Cabinet clears rescue plan to soften Covid-19 blow to MSMEs, street vendors

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Published: June 2, 2020 2:45 AM

MSMEs make up for 29% of the country's GDP and 48% of exports. India has about six crore MSMEs that offer jobs to more than 11 crore people.

The Cabinet on Monday decided to further widen the definition of micro, small and medium enterprises (MSMEs) to enable thousands of more units to take advantage of various official benefitsThe Cabinet on Monday decided to further widen the definition of micro, small and medium enterprises (MSMEs) to enable thousands of more units to take advantage of various official benefits

The Cabinet on Monday decided to further widen the definition of micro, small and medium enterprises (MSMEs) to enable thousands of more units to take advantage of various official benefits, and cleared a slew of proposals announced as part of the government’s Rs 21-lakh-crore relief package to soften the Covid-19 blow to small businesses.

It approved a scheme to catalyse a subordinate debt of Rs 20,000 crore, partly guaranteed by the government, for stressed MSMEs. It cleared setting up a fund of funds, with an initial official corpus of Rs 10,000 crore, to facilitate equity infusion of Rs 50,000 crore into well-rated units that have growth potential. Through the fund, the government will hold up to 15% in these MSMEs.

Separately, finance minister Nirmala Sitharaman said on Monday that state-run banks sanctioned loans of as much as Rs 3,200 crore under the Rs 3-lakh-crore guaranteed loan scheme on a single day (June 1).

The Cabinet also gave its nod to a Rs 5,000-crore special credit facility for street vendors under the PM-SVANIDHI scheme, which is expected to benefit five million. Under this, vendors, hit hard by the pandemic, will be eligible for an initial loan of up to Rs 10,000 to resume their businesses.

Briefing reporters after the Cabinet meeting, MSME minister Nitin Gadkari said the annual turnover limit for a medium enterprise will be raised to Rs 250 crore from Rs 100 crore. Similarly, the investment limit to qualify as a medium enterprise could be raised to Rs 50 crore from Rs 20 crore announced during the announcement of the relief package in May. The turnover limit will exclude export realisation of an entity, he said. The latest definition will come into effect from July 1.

The decision to widen the definition was taken after inputs from stakeholders, with the objective of benefiting a larger number of units. However, as of now, the definition announced last month will be applicable for availing of additional (up to 20%), collateral-free working capital loan up to Rs 3 lakh crore with official guarantee, Gadkari said.

MSMEs make up for 29% of the country’s GDP and 48% of exports. India has about six crore MSMEs that offer jobs to more than 11 crore people, Gadkari said.

Typically, the MSME status brings businesses certain assorted benefits — including mandatory 25% official procurement and loans under the priority sector lending scheme — apart from periodic government and regulatory relief. Also, promoters of MSMEs who are not wilful defaulters can bid for their stressed assets under the insolvency law, while those of large companies can’t. There will also be a special insolvency framework for MSMEs.

As for the subordinate debt, the government will provide Rs 4,000 crore to the state-run Credit Guarantee Fund Trust For Micro and Small Enterprises, which will then give its guarantee to the banks for extending loans to stressed MSMEs. The move will benefit two lakh units, the government says. This proposal is in sync with the recommendations of the Reserve Bank of India and the UK Sinha Committee.

To bolster the equity base of MSMEs, the proposed fund of funds will be created, which will be operated through a so-called mother fund and few daughter funds. Greater equity base will encourage MSMEs to expand capacity and also get listed on stock exchanges.

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