Nirmala Sitharaman, announced the first tranche of 20 lakh crore economic package. The measures, on the whole, will go a long way in lifting the spirits of troubled sectors of MSMEs, real estate and NBFCs.
Economic Package for MSMEs: Revised definitions
The low threshold in MSMEs had created a fear among the companies from reaping the benefits and limiting their growth. So, the government removed the difference between manufacturing and service enterprises and introduced turnover criteria for the same. It has increased the investment limit for Microenterprises from Rs 25 lakh Rs 1 crore. Further, enterprises with an investment limit of less than Rs 10 crore will now be categorised as Small. Also, the investment limit for Medium manufacturing enterprises increased from Rs 10 crore to 20 crores. Turnover limit for Micro, Small and Medium enterprises has been set up to Rs 5 crore, 50 crores, and 100 crores respectively.
Collateral-Free Loan and Global Tenders
The government has disallowed global tenders in government procurement for up to Rs 200 crores. As a result, MSMEs will be able to carry out their functions more confidently as they were unable to match the supply requirements of big companies. Also, the government will provide around 3 lakh crore loans under Collateral free Automatic loan. This will benefit the MSMEs having outstanding loans worth 25 crores and turnover up to 100 crores. Besides, the scheme is 100% central government-guaranteed and will be valid till 31st October 2020. The loan will be given for four years with a 12 month moratorium period. The scheme will help 45 lakh units.
E-market Linkage
The government will make sure to provide e-linkage to all the MSMEs to allow them to function in the absence of Trade fairs, exhibitions and mass participation events of industries. Also, the government of India and CPSEs will clear all the outstanding receivables to MSMEs within the next 45 days.
Subordinate Debt for Stressed MSMEs
Nirmala Sitharaman announced an infusion of Rs 20,000 crores as subordinate debt for stressed MSMEs by the government. Around 2 lakh SMEs will benefit from this. The SMEs with NPA or stressed functioning will be eligible for the same. The government will provide 4000 crores to CGSTME trust for enabling banks to provide funds to the MSMEs.
MSMEs Fund of Fund- Rs 50,000 Crores
To expand the capacities of standard MSMEs, the government will create a fund of funds. The same will infuse Rs 50,000 crore as equity to viable MSMEs (having potential for growth). The fund will encourage MSMEs to get listed.
Economic Package for NBFCs
The government gave a boost to the stressed banking sector of the country. Nirmala Sitharaman announced Rs 45,000 crore liquidity infusion through Partial Credit Guarantee Scheme (PCGS) 2.0. The move will provide stimulus to NBFCs, housing finance companies (HFCs) and microfinance institutions (MFIs). The scheme would help the financial institutions with low credit ratings to extend loans to MSMEs and individuals, which were unable to do so despite RBI’s push. This scheme was a part of budget 2019-20 but had limited coverage as it just focused on covering liabilities. Also, it supported the purchasing of high-rated pooled assets from financially sound NBFCs and HFCs only.
However, the new scheme will cover borrowings, such as the primary issuance of bonds/commercial papers. Also, the first 20 per cent of loss will be borne by the guarantor, which is the government. The scheme would allow investment in AA-rated or below, and unrated papers. Consequently, the NBFCs and HFCs will meet their commitments without having to sell their distressed assets.
MSMEs Special Liquidity Window
Nirmala Sitharaman also announced Rs 30,000 crore special liquidity window for entities facing difficulty in raising money from the market amid the pandemic. The minister noted that the low rated financial institutions were finding it hard to raise money. Hence, the scheme will allow investment in both primary and secondary market in debt papers of financial institutions. The scheme will augment liquidity by providing a guarantee to investment-grade securities.
Economic Package: DISCOMS
The government will provide Rs 90,000 crore for the fund-starved distribution companies (DISCOMS) to bring back the economy on track. This liquidity infusion will help to clear outstanding dues of power DISCOMS. For this, State-owned Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will raise Rs 90,000 crore from the market against receivables of DISCOMS. The fund will be used to pay central public sector power generation companies, transmission companies, independent power producers, and renewable energy generators.
Economic Package: Real Estate
For the real estate sector, Nirmala Sitharaman said the centre advised states to call on the force majeure clause under the Real Estate (Regulation and Development) Act (RERA). Further, she announced that the government extended registration and completion for all registered projects for six months. It may extend it by another three months, depending on the state’s situation.
Economic Package: EPF
Nirmala Sitharaman announced extending the EPF support (12% of employer and 12% of government) for another three months. Now, the government of India will continue to contribute to EPF accounts for June, July, and August 2020. The move will help around 3.67 lakh establishments.
Economic Package: Relief for Contractors
The government has extended contract timelines for all the government contracts of railways, roads, and other departments. The government agencies will partially release bank guarantees to the extent of work completed. This will help the buyers to get their projects delivered within the new timelines.
Economic Package: Tax-Related Measures
The government also reduced TDS and TCS rates by 25% from existing rates till 31st March 2021. In addition, the due date for all income tax return filings has been extended from July 31 to November 30. Also, the government has extended the Tax Audit date to 31st October 2020. Besides, the date of assessments currently set at Sep 30, 2020, and March 31, 2021, has been extended to December 31, 2020, and September 30, 2021, respectively. Also, the ‘Vivaad se Vishwas scheme’ extended till December 31, 2020.
In all, the first tranche of 20 Lakh Crore economic package addressed the needs of the MSMEs and other stressed sectors