Credit and Finance for MSMEs: P Chidambaram’s suggestions to PM Modi come days after the Congress president Sonia Gandhi wrote to PM Modi seeking a financial package for MSMEs while Congress leader Rahul Gandhi had also invited suggestions from the public for a proposed MSME relief package.
Credit and Finance for MSMEs: To help MSMEs pay April salaries to their employees and also secure credit from banks to tackle Covid-19 menace, former Finance Minister P Chidambaram on Wednesday suggested an immediate roll-out of two financial packages. As part of a proposal submitted by the Congress Party to the Prime Minister Narendra Modi, Chidambaram urged, “first, Rs 1 lakh crore wage protection assistance to help MSMEs pay wages and salary for the month of April to their employees and second Rs 1 lakh crore credit guarantee fund for MSMEs to help them go to the bank and borrow,” he said in a video conference with reporters.
The Congress leader said that the time to make bold decisions by the government to save MSMEs is now and that they will decide to close if they do not see hope. “The government of India has to step in today to protect 11 crore Indians (total employment by MSMEs in India) and give hope to MSMEs. It is bewildering that there is absolutely no financial package for assistance announced for businesses since the onset of Covid-19. The government may have luxury of time but MSMEs do not,” he added. As per the MSME Ministry’s 2019 annual report, around 11 crore people are employed in 6.3 crore MSMEs.
“The administration would be critical to ensure benefits reach for whom it is intended and this perhaps is causing a delay in a formal announcement. Government has been at the forefront of rapid action and decision making in dealing with Covid-19. A bailout package for small and medium enterprises not just for the formal sector but also the informal sector is in the works and the government is conscious of its importance to our economy,” Suraj Malik, Partner, BDO Consulting told Financial Express Online.
Chidambaram’s suggestions to PM Modi comes days after Congress president Sonia Gandhi wrote to PM Modi for a financial package of Rs 1 lakh crore for revival of MSMEs. Last week, Congress leader Rahul Gandhi had invited suggestions from the public for a proposed MSME relief package. “Send us suggestions & ideas for what an MSME economic stimulus package should cover on voiceofmsme.in (the portal for submitting suggestions) or our social media platforms,” Rahul Gandhi had tweeted.
MSMEs have been significantly impacted due to the lockdown with liquidity crisis and pending payments from their buyers. Industry body FICCI in its latest round of Business Confidence Survey had suggested the government a financial package for the entire industry, especially MSMEs in the “in the form of subsidies, policy support, tax holidays, a special dispensation of funds to sustain employment levels before Covid-19 pandemic etc.” Traders’ community represented by CAIT had also exhorted Finance minister Nirmala Sitharaman in a communication for providing relief package on an urgent basis to ensure domestic trade is not collapsed due to the Covid impact.
The Congress party also suggested PM Modi to waive off employers contribution to Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) on a temporary basis for the next three months. “This will assist in reducing the payroll cost of employees, employers, and retaining the workforce. In absence of clear single of assistance during extremely difficult times, the private sector will be forced to resort to large scale retrenchment and lay off which will devastate the livelihood of hundreds and millions of people,” Chidambaram added. Finance Minister Nirmala Sitharaman had last month said that the government will bear the 24 per cent contribution of both employee and employer combined to the EPF for the coming three months is welcoming for small businesses.
For businesses, which don’t come under the MSME category, the former finance minister urged the government for a financial assistance package called Paycheque Protection Program for salaries of 1 crore employees. “According to the income-tax department, there are roughly 1 crore people with a salary income of less than Rs 3.5 lakh a year or Rs 30,000 a month. Assuming the average salary of Rs 15,000 per month for the 1 crore people, the total cost comes to Rs 15,000 crore for April. This isn’t a large sum to protect livelihoods of 1 crore people who have filed tax returns and paid taxes in past and can be easily found,” he said.