One of the most significant collateral damages of the Covid-19 pandemic is the failing economy. Due to the nationwide lockdown, millions of businesses and individuals are struggling to make ends meet. 

In his address to the country on 12th May, Prime Minister Mr. Narendra Modi announced a whopping Rs. 20 lakh-crores economic relief package to help the nation get back on its feet. The relief package is named "Atmanirbhar Bharat” and the details of the package were announced by Ms. Nirmala Sitharaman, the Finance Minister, in a series of press conferences.

Here, in this guide, let’s take a look at the various relief measures announced as part of the package, to help MSMEs revive from the economic blows caused by the pandemic. 

Six Relief Measures for MSMEs to Resume Operations post the Lockdowns

The Prime Minister has announced a mega stimulus package of Rs. 20 lakh crores to revive the battered economy. The mega financial package that has been published is nearly 10% of the national GDP.

MSMEs (Micro, Small and Medium Enterprises) is one of the biggest hits due to the nationwide lockdown imposed on 25th March. The relief package promises to boost liquidity, helping MSMEs benefit from various government schemes. 

The central government has announced a total of 15 primary relief measures. Of these fifteen, six relief measures are specially designed to infuse life back into the struggling MSME sector that is majorly impacted by the lockdown. Let’s take a look at these measures one by one. 

Additional Reading: COVID-19 Relief Measures for MSMEs

1. Collateral-free Automatic Loans to MSMEs worth Rs. 3 lakh crores 

As part of the Covid-19 relief stimulus package, the Finance Minister announced Rs. 3 lakh crore worth collateral-free automatic loans and Rs. 20,000 crore loans for MSMEs. These loans are 100% guaranteed and are available for a tenure of four years. The scheme is offered until 21st October 2020.  

These loans will benefit over 45 lakh MSME units across sectors and help them to resume their operations post-lockdown while maintaining their workforce.

2. Revision of the MSME Definition 

A huge concern among MSME owners is whether they will be able to benefit from the stimulus package, especially when they grow in size. To address this concern, the Finance Minister, Nirmala Sitharaman, has revised the current definition of MSMEs.

The government has introduced the following measures:

  • Eliminated the differences between manufacturing and service sectors 

  • Increased investment limit so that MSMEs continue availing various benefits as they grow in size

  • Introduced an additional criterion for MSME qualification based on turnover

  • These amendments will be passed into law soon.  

Let’s compare the revised definition of MSMEs with the previous definition. 

Existing MSME Definition
Criteria: Investment in Machinery, Equipment or Plant
Classification Micro Small Medium
Manufacturing Enterprises Investments up to Rs. 25 lakhs Investments more than Rs. 25 lakhs but less than Rs. 5 crores Investments more than Rs. 5 crores but less than Rs. 10 crores
Service Enterprises Investments up to Rs. 10 lakhs Investments more than Rs. 10 lakhs but less than Rs. 2 crores Investments more than Rs. 2 crores but less than Rs. 5 crores
New MSME Definition
Criteria: Investment in Plant, Machinery or Equipment and Annual Turnover
Classification Micro Small Medium
Manufacturing and Service Enterprises Investments less than Rs. 1 crores and
Annual turnover less than Rs. 5 crores		 Investments between Rs. 1 crore and Rs. 10 crores and
Annual turnover between Rs. 5 crores and Rs. 50 crores		 Investments between Rs. 10 crores and Rs. 20 crores
and
Annual turnover between Rs. 50 crores and Rs. 100 crores

 

This new classification of MSMEs will help several additional units qualify for the various benefits available to MSMEs. Currently, MSMEs account for 50% of the total export turnover in India. With this new classification, the contribution of MSMEs to India's export basket is predicted to increase further.

3. A subordinate debt of Rs. 20,000 crores to MSMEs

Functioning MSMEs that have been declared as NPAs (Non-Performing Assets) or undergoing a financial crisis will be eligible for equity-based support from the government. The support is offered as subordinate debt worth Rs. 20,000 crores to qualifying MSMEs. 

The government will also offer Rs. 4000 crores to CGTMSE (Credit Guarantee Fund Trust for Micro Small Medium Enterprises). The CGTMSE, in turn, will provide partial credit guarantee support to banks, while lending to MSMEs.

4. Rs. 50,000 crore equity infusion via an MSME Fund of Funds

For MSMEs that require hand holding, the central government plans to infuse Rs. 50,000 via equity into MSMEs through a Fund of Funds. The Fund of Funds will be operated as a central Mother fund and a few Daughter funds. The Fund of Funds will be initially set up with a corpus of Rs. 10,000 crores. This fund will be used to give equity-based funding to MSMEs that show growth potential. Additionally, the funding will also encourage eligible MSMEs to list on the national stock exchanges.  

5. Global tenders of up to Rs. 200 crores to be disallowed 

Another major hurdle facing MSMEs is unfair competition from foreign companies with deep pockets. As a result, it becomes impossible for local MSMEs to procure government tenders, due to the increase in competition from international companies.

Addressing this challenge, Ms. Nirmala Sitharaman has announced that the government will not allow global companies to participate in tender bids up to Rs. 200 crores. This move will help the country move in the direction of "self-reliance" by promoting "Make in India" ventures.

6. Speedy Clearing of MSME Dues 

The Finance Minister has announced that the central government and other central PSUs (Public Sector Units) will release all pending payments to MSMEs within 45 days. Ms. Nirmala Sitharaman has also stated that the existing infrastructure of fintech companies will increase transaction-based lending.  

Furthermore, post-Covid-19, it will be difficult for MSMEs to exhibit their products and services at regular trade fairs and industry expos. The government is working on conducting e-marketplaces as an alternative.

EndNote

Relief Measures to Benefit MSMEs

The Covid-19 relief package announced by the Central Government promises various financial incentives for cash-strapped MSMEs. These measures will help MSMEs resume their operations and overcome the financial hurdles caused by the Coronavirus outbreak.