With Wednesday’s announcement, the Finance Minister Nirmala Sitharaman announced a measure that was worth Rs 6 lakh crore. This is in addition to the measures induced by the Reserve Bank of India and government earlier through monetary stimulus and fiscal relief that would amount to around Rs 7 lakh crore, stated Care Ratings in a note.
The rating agency has simplified the announcement further. It stated Nirmala Sitharaman’s announcement and other past measures are worth around Rs 13 lakh crore. So now only Rs 7 lakh crore package is pending and that may be expected in the coming days.
The Rs 3-lakh crore emergency working capital facility for businesses, including MSMEs; Rs 20,000 crore subordinated debt for stressed MSMEs; Rs 50,000 crore equity infusion through MSME Fund of Funds; and the new definition of MSME and other measures for MSMEs. All these measures are positive move by the government, agreed the rating agency. The rating agency explained while the Rs 3 lakh crore would have flowed in the normal course from banks, the advantage here is in terms of the cost being capped, a term being fixed with the moratorium and more importantly guaranteed by the Government.
It is still unclear if funding facility for stressed units and equity provided for viable units will come from the budget or through SIDBI or any other agencies.
Commenting on the revision in MSMEs definition, the agency stated it will enable them to attain scale. “Presently they have an incentive to remain small to derive benefits of being SMEs,” it stated.
For NBFCs there is additional Rs 75,000 being provided in the form of guarantee and partial credit enhancement for the lower-rated firms. “This will enable them to borrow more from the market. As this is a guarantee, there will not be a major impact on the fiscal deficit and go as a contingent liability,” rating agency stated.
The government’s decision to infuse liquidity worth Rs 90,000 crore for DISCOMs is a very small amount. This amount can be used to pay the generators and transmission companies. It is estimated that Rs 90,000 crore will be paid from reserves or alternatively borrowed from the market.
In this announcement, there is something for SMEs, NBFCs and Discoms which will help to alleviate their situation to an extent. “It, however, needs to be seen if such flows of credit take place soon as time matters in these situations,” it stated.