The government on Wednesday unveiled a major booster dose entailing a series of initiatives for micro, small and medium enterprises, including Rs 3 lakh crore worth of collateral-free automatic loans for businesses.
A subordinate debt of Rs 20,000 crore for stressed units, a Fund of Funds for equity infusion of Rs 50,000 crore, and a revision in the definition of MSMEs are among the steps announced by the government to help MSMEs recover from disruptions caused by the coronavirus-related lockdown.
The MSME sector employs 11 crore people and comprises 45 percent of the country’s manufacturing output, 40 percent of exports and almost 30 percent of the GDP.
The sector has been hit hard by the lockdown due to the coronavirus pandemic, with millions of units staring at the prospect of closure and the threat of job losses.
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To provide much-needed liquidity to millions of units in distress, battling the impact of the coronavirus pandemic, MSME receivables from the central government and CPSEs will be released in 45 days, Finance Minister Nirmala Sitharaman said while announcing the relief measures in a conference here.
As part of the Rs 20 lakh crore financial package announced by Prime Minister Narendra Modi, Rs 3 lakh crore worth of collateral-free automatic loans will be sanctioned for businesses.
For this purpose, an emergency credit line to MSMEs has been introduced from banks and NBFCs up to 20 per cent of entire outstanding credit as on February 29, 2020, for borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover eligible.
Under this, loans will have a four-year tenor with a moratorium of 12 months on principal repayment.
The interest on loans will be capped, with 100 per cent credit guarantee cover to Banks and NBFCs on principal and interest. The scheme can be availed till October 31, 2020. There will be no guarantee fee and no fresh collateral. As a result, 45 lakh units can resume business activity and safeguard jobs.
The government will also facilitate a provision of Rs 20,000 crore as subordinate debt for functioning MSMEs which have turned into non-performing assets (NPA) or are stressed, a move expected to benefit two lakh units.
Sitharaman said the MSME definition has been changed to allow units with investment up to Rs 1 crore to be called micro-units in place of Rs 25 lakh now.
Also, units with a turnover of up to Rs 5 crore would be called micro-units, she said, adding turnover-based criteria is being introduced to define small businesses.
The investment and turnover limits for small businesses have been raised to Rs 10 crore and Rs 50 crore respectively.
Units with an investment of up to Rs 20 crore and turnover of up to Rs 100 crore will qualify as medium-sized enterprises.
The limits have been raised to allow MSMs to retain fiscal and other benefits.
Union MSME Minister Nitin Gadkari hailed the initiatives.
“Historic steps by the government towards Atmanirbhar Bharat by strengthening the MSMEs which are the backbone of the country’s economy,” he said in a tweet.
“Foundation has been laid for a new MSME sector at the core of our future self-reliant economy. Directing huge capital inflows into MSME is the first step,” Gadkari said in another tweet.
Under the revised definition, the distinction between manufacturing and service sector will be eliminated.
Moreover, to eliminate “unfair competition” from foreign companies faced by Indian MSMEs, global tenders will be disallowed in government procurement tenders up to Rs 200 crore, a move aimed at building a “Self-Reliant” India.
The Rs 50,000 crore equity infusion for MSMEs through a Fund of Funds will be operated through a Mother Fund and few daughter funds, which will help expand MSME size as well as capacity.
For this purpose, a Fund of Funds with Corpus of Rs 10,000 crore will be set up to provide equity funding for MSMEs with growth potential and viability.
The fund structure will help leverage Rs 50,000 crore of funds at daughter funds level and also help to expand MSME size as well as capacity while encouraging them to get listed on stock exchanges.
An e-market linkage for MSMEs will also be promoted to act as a replacement for trade fairs and exhibitions and Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace.
MSMEs are critical for employment preservation and growth; firing up the MSME sector is the surest way to accelerate job creation, Arun Kumar, KPMG India Chairman and CEO, said.
The finance minister’s schemes announced on Wednesday will provide relief for MSMEs that need immediate succour for their survival as well as help those enterprises that need a fillip to grow.
Expanding the definition of MSMEs and introducing new thresholds based on turnover while elevating the investment ceilings for each segment are welcome, Kumar stated.
The broad focus on enhancing liquidity is timely, including the measures for NBFCs, HFCs and MFIs and those for the power sector to ease the situation of distribution companies and cash-strapped independent power producers.
These measures to ease liquidity for lenders and businesses will make a tangible difference, Kumar commented.