- Government of India has announced “Financial Relief Package for MSMEs” to restart the economic cycle.
- Financial Relief Package acts as initial seed money for MSMEs that have been hit zero cash flow as a result of the national lockdown.
- The loan acts as working capital to once again revive the businesses.
Owing to the Coronavirus (COVID 19) pandemic that wreaked havoc across the globe, the entire world has incurred heavy losses. Currently, India accounts for 1/3rd of the total number COVID 19 cases globally and some of the states have declared district-wise total lockdown to control the ever-increasing pandemic. India witnessed a national lockdown unlike any other for a period of over eight weeks and the economical aftereffects have been disastrous since the entire nation came to a standstill.
Reviving Indian Economy
However, the Government of India has been announcing several stimulus packages across various sectors to restart the economic cycle. One such crucial stimulus package is the Nirmala Seetharaman announced “Financial Relief Package for MSMEs”. This relief package has a timely effort since Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian economy.
On May 12, 2020, the Hon’ble Prime Minister, Narendra Modi announced a financial package of 20 lakh crores to help revive the MSMEs under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
During the prolonging national lockdown, a major chunk of the MSME employees lost their jobs. Although the government issued an order to all the MSMEs to pay the salaries during the lockdown, it is understandable that it was difficult for the corporates to pay their employees without having to function.
A few actions were implemented by the financial relief package for MSMEs, they are:
- A 4-year collateral-free automatic loan with a 1-year moratorium on repayment: – 3 lakh crores authorised.
- Compensation for subordinate debt: – 20,000 crores.
- Equity infusion: – 5,000 crores.
- Disallowance of global tender for projects up to 200 crores, etc.
An additional 3 lakh crores were announced Emergency Credit Line Guarantee Scheme (ECLGS) and the Finance Ministry recently announced that out of INR 24,260.65 crores that have been sanctioned starting from 1st June, INR 12,200.65 crores have been disbursed public sector banks till June 9.
A 100% guarantee coverage for the additional funding of 3 lakh crores is said to be provided by National Credit Guarantee Trustee Company (NCGTC) for all the eligible MSMEs and interested Micro Units Development and Refinance Agency (MUDRA) borrowers through the Guaranteed Emergency Credit Line (GECL) facility.
What Next?
The announced financial relief package acts as initial seed money for MSMEs that have been hit zero cash flow as a result of the national lockdown. This loan can be acquired from the respective or authorized banks, or select non-banking financial companies. The loan amount can be used in the purchase of raw materials, payment of initial bills and daily wages to the employees, etc. In short, the loan acts as working capital to once again revive the businesses.
It is reported that most of MSMEs have already pledged all their assets for other loans. As a result, banks have been unwilling to lend to the zero-cash-flow category of borrowers fearing the inability of repayment and collateral. Having recognised this logjam, the government has agreed to backstop the banks for up to 3 lakh crores and that these loans do not need collateral.
India and the whole world are learning to live with what seems to be the new normal with several reforms across all sectors that are set to change the entire supply chain of all industries. Concerning the supply chain, a major part of the logistics industry is dependent on MSMEs; therefore, even the logistics industry is also said to benefit from the current financial relief package.
At Machine Maker we are on a mission to empower manufacturing in the country. We would like to hear from you, how we can assist you in approaching financial institutions, or union and state governments to simplify and announce packages which can benefit the Indian MSMEs. Happy Reading!