Benefits to MSME in COVID-19 Economic Relief Package by Finance Minister

Benefits to MSME in COVID-19 Economic Relief Package by Finance Minister
06 July 2020

Benefits to MSME in COVID-19 Economic Relief Package by Finance Minister

The MSME sector is the chief support system of the Indian economy structure. In India, around 63.40 million MSME units are registered, which contribute around 24.63% of the GDP from service activities and 6.11% of the manufacturing GDP. The MSME sector provides employment to around 120 million persons and contributes about Forty-Five percent of overall export from India. MSMEs not only play a vital role in providing large employment opportunities at comparatively lower capital costs than large industries but also aids in the industrialization of backward and rural areas, thereby, assuring more equitable distribution of national wealth and income and reducing regional imbalances.

Industry bodies representing micro, small and medium enterprises (MSMEs) and India Inc as a whole praised the government’s move to provide the sector a new investment-friendly definition, a massive fund, a slew of loans, and an effort to push the sector towards formalization.

One of the sectors that have been hit hard by the Covid-19 pandemic, MSMEs have found pride of place in the government’s economic package to deal with the crisis.

The government has stated measures to help businesses, including micro, small and medium enterprises (MSMEs), to recover from the economic impact of the coronavirus (COVID-19) pandemic.

As it might be acknowledged that the country is combating the economic effects of COVID-19 and therefore, financial relief packages are needed for all the sectors and most importantly for MSMEs. It is the MSMEs who give employment to a majority portion of the economically weaker sections of the nation. Due to the national lockdown, the businesses came to a stop and the majority of the organizations did not have funds to pay wages and salaries. It should be noted that the Ministry of Labour and Employment issued advisories and the Ministry of Home Affairs also issued an order respectively, to pay salaries to the workers even during the lockdown.

A total of Six relief measures exclusively for MSMEs were announced by the Government. These measures include the following :

1. Rs Three lakh crores collateral-free automatic Loans: NBFCs and Banks will offer up to 20 percent of entire outstanding credit as on 29th February 2020, to MSMEs. Units with up to Rs Twenty Five crores outstanding credit and Rs Hundred crores turnover are eligible for taking these loans that will have four-year tenor with a moratorium of Twelve months on principal payment. This scheme can be taken advantage of till 31st October 2020. The government will give a complete credit guarantee cover to lenders on interest and principal amount.

2. Rs Twenty thousand crores of subordinated debt: MSMEs declared Non Performing Assets or those stressed will be eligible for equity support as the government will ease the provision of Rs twenty thousand crores as subordinate debt. The government will also give Rs four thousand crores to CGTMSE that will offer limited credit guarantee support to banks for lending to MSMEs.

3. Rs Fifty thousand crores of equity infusion: The government will fill Rs Fifty thousand crores inequity in MSMEs through a Fund of Funds that will be operated through a Mother fund and a few daughter funds. The Fund of Funds will be set-up with a corpus of Rs Ten thousand crores to give equity-based funding to MSMEs having potential, viability, and growth. It will also persuade MSMEs to list on stock exchanges.

4. The revised definition of MSMEs: To address Msme's fear of outgrowing in size to receive benefits provided by the government to businesses categorized according to the current MSME definition, the government revised the definition. As per the new definition, service and manufacturing MSMEs will be defined under a common metric that will be a mixture of investment in machinery and plants or equipment and turnover.


Composite Criteria: Investment And Annual Turnover


ClassificationMicroSmallMedium
Manufacturing and ServicesInvestment < Rs. 1 Crore and Turnover < Rs. 5 Crore

5. Disallowance of the global tender: Global Tenders for any government procurement of up to Rs 200 crore will be dismissed through the amendment of General Financial Rules (GFR). Now Onwards the global tenders’ up to Rs 200 crores will be awarded to MSMEs companies, which means less competition from foreign companies and more possibility and opportunity for domestic MSMEs.

6. Clearance of MSME Dues: The central public sector and the government enterprises will release all pending MSME payments in Forty-Five days. Government has been continuously monitoring settlement of dues to MSME Vendors from Central Public Sectors and Government Undertakings. This will enlarge the inflow of working capital and settle the liquidity concerns for MSMEs.

Conclusion:

India is a labour intensive nation needing a lot of employment opportunities which can be successfully accomplished through the micro, small and medium sector as it needs less capital investment requiring employment for more number of people. The MSME will expand and grow very smoothly if the above support is made available to them in a timely and unbiased way without any procedural intervention.