On 12th May The Prime Minister Shri Narendra Modi announced a package of Rs. 20 Lac Crore relief package which is nearly 10% of GDP to trigger economy growth. In the first part of this package focus is on small business (MSMEs), Liquidity, Labor, Land and Laws.
For MSMEs following steps has been taken:
1. Rs. 3 Lac crore Emergency Working Capital Facility Package.
2. Rs. 20,000 crore Subordinate Debt for Stresses MSMEs.
3. Rs. 50,000 crore equity Infusion Through MSME Fund of Funds.
4. The Old definition of MSMEs has changed.
According to New Definition of MSMEs
|Manufacturing Sector||Investment Up to|
|Service Sector||Investment Up to|
The business investment up to above threshold limit should be considered as MSMEs Business. In this pandemic crisis bank refused to give credit to MSMEs except the top standard client due to fear that number of NPAs will increase. So there is much needed step and welcomed step from government to upward the small business. Because as PM said to raise local to global. But the effective utilization of these funds necessary.
Now the question is how to make these local to global because business will produce products and there is supply and if there is no demand then no relevance or benefits of all packages if there is no consumption. So to make the demand in the market government try to increase the spending power of individual. To increase the spending power of a person government reduce the TDS or TCS rate by 25 % except salary and this reduction will result in Rs. 50,000 inflow into the system. In addition of this Provident fund contribution both employer and employee share reduce from 12% to 10% for 3 months(June, July and August) which will provide Rs. 6,750 crore liquidity.
But the important question is this will demand increase as expected. What if it doesn’t. Because there is maximum possibility that people would like to spend on essentials only and they would like to save more and more. In that case there would be possibility infused capital become burden because all the emergency capital of Rs. 3 Lac which is treated as term loan need to pay interest on it and subordinate debt which is kind of unsecured loan possible to become NPAs. But risk is necessary to earn profit.
To maintain all above and liquidity in the market government try to make strong the backbone of economy i.e. NBFCs, HFC, MFI. Government injected Rs. 30,000 crore Special Liquidity Scheme and Rs.45,000 crore Partial guaranteed Scheme 2.0 for NBFC/ MFIs (Micro Finance Institutions). Why there is need to inject liquidity to these financial sector.? Because in this time there is more withdrawal than deposits and paying back of earlier loans would be low. So these NBFCs, HFCs, MFIs will face liquidity crunches. So to avoid these crunches and make to balance in the market there is need of it.
In conclusion PM Modi ji stated that this virus will take long time and there is demand of time to convert this crisis in to opportunity and become a major global player by protecting ourselves. Because we can not halt our whole economy for a long term, so take all the precautions and work towards the country development. The relief package announced is effective but it is the responsibility of each individual to make this effective to raise economy and make India “Global Guru”.