Finance Minister Nirmala Sitharaman on Wednesday shared an extensive list of relief measures, which will help support several distressed segments of the Indian economy.
In the first leg of announcements related to the Rs 20,000 lakh economic stimulus package, the government prioritised on Micro, Small and Medium-scale Enterprises (MSMEs), besides addressing liquidity issues faced by financing companies such as NBFCs, HFCs and MFIs.
Additional support has also been announced for various other categories including support for labourers, contractors, contractual employees, the working class and the broader industry.
The government has announced collateral-free automatic loans for small businesses and MSMEs, who have been hit hardest by the prolonged lockdown in the wake of the Covid-19 outbreak. A total of six broad measures have been announced for MSMEs.
i) Citing issues MSMEs are facing, the finance minister announced an emergency credit line for small businesses and MSMEs from banks and NBFCs up to 20 per cent of outstanding credit as on February 29, 2020.
These businesses or MSMEs with up to Rs 25 crore outstanding debt or with Rs 100 crore turnover as of February 29, 2020 can avail this emergency credit from banks and NBFCs.
These collateral-free loans will have a tenure of fours years with a moratorium of 12 months towards principal payment. Interest will be capped on these loans, but details were not specified by Nirmala Sitharaman.
It is worth mentioning that banks and NBFCs will get 100 per cent credit cover on principal and interest. This means in case of default, banks and NBFCs not need to worry about bad loans shooting up.
The scheme can be availed by businesses and MSMEs till October 31, 2020. Sitharaman said this will help 45 lakh units in resuming business operations and safeguard jobs.
ii) For stressed MSMEs, the government plans to facilitate provision of Rs 20,000 crore as subordinate debt. Sitharaman said two lakh stressed MSMEs or those with high NPA volumed are likely to benefit from this debt provisioning.
The government will deposit Rs 4,000 crore under the Credit Guarantee Fund Trust For Micro And Small Enterprises (CGTMSE), which will then provide partial credit guarantee support to banks.
“Promoters of the MSME will be given debt by banks, which will then be infused by promoter as equity in the Unit.”
iii) For MSMEs which are still operating viably, Sitharaman said the government has announced equity infusion of Rs 50,000 crore through “Fund of Funds”.
“MSMEs face severe shortage of equity. The Fund of Funds with corpus of Rs 10,000 crores will be set up. It will provide equity funding for MSMEs with growth potential and viability,” said Sitharaman.
It may be noted that the this will help expand MSME size as well as capacity and even encourage them to get listed on main board of stock exchanges.
iv) The definition of MSMEs was also altered during the announcement. The investment limit of MSMEs and turnover criteria has also been introduced to provide more confidence to MSMEs and help them expand. Click here (https://www.indiatoday.in/business/story/nirmala-sitharaman-new-definition-of-msmes-1677605-2020-05-13) to know more.
See the chart below to find out about the fresh classifications:
v) Tenders for government procurement will also no longer be available for global companies in projects up to Rs 200 crore. This is another measure announced by the finance minister to support local companies as part of ‘Aatmanirbhar Bharat Abhiyan’ or self-reliant India.
Sitharaman stressed on the fact that this will help MSMEs and local companies grow as they will not face unfair competition from international companies.
vi) Apart from that, Sitharaman announced about e-market linkage for MSMEs will be promoted as an alternative to trade fairs and exhibitions, which are not possible due to the current situation.
Sitharaman also guaranteed that the government and CPSEs will clear all dues of MSMEs in the country within 45 days.
EPF support extended, contribution reduced
The government has also extended EPF support for employers for three more months in addition to the earlier relaxation.
“Under Pradhan Mantri Garib Kalyan Package (PMGKP), payment of 12 per cent of employer and 12 per cent employee contributions was made into EPF accounts of eligible establishments. This was provided earlier for salary months of March, April and May 2020. This support will be extended by another 3 months to salary months of June, July and August 2020,” according to the finance minister.
She claimed that the fresh measures will provide liquidity relief of Rs 2,500 crore to 3.67 lakh establishments and for 72.22 lakh employees.
Employees and employers should also note that statutory PF contribution of both employer and employees will be reduced to 10 per cent from existing 12 per cent each for all establishments covered by EPFO for the next three months.
However, CPSEs and State PSUs will however continue to contribute 12 per cent as employer contribution.
The scheme will also be applicable for workers who are not eligible for 24 per cent EPF support under PM Garib Kalyan Yojana Package and its extension. Sitharaman said this will provide relief to about Rs 6.5 lakh establishments covered under EPFO including 4.3 crore employees.
A special liquidity scheme has been introduced for all NBFCs, HFCs and MFIs which are finding it difficult to lend to businesses.
“Government will launch a Rs 30,000 crore Special Liquidity Scheme. Under this scheme investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs,” Sitharaman said.
This will support measures already introduced by the RBI and government to boost liquidity. It may be noted that the securities under the scheme will be completely guaranteed by the government.
“This will provide liquidity support for NBFCs/HFC/MFIs and mutual funds and create confidence in the market.”
Another partial credit guarantee scheme has also been introduced for NBFCs, HFCs and MFIs will low credit rating. Since these financial companies need fresh credit to lend smoothly to MSMEs and individuals, the existing Partial Credit Guarantee Scheme will be extended to cover borrowings such as primary issuance of bonds and CPs of such entities.
It may be noted that the first 20 per cent of the loss will be borne by the government. Sitharaman said this scheme will result in liquidity of Rs 45,000 crore.
Discoms and contractors
Since the revenues of power distribution companies (discoms) have dried up due to the prolonged coronavirus lockdown, they are not only facing major cash flow issues but also record demand reduction.
“Discom payables to Power Generation and Transmission Companies is currently Rs 94,000 crore. PFC/REC to infuse liquidity of Rs 90,000 crore to discoms against receivables,” Sitharaman announced.
It may be noted that the locals will be given against state guarantees for exclusive purpose of discharging liabilities of discoms to gencos.
The finance minister also announced relief for contractors by giving an extension of up to six months – without costs to contractors – will be provided by all central agencies including railways, Ministry of Road Transport & Highways, Central Public Works Department and more.
Contractors engaged in construction, works and good and services contracts will get the relief.
The relief period also applies to obligations like completion of work, intermediate milestones etc. and extension of Concession period in PPP contracts.
“Government agencies to partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows,” the finance minister said.
Finance Minister Nirmala Sitharaman also announced relief for the real estate sector, which has been hit hard by the prolonged lockdown.
Sitharaman said that the delay in real estate projects due to Covid-19 disruptions increase risk of defaults on Rera timelines. She said the timelines need to be relaxed and the Ministry of Housing and Urban Affairs will advice states and UTs on how this can be done.
The registration and completion date will be increased by six months for all Rera-registered projects expressing on or after March 25, 2020 without individual applications.
“Regulatory authorities may extend this for another period of upto 3 months, if needed,” she said.
Fresh ‘Project Registration Certificates’ will automatically been issued with revised timelines besides extended timeline for various statutory compliances under Rera.
Last but not the least, Sitharaman also produce announced Rs 50,000 liquidity relief through TDS and TCS rate reduction.
“In order to provide more funds at the disposal of the taxpayers, the rates of tax deduction at source (TDS) for non-salaried specified payments made to residents and rates of tax collection at source (TCS) for the specified receipts shall be reduced by 25% of the existing rates,” said Sitharaman.
Additionally, payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. shall be eligible for this reduced rate of TDS.
“This reduction shall be applicable for the remaining part of the FY 2020-21 from tomorrow to March 31, 2021,” she added.
It may be noted that the due date for income tax return filing for FY 2019-20 will be extended to November 30, 2020.