An insight into the LARGE MSME relief package- A blessing in disguise

The micro, small and medium enterprises are very crucial to the Indian economy. This particular sector contributes a lot to the GDP and has been facing difficulty since lockdown. To help them strive through these testing times, a relief package was devised to provide help, change definitions, increase incentives, and keep the momentum running.

The government announced a relief package of whopping Rs 20 lakh crores. The COVID- 19 relief package was announced into stages on different days by finance minister Nirmala Sitharaman along with the Minister of State Anurag Thakur, after the Prime minister’s address a week ago.

The package was announced by the finance minister on May 13, which has been approved by the Union Cabinet. An amount of Rs 20,000 crore has been allocated to medium, small and medium enterprises, and farm sectors. A package of Rs 50,000 crore has also been earmarked to street vendors.

The package will benefit 2 lakh MSMEs units and 50 lakh vendors and hawkers like cobblers, street vendors, etc. The FM had said that the Minimum Support Price would be raised by 150%, which has been duly applied as 14 Kharif crops will be given maximum MSP.

Significant highlights of the package include a change of definition due to the increased amount of investment and turnover. Thus, MSMEs will now be defined on the basis of investment along with turnover too.

• MICRO ENTERPRISES- Earlier enterprises with an investment of rupees 25 lakh were known as micro, whereas now the enterprises with investment up to 1 crore will also fall under the same category. The amount of turnout was up to Rs 10 lakh earlier, and now it has been increased to Rs 5 crores.

• SMALL ENTERPRISES-  Earlier enterprises with an investment of Rupees 5 crore were known as small, and now the amount has been increased to 10 crores. The turnout limit has been increased to Rs 2 crore from 50 crores.

• MEDIUM ENTERPRISES–  The FM had announced that the investment amount would be increased from Rs 10 crores to 20 crores and turnover from Rs 5 to 100 crores. The Cabinet increased the investment up to Rs 50 crores and turnout to 250 crores after consulting industry leaders.

After further discussions, the Cabinet has also decided not to include profits from exports to the turnover limit of the micro, small and medium enterprises. A 50,000 crore fund has been approved to decrease the dependence of these enterprises on banks. The government will be using these funds to buy 15% equity in MSMEs to provide them with initial thrust.

One of the major relieves will be an extension of the minimum support price. The government has told that the MSPs of around 14 Kharif crops will be increased, which will push the profit percentage of the farmers to 50-83 %.

This will be the rate of MSP for the following crops:-

1. Paddy- Rs 1868 per quintal

2. Jowar- Rs 2620 per quintal

3. Bajra- Rs 2150 per quintal

4. 50% increase in the rates of ragi, moong, groundnut, soybean, sesame seeds, and cotton.

The deadline for repaying loans has been extended till the month of August.

Other financial reliefs that will be provided with the help of this stimulus are:-

TDS\TCS rate reduction- This is applicable from May 13 to the rest of 2020-21. It will benefit those enterprises which receive payments for the contract, professional fees, interest, rent, dividend, commission, brokerage. Also, in order to provide more funds on the taxpayers’ front, the rates of TDS for non- specified salaried payments made to residents and rates of TCS for non- salaries specified receipts should be reduced by 25% of the current rates.

The government has also offered to grant collateral-free loans, which will be fully guaranteed by the Centre. A duration of 12 months will be given to pay the interest, and no guarantee fee will be levied.

A total of Rs 3 lakh crore has been allocated for the purpose of extending help with loans. MSMEs with a turnover of Rs 100 crore and outstanding loan of up to Rs 25 crore will be eligible to borrow up to 20% of their total outstanding credit as of February 2020. These loans will have a four-year tenure, and the scheme will be open until October 31. This will act as cash flow for the enterprises who will be out of money once the nation unlocks completely. This money will work as working capital for them.

Now that the government will be guaranteeing the loans of the distressed, the banks have been asked to lend infinitive support to the needy as there’s no chance of non-repayment.

A proposal of infusing equity into the MSMEs has also been approved, wherein the government will provide providers 10,000 crores as the initial corpus of the fund. The aim of extending these MSMEs with the help of equity is to get them listed on the stock exchange. These funds will be leveraged to raise up to Rs 50,000 crore, which will be used to help MSMEs in desperate need of equity with the help of ‘daughter fund.’

The street vendors who have been allocated Rs 50,000 crore will also benefit a lot in these troubling times.

All in all, the relief stimulus will help both the sectors to thrive through the losses of lockdown and come up in better positions.