The Finance ministry on 13th May 2020 made few announcements to MSME sectors which according to government will curb the negative impact due to Novel Corona virus on small industries.
Here are few announcements lets discuss them one by one. We will also discuss our opinion and effect on MSMEs –
- First of all Finmin changed the definition of MSMEs and revised to allow MSMEs to aim for expansion and not lose benefits. Now manufacturing and service industries are combined and composite criteria has been announced on the basis of investment amount and turnover. Now the Maximum limit has been identified as 20Cr as Investment and 100 Cr as Turnover.
In our opinion this is a welcome step and will extend benefits to many growing industries.
- MSME sector has been most effected due to Covid-19, Startup and MSME always feel cash crunch since due to very low sale or no sale MSME chain of working capital has been broke off Government has announced Collateral free loan of Rs 3 lakh crores for MSMEs. This will benefit 45 lakh units so that they can resume work and save jobs.
In our opinion MSME already have loan burden of more than 10 Lakh crores and many of them have been marked and substandard or nonperforming assets due to this. Loan criteria however relaxed but still if government can give some direct benefit to MSMEs it could have resolved immediate funds requirements. Further loan burden can collapse industries.
- INR 50,000 crores equity infusion through Mother fund-Daughter fund for MSMES that are viable but need handholding. A fund of funds with corpus of Rs 10,000 crore will be set up to help these units expand capacity and help them list on Markets if they choose.This step to help MSMEs through equity Investment can benefit MSME but still the criteria for selecting such units is still to be announced. Again this is a long term allocation and not immediate relief.
- Indian MSME will now be more powerful and now government has relaxed the criteria for Global tendering. Global tenders will be disallowed up to Rs 200 crore for government contracts. This simply means that now for Government contracts upto 200 Cr. will be provided only to Indian MSME Units and they can apply and get the contract. Global sourcing upto 200cr is now prohibited.
- To eliminate cash crunch the Government has announced that any trade payment which is due to MSME from Government and PSU end will be released immediately or maximum within 45 days. Instruction has been issued to clear all the receivables in next 45 days.
In our opinion the reforms announced by Government are a welcome step but it does not compensate the immediate requirements. MSME Working capital cycle has been broken off completely. Already debt ridden and stressed MSMEs have no immediate relief due to these announcements .