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Mission MSME rescue: Key announcements made amid COVID-19

May 29, 2020

The Central Government on May 13, 2020 has introduced some significant relief measures for industries covered under the MSME (Micro Small and Medium Enterprises) sector. With a view to revive the MSME industries from the impact of COVID 19 lockdown, the Central government has brought into effect the required amendments. The said amendments were introduced by the Finance Minister, Ms. Nirmala Sitaraman, in a press conference held on May 13, 2020[1].

MSME relief announcements- made by Finance Minister

  1. Revised definition of MSME – The recommendation for a revision in MSME definition was long sought even before the COVID 19 crisis. The revised definition would broaden the purview of MSME coverage to allow more entities to avail the benefits available under the said scheme.. It would also remove the classification of manufacturing and service, and a composite criteria for both industries would be included.
Existing MSME Classification
Criteria: Investment in Plant & Machinery
Classification Micro Small Medium
Manufacturing Enterprises Investment<INR 25 lac Investment<INR 5 cr. Investment<INR 10 cr.
Service Enterprises Investment<INR 10 lac Investment<INR 2 cr. Investment<INR 5cr.

 

Revised MSME Classification
Composite Criteria: Investment and Annual Turnover
Classification Micro Small Medium
Manufacturing and Service Enterprises Investment<INR 1 Cr.

and

Turnover<INR 5 Cr.

Investment<INR 10 Cr.

and

Turnover<INR 50 Cr.

Investment<INR 20 Cr.

and

Turnover<INR 100 Cr.

 

  1. INR 3 lakh crore, collateral free automatic loans – As the MSME businesses have been badly hit by COVID 19 lockdown, it is inherent that these businesses would need additional financial support in order to procure resources and meet operational liabilities. With a view to facilitate this financial support, the government has introduced this scheme of loan. The loan would be granted without any collateral and the guarantee cover for the same would be provided by the government. Based on this relief it is now expected that almost 45 lakh MSME business units can recommence their business operations and can also maintain their employees.
  2. INR 20,000 crore subordinate debt for stressed MSMEs – The government has introduced the above relief package for such MSMEs which are presently stressed or have become Non-performing Asset. Through subordinate debts, like the collateral free loans mentioned above, the promoters of MSMEs will be provided debt by the banks, which shall be induced as equity capital of the MSME unit. It is expected that more than 2 lakh MSME will benefit from the facilitation of subordinate debt.
  3. INR 50,000 crore of equity infusion for MSMEs through fund of funds scheme – Through this scheme, the government has channelized establishment of a comprehensive fund, in respect of viable MSMEs. This comprehensive scheme will be set up with an amount of INR 10,000 crore which will be operated through other smaller funds at different levels. The leverage of INR 50,000 crore will be carried out at through these funds at lower levels. This scheme will help to provide equity funding for those MSMEs which possess growth potential and can be sustainable.
  4. Global tenders to be disallowed – Encompassing the step of Self-Reliant India as introduced by the Prime Minister, the government has disallowed foreign tenders up to INR 200 crores. This will assist the MSMEs to grow domestically and will protect them from unfair competition brought by foreign companies.
  5. E-market linkage for MSMEs – Various MSMEs used to carry out their businesses through showcasing at trade fairs and exhibitions. However, as trade fairs or exhibitions cannot be operational now, the government has introduced e-market linkage for MSMEs as a replacement for these trade fairs and exhibitions.
  6. INR 2500 crore Employees’ Provident Fund (hereinafter referred to as ‘EPF’) support for Business and workers – The 12% contribution to be made by both employer and employee was facilitated by the government into EPF accounts of eligible transactions. The said relief was earlier provided for the months of March, April and May, 2020. This has now been extended up to August, 2020. Provident Fund is facilitated to the employees as a mandatory social security benefit and with the above relief, employers can utilize the funds allotted for the said purpose in business development.
  7. Reduction in Provident Fund (hereinafter referred to as ‘PF’) – Statutory PF contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months. This will boost up the production for establishments without employers having to worry about the mandatory compliances. It would also reduce the burden for employers and would help them to recover after being hit by the COVID 19 crisis.
  8. Special liquidity scheme – INR 30,000 crores special liquidity scheme for NBFCs (Non-Banking Financial Company) /HFC’s (Housing Finance Company) /MFI’s (Micro Finance Institutions). Under this scheme investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs. A primary market transaction is a transaction where investors buy shares directly issued by the company, whereas a secondary market transaction is a transaction where investors trade share already issued by the company over stock exchange. This scheme will be 100% guaranteed by the Government of India.
  9. Partial Credit Guarantee Scheme 2.0 – INR 45,000 crore Partial Credit Guarantee Scheme 2.0 introduced for NBFCs to facilitate fresh lending to MSMEs and eligible lenders.
  10. Relief to contractors – Extension granted to contractors for completion of work and service contracts, milestones, construction works, etc.
  11. Other tax reliefs – In order to provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (hereinafter referred to as ‘TDS’) for non-salaried specified payments made to residents and rates of Tax Collection at Source (hereinafter referred to as ‘TCS’) for the specified receipts is to be reduced by 25% of the existing rates. The said relief shall be applicable for payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. The reduction will remain effective till end of financial year 2020 i.e. till March 31, 2020.

The above points will provide the much needed financial support for the MSME sector as well as the other sectors and will help them revive from the crisis after the situation returns to normalcy. However, the above mentioned reliefs are yet to be enacted through introduction of required legislations, which will aim at reducing the burden for the MSME enterprises after being adversely affected by the COVID 19 crisis. At this point of time, it can only be expected that the said laws are enforced as soon as possible, addressing the need of the hour.

[1] http://164.100.117.97/WriteReadData/userfiles/Aatmanirbhar%20Presentation%20Part-1%20Business%20including%20MSMEs%2013-5-2020.pdf

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