India’s Honorable Prime Minister Shri Narendra Modi announced a Rs. 20,00,000 crore worth financial package to strive towards the idea of an “Aatmanirbhar Bharat” i.e. “Self-reliant India” on 12th May; 2020 when he addressed the whole nation. He also clarified that by “Self-reliant India”, he does not mean a “self-isolated India”. During his speech, he further added that our Finance Minister Nirmala Sitharaman will announce the allocation of the funds of this financial package. Hence, the very next day of the PM Modi’s speech, our Finance Minister Nirmala Sitharaman announced the policy initiatives and specified how the Indian Government seeks to promote “Aatmanirbhar Bharat”.
It was the first press conference held by the Finance Minister of India. In the press conference, the key issues addressed were Relief on TDS (Tax Deducted at Source), Real Estate, Relief for Contractors, Measures for Discoms, Measures for NBFCs, EPF measures. But the main highlight was the allocation of the funds of the financial package and favourable policy changes for MSMEs. One reason could be that favourable policy for MSMEs would strengthen the supply chain of local producers and thus, more contribution to the Indian Economy. Hence, it can be said that the favourable policy changes announced by our Finance Minister Nirmala Sithraman were backed by the phrase “Vocal the Local” quoted by our Prime Minister Narendra Modi on 12th May; 2020.
One of the major announcements by the Finance Minister centred around the change in the definition of MSMEs. Previously, Manufacturing units with less than Rs. 25 lakhs of investment, less than Rs. 5 crores and less than Rs. 10 crores were considered as Micro, Small and Medium Enterprises. For service business units, investment below Rs. 10 lakh, less than Rs. 2 crores and less than Rs. 5 crores were identified as Micro, Small and Medium Enterprises. The revised definition has kept the criteria same for both manufacture and service MSMEs same. Any business unit with investment less than Rs. 1 crore and turnover less than Rs. 5 crores will be termed as micro-unit whereas business units with investment less than Rs. 10 crores and turnover less than Rs. 50 crore will be classified as Small Businesses. The criteria for Medium Enterprises is investment less than Rs. 20 crores and turnover less than Rs. 100 crores. The definition of these enterprises was revised in order to provide the enterprises with benefits that previously fell in these categories and hence, received benefits but due to their growth, were not a part of these categories anymore. MSMEs are the backbone of Indian economy and hence, more benefits will promote the set up of more enterprises under the revised criteria for MSMEs. Establishment of more MSMEs will work towards the idea of “Self-reliant India” as India will itself produce products instead of importing them and the demand for the same will be fulfilled at lower prices because goods and services will be produced in the territory itself. It will generate more employment opportunities for the most vulnerable sections of Indian society, especially the migrant workers. Hence, the Migrant workers who lost their livelihood will gradually have ample opportunities in front of them to rebuild the lost livelihood.
To mitigate the hardships faced by MSMEs due to the unfair competition in the market while they compete with giants, it has been announced that global tenders up to the limit of Rs. 200 crores will not be allowed. Hence, MSMEs in India will now have more and better opportunities to grow and won’t be affected much by the giants in the economy. The growth in MSME Sector is aimed to provide stimulus to domestic producers whose businesses shut down due to the COVID-19 induced lockdown. This may reduce FDI for India but the MSME sector will now grow instead of being throttled by the giants in the economy.
Banks and NBFCs have been directed to provide 20% of the entire outstanding credit to MSMEs. Business units that have up to Rs. 25 crore outstanding credit and Rs. 100 crore turnover will be considered eligible for these loans. However, there are certain conditions that these loans will have 4-year tenure along with a moratorium of 12 months on principal payments. It has also been promised that the government is responsible to provide complete credit guarantee cover to lenders on both principal and interest amount. This scheme can be availed before 31st October; 2020 and will not be operational after the said date. Hence, the government has declared that it will provide loans to MSMEs at not-so-stringent terms & conditions. She further added that this scheme will provide benefit to 45 lakh small businesses. However, according to the MSME Ministry’s FY19 annual report, India has 6.33 crore MSMEs and with the revised definition, the number of MSMEs will swell up soon. So, the scheme of providing Rs. 3 lakh crores collateral-free loans will not prove beneficial to a considerable portion. Only the top MSMEs or those in the creamy layer will be able to seek benefits under this scheme. Although the measures announced by the Finance Ministry for MSMEs will indirectly generate employment opportunities for migrant workers, only a few MSMEs will get the benefit of such schemes and hence, one can say that it will not make much difference.
Those MSMEs declared NPAs i.e. Non-Performing Assets or those stressed will be considered eligible for equity support as the government has decided to facilitate the provision of Rs. 20,000 crores as subordinate debt. Subordinate debt is a category of debt which ranks after other debts if the concerned company goes bankrupt or enters into liquidation. Such debt is termed as “subordinate” for the debt provider has subordinate status as compared to the normal debt. The Government has also decided to provide Rs. 4,000 crore to CGTMSE i.e. Credit Guarantee Funds Trust for Micro and Small Enterprises which is supposed to offer partial credit guarantee support to banks, for the purpose of lending the same funds to MSMEs. CGTMSE, launched in 2000, is a government initiative by the Ministry of Micro, Small and Medium Enterprises(MSME) in partnership with the Small Industries Development Bank of India i.e. SIDBI. The concerned policy initiative under “Aatmanirbhar Bharat” mission may picture India as a developed nation in the upcoming years to few, but the implementation exercises are not efficient in India. Hence, one cannot say whether these initiatives will reap benefits for a considerable portion of MSMEs or will not make much difference until and unless the implementation exercise goes well.
Our Finance Minister Nirmala Sitharaman also announced that a Fund of Funds will be used to infuse Rs. 50,000 crore equity in MSMEs to cater to the needs of more than 25 lakh MSMEs. MSME Minister Nitin Gadkari said that the fund will help MSMEs with ‘growth potential and viability’ when there will be a severe shortage of equity. It will be established with a corpus of Rs. 10,000 crore to MSMEs. This scheme intends to encourage MSMEs to list on stock exchanges which will give them wide exposure and hence, it will probably result in an upsurge in the number of equity holders for the concerned business units.
Arun Singh, the Chief Economist at Dun and Bradstreet India, commented that collateral-free loans, subordinate debts to MSMEs, and equity infusion through MSME Fund of funds will together amount to 76% credit disbursed to MSMEs during FY20.
Last but not the least, Nirmala Sitharaman, Finance Minister of India, made another important move of the government that the Government and Central PSUs will clear outstanding dues of MSMEs and that all receivables of MSMEs will be cleared by Government of India and Central Public Sector Enterprises (CPSEs) within next 45 days.
The Finance Ministry has decided to allocate enough funds to stimulate MSMEs to function in order to generate employment opportunities for workers and strengthen the domestic supply chain as PM Modi expressed in his speech. The Finance Ministry has revised the definition of MSMEs to extend the benefits to small business units who did not fall in the category of MSMEs previously, Rs. 3 lakh crore collateral-free loans to MSMEs, Rs. 20,000 crores subordinated debt, infusion of Rs. 50,000 crore equity, disallowed global tenders up to Rs. 200 crores, and clearing MSME dues.
All the relief and policy initiatives announced by Finance Minister Nirmala Sitharaman will reap enough benefits for MSMEs but since the definition has been revised, it is probable that the top cream layer which is added by the revision, will get all the benefits and the needy MSMEs will be left behind. Also, the implementation exercise is yet to be seen. Hence, it is not possible to comment upon whether the relief, opportunities, eased policies, loan facilities, etc. will prove to be helpful or not. But it can be said that the government tries to improve only one side i.e. the government wants to strengthen the supply chains but does not want to stimulate demand. Strengthened supply chains will be of no use without the stimulus in demand. To stimulate demand, the government must take such measures that will increase the paying capacity of those who lost their jobs, livelihood, etc. This drawback is visible at the very front of the steps announced by Finance Minister to revive the economy.
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Article Witten by- Muskan Sharma
Law Student- (Jamia Millia Islamia)
(HRDI Work from Home Internship)