July 8, 2020
The Rs.21 trillion (US$280 billion) programme aims to build an Aatmanirbhar Bharat (self-reliant India) by bolstering the economy and driving development amid the challenges of the COVID-19 pandemic
India’s MSM enterprises have steadily expanded their expertise, capacity, and market, and at end-2019 contributed 29.7 per cent of the national GDP and 49.66 per cent of total national exports
14 years after the introduction of the MSME Development Act, the Government has revised the definition of MSMEs, which will open up avenues of financing and new markets for grassroots entrepreneurs
The Government has put in place a hand holding tool for MSMEs in the name of Champions (www.champions.gov.in). Additionally, e-market linkage for MSMEs will be promoted to improve outreach.
India’s micro, small and medium enterprises (MSMEs), a force of economic growth and employment creation, have received critical policy, regulatory and financial support from the Central Government as part of a stimulus programme that is expected to strengthen grassroots businesses. The Rs.21 trillion (US$280 billion) programme aims to build an Aatmanirbhar Bharat (self-reliant India) by bolstering the economy and driving socio-economic development following the challenges of the COVID-19 pandemic. India’s MSM enterprises have steadily expanded their expertise, capacity, and market, and at end-2019 contributed 29.7 per cent of the national GDP and 49.66 per cent of total national exports. However, a major disruption in economic activities brought up by the pandemic created serious challenges for the survival of many among India’s over 60 million MSMEs. The Government, herein, has tried to alleviate these challenges with several new reforms. These include:
Rs.3 trillion Emergency Working Capital Facility for Businesses, including MSMEs
To provide relief to the business, additional working capital finance of 20 per cent of the outstanding credit as of February 2020, in the form of a term loan at a concessional rate of interest will be provided. This will be available to units with up to Rs.250 million outstanding and turnover of up to Rs1 billion whose accounts are standard. The units will not have to provide any guarantee or collateral of their own. The amount will be 100 per cent guaranteed by the Government of India providing total liquidity of Rs.3 trillion to more than 4.5 million MSMEs.
Rs.200 billion Subordinate Debt for Stressed MSMEs
Provision made for Rs.200 billion subordinated debt for 200,000 MSMEs which are NPA or are stressed. The Government will support them with Rs.40 billion to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15 per cent of his existing stake in the unit subject to a maximum of Rs.7.5 million.
Rs.500 billion equity infusion through MSME Fund of Funds
The Government will set up a Fund of Funds with a corpus of Rs.100 billion that will provide equity funding support for MSMEs. The Fund of Funds shall be operated through a Mother and a few Daughter funds. It is expected that with leverage of 1:4 at the level of daughter funds, the Fund of Funds will be able to mobilise equity of about Rs.500 billion.
Tax assistance to businesses
The Tax Deduction at Source rates for all non-salaried payment to residents, and tax collected at source rate to be reduced by 25 per cent of the specified rates for the remaining period of FY 2020-21. This will provide liquidity to the tune of Rs.500 billion. Additionally, the due date of all Income Tax Returns for Assessment Year 2020-21 will be extended to November 30, 2020. Similarly, the tax audit due date will be extended to October 31, 2020. And the date for making payment without additional amount under the “Vivad Se Vishwas” scheme will be extended to December 31, 2020.
14 years after the introduction of the MSME Development Act, the Union Ministry of MSME has revised the definition and criteria of MSMEs, which will open up avenues of fresh financing and new markets for India’s grassroots entrepreneurs.
The Ministry of MSME has put in place a strong handholding mechanism for MSMEs and grassroots entrepreneurs in the name of Champions (www.champions.gov.in). Additionally, 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.
These provisions will drive new opportunities for traders, exporters and investors in India while guiding Indian MSMEs to augment their operations to match the demands of the post-Coronavirus market. The integrated approach is expected to empower all stakeholders in India-led global trade and investment.