To counter Coronavirus, the Indian government had taken a move to close down the economy for a limited time period. The lockdown began on March 24 and kept on extending seeing the leapt in Corona-afflicted patients. Throughout this, the economy stalled, businesses operations ceased and small enterprises dealing in non-essential items, suffered immensely. The damage is irrevocable and seems to affect the country's economy in the coming year as well.
In a bid to lessen impact of the pandemic, the country's government has pronounced a series of plans and strategies like reopening of marketplaces in green and orange zones, delivery of non-essential items in green zones, and easy tracing of affected patients via Aarogya Setu app. In the recent event, the Finance Minister of India, Nirmala Sitharaman proclaimed schemes that the government has introduced for small businesses, realty estate, NBFCs, micro lenders, contractors, and others.
An Aid to Struggling MSMEs
The government has created a rescue package for MSMEs wherein it is offering equity support, credit guarantees, and an increased chance to win government contracts as part of INR 20 trillion package to keep the economy buoyant. The Finance Minister, Nirmala Sitharaman had addressed various problems that small businesses are facing such as cash crunch, staggering business and flight of migrant workers. Further, the definition of MSMEs will also be augmented to wipe out perverse incentives for such businesses to stay small with an eye on continuing to enjoy the benefits, reported Mint.
As per official data, MSMEs totalled 63 million in India and accounted for 29 per cent of the nation’s gross domestic output in fiscal 2017. They have nearly 45 per cent manufacturing output, over 40 per cent of exports and hire roughly 111 million people. Helping them to reinitiate is a way to reduce job losses in the nation. It will further retain demands for goods and services amongst fears of shortage in the economy.
The government has pronounced 15 measures in aggregate, out of which some will directly help the MSME segment. Here are the following moves taken to reduce stress of MSMEs.
1.The government has allowed MSMEs to show little collateral for getting credit from banks. Non-defaulting small enterprises that are having outstanding debt of approximately INR 25 crore and sales of nearly INR 100 crore, are being provided additional working capital of 20 per cent.
"The units will not have to provide any guarantee or collateral. The amount will be 100 per cent guaranteed by the government of India providing a total liquidity of nearly 3 trillion to more than 4.5 million MSMEs," Nirmala Sitharaman said in the press conference.
"This will be available till 31 October," Sitharaman added.
2. Promoters of stressed or defaulted MSMEs are provisioned loans up to 15 per cent of their shareholding in the business unit by the government. Thus, promoters can invest money and bring enterprises from problems. Such loans can be availed to a maximum of INR 75 lakh; equity funding aid will be further rendered to MSMEs with growth potential by way of the government setting up a INR 10,000 crore fund that will raise more capital to fund of INR 50,000 crore into small businesses.
3. Liquidity aid to non-bank lenders is anticipated to be advantageous for small businesses. Sitharaman had proclaimed a INR 30,000 crore special liquidity scheme for NBFCs, microfinance institutions (MFIs) and housing finance companies (HFCs). In this move, banks will be permitted to infuse, through primary or secondary market transactions, in debt papers issued by HFCs, NBFCs, and MFIs. These papers will be wholly guaranteed by the government.
4. The definition of MSMEs has been changed by the government. The new definition will comprise higher investment limits and add one more regulation based on revenue. It will subside the current definition based on self-declared infusion in plant and machinery. This move will stimulate ease in doing business and convince them to be more vigorous in their growth. However, the new definition will not differentiate between manufacturing and service segments.
These moves can bring a change in the economy and lessen problems of the MSME sector in its entirety.