Atmanirbhar Bharat Package
(Announcement Part 1 – 13th May 2020)
Honourable Finance Minister of India Nirmala Sitharaman has announced key benefits measures for MSMEs in India with an objective of come stronger in the post COVID19 situation. This is the 1st set of the announcement under Atmanirbhar Bharat Abhiyan.
The fiscal stimulus announced covers many aspects such as financial support to MSMEs, NBFCs and employees of the manufacturing units via EPFO.
The announcement also covers relief to Power Distribution companies, contractors of government agencies, and relief for RERA registered projects.
Let’s understand the measures taken for MSMEs.
1. Rs 3 lakh crores Collateral-free Automatic Loans for Businesses (including SMEs)
Many businesses have increased operational liabilities during the COVID19 period. On one side the revenue has shrunk to as good as nil and on another side the fixed and operational costs are constant.
The announcement of collateral-free automatic loans will immensely benefit the existing borrowers. This financial support will also give the much-needed fuel to restart the business operations.
Following are the key highlights of the benefit:
- Eligible borrowers: Existing borrowers companies having outstanding loans of up to Rs. 25 crores outstanding and turnover up to Rs.100 crore. The borrower should have a “Standard” rating as per the bank’s policies. It means the repayment track record of the existing loan should be proper.
- Credit Line Amount: 20% of entire outstanding credit as on 29.2.2020
- Collateral: No additional collateral required
- Loan Tenure: 4 years
- Moratorium period: 12 months on principal payment
- Rate of Interest: Cap on the interest rate. (It will be most likely to be similar to the existing rate of interest on current loans)
- Last date of avail the benefit: 31st October 2020
To increase the confidence Government has given 100% credit guarantee cover to Banks and NBFCs on principal and interest. This initiative is likely to be benefited to over 45 lakh units.
If you are already availing any credit facility with your bank and if you are looking at top-up facilities, this is the right time to get in touch with your bank and request for the increase in credit lines.
2. Rs. 20,000 crores Subordinate Debt for Stressed MSMEs
The first benefit is targetted towards the loans which are standard having the timely repayments in the past. The stimulus package has rightly considered credit facilities even for the borrowers where there were few delays or the loans were classified as NPAs.
To meet liquidity requirements for such companies, the Government of India will facilitate the provision of Rs. 20,000 cr as subordinate debt
This facility is likely to benefit 2 lakh MSMEs.
The government will provide support of Rs. 4,000 Cr. to CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). CGTMSE will provide partial Credit Guarantee support to Banks.
The Promoters of the MSME will be given debt by banks, which will then be infused by the promoter as equity in the Unit. You can check the eligibility criteria for CGTMSE from this link.
3. Rs 50,000 cr. Equity infusion for MSMEs through Fund of Funds
The government has observed the inability of raising debt by MSMEs beyond a particular level. The MSMEs which are having growth potential and viability will get the support of equity infusion from this corpus.
The method of working of this fund is not yet completely clear and more clarity is expected in the near future on the terms and conditions of availing of these funds. In the recent budget announcement, the honourable finance minister had announced support to start-ups via equity infusion but the actual work on the ground could not be seen.
The government is expected to use Fund of Funds which will be operated through a Mother Fund and few daughter funds. Fund of Funds with Corpus of Rs 10,000 crores will be set up.
Fund structure will help leverage Rs 50,000 cr of funds at daughter funds level.
As a next step, these MSMEs will be encouraged to get listed on the main board of Stock Exchanges.
4. New Definition of MSMEs
The demand for revision in the definition of MSME was pending for long. The low threshold in MSME definition has created a fear among MSMEs of graduating out of the benefits and hence killing the urge to grow.
The investment limit has been revised upwards and additional criteria of turnover also being introduced. Most importantly, the distinction between the manufacturing and service sector to be eliminated.
Following is the existing and revised Definition of MSMEs
|Earlier MSME Classification|
|Criteria: Investment in Plant & Machinery or Equipment|
|Mfg. Enterprises||Investment<Rs. 25 lac||Investment<Rs. 5 cr.||Investment <Rs. 10 cr.|
|Services Enterprise||Investment<Rs. 10 lac||Investment< Rs. 2 cr.||Investment<Rs. 5 cr.|
Revised MSME Classification
|Composite Criteria: Investment & Annual Turnover|
|Manufacturing & Services||Investment< Rs. 1 cr. and
Turnover < Rs.5 cr.
|Investment< Rs. 10 cr. and
Turnover < Rs.50 cr.
|Investment< Rs. 20 cr. and
Turnover < Rs.100 cr.
To avail the benefits of being MSME, the business has to get registered. The registration process is a aadhar based process and can be done free of cost. Businesses can register as MSME from Udyog Aadhar website.
5. Global tenders to be disallowed up to Rs. 200 crores
Apart from liquidity enhancement measures, the government has taken a step towards increasing the market for MSME in India. Indian MSMEs and other companies have often faced unfair competition from foreign companies. Therefore, Global tenders will be disallowed in Government procurement tenders up to Rs.200 crores
This will be a step towards Self-Reliant India and support Make in India. This will also help MSMEs to increase their business.
General Financial Rules (GFR) of the Government will be amended to disallow global tender inquiries in the procurement of Goods and Services of the value of less than Rs 200 crores.
6. Other interventions for MSMEs
Post-COVID, trade fairs, and exhibitions will be difficult so e-market linkage will be provided for MSMEs so that they will be able to find their market. E-market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.
- Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace.
- The government has been continuously monitoring settlement of dues to MSME vendors from Government and Central Public Sector Undertakings.
- MSME receivables from Government and CPSEs (Central Public Sector Enterprises) to be released in 45 days. Please check master list of Central Public Sector Enterprises.
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