Credit and finance for MSMEs: The finance ministry’s decision to enhance the loan amount eligibility for domestic airlines by nearly four times under the MSME-focused credit scheme Emergency Credit Line Guarantee Scheme (ECLGS) has received mixed reactions from certain representatives of the MSME sector. ECLGS, originally focused on small businesses including self-employed professionals across multiple sectors, was expanded in scope in its third revised version in March this year to cover airlines also in the civil aviation sector.
To further support domestic carriers, the government on Wednesday announced enhancing the credit limit to Rs 1,500 crore or 100 per cent of fund-based or non-fund-based loan outstanding of airlines, whichever is lower. Fund-based credit includes loans, overdrafts, etc., while non-fund-based credit refers to bank guarantees, letter of credit etc. Earlier the credit limit for airlines was up to Rs 400 crore. The government March this year also extended the ECLGS scheme by another year, till March 2023.
“The announcement is a blow to MSMEs’ share in the scheme. The government has already diluted the scheme by including even the professionals under it. Instead of saving MSMEs, now the government is looking at saving corporates. This is not acceptable to us and is not in the interest of MSMEs. Instead, they should create separate funding for corporates,” KE Raghunathan, National Chairman, Association of Indian Entrepreneurs told FE Aspire.
Giving equivalent loans to corporates under ECLGS is just to fulfil the scheme’s target. The government failed to learn from the gap between sanctioned vs disbursed to understand the real-time flaws faced on the ground,” he added.
According to a statement by the credit rating agency Icra in September this year, the domestic passenger traffic or domestic airlines industry is likely to see around Rs 15,000-17,000 crore in net losses in FY23 due to the increased price of Aviation Turbine Fuel (ATF) and a weak rupee. The estimated net loss for the industry in FY22 was around Rs 23,000 crore.
Durgesh Pandey, Chief Executive Officer of the National Credit Guarantee Trustee Company (NCGTC), which operates the ECLGS scheme said the government’s latest decision wouldn’t impact credit to MSMEs.
“There are other sectors of the economy which are also stressed and need equal focus from the government. The scheme has so far benefitted MSMEs and will continue to do so but it was also meant for other important areas of the economy which is under stress. The (revised) guidelines will be out soon,” Pandey told FE Aspire. NCGTC operates under the Department of Financial Services (DFS), Ministry of Finance.
According to the Federation of Associations in Indian Tourism & Hospitality (FAITH), which represents the tourism and hospitality associations in the country, the government’s move would benefit airlines but MSMEs in hospitality haven’t completely benefitted from ECLGS.
“While the (travel) agencies haven’t been able to benefit from it completely but on the other hand, airlines also deserve to be supported because they get inbound tourism in the country. So, if there is an excess of money available, the industry should be supported. However, the government should consult us and other aviation stakeholders for such measures because otherwise, MSMEs feel the money dedicated to them is being given to some other sector,” Jyoti Mayal, Vice Chairperson, FAITH told FE Aspire.
The excess of money, as Mayal indicated, was around Rs 1.33 lakh crore that was yet to be sanctioned under the Rs 5 lakh crore ECLGS scheme. As of August 5, 2022, loans of about Rs 3.67 lakh crore were sanctioned under the scheme, according to the government’s data.
Rajan Raje, Chair of the MSME Committee at Bombay Chamber of Commerce and Industry said enhancing the credit limit is a welcome move to support airlines that suffered due to the Covid impact as much as MSMEs. “Rs 1,500 crore support won’t eat into the share of support meant for MSMEs. Also, whatever support MSMEs had to take, is already taken by them to a large extent. Ultimately if the airline industry recovers, MSMEs attached them as ancillaries will also benefit indirectly,” he said.
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However, if the demand from MSMEs again increases, the government will have to rethink the support given to airlines, Ashok Saigal, Member, CII National SME Council told FE Aspire.
According to the Icra statement, Indian carriers had reported a healthy year-on-year (YoY) growth of 57.7 per cent to 84.2 million in FY22 in domestic passenger traffic on the back of the fast pace of vaccination, lower incidence of fresh Covid infections, coupled with the declining intensity of the infection.