The government’s stimulus package announced last year has proved to be inadequate in helping economic revival, a Parliamentary Standing Committee on Industry said in a report tabled in the Rajya Sabha.
The panel said the government should come out with a larger package to help the economy, including small businesses, recover from the pandemic-induced stress.
“The Committee observes that the stimulus package announced by the government for the economic revival from the pandemic-hit economy has been found to be inadequate as the measures adopted were more of loan offering and long-term measures instead of improving the cashflow to generate demand as immediate relief,” the panel said.
The panel recommended that the government should immediately prepare a larger economic package aimed at bolstering demand, investments, exports and employment generation to help the economy, including micro, small and medium enterprises, to recover from the pandemic fallout.
To mitigate the stress caused by the COVID-19 pandemic, the government announced a Rs 3 lakh crore Emergency Credit Line Guarantee Scheme for MSMEs. This was part of the Rs 20 lakh crore stimulus (Aatmanirbhar Bharat Abhiyan) package announced last year. The amount to be guaranteed was increased to Rs 4.5 lakh crore last month.
The scheme provides 100 percent guarantees to banks, nonbanking financial institutions and lending institutions to enable them to advance loans to businesses that have suffered due to the pandemic and are struggling to meet working capital requirements. MSMEs had a one-year moratorium period and a four-year repayment period, which some said was not enough.
“I have never appreciated the ECLGS because the scheme offers loans to businesses which are already struggling due to COVID-19,” a senior functionary of a New Delhi-based MSME association said, asking not to be identified. “Plus, it offers only a one-year moratorium. No business in my knowledge starts making profits in just one year. Then, how could an MSME be expected to repay it? How can MSMEs that are unable to repay their loans today be expected to repay more after a few years?”
The scheme would have been good if it was considered from a long-term perspective, but right now MSMEs need working capital to resume functioning and it does not offer that, the person said.
However, loans of Rs 2.73 lakh crore, which account for over 60 percent of the Rs 4.5 lakh crore scheme, were sanctioned as of July 2, and an amount of Rs 2.14 lakh crore has been disbursed.
Loan guarantees have been issued to about 10.9 million small businesses, MSME minister Narayan Rane informed the Rajya Sabha during the ongoing monsoon session of Parliament.
The committee noted that as the first wave receded, the second wave of the pandemic had even more vigorously ripped the economy, especially MSMEs. It said the second wave exposed the vulnerabilities of MSMEs, which faced issues such as delayed payments, low financial resilience and raw material scarcity.
The panel recommended carrying out a detailed study on the losses suffered by MSMEs so as to chalk out an effective revival plan for them.
In February, then MSME minister Nitin Gadkari had said in a written response to a question in parliament that there was no government data on the number of small businesses that had shut down permanently or temporarily due to the COVID-19 pandemic.
The committee observed that several central ministries, government departments and central public sector enterprises had not cleared their MSME dues within 45 days. The panel said the 1 percent penalty clause on such delays should be used to encourage timely payments.
Finance minister Nirmala Sitharaman said on July 26 that the Centre will clear all dues to MSMEs within 45 days. Delayed payments to the tune of Rs 22,315.95 crore to small businesses were yet to settled as of July 27.