The government should abolish the mandatory requirement of CIBIL score for extending loan facility and instruct banks not to consider the past performance of an enterprise for the last two years while seeking fresh facility or additional loans.
By K.E Raghunathan
Covid impact on MSMEs: We all know, how we are in the hands of the Covid 2.0 wave. The current setback in testing, tracking, treating immensely convinces us how we missed doing the right things at the right times. It is very unfortunate that we wanted foreigners to invest in India but now they are donating. The next tsunami is coming into our economy. At least here we should be awake and secure ourselves from deeper hits. So, what needs to be done immediately? We need to make sure that money is available in the hands of MSMEs to save their employees and honour their creditors to meet the emergency.
This brings us to the question of how that needs to be done. For this, the government should immediately announce a moratorium for all loans for six months without any interest. Most of the EMIs hit banks on the 5th of every month and salary commitments are from the 5th to the 10th of a month. All banks must be instructed to return Electronic Clearing Service (ECS) payments and they should not ask for cheque bouncing charges. Further, all payments to the central government such as Income tax, TDS, GST, PF, ESI, Capital Gains tax, and to state governments all registration costs, property tax, water tax, fixed EB cost, road permits, professional tax should be postponed by six months. Moreover, all pending payments from central/state/PSU/SU/corporates must be released forthwith and all pending notices of recovery/demand notices/litigation should be stopped to recovery for six months.
The government should also abolish the mandatory requirement of CIBIL score for extending loan facility and instruct banks not to consider the past performance of an enterprise for the last two years while seeking fresh facility or additional loans. All GST on Covid-related care such as hospital/oxygen/medial/preventive care etc., and from medical insurances should also be abolished. Among other steps that the government must take includes announcing vaccination advance from Employees’ Provident Fund Organisation (EPFO) to meet expenses for vaccination and treatment, adding CSR spending to include vaccination for employees, extending moratorium by an additional one year for all ECLGS loans disbursed last year, and due for repayment from June 21. Banks should consider and disburse additional loans or facilities sought within one week of application, depending on the type of industry involved with liberal terms to repay – especially where the loans are already fully secured.
Steps required post Covid control
Government should classify micro and small businesses and traders into three categories. First, Businesses that have gone beyond recovery due to reasons such as the death of the owner by Covid or their original business model is changed after covid or their existing product or service has become obsolete or unable to foresee opportunities to run and make profit and service loan and expenses in the next three years. Second, businesses that have become bad financially due to the last four years of the impact of demonetization or economy slow down or Covid impact or loss of profit due to high raw material costs or cash flow issues or lower demands. Third, businesses that are not impacting so far and those who could continue and do extremely well despite the covid setbacks.
For the first category, the government should give honourable exit. Voluntary wind-up should be allowed on a fast track basis with a one-time settlement by payment of 75 per cent of the principal amount outstanding of the existing loans. They should be exempted from capital gains tax to sell their property and close the loans and restart fresh, allowed to appoint their auditors to settle dues of the sundry creditors and ensure receivables being collected, and to withdraw all pending default cases against them to enable them to begin afresh. This will help them buy peace and settle from all existing problems, close unnecessary litigations and wasteful expenses, and work for better capacity utilisation.
For the second category, the government should extend all pending loan periods by one year at 4.5 per cent interest for the Covid year. They should be provided with a fresh cash limit loan of up to Rs 25 lakhs to start enterprises and re-evaluate their business needs. They should be offered raw materials in fair price shops situated at industrial estates and a stipend of Rs 6,000 per month for six months to fresh graduates to undergo internships in MSMEs. Government should also announce the Remission of Duties and Taxes on Exported Products (RoDTEP) benefits, exempt exporters from input GST tax, provide hurdle-free container and clearance movements, and protection from exchange rate fluctuations.
If we go by large employment opportunities (both formal and informal), engagement of MSME entrepreneurs, decentralised local self-employed individual service providers, areas that play a major role are real estate, automobile, export, product assembly units, local traders, contractual working (gig workers), infrastructure projects, and tourism. Unfortunately, all these sectors have been going through troubled times since 2016 onwards. Having a long-term vision and plan is one side and ensuring ICU treatment for the present situation to save them from unemployment and closure of micro and small enterprises is another side. A separate task force consisting of experts in each of these sectors must be constituted and their recommendations must be implemented in toto within one month to ensure they recover.
K.E.Raghunathan is Convenor at Consortium of Indian Associations and former National President at All India Manufacturers’ Organisation. Views expressed are the author’s own.