FM’s Announcement on MSMEs: Much-needed says the Industry

Nirmala Sitharaman, Union Minister of Finance and Corporate Affairs of India, will be giving details over the next few days on how the 20 lakh crore economic stimulus package will help industries and individuals. Yesterday, the minister made six announcements pertaining to the MSMEs of the country that have already been or likely to be affected by the ongoing COVID-19 pandemic.

From collateral-free loans to eliminating unfair competition from foreign companies, the government says that the six measures will help MSMEs in India overcome the crisis and also safeguard jobs. The initial reactions from the industry on the announcements made by the Finance Minister are positive. Here are five reactions on yesterday’s announcements:

Anuj Aggarwal, co-Founder and CFO, 247around

I believe the steps are taken in the right direction. Today's announcements are going to help a lot of companies. Positives for us are the reduction in EPF rates for one quarter, TDS rate reduction and pending IT refunds. These all would help in creating additional liquidity in the near term.

Since MSMEs which don't have existing loans or are not stressed/NPAs fail to qualify for the emergency credit line, I believe many small enterprises would not be able to solve their current issues like paying salaries, making vendor payments and buying material, etc. And this would be a disappointment for those. We are still checking the finer details and discussing it with experts.

More direct and immediate benefits could help MSMEs to kickstart the business. Like support in employee wages, income tax benefits, instant loans basis GST profile without any conditions, etc.

Pankit Desai, co-founder and CEO, Sequretek

The fiscal package announced today by the FM is a comprehensive one as it addresses the root of the problem being faced by small and medium companies which is cash flow and working capital issues. The collateral-free loan which is essentially an emergency line of credit will help SMEs infuse fresh capital into the system and resume their operations as we slowly come out of the Covid 19 led lockdown. A long-standing request of the industry to remove the distinction between manufacturing and service business has also been addressed which will further make ease of doing business better. The major announcement for startups like ours is the fund of funds which is Rs 10,000 crore will help new-age companies acquire a much-needed runway.

Anuj Garg, co-founder and CEO, Inscripts (Mumbai based product development company that built video conferencing product 'Say Namaste’)

Prime Minister's call for Aatma Nirbhar Bharat and our Finance Minister's announcement on the Rs 20 lakh crore package has come at a time helping MSMEs survive the Covid-19 wave. With major tax reliefs, a revised MSME definition, similar benefit brackets for manufacturing and service MSMEs, the govt. has created a pathway to ease doing business. Also, Global tenders up to Rs 200 crores being disallowed in Government procurement tenders will give Indian companies and products a big boost to participate and maybe even win lucrative government contracts. We hope the procedure to avail of these services and benefits are less complicated.

Sandip Chhettri, COO, TradeIndia.com

The economic package details shared by the finance minister clearly show the focus is extensively on the MSMEs who have been worst hit due to COVID-19 pandemic. It also shows the government's intent to not only support small businesses during these unprecedented times, but also to provide them with an opportunity to avail these benefits to sustain and grow.

Among them, what comes first is Rs 3 lakh crore collateral-free automatic loans for businesses to meet operational liabilities, buy raw material and restart the business. Without an iota of doubt, this is going to be a great relief for the lockdown-hit MSMEs in every nook and corner country. The 3 lakh crore collateral-free loans with a 12-month moratorium will provide the much-needed boost to the already struggling MSMEs and will fulfil the government's mission to be 'vocal for local'. This will encourage manufacturing and will lessen our reliance on imports.

Then, in order to rescue the stressed MSMEs, the Finance Minister announced a package of Rs 20,000 crore of subordinated debt benefit. In other words, while the first measure is of a general kind, this one is aimed specifically at stressed MSMEs to push their liquidity. On the other hand, in order to help potential and viable MSMEs to expand their capacity, another Fund of Funds amounting to Rs 10,000 crore has been announced. Thus, the support measures address all major issues related to MSME credit in a comprehensive manner.

Meghna Suryakumar, Founder and CEO, Crediwatch

In our view, some of the measures which should be welcomed by small businesses in India are -

(a) Global tenders barred from procurements up to Rs 200 crores - the Government's e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms.

(b) New definition for MSMEs - This has been a long-pending demand from multiple industry associations. While MSMEs have tried to remain within a particular size in order to benefit from the MSME tag in the past, the new definition will promote them into growing further in size and scale.

(c) Collateral-free automatic loans - While this extends the previous loan moratorium benefits, the new terms should benefit as many as 45 lac businesses and help with working capital requirements in the coming days. We believe, setting the threshold for eligibility (Rs 25 cr outstanding and Rs 100 cr turnover) is helpful but it is yet to be seen whether public sector banks will underwrite such unsecured loans at a faster pace on the back of these terms. The real-need of the hour is to move to cash-flow based lending.

(d) Equity & Subordinate Debt infusion - The need for Long term capital will increase three months from now as businesses grapple with uncertain demand and high fixed costs. In our view, the Rs 70,000 crore facility should assist stressed MSMEs in raising funds as the tide turns.

While a technology-driven approach may pave a way to lower recurring costs in the future, the FM's announcements today should ease the stress of a large number of promoters, partnership firms and small private limited entities. Coupled with lower TDS and TCS rates, the cash-in-hand should be prudently used by these MSMEs in the months to come.