Industry bodies representing micro, small and medium enterprises (MSMEs) and India Inc as a whole on Wednesday lauded the government’s move to provide the sector a new investment-friendly definition, a slew of loans, a massive fund, and the attempt to push the sector towards formalisation.
One of the sectors that have been hit hard by the Covid-19 pandemic, MSMEs have found pride of place in the government’s economic package to deal with the crisis.
In a surprise move, Finance Minister Nirmala Sitharaman on Wednesday announced a change in definition of MSMEs, a proposal that had languished with a parliamentary standing committee since July 2018.
Apart from raising the investment limits for classifying MSMEs, the government also brought in annual turnover as an added feature to define such units. The existing definition relies solely on self-declared investment on plant and machinery and has wide variations based on type of business.
However, the government needs Parliament nod to change the definition as it has to amend the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. With Parliament not in session, it will have to bring an Ordinance to implement the announcement, former finance secretary S C Garg told a news channel.
The Rashtriya Swayamsevak Sangh (RSS) affiliated Laghu Udyog Bharati, which had opposed the government’s earlier stance of basing the definition solely on turnover welcomed the move. The investment limit for MSMEs was being revised upwards, so that companies with more capital can still claim the benefits of being small businesses, it said. In another crucial move, the new definition will not differentiate between manufacturing and service based MSMEs.
Amidst nationwide reports of MSMEs running short on liquidity since last year, the government also announced loans worth Rs 3 trillion for 4.5 million units. The collateral-free, automatic loans will be available till October 31, but only MSMEs with outstanding loan upto Rs 25 crore or with a turnover upto Rs 100 crore will be eligible, Sitharaman said.
“This would have a big time multiplier impact and would generate economic activity of at least Rs 10 trillion, not only retaining jobs but also creating employment,” said Assocham Secretary General Deepak Sood.
The loans will have a 4-year tenure, along with a moratorium on repayment for 12 months. The government will provide 100 per cent credit guaranteed cover to banks and non-banking financial companies on both principal and interest. While the details of the product are still to be announced, the rate of interest is likely to be capped.
In addition, bankers said the first year’s interest will accumulate and repayment will be spread over the entire loan tenure. Seeking the entire accumulated interest immediately after the first year will put undue pressure on the companies, said bankers.
In addition, Sitharaman again promised that all government bodies and central public sector enterprises would clear all MSME dues in 45 days. “We had suggested that credit be provided for MSMEs without collateral requirement and with a guarantee from the government. The proposal to make the delayed payments from government and PSEs to MSME was a long-standing request of industry,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry.
The move to pull up stressed MSMEs found support from exporters. “Provisioning of Rs 20,000 crore as subordinate debt for stressed MSMEs will benefit 200,000 units and make them not only competitive but will also support them in becoming global brands,” said Sharad Kumar Saraf, president of Federation of Indian Export Organisations.
The government will provide Rs 4,000 crore to the MSME ministry’s Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE), which will provide partial credit guarantee support to banks. But the Federation of Indian Micro and Small & Medium Enterprises has warned that the government needs to ensure transmission.
“Credit guarantees would help since getting loans remains even more difficult for services firms as they do not have assets as collateral. There are about 20000 IT-ITES SMEs, of which about around 16,000 are below INR 100 crore,” said Ashish Aggarwal, senior director and head of public policy at Nasscom.
The Center will also establish a mega fund of funds with a corpus of Rs 10,000 crore, to help MSMEs expand capacity and eventually get listed in the markets of their choosing. While more details are awaited, MSME Minister Nitin Gadkari had earlier hinted that the government will buy stakes in MSMEs that choose to get listed as public entities.
“Measures like support to the e-market linkages for MSMEs to be promoted as a replacement for trade fairs and exhibitions is a well thought relief to exporters. Exhibitions were a regular and important feature of export promotion,” said Ravi Sehgal, chairman of the Engineering Exports Promotion Council, the majority of whose members are MSMEs.