MSMEs get a helping hand with Finance Minister’s COVID19 Economic Relief Package
The Government has announced a massive relief package for the MSME sector which is highly stressed due to the on-going COVID 19 pandemic. There are a host of measures that will ensure the availability of working capital. The package has relevance for the MSME sector as the economy is driven by the vision of Atmanirbhar Bharat. Bold reforms across this pillar of the economy are the push that will lead the country towards self-reliance.
MSME definition expanded to embrace larger entities
The most defining statement that the government has made about the intent to restabilize MSME’s is to create new thresholds to accommodate more businesses. Low thresholds have been the single largest reason for retarding the growth of the sector. The loss of privileges kills the urge to expand the business. This has been a long-standing demand of this sector.
Investment limits and turnover have both been included in the eligibility requirement. The differences between the services sector and manufacturing units have been eliminated.
- Micro has been defined as businesses that have an investment of up to Rs one crore, and a turnover of less than 5 crores.
- Small businesses will be categorized by an investment of up to Rs 10 crore and a turnover of Rs 50 crore.
- Medium industries can have an investment up to Rs 20 crore and an annual turnover of under Rs 100 crore.
It is expected that more than a crore business will be eligible for the MSME sector and avail the package that has been set up for them. It will spur growth and employment while paving the way for an Atmanirbhar Bharat.
Collateral free automatic loans for MSME’s
Restarting business activities will be stressful both in the manufacturing and services sectors. The Finance Minister has understood the implications that, shortage of working capital for buying raw material and clearing outstanding operational credit.
- The emergency credit line allows banks and NBFC’s to extend up to 20% of their entire credit outstanding since 29.2.2020.
- The MSME is eligible if the turnover is Rs100 crore and outstanding is within Rs25 crore.
- The banks and NBFC’s will have sovereign indemnity on both principal and interest, absolving them of risk from non-repayment.
- The scheme has been made available up to 31.10.2020
- No fresh collateral or guarantee fee is applicable.
This move should ensure that about 45 lakh MSME’s can restart a business with no economic stress.
Subordinate debt for MSME sector
The MSME’s that are facing capital erosion need equity support. The eligibility of the subordinate debt support recipients is not subject to NPA norms. About 2 lakh MSME’s that are stressed should be able to resume business. The process is simple. The government will fund Rs 4000 crore to CGTMSE which will in turn allow partial credit guarantee to banks and NBFC’s. The recipient of the loan will be the promoter who will in turn use the loan as capital infusion toward the company.
Fund of Funds will provide Equity infusion
A corpus of Rs 10, 000 crore will be the basis of a Fund of Funds. This fund will be the source of capital for MSME’s that have viable growth potential. The Fund of funds will be operated wholly through a Mother and Daughter fund structure. This structure will help expand the size and capacity of the business. The dynamics will be useful to help the MSME to list on exchanges of their choice.
Global tenders to be MSME supportive
MSME’s often find themselves at the shorter end of the stick when applying for tenders in the government sector. The government has mandated that any tender below Rs 200 crore cannot invite global participation. The aim is to propagate Make In India and grow the business of the MSME sector.
E-Market linkage to expand markets
The business of most MSME’s has been halted in its tracks since the COVID 19 situation. The government has recognized the fact that MSME businesses will be unable to attend global and Indian Trade Fairs that are a source of sales. The use of Fintech will boost transaction-based lending with data generated from e-marketplaces.
The biggest support will the settlement of all receivables from the government sector and CPSE’s within 45 days. The rolling of capital will be the lifeblood of the MSME sector in these difficult times. The sector now is on the cusp of rapid expansion as lockdown restrictions wane and credit from banks and NBFC’s become more easily accessible.