Finance Minister Nirmala Sitharaman announced as many as sixteen broad measures today under the Prime Minister’s Atmanirbhar Bharat Abhiyan, a post-pandemic financial package, to help restore economic growth.
The announcements ranged from support to small businesses and non-bank lenders to employers and employees by lowering their share in statutory provident fund.
The announcements are:
1. Collateral-free automatic loans of Rs 3 lakh crore for small businesses that have outstanding loans up to Rs 25 crore and a turnover of Rs 100 crore. These loans—disbursed by banks or non-bank lenders will get 100 percent credit guarantee by the government--will have a 4-year tenor and a moratorium of 12 months.
2. Non-performing and stressed MSMEs to get about Rs 20,000 crore liquidity as subordinate debt. Banks to provide subordinate-debt to promoters equal to 15 percent of their existing stake subject to a cap of Rs 75 lakh.
3. Rs 50,000 crore equity infusion through a fund of funds for MSMEs with a corpus of Rs 10,000 crore. The fund will operate through a mother and a few daughter funds.
4. A new definition for MSMEs has been introduced raising the investment limit and eliminating the distinction between manufacturing and service sectors. Investment of under Rs 1 crore and turnover less than Rs 5 crore will be a micro business; investment of up to Rs 10 crore and turnover up to Rs 50 crore will be categorised as a small business. Investment up to Rs 20 crore and turnover up to Rs 100 crore will be defined as a medium business.
5. Dues by government and public sector undertakings to MSMEs will be released in 45 days. As a replacement to trade fairs and exhibitions, e-market linkage for MSMEs will be promoted.
6. To help MSMEs in increasing their business, general financial rules for procuring goods and services by the government will be amended to disallow global tender in procurement of goods and services of value below Rs 200 crore.
Easy financing and collateral-free loans will help small businesses get rid of the need to submit a pile of documents to banks, and do away with need of a collateral while taking loans, said Virender Nagpal, Delhi President of Laghu Udyog Bharti, a representative body of micro and small industries affiliated with the Rashtriya Swayamsevak Sangh.
No-collateral for loans will make many small businesses, that have land and machinery leased or rented, eligible for such advances, Nagpal told BloombergQuint. The government, like other countries, should also contribute in paying workers’ salary along with provident fund contribution, he said.
7. The earlier scheme in which the government paid 12 percent share each of employers and employees to employee provident fund will be extended for three months beyond May. The cost incurred by the government will be Rs 2,500 crore.
8. Statutory PF contribution of both employer and employee cut to 10 percent each from 12% currently for all establishments covered by EPFO for three months. This will provide liquidity of about Rs 2,250 crore per month.
9. A special liquidity window of Rs 30,000 crore for NBFCs, housing financiers and micro lenders will be launched. Investment will be made in primary and secondary market transactions in investment grade debt paper of these entities, and will be 100 percent guaranteed by the Government of India.
10. Existing partial credit guarantee scheme revamped to cover the borrowings of lower rated NBFCs, HFCs and other micro lenders. The government will provide 20 percent first loss sovereign guarantee to state-run banks.
11. Power Finance Corp. Ltd. and Rural Electrification Corp. Ltd. will infuse liquidity of Rs 90,000 crore in distribution companies in two equal instalments, to help them clear their dues to transmission and generation companies.
A longer-term approach to make the sector sustainable is required, said Sangeeta Reddy, president of industry body FICCI. “We hope more reform measures will be announced with time,” she was quoted as saying in a statement.
12. Relief to contractors: All government-owned agencies like railways, roads ministry, highways and Central Public Works Department will give up to six-month extension to contractors. This will cover completion of work and intermediate milestones they might have. This will also cover construction, goods and services contracts, completion of work, concession period in public private partnerships.
13. Extension of registration and completion date of real estate projects under RERA by six months. State RERAs urged to treat Covid-19 period as Force Majeure.
14. Pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs, and cooperatives shall be issued immediately.
15. Rs 50,000 crore liquidity support through cutting TDS/TCS rates by 25 percent of existing rate. The cut in rates will be effective from tomorrow until March 31, 2021. The reduced rate would be applicable for payment for contract, professional fees, interest, rent, dividend, commission, and brokerage.
16. The due date of all Income Tax returns for Assessment Year 2020-21 will be extended to Nov. 30, 2020, and due date for tax audit will be extended to Oct. 31, 2020.
Ready To Lead
Series of measures announced by the government has given confidence to the industry that government is ready, and will lead from the front in taking India out of the disruption caused by COVID-19, Reddy of FICCI was quoted as saying.
The government has recognised the developmental role of NBFCs/HFCs/MFIs in the economy by announcing special liquidity measures for them, she said. Funds allotted earlier through the targeted long-term repo operations by the Reserve Bank of India weren’t reaching NBFCs and HFCs because of the clear risk aversion on part of banks to lend under current circumstances, Reddy said.
“Hope the perceived credit risk amongst banks with regard to NBFCs and HFCs will come down and the flow of funds will resume to NBFCs including those that have investment grade paper and not just triple A rated instruments,” Reddy said.
Besides measures announced to boost liquidity, equal focus on generating consumption demand and propping up investments is needed, she said in a statement.
Praveen Khandelwal, general secretary of Confederation of All India Traders, in a statement said, the measures will make the “economy stand up even before it goes to death bed”. The measures will help the economy come back on track with infusion of liquidity in the market, he said.
Nothing For Poor
Former Finance Ministers P Chidambaram and Yashwant Sinha criticised Sitharaman for ignoring the migrant labourers in her announcements.
“The package has been a huge disappointment. Not a word about the migrants, farmers, daily wage earner, the poor generally,” Sinha tweeted.
There is nothing for lakhs of poor, hungry and devasted migrant workers who have walked, and many thousands are still walking, back to their home states, Chidambaram was quoted as saying in a statement. “This is a cruel blow dealt to those who toil every day.”
Related Coverage:
A New Definition, Collateral-Free Loans And More For MSMEs
Covid-19 Package: Top Five Income Tax Relaxations
NBFCs Get Liquidity Relief Via Government Loan Guarantees
REC, PFC To Extend Loans To Power Discoms To Pay Dues To Producers
Real Estate Projects Under RERA To Get Six-Month Extension
Employees, Employers’ Contribution To Provident Fund Cut To 10%
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