Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Views/  Opinion | Government has taken care of India’s largest employers, through aid for MSMEs
BackBack

Opinion | Government has taken care of India’s largest employers, through aid for MSMEs

The MSMEs will also get benefits of other measures announced by the FM like receivables from Government agencies being released within 45 days as well as benefits of e-marketplace linkages

Union Finance Minister Nirmala Sitharaman and Minister of State for Finance Anurag Thakur brief the media on Economic package, in New Delhi. (ANI)Premium
Union Finance Minister Nirmala Sitharaman and Minister of State for Finance Anurag Thakur brief the media on Economic package, in New Delhi. (ANI)

The INR 20 trillion stimulus package announced by the Prime Minister last evening, amounting to almost 10% of India’s GDP, brings us at par with economies like the US as far as the size of the stimulus in response to Covid-19 is concerned. In the face of an unprecedented crisis brought upon by the pandemic, this package could lay the foundation for economic revival in India. We must acknowledge that we have also not experienced a crisis of this proportion too and it requires a disproportionate reaction too!

The Finance Minister has outlined the first bouquet of the stimulus package and has promised to come with the subsequent package details over the coming days. The key focus of the announcements have been aimed at protecting employment, providing liquidity and ensuring business for the MSMEs. MSMEs have a large role to play in the Indian economy and are the largest employers. It is also a sector that has experienced maximum pain beginning from the days of demonetization, GST blues and now Covid 19. The sector needed serious support and the government has announced measures that are likely to give the necessary balm to the entrepreneurs in this segment. Out of the 15 measures announced, there were 6 for the MSME sector. The other two measures related to NBFCs/MFIs/HFCs would also indirectly help the MSMEs.

The biggest challenge for the MSMEs has been access to finance and this has been severely exacerbated in the current situation especially for meeting working capital needs. The collateral free automatic loans to the tune of 3 trillion for the MSMEs of up to INR one billion turnover will be a game changer. This deal is also sweetened by the fact that there is a moratorium on principal repayment for one year. The earlier measures announced by RBI towards ensuring credit availability were getting constrained by the financial institutions’ inability to take further risks in the current environment. The banks were finding more succor in parking their idle funds in reverse repos rather than on-lend. However with both the principal and interest guaranteed by the government and no collateral requirements, it should give a real boost to liquidity for the MSMEs.

The FM also announced INR 20k cr of subordinated debt facility for stressed MSMEs through the CGTMSE with partial guarantees being extended to banks. The debt is to be infused by the promoter as equity. This is a very good scheme but the implementation and uptake by the banks as well as MSMEs will be challenging.

The Economic Survey this year had highlighted how the MSMEs in India want to continue as dwarf enterprises and do not want to grow. Given this constraint owing to fear of losing out on benefits enjoyed by the MSMEs, the turnover was managed within the low limits. The change in definition with a much higher turnover limit of up to 100 crore (a new criterion) besides the investment limit being raised to 20 cr for MSMEs will be a game changer in this segment. Their growth will be further supported by the fact that local procurement has been mandated now in government upto 200 crore value for which there cannot be a global tender. The distinction being removed between manufacturing and services sector MSMEs will give a huge boost to the service sector MSMEs.

The MSMEs will also get benefits of other measures announced by the FM like receivables from Government agencies being released within 45 days as well as benefits of e-marketplace linkages. The Employees Provident Fund related measures will also help ease the immediate pain of the MSMEs besides the relaxations in the immediate tax compliance burdens. The micro-entrepreneurs will also benefit from the immediate tax refunds announced for proprietorships and partnership firms.

There was a fear of the fiscal math going awry with deficits running out of control for the government in the current fiscal year with the announcement of the 20 trillion stimulus. However, today’s announcement reveals that the stimulus package has been designed quite well to stagger the costs of these measures over multiple years. We must also take into cognizance that a part of the stimulus will come back as tax revenues to the government. While we will certainly have a much higher deficit during FY20-21 than the budgeted 3.5%, it is likely to be moderated by the design of the 20 trillion stimulus package as we have witnessed today.

The Government has made a bold move. It is a make or break opportunity for the country. The challenge facing the country has made us witness politically difficult labour reforms being also undertaken at the state level. A 10% of GDP stimulus package, if implemented well, can transform the face of India.

*The writer is Chairman, PwC India

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 13 May 2020, 10:54 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App