Atmanirbhar Bharat package: Loans, subordinate debt good but MSMEs seek cash in hand

A slew of relief measures for MSMEs including emergency loans, subordinate debt and new funding avenues was announced. However, these players seek more.

May 13, 2020 / 08:05 PM IST

As part of the Atmanirbhar Bharat package, Finance Minister Nirmala Sitharaman on May 13 announced measures to help support and revive the micro, small and medium enterprises (MSMEs) battered by the COVID-19 outbreak. However, stakeholders in the MSME ecosystem feel a lot more needs to be done.

The measures taken by the Finance Ministry include Rs 3 lakh crore of collateral-free automatic loans, Rs 20,000 crore subordinated debt for stressed MSMEs, Rs 50,000 equity infusion through fund of funds, MSME definition change, global tender restrictions as well as e-market linkages.

MSMEs have been facing stress ever since the country entered a lockdown due to COVID-19. Businesses were shut, salaries delayed and cash crunch was a reality.

While MSME players said that the measures by the government would help to some extent, the real need of the hour is to get more liquidity infusion in terms of direct cash.

Track this blog for highlights from the FM's press meet


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Samir Kaji, founder, Selec Controls, said there is nothing has brings additional cash in hand. He said that what was expected was alleviation and lowering of interest cost, so that the costs go down.

"The measures don't give instant relief. It would have been great if companies could get  compensation for salary payment. The lower contribution for PF, is just 2 percent," he said.

Kaji added that these are good reforms since SMEs will need more finance. However, as far as the who constitutes an MSME is concerned, Kaji explained that the definition of SME needed to be only on turnover and at least up to Rs 100 crore was expected for small scale and Rs 500 crore for medium enterprises.

In her address, Sitharaman had announced the inclusion of turnover as a criteria for classification as MSME. Earlier, MSMEs were classified only on the basis of the investment made and there was a distinction between manufacturing and service enterprises.

Now both manufacturing and servicing enterprises will be under one segment. Firms with less than Rs 1 crore investment and below Rs 5 crore turnover will be called micro entities while those with below Rs 10 crore investment and less than Rs 50 crore turnover will be small entities. Medium entities will be those with less than Rs 20 crore investment and turnover below Rs 100 crore.

Deepak Jain, President of Automotive Components Manufacturing Association said the change in definition of MSMEs has been a long-standing recommendation of ACMA.

“With this new classification, a significant number of ACMA members stand to benefit as the sector is dominated by smaller enterprises. That apart, infusion of liquidity through the collateral-free automatic loans and the subordinate debt scheme, will ease the severe challenge of working capital being faced by the sector,” added Jain.

Currently, there are about 350 companies defined as MSMEs in the automobile sector.

But is this enough?

MSMEs facing severe cash crunch were hopeful of some relief on the employee state insurance (ESIC) front. ESIC is a self-financing social security scheme mandatory for individuals earning upto Rs 21,000 per month.

It was anticipated that the April to June wages of MSME sector employees would be made out of the Rs 31,000 crore funds of the Employee State Insurance Corporation. However, no such announcement was made by the finance minister.

“We have been doing zero business since mid-March 2020. The basic need was to release ESIC funds for payment of employee salaries. Without that, how will us small entities afford to pay staff? We cannot be taking bank loans for every activity,” said the head of a Maharashtra based SME that supplies raw material to electric goods companies for wire manufacturing.

MSMEs had outlined a list of demand through their industry associations to the Prime Minister’s Office and finance ministry. A majority of the demands had included slashing of the goods and services tax (GST), PF contribution by government for three months as well as loan moratoriums.

“The MSME package has been announced. But now it is dependent on the banks/NBFCs on how, when and whom would the relief be offered to. We also need a flat 5 percent flat rate for SMEs doing business with the government,” said Chandrakant Salunkhe, founder and president of SME Chamber of India and CMD of Macro Group of Companies.

As far as the emergency credit line for MSMEs of 20 percent of entire outstanding credit is concerned, the finance ministry said that borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover are eligible.

However, MSMEs are already fearing that banks and non-banking financial companies would be very choosy on who gets the amount.

“It is not a mandatory facility being provided. This is just an additional option and banks/NBFCs would reject multiple proposals,” said the owner of an education training company in Delhi. This official added that his company has been struggling to get a Rs 1 crore loan passed since March 2020 because business is down to zero.

On the taxation front as well, MSMEs are hoping that GST filing is further extended. The March-May GST returns filing date has been extended till June 30. However, MSMEs are of the view that this deadline is too close considering that no business revival has occurred yet.

India is estimated to have 64 million MSMEs according to the 2018-19 Annual Report of the MSME Ministry. The annual report also said that MSME contributed 28.9 percent of the country's gross domestic product in FY17.

(With additional inputs from Prince Mathews Thomas and Swaraj Baggonkar)

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M Saraswathy
first published: May 13, 2020 08:02 pm

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