The much-awaited economic package of the government has led MSMEs to heave a sigh of relief amid the growing tensions of economic slowdown in the coronavirus crisis. The relief package is expected to infuse fresh life into the country’s micro, small and medium enterprises (MSMEs), which account for almost 30 percent of the national GDP and 45 percent of the total manufacturing output.
The growing clamour for fiscal support has led the government to introduce measures for MSMEs that have been hit by the lockdown. With a series of encouraging announcements, the Finance Minister outlined the government’s plan to raise the morale of the industry and the MSME sector in particular. Under the Atmanirbhar Bharat Abhiyan, the minister announced several measures for MSMEs that are expected to help 45 lakh business units resume their operations. Here are the key announcements for MSMEs.
- Credit guarantee of Rs 3 lakh crore: The massive increase in credit guarantees to MSMEs is the key highlight of the government’s relief package. The credit guarantee of 3 lakh crore by the government is intended to help MSMEs that have a 25 crore outstanding loan or less than 100 crore turnover. This provision will rescue MSMEs that need additional funding to meet operational liabilities and restart operations. The loans, which should be taken before October 31, 2020, will have a four year tenure and moratorium of 12 months. There is a 100% credit guarantee cover on principal and interest. The credit guarantee scheme is expected to help MSMEs survive the economic slowdown. Credit guarantees help banks meet the credit demand of MSMEs and provide an assurance that loans will be repaid by the government.
- Subordinate debt for NPA/stressed MSMEs: The government has set aside 20,000 crore as subordinate debt to help about two lakh MSMEs with stressed accounts or non-performing assets (NPA). Under this scheme, promoters of the MSME will be given debt, which will then be infused as equity in the unit. However, unlike credit guarantees, government support in this scheme is not full but partial.
- Fund of Funds: The government has created a fund with a corpus of Rs. 50,000 crore for MSMEs with growth potential and viability. The objective of this fund is to infuse equity to help MSMEs expand and grow. While the government is likely to contribute Rs. 10,000 crore, while other institutions like SBI and LIC are likely to fund the remaining amount. This fund, which will operate through a mother fund and a few daughter funds, will also help MSMEs get listed on the main board of stock exchanges.
- Revised definition: The government has changed the MSME definition to enable more businesses to benefit from incentives offered in the Atmanirbhar Bharat Abhiyan. The new definition of MSME, which had been on the government’s priority list for long, takes investment and annual turnover into consideration and does not differentiate between manufacturing and services. The ‘turnover’ based definition is seen as a better means of identifying MSMEs, particularly in services such as mid-sized hospitals and diagnostic centres. These will now be able to qualify for benefits offered to MSMEs. Experts suggest that the new definition would drive the growth of the MSME sector and help to make it self-reliant.
- Clearing of dues: While announcing the credit guarantee for MSMEs, the Finance Minister assured that the Centre would clear pending MSME dues in 45 days. As on March 31, 2020, the total outstanding payments to MSME units were estimated over 4.95 lakh crore. The Central Government ministries and departments, state governments and public sector units owe MSMEs more than half of this amount. The MSME Samadhaan website, which was introduced to monitor delayed payments and settle disputes filed by affected MSMEs, listed payment claims of 40,720 crore as on May 14, 2020.
Conclusion: The financial incentives introduced by the government will rescue MSMEs reeling under the impact of the lockdown and provide much-needed liquidity to the sector. Increase in credit guarantees, subordinate debts, clearing of outstanding dues and a broader definition would go a long way to revive the growth of MSMEs and boost the efforts to make the country self reliant under the Atmanirbhar Bharat Abhiyan.