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Finance Minister’s Announcement & Happy MSMEs

Finance Minister Nirmala Sitharaman on national television made an announcement regarding the Economic Package of Rs. 3 lakh crore which to be issued to MSME’s as collateral-free loans. This was a part of the Rs 20 lakh crore stimulus package announced by Prime Minister Narendra Modi a day before.

After such an announcement, although Congress leader P Chidambaram said there was nothing for the for the poor, hungry and migrant workers even termed it as a “cruel blow dealt to those who toil every day” but  here is what the industry had to say:

Ashok Rajpal, MD, Ambrane India

“We as an MSME appreciate and welcome the relief package announced by our finance minister. We look forward to the relaxations that were suggested today and are quite hopeful that the relief will definitely help in abating the economic severity of corona pandemic and will act as a stimulus to revive the economy.”

 

 

Naveen Soni, Senior Vice President, Sales & Services, Toyota Kirloskar Motor 

“We appreciate the Government’s efforts to elevate the economy during these difficult times. Now, with the focus shifting towards reopening and strengthening the economy in order to maintain business continuity and sustain jobs, the announcement of the economic package by the honourable Prime Minister comes as a welcome relief. We welcome the message for India to be self-reliant and the need to introduce strong reforms, which will further strengthen the Indian auto industry which is one of the key pillars of economic growth and has the distinction of having a globally competitive and very well developed supply chain with high level of localization. The stimulus package of INR 20 trillion is comparable with the measures taken globally and will definitely boost morale of the stressed sectors and industries, especially the MSMEs. Furthermore, the reclassification of the MSME sector, based on investment and turn over will open up various enterprises to remain as MSMEs, aiding cash flow with collateral free loans. The Government is taking measures to boost the supply side of the economy and we now await their support to boost the demand side where govt spending can boost a faster revival of the economy.

We at Toyota have been strongly supporting the Government’s ‘Make in India’ initiative and have introduced various initiatives over the years through localization of parts and components, empowering local suppliers and promising quality at par with the global standards. We hope, through this new stimulus and the likely reforms, the industry will be able to iron out bottlenecks pertaining to liquidity, supply chain, demand, labour related issues and restore the economy in an effective manner. Given the current situation, we understand that we will have to operate alongside COVID-19 for a prolonged period. However, through this initiative, the Government has inspired us to strengthen our preparedness and confidence to resume business operations while safeguarding the health and safety of all stakeholders. The relief package announced by the Honourable Finance Ministry today will certainly support in helping the MSME sector, NBFCs and also help in building demand in the lockdown 4.0 phase. We look forward to cater to our valued customers during this time of distress and will continue to support the Government in this fight against the COVID-19 epidemic.”

Rajesh Sharma, Managing Director, Capri Global Capital Ltd 

“The first tranche of the economic package announced by Honorable Finance Minister shows that the government is embarking on an ambitious reform agenda to cement the Indian economy in the upcoming time. We appreciate the attention to basics like land, labour, liquidity and law where key structural reforms are needed at the moment to overlay the way for the country to become more self-reliant. The fiscal boost for micro small and medium enterprises sector has come at an opportune time to board the growth as the country is looking to become the global manufacturing powerhouse. Redefining the MSME eligibility criterion and infusion of Rs 50,000 crore equity for standard MSMEs will give an impetus to scale-up their business and draw the much-awaited growth history for the sector. We believe that more funds will reach the common man of the society through steps like liquidity easing, TDS reduction, flexibility in loan disbursals, leading to a pick-up in demand in the coming quarter. A special liquidity scheme of Rs 30,000 Cr will open up additional avenue for raising long term funds at a very competitive cost. Additionally, by providing Partial Credit Guarantee Scheme 2.0 for NBFCs of INR 45,000 Cr will support organisations like us for fresh lending and expand our book portfolio without risk of spike in credit cost for these incremental lending.”

Ms Roma Priya, Founder of Burgeon Law (India’s leading boutique law firm catering to startup investment ecosystem)

“India’s MSMEs sector is the largest across the world after China. MSMEs might be considered as small investment enterprises but their contribution to the Indian economy has always been noteworthy. Our homegrown enterprises have been hit hard by the pandemic and this move by the government lays a path for liquidity infusion, thereby giving them the necessary handholding. Many of our startups are facing a crisis with the liabilities and are waiting to resume activity and engage their workforce, at least for the next quarter.

The NBFCs will get a push due to special liquidity schemes and partial credit guarantee schemes announced by the government.”

Ms. Meghna Suryakumar, Founder and CEO, Crediwatch (A credit intelligence firm provides data insights to lenders and corporates for business entities)

“In our view, some of the measures which should be welcomed by small businesses in India are – 

(a) Global tenders barred from procurements up to Rs 200 crores – the Government’s e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms.

(b) New definition for MSMEs – This has been a long pending demand from multiple industry associations. While MSMEs have tried to remain within a particular size in order to benefit from the MSME tag in the past, the new definition will promote them into growing further in size and scale.

(c) Collateral-free automatic loans – While this extends the previous loan moratorium benefits, the new terms should benefit as many as 45 lac businesses and help with working capital requirements in coming days. We believe, setting the threshold for eligibility (Rs 25 cr outstanding and Rs 100 cr turnover) is helpful but it is yet to be seen whether public sector banks will underwrite such unsecured loans at a faster pace on the back of these terms. The real-need of the hour is to move to cash-flow based lending.

(d) Equity & Subordinate Debt infusion – The need for Long term capital will increase three months from now as businesses grapple with uncertain demand and high fixed costs. In our view, the Rs 70,000 crore facility should assist stressed MSMEs in raising funds as the tide turns.

While a technology-driven approach may pave a way to lower recurring costs in the future, the FM’s announcements today should ease the stress of a large number of promoters, partnership firms and small private limited entities. Coupled with lower TDS and TCS rates, the cash-in-hand should be prudently used by these MSMEs in the months to come.”

Mr. Anuj Aggarwal, Co-Founder and CFO, 247around (An after sale service startup)

“I believe the steps are taken in the right direction. Today’s announcements are going to help a lot of companies. Positives for us are the reduction in EPF rates for one quarter, TDS rate reduction and pending IT refunds. These all would help in creating additional liquidity in the near term.

Since MSMEs which don’t have existing loans or are not stressed/NPAs fail to qualify for the emergency credit line, I believe many small enterprises would not be able to solve their current issues like paying salaries, making vendor payments and buying material etc. And this would be a disappointment for those. We are still checking the finer details and discussing it with experts.

More direct and immediate benefits could help MSMEs to kickstart business. Like support in employee wages, income tax benefits, instant loans basis GST profile without any conditions, etc.”

Mr. Sandip Chhettri, COO, TradeIndia.com (India’s largest online B2B marketplace)

“The economic package details shared by the finance minister clearly shows the focus is extensively on the MSMEs who have been worst hit due to COVID-19 pandemic. It also shows the government’s intent to not only support small businesses during these unprecedented times, but also to provide them with an opportunity to avail these benefits to sustain and grow. Among them what comes first is Rs 3 lakh crore collateral-free automatic loans for businesses to meet operational liabilities, buy raw material and restart business. Without an iota of doubt, this is going to be a great relief for the lockdown-hit MSMEs in every nook and corner country. The 3 lakh crore collateral free loans with a 12-month moratorium will provide the much-needed boost to the already struggling MSMEs and will fulfil the government’s mission to be ‘vocal for local’. This will encourage manufacturing and will lessen our reliance on imports.

Then, in order to rescue the stressed MSMEs, the Finance Minister announced a package of Rs 20,000 crore of subordinated debt benefit. In other words, while the first measure is of general kind, this one is aimed specifically at stressed MSMEs to push their liquidity. On the other hand, in order to help potential and viable MSMEs to expand their capacity, another Fund of Funds amounting to Rs 10,000 crore has been announced. Thus, the support measures addresses all major issues related MSME credit in a comprehensive manner.

Besides, today’s announcement is also remarkable in another way: it addresses a long-standing demand of the MSME sector to change the decade-old definition of the sector. As per this new definition, any firm with investment up Rs 1 crore and turnover under Rs 5 crore will be classified as Micro, up to Rs 10 crore investment and up to Rs 50 crore turnover as Small and Rs 20 crore investment and turnover under Rs 100 crore as Medium. Here again, both investment and turnover aspects are taken care of, with increase in the previous investment limits. Similarly, two other key issues facing the sector are addressed as well. First, complaints are often raised that in the government procurement process MSMEs often face unfair competition from large foreign companies, and therefore now global tenders to be disallowed in government procurement up to Rs 200 crore. Second, delayed payment is a lingering issue for the sector and to get rid of it the government now announced that the Centre and Central Public Sector Enterprises will honour every MSME receivable in the next 45 days. Thus, these two long-pending demands are met in a single stroke.

In addition, the Finance Minister said that E-market linkage will be provided for all MSMEs as a replacement for trade fairs and exhibitions during this period. Some other measures, such as a support of Rs 4,000 crore to CGTMSE; extension by another three months the scheme under which the government pays the EPF contribution of employees and employers, Rs 45,000 crore infusion to NBFC, HFCs and MFIs, etc. are going to immensely benefit the MSME sector indirectly. Overall, I think this economic stimulus will prove to be a game-changer for Indian businesses”.

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