MSME Releif package, Some good moves

MSME Relief Package: Some good first moves

Collateral Free Automatic Loan for MSME. Those MSME having Loan upto Rs.25cr and turnover up to Rs.100cr will be covered in this scheme. 100% Central Govt Guaranteed. Will help 40 Lac Units. This loan will be for 4 Yrs with a Moratorium of 12 Months. 45 Lakh MSME Units will get benefit from It. Total 3 Lakh Cr Loan will be Given under this scheme. This covers only the Emergency Credit Line. 

And this FM clarified is only for the standard assets. This means that those who became eligible under the earlier restructuring scheme of January 7, 2019 will get covered. If these units stopped functioning due to Covid-19 and were put on moratorium of 3 months and additional credit support under Covid will alone be eligible. This means that existing collaterals will continue and existing CGTMSE wherever extended might also continue. But the additional credit facility post Covid operations will get covered by this new guarantee mechanism and this is in itself unique. Nowhere it was mentioned that entire outstanding up to the thresholds will be covered under the new guarantee scheme. Hence this should be taken for whatever is worth. This will however kick up appetite for lending to MSMEs by banks.

Rs. 20000Cr will be infused as Subordinate Debt for stressed MSME. 2 Lakh SME will get benefit from this. Govt will provide Rs.4000 cr to CGTSME Trust. Sub-ordinate debt, by definition, stands higher in risk and lower than the principal loan in terms of claims by the Bank. For Rs.20000cr infusion CGTMSE is being given Rs.4000cr. It would have been a fairer had she extended the 

Rs.3lakh guarantee cover to these set of borrowers too. Offering this high risk product to already declared NPAs could trigger lot of problems in operationalising this product.

Fund of Fund to be created. Rs 50000cr will be infused as equity to standard MSME that will help them to expand their capacities. This is not going to be immediate because the Fund giver will evaluate the IRR as usual before extending such equity.

Definition of MSME changed. But for this definition change can take effect only when the MSME Development Act 2006 changes. It is hoped that Government will bring about suitable ordinance to give effect to this change.

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Government has earlier mooted change to replace investment criterion with turnover and amendment was mooted in the Parliament. Parliamentary Committee was also appointed. Again, a separate Committee was also set up to examine this aspect. While the Report of the Committee is yet to be out, the FM has announced this change. But this change is good for future as several economies in the globe adopted dual criteria – either investment and turnover or employment and turnover under various thresholds. This is a big correction that will benefit the sector grow vertically as investment criterion has only spawned the numbers horizontally and distorted the incentives and global competitiveness.

Tenders up to Rs.200Cr relating to Govt procurement will not be Global Tenders any more. MSMEs will get benefit out of this direction. E-Market Linkage will be provided to all MSMEs due to less possibility of trade fairs and industrial exhibitions in different countries post pandemic. Another advantage is that all outstanding bills of Union Govt and Central PSUs will be cleared by them within 45 Days.

The views expressed are personal. He is the author of the Story of Indian MSMEs.