We all are going through a very tough time because of the COVID-19 Pandemic. Businesses partially are shut, employees are working from home and Farmers are also affected by sever lock down. The First 21 days lock down has cost nearly 7-8 lakhs crores for Indian Economy as per analysts. The worst impact of COVID and Lock down will be known after situation comes to normal which may take several months or may be year.

Government is continuously trying to stimulate the economy by various measures. Prime Minister has announced a huge 20 lakh crores package last week. All the schemes of this huge packages will be known once Finance Minister finishes all her series of announcements.

We must now think and evaluate what are major areas of announcement as of now? and how can we be benefited by these schemes!

The whole package announced till day is about empowering the Micro, Small and Medium Enterprises which are popularly known as MSME’s. In addition to this government also focused on agree based economic development. Let’s evaluate each announcement one by one:

1. Changing the Definition of MSMEs: 

In a common man’s understanding an MSME is a small set of businesses which includes trade, manufacture and service industries. Earlier as per MSME Act, businesses are classified on the basis of investments in plant and machinery. Now, Turnover criteria has been added to the defiation of MSME.

Existing and revised defination of MSME's

Now, investment criteria have been increased, which resulted in more businesses to come under MSME and enjoy the benefit.

But, because of adding new turnover criteria some businesses may lose its MSME status. Specially in service sector where investment in plant and machinery is very less. For Example: A business having investment in plant and machinery of Rs. 10 crores were earlier classified as Medium Industry but if it has 120 crores turnover it will lose the MSME Status now!

2. Rs. 3 lakh crores Collateral Free Automatic loans for Businesses, including MSME

This loan facility is to restart the business which are badly hit by the COVID 19, to meet the additional operational liabilities like buying raw materials, consumables, salary and wages to workers etc.

The scheme says emergency credit line to business and MSME up to 20% of entire outstanding credit as on 29-02-2020. So, government proposes to give collateral free loan to the extent of 20% of existing loan. Example: if you had total 1 lakh loans outstanding as on 29th February 2020, you will be eligible for another Rs.20 thousand loan without collaterals.

  • This loan facility will be available to only those who’s borrowing as on 29th February 2020 is up to 25 crores and whose turnover is up to 100 crores.
  • These loans have repayment period of 4 years and no repayment of principal amount in the very first 12 months.
  • The loan carries a capped interest, which means it can fluctuate but cannot be more than stated interest cap.
  • 100% guaranty cover is given to banks and NBFC’s by government.
  • Scheme is available till 31st October 2020.

So, all existing businesses can take the benefit of this scheme to meet there additional operating liabilities. Interest rates will be as per your earlier loan scheme. Non repayment of principal amount in the first year will be added benefit.

3. Rs 20,000 crores Subordinate Debt for Stressed MSMEs

A stressed MSME are those businesses which have defaulted the repayment of loan and became NPA in Banks but continuing the business. These Businesses need financial support to overcome the situation. Government is now extending the Subordinate Loan facility to these MSME’s. Banks will now give loan to stressed MSMS’s by seeking loan guaranty from CGTMSE. Government of India is allocating 20,000 crores for this facility.

Subordinate loans are those which rank later for repayment in case the company goes into liquidation. Example: If A company has taken loan from X bank and subordinate loan from Y bank and goes into liquidation, Y bank can recover its amount only after loan from Bank X is repaid completely.

4. Rs. 50,000 cr. Equity infusion for MSMEs through Fund of Funds

Any startup has various sources for its funding. It may rely on loans from relatives and friends, loans from banks, investment from Venture capitalists and going to IPO etc. Initially it is really difficult for startups to attract Venture capitalists and Investors. As a result, they have to rely on debts.

Government is now establishing a Fund of Fund to provide equity to MSME’s. with a corpus of Rs.10000 crores. FoF will provide equity funding for MSMEs with growth potential and viability. It will help MSMS’s to expand its capacity and later can access the stock market as well

  • Equity fund will help to expand the operations.
  • Equity fund do not have interest obligations and hence reduces the financial costs to the company.
  • Investment from government funds will help to build reputation and creditworthiness of the businesses thereby helps the businesses to attract more VCs and access stock market.
  • Businesses can expand their capacity to reach global markets.

5. Global tenders to be disallowed upto Rs. 200 crores

Now, global tenders are disallowed for government procurements tenders up to 200 crores. It is a great move to boost the MSME’s. Often Small businesses in India face reckless competition from global businesses in government procurement tenders. Therefore, government now proposes to restrict global tenders up to 200 crores and now these tenders are exclusively available for Indian MSME’s

6. Other Measures

  • e-Market linkage of MSME’s has been proposed to replace the trade fairs and exhibitions as MSME’s are facing market and liquidity crisis.
  • All government dues and public sector dues to MSMEs are to be settled in 45 days.

Government therefore is continuously working to open the global economy for Indian MSMS’s. If the schemes announced are properly implemented Indian small and medium businesses will surely benefitted.

Author details E-mail shriganeshullane@gmail.com Phone No. +91 9449203522

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Qualification: CA in Practice
Company: Shriganesh Hegde & Associates
Location: Hubli, Karnataka, IN
Member Since: 12 Mar 2020 | Total Posts: 2
I am a practicing Chartered Accountant in Hubli Karnataka. View Full Profile

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