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COVID-19 economic package: Relief for MSMEs with definition change, dues repayment, collateral free loans

The Finance Minister announced a change in the definition of MSME which had not been changed since the MSME Development Act of 2006.

Published: 13th May 2020 10:31 PM  |   Last Updated: 14th May 2020 12:30 AM   |  A+A-

Union Finance Minister Nirmala Sitharaman wearing a face mask gestures as she announces the government's economic package to fight the coronavirus pandemic during a news conference in New Delhi Wednesday May 13 2020. (Photo | PTI)

Express News Service

NEW DELHI: The Centre on Wednesday unveiled six critical measures to prop up the Micro, Small and Medium Enterprises (MSMEs) - considered the backbone of India’s economy - who have been facing the maximum brunt of COVID-19 induced lockdown.

These include collateral-free loans up to Rs 3 lakh crore backed by government guarantee, Rs. 20,000 crore subordinate debt provision for stressed MSMEs, Rs. 50,000 crore equity infusion through fund of funds, global tender restrictions, repayment of dues within the next 45 days and change in definition of these businesses.

According to Union Finance Minister Nirmala Sitharaman, the collateral free loans will enable 45 lakh MSME units to resume business activity and also safeguard jobs.

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"Various MSMEs have been badly hit due to COVID-19 and they need additional funding to meet the operational liabilities built up, buy raw materials and restart businesses,'' she said while laying the contours of the Rs. 20 lakh crore relief package announced by the Prime Minister on Tuesday.

"While the Rs 3 lakh crore would have flowed in the normal course from banks, the advantage here is in terms of the cost being capped, term being fixed with moratorium and more importantly guaranteed by the government," pointed out Madan Sabnavis, chief economist at Care Ratings.

However, it remains to be seen how soon such flows of credit take place as time is very crucial in the present situation in order to meet the immediate requirements of the sector.

Sitharaman also announced a change in definition of MSME, which had not been changed since the MSME Development Act of 2006 and was long awaited because the existing "low threshold in the definition of MSMEs has created a fear among MSMEs of graduating out of the benefits and hence killing the urge to grow."

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Under the revised definition, the investment limit has been revised upward along with the introduction of additional criteria of turnover and elimination of the distinction between manufacturing and services sector.

Both manufacturing and services firms with investment up to Rs 1 crore and turnover of Rs 5 crore will be classified as small, investment of up to Rs 10 crore and turnover of up to Rs 50 crore will be micro, while firms with an investment of up to Rs 20 crore and turnover of Rs 100 crore will be classified as medium enterprises. 

In addition, disallowing global tenders will further give an impetus to the domestic MSMEs sector in line with the objective of Make in India campaign, said Sharad Kumar Saraf, President, Federation of Indian Export Organisations (FIEO).

Industry body Federation of Indian Micro and Small & Medium Enterprises (FISME), however, is disappointed.

"The industry is in a critical state and needs immediate help to survive. Credit guarantee is good only when the sector is back on its feet. The fear is that the banks will not release loans to MSMEs," said Animesh Saxena, president, FISME, hoping for direct support from the government to revive the ailing sector.



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