Reaction from Industry on reliefs announced by Union Minister of Finance & Corporate Affairs Smt. Nirmala Sitharaman on 13th May 2020
Roma Priya, Founder of Burgeon Law (India’s leading boutique law firm catering to startup investment ecosystem) said that “India’s MSMEs sector is the largest across the world after China. MSMEs might be considered as small investment enterprises but their contribution to the Indian economy has always been noteworthy. Our homegrown enterprises have been hit hard by the pandemic and this move by the government lays a path for liquidity infusion, thereby giving them the necessary handholding. Many of our startups are facing a crisis with the liabilities and are waiting to resume activity and engage their workforce, at least for the next quarter. The NBFCs will get a push due to special liquidity schemes and partial credit guarantee schemes announced by the government.”
Meghna Suryakumar, Founder and CEO, Crediwatch (A credit intelligence firm provides data insights to lenders and corporates for business entities) Said that “In our view, some of the measures which should be welcomed by small businesses in India are –
(a) Global tenders barred from procurements up to Rs 200 crores – the Government’s e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms.
(b) New definition for MSMEs – This has been a long pending demand from multiple industry associations. While MSMEs have tried to remain within a particular size in order to benefit from the MSME tag in the past, the new definition will promote them into growing further in size and scale.
(c) Collateral-free automatic loans – While this extends the previous loan moratorium benefits, the new terms should benefit as many as 45 lac businesses and help with working capital requirements in coming days. We believe, setting the threshold for eligibility (Rs 25 cr outstanding and Rs 100 cr turnover) is helpful but it is yet to be seen whether public sector banks will underwrite such unsecured loans at a faster pace on the back of these terms. The real-need of the hour is to move to cash-flow based lending.
(d) Equity & Subordinate Debt infusion – The need for Long term capital will increase three months from now as businesses grapple with uncertain demand and high fixed costs. In our view, the Rs 70,000 crore facility should assist stressed MSMEs in raising funds as the tide turns.
While a technology-driven approach may pave a way to lower recurring costs in the future, the FM’s announcements today should ease the stress of a large number of promoters, partnership firms and small private limited entities. Coupled with lower TDS and TCS rates, the cash-in-hand should be prudently used by these MSMEs in the months to come.”
Mr. Bhavin Turakhia-CEO and Co-Founder of Zeta on the economic package announcement by the finance minister said that “The first 15 measures announced by the FM today is a great start to revive the economy which is severely impacted due to COVID-19. The packages announced were comprehensive. We welcome the announcement on Rs 3 lakh crore collateral-free loans that will help the MSME sector to rise from this grave period. Rs 45 thousand crore liquidity announced through Partial Credit Guarantee Scheme 2.0 for NBFCs will usher in the much-needed growth and the new definitions of MSMEs will allow more companies to take benefit of the new package. Government’s decision to boost liquidity through EPF support and the reduction of 10% out of the existing 12% each for all is highly commendable. The measures undertaken by RBI on the Reduction of Cash Reserve Ratio (CRR) has resulted in liquidity enhancement Rs1,37,000 crores. The decision to disallow global tenders up to 200 crores is likely to be seen as a protectionist move. It is important that we continue to be perceived as a global economy. Startups will have an important role to play in this difficult journey and we are hopeful that the announcements that will follow over the next few days will address this constituent with the same generosity.”
Anuj Aggarwal, Co-Founder and CFO, 247around (An after sale service startup) said that “I believe the steps are taken in the right direction. Today’s announcements are going to help a lot of companies.
Positives for us are the reduction in EPF rates for one quarter, TDS rate reduction and pending IT refunds. These all would help in creating additional liquidity in the near term.
Since MSMEs which don’t have existing loans or are not stressed/NPAs fail to qualify for the emergency credit line, I believe many small enterprises would not be able to solve their current issues like paying salaries, making vendor payments and buying material etc. And this would be a disappointment for those. We are still checking the finer details and discussing it with experts.
More direct and immediate benefits could help MSMEs to kickstart business. Like support in employee wages, income tax benefits, instant loans basis GST profile without any conditions, etc.”