters and how to get critical activities back ontrack at the earliest so as to support key functions. The content of the BCM responseplan should include:

A. ScopeB. Key roles and responsibilitiesC. Key contact details of stakeholdersD. Business Recovery plan based on impact assessment carried out in step 2.E. Resources and methods required to mobilise the above plan.

5. Support mechanism from government / banks / insurance

This involves creation of a master action plan by agencies such as the NationalDisaster Management Authority (NDMA). The action plan should have the followingcomponents

A. Identify the stakeholdersB. Define the course of action for each stakeholder in disasterC. Coordinate / support other stakeholders during and after disasterD. Develop a standard framework for assessing the damagesE. Establish directions/create circulars so that banks, insurance agencies, etc. can

provide adequate support in terms of financial assistance and insurance coverF. Utilise personal health services like Employee’s State Insurance (ESI) for

employeesG. Create a disaster management fund at local level for emergency supportH. Provide adequate training and sensitisation on the impact of disasters and the

need to take adequate measures

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8. Recommendations - the BCM approach for MSMEs

The following table can be helpful for MSMEs in documenting an appropriate BCM approach:

6. Test and review the BCM arrangements

The BCM approach on paper cannot be relied upon unless it is implemented throughmock drills and live exercises, and found to be workable. There should also be asystem in place to help ensure that the arrangements and plans are reviewed andupdated following exercises and incidents, or following changes within theorganisation

RiskKey functions impacted

Arrangements in place to reduce impact

Additional arrangementsrequired

Loss of staff

Loss of IT and telecommunication systems

Loss of utilities such as electricity and water

Loss of premises

Loss of suppliers

Loss of transportation

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8. Recommendations – operational measures

The following are some basicprecautions that businesses can take toprotect their infrastructure9

.

1. Addition of waterproof veneer toexterior walls:

• The process comprises of a layer ofbrick backed by a waterproofmembrane.

• Changes are made to the interiorwalls as well to resist moisturedamage.

• Waterproof veneer holds effective forflood water levels of up to 2 feet.

2. Raised electrical system components

• All components (switches, outlets,meters and service panels) should beraised at least 1 foot above the 100year flood level of the area.

• They provide protection against firescaused by short circuits in floodedsystems.

• Undamaged and functional electricalsystems can help enable faster returnto activities.

3. Raised and flood proof Heating,Ventilation and Air-conditioning(HVAC) Equipment

• HVAC equipment should be movedfrom basements or lower levels to topfloors.

• In case of single storeyestablishments, a concrete blockfloodwall can be built, though this isless effective

4. Sewer backflow valves

• Flooding can cause sewage fromsewer pipes to flow back intobuildings from drain pipes causingsevere health hazards.

• Backflow valves prevent this byblocking the drain pipes temporarily

5. Dry flood-proofing of buildings

• Flood-proofing can be done by Installing watertight shields over doors, windows and other openings, along with sump pumps and foundation drain systems

• Walls can be strengthened to resist the pressure of floodwater and impact of debris

• Use flood-resistant materials for construction.

Checklist for emergency supplies to be stored on-site

First aid kit Emergency lighting flashlights

with spare batteriesWhistles to attract attention

during a flood Two way radios Blankets

Portable pumps and hoses Plastic covers and tarpaulins Three day supply of water and

non perishable food

6 – KPMG in India’s analysis, 2016, based on survey conducted with members of supporting MSME associations in Chennai after the December 2015 floods9 – Federal Emergency Management Agency (FEMA) – Protect your Property from Flooding, 2011

MSMEs can utilise the following broad checklist for emergencies6

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8. Recommendations – operational measures

The following is an exhaustive checklist of emergency flood protection items to be stored on site at all times. Businesses should make a detailed plan on which items of their office can be protected using each of the items listed below.

Checklist for emergency flood protection items for on-site storage6


Material Usage

Sand, unfilled sand bags and shovels To create flood barriers to block the flow of water and debris

Blocks of wood and plywood To board up windows, doors and open gaps.

Tool kit – hammers, nails etc. To board up windows, doors and open gaps.

Plastic sheeting To cover all furniture, appliances and stationery equipment

Wooden palletsTo create shelves for raising and placing stock and goods above flood level.

Emergency generatorsTo restart functioning of essential electrical items until main power supply is restored

Annexures

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9. The BCM checklist

The following list is designed to guidebusinesses on how to prioritise BCMprocedures that may help them limitdamage to their property and business6:

Before a calamity:

• Establish a BCM plan as mentioned inthis document which has prevention,emergency response and recoverycomponents.. Continuously reviewthe plan and update accordingly toensure readiness.

• Assign responsibilities and ensurerole clarity for all employees toundertake specific advancearrangements before an impendingflood and during an emergency.

• Hold regular mock drills and practicethe evacuation plan.

• Identify safe shelter locations for youremployees.

• Keep a list of emergency contacts –utility companies, vendors, suppliers,partners and customers - in a securedlocation.

• Increase awareness on theinformation required to supportinsurance claims so that these can besubmitted at the earliest and theclaims process can be expedited withminimum hassles.

• Install sump pumps to ensure thatwater can be drained out at theearliest. Inspect the pumps regularly.

• Stock essential flood protectionmaterial such as sandbags, plywood,plastic sheets etc. Train staff on howto use these materials so that allprecautions can be placed in minimaltime.

• Collaborate with local administrationand MSME associations to understandthe gradient, flow and direction offloodwaters in your area so thatstructures can be built to divert thisflow of water away from the buildingor underground.

• Inspect, maintain and test all backupequipment such as emergencygenerators, pumps andcommunication systems on a regularbasis.

• Identify repair services needed torestore operations after a flood –preferably vendors outside local areaso that their services are not effectedby the same flood.

• Exercise caution while storing allwater-reactive chemicals; they mustnot be stored below expected flooddepths - Arrange to transport these tosafe locations in the event of animpending flood.

During a calamity:

• Move important documents, portableequipment, raw materials, finishedgoods etc. to as elevated a location aspossible within your premises. Iflogistical support is available, arrangeto transport these off to separatelocations.

• Remove all chemical paints, oils,cleaners, flammable liquids, etc. fromthe premises.

• Apply rust preventative coating or oilsto all stationary equipment that can beexposed to floodwaters to preventcorrosion.

• Seal the building to keep water out asmuch as possible and install floodbarriers and sandbags.

• Secure all movable material to ensurethat these are not washed away inflood waters.


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• Pre-empt the possible impact uponcustomers by making arrangementsfor moving inventory and goods toanother facility until flood waters havesubsided. Stock up on high demanditems because your suppliers can alsobe effected during a flood.

• Close valves in all piping carryingflammable or hazardous materials.

• Turn off all utilities like electricity, gasand water connections.

• Remove all motors and control panelsfrom large equipment.

After a calamity:

• Conduct detailed inspections forstructural damage before enteringyour building.

• Ensure that all electrical equipment isdry and safe to use before turning onthe main supply. Also check forexposed insulators and open bus barsin electrical components.

• Replace all wiring that wassubmerged by floodwaters.

• Ensure that all employees receiveprompt medical attention andprecautionary measures are taken toprotect them against epidemicsbefore they report to work.

• Document the damage withsupporting proofs.

9. Business Continuity Management Checklist

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About Confederation of Indian Industries (CII)

The Confederation of Indian Industry (CII) works to create and sustain anenvironment conducive to the development of India, partnering industry, thegovernment, and civil society, through advisory and consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managedorganisation, playing a proactive role in India's development process. Founded in1895, India's premier business association has around 8000 members, from theprivate as well as public sectors, including SMEs and MNCs, and an indirectmembership of over 200,000 enterprises from around 240 national and regionalsectoral industry bodies. CII charts change by working closely with the governmenton policy issues, interfacing with thought leaders, and enhancing efficiency,competitiveness and business opportunities for industry through a range ofspecialised services and strategic global linkages. It also provides a platform forconsensus-building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and executecorporate citizenship programmes. Partnerships with civil society organisations carryforward corporate initiatives for integrated and inclusive development across diversedomains including affirmative action, healthcare, education, livelihood, diversitymanagement, skill development, empowerment of women, and water, to name afew.

In its 120th year of service to the nation, the CII theme of ‘Build India - Invest inDevelopment: A Shared Responsibility’, reiterates the industry’s role andresponsibility as a partner in national development. The focus is on four key enablers- facilitating growth and competitiveness, promoting infrastructure investments,developing human capital, and encouraging social development.

With 66 offices, including nine Centres of Excellence, in India, and nine overseasoffices in Australia, Bahrain, China, Egypt, France, Germany, Singapore, UK, andUSA, as well as institutional partnerships with 312 counterpart organisations in 106countries, CII serves as a reference point for Indian industry and the internationalbusiness community

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

KPMG in IndiaKPMG in India, a professional services firm, is the Indian member firm of KPMG International and was established in September 1993. Our professionals leverage the global network of firms, providing detailed knowledge of local laws, regulations, markets and competition. KPMG has offices across India in Delhi, Chandigarh, Ahmedabad, Mumbai, Pune, Chennai, Bengaluru, Kochi, Hyderabad and Kolkata. KPMG in India is currently offering services to over 3,000 national and international clients in India across sectors. We strive to provide rapid, performance-based, industry-focussed and technology-enabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment.

KPMG InternationalKPMG International is a global network of professional firms providing Audit, Tax and Advisory services. KPMG member firms operate in 155 countries and have more than 174,000 outstanding professionals working in member firms around the world. The KPMG Audit practice endeavours to provide robust and risk-based audit services that address member firms' clients' strategic priorities and business processes. KPMG's Tax services are designed to reflect the unique needs and objectives of each client, whether firms are dealing with the tax aspects of a cross-border acquisition or developing and helping to implement a global transfer pricing strategy. In practical terms that means, KPMG firms work with their clients to assist them in achieving effective tax compliance and managing tax risks, while helping to control costs.

KPMG Advisory professionals provide advice and assistance to help enable companies, intermediaries and public sector bodies to mitigate risk, improve performance, and create value. KPMG firms provide a wide range of Risk Consulting, Management Consulting and Deal Advisory services that can help their clients respond to immediate needs as well as put in place the strategies for the longer term.

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KPMG in India contacts:

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although weendeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it willcontinue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particularsituation. All views and opinions expressed herein are those of the survey respondents and do not necessarily represent the views of KPMG in India.

@ 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG InternationalCooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

This document is meant for e-communication only.

NitinAtroley Partner and Head Sales and Markets T: +91 124 307 4000E: [email protected]

Sanjay AggarwalPartnerMid MarketsT: +91 22 3989 6000E: [email protected]

Nilaya VarmaPartner and HeadGovernment and HealthcareT: 0124 6691000E: [email protected]

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