NEW DELHI: A day after Prime Minister Narendra Modi announced a Rs 20 lakh crore package to combat the economic disruption caused by the coronavirus pandemic, Finance Minister Nirmala Sitharaman on Wednesday chose to unveil the first tranche, starting with a slew of relief measures for small businesses, shadow banks, power companies and realtors.
The announcements include collateral-free loan worth Rs 3 lakh crore, which the government claims will benefit 45 lakh units, subordinated debt provision of Rs 20,000 crore and revising MSME definition and Rs 90,000 crore capital infusion in power distribution firms.These measures were eagerly awaited by smaller businesses reeling under uncertainty following the nearly two-month nationwide lockdown. Said N R Bhanumurthy, professor at National Institute of Public Finance & Policy, “The MSME sector certainly needed help, but most of the help seems will be channelled through banks, in most cases PSU banks … not through a government stimulus.”
The government also announced Rs 30,000 crore special liquidity scheme for non-banking financial companies, microfinance firms and housing finance companies. Plus, another Rs 45,000 crore liquidity infusion through a partial credit guarantee scheme for NBFCs and Rs 50,000 crore equity infusion through fund of funds for MSMEs to help these units expand capacity.However, economists feel these may not help counteract the economy’s shrinking. “The main problem is demand creation,” noted Bhanumurthy.In the case of collateral-free loans, Sitharaman said these would have a four-year tenure with a moratorium of 12 months on principal repayment while the interest will be capped.
“The envisaged support of full credit guarantees to the lower rated NBFC and HFC entities will restore stability in financial markets and could act as a clear enabling factor for compressing credit spreads,” said Rajnish Kumar, chairman, SBI.To encourage participation of MSMEs in government procurement programme, the FM said global tenders will not be allowed for government contracts up to Rs 200 crore.“How will MSMEs function if all the labourers have returned home? There should have been some announcement for the rural sector,” said Prof Bishwajit Dhar of the JNU.
The government also redefined the MSME industry’s parameters to allow more investment and introduced a turnover criterion to make it easier for firms to avail cheap credit meant for the sector.“The decision to changing the definition of MSMEs will certainly help them grow, and benefit larger number of firms,” said Partha Chatterjee, Dean of International Partnerships, professor and head, Department of Economics, Shiv Nadar University.