As a part of the ₹20 lakh crore stimulus package announced by the Prime Minister Narendra Modi to spur growth and help build a self-reliant India, Finance Minister Nirmala Sitharaman on Wednesday, 13 May 2020 announced a economic relief package. This package will act as a helping hand for businesses, including micro, small and medium enterprises (MSMEs) to recover from the impact of the Coronavirus (COVID-19) pandemic.

The finance minister reiterated the thoughts of the Prime Minister and said that self-reliant India / a Aatmanirbhar Bharat rests on five pillars: Economy, Infrastructure, Technology-driven systems, Demography, and Demand. Thus, factors of production, such as land, labour, liquidity, and laws will be focussed upon with an intention is to make local brands global.

Here are the key takeaways from the press meet.

For the revival of the MSME sector:

1. Unsecured loan of ₹3 lakh crores for MSMEs to be given. Though this, 45 lakh units can resume work and retain jobs.

2. Subordinate debt provision of ₹20,000 crore has been announced for 2 lakh MSMEs to help the stressed MSMEs.

3. Infusion of ₹50,000 crore equity via Mother-Daughter fund for MSMEs that require handholding. An additional fund with ₹10,000 crore will be set up to aid these units in expansion or list themselves on markets.

4. Definition of MSMEs has been revised to help MSMEs expand and avail benefits. Moreover, no distinction between manufacturing and services sector MSMEs will be there.

As per the new definition:
– Micro units with investment up to ₹1 crore and turnover up to ₹5 crore
– Small units with investment up to ₹10 crore and turnover up to ₹50 crore
– Medium units with investment up to ₹20 crore and turnover up to ₹100 crore

5. For government contracts, global tenders will be disallowed up to ₹200 crore.

6. E-market linkages to be provided across the board to make for the absence of non-participation in trade fairs due to the COVID-19 pandemic. The receivables will be cleared by the Government of India and PSUs in the next 45 days.

For the benefit of Employees:

7. A liquidity relief of ₹2,500 crore EPF support is being given to all EPF establishments. For the next 3 months, EPF contribution will be paid by the government till August. This will benefit over 72 lakh employees from both small and big enterprises.

8. Statutory EPF contribution for all organisations and their employees has been reduced to 10% from 12%, except for government organisations. The intent is to infuse ₹6,750 crore liquidity into these organisations.

Detailed information about FM’s press meet

Infusing money via collateral-free automatic loans, subordinate debt for MSMEs and equity infusion through MSME mother-daughter fund will amount to 76% the credit disbursed to MSMEs during FY20.

Regarding the credit and finance for the Indian MSMEs, the Finance Minister Nirmal Sitharaman announced the mega ₹20 lakh crore stimulus to bring the COVID-battered economy back to life. She stated that this financial package is roughly 10% the Indian GDP and offered measures to boost liquidity in MSMEs and assured the much-needed help for them to avail the benefits of the government schemes. On the lines of PM’s local to global mantra, she mentioned that this package will enable them to compete with foreign companies and help strengthen their network.

Banks and NBFCs will offer up to 20% of their entire outstanding credit as on February 29, 2020 as collateral-free loans. Under this, those units with outstanding credit of up to ₹25 crore and turnover of ₹100 crore can avail the loans, which will have four-year tenor and a moratorium period of 12 months beginning on principal payment. The scheme can be availed till October 31, 2020.

₹20,000 crore subordinate debt as equity support for MSMEs declared NPAs or stressed enterprises. The government will also provide ₹4,000 crore to CGTMSE for offering partial credit guarantee support to the banks lending to MSMEs.

₹50,000 crore equity infusion by government in MSME sector. This will be done through a Mother fund and a few daughter funds. This Fund of Funds will be set-up to offer equity based funding to growing and viable MSMEs. It will have a corpus of ₹10,000 crore.

Global tenders disallowed

Addressing the issue of unfair competition from foreign companies against MSMEs, the government said it will not allow global tenders in schemes up to ₹200 crore. The government is entrusting India’s backbone – the MSME ecosystem by facilitating procurement tendering.

Implications on the stock market

As per analysts, the relief package will be helpful in fixing supply-side rather than the demand issues.

The market on Wednesday, 13 May rallied in anticipation of a full ₹20 lakh crore stimulus, however, the FM said the announcements will be made in tranches over the next few days. This led to disappointment in the market because the immediate spend out of the big fiscal stimulus is relatively small, and there remains scepticism if the economy will revive soon.

Moreover, the FM refused to reveal entire funding details until all the announcements were made.

Impact on GDP

India has higher sovereign debt-to-GDP ratio than other emerging markets. And with hardly any GDP growth this year, the debt-to-GDP is likely to rise substantially in India.

MSME Speak

The MSME sector is unconvinced of the finance minister’s announcement regarding collateral-free loans as there is still a lot to be read in the fine print. Also, it is yet to be seen how banks roll out the loans, since implementation of announcement can have several gaps.

The collateral-free loans are expected to infuse liquidity in the sector and help stressed units address their cash crunch issues. This happens to be a critical move to help MSMEs kickstart business activities and provide job protection to employees.

Regarding the 2% rebate on Provident Fund, MSMEs feel, it is a small sum and will not help small companies but the big players. As MSMEs mostly have employee strength between 10 and 15 which are covered by PF, a mere 2% will not do any good.

Change in the definition of MSMEs is a welcome move as the upward revision in the investment limit of MSMEs will give an increased number of MSME units the access to institutional working capital.

Moreover, removal of global tenders is being taken positively as this would offer the sector better opportunities for growth without straining the government finances.