Given the global uncertainty and expectation of slower economic growth in the next fiscal, the government is looking at a possible extension of the Emergency Credit Line Guarantee Scheme, meant primarily for Micro, Small and Medium Enterprises (MSMEs). The scheme, started in May 2020 amidst the pandemic, may be extended by six months from March 31, 2023, an official source said, adding that a final decision would be take soon.
The thinking arises at a time when the economy has recovered from the pandemic but small and medium enterprises are seen to require more support and hand-holding as many of them are still struggling. Also, export-intensive sectors are expected to be impacted by the slowdown in global demand, and many of these sectors including textiles and garments, leather and chemicals, largely consist of MSMEs.
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However, another source pointed out that the scheme has served its purpose with the pandemic now behind us and there are adequate channels of liquidity available for small businesses. The Union Budget 2023-24 did not broach the issue but did announce a fresh set of measures to help MSMEs.
The finance ministry is understood to have discussed all these issues related to implementation and efficacy of the scheme with banks.
Announced as part of the Atmanirbhar Bharat scheme, the ECLGS aimed to provide additional liquidity to eligible MSMEs to meet their operational liabilities and restart their businesses in the aftermath of the disruption caused by the Covid-19 pandemic. The scheme has however, been extended twice already – the first time in September 2021 by a six-month period. It was then extended in the Union Budget 2022-23 until March 31, 2023 with its guarantee cover expanded by Rs 50,000 crore to `5 trillion and the additional amount earmarked for hospitality and related industries.
According to data with the National Credit Guarantee Trustee Company Limited (NCGTC), which is the agency operating the scheme, guarantees amounting to Rs 3.61 trillion were issued, benefitting 11.9 million borrowers as on January 31, 2023. Of these, 95.18% of the loans guaranteed amounting to Rs 2.39 trillion or 66.16% in value terms, were to the MSME sector.
Private companies benefitted the most, followed by proprietorship firms, it further said. Amongst states, Gujarat has been the biggest beneficiary, followed by Maharashtra, Tamil Nadu and Uttar Pradesh.
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Industry experts however, noted that extending the scheme without addressing some design issues will not help MSMEs. KE Raghunathan, National Chairman, Association of Indian Entrepreneurs, said, “Extending the ECLGS with an additional amount or an additional time period makes no sense unless the eligibility criteria are relaxed.
Industry associations had, at the time of the launch of the scheme itself, pointed out that the rider conditions relating to account status and outstanding loan criteria make it difficult for many MSMEs to avail the scheme. Further, banks insisted on additional security for the facility. A number of banks did not give the loan to the beneficiary but were adjusting it against the moratorium dues and outstanding statutory payments.