Examine how will the COVID-19 relief announced by the government for the MSMEs help?
The government has proposed to offer collateral-free loans to MSMEs which will be fully guaranteed by the Centre.
There will be a principal repayment moratorium for 12 months and the interest rate will be capped and there will be no guarantee fee.
All MSMEs with a turnover of up to ₹100 crore and with outstanding credit of up to ₹25 crore will be eligible to borrow up to 20% of their total outstanding credit as on February 29, 2020.
These loans will have a four-year tenure and the scheme will be open until October 31. A total of ₹3-lakh crore has been allocated for this.
This will act as initial seed money for these small enterprises hit by zero cash flow due to the national lockdown.
This loan will help them buy raw materials, pay initial bills and daily wages to employees. In short, this will be like working capital for cranking up their businesses again.
Banks, though flush with funds, have been unwilling to lend to this category of borrowers as they fear that the money will not be repaid.
These small businesses have also pledged all their assets already for other loans and do not have any more assets to pledge.
A partial credit guarantee scheme has been extended to enable promoters of these units to increase their equity.
A total of ₹20,000 crore will be funnelled through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) whereby banks will lend money to promoters which can be infused as equity in their businesses.
About two lakh stressed MSMEs with non-performing assets (NPAs) are projected to benefit from this. The CGTMSE will offer a partial credit guarantee to banks.
There is also a proposal to infuse equity into MSMEs through a Fund of funds system where the government will provide ₹10,000 crore as initial corpus of the Fund.
This will be leveraged to raise ₹50,000 crore which will be used to support MSMEs in desperate need of equity through ‘daughter funds’ of the main Fund of funds.
The aim is to expand size and capacity of the MSMEs with equity and help them get listed on the stock exchanges.
The various State discoms together owe about ₹94,000 crore to their suppliers, the generation and transmission companies.
The government, through Power Finance Corporation-Rural Electrification Corporation, will infuse liquidity of ₹90,000 crore to discoms which will be securitised against their receivables from consumers.
The loans given for the purpose of discharging their dues to generation companies will be against a guarantee from the respective State related to the discom.
This emergency liquidity infusion will avert a crisis where generation and transmission companies stop supplies to discoms that are in default.
In addition to the above, the rate of tax deducted at source (TDS) and tax collected at source (TCS) has been reduced by 25% for a whole range of receipts.
