The Noval Coronavirus pandemic is one of the few chapters recorded in global history where entire world is facing a common existential threat. Within five months, the virus has spread across the globe and not just impacted individual health but also the global trade between the countries. Under such a scenario, it is important for India to rebuild their economy to become self-reliant along with global integration.
The Government of India has been actively working to protect the population of country, and business world especially Micro Small and Medium Enterprises, Infrastructure and banking sector. The Prime Minister of India announced an economic package worth of INR 20 lakh crore equivalent to 10% of country’s GDP dated 12th May’ 2020. Elaborating on the package the Finance Minister has shared the details of the economic relief package dated 13th May’ 2020 which is expected to mitigate hardships faced during the coronavirus induced pandemic.
The reforms have been framed into five pillars - (1) Economy, (2) Infrastructure, (3) System, (4) Vibrant Demography and (5) Demand. The aim is to make India self-reliant along with global integration. The government introduced slew of relief measures and will be announcing more reforms over the period of time as part of the economic package.
Following are some of the key relief measures announced by the Indian government to help businesses including MSMEs recover from economic impact of COVID-19:
- Revised MSME Definition: Low threshold in MSME definition have created a fear among MSMEs of graduating out of the benefits and hence killing the urge to grow. There has been a long pending demand for revision. Government has now finally decided to revise the definition of MSMEs where investment limit will be revised upwards.
| Revised MSME Classification |
| Composite Criteria: Investment and Annual Turnover |
| Classification |
Micro |
Small |
Medium |
| Manufacturing & Services |
Investment < Rs. 1 crore and Turnover < Rs. 5 crore |
Investment < Rs. 10 crores and Turnover < Rs. 50 crores |
Investment < Rs. 20 crores and Turnover < Rs. 100 crores |
|
|
| |
| Old MSME Classification |
| Classification |
Micro |
Small |
Medium |
| Manufacturing |
Investment < Rs. 25 lacs |
Investment < Rs. 5 crores |
Investment < Rs. 10 crores |
| Service |
Investment < Rs. 10 lacs |
Investment < Rs. 2 crores |
Investment < Rs. 5 crores |
|
|
- Collateral Free Automatic Loan: Businesses/MSMEs have been badly hit due to COVID-19 and are in need of additional funding to meet operational liabilities built up, buy raw material and restart the business. Emergency credit line will be provided to businesses/MSMEs from Banks & NBFCs upto 20% of entire outstanding credit as on 29.02.2020. Borrowers with upto Rs. 25 crore outstanding and Rs. 100 crores turnover will be eligible. The loan will have tenure of 4 years with moratorium period of 12 months on principal repayment. Interest would be capped. Banks & NBFCs will get 100% credit guarantee cover on principal and interest. This scheme can be availed till 31st October 2020. There would be no guarantee fee or fresh collateral required. This will support 45 lakhs units to resume business activities and will also safeguard the jobs.
- Subordinate Debt: To provide support to stressed MSMEs, Government of India will facilitate provision of Rs. 20,000 crores as subordinate debt which will benefit around two lakhs MSMEs. Functioning MSMEs which are NPA or are stressed will be eligible. Government will provide support of Rs. 4,000 crores to CGTMSE. The CGTMSE will provide partial Credit Guarantee support to banks. Promoters of the MSME will be given the debt by banks which will then be infused by promoters as equity in the unit.
- Equity Infusion: MSMEs are facing severe shortage of funds. Keeping that in mind the Government will set up a Fund of Funds (FOF) with Corpus of Rs. 10,000 crores which will provide equity funding for MSMEs with growth potential and viability. FoF will be operated through a Mother Fund and few daughter funds. Fund structure will help leverage Rs. 50,000 crores of funds at daughter funds level. This will help to expand MSME size as well as capacity. This will encourage MSMEs to get listed on main board of Stock exchange.
- Global Tenders: Indian MSMEs and other domestic companies have often faced unfair competition from foreign companies. Therefore, Global tenders will be disallowed in Government procurement tenders with value upto Rs. 200 crores. This will be a step towards Self Reliant India and support Make in India program. This will also encourage MSMEs to expand their business. Necessary amendments of General Financial Rules will be affected.
- E-Market: Due to COVID-19, MSMEs are having marketing and liquidity problems. Therefore, E-Market linkage for MSMEs will be promoted to act as a replacement of trade fairs and exhibitions. Fintech will be used to enhance transaction-based lending using the data generated by e-marketplace. This will provide a relief to MSMEs and at the same time brings an opportunity for IT & Fintech companies.
- EPF Support: Businesses continue to face financial stress as they get slowly get back to work. Under Pradhan Mantri Garib Kalyan Package (PMGKP), payment of 12% employer and 12% employee contribution was made into EPF accounts of eligible establishments. This support was earlier provided for salary months of March, April & May 2020. Now the support has been extended for another three months till August 2020. This will provide liquidity relief of Rs. 2500 crores to above 3 lakhs establishments and for more than 70 lakhs employees.
- Special Liquidity Scheme: Since NBFCs/HFCs/MFIs are finding it difficult to raise money in debt markets, the government will launch a Rs. 30,000 crore Special Liquidity Scheme. Under this scheme, investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs. Securities will be fully guaranteed by the Indian government. This will provide liquidity support for NBFCs/HFCs/MFIs and mutual funds and create confidence in the market.
- Liquidity Injection for DISCOMs: Revenues of Power Distribution Companies (DISCOMs) have plummeted. DISCOM payables to Power Generation and Transmission Companies currently are Rs. 94,000 crores. PFC/REC to infuse liquidity of Rs. 90,000 crore to DISCOMs against receivables. Loans to be given against State guarantees for exclusive purpose of discharging liabilities of DISCOMs to Gencos. Further, Central Public Sector Generation Companies shall give rebate to DISCOMs which shall be passed on to final consumers (industries).
- Relief to Contractors: All Central agencies to provide extension of up to 6 months, without cost to contractor, to obligations like completion of work covering construction and good & services contract. Government agencies to partially release bank guarantees, to the extent contracts are partially completed, to ease the cash flows.
- Extension of Registration & Completion date of Real Estate projects under RERA: Adverse impact due to COVID-19 and projects stand the risk of defaulting on RERA timelines. Thus, the timelines need to be extended. Ministry of Housing and Urban Affairs will issue an advisory to states and UTs enabling invocation of force majeure/Act of God measure during COVID-19 and extending the timelines for various statutory compliances under RERA. Registration & completion date should be extended suo-moto by 6 months for all registered projects expiring on or after 25th March’ 2020 without individual applications. This will de-stress real estate developers and ensure completion of projects so that homebuyers are able to get delivery of their booked houses with new timeline.
- Partial Guarantee Scheme 2.0: NBFCs, HFCs and MFIs with low credit rating require liquidity to do fresh lending to MSMEs and individuals. Existing PCGS scheme will be extended to cover borrowings such as primary issuance of Bonds/CPs of such entities. First 20% of the lost would be borne by the guarantor i.e. Government of India. This scheme will result in liquidity of Rs. 45,000 crores.
- Reduction in EPF Contribution: Businesses need support to ramp up production over the next quarter. It is necessary to provide more take home salary to employees and also give a relief to employers in payment of PF dues. Therefore, statutory PF contribution of both employer and employee will be reduced from 12% to 10% each for all establishments covered by EPFO for next 3 months. However, CPSEs and State PSUs will continue to contribute 12% as employer. This scheme will be applicable for workers who are not eligible for 24% EPF support under PM Garib Kalyan Package and its extension.
- MSME Receivable: Within next 45 days, all receivables of MSMEs will be cleared by the Government of India and CPSEs
a) With effect from 14th May’ 2020 till 21st March 2021, the rates of TDS for non-salaried specified receipts and rates of TCS for the specified receipts has been reduced by 25% of the existing rate. It will release Rs. 50,000 crores in the hands of the people instead of paying them as taxes.
b) The date of income tax assessments barred on 30th September’ 2020 has been extended to 31st December’ 2020 and those getting barred on 31st March’ 2021 has been extended till 30th September’ 2021.
c) Due date of all income tax return for FY 2019-20 will be extended to November 30, 2020 and tax audit to October 31, 2020.
d) The Vivad Se Vishwas scheme for income tax dispute resolution has been extended by 6 months till 31st December’ 2020.
e) All pending refunds of charitable trusts, non-corporate business, Limited Liability Partnerships and co-operatives will be processed immediately.
The relief measures announced by the government are a welcome move and these would certainly help to address some of the issues faced by the organization. As mentioned by the Finance Minister, we can expect more major reforms to be introduced in coming days.
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