April 13, 2024


Delighting finance buffs

Coronavirus: Govt may clear Rs 20,000 crore relief package to help MSMEs

The central government is likely to clear a relief package worth Rs 20,000 crore, which will be divided in two separate funds, to help Micro, Small and Medium Enterprises (MSMEs) restart economic activities.

The Expenditure Finance Committee or EFC, headed by finance minister Nirmala Sitaraman has cleared and forwarded two proposals for govt allocating nearly Rs 20,000 crore for helping MSMEs, which are facing a crisis due to the Covid-19 lockdown.

If all goes well in the next meet the Union Cabinet, the proposal will get a green signal.

Government sources said the MSME ministry, led by Nitin Gadkari, has planned to push new proposals under the two funds — Distressed Asset Fund and ‘Fund of Funds’.

Both will get Rs 10,000 crore when the cabinet gives its nod.

Distressed Asset Fund

A senior ministry official said that a lot of MSMEs are struggling but are “economically viable” and have the potential to scale up. The distressed asset fund will target this segment.

The idea behind the fund is to provide MSMEs with “turnaround capital” to restart businesses efficiently once the lockdown ends.

At present, banks are not ready to provide equity to distressed businesses who need swift equity infusion. The proposal says if 10 per cent of the fund required is invested as seed money, banks can restructure the way forward.

The MSME ministry feels that export-oriented viable entities, which have the potential to manufacture goods and are globally competitive, can be assisted with this fund.

Fund of funds

The second proposal is to utilise a facility which is already available.

The “Fund of Funds” for MSMEs can be provided assistance up to Rs 10,000 crore for entities, which have a capacity to scale up their production both in terms of quality and quantity.

A senior official said: “The idea is to get them doing better, not just turn bigger. MSMEs have a unique opportunity right now to move to the next level as there are question marks over manufacturing in China.”

“These entities can be provided with seed money as well as expertise.”

Officials gave the example of OYO rooms for this model. They said the idea is to bring in private sector efficiency and more foreign funding.

In this category, the identified beneficiaries would get assistance in form of even foreign funding, managed by professionals who can take the business to the next level, and even list them in the stock market.

MSMEs minister Nitin Gadkari recently said, “Industrial units which have a good turnover and pay GST regularly will get benefit from this fund.”

The Big Ticket Package

Industry insiders said measures like setting up of the funds can turn help in the medium and long run, but the MSME sector urgently needs a direct package that addresses the immediate crisis they face.

Small and medium businesses have been struggling to pay salaries to their workforce as production units are shut amid the nationwide lockdown.

“They don’t have the margins to pay their workforce for even a month during lockdown. That’s why the sector has been witnessing large scale lay offs and pay cuts. They need direct immediate help,” said an official.

The proposal, considered by the Prime Minister’s Office (PMO), has come from the NITI Aayog.

The think tank has suggested payroll support to MSMEs to tide over the crisis.

The second suggestion involves Centre and states taking care of fixed costs like minimum electricity charges paid by MSMEs during the lockdown period to ensure that they remain viable and not simply fold up.

The idea is to ensure that MSME operators are left with liquid cash for all important raw materials, which are necessary to restart businesses.

However, there is no clear indication from the government on when such a package may be announced.

Sources confirm that the finance ministry has been studying ground data, analysing impact and assessing resources for finalising the package. However, a final nod will be given by PMO.

Senior government functionaries say that a lot will depend on how soon India is able to flatten the coronavirus curve. If there is a spurt in case, the govt may not go a package as the lockdown and may get extended again.

A senior advisor with the MSME ministry said, “The Covid-19 crisis is forcing a paradigm shift in the MSMEs sector. The focus is now going to be on helping existing ones survive and make those which survive better instead of doing these two and encourage setting of more new ones.”

The development comes at a time when many countries around the globe have already entered a period of recession. India, too, has suffered sharply due to the lockdown, which has now been extended to May 3.

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