Focus on MSME, Rs 20K crore subordinate debt for stressed businesses
A day after Prime Minister Narendra Modi announced a special economic and comprehensive package of Rs 20 lakh crore — equivalent to 10 per cent of India’s GDP —for the revival of the coronavirus-hit economy, Finance Minister Nirmala Sitharaman on Wednesday came out with a slew of measures for relief and credit support to businesses, especially MSMEs.
The FM announced Rs 3 lakh crore of collateral-free loans for small businesses, cut the tax rate for non-salary payments and provided liquidity to non-banking companies to help them tide over the disruptions caused by the lockdown.
Announcing the first set of components stimulus package announced by the Prime Minister, she said Rs 90,000 crore liquidity infusion will be made in electricity distribution companies to help them fight the current financial stress.
The Minister also extended by three months the Government support to companies with less than 100 employees to meet retirement fund obligations.
For companies, the statutory obligation to pay 12 per cent of basic salary as employer’s share to employee provident fund (EPF) contribution has been reduced to 10 per cent to boost their liquidity.
To boost construction, all Government agencies will give up to 6 months extension to all contractors to complete construction, and goods and service contracts.
“Essentially this is to spur growth and to build a very self-reliant India. It addresses ease of doing business, compliance, and due diligence and the intention is also to build local brands,” she said.
Sitharaman said collateral-free loans will benefit 45 lakh small businesses. The loan will have 4-year tenure and will have a 12-month moratorium, she said, adding the loans will be guaranteed by the Government. Also, Rs 20,000 crore subordinate debts will be provided for stressed or loan defaulting MSMEs, she said, adding this would benefit 2 lakh such businesses.
A fund of funds for MSME is also being created, which will infuse Rs 50,000 crore equity in MSMEs with growth potential.
The Government also changed the definition of MSMEs to allow units with higher investment as well as introduced turnover criteria to allow more companies to remain small businesses to get fiscal and other benefits.
Also, to help them get more business, global tenders for Government procurement up to Rs 200 crore will be barred.
The FM announced a Rs 30,000 crore special liquidity scheme for non-banking financial institutions (NBFCs), housing finance firms (HFCs) and microfinance institutions (MFIs) with a view to provide credit support to them and create confidence in the market.
Further, Rs 45,000 crore partial credit guarantee scheme 2.0 was also announced for NBFCs, HFCs, and MFIs with low credit rating to help them extend a loan to individuals and MSMEs.
“Essentially, the goal is to build a self-reliant India that is why the Economic Package is called AatmaNirbhar Bharat Abhiyaan,” Sitharaman said.
Citing the pillars on which India would seek to build an AatmaNirbhar Bharat Abhiyaan, the FM said, “Our focus would be on land, labour, liquidity and law.”
The FM said the announcement about the package for different sectors would be made over several days. That means the Finance Ministry would hold a daily conference now.
“Beginning today, for the next few days, I shall be coming here with the entire team of the Ministry of Finance to detail the Prime Minister’s vision for AatmaNirbhar Bharat laid out by the Prime Minister on Tuesday,” Sitharaman said.
Following measures were announced today:-
1. Rs 3 lakh crore Emergency Working Capital Facility for Businesses, including MSMEs
To provide relief to the business, additional working capital finance of 20 per cent of the outstanding credit as on February 29, 2020, in the form of a term loan at a concessional rate of interest will be provided. This will be available to units with up to Rs 25 crore outstanding and turnover of up to Rs 100 crore whose accounts are standard. The units will not have to provide any guarantee or collateral of their own. The amount will be 100 per cent guaranteed by the Government of India providing a total liquidity of Rs 3.0 lakh crore to more than 45 lakh MSMEs.
2. Rs 20,000 crore subordinate debt for stressed MSMEs
Provision made for Rs 20,000 crore subordinate debt for two lakh MSMEs which are NPA or are stressed. The Government will support them with Rs 4,000 crore to Credit Guarantee Trust for Micro and Small enterprises (CGTMSE). Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15 per cent of his existing stake in the unit subject to a maximum of Rs 75 lakh.
3. Rs 50,000 crores equity infusion through MSME Fund of Funds
The Government will set up a fund of funds with a corpus of Rs 10,000 crore that will provide equity funding support for MSMEs.
New definition of MSME
Definition of MSME will be revised by raising the investment limit. An additional criteria of turnover is also being introduced. The distinction between manufacturing and service sector will also be eliminated.
5. Other measures for MSME
E-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days
6. No global tenders for Government tenders of up to Rs 200 crore.
General Financial Rules (GFR) of the Government will be amended to disallow global tender enquiries in procurement of goods and services of value of less than Rs 200 crore.
7. Employees Provident Fund Support for business and organised workers
The scheme introduced as part of PMGKP under which Government of India contributes 12 per cent of salary each on behalf of both employer and employee to EPF will be extended by another 3 months for salary months of June, July and August 2020.
Total benefits accrued are about Rs 2,500 crore to 72.22 lakh employees.
8. EPF Contribution to be reduced for Employers and Employees for 3 months.
Statutory PF contribution of both employer and employee reduced to 10 per cent each from existing 12 per cent each for all establishments covered by EPFO for next 3 months. This will provide liquidity of about Rs 2,250 crore per month.
9. Rs 30,000 crore Special Liquidity Scheme for NBFC/HFC/MFIs
The Government will launch Rs 30,000 crore Special Liquidity Scheme, liquidity being provided by the RBI. Investment will be made in primary and secondary market transactions in investment grade debt paper of NBFCs, HFCs and MFIs. This will be 100 per cent guaranteed by the Government of India.
10. Rs 45,000 crore partial credit guarantee scheme 2.0 for liabilities of NBFCs/MFIs
Existing Partial Credit Guarantee scheme is being revamped and now will be extended to cover the borrowings of lower rated NBFCs, HFCs and other Micro Finance Institutions (MFIs). The Government of India will provide 20 per cent first loss sovereign guarantee to Public Sector Banks.
11. Rs 90,000 crore liquidity injection for DISCOMs
Power Finance Corporation and Rural Electrification Corporation will infuse liquidity in the DISCOMS to the extent of Rs 90,000 crore in two equal installments.
12. Relief to contractors
All Central agencies like Railways, Ministry of Road Transport and Highways and CPWD will give extension of up to 6 months for completion of contractual obligations, including in respect of EPC and concession agreements
13. Relief to real estate projects
State Governments are being advised to invoke the Force Majeure clause under RERA. The registration and completion date for all registered projects will be extended up to 6 months and may be further extended by another 3 months based on the State’s situation. Various statutory compliances under RERA will also be extended concurrently.
14. Tax relief to business
The pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperatives shall be issued immediately.