MSMEs, NBFCs get priority in Modi govt’s big stimulus, but it’s heavily credit focused

The measures announced Wednesday as part of the Rs-20 lakh crore package will support both healthy and stressed MSMEs, and address liquidity woes of NBFCs.

File image of Finance Minister Nirmala Sitharaman | Photo: PTI

New Delhi: Taking forward the economic package announcement made by Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman Wednesday announced a slew of measures for micro, small and medium enterprises (MSMEs), non-banking finance companies (NBFCs), the real estate and the organised sectors.

“These measures are to spur growth and make India a self-reliant economy,” Sitharaman said at a press briefing in the national capital, adding that self-reliance does not mean that India is looking to be “isolationist”.

While announcing the steps, she said more such “tranches” are going to come in the next few days.

In his prime-time address Tuesday, PM Modi had said that India’s economic stimulus will be to the tune of Rs 20 lakh crore or around 10 per cent of India’s gross domestic product (GDP). He had pointed out that the figure includes the measures that have been announced by the Reserve Bank of India (RBI) and the government in the past few weeks.

Here are some of the major announcements that Sitharaman made Wednesday.

For MSMEs

Healthy accounts: FM Nirmala Sitharaman announced a Rs-3 lakh crore automatic loan for MSMEs that are not classified as non-performing assets (NPAs). The loan tenor will be of four years with a 12-month moratorium on payment on principal and interest. These loans will be available without any guarantee fees or fresh collateral. The government will provide a 100 per cent credit guarantee on both principal and interest for loans taken till 31 October.

This will benefit 45 lakh units to resume business activity and safeguard jobs, Sitharaman said.

Stressed accounts: The announcement also carried measures to ensure funds to stressed MSME accounts — even those that are classified as NPAs. The government will facilitate Rs 20,000 crore of subordinate debt to these MSMEs through a Rs 4,000-crore contribution to the credit guarantee trust for micro and small enterprises. This will benefit 2 lakh MSMEs.

Growth capital for MSMEs: The government also announced a fund of funds with a corpus of Rs 10,000 crore to fund the growth of MSMEs.

Change in definition: The government announced an upward revision in investment limits to be classified as a micro, small or medium enterprise. In addition, a new turnover criteria has been introduced and the demarcation between services and manufacturing MSMEs has been removed.

According to the new limits, an enterprise will be classified as a micro unit in case of an investment of up to Rs 1 crore, as a small enterprise for an investment up to Rs 10 crore and a medium enterprise for an investment of up to Rs 20 crore.

Timely payment of dues: The government and central public sector enterprises will clear all dues owed to MSMEs in the next 45 days, the finance minister said.

Government procurement of up to Rs 200 crore won’t be global tenders: The government also disallowed global tenders for government procurement up to Rs 200 crore to enable MSMEs to participate in these tenders competitively.

For organised sector employers and employees

The Modi government announced measures to provide liquidity to both employers and employees. The government announced that it will pay the employee provident fund (EPF) contribution of both the employer and employee for another three months until August. This will be applicable for all entities that have up to 100 employees, and 90 per cent of whose employees earn less than 15,000 per month. This will cost the government Rs 2,500 crore.

In addition, it also reduced the statutory contribution that needs to be made by an employer and employee to EPF to 10 per cent from 12 per cent for private sector firms and for government employees. However, government sector employers will continue to contribute 12 per cent. This will provide a liquidity of Rs 6,750 crore to firms and employees, FM Nirmala Sitharaman said.

For NBFCs, HFCs and MFIs

The government announced a Rs-30,000 crore special liquidity window for NBFCs, housing finance companies (HFCs) and micro-finance institutions (MFIs). Purchases by banks of investment grade debt paper of these institutions will be fully guaranteed by the government.

It also announced a Rs-45,000 crore partial credit guarantee scheme for these entities. This will cover borrowings such as bonds and commercial paper of these entities. The guarantee will cover the first 20 per cent of the loss incurred.

For real estate firms

The Modi government will ask states to extend the registration and completion dates of real estate projects suo moto by six months and advise them to treat Covid-19 as a ‘force majeure’ under the Real Estate Regulatory Authority Act.

For power distribution companies

To address the cash flow problems faced by power distribution companies, two state owned firms — Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) — will provide Rs 90,000 crore against receivables of these companies.

For taxpayers

The Modi government has announced the extension of the date of filing of tax returns extending all returns due on 31 July and 31 October until 30 November. It has also extended the dispute resolution scheme ‘Vivad Se Vishwas’ until 31 December. It has also provided a relief from payment of tax deducted at source and tax collected at source by providing a 25 per cent reduction in the applicable rates.

For contractors

All central government agencies like railways and road transport and highways will provide an extension of up to six months to contractors to complete their works. In addition, bank guarantees commensurate to the work done will also be released.

State of economy

The Modi government’s decision to provide a respite to different segments comes at a time when the Indian economy is headed towards a sharp contraction. Economists’ estimates for GDP growth for 2020-21 vary between 0 per cent and -5 per cent.

A national lockdown for nearly two months to curb the spread of Covid-19 pandemic has brought economic activity to a complete halt leading to industries being shut down, loss of jobs and livelihoods and large-scale displacement of migrant labour forcing them to undertake a long journey back to their homes.

To provide relief to the most vulnerable sections of Indian society, the government had announced a Rs-1.7 lakh crore package to provide cash transfers and free foodgrains to people. This accounted for less than 1 per cent of India’s GDP.

In addition, the central bank had announced a series of liquidity boosting steps and other measures, like a three-month loan moratorium for all term loans, in two tranches, pegged at around Rs 6.5-7 lakh crore, equivalent to around 3.2-3.5 per cent of GDP.