Covid-19 Economic Package: MSMEs Get New Definition, Collateral-Free Loans And Other Funding Support
Finance Minister Nirmala Sitharaman announced several measures today under the Prime Minister’s Atmanirbhar Bharat Abhiyan—a post-pandemic financial package to help restore economic growth and make India self-reliant.
Of the 16 measures the finance minister announced, six were targeted at micro, small and medium enterprises, or MSMEs. They range from providing more funding to small businesses, amending definition and timely payment of dues by government enterprises.
The measures for MSMEs through guarantees, equity infusion and debt support will incentivise bank lending to MSMEs as well as providing crucial support to stressed entities in the current situation, said Rajnish Kumar, chairman at State Bank of India.
1. COLLATERAL-FREE AUTOMATIC LOAN
- Rs 3 lakh crore outlay, to benefit 45 lakh MSMEs.
- Those MSMEs with 25 crore outstanding in loans and 100 crore turnover will get credit guarantee-backed loans of four-year tenure.
- Interest to be capped.
- There will be a 12-month moratorium on principal repayment.
- Can be availed till Oct. 31.
2. SUBORDINATE DEBT FOR STRESSED MSMEs
- Rs 20,000 crore outlay, 2 lakh MSMEs to benefit.
- Government to provide Rs 4,000 crore towards partial credit guarantee support to banks.
- Banks will lend money to promoters who can use it to infuse it as equity.
3. FUND OF FUNDS FOR MSMEs
- Corpus of Rs 10,000 crore.
- Will operate through primary and secondary funds.
- Will help leverage Rs 50,000 crore at secondary fund level.
- Will help MSME expand size, get listed on main board.
4. MSME DEFINITION AMENDED
- Similar limits for manufacturing and services units.
- Micro: Investment < Rs 1 crore; Turnover < Rs 5 crore
- Small: Investment < Rs 10 crore; Turnover < Rs 50 crore
- Medium: Investment < Rs 20 crore; Turnover < Rs 100 crore
*Investment in plant and machinery
5. ONLY LOCAL BIDS FOR GOVERNMENT TENDERS UP TO RS 200 CRORE
- Global tenders will be disallowed for government procurement up to Rs 200 crore.
- This is to help MSMEs fight unfair competition from global competitors.
6. MSME DUES & MARKET ACCESS
- E-market linkage for MSMEs as there will not be any trade fairs and exhibitions soon...
- All receivables of MSMEs from government and PSUs will be cleared in 45 days
The collateral-free loan measure will benefit several MSMEs. Close to Rs 9 lakh crore in loans have been extended to companies with borrowings of Rs 15 crore or less. Ofcourse, if they want additional funds they will also need to meet the criteria of upto Rs 100 crore in turnover. The total outlay on this measure is Rs 3 lakh crore, the finance minister said.
The change in definitional thresholds and inclusion of services has also been a long time coming. It is progressive and “perfectly synchronized with the GSTN framework,” Kumar said.
More entities will now be covered under the MSME Act, said Atul Pandey, partner at law firm Khaitan & Co in an emailed comment. “Turnover has also been added which provides a realistic measure for banks and financial institutions to assess that entity and lead to cheaper and less cumbersome access to credit,” Pandey added.
Some startups which have taken off could also fulfill the proposed definition of MSME and thereby benefit from the liquidity provision, said Pranay Bhatia, partner - tax and regulatory services at BDO India.