Effect of Covid – 19 Relief Package on MSMEs
“Our nation is filled with tremendous energy of the youth. Whatever future we desire of, we must keep the youth at the center. If we do this, we can surge ahead at an unmatchable pace.” These are the famous words of the Prime Minister of India, Narendra Modi, one of the greatest leaders the nation has ever witnessed.
The legend has left the whole nation talking with his recent speech on 12th May 2020, Tuesday when he spoke about Covid-19 and introduced a new special economic package. In his address, he acknowledged the sacrifice of the 1.3 billion countrymen in their fight against Covid-19 and expressed his gratitude. With a clear vision of an ‘Atmanirbhar Bharat’, he worked towards promoting the idea of self-reliance, as clearly suggested by the name itself. He informed that the package will amount to Rs 20 lakh crore which is nearly 10 per cent of India’s GDP. This package is specifically for laborers, farmers, tax payers, cottage industry and MSMEs.
In a country like India with a population size of about 1.3 billion, the Micro, Small and Medium Enterprises (MSME) sector has a vital role in the economy. MSMEs had faced a drastic impact due to the current situation and hence, some schemes for MSMEs were introduced by the PM. Some direct tax measures were announced as a part of the Covid-19 relief package for the benefit of businesses. The package includes Rs 1.7 lakh crore worth of free foodgrains to poor and cash to poor women and elderly, along with the Reserve Bank's liquidity measures and interest rate cuts. Some of the reforms, as announced by the finance minister include –
• A collateral free loan for MSMEs worth Rs 3 lakh crore for 4 years holds the power for almost 45 lakh units to resume business activities and safeguard jobs and can be availed till October 31, 2020. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover are eligible. No MSME will have to pay any collateral/guarantee or any principal component of the loan for the first year for the loans availed under this scheme.
• Rs 20,000 crore of subordinated debt benefit for up to 2 lakh MSMEs will provide a stimulus to the economy amidst the Corona virus outbreak. The government will provide Rs 4,000 crore partial credit guarantee support to banks and promoters of the MSMEs will be given debt by banks in the form of equity infusion.
• Fund for the infusion of Rs 50,000 crore as equity for MSMEs that are performing very well will provide them greater support in capacity expansion.
• The MSME definition had been changed by FM Nirmala Sitharaman to allow small companies to grow. The investment limit had been revised along with the addition of turnover as criteria to categorize MSMEs. The new definition of MSME also eliminated the difference between manufacturing and service sector.
Micro Units: Companies with investments up to Rs 1 crore and turnover below Rs 5 crore.
Small Units: Companies with investments up to Rs 10 crore and turnover below Rs 50 crore.
Medium Units: Companies with investments up to Rs 20 crore and turnover below Rs 100 crore.
• An emergency credit line for MSMEs has been introduced. The government has provided a credit guarantee of Rs 3 lakh crore. It has liberalized the working capital assessment model for MSME borrowers having limits of Rs 5 crore and above. Union Bank of India said it is providing additional credit facilities for its customers under which 10% of the working capital limit will be provided and will be payable in 12 installments at lower rates of interest.
Even with the widespread panic and fear due to the deadly pandemic, PM Modi hasn’t failed in motivating the people of the country and letting them know that they aren’t alone and assuring them that everything will be alright. The recent development in favour of MSMEs is an appreciable move and a hope for a better economic future.
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