A day after Prime Minister Narendra Modi announced a special ecocomic package to support those affected by the novel coronavirus outbreak and the consequent lockdown. The tranche of reforms and measures that was announced on Tuesday included several initiatives to support Micro, Small and Medium Enterprises (MSMEs).
What is the Definition of an MSME?
The investment limit that defined an MSME is being changed upwards, the Finance Minister said on Wednesday. Additonal criteria to define MSMEs based on turnover is being brought in. "Earlier, it was only investment size," she said.
"Manufacturing MSME, or service MSME shall all be defined similarly," she said.
What are the benefits being given to MSMEs?
According to the Finance Ministry, the booster measures for the sector include:
1. Rs 3 lakh crore collateral free automatic loans for businesses, including MSMEs.
An emergency credit line is being extended to Businesses/MSMEs from Banks and NBFCs up to 20% of entire outstanding credit as on 29.2.2020. According to the Finance Ministry, borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover are eligible for the same.
"Loans to have 4 year tenor with moratorium of 12 months on Principal repayment. Interest to be capped,' the Ministry said.
It also announced a 100% credit guarantee cover to Banks and NBFCs on principal and interest, and said that the scheme can be availed till 31st October 2020. There is no guarantee fee and no fresh collateral needed.
2. Rs 20,000 crore Subordinate Debt for MSMEs
The FInance Ministry announced that provisions would be made for Rs. 20,000 crore as subordinate debt, and added that functioning MSMEs which are NPA or are stressed will be eligible for the same,
The Ministry announced that the government will provide a support of Rs. 4,000 Cr. to CGTMSE, which in turn will provide partial Credit Guarantee support to banks.
3. Rs 50,000 crore equity infusion through MSME Fund of Funds
A Fund of Funds with Corpus of Rs 10,000 crores will be set up, and will be operated through a Mother Fund and few daughter funds. The fund structure will help leverage Rs 50,000 crore of funds at daughter funds level, the Finance Ministry said.
4. New definition of MSMEs
5. Global tender to be disallowed up to Rs 200 crores
As the country strives to make India 'self-reliant', the government announced that gobal tenders will be disallowed in Government procurement tenders up to Rs 200 crores.
"Indian MSMEs and other companies have often faced unfair competition from foreign companies," the Ministry said.
6. Other interventions for MSMEs
The government announced that Fintech would be used to enhance transaction based lending, and that e-market linkage for MSMEs would be promoted to act as a replacement for trade fairs and exhibitions in the wake of the COVID-19 outbreak. Additionally, MSME receivables from the government and CPSEs are be released in 45 days.
7. Rs 2500 crores EPF support for Businesses and Workers for 3 more months
Under Pradhan Mantri Garib Kalyan Package, payment of 12% of employer and 12% employee contributions was made into EPF accounts of eligible establishments, the Finance Ministry announced. While this had previously been extended for the months of March, April and May 2020, the government has now extended this for a futher three months, that is, the salary months of June, July and August 2020.
8. EPF contribution reduced for Business & Workers for 3 months- Rs 6750 crores
The statutory PF contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months. CPSEs and State PSUs will however continue to contribute 12% as employer contribution, the Finance Ministry said.
This scheme will be applicable for workers who are not eligible for 24% EPF support under PM Garib Kalyan Package and its extension.
9. Rs 30,000 crores Liquidity Facility for NBFC/HCs/MFIs
The Government will launch a Rs 30,000 crore Special Liquidity Scheme under which "investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs".
10. Rs 45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFC
THe existing PCGS scheme will be extended to cover borrowings such as primary issuance of Bonds/CPs (liability side of balance sheets) of such entities. Sitharaman said that the first 20% of loss will be borne by the Guarantor, that is, Government of India.
AA paper and below including unrated paper are eligible for investment.
11. Rs 90,000 crore Liquidity Injection for DISCOMs
12. Relief to contractors
13. Extension of Registration and Completion Date of Real Estate Projects under RERA
14. Rs 50,000 crore liquidity through TDS/TCS reductions
15. Other Direct tax Measures
