To provide relief to millions of small businesses reeling under the impact of the Covid-19 lockdown, Finance Minister Nirmala Sitharaman on Wednesday announced a slew of liquidity measures, which include collateral-free automatic loan worth Rs 3-lakh crore. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover are eligible.
The FM added that these loans will have a 4 year tenure and moratorium for 4 months. There will be a 100% credit guarantee cover and to Banks and on principal and interest and the scheme can be availed till October 31, 2020. This is expected to benefit 45 lakh units.
To provide stressed MSMEs with equity support, Government will also facilitate provision of Rs. 20,000 crore as subordinate debt. For the Subordinate debt for stressed MSMEs, promoters of the MSME will be given debt by banks, which will then be infused by promoter as equity in the Unit. Subordinated debt facility will aid 2 lakh stressed MSMEs.
There is also a Rs 50,000 crore equity infusion for MSMEs through Fund of Funds; to be operated through a Mother Fund and few daughter funds; this will help to expand MSME in size as well as capacity.
To help MSMEs further, global tenders will be banned for government procurement up to Rs 200 crore. “Indian MSMEs often faced unfair competition from foreign companies. This will be a step towards self-reliant India and support Make in India,” Sitharaman said.
Today’s announcement comes after Union Minister Nitin Gadkari last week said that the MSME sector in the country was on the verge of collapse. He had urged major industries to release the outstanding dues to such companies within a month.”The FM’s announcements on MSME is most welcome and certainly a path-breaking reform. Loans to MSME, support to stressed MSME, allowing MSMEs to participate in Government tenders upto Rs 200 crore project and change in definition of MSMEs are all path-breaking steps. I am sure with promised funds infusion to MSME will accelerate the growth of MSMEs,” says KR Sekar, Partner, Deloitte India.
There has been a clamour for fiscal support for MSMEs ever since the first lockdown was announced. Industry body FICCI had recently sought Rs 4.5 lakh crore in fiscal support for the MSME sector and had written to the government to also release Rs 2.5 lakh crore stuck in refunds and dues to tide over the crisis.
Among other measures for MSMEs, the FM said e-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days
“The most important announcement with long term implications is the quantum jump in definition of MSME, which had not been changed since the MSME Development Act of 2006 and was long awaited. Along with the decision to not have global tenders for Government procurement up to Rs 200 crore, the redefinition will assist the MSME sector to grow and emerge as a vibrant and dynamic sector, contributing to self-reliance and employment in a big way,” said Chandrajit Banerjee, Director General, CII, in a statement.
The MSME sector contributes in a significant way to the growth of the Indian economy and its 6.3 crore units is often considered as the backbone of the nation. It had a share of around 30 percent in nominal GDP in 2016-17 and the share of the sector in total manufacturing output was even higher at 45 percent.
Gadkari, had earlier has stated that the MSME sector’s contribution needs to reach 50% of the country’s GDP in the next five years from the existing 29%. To ease the liquidity crunch in the segment, the Reserve Bank of India (RBI) on April 17 announced a targeted long-term repo operation (TLTRO) of Rs 50,000 crore so that small and medium-sized non-banking finance companies (NBFCs) and micro-finance institutions (MFIs) can better facilitate lending to the critical sector. However, industry insiders are of the view that any tangible benefit of the move is yet to trickle down to the businesses on the ground.