The Hon’ble Prime Minister under his vision and call for ATMA NIRBHAR ABHIYAN / SELF RELIANT INDIA MOVEMENT based on the 5 pillars of ATMA NIRBHAR BHARAT being Economy, Infrastructure, System, Vibrant Demography and Demand has allotted Rs. 20 lakh crores equivalent to 10% of India’s GDP as Special economic and comprehensive package cater to the needs of the current stressed economy with the clarion call, “It is time to become vocal for our local products and make them global”.

The Hon’ble Finance Minister announced in her press briefing regarding various allotment of funds for MSMEs under various heads and she also elaborated the new definition of MSME. The following are my views on the takeaways.

1. New definition of MSME.

(i) The classification of MSME as Manufacturing Enterprise and Service Enterprise has been abolished and merged under one category of MSME.

(ii) A new dimension has been introduced in the definition apart from investment in plant and machinery which is of turn over.

(iii) As per the new classification the following are the new norms for classification of MSME.

Classification Investment Turn Over
Micro Enterprise Rs. 1 crore Rs. 5 crores
Small Enterprise Rs. 10 crores Rs. 50 crores
Medium Enterprise Rs. 20 crores Rs. 100 crores

(iv) Whereas the increase in investment is a welcome change, the logic and the basis of restricting the turnover is not explained. The pertinent question is when the investment is substantially increased, the capacity for production is also increased in proportion to the investment in which case, if the turn over goes beyond the cut-off point, the micro enterprise is poised to graduate as small enterprise which again is very favourable to the enterprise. But, if the small enterprise is promoted to the medium enterprise status, is it good for them? Even though any expansion is desirable for any enterprise, the small enterprise will lose its privilege coming out of the statutory commitment of banks to MSE sector. In this connection a reference may be made to the CODE OF BANK’S COMMITMENT TO MICRO AND SMALLENTERPRISES with its amendments.Hence, in my opinion the introduction of turn over norms need not be introduced.

(v) The announcement does not specify the date of implementation of the new definitions which also requires the necessary changes in the MSME Act and the RBI notification on the matter.

(vi) When the new nomenclature is implemented, it may necessitate reappraisal and reassessment of the financial requirements of the enterprises. If it is going to be introduced immediately, the effect of such changes will have a bearing on the package now announced.

2. Rs. 3 lakh crores collateral-free Automatic Loans for business, including MSMEs.

(i) The aforesaid package is to be made available to meet operational liabilities built up, buy raw materials and to restart business. It seems that the offer is conditional not to make it available to past commitments and existing liabilities. An explanation is required.

(ii) Emergency credit line to business / MSMEs from banks and NBFCs up to 20% of the entire outstanding credit as on 29.02.2020. Does this mean that the emergency credit availability is restricted to 20% of the existing limit as on 29.02.2020? What if there is a credit balance available on the day or the limit is not fully utilised in the accounts?

In this connection a reference may be made to RBI circular FIDD.MSME & NFS.BC.No.60/06.02.31/2015-16 dated August 27, 2015 on Streamlining flow of credit to Micro and Small Enterprises (MSEs) for facilitating timely and adequate credit flow during their ‘Life Cycle’wherein RBI instructed the banks to sanction “STANDBY CREDIT FACILITY” for funding capital expenditure and working capital at the time of sanction itself to be disbursed in case of liquidity problems faced by the enterprise. Besides, managers and executives also are given discretionary powers to be used in an emergency situation. But such powers are hardly used by the banks. Such being the case how the banks are going to implement the package is to be seen.

(iii) Borrowers with up to Rs. 25 crores outstanding and Rs. 100 crores turnover are eligible for the collateral free automatic loan. What about the borrowers having outstanding more than Rs.25 crores and Turn Over more than Rs.100 crores coming under MSME category? Why this discrimination?

(iv) Loans to have 4-year tenor with moratorium of 12 months on principal repayment. The emergency credit is to be made available by way of working capital term loan and not by way of cash credit. It seems that existing terms loan/s, if any, will continue with the same terms and conditions of the then sanction. If so, how the cash flow is to be ensured to fulfil the repayment of all the term loans?

(v) It is stated that the interest to be capped. But the rate of interest to be charged is not given but may be left with banks. If so, whether uniform rate of interest will be charged by all banks and NBFCs and whether rate of interest will be on fixed basis or floating basis to be paid as and when charged. Will NBFCs be able to charge the same interest as that of banks?

(vi) A realistic cash flow will have to be arrived at taking into account the total repayment of all existing loans and working capital along with the incremental emergency loan.

(vii) 100% credit guarantee cover to banks and NBFCs on principal and interest. But considering the experience with banks and financial institutions with regard to availing collateral free loans available under already existing CGTMSE to the extent of Rs. 2 crores, it should be seen how the banks and NBFC are going to react or pro-act to the announcement.

3. Rs. 20000/- crores subordinate debt for stressed MSMEs.

(i) Government of India will facilitate provision for Rs.20000.00 crores as subordinate debt to MSMEs and functioning MSMEs which are NPA or are stressed will be eligible. How the Government is going to facilitate the provision of the amount as subordinate debt is not clear. The definition of functioning NPA is not made out. Does it include accounts classified as NPA and legal action initiated already but is functioning unit? Is it applicable to accounts already assigned to ARCs but functioning and also those NPA accounts whose settlement have taken place by way of restructuring/OTS but continuing business?

(ii) Government will provide a support of Rs. 4000 crores to CGTMSE who will provide partial support to banks. How the banks are going to implement the scheme under partial support from CGTMSE in the background of the reluctance of the banks to sanction collateral free loan up to Rs. 2 crores already available under the existing CGTMSE guarantee cover.

(iii) Promoters of MSME will be given debt by banks, which will then be infused by promoter as equity in the unit.

The operational modality of the schemes announced is to be elaborated as to the implementation of the schemes by banks.

4. Rs. 5000.00 crores equity infusion for MSMEs through fund of funds and global tenders to be disallowed up to Rs. 200 crores.

The functional and implementation details are to be made known as to how these packages will be implemented effectively. However, global tenders are to be disallowed is well a come step giving MSMEs better level playing field.

5. The package does not offer any relief to those who availed housing loans and default repayment leading to their account being classified as NPA due to either retrenchment or cut in the salary and those students who availed educational loan but are not able repay the loan after completion of their studies on account of non-availability of jobs. What is going to be their fate? Some relief package is to be considered to mitigate their hardships.

6. Yet another unfortunate section is those employees who lose their jobs on account of legal actions taken by the bank to recover the dues and some relief measure must be considered for their survival.

The aforesaid package will enable the MSME sector to be more competitive and will help them to realise the vision and call of our Hon’ble Prime Minister for ATMA NIRBHAR ABHIYAN / SELF RELIANT INDIA MOVEMENT.

The vision of the nation is made and the mission is articulated. The result depends upon the how the implementation of the plans and programmes is carried out down the line with the sincerity of purpose and effective implementation with diligence, determination, dedication and commitment. The package announced may not satisfy all the sections of people. But an honest attempt has been made and to be implemented and if any impediments or hardships come in the way, then a course correction can be initiated.

The government has committed Rs. 2 lakh crores as part of their commitment and it is time that the entrepreneurs, the industry and commerce along with the banks and financial institutions including all stake holders and general public  should offer their unconditional cooperation and commitment keeping aside their differences and prejudices and looking into the brighter side for the ultimate realisation of making our nation a formidable leading economic force and a global player to be recognised globally for which we have to work united and in unison to achieve the vision.

Let us take a pledge for the realisation of the vision by asserting that we have to, we shall and ultimately, we have achieved it.

(The author solicit comments from readers and he can be contacted through his e-mail

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    1. T. R. Radhakrishnan says:

      Mr. Mandar,
      You have to avail the loan through your bank where you maintain the account. You may contact your bank in this matter.

  1. kailash chandra says:

    If a company’s 99 % turnover is from trading activity and 1% of turnover is from services, will it qualify under MSME if other conditions are met.

    1. T. R. Radhakrishnan says:

      The general rule is that the classification of account is based on the main activity and if the income from service is less than the trading, it cannot qualify to come under MSME sector.

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October 2020