The coronavirus outbreak has ravaged the fortunes of companies worldwide, forcing governments to announce measures to mitigate the impact.
Already suffering due to a liquidity crunch, the micro, small and medium enterprises (MSMEs) may be handed a lifeline with the government almostclose to finalising a stimulus package for the beleaguered sector, according to a report in Hindustan Times.
The stimulus package, being reviewed by the Prime Minister’s Office (PMO) may include up to 3 percent additional interest subsidies. Once the fiscal and structural changes get the PMO's nod, the Cabinet will review it.
The officials in the know of the developments said the Centre has already collated funds, totalling Rs 8,000 crore, from various financial institutes so that the interest rates for MSMEs can be cut down by another two to three percent. Aside from the pre-existing two percent interest subvention, the rate of interest for MSMEs may be slashed to around six to seven percent.
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Notably, MSMEs are considered a priority sector as they account for more than 28 percent of the country’s GDP, and 45 percent of the manufacturing output and above 40 percent of exports. Around 110 million people work in the sector, making it the second-largest employment generator after the agricultural sector.
Once this stimulus package is effective, it will help resolve the liquidity concerns of MSMEs as cooperative banks, scheduled commercial banks, and non-banking financial companies may be told to prioritise lending to this sector. Moreover, both private and large state-run companies will be told to expedite the process of clearing dues to MSMEs that total to about Rs 6 lakh crore. The government may set a three-month deadline for large firms to pay off their dues without facing penalties.
Besides these measures, looking at long-term strengthening of the sector, the Centre is mulling over changing the basis of defining MSMEs from capacity to turnover. For instance, as per the current classification, a unit that has up to Rs 25 lakh investment is considered a micro-enterprise. However, as per the proposal, a micro-enterprise will be a unit which has an annual turnover up to Rs 5 crore.
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